15‐2366‐cv  

Chesapeake Energy Corp. v. Bank of New York MellonTrust Co., N.A.

In the 

United States Court of Appeals 

for the Second Circuit    

AUGUST TERM 2015

No. 15‐2366‐cv

CHESAPEAKE ENERGY CORPORATION,

Plaintiff‐Appellant,

v.

BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,

Defendant‐Appellee.

   

On Appeal from the United States District Court

for the Southern District of New York

   

ARGUED: JUNE 13, 2016

DECIDED: SEPTEMBER 15, 2016

   

Before: CABRANES, LOHIER, and CARNEY, Circuit Judges.

   
2

On appeal from a July 17, 2015 judgment of the United States

District Court for the Southern District of New York (Paul A.

Engelmayer, Judge), awarding damages to Noteholders represented

by defendant‐appellee Bank of New York Mellon Trust Company,

N.A., as the Indenture Trustee, in the amount of $438,717,561.67. The

District Court’s damages award represented the difference between

the “At‐Par Price” paid to the Noteholders by plaintiff‐appellant

Chesapeake Energy Corporation for its early redemption of Notes in

May 2013 and the “Make‐Whole Price” it should have paid for that

redemption consistent with the Supplemental Indenture, plus

prejudgment interest.  

Plaintiff principally contends on appeal that the District Court

erred by awarding the Noteholders damages in the amount of the

difference between the “At‐Par Price” and the “Make‐Whole Price.”

Plaintiff insists that the only reason it exercised its early‐redemption

right was because it had relied on the District Court’s declaratory

ruling that the price of its redemption would be “At Par”—a ruling

that this Court later reversed on appeal after the redemption was

complete. Plaintiff therefore argues that, on remand, the District

Court should have awarded restitution to the Noteholders, rather

than the higher quantum of contract‐based damages predicated on

the “Make‐Whole Price.”  

We disagree. Substantially for the reasons set forth in the

District Court’s thorough July 10, 2015 opinion, we AFFIRM the

judgment of the District Court.
3

   

         PAUL M. SMITH, Jenner & Block LLP,

Washington, DC (Richard F. Ziegler,

Stephen L. Ascher, Elizabeth A.

Edmondson, Jenner & Block LLP, New

York, NY, on the brief), for Plaintiff‐Appellant.

ROY T. ENGLERT, JR. (Mark T. Stancil, Jeremy

C. Baron, Danielle B. Rosenthal, on the brief),

Robbins, Russell, Englert, Orseck,

Untereiner & Sauber LLP, Washington, DC,

for Defendant‐Appellee.   

   

PER CURIAM:

The principal question presented is whether the District Court

correctly determined the measure of compensation due to

Noteholders, represented by defendant‐appellee Bank of New York

Mellon Trust Company, N.A. (“BNY Mellon”), arising from the

underpayment to the Noteholders by plaintiff‐appellant Chesapeake

Energy Corporation (“Chesapeake”) in connection with

Chesapeake’s early redemption of the Notes on May 13, 2013. See

Chesapeake Energy Corp. v. Bank of N.Y. Mellon Tr. Co. (Chesapeake III),

No. 13 Civ. 1582 (PAE), 2015 WL 4191419 (S.D.N.Y. July 10, 2015). We

conclude that it did.   
4

Accordingly, substantially for the reasons set forth in the

District Court’s thorough July 10, 2015 opinion, we AFFIRM the

judgment of the District Court.  

BACKGROUND

At the outset, we note that a thorough account of the facts and

procedural history of the case—which are entwined—can be found in

the past opinions by our Court and the District Court in this case. See

Chesapeake Energy Corp. v. Bank of N.Y. Mellon Tr. Co. (Chesapeake II),

773 F.3d 110 (2d Cir. 2014); Chesapeake Energy Corp. v. Bank of N.Y.

Mellon Tr. Co. (Chesapeake I), 957 F. Supp. 2d 316 (S.D.N.Y. 2013),

rev’d, Chesapeake II, 773 F.3d at 112; see also Chesapeake III, 2015 WL

4191419. We therefore assume the readers’ familiarity with the

underlying facts, the procedural history of the case, and the issues on

appeal. Nevertheless, we pause to briefly recount the key facts and

procedural history necessary to explain our decision to affirm.    

