Summary
The Delaware Supreme Court considers an appeal involving whether no-action clauses in New York-law-governed trust indentures barred claims brought by a holder of Athilon Capital Corp. notes. After remanding for analysis of differences between the relevant clauses, the court certifies two unsettled questions of New York law to the New York Court of Appeals concerning the scope of a clause referring to actions under or with respect to the indenture but not expressly mentioning the securities. The court retains jurisdiction pending the New York Court of Appeals' response.
Topics
Practice areas
Questions Presented
- Whether the Delaware Supreme Court should certify unsettled and potentially dispositive questions of New York law to the New York Court of Appeals.
- Under New York law, whether a no-action clause referring to actions upon, under, or with respect to the indenture, but not expressly referring to the securities, bars common-law and statutory claims held by securityholders as a group.
- Whether the Court of Chancery correctly concluded that the Athilon no-action clause applies only to contractual claims arising under the indenture.
Holdings
- The appeal presents dispositive and unsettled questions of New York law for which no controlling precedent exists, and those questions should be certified to the New York Court of Appeals for resolution in the first instance.
- The Delaware Supreme Court identified, but did not finally decide, whether the Athilon clause's omission of the phrase 'or the Securities' limits the clause to contractual claims arising under the indenture or permits it to bar common-law and statutory claims held by securityholders as a group.
Key quotations
“A resolution of the appeal before us depends upon the answer to two questions of New York law that are not controlled by precedent.” (997)
“An important requirement for properly functioning public debt security markets is that the rights pertaining to those securities be certain and predictable to both investors and issuers.” (998)
Factual background
Athilon Capital Corp., a Delaware corporation engaged in credit-default-swap activities, issued approximately $600 million in notes governed by two New York-law trust indentures. Athilon later became financially distressed and allegedly insolvent, while EBF acquired control of Athilon's equity and installed a board allegedly pursuing strategies favoring EBF and affiliated holders of junior notes. Quadrant, a holder of Athilon notes, asserted fiduciary, statutory, contractual, and tort claims without first satisfying the indentures' no-action clauses.
Procedural history
The Court of Chancery dismissed the amended complaint based on no-action clauses and relied on Feldbaum v. McCrory Corp. and Lange v. Citibank, N.A. The Delaware Supreme Court initially remanded for analysis of differences between the clauses in those cases and the Athilon clause. After receiving the Court of Chancery's report, the Supreme Court concluded that dispositive and unsettled questions of New York law should be answered by the New York Court of Appeals in the first instance.
Remand instructions
The Clerk was directed to send the opinion, as the certification, together with the parties' briefs and appendices, to the Clerk of the New York Court of Appeals. The Delaware Supreme Court retained jurisdiction and would take no further action in the appeal until the New York Court of Appeals acted on the certification request.