SUPREME COURT OF THE STATE OF NEW YORK
APPELLATE DIVISION – FIRST DEPARTMENT
MURRAY CAPITAL MANAGEMENT, INC.,
Plaintiff-Respondent, Index Nos. 01-105506 & 01-601827
v. BRIEF FOR AMICI CURIAE THE
BOND MARKET ASSOCIATION
OWENS-ILLINOIS, INC., AND THE SECURITIES INDUSTRY
MURRAY CAPITAL MANAGEMENT, INC.,
DEUTSCHE BANK, AG,
The Bond Market Association (“TBMA”) and the Securities Industry Association
(“SIA”) (collectively, “Amici”) respectfully submit this brief as amici curiae in support of
Defendants-Appellants for the purpose of bringing to the Court’ attention their views regarding
the enforcement of “limitation on suits” clauses (also known as “no action” clauses) frequently
contained in indentures, and the significant implications of the Supreme Court’ decision for the
operation of the U.S. bond markets.
STATEMENT OF INTEREST OF AMICI
The Bond Market Association represents securities firms and banks that underwrite, trade
and sell debt securities in the U.S. and international markets. All of the primary dealers of U.S.
Treasury bonds, notes and bills, as recognized by the Federal Reserve Bank of New York, are
members of TBMA, as are other securities and commodities brokers and dealers. TBMA’s
members transact business in a wide variety of public and private debt obligations, most of
which are bonds, notes, or similar instruments actively traded in the U.S. and abroad, including
trillions of dollars in outstanding corporate debt obligations, much of which is issued under
indentures similar to the one at bar.
From its inception in 1976 (and under its prior name of the Public Securities
Association), TBMA has addressed significant issues confronting the U.S. securities markets,
and has sought to foster sound credit, business and trading practices for participants in the debt
markets. Among other activities, TBMA provides a market perspective on debt securities and
regulation, and undertakes numerous industry initiatives to improve industry practices and
market efficiency. One of TBMA’ goals is to standardize market practices and commonly used
documentation, such as the indenture at issue in this action.
The SIA, established in 1972, is the principal trade organization of the securities industry
with a membership of nearly seven hundred securities firms in the U.S. and Canada, including
investment banks, broker-dealers, and mutual fund companies. SIA members are active in all
U.S. and foreign markets and in all areas of corporate and public finance. Through its numerous
activities, the SIA strives to inspire and maintain the public’ trust and confidence in the
securities industry and the U.S. capital markets. The SIA and TBMA both regularly submit
briefs as amicus curiae to address matters of common law, statutes and regulations that affect the
legal rights and obligations of participants in the U.S. securities and debt markets.
Amici have a significant interest in the legal and policy issues raised in this case
regarding the enforceability of limitation on suits clauses contained in many indentures. These
widely used clauses serve important purposes for both issuers and the long-term interests of
bondholders. The Supreme Court in this action refused to enforce the limitation on suits clause
contained in an indenture, holding that such clauses are unenforceable unless they appear on the
face of the bond certificate and that barring suit in these circumstances would be inequitable.
The court thus permitted a single holder of 1% of a class of a company’ debentures – and less
than 0.5% of another class – to challenge a refinancing plan that the issuer contends was critical
to the company’ long-term financed health and which no other bondholder, nor the indenture
trustee, has challenged.
Such a holding is outmoded and does not reflect commercial reality: in the vast majority
of public bond offerings, such as this one, the bonds are issued in “book entry” form, rather than
with issuance of a physical note, and bondholders only see a “form of note” (if at all) in the
context of federally mandated disclosure documents that are required to contain the indenture.
Further, to call into doubt the enforceability of clearly worded indenture provisions, like the one
at issue, would have a negative impact on all participants in the U.S. bond market by disrupting
the settled expectations of issuers, underwriters, and investors as to the meaning of provisions
they have previously agreed to and calling into question the validity of numerous corporate
actions taken on the assumption that the clauses would be respected. On the other hand, if the
court upholds the settled meaning and effect of the indenture provision at issue, market
participants will remain free to choose whether or not to include or modify it in future
indentures. Accordingly, Amici are filing this brief to lend a broad market perspective to the
issues presented on appeal. The specific concerns of Amici are set forth below.
Participants in the securities markets, and their attorneys, strive for legal certainty in their
transactions. If the parties are confident in understanding the terms and ramifications of a
financial instrument, such as a debenture issued by a corporation, they are more likely to engage
in a transaction involving that instrument. This benefits not only the particular parties, but the
financial markets as a whole, because it improves the liquidity of financial instruments, which
contributes to the efficient allocation of capital.
Recognizing the benefits of legal certainty, participants in the corporate debt market have
long turned to commonly used agreements to document the terms of debt instruments, including
indenture provisions that are often modeled on industry-wide documents developed through the
American Bar Association and subject to default provisions governed by the federal Trust
Indenture Act of 1939, 15 U.S.C. §§ 77aaa-77bbbb (“TIA”). The corporate debt market, in
which trillions of dollars in outstanding corporate debt is traded or held by institutional and retail
investors, depends heavily on uniform and consistent enforcement of commonly used indenture
terms. Without this treatment, it would be impossible for such a diverse marketplace to maintain
liquidity and predictability. Thus, it is particularly important that, when courts are called upon to
construe corporate bond indentures, they do so consistently with the stated intention of the
parties, as expressed on the face of the indenture contracts, and with an understanding of the
implications of their decisions for the market as a whole.
The lower court in this action disregarded this principle in two ways. First, the court
allowed equitable considerations to override the clear language of the provision (the “Limitation
on Suits clause”) in the bond indenture at issue (the “Indenture”), which provision bars Plaintiff-
Respondent Murray Capital Management, Inc. (“Murray Capital”) from bringing suit without the
consent of either the indenture trustee or the holders of a majority of the outstanding debt of the
class of debentures at issue. Second, the court broke new ground by refusing to enforce the
Limitation on Suits clause in the Indenture on the grounds that the limitation was not expressly
reprinted on the “form of note”, a theory that had never previously been applied outside the
context of suits for unpaid principal or interest. Such a rule makes no sense in the modern bond
market, where most bonds – including the bonds at issue – are traded and held in book entry
form. Both aspects of this decision could potentially upset the reasonable expectations of
numerous parties in the corporate debt market, and, as a result, the decision should be reversed.
STATEMENT OF FACTS
Briefly, and taking the facts in the light most favorable to the non-moving party (Murray
Capital) this case arises from allegations that Defendant-Appellant Owens-Illinois, Inc. (“Owens-
Illinois”) breached a clause contained in agreements relating to certain debentures issued by
Owens-Illinois (the “Senior Notes”) when it refinanced certain bank loans to grant bank lenders a
security interest greater than that possessed by holders of the Senior Notes.1
The Senior Notes were issued May 15, 1997, and are governed, as is customary, by a
series of documents: (1) an indenture (the “Indenture”) [R. 86-131]; (2) officers’certificates,
which attest to the necessary corporate authorization to issue each of the notes and add certain
terms to the Indenture (the “Officers’Certificate”) [R. 132-42, 152-62]; (3) a “Form of Note”
attached to each Officers’Certificate (the “Form of Note”) [R. 143-51, 163-70]; and (4) standard
terms imposed by the TIA [See, e.g., R. 95 § 1.03; R. 146 ¶ 4; 166 ¶ 4].
As is common among notes of this nature, the Senior Notes appear to have been issued
solely in book entry form. The “Form of Note” annexed to each Officers’Certificate – the only
“note” in the record, as Murray Capital does not allege that it ever saw or received a copy of a
note – contains the following recital:
Owens-Illinois contends that the structure of the financing, involving loans to Owens-Illinois subsidiaries in exchange
for liens on assets of the subsidiaries, did not violate the relevant contract terms. Amici do not address this issue,
inasmuch as the enforceability of the Limitation on Suits clause is not dependent upon the merits of the underlying
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC); ANY TRANSFER, PLEDGE, OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
DTC OR TO A SUCCESSOR THEREOF OR SUCCESSOR’ NOMINEE
AND LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED
Form of Note [R. 143]. See also [R. 163 (containing substantially identical language)].
