Delaware Supreme Court Certifies Questions to New York Court of Appeals on "No Action" Clauses in Trust Indentures

On November 7, 2013, the Delaware Supreme Court issued a decision in Quadrant Structured Products Co., Ltd. v. Vertin, in which it certified the following questions of law to the New York Court of Appeals:

(1) A trust indenture no-action clause expressly precludes a security holder who fails to comply with that clause's preconditions, from initiating any action or proceeding upon or under or with respect to "this Indenture," but makes no reference to actions or proceedings pertaining to "the Securities."

The question is whether, under New York law, the absence of any reference in the no-action clause to "the Securities" precludes enforcement only of contractual claims arising under the Indenture, or whether the clause also precludes enforcement of all common law and statutory claims that security holders as a group may have.

(2) In its Report on Remand . . . , the Court of Chancery found that the . . . no-action clause [in this case], which refers only to "this Indenture," precludes enforcement only of contractual claims arising under the Indenture. The question is whether that finding is a correct application of New York law to the . . . no-action clause [in this case].

The Delaware Supreme Court emphasized the importance of certifying these questions to the New York Court of Appeals given that "[i]n our national securities markets, the law governing many (if not most) publicly traded debt securities is a creature of New York law. Important rights and requirements pertaining to those securities are expressed in indentures that are, and for over a century have been, governed by New York law." According to the Delaware Supreme Court, there is little, if any, New York case law discussing these issues.