These four related actions seek payment of principal and interest on notes issued in public offerings. Three of the actions were brought to recover on payment in kind notes (PIK notes or notes). Plaintiffs in these actions are Cortlandt Street Recovery Corp., an assignee for collection, and/or Wilmington Trust Co. (WTC), the indenture trustee. The fourth action was brought by Cortlandt to recover on subordinated notes (sub notes or notes). All of the actions allege that the Hellas entities which issued and guaranteed the notes transferred the proceeds of the notes by means of fraudulent conveyances to the Apax Partners, LLP/TPG Capital, L.P. defendants and their principals. Defendants move, pursuant to CPLR 3211, to dismiss the actions.
The first of the PIK note actions (index No. 651693/10) (Cortlandt I) was commenced solely by Cortlandt, suing as “the assignee and agent for collection” of approximately €102 million of PIK notes. (Cortlandt I complaint ¶ 22.) The defendants in this action are the issuer of the PIK notes, Hellas Telecommunications Finance, S.C.A. (Hellas Finance or issuer); the guarantor of the PIK notes, Hellas Telecommunications I, S.a.r.l. (Hellas I or guarantor); and Hellas Telecommunications, S.á.r.l. (Hellas). Hellas is the parent of Hellas Finance and Hellas I and the general partner of Hellas Finance. As general partner of the issuer, Hellas is allegedly liable, along with the issuer and guarantor, for payment on the notes. {Id. ¶¶ 6-7, 25.) The complaint in Cortlandt I also names as defendants Apax Partners, LLP (Apax) and TPG Capital, L.P. (TPG).
According to the complaint, Apax and TPG are private equity firms which “placed ownership of Hellas shares in a consortium of private equity investment funds affiliated with, advised and managed by Apax and TPG.” {Id. ¶ 12.) Apax and TPG caused Hellas to distribute over €1.5 billion to the Hellas shareholders, including the proceeds from the issuance of the PIK notes. {Id. ¶¶ 9, 51.) The PIK notes were issued on or about December 21, 2006 {id. ¶ 37), and are governed by an indenture of the same date.
Cortlandt I alleges that “defendants are liable to plaintiff for amounts due on the PIK Notes” of over €102 million. {Id. ¶ 59.) However, the complaint does not in terms plead a cause of action against the Hellas defendants for breach of contract based on failure to pay the PIK notes. Rather, it pleads a first cause of action for violation of prohibitions on redemptions and distributions to shareholders, based on the terms of the CPECs (and PECs); a second cause of action for violation of statutory prohibitions on such distributions under the laws of Luxembourg, the place of the Hellas defendants’ incorporation, and New York law, the law that governs the construction of the PIK note indenture; and a third cause of action for fraudulent conveyance based on the redemption of the CPECs (and also PECs) by the Hellas defendants.
The second of the Cortlandt actions on the PIK notes (index No. 653357/11) (Cortlandt II) was brought by Wilmington Trust Co., as trustee under the PIK note indenture, and by Cortlandt, as “assignee [of approximately €130 million] of the PIK Notes with full rights under the assignments to collect principal and interest due and to pursue all remedies in its own name or in the name of all owners of the PIK Notes.” {Cortlandt II complaint ¶ 9.) The complaint does not name any of the Hellas entities from Cortlandt I as defendants. Instead, the
The Cortlandt II complaint pleads a first cause of action against Hellas Finance, Hellas I and Hellas to recover on the PIK notes. As noted above, these Hellas entities were named as defendants in Cortlandt I but are not named in this action.
The third PIK note action, involving the same PIK notes as in Cortlandt I and II, is a motion for summary judgment in lieu of complaint (index No. 653363/11). This motion-action is brought by WTC, as trustee under the PIK note indenture, and by Cortlandt, as assignee, against Hellas Finance and Hellas I, as issuer and guarantor, to recover on the PIK notes.
The fourth action is an action on the sub notes (index No. 653181/11). This action was brought only by Cortlandt against Hellas II and against the Hellas and Apax/TPG entities named as defendants in Cortlandt I and II. The complaint alleges a first cause of action against Hellas II as issuer, Hellas I as guarantor, and Hellas as general partner, for payment of the sub notes. The remaining causes of action are substantially similar to the causes of action in Cortlandt II.