(capitalization in original; emphasis omitted). In the standard practice of the bond market, this
means that these bonds are what is known as “book entry” bonds. As described in more detail
below (see infra Point III (A)), the practical effect of holding in book entry form is that
bondholders do not receive a separate “note” or “certificate”; rather, the interests of all
bondholders are registered with DTC. Thus, what the bondholder who buys a book entry bond in
a public offering receives are (1) a confirmation of the bond purchase from its broker-dealer and
(2) such disclosure documents as are required by the Securities and Exchange Commission
(“SEC”). A purchaser of the bonds in the secondary market, such as Murray Capital (see Cpl. ¶2
[R. 71]), receives only the confirmation, but can easily obtain other public disclosure documents,
such as the registration statement, that are on file with the SEC.
Each Form of Note, as is customary, expressly incorporates by reference the terms of the
Indenture, which made the Indenture a part of the Form of Note as a matter of black-letter
contract law as discussed below. See infra Point III(B). Paragraph 4 of each Form of Note,
entitled “Indenture,” specifically states:
The terms of the Securities include those stated in the Indenture [including
the Officers’Certificate] and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 . . . (the “TIA”). The Securities are
subject to all such terms, and Securityholders are referred to the Indenture
and the TIA for a statement of those terms. Any conflict between the terms
of this Security and the Indenture will be governed by the Indenture.
Form of Note ¶ 4 [R. 146 ¶ 4; 166 ¶ 4]. The Indenture, likewise, incorporates by reference the
terms of the TIA. See Indenture § 1.03 [R. 95 § 1.03].
Among the terms of the Indenture that are contained in the Officers’Certificate is a
clause identified as “Limitation on Liens,” also sometimes referred to as a “negative pledge.”
See Officers Certificate § 4.09 [R. 135-36 § 4.09; R. 155-56 § 4.09]. Murray Capital alleges
that, pursuant to this provision, “Owens could grant [a] security [interest] to other lenders to
Owens – including bank lenders – only if it granted to holders of the Notes the identical level of
security.” Cpl. ¶ 11 [R. 73]. Owens contested this reading of the provision’ language in its
motion to dismiss on the basis of the documentary evidence pursuant to CPLR 3211(a)(1), but,
as discussed below, the merits of the parties’respective readings of the Limitation on Liens
clause of the Indenture are irrelevant to the enforceability of the Limitation on Suits clause. See
infra Point I(B). The Form of Note makes reference to this and other clauses of the Indenture,
but the details are set forth in the Indenture and Officers’Certificate and not in the Form of Note:
The Indenture imposes certain limitations on the Company’ and its
Subsidiaries’ability to enter transactions with Affiliates, to create or incur
certain Liens on any of its assets or properties or any shares of Capital
Stock or Indebtedness of any Subsidiary, to make Investments in
Unrestricted Subsidiaries, to consolidate or merge, or transfer all or
substantially all of its property or assets, and to pay any fees to Holders for
or as an inducement to any consent, waiver or amendment of the Indenture.
Form of Note ¶ 4 [R. 146 ¶ 4; 166 ¶ 4].
Section 6.06 of the Indenture, titled “Limitation on Suits,” provides in pertinent part:
A Holder of securities may not pursue a remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a continuing Event of
Default with respect to that series;
(2) the Holders of at least 50% in principal amount of the then outstanding
Securities of that series make a written request to the Trustee to pursue the
(3) such Holder or Holders offer to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
(5) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities of that series do not give the
Trustee direction inconsistent with the request.
Indenture § 6.06 [R. 112 § 6.06]. The terms of the Limitation on Suits clause are likewise not
directly reprinted in the Form of Note, but the section in each Form of Note on “Defaults and
Remedies” does indicate – in language taken directly from the TIA – that “[s]ubject to certain
provisions, including those requiring security or indemnification of the Trustee, the holders of a
majority in principal amount of the Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee . . . .” Form of Note ¶ 11
[R. 148 ¶ 11; R. 168 ¶ 11]. See 15 U.S.C. § 77ppp(a)(1)(A).
It is apparently undisputed that Murray Capital, a holder of 1% of one class of the Senior
Notes and less than 0.5% of another class, did not comply with this provision, nor has the trustee
or any other holder of the Senior Notes taken action. The parties’contentions before the court
below instead centered on whether there was any basis for Murray Capital to avoid the
application of the clause.
Each of the documents before the Court – the Indenture, the Officers’Certificate, and the
Form of Note – was filed with the SEC in a Form 8-K dated May 16, 1997, and the Indenture
was also filed with the SEC in a Registration Statement on Form S-3 dated April 14, 1997.2 As
discussed in more detail below (see infra Point III (A)), the filing of the Registration Statement
was mandatory under federal securities law for the Senior Notes to be offered to the public.
THE DECISION BELOW
The threshold issue faced by the court below in its opinion was whether the Limitation on
Suits clause barred the action. The court declined to enforce the clause on two grounds. First,
noting its conclusion that Owens-Illinois had “unilaterally and wrongfully” breached the
“Limitation on Liens” clause, the court found that “[u]nder the circumstances, barring plaintiff
from any redress would be manifestly unjust,” and “[w]here there is a wrong there should be a
remedy.” Memorandum Decision and Order dated January 7, 2001 (“Mem.”) at 5 [R. 11
(quoting Harrison v. Schultz, 240 A.D. 13, 16-17 (1st Dep’ 1934)]. Second, quoting Friedman
v. Airlift Int’ Inc., 44 A.D.2d 459, 460 (1st Dep’ 1974), the court held that “‘[r]estrictions
against suit in an indenture are not effective unless the face of the bond gives adequate notice of
the restriction.’” Mem. at 5 [R. 11]. Thus, based upon its finding that “the Notes, on their face,
do not give adequate notice of the limitation on suits provision,” the court concluded that the
Limitation on Suits clause did not bar the action. Mem. at 5 [R. 11].
Amici respectfully submit that the lower court’ decision conflicts with longstanding
precedents and settled commercial practice, injects an unnecessary element of uncertainty into
These forms are publicly available on the SEC’ website at
the corporate debt markets, and applies a concept of “notice” that is utterly meaningless in the
context of book entry bonds issued in a public offering. This Court should reverse the Supreme
Court’ decision and enforce the Limitation on Suits clause under its express terms.
I. THE CORPORATE DEBT MARKET RELIES ON UNIFORM
ENFORCEMENT OF COMMONLY USED TERMS IN BOND INDENTURES
In approaching the terms of the Indenture and the Senior Notes, the Court should bear in
mind the nature of the instruments and the practical commercial realities of the marketplaces in
which they are purchased and sold. Both longstanding judicial precedent and commercial
practice compel three conclusions: (1) the Court should construe the terms consistent with the
intention of the parties as expressed on the face of the indenture and without reference to any
extraneous evidence of the intent of the parties before the Court; (2) the Court should construe
the terms in a way that will apply uniformly to all indentures containing the same or similar
terms, rather than by reference to the factual setting of this dispute; and (3) the Court should
seek, to the greatest extent possible, to construe the terms consistently with prior judicial
A. The Corporate Debt Market Is A Large, Active Market That Relies On
Commonly Used Contract Terms To Facilitate Liquidity
The market for corporate debt is vast, liquid, and active. As of September 30, 2001, there
was approximately $3.7 trillion in corporate debt outstanding in the hands of institutional and
retail investors. A large proportion of this debt consists of debt securities issued to the public,
and all publicly issued debt is issued under an indenture.4 The vast majority of these indentures,
In the lower court, Murray Capital raised a number of other challenges to the application of the Limitation on Suits
clause other than equitable considerations and the failure of the clause to be reprinted in the Senior Notes. While
Amici do not address these contentions, these three principles apply equally to the proper approach to resolving such
Debentures, such as the Senior Notes at issue, are generally unsecured debt and as such are distinct from corporate
“bonds,” although the terms are commonly used interchangeably. See Broad v. Rockwell Int’ Corp., 642 F.2d 929,
in turn, contain standard terms modeled on industry-standard documents. Notwithstanding the
existence of standardized terms in trust indentures, market participants can and often do vary
individual terms. The existence of standard terms serves two purposes: it reduces the number of
terms that need to be negotiated in advance of a bond issuance, and it provides a settled meaning
to those that are negotiated and agreed upon in the standard form.