In February 2012, Chesapeake, a publicly traded oil‐and‐

natural‐gas producer, issued $1.3 billion in senior notes due March

15, 2019, bearing an interest rate of 6.775 percent (the “Notes”). The

Notes were governed by a Base Indenture as well as a Supplemental

Indenture, the latter of which is especially relevant to this appeal.

Indeed, the Supplemental Indenture established two types of early

redemption rights, exercisable at Chesapeake’s option, that have been

central to this case.  

Section 1.7(b) of the Supplemental Indenture provided in

pertinent part that  
5

At any time from and including November 15, 2012 to

and including March 15, 2013 (the “Special Early

Redemption Period”), . . . [Chesapeake], at its option,

may redeem the Notes . . . for a price equal to 100% of

the principal amount . . . plus accrued and unpaid

interest on the Notes to be redeemed to the date of

redemption [the “At‐Par Price”] . . . . [Chesapeake] shall

be permitted to exercise its option . . . so long as it gives

the notice of redemption pursuant to Section 3.04 of the

Base Indenture during the Special Early Redemption

Period.  

J.A. 567.1 In turn, Section 3.04 of the Base Indenture required that

Chesapeake give the notice of redemption at least 30 days but not

more than 60 days before the date of redemption. J.A. 656.  

Separately, Section 1.7(c) of the Supplemental Indenture

provided in pertinent part that “[a]t any time after March 15, 2013 to

the Maturity Date, [Chesapeake], at its option, may redeem the Notes

. . . for an amount equal to the Make‐Whole Price plus accrued and

unpaid interest to the date of redemption . . . .” J.A. 567. The Make‐

Whole Price was defined to mean the sum of the present value of the

principal of the Notes and remaining interest payments. J.A. 574.        

On February 20, 2013, Chesapeake announced that it planned

to exercise its right of redemption pursuant to Section 1.7(b) of the

 1 “J.A.” refers to the Joint Appendix.  
6

Supplemental Indenture—for the At‐Par Price.  BNY Mellon notified

Chesapeake, however, that, in its view, the notice deadline for a

redemption under Section 1.7(b) had already passed. In the view of

BNY Mellon, Chesapeake was required to give at least 30 days’ notice

before March 15, 2013 to redeem “At Par” under Section 1.7(b). BNY

Mellon further warned Chesapeake that it might, as indenture

trustee, treat a prospective redemption as requiring payment of the

Make‐Whole Price under Section 1.7(c), due to the redemption’s

tardiness under Section 1.7(b). On March 8, 2013, Chesapeake filed an

action against BNY Mellon in the District Court seeking a declaratory

judgment on two counts: that (1) its Notice of Redemption attached

to its complaint would be timely under Section 1.7(b) to redeem “At

Par” if mailed by March 15, 2013, and would be effective on May 13,

2013; and (2) in the event that the Notice is determined not to be

timely, or if the District Court has not ruled by the May 13

redemption date, the Notice shall be deemed null and void (rather

than deemed to trigger redemption at the Make‐Whole Price).

Chesapeake issued its Notice of Redemption on March 15, 2013.

On May 8, 2013, following a bench trial, the District Court

ruled that the Notice of Redemption was timely under Section 1.7(b),

and the District Court therefore entered judgment in favor of

Chesapeake on its first count. See Chesapeake I, 957 F. Supp. 2d at 374.

As a result of that decision, the District Court ruled that

Chesapeake’s second count was moot. Id. BNY Mellon filed a notice

of appeal on May 11, 2013. Two days later, on May 13, 2013,

Chesapeake proceeded with its early redemption, paying the
7

Noteholders approximately $1.3 billion pursuant to Section 1.7(b) of

the Supplemental Indenture. The completion of this redemption,

however, did not conclude this litigation.    

