Howe v. Bank of New York Mellon
783 F. Supp. 2d 466
S.D.N.Y.2011Background
- Howe sues The Bank of New York Mellon (BNYM), Bimini Capital Management (Bimini), Hexagon Securities LLC, and Preferred Term Securities XX, Ltd. (PreTSL XX) seeking remedies for $13.2 million lost from PreTSL XX assets and $24 million collateral pool reductions.
- PreTSL XX is a Cayman Islands LLC governed by a 2005 Indenture (static CDO) with BNYM as Indenture Trustee and co-issuer structures involving PreTSL XX, Inc. and others.
- Bimini allegedly faced distress in 2008–2009; discussions about cash repurchase or exchange offers occurred, with key internal communications disputed (Cauley Letter, Hunton Memo, Hunton Opinion).
- A tender/offering process occurred in September–October 2009, culminating in a transfer of TruPS to Bimini for $10.8 million, with consent payments of about $3.3 million and a reported $9.6 million gain for Bimini.
- Plaintiff asserts eleven claims including breach of contract, tortious interference, fiduciary duty, aiding and abetting, unjust enrichment, and rescission/illegality; Hexagon was dismissed, and cross motions for summary judgment were briefed with the matter set for trial in April 2011.
- The court grants in part and denies in part, addressing no-action clause, derivative standing, contract breach, tortious interference, fiduciary duty, aiding and abetting, and unjust enrichment; no action clause is construed not to bar extra-contractual claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| No-action clause scope | Clause bars claims only for default-related actions | Clause broadly bars suit; applies to the Indenture events | No-action clause does not bar extra-contractual claims here. |
| Derivative standing vs. BNYM | Noteholder has derivative standing to sue on behalf of BNYM | No standing as noteholder cannot derive standing for BNYM | Derivative claims dismissed for lack of standing. |
| Derivative standing vs. PreTSL XX (Cayman law vs NY internal affairs) | New York law should govern standing despite Cayman incorporation | Cayman Islands law controls derivative standing; internal affairs doctrine applies | Cayman Islands law governs derivative standing; under that law, plaintiff lacks standing. |
| Breach of contract—§3.8 transfer authorized? | Transfer violated the Indenture; not expressly permitted | Disposition authorized under §5.16(b) via Requisite Noteholders’ direction (relying on Hunton Opinion) | Transfer not permitted under Indenture; liability found for breach. |
| Tortious interference and economic defense | Bimini intentionally procured breach; no economic defense validates interference | Economic interest defense may apply where defendant protects own stake | Issues of material fact remain; summary judgment denied on third claim. |
Key Cases Cited
- Campbell v. Hudson & Manhattan Co., 277 A.D.1st 731 (N.Y. App. Div. 1951) (bad faith requirement focuses on refusal to sue for trust harm)
- Birn v. Childs Co., 37 N.Y.S.2d 689 (N.Y. Sup. Ct. 1942) (trustee's duty to sue for beneficiaries ordinarily arises; bad-faith standard discussed)
- Cruden v. Bank of New York, 957 F.2d 961 (2d Cir. 1992) (no-action clauses construed strictly; limits of action rights)
- Metropolitan West Asset Mgmt., LLC v. Magnus Funding, Ltd., Noted in opinion but not an official reporter (S.D.N.Y. 2004) (no-action clause scope related to Event of Default; contractual limits; derivatives discussion)
- Brooks v. Weiser, 57 F.R.D. 491 (S.D.N.Y. 1972) (derivative standing requirements for bondholders)
- Hoff v. Sprayregen, 52 F.R.D. 243 (S.D.N.Y. 1971) (convertible bonds derivative standing considerations)
- Don King Prods., Inc. v. Smith, 47 Fed.Appx. 12 (2d Cir. 2002) (economic interest defense applied in interference context)
- American Protein Corp. v. AB Volvo, 844 F.2d 56 (2d Cir. 1988) (economic interest defense and pre-default duties contexts)
- Foster v. Churchill, 87 N.Y.2d 744 (N.Y. 1996) (economic interest defense recognized in NY law)
- Ultramar Energy Ltd. v. Chase Manhattan Bank, N.A., 179 A.D.2d 592 (N.Y. App. Div. 1992) (economic interest defense applied to non-owner stake)
- Law Debenture Trust Co. of New York v. Maverick Tube Corp., 595 F.3d 458 (2d Cir. 2010) (recognition of unjust enrichment and contract interplay)
- Hughes v. BCI International Holdings, Inc., 452 F.Supp.2d 290 (S.D.N.Y. 2006) (equitable claims where contract did not bar relief)