Defendants moved to dismiss each of the four actions on various procedural grounds, among them that Cortlandt lacks standing to maintain the actions. Plaintiff subsequently moved in the sub note action for leave to amend and supplement the complaint to add SPQR Capital (Cayman) Ltd., Cortlandt’s assignor, as a plaintiff, to delete certain defendants (not including any of the Hellas or Apax/TPG defendants), and to add allegations to the complaint regarding Cortlandt’s standing. This court held the motions to dismiss in abeyance pending hearing of the motion to amend. For the reasons that follow, the court holds that Cortlandt lacks standing to maintain these actions and that, although the standing defect is not jurisdictional and may be cured, plaintiffs have not cured the defect.
Motions to Dismiss for Lack of Standing
As noted above, in Cortlandt I, Cortlandt’s allegation with regard to its standing is that it is “the assignee and agent for collection” of approximately €102 million of the PIK notes. {Cortlandt I complaint ¶ 22.) In Cortlandt II, Cortlandt elaborates on its standing as follows:
“Cortlandt is the assignee of €130,770,266 of the PIK Notes with full rights under the assignments to collect principal and interest due and to pursue all remedies in its own name or in the name of all owners of the PIK Notes (‘Noteholders’). The assignors of the PIK Notes own book entry interests in the PIK Notes (the ‘Book Entry Interests’) with the contractual right post-default under § 2.07 (a) of the PIK Indenture (defined below) to exchange the Book Entry Interests for definitive notes by the Issuer (‘Definitive Notes’). Procedures to make the exchange provided in the PIK Indenture were never established by the defaulting Issuer and should be deemed waived to the extent issuance of Definitive Notes may be a contractual requirement to sue.”
(Cortlandt II complaint f 9.)
The motion for summary judgment in lieu of complaint identifies Cortlandt as the assignee of €130,770,266 of the PIK notes. (Healy aff in support ¶ 2.)
The complaint in the sub notes action alleges that “Cortlandt is the assignee of €77,100,000 of the Sub Notes with full rights under the assignments to collect principal and interest due and to pursue all remedies in its own name or in the name of all owners of the assigned Sub Notes (‘Assigned Noteholders’).” (Sub notes complaint ¶ 9.) It contains allegations substantially similar to those in the Cortlandt II complaint regarding the rights of the assigned noteholders to exchange their book entry interests for definitive notes (id. ¶ 10), and alleges that Cortlandt requested Hellas II to issue definitive notes, but that Hellas II and its administrators, Ernst & Young LLP, refused to issue definitive notes. (Id. ¶ 11.)
The proposed amended complaint in the sub note action seeks to add SPQR, the holder of the book entry interests and Cortlandt’s assignor, as plaintiff. It also seeks to add the following allegations regarding standing: The original assignment from SPQR to Cortlandt provided as follows: “The Note-holder hereby assigns to Cortlandt Street Recovery Corp. (‘CSRC’) full rights to collect amounts of principal and interest due on the Notes, and to pursue all remedies with respect to the Notes against Hellas II . . . and any other person or entity who may be liable to Noteholder.” (Amended complaint ¶ 9 [a].) In August 2013, the assigned noteholders executed addendums clarifying the assignments to state that it was the intent of each assigned noteholder from the start to assign “all right,
“Assignor! ] hereby assigns, transfers, grants and sets over to Cortlandt Street Recovery Corp. . . . all rights, including, but not limited to, all right, title and interest, including ownership, proprietary, legal, equitable and beneficial interests in all claims, including, but not limited to, all demands, claims for relief, causes of action and choses of action, arising from, related to, or concerning its ownership of Subordinated Notes [issued by Hellas II] . . . including, but not limited to, all of Assign- or’s right, title and interest in collection of principal, interest and other amounts owed on account of or pursuant to the Subordinated Notes. . . . This Assignment clarifies and supplements an earlier assignment between Assignor and CSRC dated [October 6, 2010] and in the event of any conflict between the two, this Assignment shall prevail.”3 {Id.)
The proposed amended complaint further alleges that in January 2012, this court (Fried, J.) ordered Hellas II to issue definitive notes. Hellas II’s administrators were replaced by liquidators, who agreed in August 2013 to cause Hellas II to issue definitive notes. In September 2013, however, the liquidators “granted SPQR individual creditor status instead.” {Id. ¶¶ 11-12.)
