Source: http://openjurist.org/450/f3d/121
Timestamp: 2013-12-12 04:37:48
Document Index: 12223757

Matched Legal Cases: ['§ 77', '§ 489', '§ 1017', '§ 315', '§ 77', '§ 315', '§ 77', '§ 502']

450 F3d 121 In Re: Bankers Trust Company Semi-Tech Litigation, Llc | OpenJurist
450 F. 3d 121 - In Re: Bankers Trust Company Semi-Tech Litigation, Llc	Home450 f3d 121 in re: bankers trust company semi-tech litigation, llc
450 F3d 121 In Re: Bankers Trust Company Semi-Tech Litigation, Llc 450 F.3d 121
In re: BANKERS TRUST COMPANYSemi-Tech Litigation, LLC, Plaintiff-Appellant-Cross-Appellee,v.Bankers Trust Company, Defendant-Appellee-Cross-Appellant.
Docket No. 05-1155-BK(L).
Docket No. 05-1485-BK(XAP).
Argued: December 22, 2005.
Decided: May 31, 2006.
Kevin N. Ainsworth, Mintz Levin Cohn Ferris Glovsky & Popeo, P.C. (Robert I. Bodian, of counsel), New York, NY, for Plaintiff-Appellant-Cross-Appellee.
Edward Flanders, Pillsbury Winthrop Shaw Pitman LLP (F. Joseph Owens, Jr., of counsel), New York, NY, for Defendant-Appellee-Cross-Appellant.
This appeal involves, among other issues, the duty of an indenture trustee, acting under the Trust Indenture Act of 1939 ("TIA"), 15 U.S.C. § 77aaa et seq., to give notice to noteholders of events of default, and the circumstances under which an indenture trustee may be excused from the obligation. Under an indenture (the "Indenture") it made with Semi-Tech Corporation ("Semi-Tech"), defendant Bankers Trust Company ("BT") served as indenture trustee for Semi-Tech's Senior Secured Discount Notes (the "Notes"). After Semi-Tech's bankruptcy, holders of the Notes (the "Noteholders") assigned their legal claims to plaintiff, which brought this action against BT alleging breach of statutory duties under the TIA, breach of contractual duties under the Indenture, and breach of fiduciary duties under New York law.1
On defendant's motion for summary judgment, the United States District Court for the Southern District of New York (Lewis A. Kaplan, J.) held that BT had breached its duty to the Noteholders to inspect certain certificates provided to it by Semi-Tech under the Indenture, but that plaintiff was entitled to only nominal damages of $1. Plaintiff and defendant each appeal from the court's judgment. We affirm, and adopt the opinions of the district court, Semi-Tech Litigation, LLC v. Bankers Trust Co., 353 F.Supp.2d 460 (S.D.N.Y.2005), and Semi-Tech Litigation, LLC v. Bankers Trust Co., 272 F.Supp.2d 319 (S.D.N.Y.2003), as the law of this Circuit, with one exception we discuss below. We agree with the district court that: (1) Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972), does not deprive plaintiff of standing to assert the claims of the Noteholders, see 272 F.Supp.2d at 323-24; (2) plaintiff's taking of the assignments from the Noteholders was not a violation of the New York champerty statute, N.Y. Jud. L. § 489, see id. at 330-31; (3) BT failed to fulfill its duty pursuant to Section 315(a) of the TIA to examine for conformity with the Indenture the officers' and accountants' certificates it received from Semi-Tech pursuant to Section 314 of the TIA, see 353 F.Supp.2d at 472-79, but (4) the violation resulted in only nominal damages because, as a matter of law, plaintiff did not establish that these violations caused any monetary damages suffered by the Noteholders, see id. at 482-87; and (5) BT did not violate any prudent-person duties, see id. at 480-82.
We include here only so much of the background as is necessary to explain our one point of disagreement with the district court; a comprehensive discussion of the facts, statutes, and contractual terms at issue can be found in Judge Kaplan's excellent opinions. See 353 F.Supp.2d at 462-69;, 272 F.Supp.2d at 321-22.
The Notes were issued in August 1993. Through the sale of the Notes under the Indenture, Semi-Tech raised $300 million, which it used to purchase 51% of the shares of The Singer Company, N.V. ("Singer"). Semi-Tech pledged the Singer shares as security for the payment of the Notes on their maturity in 2003. Because of the bankruptcy of both Singer and Semi-Tech in 1999, the Notes were not paid in accordance with their terms.
The complaint charges BT with various derelictions of its duties to protect the Noteholders. This opinion concerns BT's obligations, arising from Semi-Tech's failure to comply with its obligation under the Indenture to render periodic certifications in mandatorily specified language as to whether Semi-Tech's officers and accountants had knowledge of default in the performance of its obligations under the Indenture. The complaint alleges that throughout the period from 1995 to 1999, Semi-Tech engaged in transactions with affiliates, disposed of certain assets, and incurred debt in a manner that violated its undertakings under the Indenture and eventually resulted in its bankruptcy and the Noteholders' losses. Certificates of compliance delivered by Semi-Tech's officers and accountants in this period asserted — falsely, according to the complaint — that Semi-Tech was not in violation of its obligations. These certificates failed to set forth representations required by the Indenture, generally to the effect that the certifying persons had read Semi-Tech's covenants specified in the Indenture, and had made the examinations and investigations necessary to determine whether Semi-Tech was in compliance, briefly describing such examinations and investigations. With the exception of a letter to Semi-Tech dated September 18, 1998, in which BT pointed out that the August 1998 accountant's certificate did not contain the statements required by § 1017(d) of the Indenture, BT made no other attempts to require that Semi-Tech's certificates include the conforming language. BT never gave notice to the Noteholders that Semi-Tech's certificates were not in compliance with the requirements of the Indenture relating to those recitations. 353 F.Supp.2d at 467-68.
The complaint alleges that BT breached its obligations in two respects relevant to this opinion. First, to the extent BT failed to notice the repeated failure of Semi-Tech's certificates to use the required language, BT allegedly breached its duty under § 315(a) of the TIA "to examine the evidence [i.e., the certificates] furnished to it [by Semi-Tech] pursuant to section 314 to determine whether or not such evidence [the language of the certificates] conforms to the requirements of the indenture." See 15 U.S.C. § 77ooo(a). Second, by failing to give notice to the Noteholders of the failure of Semi-Tech's certificates to employ the required language, BT allegedly failed in its obligation under § 315(b) of the TIA to "give to the indenture security holders . . . notice of all defaults known to the trustee, within ninety days after the occurrence thereof." See 15 U.S.C. § 77ooo(b).
a. Governing Provisions
We set forth in greater detail below the provisions of the Indenture and the governing statutes which are relevant to BT's duties and to aspects of the district court's ruling.
1. Events of Default by Semi-Tech
Indenture § 502 provides that if an Event of Default "occurs and is continuing," the issue price of the Notes and accrued interest will be due immediately upon notice to Semi-Tech by