The process by which corporate bond indentures are negotiated was aptly described by
the court in Metropolitan Life Insur. Co. v. RJR Nabisco, 716 F. Supp. 1504, 1509 (S.D.N.Y.
1989) (“RJR I”):
No one disputes that the holders of public bond issues, like
plaintiffs here, often enter the market after the indentures have
been negotiated and memorialized. Thus, those indentures are
often not the product of face-to-face negotiations between the
ultimate holders and the issuing company. What remains equally
true, however, is that underwriters ordinarily negotiate the terms of
the indentures with the issuers. Since the underwriters must then
sell or place the bonds, they necessarily negotiate in part with the
interests of the buyers in mind. Moreover, these indentures were
not secret agreements foisted upon unwitting participants in the
bond market. No successive holder is required to accept or to
continue to hold the bonds, governed by their accompanying
indentures; indeed, plaintiffs . . . could have sold their bonds right
up until the announcement of the [disputed transaction]. Instead,
sophisticated investors like plaintiffs are well aware of the
indenture terms and, presumably, review them carefully before
lending hundreds of millions of dollars to any company.
B. State And Federal Courts In This State And Elsewhere Have Consistently
Urged A Uniform Construction Of Commonly Used Terms In Indentures
As a general rule, “[a] standardized agreement is to be interpreted whenever reasonable
as treating alike all those similarly situated, without regard to their knowledge or understanding
941 n.12 (5th Cir.) (en banc), cert. denied 454 U.S. 965 (1981) (quoting American Bar Foundation, Commentaries on
Indentures 7 n.3 (1971)). As discussed below, the important features of these debentures for present purposes are that
(1) they were publicly issued, (2) under an indenture, and (3) in book entry form.
of the standard terms of the writing.” Canel v. Fed. Home Loan Mortgage Corp., No. 85 C 1424,
1985 WL 2929, at *3 (N.D. Ill. Sept. 30, 1985) (citing Restatement (Second) of Contracts
§ 211(2) (1982)).
It is well-settled that the rights of bondholders, with certain limited exceptions not
relevant here, are determined by contract.5 Because of New York’ prominence as a financial
center and the standard incorporation in most bond indentures of a clause applying the internal
laws of New York to the indenture, the courts of this State and the New York federal courts have
both had extensive experience interpreting bond indentures, and other courts interpreting
indentures have generally applied New York law to interpret indentures. There has developed
among these courts a long tradition of reading indentures to have a consistent, uniform meaning.
Because of the importance of the interpretation of New York law to the national market for
corporate debt securities, the Supreme Court’ decision, if allowed to stand, could significantly
disrupt this market and would serve as a disincentive to selection of New York law as the
governing law for bond indentures.
In the seminal case in the Second Circuit, Sharon Steel Corp. v. Chase Manhattan Bank,
N.A., 691 F.2d 1039 (2d Cir. 1982), cert. denied, 460 U.S. 1012 (1983), the court was asked to
resolve competing interpretations of a provision in an indenture that required immediate
redemption of debentures under certain circumstances.6 Sharon Steel argued that the district
See, e.g., New York State Med. Care Facilities Fin. Agency v. Bank of Tokyo Trust Co., 163 Misc. 2d 551, 556, 621
N.Y.S.2d 466, 470 (Sup. Ct. N.Y. Cty. 1994), aff’ 216 A.D.2d 126, 629 N.Y.S.2d 3 (1st Dep’ appeal dismissed, 87
N.Y.2d 892, 663 N.E.2d 914, 640 N.Y.S.2d 873 (1995); AMBAC Indem. Corp. v. Bankers Trust Co., 151 Misc.2d 334,
336, 573 N.Y.S.2d 204, 206 (Sup. Ct. N.Y. Cty. 1991); Elliott Assocs. v. J. Henry Schroder Bank & Trust Co., 838
F.2d 66, 70-71 (2d Cir. 1988); RJR I, 716 F. Supp. at 1524-25; Simons v. Cogan, 549 A.2d 300, 303-04 (Del. 1988)
(applying Delaware law). See also Manufacturers & Traders Trust Co. v. Erie County Indus. Dev. Agency, 280 A.D.2d
909, 910, 719 N.Y.S.2d 914, 914 (4th Dep’ 2001) (applying terms of indenture regarding date interest was to accrue
until); Beck v. Mfrs. Hanover Trust Co., 218 A.D.2d 1, 10-13, 632 N.Y.S.2d 520, 526-28 (1st Dep’ 1995) (describing
exceptions regarding duties of indenture trustee).
The claims in Sharon Steel centered on a “successor obligor” provision, which permitted assumption of debt by a
purchasing corporation if the corporate successor to the issuer purchased “all or substantially all” of the issuer’ assets.
court erred in not submitting to the jury the question of the meaning of the clause in question.
The Second Circuit disagreed, noting that successor obligor clauses are “boilerplate” provisions
found in virtually all indentures:
There are no adjudicative facts relating to the parties to the litigation for a
jury to find and the meaning of boilerplate provisions is, therefore, a matter
of law rather than fact.
Id. at 1048 (emphasis added). The court emphasized the importance of uniformity of
interpretation in the capital markets:
“A large degree of uniformity in the language of debenture indentures is
essential to the effective functioning of the financial markets: uniformity of
the indentures that govern competing debenture issues is what makes it
possible meaningfully to compare one debenture issue with another,
focusing only on the business provisions of the issue . . . and the economic
conditions of the issuer, without being misled by peculiarities in the
underlying instruments.” Whereas participants in the capital markets can
adjust their affairs according to a uniform interpretation, whether it be
correct or not as an initial proposition, the creation of enduring uncertainties
as to the meaning of boilerplate provisions would decrease the value of all
debenture issues and greatly impair the efficient working of capital markets.
Such uncertainties would vastly increase the risks and, therefore, the costs
of borrowing with no offsetting benefits either in the capital market or in the
administration of justice. Just such uncertainties would be created if
interpretation of boilerplate provisions were submitted to juries sitting in
every judicial district in the nation.
Id. (emphasis added) (quoting Broad v. Rockwell Int’ Corp., 642 F.2d 929, 943 (5th Cir.) (en
banc), cert. denied, 454 U.S. 965 (1981)).
The Court of Appeals, in a recent decision addressing the construction of indentures,
echoed this approach. The Eleventh Circuit, in In re Southeast Banking Corp., 156 F.3d 1114
If the debt was not assigned, the issuer was required to pay off the debt immediately. The issuer (UV) liquidated its
assets piecemeal, with Sharon Steel acquiring the last remaining assets and agreeing to assume all of UV’ liabilities,
including the debentures. The indenture trustees, however, refused to sign supplemental indentures and, instead, issued
notices of default demanding redemption.
(11th Cir. 1998), was presented with the question of whether senior debenture holders were
entitled to interest accruing after the filing of a bankruptcy petition by the issuer, where the
indentures under which unsecured subordinated debentures were issued made no mention of the
possibility of such interest. Noting a longstanding “Rule of Explicitness” under federal law
(prior to adoption of the Bankruptcy Code) permitting such interest to be paid only when there
was clear language to that effect in the subordinated indentures, the Eleventh Circuit, citing
Sharon Steel and Broad, indicated its hesitance “to depart from prior practice” but decided to
certify the question to the New York Court of Appeals to resolve as a matter of first impression
under New York law. Id. at 1125.