In moving to dismiss Cortlandt’s claims on the ground that it lacks standing to maintain these actions, defendants argue, and Cortlandt does not dispute, that the PIK and the sub notes indentures both authorize only a “Holder” of notes (holder) or the trustee to maintain an action to recover on the notes. (Indentures §§ 6.03, 6.06-6.08.)
In Cortlandt Street Recovery Corp. v Deutsche Bank AG, London Branch (
New York does not have an analogue to article III. (Society of Plastics Indus, v County of Suffolk,
Under long-standing New York law, an assignee is the “real party in interest” where the “title to the specific claim” is passed to the assignee, even if the assignee may ultimately be liable to another for the amounts collected. (Allen v Brown,
This doctrine is fully consistent with federal law under which an assignee for purposes of collection — i.e., an assignee who has promised to remit proceeds of the litigation to its assign- or — has standing to bring suit, provided that the assignment transferred to the assignee title to the claims. (Sprint Communications Co. v APCC Services, Inc.,
On this authority, this court concurs with the reasoning of the federal court in Cortlandt Street Recovery Corp. v Deutsche Bank AG (
Defendants’ motions to dismiss Cortlandt I for lack of standing will be granted, as the action was brought only by Cortlandt. The motions to dismiss Cortlandt as a plaintiff in Cortlandt II and in the motion for summary judgment in lieu of complaint will also be granted. WTC remains a plaintiff in those cases, and plaintiffs do not seek to amend the pleadings to cure the defect in Cortlandt’s standing. Plaintiffs move for leave to re-plead the allegations regarding standing only in the sub notes action. The court accordingly turns to the issue of whether the defect in Cortlandt’s standing is curable and was in fact cured by the addendums — i.e., amended assignments — for the sub notes.
Motion to Amend the Complaint in the Sub Notes Action
Standing is “an aspect of justiciability which, when challenged, must be considered at the outset of any litigation.” (Society of Plastics Indus.,
A number of decisions hold that lack of standing deprives the court of subject matter jurisdiction and is therefore incurable, based on the settled precept that lack of subject matter jurisdiction cannot be waived. (See Stark v Goldberg,
The weight of authority holds, however, that a defense of lack of standing may be waived. As this Department has reasoned:
“The question of subject matter jurisdiction is a question of judicial power: whether the court has the power, conferred by the Constitution or statute, to entertain the case before it. Because New York’s Supreme Court is a court of original, unlimited and unqualified jurisdiction, it is competent to entertain all causes of action.” (Security Pac. Natl. Bank,31 AD3d at 280 [internal quotation marks and citations omitted] [majority, holding that as New York Supreme Court “is competent to entertain all causes of action, including mortgage foreclosure actions,” an objection to a particular plaintiffs standingto bring a mortgage foreclosure action could be waived].)
As the Second Department has similarly held:
“A court lacks subject matter jurisdiction when it lacks the competence to adjudicate a particular kind of controversy in the first place. . . . Whether the action is being pursued by the proper party is an issue separate from the subject matter of the action or proceeding, and does not affect the court’s power to entertain the case before it.” (Wells Fargo Bank Minn., N.A. v Mastropaolo,42 AD3d 239 , 243, 244 [2d Dept 2007] [holding, in mortgage foreclosure action in which plaintiff did not receive an assignment of the mortgage until after commencement of the action, that plaintiffs lack of standing “was not a jurisdictional defect that was so fundamental to the power of adjudication of a court that it could not be waived” (internal quotation marks and citation omitted)]; see also CDR Créances S.A.S. v Cohen,77 AD3d 489 , 490-491 [1st Dept 2010] [holding that lack of standing defense “do(es) not implicate subject matter jurisdiction” and is subject to waiver]; HSBC Guyerzeller Bank AG v Chascona N.V.,42 AD3d 381 , 382-383 [1st Dept 2007] [permitting substitution of plaintiff in foreclosure action where assignment of note to original plaintiff was invalid, and substituted party and original plaintiff were affiliates].)
