Opinion ID: 577164
Heading Depth: 5
Heading Rank: 1

Heading: Chemical Bank's Authority Under the Bond Resolution

Text: 56 The Heerey Group challenges Chemical Bank's authority under the terms of the Bond Resolution to consent to the anti-suit injunctions. We review de novo the district court's interpretation of the Bond Resolution. See L.K. Comstock & Co. v. United Eng'rs & Constructors, Inc., 880 F.2d 219, 221 (9th Cir.1989). 57 The district court ruled that Chemical Bank was authorized under section 11.4 of the Bond Resolution to represent all Bondholders as their trustee and attorney-in-fact in prosecuting the claims it alleged on their behalf. In re Washington Public Power, 720 F.Supp. at 1422. Section 11.4 reads in pertinent part: 58 If an Event of Default shall happen and shall not have been waived or remedied, then and in every such case the Bond Fund Trustee ... shall be entitled and empowered to proceed forthwith to institute such suits, actions and proceedings at law or in equity for the collection of all sums due in connection with the Bonds and to protect and enforce its rights and the rights of the holders of the Bonds under the Resolution ... in the enforcement of any other legal or equitable right as the Bond Fund Trustee, being advised by counsel, shall deem most effectual to enforce any of its rights or the rights of the holders of the Bonds.... 59 Supply System Board of Directors Bond Resolution No. 890, § 11.4 (adopted Feb. 23, 1977) (Supply System Bond Resolution). The district court held that Chemical Bank reasonably and prudently exercised the discretion and authority vested in it by § 11.4 of the Bond Resolution in agreeing to the binding anti-suit injunctions. 720 F.Supp. at 1423. 60 In addition to imbuing Chemical Bank with authority to bring suits at law or in equity for the collection of all sums due in connection with the Bonds, section 11.4 specifically provides Chemical Bank with authority to: 61 enforce its rights and the rights of the holders of the Bonds under the Resolution ... in the enforcement of any other legal or equitable rights as the Bond Fund Trustee, being advised by counsel, shall deem most effectual to enforce any of its rights or the rights of the holders of the Bonds.... 62 Supply System Bond Resolution, supra, § 11.4 (emphasis added). We conclude that § 11.4 vests in Chemical Bank the authority to bring tort and fraud claims on behalf of the Bondholders. 8 We therefore reject the Heerey Group's contention that the Bond Resolution only entitles Chemical Bank to bring suit for claims on the bond. 63 The Heerey Group argues that even if Chemical Bank was entitled to bring fraud and tort claims, the Bond Resolution expressly prohibits the Bank from compromising these claims without the Bondholders' consent. Support for this assertion can only be found in the plain language of the Bond Resolution. Therefore we focus our consideration of the Heerey Group's arguments concerning the alleged prohibitions of the Bond Resolution on its express terms. 64 The Heerey Group contends that section 11.4 of the Bond Resolution, which provides that in certain types of proceedings, Bondholder consent is required before Chemical Bank may waive or change any right of any holder of Bonds, explicitly circumscribes Chemical Bank's authority to compromise its members claims without their consent. Noting that the proceedings covered include equity, receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization or other ... proceedings, the Heerey Group asserts that their claims would be liquidated and readjusted by the preclusive effect of the anti-suit injunctions and therefore consent of its members was necessary. 65 We find this contention to be meritless. The proceedings mentioned in section 11.4 refer to specific forms of judicial proceedings that have no relation to this litigation. Liquidations involve the process of reducing a corporation's assets to cash in order to discharge its liabilities. 16A Fletcher Cyclopedia of the Law of Private Corporations § 7968, at 14 (rev. perm. ed. 1988); Black's Law Dictionary 931 (6th ed. 1990). Readjustments involve the voluntary reorganization of a corporation which is in financial difficulty. Black's Law Dictionary, supra, at 1263. The Heerey Group's attempt to compare the effect of the anti-suit injunctions with these forms of proceedings on the ground that their claims will be liquidated and readjusted tortures the meaning of these words and is unpersuasive. 66 The Heerey Group next argues that section 11.5 of the Bond Resolution circumscribes Chemical Bank's powers to compromise its members' claims without their consent. Section 11.5 reads in pertinent part: 67 Nothing in the Resolution or in the Bonds or in the coupons contained shall ... affect or impair the rights of action, which are ... absolute and unconditional, of any holder to enforce the payment of his Bonds, or to reduce to judgment his claim against the System for the payment of the principal and interest on his Bonds, without reference to, or consent of, the Bond Fund Trustee or any other holder of Bonds. 