On November 25, 2014, this Court reversed the District Court’s

May 8, 2013 judgment in favor of Chesapeake on its first count,

holding that Chesapeake’s Notice of Redemption was untimely to

effect an “At Par” redemption under Section 1.7(b) of the

Supplemental Indenture. See Chesapeake II, 773 F.3d at 117. We

remanded the cause to the District Court for consideration of

Chesapeake’s second count, however, which had requested a

declaratory judgment that Chesapeake had not noticed a redemption

at the Make‐Whole Price. See id.

The subject of the instant appeal is the District Court’s July 10,

2015 decision on remand from this Court. First, the District Court

determined that the second count of Chesapeake’s complaint

remained moot insofar as it sought nullification only of Chesapeake’s

notice of redemption, but had no bearing on the redemption itself,

which had already been completed.2 See Chesapeake III, 2015 WL

4191419, at *5–6. Second, the District Court, after receiving briefing

from the parties, awarded the Noteholders contract‐based damages

in the amount of the difference between the At‐Par Price that

Chesapeake had already paid to the Noteholders for the redemption

and the Make‐Whole Price that Chesapeake should have paid, equal

 2 Chesapeake does not challenge this ruling on appeal.
8

to $379,650,133.21, plus prejudgment interest, for a total of

$438,717,561.67. Id. at *18.3 The District Court entered judgment on

July 13, 2015, and entered an amended judgment on July 17, 2015.

This appeal followed.   

DISCUSSION

On appeal, Chesapeake principally contends that the District

Court erred by awarding contract‐based damages—calculated based

on the difference between the At‐Par Price and the Make‐Whole

Price—and that the District Court should instead have awarded

restitution to the Noteholders for Chesapeake’s underpayment.

Chesapeake argues that “federal law is clear that the remedy for

actions taken in reliance on a judgment that is later reversed is

restitution putting the note holders back in the same economic

position they occupied before the redemption, not a claim for breach

of contract.” Pl. Br. 2; see id. at 21–43. Chesapeake refers to this

principle as “the long‐established doctrine of restitution after

reversal.” Id. at 3. Chesapeake further argues that, “even applying a

contract‐based analysis, the district court should have ended up at

 3 The District Court exercised its authority under 28 U.S.C. § 2202 of the

Declaratory Judgment Act to grant “[f]urther necessary or proper relief based on

[its] declaratory judgment . . . against any adverse party whose rights [had] been

determined by such judgment.” 28 U.S.C. § 2202. Chesapeake, which had

originally filed the action for declaratory judgment, but against whom the relief

was granted, does not argue on appeal that the District Court erred in holding

that § 2202 was the proper procedural mechanism for awarding compensation to

the Noteholders.  
9

the same place because under New York law it was flatly improper

to treat the Make‐Whole Price as the measure of contract damages.”

Id. at 2; see id. at 43–58. We disagree in both respects.  

Substantially for the reasons set forth in the District Court’s

thorough July 10, 2015 opinion, see generally Chesapeake III, 2015 WL

4191419, at *7–17, we conclude that the District Court correctly

determined the measure of compensation due to the Noteholders in

the circumstances presented. We summarize those reasons as

follows.  

Under New York law, as the District Court explained, an

indenture like the one at issue here is a form of contract. See, e.g., Bank

of N.Y. Tr. Co. v. Franklin Advisers, Inc., 726 F.3d 269, 276 (2d Cir.

2013); Quadrant Structured Prods., Co. v. Vertin, 23 N.Y.3d 549, 559

(2014). And where a valid and enforceable contract governs the

relevant subject matter of the parties’ dispute, the contract—rather

than principles of restitution—should determine the measure of a

party’s recovery for events arising from that subject matter. See, e.g.,

MacDraw, Inc. v. CIT Grp. Equip. Fin., Inc., 157 F.3d 956, 964 (2d Cir.