The Court of Appeals’ decision in Lacks in fact supports the cases that have held that a claim of lack of standing may be waived. The issue before the Court, on the appeal of a determination of a defendant wife’s motion to vacate a judgment in a matrimonial action, was whether the plaintiff husband’s alleged failure to comply with statutory residence requirements deprived the court of subject matter jurisdiction. The Court elucidated the concept of subject matter jurisdiction, stating that “jurisdiction is a word of elastic, diverse, and disparate meanings.” (
Here, following the predominant and more persuasive authority, the court holds that an objection to an assignee’s lack of standing to recover on a note is curable or, put another way, is not so fundamental as to implicate the court’s subject matter jurisdiction or power to hear an action on the note. (See Lacks,
The court must accordingly address Cortlandt’s motion for leave to amend the allegations regarding its standing. Leave to amend should be freely granted absent prejudice or surprise. (CPLR 3025 [b]; Thomas Crimmins Contr. Co. v City of New York,
An assignee “ ‘stands in the shoes’ of an assignor and thus acquires no greater rights than its assignor.” (American States Ins. Co. v Huff,
Nor is such authority adequately alleged based on the grant of “individual creditor status” to SPQR by the liquidators of Hellas II. In support of this allegation, Cortlandt relies on a letter, dated September 11, 2013, from a joint liquidator of Hellas II to plaintiffs’ counsel (Stamell affirmation in support of motion to amend, exhibit B). In the letter, the joint liquidator refers to a request by SPQR (“your client”) for the issuance of definitive notes and acknowledges that, pursuant to indenture section 2.07 (a) (2), a noteholder (here, SPQR) may request the issuance of definitive notes upon an event of default (here, the Hellas II bankruptcy). The joint liquidator states that he has determined that to issue the definitive notes “in the manner required under the Indenture would be unwieldy and require so many amendments as to be impossible to perform, given the Company [Hellas II] is now subject to UK Insolvency Rules.” The joint liquidator then discusses a liquidator’s power under the UK Insolvency Act to make compromises or arrangements with creditors, and concludes:
“as Joint Liquidator I confirm that I have determined to accept the claim of your client as a creditor of the company and that it is granted individual creditor status, along with other holders of these Subordinated Notes. I understand that you may wish to exhibit this letter to the US Courts in relation to legal standing, and confirm I have no objection in your doing so.” (Id.)
Significantly, in claiming standing based on this letter, Cortlandt fails to make any showing that the joint liquidator’s grant of “individual creditor status” is effective to dispense with the provisions of the indenture authorizing only a holder of definitive notes to sue on them. Cortlandt does not explain the effect of the joint liquidator’s grant of individual creditor status to SPQR even for purposes of the UK insolvency proceeding or for purposes of a chapter 15 proceeding (see 11 USC § 1501 et seq.), which was filed in the US Bankruptcy Court for recognition of the UK proceeding. Nor does Cortlandt make any showing that the determination of the joint liquidator not to issue definitive notes was conclusive, and that no redress was available in the UK insolvency proceeding. Cortlandt also fails to cite any legal authority whatsoever that the grant of individual creditor status is effective, under either New York law or federal bankruptcy law, to override, or excuse compliance with, the provisions of an indenture permitting only holders (or the trustee) to sue. Cortlandt’s motion to amend the complaint in the sub notes action to allege Cortlandt’s standing and to add SPQR as a party will accordingly be denied. The sub notes action will be dismissed in its entirety because it was brought only by Cortlandt.
Motion for Summary Judgment in Lieu of Complaint
WTC, the sole remaining plaintiff in this motion-action, moves, in its capacity as trustee under the PIK note indenture, for summary judgment in lieu of complaint, pursuant to CPLR 3213. WTC seeks judgment on the PIK notes at issue in Cortlandt I and II, in the amount of not less than €333,205,735, plus indenture trustee fees, costs and expenses, including attorney’s fees, of not less than $250,000. Defendants Hellas Finance and Hellas I cross-move to dismiss the action, pursuant to CPLR 3211 (a) (3) and (4).
It is well settled that an instrument
“comes within CPLR 3213 ‘if a prima facie casewould be made out by the instrument and a failure to make the payments called for by its terms.’ The instrument does not qualify if outside proof is needed, other than simple proof of nonpayment or a similar de minimis deviation from the face of the document.” (Weissman v Sinorm Deli, 88 NY2d 437 , 444 [1996], quoting Interman Indus. Prods, v R. S. M. Electron Power,37 NY2d 151 , 155 [1975] [other citations omitted].)