On certification, the New York Court of Appeals decided to follow the prior rule,
stressing it was “acutely cognizant of the practical effect that our answer to the certified question
will have on a vast sea of subordination agreements not before us now in live cases or
controversies, nor even within the framework of this Eleventh Circuit litigation, involving
enormous sums of outstanding public debt” that were “drafted and entered into before the Rule
of Explicitness was called into question by the ruling of the Eleventh Circuit in the instant case.”
In re Southeast Banking Corp., 93 N.Y.2d 178, 183-84, 710 N.E.2d 1083, 1086, 688 N.Y.S.2d
484, 487 (1999). The court emphasized the need to consider the interests of parties not before
This practical policy consequence is a matter of legitimate concern in the
common-law developmental process, especially with respect to commercial
matters where reliance, definiteness and predictability are such important
goals of the law itself, designed so that parties may intelligently negotiate
and order their rights and duties. Parties to subordination agreements
undoubtedly relied on the Rule – their lawyers would have been quite
remiss had they not – since recent case law, as well as a leading authority
and many commentators have consistently recognized the continued vitality
of the Rule.
Id., 93 N.Y.2d at 184, 710 N.E.2d at 1086, 688 N.Y.S.2d at 487 (emphasis added).
Numerous other courts have followed the approach laid out in Broad and Sharon Steel,
frequently noting the danger to the marketplace of varying interpretations of standardized
indenture agreements. See, e.g., Leverso v. SouthTrust Bank of Al., N.A., 18 F.3d 1527, 1531,
1534 (11th Cir. 1994) (finding it “imperative that the terms of the indenture govern the parties’
contractual rights as determined by the judiciary”); Metropolitan Life Insur. Co. v. RJR Nabisco,
Inc., 906 F.2d 884, 891 (2d Cir. 1990) (rejecting appeal to “modern equity practice” in
construing bond; “[w]e concede without apology that we believe contract provisions specifying
60-day periods mean 60 days rather than 60 days plus an additional period calculated by the
length of the chancellor’ foot”); Chase Manhattan Bank v. Traffic Stream (BVI) Infrastructure
Ltd., 86 F. Supp. 2d 244, 256 (S.D.N.Y. 2000) (“the meaning of ‘boilerplate’provisions should
be determined by courts as a matter of law”), vacated on other grounds, 251 F.3d 334 (2d Cir.
2001) (finding absence of diversity jurisdiction), cert. granted, 122 S. Ct. 803 (2002); United
States Trust Co. of N.Y. v. Alpert, 10 F. Supp.2d 290, 305-06 (S.D.N.Y. 1998) (reliance on
equitable considerations to override indenture terms “would send shock waves to the markets”
and “would not only change the very nature of the investment but also be an unworkable
concept”); RJR I, 716 F. Supp. at 1514-16, 1520-22 (“this Court . . . cannot ignore or disavow
the marketplace in which the contract is performed. Nor can it ignore the expectations of that
market – expectations, for instance, that the terms of an indenture will be upheld, and that a court
will not, sua sponte, add new substantive terms to that indenture as it sees fit.”).7
Here, the Supreme Court relied in part on “the equities” and its view of what “would be
manifestly unjust” in declining to enforce the express terms of the indenture. Mem. at 5 [R. 11].
See also Granite Partners, L.P. v. Bear, Stearns & Co., 17 F. Supp. 2d 275, 302-03 (S.D.N.Y. 1998) (accepting view of
TBMA, as amicus, urging court to follow standard terms of industry standard agreement for “repo” transactions; “[t]he
determination of market participants that elect to enter into a repo transaction has been and should be respected and
Equitable considerations, however, could just as easily point in the opposite direction, towards
permitting a refinancing undertaken to maximize the company’ long-term financial health that
apparently raised no objection among the great majority of Owens-Illinois’bondholders. In
either event, however, the courts should not impose their own judgment of the equities on terms
that the parties agreed would cover their transaction. In light of the principles set forth above,
the Supreme Court’ reliance on equitable considerations to override the clear language of an
indenture was wholly inappropriate and casts unwarranted doubt on the enforceability of
commonly used indenture terms.
II. LIMITATION ON SUITS CLAUSES ARE WIDELY USED, SERVE AN
IMPORTANT FUNCTION, AND HAVE BEEN LONG ENFORCED IN
A limitation on suits clause similar to the one at bar has been included in each generation
of the American Bar Foundation’ Model Debenture Indenture and Commentaries thereto, which
were first issued in 1970 and has been followed by the American Bar Association’ Model
Simplified Indenture, which was issued in 1983 and revised and updated in 1999. See Revised
Model Simplified Indenture, 55 Bus. Lawyer 1115, 1137-38, 1191-92 (2000) (Revised Model
Simplified Indenture §6.06); Model Simplified Indenture, 38 Bus. Lawyer 741, 757, 794 (1983)
(Model Simplified Indenture §6.06); American Bar Foundation, Commentaries on Indentures
232-34 (1971) (Model Indenture §507) (collectively, the “Model Indentures”). These model
indentures were each the product of intensive labor and research by experienced counsel
throughout the United States, and represent a considered, consensus judgment that is routinely
relied upon by parties and counsel to transactions in debt securities. The Model Indentures and
their settled expectations will not be overturned.”).
the Commentaries have been cited and followed by many courts as the authoritative source for
construction of commonly used indenture terms.
Following the Model Indentures, limitation on suits clauses are today standard in many
indentures. In recognition of this widespread practice, the New York courts have enforced
limitation on suits clauses for more than a century, stretching back at least to the Court of
Appeals’decision in Batchelder v. Council Grove Water Co., 131 N.Y. 42, 46-47, 29 N.E. 801,
801-02 (1892). The courts of this State and the New York federal courts have had many
occasions since to enforce such clauses, which “are strictly construed.” Cruden v. Bank of New
York, 957 F.2d 961, 968 (2d Cir. 1992). See, e.g., Bank of N.Y. v. Battery Park City Author.,
251 A.D.2d 211, 211, 675 N.Y.S.2d 860, 860 (1st Dep’ 1998) (mem.); Feder v. Union Carbide
Corp., 141 A.D.2d 799, 800, 530 N.Y.S.2d 165, 166-67 (2d Dep’ 1988); Sutter v. Hudson Coal
Co., 259 A.D. 1053, 1053-54, 21 N.Y.S.2d 40, 41 (2d Dep’ 1940) (mem.) (“[P]laintiff did not
allege compliance with the requirements of the trust indenture in the event of a breach . . . [i]n
the absence of such allegations and proof, the trustee is the only one who may maintain an action
against the defendant in respect of such a breach.”); Greene v. New York United Hotels, Inc.,
236 A.D. 647, 648, 260 N.Y.S. 405, 407 (1st Dep’ 1932), aff’ 261 N.Y. 698, 185 N.E. 798
(1933); Levy v. Paramount Publix Corp., 149 Misc. 129, 133-34, 266 N.Y.S. 271, 276 (Sup. Ct.
d, t), d,
N.Y. Cty. 1933), aff’ 241 A.D. 711, 269 N.Y.S. 997 (1st Dep’ aff’ 265 N.Y. 629, 193 N.E.
418 (1934); Ernst v. Film Prod. Corp., 148 Misc. 62, 63, 264 N.Y.S. 227, 229 (Sup. Ct. N.Y.
Cty. 1933); Relmar Holding Co. v. Paramount Publix Corp., 147 Misc. 2d 824, 825, 263 N.Y.S.
