2009 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-2-2009

In Re Kaiser Alum Corp

Precedential or Non-Precedential: Non-Precedential

Docket No. 08-1406

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2009

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2009 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"In Re Kaiser Alum Corp " (2009). 2009 Decisions. Paper 324.

http://digitalcommons.law.villanova.edu/thirdcircuit_2009/324
1

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 08-1406

 

In re: KAISER ALUMINUM CORPORATION, et al., 

 Debtors

LAW DEBENTURE TRUST COMPANY OF NEW YORK,

 Appellant

 

On Appeal from the United States District Court

for the District of Delaware

District Court No. 06-cv-00160

Senior District Judge: The Honorable Joseph J. Farnan, Jr.

 

Argued September 15, 2009

Before: SLOVITER, FUENTES, and SMITH, Circuit Judges

(Filed: November 2, 2009)
2

Daniel J. DeFranceschi

Jason M. Madron

Richards, Layton & Finger

One Rodney Square

920 North King Street

Wilmington, DE 19899

Gregory M. Gordon

Daniel P. Winikka

Jones Day

2727 North Harwood Street

Dallas, TX 75201

David F. Herr (Argued)

Maslon, Edelman, Borman & Brand

90 South Seventh Street

3300 Wells Fargo Center

Minneapolis, MN 55402

Counsel for Kaiser Aluminum Corporation

Roy T. Englert, Jr. (Argued)

Robbins, Russell, Englert, Orseck & Untereiner

1801 K Street, N.W.

Suite 411

Washington, DC 20006

Counsel for Law Debenture Trust Company of New York

David J. Baldwin

1313 North Market Street

6th Floor, P.O. Box 951

Wilmington, DE 19801

Isaac M. Pachulski

Kenneth J. Shaffer

Stutman, Treister & Glatt

1901 Avenue of the Stars
3

12th Floor

Los Angeles, CA 90067

Counsel for Liverpool LTD Partnership

David F. Herr (Argued)

Kesha L. Tanabe

Maslon, Edelman, Borman & Brand

90 South Seventh Street

3300 Wells Fargo Center

Minneapolis, MN 55402

Counsel for U.S. Bank National Association

William P. Bowden

Ashby & Geddes

500 Delaware Avenue

P.O. Box 1150, 8th Floor

Wilmington, DE 19899

Counsel for JP Morgan Trust Co. and

Official Committee of Unsecured Creditors

David N. Crapo

Brian McMahon

Gibbons, P.C.

One Gateway Center

Newark, NJ 07102

David F. Herr (Argued)

Maslon, Edelman, Borman & Brand

90 South Seventh Street

3300 Wells Fargo Center

Minneapolis, MN 55402

Counsel for Citadel Equity Fund

David N. Crapo

Brian McMahon

Gibbons, P.C.
4

One Gateway Center

Newark, NJ 07102

Counsel for Bear Stearns & Co.

Karen C. Bifferato

Marc J. Phillips

Connolly, Bove, Lodge & Hutz

1007 North Orange Street

P.O. Box 2207

Wilmington, DE 19899

George A. Davis

Gregory A. Markel

Cadwalader, Wickersham & Taft

One World Financial Center

New York, NY 10038

Adam C. Dembrow

Greenberg Traurig

200 Park Avenue

MetLife Building

New York, NY 10166

David F. Herr (Argued)

Maslon, Edelman, Borman & Brand

90 South Seventh Street

3300 Wells Fargo Center

Minneapolis, MN 55402

Counsel for Ad Hoc Group of Senior Noteholders

David F. Herr (Argued)

Maslon, Edelman, Borman & Brand

90 South Seventh Street

3300 Wells Fargo Center

Minneapolis, MN 55402
5

Carl N. Kunz, III

Morris James

500 Delaware Avenue

P.O. Box 2306, Suite 1500

Wilmington, DE 19899

Counsel for Deutsche Bank Trust

Sharon M. Zieg

Young, Conaway, Stargatt & Taylor

1000 West Street, P.O. Box 391

17th Floor, Brandywine Building

Wilmington, DE 19899

Counsel for Cent Indemnity Co.

Allstate Ins. Co.

Canmart Co.

Pension Benefit Guaranty Corp.

Asbestos Futures Representative

Marc S. Casarino

White & Williams

824 North Market Street

P.O. Box 709, Suite 902

Wilmington, DE 19801

Counsel for Silica Future Claimants

ACE Inc. Co., LTD

Mark T. Hurford

Campbell & Levine

800 North King Street

Suite 300

Wilmington, DE 19801

Counsel for Personal Injury Comm.

Asbestos Creditors Comm.

