Chesapeake Energy Corp. v. Bank of N.Y. Mellon Trust Co.

• Decision Date: 15 September 2016
• Docket Number: August Term 2015,No. 15-2366-cv,15-2366-cv
• Citation: 837 F.3d 146
• Parties: Chesapeake Energy Corporation, Plaintiff–Appellant, v. Bank of New York Mellon Trust Company, N.A., Defendant–Appellee.
• Court: U.S. Court of Appeals — Second Circuit

837 F.3d 146

Chesapeake Energy Corporation, Plaintiff–Appellant,

v.Bank of New York Mellon Trust Company, N.A., Defendant–Appellee.

No. 15-2366-cv

August Term 2015

United States Court of Appeals, Second Circuit.

Argued: June 13, 2016

Decided: September 15, 2016

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.

Before: Cabranes, Lohier, and Carney, Circuit Judges.

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.

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

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 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 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 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 ification 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 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 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, 992 N.Y.S.2d 687, 16 N.E.3d 1165 (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, 521 N.Y.S.2d 653, 516 N.E.2d 190 (1987) (“It is impermissible ... to seek damages in an action sounding in quasi contract where the suing par...