A suit was filed by a company holding long-term notes in an allegedly insolvent Delaware corporation. The controlling company argued that the suit should be dismissed because the indenture governing the notes had a no-action clause precluding suit unless certain preconditions were met and the note holder had not fulfilled the preconditions. In an earlier decision, the Chancery Court concluded that the no-action clauses considered in the previous Delaware cases were substantively different from the no-action clause in the instant case. Specifically, the no-action clauses in the earlier cases barred actions to enforce not only rights arising under the respective indentures, but also “‘any remedy with respect to this Indenture or the Securities.’” The instant case contained a no-action clause that barred actions to enforce rights “‘upon or under or with respect to this Indenture.’”
The Supreme Court certified questions to the New York Court of Appeals as to whether the no-action clause at issue precludes only actions based on contract law or also precludes all common law and statutory claims related to securities. The Court of Chancery concluded in its report that the no-action clause precludes only contract claims. The New York Court of Appeals has been asked to pronounce on whether this is correct.