David M. Klauder

United States Department of Justice
 This Court has jurisdiction under 28 U.S.C. § 158(d) and 28 U.S.C. § 1291. 1

6

Office of the Trustee

844 King Street

Suite 2207, Lockbox 35

Wilmington, DE 19801

Counsel for David M. Klauder, Trustee

 

OPINION

 

SMITH, Circuit Judge.

In this Chapter 11 reorganization case about a 1993 indenture (the “Indenture”),

Law Debenture Trust Company of New York (“LDTC”), the indenture trustee under the

Indenture, challenges the subordination of a guarantee made in the Indenture (the “1993

Guarantee”) to later guarantees (the “1994 and 1996 Guarantees”) that it believes were

improperly designated as “Senior Indebtedness” under the Indenture. Opposing LDTC

are the indenture trustees and noteholders for the notes that were the subject of the 1994

and 1996 Guarantees (collectively, the “1994 and 1996 Noteholders”).

LDTC raises two issues on appeal. First, it claims that the District Court erred in 1

affirming the Bankruptcy Court’s conclusion that the 1994 and 1996 Guarantees could

be designated as Senior Indebtedness under the Indenture. Second, it argues that the

District Court erred by permitting the Bankruptcy Court’s consideration of extrinsic
7

evidence when construing the Indenture. Our conclusion on the first issue disposes of

this appeal and obviates the need for discussion of extrinsic evidence.

We will affirm the District Court’s conclusion that the Indenture permitted the

designations of the 1994 and 1996 Guarantees as Senior Indebtedness. As such, the

1993 Guarantee is subordinated to the 1994 and 1996 Guarantees. 

I.

In 1993, Kaiser Aluminum & Chemical Corporation (“KACC”) issued $400

million in notes (the “1993 Notes”) under the Indenture. These notes were guaranteed, in

the 1993 Guarantee, by KACC’s subsidiaries: Kaiser Aluminum Australia, Alpart

Jamaica, and Kaiser Jamaica (the “Subsidiary Guarantors”).

In 1994 and 1996, KACC issued additional notes (the “1994 and 1996 Notes”) in

the amounts of $225 million and $175 million, respectively. Like the 1993 Notes, the

1994 and 1996 Notes were guaranteed, in the 1994 and 1996 Guarantees, by the

Subsidiary Guarantors.

In 2002, KACC and each of the Subsidiary Guarantors filed Chapter 11

reorganization petitions. LDTC moved the Bankruptcy Court to determine the relative

priority of the 1993 Guarantee vis-á-vis the 1994 and 1996 Guarantees, and the parties

agreed to convert the motion into an objection to the proposed Chapter 11 reorganization

plan offered by KACC and the Subsidiary Guarantors.
8

Both parties agree that the Indenture controls the relative priority of the 1993,

1994, and 1996 Guarantees. LDTC asserts that the 1994 and 1996 Guarantees cannot be

designated as Senior Indebtedness under the Indenture and, therefore, the 1993

Guarantee is not subordinated to the 1994 and 1996 Guarantees. The 1994 and 1996

Noteholders, on the other hand, claim that the 1994 and 1996 Guarantees qualify as

Senior Indebtedness under the Indenture and therefore have priority over the 1993

Guarantee.

The Bankruptcy Court, in concluding that the 1994 and 1996 Guarantees were

properly designated as Senior Indebtedness under the Indenture, noted that “it [was]

abundantly clear that the [pari passu treatment of the 1993, 1994, and 1996 Guarantees]

suggested by LDTC was not created by the Indenture.” Accordingly, the Bankruptcy

Court overruled LDTC’s objection to the proposed Chapter 11 reorganization plan. 

LDTC appealed to the District Court, which affirmed the Bankruptcy Court’s order. 

LDTC now appeals to this Court.

II.

LDTC’s first argument, that the 1994 and 1996 Guarantees could not be

designated as Senior Indebtedness under the Indenture, is based on its rejection of the

Bankruptcy Court’s construction of the Indenture. We review that construction de novo. 

STV Eng’rs, Inc. v. Greiner Eng’g, Inc., 861 F.2d 784, 787 (3d Cir. 1988). 
9

As described below, we conclude that when a Subsidiary Guarantor attempts

reorganization, Article 16 of the Indenture subordinates guarantees that are not Senior

Indebtedness to all Senior Indebtedness of that Subsidiary Guarantor. We also conclude

that the definition of Senior Indebtedness, contained in Article 1 of the Indenture,

permitted KACC to designate the 1994 and 1996 Guarantees as Senior Indebtedness and

that it properly did so. 

A. Article 16 of the Indenture Subordinates all of a Subsidiary Guarantor’s

Guarantees that are not Senior Indebtedness to all Senior Indebtedness.

Section 16.02 of the Indenture subordinates each Subsidiary Guarantor’s

obligations under the 1993 Guarantee to the Senior Indebtedness of that Subsidiary

Guarantor. It states that “all payments pursuant to the [1993] Guarantee by [any]

Subsidiary Guarantor are hereby expressly subordinated . . . in right of payment to the

prior payment in full . . . of all Senior Indebtedness of [that] Subsidiary Guarantor.”

