Oxford University Bank v. Lansuppe Feeder, Inc.
933 F.3d 99
2d Cir.2019Background
- Soloso CDO 2005-1 Ltd. issued senior (Class A-1) and junior notes under a 2005 Indenture; Lansuppe holds >2/3 of senior notes and Intervenors hold junior notes purchased on the secondary market.
- In April 2013 Soloso missed a senior interest payment, triggering an Event of Default under the Indenture; the Requisite Noteholders (holders of two-thirds of senior notes) directed the Trustee to liquidate and distribute under the Indenture waterfall.
- Liquidation and distribution under the Indenture would largely satisfy senior noteholders and leave junior noteholders with nothing; junior noteholders therefore objected and intervened.
- Intervenors allege certain notes were resold to non-Qualified Purchasers, causing Soloso to lose an ICA exemption and thereby violating the Investment Company Act (ICA); they sought rescission under ICA §47(b) or, alternatively, pro rata distribution of trust assets.
- District court granted summary judgment directing liquidation per the Indenture, denied Intervenors’ summary judgment and dismissed their rescission claim; Second Circuit affirmed on the ground that Intervenors failed to state an ICA claim, but held §47(b) does create a private right to seek rescission.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does ICA §47(b) create a private right of action to seek rescission? | Lansuppe argued §47(b) does not create a private right; enforcement is for the SEC and other ICA provisions show Congress excluded private suits. | Intervenors argued §47(b)(2) ("a court may not deny rescission at the instance of any party") implies a private right to sue for rescission. | Court: §47(b)(2) does imply a private right to seek rescission. |
| Do the Indenture or its performance violate the ICA so as to support rescission of the Indenture or alteration of the distribution waterfall? | Lansuppe argued the Indenture and its performance do not violate the ICA; any ICA violations relate to separate resale contracts, not the Indenture. | Intervenors argued sales to non-Qualified Purchasers void or allow rescission of arrangements that affect distribution, so the Indenture must not be enforced. | Court: Intervenors failed to identify any Indenture provision that violates the ICA; their remedy would be to rescind separate resale contracts, not to rewrite the Indenture—claim fails. |
| Is summary judgment directing Trustee to liquidate and hold assets pending resolution proper? | Lansuppe sought specific performance/directive to liquidate per Indenture by Requisite Noteholders. | Intervenors sought injunction/rescission to block liquidation or require pro rata distribution. | Court: Affirmed summary judgment ordering liquidation per Indenture and denying Intervenors’ relief. |
Key Cases Cited
- Alexander v. Sandoval, 532 U.S. 275 (U.S. 2001) (text-and-structure inquiry for implied private rights of action)
- Bellikoff v. Eaton Vance Corp., 481 F.3d 110 (2d Cir. 2007) (factors for assessing implied rights under the ICA)
- Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11 (U.S. 1979) (contracts void under securities statutes imply right to rescission)
- Gonzaga Univ. v. Doe, 536 U.S. 273 (U.S. 2002) (identify rights-creating statutory language)
- BedRoc Ltd., LLC v. United States, 541 U.S. 176 (U.S. 2004) (interpretation begins with statutory text)
- Santomenno ex rel. John Hancock Trust v. John Hancock Life Ins. Co., 677 F.3d 178 (3d Cir. 2012) (contrasting Third Circuit view that §47(b) does not confer private rescission right)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standard)
- Johnson v. Killian, 680 F.3d 234 (2d Cir. 2012) (appellate review of summary judgment)