776, 778 (Sup. Ct. N.Y. Cty. 1932) (rejecting argument that no-action clauses were against
public policy), aff’ 237 A.D. 870, 261 N.Y.S. 959 (1st Dep’ 1933); Friedman v. Chesapeake &
Oh. Ry. Co., 395 F.2d 663, 664 (2d Cir. 1968), cert. denied, 393 U.S. 1016 (1969); McMahan &
Co. v. Wherehouse Entm’ Inc., 859 F. Supp. 743, 747-49 (S.D.N.Y. 1994) (dismissing state law
claims but not federal securities claims pursuant to “no action” clause), rev’ in part on other
grounds, 65 F.3d 1044, 1050-51 (2d Cir. 1995) (affirming refusal to dismiss federal securities
claims but not addressing state claims), cert. denied, 517 U.S. 1190 (1996); Victor v. Riklis, No.
91 Civ. 2897, 1992 WL 122911, at *6 (S.D.N.Y. May 15, 1992).8 Cf. Caplan v. Unimax
Holdings Corp., 188 A.D.2d 325, 326, 591 N.Y.S.2d 28, 28 (1st Dep’ 1992) (mem.) (“[T]he
express terms of the Indenture providing a limited release against all but defendant corporation is
not violative of public policy.”)
The highest courts of two other states have followed suit, see Simons, 549 A.2d at 305-
06; Haberman v. Wa. Pub. Power Supply Sys., 109 Wash.2d 107, 149-53, 744 P.2d 1032, 1061-
63 (Wash. 1987) (en banc), opinion amended, 189 Wash.2d 107, 750 P.2d 254 (Wash.), appeal
dismissed, 488 U.S. 805 (1988), as have other courts across the country. See, e.g., Alleco, Inc. v.
IBJ Schroder Bank & Trust Co., 745 F. Supp. 1467, 1476 (D. Minn. 1989) (enforcing “no
action” clause to dismiss counterclaims where issuer had brought action for declaratory
In enforcing these provisions, the courts have regularly recognized that limitation on suits
clauses serve an important and useful function: they permit the bondholders, collectively and
through the trustee, to limit recourse to litigation to those situations where they perceive a
genuine threat to the long-term interests of the bondholders. The bondholders are thus
empowered to reach a collective decision as to whether the harm of a potential breach is
See also Campbell v. Hudson & Manhattan R. Co., 277 A.D. 731, 734-35, 102 N.Y.S.2d 878, 881-82 (1st Dep’ t)
(noting general rule supporting no-action clauses in “numerous decisions upon this subject” but permitting suit where
trustee admitted in answer to complaint that court should permit suit), aff’ 302 N.Y. 902, 100 N.E.2d 183 (1951).
outweighed by its benefit to the issuer’ financial stability or by the expense of litigation. In
Batchelder, for example, the Court of Appeals observed that a “no action” clause
subjects the action to be taken by the bondholders to the will of a majority,
and insures that course of action . . . which will inure to the best interest of
the bondholders as a class. This prevents individual bondholders from
pursuing an individual course of action, and thus harassing their common
debtor, and jeopardizing the fund provided for their common benefit . . . It
is not reasonable to suppose that the bondholders, as a class, intended to
make a contract which should lead to that result.
Batchelder, 131 N.Y. at 46-47, 29 N.E. at 801-02 (emphasis added). The original Model
Indenture echoed this concern:
The major purpose of this Section is to deter individual debenture-holders
from bringing independent law suits for unworthy or unjustifiable reasons,
causing expense to the Company and diminishing its assets. The theory is
that if the suit is worthwhile, [the specified percentage] of the
debentureholders would be willing to join in sponsoring it.
Model Indenture, at 232 (emphasis added).9 See also Feder, 141 A.D.2d at 800, 530 N.Y.S.2d at
67 (citing Model Indenture).
Here, Murray Capital contends that Owens-Illinois granted bank lenders an interest
superior to that of the bondholders, thus placing them in a worse legal position than the one in
which they had previously been. Murray Capital claims that it has the contractual right to sue to
stop this; Owens-Illinois, in addition to disputing the merits of the contract claim, contends that
the refinancing was necessary for Owens-Illinois’ long-term financial health and, among other
things, to ensure that Owens-Illinois would be in a position to continue to make payments on the
debentures. If Murray Capital is correct, the bondholders had a potentially meritorious claim; if
Owens-Illinois is right, there may well have been a good reason not to pursue it. Resolution of
While the Model Indenture and many indentures have provided for 25% approval to institute suit, a 50% threshold such
as the one included in the Owens-Illinois indentures is not unusual or unreasonable and, as noted below, is consistent
with the default provisions of the TIA. See infra Point III(C).
this dispute – whether the legal rights and equities of the parties, when taken together with
concerns over the long-term financial health of the issuer, justifies the filing of suit – is a classic
example of a decision that calls for the exercise of business judgment. This is precisely why the
Model Indentures, and the Indenture at bar, delegate such decisions to the trustee or a majority
of the holders. The parties to the Owens-Illinois Indenture agreed that this decision is better left
to their determination rather than being subject to intervention by the court on equitable grounds.
If the Court refuses to enforce the clause, however, numerous corporate actions undertaken to
benefit the corporation and with the consent of a majority of the bondholders could be called into
question, and the ability of trustees to exercise judgment in the interests of bondholders as a
group will be compromised.
III. REQUIRING TERMS IN BOND INDENTURES TO BE REPRINTED IN
BOND CERTIFICATES IS INCONSISTENT WITH PRESENT
COMMERCIAL PRACTICE AND FEDERAL LAW AND WOULD UPSET
THE REASONABLE EXPECTATIONS OF THE CORPORATE DEBT
Given the widespread and longstanding use of limitation on suits clauses in indentures
and the extensive judicial approval such clauses have received, the court below erred in imposing
an additional requirement that the clause must have been reprinted in the Form of Note itself as
well as the Indenture. The only cases in which such restrictions have been required have been
cases where the bondholder sued for payment of principal or interest due unconditionally at
maturity, a claim quite different from the one at bar. Moreover, this rule is based upon outdated
provisions of State commercial law that have no application to publicly traded securities, and it
conflicts with the approach taken in the TIA.
A. Under Present Commercial Practice and the Federal Regulatory Scheme,
Holders of Corporate Bonds Issued in Book Entry Form Have No Greater
Access To Bond Certificates Than To The Indenture
The court below attached dispositive significance to “adequate notice” on the “face” of
the Form of Note. In today’ debt markets, however, there is no occasion for a bondholder to
review a form of note in isolation from the indenture, and therefore no meaningful “notice” is
given by the redundant disclosure required by the Supreme Court.
In rare instances, some corporate bonds are still issued in the traditional form of bearer
certificates, with the owner's name printed on them. There are no coupons attached for the
owner to submit for payment of interest. The issuer's agent or trustee sends the interest to the
bondholder at the proper intervals and forwards the principal at maturity. “Book entry,”
however, has long since replaced certificates as the form of issuance for the overwhelming
majority of corporate debentures. With book-entry securities, a bond issue has only one master,
or global, certificate, which is kept at a securities depository, generally DTC. The ownership of
book-entry bonds is recorded in the investor's brokerage account. All interest and principal
payments are forwarded to the brokerage account. The only time the investor sees a copy of the
form of note, if at all, is in the disclosure documents, such as the registration statement, which is
required to include the indenture. As discussed above, the record discloses that the Owens-
Illinois bonds at issue were book entry bonds.
Because the Owens-Illinois bonds were initially sold in a public offering, they were
required to be registered under Section 7(a) of the Securities Act of 1933. See 15 U.S.C.
§ 77g(a). Section 7(a), in turn, provides that “[t]he registration statement … shall contain the
information … specified in Schedule A”; Schedule A, in turn, requires inclusion in the
registration statement of “a copy of the underlying agreements or indentures affecting any …
bonds, or debentures offered or to be offered.” 15 U.S.C. § 77aa(32) (emphasis added).