1998) (observing that, under “well‐settled principles of New York

law . . . . the existence of a valid and enforceable written contract

governing a particular subject matter ordinarily precludes recovery

in quasi contract . . . for events arising out of the same subject matter”

(internal quotation marks omitted)); Clark‐Fitzpatrick, Inc. v. Long

Island R.R. Co., 70 N.Y.2d 382, 389 (1987) (“It is impermissible . . . to

seek damages in an action sounding in quasi contract where the

suing party has fully performed on a valid written agreement, the
10

existence of which is undisputed, and the scope of which clearly

covers the dispute between the parties.”).4 The cases relied upon by

Chesapeake do not hold otherwise.5  

Here, applying New York law, Section 1.7 of the Supplemental

Indenture—a contract Chesapeake does not contend was invalid or

 4 Section 2(2) of the Restatement (Third) of Restitution and Unjust Enrichment

observes that “[a] valid contract defines the obligations of the parties as to matters

within its scope, displacing to that extent any inquiry into unjust enrichment.”

Restatement (Third) of Restitution and Unjust Enrichment § 2(2) (Am. Law Inst.

2011). Contract‐based remedies are superior to restitution, the Restatement

explains, because a contract “eliminates, or minimizes, the fundamental difficulty

of valuation. . . . [T]he parties’ own definition of their respective obligations . . .

take[s] precedence over the obligations that the law would impose in the absence

of agreement. Restitution is accordingly subordinate to contract as an organizing

principle of private relationships, and the terms of an enforceable agreement

normally displace any claim of unjust enrichment within their reach.” Id. § 2, cmt.

c.  

5 For example, the principal case involving a contract that Chesapeake relies

upon is Northwestern Fuel Co. v. Brock, where the Supreme Court upheld an award

of restitution to defendants who had paid breach‐of‐contract damages to a

plaintiff pursuant to a judgment that the trial court had no jurisdiction to enter.

139 U.S. 216 (1891). The Court reasoned that the trial court had the power “to

undo what it had no authority to do originally, and in which it, therefore, acted

erroneously, and to restore, so far as possible, the parties to their former position.”

Id. at 219. But Brock did not hold that restitution should displace the parties’

contract rights and obligations. And whereas restitution was necessary in Brock to

“undo” the trial court’s erroneous judgment, restitution is unnecessary and

inappropriate here, where the Supplemental Indenture determined the price of

the redemption. Cf. Restatement (Second) of Contracts § 373(2) (Am. Law Inst.

1981) (“The injured party has no right to restitution if he has performed all of his

duties under the contract and no performance by the other party remains due

other than payment of a definite sum of money for that performance.”).    
11

unenforceable—dictates the Noteholders’ recovery arising from

Chesapeake’s underpayment for its May 13, 2013 redemption.

Indeed, properly framed, the relevant subject matter of the parties’

dispute is the measure and amount of compensation Chesapeake

should have paid the Noteholders for its early redemption. Section

1.7 governed this subject matter, specifying the price Chesapeake was

required to pay the Noteholders for an early redemption, which in

turn depended on the date of the redemption. See J.A. 567. Whereas

Section 1.7(b)’s At‐Par Price applied to redemptions on or before

March 15, 2013, Section 1.7(c)’s Make‐Whole Price applied to

redemptions after March 15, 2013. See id. Because Chesapeake

completed its redemption on May 13, 2013, it owed the Noteholders

the Make‐Whole Price for that redemption, pursuant to Section 1.7(c),

see id., and it breached the Supplemental Indenture by paying only

the At‐Par Price. The correct damages award, then, was the

difference between the At‐Par Price and the Make‐Whole Price, plus

prejudgment interest.6     

To hold otherwise would frustrate the Noteholders’ legitimate

expectations regarding their rights under the Supplemental

Indenture. As the District Court explained, “[f]or the Court to fashion

what amounts to a new type of redemption, with its pricing terms to

be set post hoc by a Court with reference to equitable principles,

 6 Although not explicitly contested by the parties on appeal, the District

Court’s calculation of prejudgment interest correctly used the 6.775 percent rate