Once the plaintiff submits evidence establishing
“the existence of a promissory note executed by the defendant containing an unequivocal and unconditional obligation to repay and the failure of the defendant to pay in accordance with the note’s terms . . . the burden shifts to the defendant to submit evidence establishing the existence of a triable issue with respect to a bona fide defense.” (Zyskind v FaceCake Mktg. Tech., Inc.,101 AD3d 550 , 551 [1st Dept 2012].)
The relevant terms of the PIK notes and indenture are as follows: The PIK notes state on their face that the principal sum of €200,000,000 is due on July 15, 2015 (PIK note No. 1 at 1), and provide for the issuer’s payment of interest on January 1, April 1, July 1 and October 1, at the rate per annum, reset quarterly, “of EURIBOR, plus 8.0% as determined by the Calculation Agent.” (Id. §§ 1, 2.) The notes further define “Events of Default,” which include commencement of a voluntary case within the meaning of any Bankruptcy Law by the parent guarantor, issuer, any guarantor or any significant subsidiary. (Id. § 13 [9].) The notes specify that upon an event of default specified in subsection 9, “all outstanding Notes will become due and payable immediately without further action or notice.” (Id. § 13.) The notes provide that they “are subject to all terms and provisions of the Indenture” dated December 21, 2006, and that “[c]apitalized terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture.” (Id. § 4.) The term parent guarantor is defined in the indenture as Hellas I. The notes state that “each Guarantor has jointly and severally unconditionally guaranteed the Issuer’s obligations on a senior basis pursuant to the terms of the Indenture.” The indenture in turn provides that the parent guarantor “unconditionally guarantees ... to each Holder of a Note. . . that (1) the principal of, premium and Additional Amounts, if any, and interest on, the Notes will be promptly
It is undisputed that on November 27, 2009 the Bank of New York Mellon, then indenture trustee, issued a notice of event of default (Healy aff, exhibit E) due to the commencement of an insolvency proceeding by defendants’ affiliate, Hellas II. This notice accelerated payment, and declared all outstanding principal and interest due and immediately payable under the terms of the indenture without further action or notice.
Under an “Agreement of Resignation, Appointment, and Acceptance,” dated August 31, 2010 (id., exhibit D), by and among Hellas Finance, WTC, and other parties, WTC became the successor trustee to Bank of New York Mellon under the December 21, 2006 PIK notes indenture. As attested by WTC’s vice-president, Patrick Healy,
Healy further attests that, to date, defendants have failed to make any payments to WTC. The last interest payment was made by issuance of PIK notes on October 15, 2009. As of November 2011, when his affidavit was sworn, the amount of principal, interest, and default interest due under the PIK notes was over €¡333 million, not including approximately $250,000 in additional amounts due under the indenture for indenture trustee fees and costs and expenses, including attorney’s fees, incurred by plaintiffs in enforcing their rights under the indenture. (Healy aff ¶¶ 12-13.)
WTC establishes a prima facie case in support of its motion for summary judgment by adducing proof of the PIK notes and
In opposition, defendants do not dispute WTC’s factual assertions that the PIK notes are in default because of the bankruptcy, the date for the repayment of the PIK notes has been accelerated, the trustee has made a demand for payment of the PIK notes, and the PIK notes have not been paid. Rather, they assert two procedural defenses to this action.
First, defendants argue that this action should be dismissed, pursuant to CPLR 3211 (a) (4), on the ground that Cortlandt 1 is an action pending between the same parties for the same cause of action. As noted above, the Cortlandt I complaint alleges that “defendants are liable to plaintiff for amounts due on the PIK Notes,” but does not expressly plead a breach of contract cause of action against the Hellas defendants for recovery on the notes. By decision on the record on May 31, 2013, this court denied a motion to amend the Cortlandt I complaint which sought, among other things, to plead this cause of action and to add WTC as a plaintiff. Thus, there is not in fact another action pending between the parties on the same cause of action. That said, this court does not condone plaintiffs’ pleading of serial actions based on the same transactions. As defendants have aptly stated, plaintiffs’ pleading has created a procedural morass. The court nevertheless declines to dismiss the CPLR 3213 action because it is the only action by a party with standing (WTC) which pleads the express breach of contract cause of action, and because the action is meritorious.