Pursuant to these requirements, Owens-Illinois filed with the SEC on April 14, 1997 a
Registration Statement on Form S-3 containing, among other things, the Indenture, and further
filed, on May 16, 1997 a Form 8-K containing, among other things, the Indenture, the Officers’
Certificates, and the Form of Note. Any investor who cared to do so could easily obtain a copy
of this filing from the SEC or print a copy from the SEC’ website.10
Moreover, Section 305 of the TIA requires heightened disclosure consisting of “[a]n
analysis of any provisions of such indenture” regarding certain critical terms such as the
definition of an event of default or the release of property secured by an indenture for secured
notes. See 15 U.S.C. §77eee(a)(2). It further permits the SEC to insert its own explanation of
the indenture’ terms if “necessary and appropriate in the public interest or for the protection of
investors … ” 15 U.S.C. §77eee(c). Congress, however, did not require any additional
disclosures for limitations on suits clauses, although (as discussed below) the TIA expressly
addresses such clauses. Moreover, the TIA expressly permits compliance with TIA disclosure
requirements “by incorporating by reference any information or documents on file with the
Commission,” including documents filed under the Securities Act. 15 U.S.C. § 77hhh(a).
Far from being hostile to terms that appear solely in the indenture, the SEC has sought to
simplify and streamline the provisions of indentures. In 1981, for example, the SEC issued a
release under the Trust Indenture Act notifying issuers of an indenture that had come to its
Because the Registration Statement and Form 8-K are documents on file with the SEC, the court may appropriately
choose to take judicial notice of them. See Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991) (district
court could properly take judicial notice of the contents of public disclosure documents filed with the SEC); Faulkner v.
Verizon Communications, Inc., 156 F. Supp.2d 384, 391 (S.D.N.Y. 2001) (taking judicial notice of reports filed
pursuant to SEC regulations); Aerotel, Ltd. v. Sprint Corp., 100 F. Supp.2d 189, 192 n.3 (S.D.N.Y. 2000) (taking
judicial notice of public disclosure documents required to be filed with the SEC). Even if the Court does not, however,
Amici respectfully submit that the Court’ legal analysis of Murray Capital’ claim should take into consideration that
indentures of this nature are generally on file with the SEC and thus easily accessible to any interested investor, and
that proof of such a filing should be sufficient to establish that adequate notice has been given of the terms of the
indenture at issue.
attention that reduced cumbersome text by incorporating the statutorily-mandated provisions by
reference. “The advantage of this indenture is that it incorporates by reference many of the
provisions of the Trust Indenture Act required to be included in qualified indentures, instead of
physically incorporating such provisions in the language of the indenture itself, in the traditional
complex manner.” Simplified Form of Trust Indenture, Trust Indenture Act Release No. 39-605,
46 Fed. Reg. 3500, Fed. Sec. L. Rep. (CCH) ¶ 42,164B, at 32,115-16, 1981 WL 108252 (January
8, 1981). The SEC noted that incorporation by reference made the indenture “simple and
straightforward” and observed that “shortcuts in indenture draftsmanship . . . contribute to
speedier processing of registration statements”. Id. See also Techniques in Drafting Trust
Indentures, Securities Act Release No. 33-6090, 44 Fed. Reg. 43,466, Fed. Sec. L. Rep. (CCH) ¶
42,164A, at 32,115, 1979 WL 169928, at *1-2 (July 11, 1979) (suggesting use of a standard form
such as a “verbatim” copy of the Model Indenture coupled with “a supplemental indenture [to be
filed] as an exhibit to the registration statement.”).
Cases requiring notice on the face of the note are a relic of the age when paper
certificates were the dominant method of recording debenture interests, and are in any event
limited to facts very different from those present here. Today, there is no meaningful distinction
between disclosure in the “note” and in the indenture as far as notice to investors, and the federal
disclosure scheme provides adequate assurance that investors can obtain and review the
indenture if they so choose. Indeed, Murray Capital alleges in its Complaint that it relied, in
purchasing the Senior Notes, on the terms of the Indenture itself. Cpl. ¶¶ 18, 33 [R. 75, 79].
Few, if any, investors will benefit in any meaningful way from a rule, like the one fashioned by
the Supreme Court, requiring disclosure of terms in the form of note, at the cost of added
uncertainty and the potential expense of reviewing and amending scores of existing forms of
note, which are mostly held only by DTC.
B. Limitation on Suits Clauses Are Only Disfavored In Cases Where They
Restrict The Holder’ Ability To Sue For Payment When It Is
As a general rule, a contract will be deemed to include the terms of any document
incorporated by reference therein.11 The rule applies equally to bond indentures.12 Courts
considering limitations on suits clauses in indentures have generally followed this rule and
enforced the terms of the indentures regardless of whether they were expressly reprinted in the
bonds.13 The court below relied upon two cases in holding that a limitation on suits clause in an
indenture is unenforceable if it is not contained in the notes: Friedman v. Airlift Int’ Inc., 44
A.D.2d 459, 460, 355 N.Y.S.2d 613, 614 (1st Dep’ 1974), and the principal case it relied upon,
Cunningham v. Pressed Steel Car Co., 238 A.D. 624, 626-27, 265 N.Y.S. 256, 259-260 (1st
Dep’ 1933), aff’ 263 N.Y. 671, 189 N.E. 750 (1934). Mem. at 5 [R. 11] The rule announced
in these cases, however, is based upon outdated commercial law concerns that are not implicated
by an action to enforce a “Limitation on Liens” clause in an indenture in the context of
debentures sold in a registered public offering in book entry form.
See, e.g., Advanced Refractory Tech., Inc. v. Power Auth. of N.Y., 81 N.Y.2d 670, 678, 623 N.E.2d 6, 9, 603 N.Y.S.2d
285, 288 (1993) (“The provisions of a Federal Act, when incorporated by reference into a contract . . . are part of the
agreement.”); Manufacturers & Traders Trust Co. v. Erie County Indus. Dev. Agency, 269 A.D.2d 871, 872, 703
N.Y.S.2d 636, 638 (4th Dep’ 2000) (mem.) (indenture and related agreements read together as part of the same
transaction); Perl v. Smith Barney Inc., 230 A.D.2d 664, 665, 646 N.Y.S.2d 678, 679 (1st Dep't) (enforcing provision
of booklet that was incorporated by reference in brokerage account agreement signed by plaintiff), appeal denied, 89
N.Y.2d 803, 675 N.E.2d 1234, 653 N.Y.S.2d 281 (1996).
See, e.g., RJR I, 716 F. Supp. at 1509; In re W.T. Grant Co., 4 B.R. 53, 73 (Bankr. S.D.N.Y. 1980), aff’ 20 B.R. 186
(S.D.N.Y. 1982), aff’ 699 F.2d 599 (2d Cir.), cert. denied, 464 U.S. 822 (1983).
See, e.g., Greene, 236 A.D. at 648, 260 N.Y.S. at 407 (“[P]laintiff as a bondholder holds his securities subject to the
condition of this underlying trust agreement and can maintain an action only upon the conditions specified in the trust
agreement.”); Relmar, 147 Misc. 2d at 825, 263 N.Y.S. at 778 (same); McMahan, 859 F. Supp. at 748 (same).
First, both Friedman and Cunningham involved claims for payment that was
unconditionally due and owing on the bonds. Indeed, Friedman explicitly distinguished “cases
where the bondholder sought not only payment but a collection right provided in the indenture.”
Friedman, 44 A.D.2d at 461, 355 N.Y.S.2d at 615. The opinion in Cunningham opens:
The question here presented is whether certain bonds . . . contain on their
face an absolute and unconditional promise to pay the bearer at maturity, or
whether a reference provision to the terms of another unattached document
makes them subject to a condition which might postpone payment
Cunningham, 238 A.D.2d at 624, 265 N.Y.S. at 257. Here, of course, there is no claim of non-
payment whatsoever, let alone non-payment when unconditionally due and owing. Rather,
Murray Capital seeks to enforce a covenant relating to security interests held by other parties.14
The principal animating concern in these and similar cases was not the enforceability of
indenture terms generally but the concern that application of a limitation on suits clause to a
claim for overdue payments would impair the negotiability of the notes, which would be
impeded if there were restrictions on the absolute right to recover payment when due. See Tandy
Corp. v. United States, 626 F.2d 1186, 1192 (5th Cir. 1980) (citing Model Indenture
Commentaries, at 234-35; purpose of exception, taken from Model Indenture, to limitation on
suits clause for claims for overdue payments “was to assure the negotiability of the Debentures
by making certain that the promise to pay contained in the Debentures was unconditional”).