applicable to overdue payments under the Base and Supplemental Indentures. See

Chesapeake III, 2015 WL 4191419, at *18.
12

would confound investors’ valid expectations.” Chesapeake III, 2015

WL 4191419, at *12. Indeed, “[a]n investor could realistically not have

anticipated the third scenario in which—if Chesapeake missed the

deadline for a Special Early Redemption but redeemed in a good

faith belief that it had met the deadline—Noteholders would receive

an early‐redemption lump‐sum payout materially smaller than the

Make‐Whole Amount.” Id. It follows, therefore, that “[t]he interest in

respecting investors’ legitimate expectations . . . supports a payout

keyed to the indenture’s treatment of redemptions after March 15,

2013.” Id. at *13.

Chesapeake was similarly on notice at all relevant times that

the District Court could require it to pay the Make‐Whole Price for its

May 13, 2013 redemption. Under the terms of the Supplemental

Indenture, which we have previously held to be unambiguous and to

have “a definite and precise meaning,” Chesapeake’s March 15, 2013

notice calling for a redemption on May 13, 2013 “was untimely and

ineffective to redeem” at the At‐Par Price. Chesapeake II, 773 F.3d at

117. Moreover, Chesapeake knew that this had been BNY Mellon’s

litigation position since the outset and had been confronted with the

possibility that a holding by this Court that the redemption was

untimely to effect a Special Early Redemption could trigger

Chesapeake’s obligation to pay the Make‐Whole Price on remand.7      

 7 For example, during a March 19, 2013 conference, the District Court asked

counsel for Chesapeake what would happen if the District Court ruled that

Chesapeake’s redemption was timely to effectuate a Special Early Redemption but

the ruling was later reversed on appeal. The District Court queried whether “the
13

Finally, we reject Chesapeake’s contention that, even if the

District Court properly awarded breach‐of‐contract damages, it erred

by awarding compensation that allowed the Noteholders to recoup

in excess of the value of the Notes before the redemption, which

Chesapeake argues is equal to “the present value of the lost interest

[on the Notes] offset by the lower interest they would have earned

from entering into similar transactions” on the date of the

redemption. Pl. Br. 55. By analogy to bankruptcy cases where

borrowers were forced to prepay loans, Chesapeake argues that,

“under New York law, the relevant inquiry is not whether a

contractual provision sets forth an amount to be paid for prepayment

on a certain date, but whether the relevant contractual provisions

clearly and unambiguously provide that the prepayment premium is

payable for an unauthorized prepayment under the relevant

circumstances.” Id. at 50. But this syllogism relies on a false premise:

Chesapeake did not involuntarily exercise its right of redemption.

Instead, Chesapeake opted to redeem early, albeit with the

anticipation that it would pay only the At‐Par Price. The cases relied

upon by Chesapeake are thus inapposite.  

 

only way to make [the Noteholders] whole [would be] to in effect pay them what

amounts to the present value . . . in effect giving [them] the make‐whole value

through the backdoor.” J.A. 301. Counsel for Chesapeake responded, “[C]ertainly

I don’t think the Court will give the noteholders the make‐whole value through

the backdoor,” to which the Court replied, “Well, you don’t think that. But I’m

asking you to assume that the Court of Appeals disagrees with a ruling I make in

your favor on timeliness and now wants to fashion a remedy. What is that

remedy?” J.A. 301–02.   
14

  In sum, we conclude, substantially for the reasons set forth in

the District Court’s July 10, 2015 opinion, which we have

summarized here, that the District Court did not err in awarding the

Noteholders the difference between the At‐Par Price Chesapeake had

already paid for its redemption and the Make‐Whole Price it should

have paid, plus prejudgment interest.   

CONCLUSION

For the foregoing reasons, we AFFIRM the July 17, 2015

judgment of the District Court.