Defendants further argue that relief is not available under CPLR 3213 because the right to bring an action, the right to recover under the guarantee, and the calculation of the sum due cannot be ascertained without reference to the indenture, which is not itself an instrument for the payment of money only. (Defendant’s mem in opp at 14-15.) This argument is unpersuasive.
As discussed above, the PIK notes expressly provide for defendants’ absolute, unconditional obligation to pay the principal and interest due, specify the amount of principal and the basis for calculation of interest, and define the events of default. The PIK notes also specify that the guarantor unconditionally
The PIK notes are indisputably instruments for the payment of money only, as the right to repayment appears on their face. The PIK notes refer to the terms of the indenture only to the extent necessary for the enforcement of the PIK notes. Therefore, even if the indenture is not an instrument for the payment of money only, CPLR 3213 is applicable. (See Embraer Fin. Ltd. v Servicios Aereos Profesionales, S.A.,
As to the guarantee in particular, the terms of the indenture do not alter the unconditional obligation to pay imposed by the PIK notes. Thus, recovery is properly sought pursuant to CPLR 3213. (Compare Seaman-Andwall Corp. v Wright Mach. Corp.,
This is not a case in which the amount of principal and interest owed by the issuer or guarantor cannot be ascertained from the face of the notes, and where “outside proof is needed, other than simple proof of nonpayment” to calculate the amount due. (See e.g. Weissman v Sinorm Deli,
The court accordingly holds that WTC is entitled to judgment against defendants Hellas Finance and Hellas I for principal and interest due under the PIK notes and indenture. As to WTC’s claims for attorney’s fees and expenses, defendants acknowledge that WTC seeks such fees for enforcement of the notes pursuant to section 7.07 of the indenture. (Defendants’ mem in opp at 20.) The PIK notes do not expressly provide for the issuer to pay the trustee’s fees and expenses in recovering payment of principal and interest. As discussed above, however, the PIK notes provide that they are subject to the terms of the indenture. Section 7.07 (b) provides that “the Issuer, failing which any Guarantor” shall indemnify the trustee for its “expenses of enforcing this Indenture against the Issuer and each Guarantor.” Section 7.07 (e) provides that the trustee’s expenses after an event of default “include [ ] the fees and expenses of its agents and counsel.” The PIK notes, as quoted above, also provide that the guarantor unconditionally guarantees the issuer’s obligations pursuant to the indenture which, in turn, states that the guarantor agrees to pay attorney’s fees and expenses in enforcing the guarantee. Although the amount of the attorney’s fees and expenses is not ascertainable from the face of the PIK notes or indenture, a hearing is properly held on this issue, notwithstanding that judgment is awarded pursuant to CPLR 3213. (Griffon V, LLC v 11 E. 36th, LLC,
Trustee’s Claims in Cortlandt II
The court turns, finally, to the branch of defendants’ motions to dismiss WTC’s claims in Cortlandt II. Defendants argue that the PIK notes indenture does not authorize WTC to pursue any of the causes of action pleaded in Cortlandt II, and that WTC therefore lacks standing to maintain the action. (Defendants’ mem in support at 35.) More particularly, defendants claim that the indenture does not authorize the causes of action because they are pleaded against third parties, the “private equity” defendants and their principals, who were not issuers or guarantors of the notes and were not parties to the indenture, and because they allege the types of claims — e.g., fraud — that are beyond the scope of the trustee’s limited authorization. (Defendants’ mem in support at 35-36.) WTC claims authority to maintain the pleaded causes of action under sections 6.03, 6.05, 6.06, 7.01, and 11.04 of the indenture. (Plaintiffs’ mem in opp at 37.)
It is well settled that an indenture trustee’s authority is defined by the terms of the trust indenture. (See AG Capital Funding Partners, L.P. v State St. Bank & Trust Co.,
Section 6.03 of the indenture, entitled “Other Remedies,” provides: “If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.” Although the parties do not cite, and the court’s own research has not located, any New York authority that interprets this or a similar indenture provision, federal courts have construed such provisions. Regions Bank v Blount Parrish & Co., Inc. (
“Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the principal of, premium, if any, or interest on the Bonds or to enforce the performance of any provision of the Bonds, this Indenture, the Facility Lease Agreement or the Guaranty.” (2001 WL 726989 , *2,2001 US Dist LEXIS 8814 , *5-6.)