In the event of a Subsidiary Guarantor’s reorganization, Section 16.03 provides 

“the holders of all Senior Indebtedness of [the] Subsidiary Guarantor [the right] to

receive payment in full . . . before the holders of the [1993] Notes or the Trustee on

behalf of the noteholders shall be entitled to receive, pursuant to the [1993] Guarantee,

any direct or indirect payment or distribution on or with respect to the [1993] Notes.” In

other words, if a Subsidiary Guarantor is reorganizing, it must pay the holders of its

Senior Indebtedness in full prior to any payment it is obligated to make under the 1993
10

Guarantee.

Because the Subsidiary Guarantors are reorganizing, Section 16.03 applies and the

holders of their Senior Indebtedness are entitled to payment prior to any payment under

the 1993 Guarantee.

B. The Definition of Senior Indebtedness Permitted the 1994 and 1996 Guarantees

to be Designated as Senior Indebtedness.

To designate a certain indebtedness as Senior Indebtedness, KACC must provide

notice of the designation in writing and the type of indebtedness must fall under one of

the categories described in the definition of Senior Indebtedness, which is located in

Section 1.01 of the Indenture.

It is undisputed that KACC provided proper notice for the 1994 and 1996

Guarantees. Accordingly, the crux of this appeal rests on whether the Indenture permits

the 1994 and 1996 Guarantees, guarantees made by the Subsidiary Guarantors for

KACC’s 1994 and 1996 Notes, to be designated as Senior Indebtedness. The 1994 and

1996 Noteholders argue that clauses (ii)(A)(1) and (ii)(D) of the definition of Senior

Indebtedness permitted designation of those guarantees as Senior Indebtedness. We

agree.

Clause (ii)(A)(1), as applied to each Subsidiary Guarantor, states that “the

principal of, premium, if any, and interest on all indebtedness of [the Subsidiary

Guarantor] for money borrowed (including all such indebtedness evidenced by notes,
 KACC cannot designate the 1994 and 1996 Guarantees as Senior Indebtedness 2

under clause (ii)(A)(5) because it is the parent company of the Subsidiary Guarantors.

11

debentures or other securities issued for money, whether issued or assumed by [the

Subsidiary Guarantor])” may be designated as Senior Indebtedness by KACC. A

guarantee involves an “agree[ment] to answer for a debt or default.” BLACK’S LAW

DICTIONARY 773 (9th ed. 2009). Such agreements are “[a] promise to answer for the

payment of some debt . . . in case of the failure of another who is liable in the first

instance.” Id. (defining “guaranty”). The Subsidiary Guarantors assumed indebtedness,

the promise to answer for KACC’s debts in case of its failure to repay money borrowed,

by guaranteeing the 1994 and 1996 Notes.

LDTC argues that such an understanding of the Indenture would render clause

(ii)(A)(5) of the definition of Senior Indebtedness superfluous. That clause states that

“all guarantees by [the Subsidiary Guarantor] of any indebtedness referred to in . . .

clause (ii)(A) of any Subsidiary of [the Subsidiary Guarantor]” may be designated as

Senior Indebtedness if proper notice is issued by KACC. LDTC properly notes that

clause (ii)(A)(5) only covers a Subsidiary Guarantor’s guarantees of its own

subsidiaries. If clause (ii)(A)(1) covers all guarantees, then, according to LDTC, clause 2

(ii)(A)(5) would serve no purpose because it covers a subset of all guarantees. To avoid

rendering clause (ii)(A)(5) superfluous, LDTC asserts, clause (ii)(A)(1) must be

construed to exclude guarantees. 
 Clauses (ii)(A)(1), (ii)(A)(5), and (ii)(A)(7) are illustrative. Clause (ii)(A)(7) 3

covers “all obligations of [a Subsidiary Guarantor] in connection with the issuance of

industrial revenue bonds.” Assuming, hypothetically, that a subsidiary of a Subsidiary

Guarantor issued industrial revenue bonds, that proper written notice was provided, and

that the Subsidiary Guarantor guaranteed those industrial revenue bonds, clauses

(ii)(A)(1), (ii)(A)(5), and (ii)(A)(7) would all permit the guarantee to be designated as

Senior Indebtedness. Clause (ii)(A)(1) would apply because the indebtedness incurred

was for money borrowed, (ii)(A)(5) would apply because it was a guarantee of a

subsidiary by a Subsidiary Guarantor, and (ii)(A)(7) would apply because it was an

“obligation” incurred by the Subsidiary Guarantor in connection with the issuance of

industrial revenue bonds. 