68 Supply System Bond Resolution, supra, § 11.5. The Heerey Group asserts that this section expressly preserves the rights of the Bondholders to reject any settlement of their claims on the bond against WPPSS that they believe is inadequate. 69 We do not read section 11.5 so strictly. While section 11.5 does affirmatively grant to individual Bondholders the absolute and unconditional right to bring claims against WPPSS for payments on their bonds without needing the consent of Chemical Bank or other Bondholders, we do not construe this language to take away from Chemical Bank the power to settle or compromise Bondholders' claims against WPPSS, in performance of its duties under section 11.4 to bring suit for all sums due in connection with the bonds, on the ground that the Bank has not obtained universal Bondholder consent. Such a reading of section 11.5 would allow a single dissenting Bondholder, by withholding consent, to deny Chemical Bank the ability to universally settle or compromise Bondholders' claims against WPPSS as a whole, an interpretation which we find to be incongruous. Moreover, to the extent the anti-suit injunctions affect or impair the potential actions of the Bondholders against WPPSS, it is not a result of the Resolution or the Bonds or the coupons contained therein as prohibited by section 11.5; rather, it is a result of Chemical Bank's discretionary decision to enter into settlement agreements which include the authority to issue the binding injunctions. Moreover, we find nothing in the language of sections 11.6 and 11.7 that would require individual Bondholders' consent before Chemical Bank entered into the anti-suit injunctions. 70 The Heerey Group contends, however, that even if the Bond Resolution does not expressly circumscribe Chemical Bank's authority to compromise its members' claims, it does not expressly imbue Chemical Bank with this authority either. The Heerey Group asserts that section 11.4 of the Bond Resolution only authorizes Chemical Bank to bring suit on behalf of the Bondholders, but does not entitle the Bank to compromise Bondholders' claims without their consent. 71 We disagree. The Bond Resolution's choice of law clause, section 14.11, provides in pertinent part: 72 to the extent not prohibited by the laws of the State of Washington, the Bond Fund Trustee's immunities and the standard of care in performance of its duties, obligations and responsibilities ... shall be construed in accordance with and governed by the laws of the state in which the Bond Fund Trustee maintains its principal office. 73 Bond Resolution No. 911, § 14.11 (adopted April 22, 1977). Hence, Chemical Bank's standard of care in the performance of its duties, responsibilities, and obligations under the Resolution, including the question of Chemical Bank's authority to compromise Bondholders' claims, are governed by the laws of the state in which Chemical Bank maintains its principal office, provided that such law is not inconsistent with the laws of the State of Washington. 74 Chemical Bank's principal office is in the State of New York. New York statutory law provides that in the absence of contrary provisions in the trust indenture, a trustee may contest, compromise or otherwise settle any claim in favor of the estate, trust or fiduciary or in favor of third persons and against the estate, trust or fiduciary. N.Y.Est.Powers & Trusts Law § 11-1.1(b)(13) (McKinney's 1988) (emphasis added). 9 The law of the State of Washington is consistent providing that [a] trustee ... in addition to the authority otherwise given by law, [has] discretionary power to ... [c]ompromise or submit claims to arbitration[.] Wash.Rev.Code § 11.98.070(11) (1987). The common law also is in agreement. See Restatement (Second) of Trusts § 192 (1959) (The trustee can properly compromise, submit to arbitration or abandon claims affecting the trust property, provided that in so doing he exercises reasonable prudence.). We hold that in the absence of any express language in the Bond Resolution to the contrary, Chemical Bank was authorized to settle or compromise Bondholders' claims under the laws of the States of New York and Washington as provided for by section 14.11 of the Bond Resolution. 75 Lastly, the Heerey Group contends that there is no evidence that its members ever saw, let alone read, the Bond Resolution, and that even if they did, they did not intend to waive their jurisdictional defenses merely by acquiring their bonds. We reject this contention as well. Section 14.1 of the Bond Resolution states in pertinent part: 76 In consideration of the purchase and acceptance of the Bonds by those who shall hold the same from time to time, the provisions of the Resolution and of said laws shall constitute a contract with the holder or holders of each Bond and coupon pertaining thereto.... 77 Supply System Bond Resolution, supra, § 14.1 (emphasis added). The Bond Resolution is a binding contract between Chemical Bank as Bond Fund Trustee and the Bondholders. 78 Accordingly, we conclude that Chemical Bank was authorized under the terms of the Bond Resolution and applicable New York and Washington state law to consent to the binding anti-suit injunctions provided for in the settlement agreements. 79