The court rejected the trustee’s contention that the “any available remedy” language authorized the trustee to pursue the bondholder’s tort claims, including securities fraud claims, and reasoned that such language “refers only to actions designed to ‘collect the principal of, premium, if any, or interest on the Bonds’ or to enforce the performance of any provision of the bonds or the Indenture . . . [and] does not give [the trustee] power to protect any and all rights of the bondholders.” (
In Continental Bank, N.A. v Caton (
“[a] 11 rights of action . . . under this Indenture or under any of the Bonds may be enforced by Trustee . . . and any such suit or proceeding instituted by Trustee shall be brought in its name as Trustee without the necessity of joining as plaintiffs or defendants any Owner of the Bonds.” (1990 WL 129452 , *4,1990 US Dist LEXIS 11624 , *13.)
The court held that the indenture limited the trustee’s right to bring actions “on the notes or under the indentures,” and did not afford the trustee the power “to assert individual tort claims on behalf of the noteholders against third persons which are wholly extraneous to the rights and obligations created by the notes and the indenture agreements.” (
In contrast, as the Regions court also noted, courts “allow an indenture trustee standing to bring tort claims on behalf of the bondholders only when the indenture carries a broad grant of authority to sue on behalf of the bondholders.” (
Here, the court holds that section 6.03 of the indenture does not confer broad authority on WTC as trustee to institute all actions to enforce the rights of the bondholders but, rather, limits the authority of WTC to commence actions in the event
WTC also claims authority to maintain the claims pursuant to sections 6.05 and 6.06 of the indenture. Section 6.06, the no-action clause, provides in pertinent part: “Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes,” unless the holder has met the specified conditions, including that the holder has “given the Trustee notice that an Event of Default is continuing,” “Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy,” and “the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity.” Section 6.05 provides in pertinent part: “Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it.”
Citing these sections and Feldbaum v McCrory Corp. (
In Quadrant, the Court of Appeals recently construed a no-action clause which prohibited a securityholder who failed to comply with the conditions of the clause from bringing any action “upon or under or with respect to this Indenture.” (
Feldbaum and Quadrant thus considered the impact of a no-action clause on a securityholder’s right to bring an action. In discussing the purpose of a no-action clause, the Quadrant Court explained that “generally a no-action clause prevents minority securityholders from pursuing litigation against the issuer, in favor of a single action initiated by a Trustee upon request of a majority of the securityholders.” (
“Cortlandt is authorized by vote of the majority of the Noteholders to exercise the rights of the majority under § 6.05 of an indenture dated December 21, 2006 that governs the PIK Notes . . . and to direct the Trustee to join on behalf of the Noteholders the suit commenced by Cortlandt.” (Cortlandt II complaint ¶ 10.)
This allegation need not be credited, as it is contradicted by the undisputed evidence on this motion as to SPQR’s and Cortlandt’s standing. (See generally Robinson v Robinson,
The other sections of the indenture on which WTC relies do not confer authority upon it to maintain the causes of action in Cortlandt II. Section 7.01 does not expand the scope of the trustee’s authority to commence actions, but defines the trustee’s duties pre- and post-default, in conformity with governing law. {See supra at 566 n 10.) The portion of section 11.04 (b) on which WTC relies authorizes the trustee to maintain suits “to prevent any impairment of the pledged assets.” As WTC acknowledges, the causes of action “seek[ ] to recover fraudulently diverted assets,” not to prevent impairment of existing assets. (See plaintiffs’ mem in opp at 39.)
In sum, the court holds that the indenture does not authorize the trustee to maintain the causes of action pleaded in the Cortlandt II complaint. On the authority discussed above, the
In view of this holding, the court does not reach the remaining grounds for dismissal advanced by defendants.
Leave to Replead
On their motion to amend the sub notes action, plaintiffs request leave to replead the complaint in Cortlandt I in the event this court decides that Cortlandt lacks standing. They also appear to request leave to replead the sub notes action in such event. (See plaintiffs’ mem in support of motion for leave to amend at 3-4, 12-13.) These requests are denied. By orders dated October 31, 2013 in each of the four cases, this court previously granted plaintiffs leave to move to amend to plead facts in support of their standing claim. In requesting leave to
Separate orders will follow, dismissing the complaints in Cortlandt I and II, granting WTC’s motion for summary judgment in lieu of complaint, and dismissing the sub notes action.