Friedman made clear its reliance on this reasoning:
Here, of course, Murray Capital seeks enforcement of a right in the Officers’ Certificate as a rider to the Indenture,
rather than anything in the Form of Note itself. Although the Form of Note does reference the Limitation on Liens
clause generally, one would have to read the Officers’Certificate to know what its terms are.
There are really two distinct agreements, one embraced in the debenture
bond and the other in the indenture. The indenture provides certain rights
of collection in the event of certain contingencies and also sets up
procedural limitations on the enforcement of those rights. The bond itself is
intended to be a negotiable instrument. Any limitation on the obligation to
pay at maturity appearing on its face would render it non-negotiable.
Friedman, 44 A.D.2d at 461, 355 N.Y.S.2d at 615. This was premised upon the court’ finding
that “[t]he law is clearly and comprehensively set out in Cunningham.” Id.
The First Department’ decision in Cunningham, in turn, relied in part on Section 90 of
the former Negotiable Instruments Law, holding that giving effect to the limitation on suits
clause would render the bonds non-negotiable under the Negotiable Instruments Law, thus
impeding their marketability. Cunningham, 238 A.D.2d at 627-28, 265 N.Y.S. at 260-61.
(“these bonds . . . are negotiable instruments and have no doubt been purchased by the general
public as such . . . [T]o uphold the construction defendant now seeks to place upon these bearer
bonds would render them nonnegotiable.”). Section 90 of the Negotiable Instruments Law has
been superseded by § 3-301 of the New York Uniform Commercial Code (UCC). See N.Y.
UCC § 3-301 (2002) (“The holder of an instrument . . . may . . . enforce payment in his own
name.”). Article 3 of the UCC covers negotiable instruments and specifically excludes
investment securities from its coverage. See N.Y. UCC § 3-103 and cmt. 1 (2002).15 Therefore,
Article 3 does not cover the debentures at issue in this action. Rather, the bonds here are covered
by Article 8 of the UCC.16 See Vigilant Ins. Co. of Am. v. Housing Auth. of El Paso, Texas, 87
N.Y.2d 36, 43, 660 N.E.2d 1121, 1125, 637 N.Y.S.2d 342, 346 (1995) (finding that bearer bonds
Furthermore, to the extent that an instrument may be an “investment security” under Article 8 and “negotiable” under
Article 3, it is covered by Article 8 rather than Article 3. See N.Y. UCC § 3-103, cmt. 2 (2002).
Article 8 defines “securities” as “an obligation of an issuer. . . (i) . . . the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer; (ii) which is one of a class or series. . .; and (iii) which
(A) is . . . dealt in or traded on securities exchanges or securities markets.” N.Y. UCC § 8-102(15). The debentures at
issue meet these requirements.
were “securities” within the meaning of Article 8 and thus not covered by Article 3); Goldstein
v. Engel, 240 A.D.2d 280, 281 (1st Dep’ 1997) (holding that certificated bonds were governed
exclusively by Article 8 even though they might have qualified as commercial paper under
Article 3). There is no indication in Article 8 that a limitation on suits clause would restrict the
transferability of an investment security. Thus, the reasoning behind the decision in Friedman
and Cunningham is simply inapplicable under New York’ current law regarding negotiable
Moreover, Cunningham was decided on the basis of facts predating enactment of the
federal securities laws, including the Securities Act and the TIA, and its reasoning is difficult to
square with post-1933 disclosure practices. The court noted that “[t]he application executed by
defendant for listing them on the New York Stock Exchange refers to no provision in the
indenture, or otherwise, which would preclude any holder from enforcing collection at
maturity . . . .” Cunningham, 238 A.D.2d at 627, 265 N.Y.S. at 260 (emphasis added). Here, of
course, the Indenture was required to be, and was, fully disclosed for all investors to examine in
Owens-Illinois’required filing with the SEC.
To the extent that Friedman and Cunningham have any continuing validity in the
environment of bonds sold in a registered public offering in book entry form, their hostility to
limitation on suits clauses must be limited to claims for the payment of overdue principal or
interest. This distinction is a well-recognized one in this context. The caselaw has drawn it
explicitly, as courts have distinguished Friedman and Cunningham where more than just
repayment was at issue. See, e.g., McMahan, 859 F. Supp. at 748 & n.7; Jackson Nat’ Life Ins.
Co. v. Ladish Co., No. 92 Civ. 9358, 1993 WL 43373, at *5-7 (S.D.N.Y. Feb. 18, 1993) (citing
Friedman to permit suit for unpaid interest without compliance with “no action” clause, but not
right to acceleration based on terms of indenture); Haberman, 744 P.2d at 1026 (Washington
law). Other courts have also found the distinction significant. See also Cruden, 957 F.2d at 968
(“Notwithstanding the ‘ action’clause, the debenture holders have an absolute right to institute
suit after nonpayment of principal or interest.”) (emphasis in original); In re Envirodyne Indus.,
Inc., 174 B.R. 986, 993-97 (Bankr. N.D. Ill. 1994) (finding that investors properly brought
involuntary bankruptcy proceedings against issuer, without complying with limitation on suits
clause, because issuer had not paid past due interest); Continental Bank & Trust Co. of N.Y. v.
First Nat’ Petroleum Trust, 67 F. Supp. 859, 871 (D.R.I. 1946) (construing TIA); Ernst, 148
Misc. at 63, 264 N.Y.S. at 229.
The distinction between suits to recover money owed after default on an instrument and
suits to enforce other terms of the instrument is one long recognized under New York law and
codified in the provisions of CPLR 3213 allowing for commencement of summary actions
brought on by service of a summons and motion for summary judgment in lieu of a complaint
“when an action is based upon an instrument for the payment of money only”. N.Y. C.P.L.R.
3213 (2001). Such summary actions are not permitted, and the ordinary incidents of pleading
procedure are required to be followed, when an action does not seek exclusively the recovery of
money after default. See, e.g., Weissman v. Sinorm Deli Inc., 88 N.Y.2d 437, 444-45, 669
N.E.2d 242, 245-46 646 N.Y.S.2d 308, 311-12 (1996) (suit on indemnification not suit on “an
instrument for the payment of money only” where proof required of “liabilities and obligations
. . . [that] can only be ascertained by resorting to evidence outside the instrument”).17
Accord R-H-D Constr. Corp. v. Miller, 222 A.D.2d 802, 803, 634 N.Y.S.2d 846, 847 (3rd Dep't 1995) (defenses
relating to alleged oral agreement took case out of purview of CPLR 3213); Grossman v. Laurence Handprints-N.J.,
Inc., 90 A.D.2d 95, 98, 355 N.Y.S.2d 852, 854 (2d Dep’ 1982) (complaint asserting several causes of action not one
“for the payment of money only”); Signal Plan, Inc. v. Chase Manhattan Bank, 23 A.D.2d 636, 637, 256 N.Y.S.2d 866,
867 (1st Dep’ 1965) (CPLR 3213 not applicable to action for breach of contract).
The holdings of Friedman and Cunningham apply only to similar collection actions.
They should not have been extended to this context.
C. Refusal To Enforce The Indenture Would Conflict With The Carefully
Crafted Federal Scheme Governing Bond Indentures
Congress enacted the TIA in 1939 – immediately following many of the New York cases
upholding limitations on suits clauses – after careful study of then-current practices in drafting
bond indentures. Congress specifically noted its awareness of the distinction between the terms
that were then ordinarily contained in bond certificates and those contained in trust indentures,
and imposed specific disclosure requirements and specific restrictions on the permitted scope of
limitations on suits clauses. Congress nonetheless declined to ban such clauses or to require that
such clauses be inserted into the bond certificate. The rule of Friedman and Cunningham
extends no further than what Congress has already provided by appropriate legislation. The
Supreme Court’ decision, however, would go significantly further and prohibit enforcement of
terms permitted by Congress. To avoid a conflict with federal law, therefore, this Court should
reverse and limit Friedman and Cunningham to suits to recover past due principal or interest.
