RBC Capital Markets, LLC v. Education Loan Trust IV
2014 Del. LEXIS 96
| Del. | 2014Background
- RBC Capital Markets (RBC) sues in Delaware Superior Court after a Court of Chancery dismissal; Indenture governs notes and interest payments under Dutch auction regime; no-action clause in Section 6.08 generally bars suits unless exceptions apply; Section 6.09 allows suit to recover unpaid interest after an Event of Default; Chancery dismissed in 2011 as derivative of Trust’s claims and applied no-action clause; RBC’s 2012 Amended Complaint seeks unpaid interest from May 2010 onward under the Indenture formula; Superior Court dismissed the Amended Complaint in 2013 for failure to state a claim and res judicata; on appeal, court reverses dismissal, holding Amended Complaint states a cognizable claim not barred by the no-action clause and not precluded by res judicata; case remanded for further proceedings; record shows post-Chancery breaches may survive res judicata analysis.
- The Indenture and Supplemental Indentures are governed by New York law; Dutch auctions had failed since Feb 2008, affecting interest calculations; interest is calculated as the lesser of Net Loan Rate and Maximum Rate when auctions fail; the Net Loan Rate formula is tied to Trust cash flows and various fees; RBC contends it is owed interest for May 2010–Apr 2012 and potentially prior periods; RBC’s Amended Complaint alleges specific amounts and periods but the precise calculation is not the focus at the motion-to-dismiss stage; the court reviews de novo the dismissal and res judicata issues.
- Chancery’s dismissal was based on a misapplication of the no-action clause and failure to plead compliance; the Amended Complaint plausibly pleads a claim for unpaid interest under Section 6.09; the no-action clause does not bar a direct claim for unpaid interest when Section 6.09 provides a direct remedy.
- Res judicata hinges on finality and identity of claims; the Court of Chancery dismissal was a final judgment; whether the Superior Court claim is the same as the Chancery claim depends on whether RBC knew or could have known of its current claim at the time of the Chancery action; post-Chancery breaches may not be barred because they arise from recurring 28-day Auction Periods and could occur after the Chancery case filing; remand is required to determine those issues on an expanded record.
- RBC is not barred by res judicata for breaches occurring after the Chancery Complaint was filed; the opinion preserves the possibility of future relief for post-Chancery breaches and clarifies the transactional approach to res judicata in this context.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Amended Complaint state a cognizable claim for unpaid interest under the Indenture? | RBC argues the Amended Complaint pleads enough to show interest was due and unpaid. | U.S. Education Loan Trust IV and related entities argue the no-action clause bars the claim and that the pleading is insufficient. | Yes; the Amended Complaint states a plausible claim for interest due under Section 6.09 and is not barred by the no-action clause. |
| Is RBC's claim barred by the no-action clause of the Indenture? | RBC contends the claim falls under the Section 6.09 remedy and is not barred. | Defendants contend the claim asserts a predicate breach of trust duties, triggering the no-action clause. | No; the claim is within Section 6.09 and not barred by the no-action clause. |
| Does res judicata bar RBC’s Superior Court claim because the Chancery dismissal was a final judgment and the claims are the same? | RBC argues the post-Chancery breach claims were not or could not have been raised in Chancery. | Defendants contend the claims are the same and barred by res judicata. | Partially; the Chancery judgment is final, but whether the current claim is the same as the Chancery claim cannot be determined on this record; post-Chancery breaches may not be barred. |
| Are breaches occurring after the Chancery Complaint filed barred by res judicata? | RBC argues post-Complaint breaches may be separate, ongoing obligations not barred. | Defendants claim all related breaches are barred as the same transaction. | Not barred; post-Chancery breaches arising from separate 28-day Auction Periods are not precluded. |
| Did RBC know or could RBC have known of its unpaid-interest claim at the time of the Chancery action? | RBC contends knowledge was not possible from record then. | Defendants point to extrinsic evidence suggesting prior awareness. | Unclear on the record; remand for factual development to determine knowledge. |
Key Cases Cited
- Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531 (Del. 2011) (res judicata transactional approach, final judgments, and related principles)
- LaPoint v. AmerisourceBergen Corp., 970 A.2d 185 (Del. 2009) (test for res judicata; knowability and unfair litigation pressure)
- McMahan & Co. v. Wherehouse Entm’t, Inc., 65 F.3d 1044 (2d Cir. 1995) (no-action clause and absolute right to sue after nonpayment)