Notes
. Under the terms of the PIK notes, interest payments were payable, at the option of the issuer, by issuance of “Additional Notes” — i.e., by payment in kind. (PIK notes § 1.) Principal, due in 2015, was required to be paid in cash. (Id. § 2.)
. The complaint in Cortlandt II alleges that the Hellas defendants from Cortlandt I, although not named in Cortlandt II, are included in the definition of defendants in Cortlandt II “in anticipation of and to facilitate consolidation of the two cases.” (Cortlandt II complaint ¶ 12 [b].)
. The addendums to the original sub note assignment are accurately quoted in the proposed amended complaint. {See addendum dated Aug. 14, 2013 [Stamell affirmation in support of motion to amend, exhibit C].)
. Section 6.03, which is discussed further below, authorizes the trustee to sue to collect the payment of principal and interest on the notes. Sections 6.06 and 6.07 afford holders, as defined by the indenture, the right to bring suit to recover on the notes. Section 6.06 is a no-action clause, which provides in pertinent part: “Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to this Indenture or the Notes unless” the holder complies with conditions set forth. Section 6.07 provides, in pertinent part, that “the right of any Holder of a Note ... to bring suit for the enforcement of any such
. As indicated by the Supreme Court’s exhaustive review of the evolution of state and federal law on the rights of assignees to sue, the requirement that the assignment vest title in the assignee appears to have developed in light of the prohibition on champerty and maintenance (“officious inter-meddling with litigation”), which underlay the ancient common-law prohibition on assignments. (See Sprint,
. It is noted that this case was also based on the court’s public policy determination that “the fiction of retroactivity . . . should not be applied to affect adversely the rights of third persons,” and that “strict compliance” should be required in a mortgage foreclosure action with the requirement that the plaintiff have a legal or equitable interest in the mortgage at the time of commencement of the action. (Wells Fargo Bank, N.A. v Marchione,
. In his affidavit, Healy does not state his title. However, in his capacity as WTC’s vice-president, he signed the agreement by which WTC became the successor trustee.
. Defendants also assert that this action does not qualify for CPLR 3213 relief because resort to extrinsic evidence is necessary to establish WTC’s status as trustee. WTC annexes to this action a copy of the agreement with the Hellas entities by which it was appointed successor to the trustee named in the indenture. (Healy aff, exhibit D.) This document is the kind of “simple proof” acceptable on a 3213 motion. Moreover, defendants do not dispute that WTC is the current trustee.
. This computation will, of course, need to be updated to account for the passage of time since service of the moving papers.
. The New York and federal courts have consistently distinguished between an indenture trustee’s duties before and after a default. As the Second Circuit explained, in discussing the trustee’s pre-default duties, it is “well-established under state common law that the duties of an indenture trustee are strictly defined and limited to the terms of the indenture.” (Elliott Assoc, v J. Henry Schroder Bank & Trust Co., 838 F2d 66, 71 [2d Cir 1988], citing New York cases, including Hazzard v Chase Natl. Bank of City of N.Y.,
“[a]n indenture trustee is not subject to the ordinary trustee’s duty of undivided loyalty. Unlike the ordinary trustee, who has historic common-law duties imposed beyond those in the trust agreement, an indenture trustee is more like a stakeholderwhose duties and obligations are exclusively defined by the terms of the indenture agreement.” (Meckel v Continental Resources Co., 758 F2d 811, 816 [2d Cir 1985].)
As held in AG Capital (
. The fourth cause of action “against the private equity defendants as alter egos for payment of the PIK Notes” should be dismissed for the independent reason that it fails to state a cause of action. The wholly “conclusory allegations in the complaint are insufficient to state a veil-piercing claim.” (Barneli & Cie SA v Dutch Book Fund SPC, Ltd,
Although the alter ego cause of action is insufficiently pleaded, as held in the text, it is not maintainable in any event, as it is duplicative of the fraudulent conveyance causes of action which the trustee is not authorized to maintain.