Among its findings regarding common practices in the debt markets, the 1939 Congress
The use of the trust-indenture is a practical necessity where bonds
are to be nationally distributed . . . The indenture, which is from 50
to 200 pages long, vests in the indenture trustee powers with
respect to the enforcement of the issuer’ obligations and the
bondholders’rights, for it is impracticable in such cases for the
bondholders to attempt such enforcement by individual action.
The bond itself is only 1 page long, but it incorporates, by general
reference to the indenture, many important and frequently
complicated provisions which, although the bondholder rarely sees
them, legally constitute part of his contract with the borrower.
H. Rep. No. 1016, at 24 (June 30, 1939) (emphasis added). The solutions chosen by Congress to
its concerns regarding the protection of bond investors, as discussed in more detail below, are
carefully balanced to reflect the importance of bond indenture terms and to mandate their
disclosure in publicly filed documents – not to force issuers to squeeze more disclosures onto
bond certificates. Indeed, that approach is one reason why the market has been able to evolve
away from the use of paper certificates.
Several of the cases that drew a distinction between suits to collect unpaid principal and
interest and other suits to enforce terms in an indenture have relied upon the express distinction
drawn by Congress in the TIA, which declares unlawful any provision imposing restrictions on
suits to recover past due principal or interest. See 15 U.S.C. § 77ppp(b).18 In light of the TIA,
each generation of the Model Indenture has included a provision – incorporated in the indenture
at bar – to provide for individual suits for such purpose.19 As Congress recognized in passing the
TIA, “[u]ntil comparatively recently, a prohibition of this sort was perfectly standard in note and
bond indentures. In many states it is necessary in order to preserve the negotiability of the notes
or bonds . . . [t]his prohibition does not prevent the majority from binding dissenters by other
changes in the indenture or by a waiver of other defaults . . . .” H. Rep. No. 1016, at 56 (June 30,
1939) (emphasis added).
Section 316(b) provides:
Notwithstanding any other provision of the indenture to be qualified, the right of any holder of any indenture
security to receive payment of the principal of and interest on such indenture security, on or after the
respective due dates expressed in such indenture security, or to institute suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected without the consent of such
holder, except as to a postponement of an interest payment consented to as provided in paragraph (2) of
subsection (a) of this section, and except that such indenture may contain provisions limiting or denying the
right of any such holder to institute any such suit, if and to the extent that the institution or prosecution
thereof or the entry of judgment therein would, under applicable law, result in the surrender, impairment,
waiver, or loss of the lien of such indenture upon any property subject to such lien.
15 U.S.C. § 77ppp(b) (emphasis added). One exception is provided: the indenture may, but is not required to, permit
75% of holders to consent to a limited postponement of interest payments. See 15 U.S.C. § 77ppp(a)(2).
See Revised Model Simplified Indenture, 55 Bus. Lawyer at 1138, 1193-94 (Revised Model Simplified Indenture
§6.07); Model Simplified Indenture, 38 Bus. Lawyer at 757-58, 795 (Model Simplified Indenture §6.07);
Commentaries on Model Indenture at 234-35 (Model Indenture §508). See also Indenture ¶ 6.07 [R. 112 ¶ 6.07].
The TIA, however, expressly permits clauses in indentures that empower the trustee and
the majority to control the filing of other suits and, in fact, imposes them on the parties unless
they negotiate for a different result:
The indenture to be qualified - (1) shall automatically be deemed (unless it
is expressly provided therein that any such provision is excluded) to contain
provisions authorizing the holders of not less than a majority in principal
amount of the indenture securities or if expressly specified in such
indenture, of any series of securities at the time outstanding (A) to direct the
time, method, and place of conducting any proceeding for any remedy
available to such trustee, or exercising any trust or power conferred upon
such trustee, under such indenture, or (B) on behalf of the holders of all
such indenture securities, to consent to the waiver of any past default and its
consequences . . . .
77 U.S.C. § 77ppp(a)(1) (emphasis added). Moreover, the TIA expressly permits the inclusion
of other terms in the indenture, leaving no room for state law to impose additional restrictions on
the effectiveness of clear indenture terms besides those contained therein:
The indenture to be qualified may contain, in addition to provisions
specifically authorized under this subchapter to be included therein, any
other provisions the inclusion of which is not in contravention of any
provision of this subchapter.
77 U.S.C. § 77rrr(b) (emphasis added).
Notably, in inserting provisions into the default indenture and permitting other provisions
in the indenture, the TIA does not also require inclusion of the provision in accompanying
certificates. The automatic inclusion of default terms was added to the TIA in 1990, in
legislation initially proposed to Congress by the SEC. This provision was intended to “remove a
significant administrative burden from the Commission, whose staff now reviews the indentures
to ensure that those terms are properly included,” and to “reduc[e] legal and printing costs
attendant to the requirement of recitation.” 101 Cong. Rec. 15,915 (Nov. 16, 1989) (statement of
Sen. Riegle). Congress believed that incorporation of terms by reference would ensure that
“bondholders will get the protection of the statute regardless of what is put in or left out of the
indenture.” Id. at 15,916 (statement of Sen. Dodd). Under the theory adopted by the Supreme
Court, however, indenture terms may be rendered ineffective if not reprinted in a bond
It is well-settled that, where the federal securities laws expressly permit a particular
practice or form of disclosure, state law requirements that would render the permission useless
are preempted.20 Here, the TIA’ carefully crafted federal scheme – particularly when taken in
combination with the required disclosure of the indenture’ terms under the Securities Act –
would be unsettled by allowing additional state law disclosure requirements to intrude beyond
the scope of what is already accomplished by the TIA.
The holdings of Friedman and Cunningham went no further than TIA Section 316(b); the
Supreme Court’ decision herein goes much further. To avoid conflict with federal law, this
Court should reverse and hold that the Limitation on Suits provision, as disclosed in Owens-
Illinois’SEC filing and in compliance with the TIA, is enforceable according to its express
See Guice v. Charles Schwab & Co., 89 N.Y.2d 31, 46-47, 674 N.E.2d 282, 290, 651 N.Y.S.2d 352, 360 (1996), cert.
denied, 520 U.S. 1118 (1997); Estate of Braunstein v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 238 A.D.2d 242,
243-44, 657 N.Y.S. 2d 12, 13 (1st Dep’ (mem.), app. dismissed, 90 N.Y.2d 934, 686 N.E.2d 1366, 664 N.Y.S.2d 271,
app. denied, 99 N.Y.2d 803, 691 N.E.2d 630, 668 N.Y.S.2d 558 (1997), cert. denied, 523 U.S. 1119 (1998); Levitin v.
Paine Webber, Inc., 159 F.3d 698, 705-06 (2d Cir. 1998), cert. denied, 525 U.S. 1144 (1999).
For the reasons stated above, amici curiae The Bond Market Association and the
Securities Industry Association respectfully submit that the decision of the court below was in
error and that the court should enforce the Limitation on Suits clause in the Indenture pursuant to
its express terms.
Dated: New York, New York
February 19, 2002
SIDLEY AUSTIN BROWN & WOOD LLP
875 Third Avenue
New York NY 10022
A. Robert Pietrzak (AP 6711)
Daniel A. McLaughlin (DM 2688)
John M. Ramsay (JR 7126)
Michel de Konkoly Thege (MD 5858)
The Bond Market Association
40 Broad Street
New York, NY 10004
George R. Kramer (GK 7592)
Securities Industry Association
1401 I Street N.W.
Washington, DC 20005
Attorneys for Amici Curiae The Bond Market
Association and the Securities Industry