Clause (ii)(D) also shows the Indenture’s tolerance of superfluous drafting—it

contains overlap even within itself. It uses the phrase “Indebtedness, obligation or

guarantee” yet the definition of “Indebtedness” in Section 1.01 of the 1993 Indenture

includes at least some obligations and all guarantees.

12

We disagree with LDTC’s argument. Clause (ii)(A)(1) is narrower than clause

(ii)(A)(5), because the former is limited to indebtedness for money borrowed, whereas

the latter includes all guarantees, for any purpose, made by a Subsidiary Guarantor for its

own subsidiaries. For example, clause (ii)(A)(5) would include a Subsidiary Guarantor’s

guarantee of a subsidiary’s lease obligations, while clause (ii)(A)(1) would not. Some

overlap in the two clauses is not fatal, especially in light of the other overlapping

provisions in the definition of Senior Indebtedness.3

LDTC also argues that we must presume that the Indenture intended to exclude a

Subsidiary Guarantor’s guarantee of a parent company because clause (ii)(A)(5) only

covers a Subsidiary Guarantor’s guarantee of a subsidiary. LDTC’s argument runs

contrary to the structure of the Indenture. Clauses (a) through (e) of the definition of
 Section 15.04 of the Indenture states that the Indenture is governed by New 4

York law.

13

Senior Indebtedness exclude specific categories of indebtedness from being designated

as Senior Indebtedness. Guarantees of a parent company are not categorically excluded

in those clauses. The mere presence of the exclusion clauses negates LDTC’s argument

that the Indenture was intended to implicitly exclude guarantees of a parent company. If

the Indenture was intended to exclude such guarantees, the exclusion could have been

listed with the other exclusion clauses. In short, we will not presume an implicit

exclusion of guarantees of a parent company where the Indenture has exclusion clauses.

Finally, LDTC argues that clause (ii)(A)(1) covers only money borrowed by each

Subsidiary Guarantor. LDTC would have us include additional terms in clause (ii)(A)(1)

so that it reads as follows: “all indebtedness of such Person for money borrowed [by such

Person].” This Court, however, is prohibited from adding terms to the Indenture. 

W.W.W. Assocs. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990) (“[W]hen parties set

down their agreement in a clear, complete document, their writing should as a rule be

enforced according to its terms.”) . “Indebtedness for money borrowed,” including 4

“notes . . . whether issued or assumed,” may be designated as Senior Indebtedness. The

Subsidiary Guarantors’ assumptions of indebtedness for money borrowed by KACC

through the 1994 and 1996 Guarantees, therefore, is covered under clause (ii)(A)(1).

The designations of the 1994 and 1996 Guarantees as Senior Indebtedness were
14

also proper under clause (ii)(D). That clause, as applied to each Subsidiary Guarantor,

states that “all penalties, fees, premiums, expenses, reimbursements, indemnity

obligations and all other monetary obligations of [the Subsidiary Guarantor] in respect of

any Indebtedness, obligation, or guarantee described [anywhere in clause (ii) of the

definition of Senior Indebtedness]” may be designated as Senior Indebtedness by KACC. 

LDTC concedes that the 1994 and 1996 Notes are Senior Indebtedness under the

Indenture. The 1994 and 1996 Guarantees were monetary obligations undertaken by the

Subsidiary Guarantors in respect of the 1994 and 1996 Notes issued by KACC. 

Therefore, the 1994 and 1996 Guarantees may properly be designated as Senior

Indebtedness under clause (ii)(D).

LDTC argues that the monetary obligations incurred by each Subsidiary Guarantor

must be in respect of its own “Indebtedness, obligation, or guarantee” that could

otherwise be properly designated as Senior Indebtedness. LDTC’s construction of clause

(ii)(D) cannot be reconciled with the text. See W.W.W. Assocs., 566 N.E.2d at 642. 

Clause (ii)(D) states that each Subsidiary Guarantor’s monetary obligation may arise

from “any Indebtedness, obligation or guarantee,” that would otherwise qualify as Senior

Indebtedness under clause (ii). This includes KACC’s 1994 and 1996 Notes and any

other “Indebtedness, obligation, or guarantee” of any entity that would otherwise qualify

as Senior Indebtedness under clause (ii) of the Indenture, not just the Subsidiary
15

Guarantor’s “Indebtedness, obligations and guarantees.”

III.

LDTC also argues that the Bankruptcy Court’s evaluation of extrinsic evidence

was improper under New York law. Because the Indenture is unambiguous, we resolve

this appeal on the construction of the Indenture alone and need not discuss extrinsic

evidence.

IV.

The Indenture’s definition of Senior Indebtedness permitted designation of the

1994 and 1996 Guarantees as Senior Indebtedness. Because the Indenture’s language is

unambiguous, this Court need not address whether the extrinsic evidence was properly

admitted. Accordingly, we will affirm the District Court’s judgment.