United States Court of Appeals
For the First Circuit
No. 10-1456
IN RE: BANK OF NEW ENGLAND CORPORATION, DEBTOR
HSBC BANK USA, National Association,
as Indenture Trustee and as Successor Indenture Trustee
to JP Morgan Chase Bank, f/k/a The Chase Manhattan Bank,
as Indenture Trustee,
Appellant,
v.
BANK OF NEW YORK MELLON TRUST COMPANY, National Association,
as Indenture Trustee; U.S. BANK, National Association,
as Indenture Trustee; DR. BEN S. BRANCH, Chapter 7 Trustee
for Bank of New England Corporation,
Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
Before
Torruella, Stahl and Howard,
Circuit Judges.
Charles J. Cooper with whom Michael W. Kirk, Jesse Panuccio,
Sarah L. Reid, Alison L. MacGregor, Douglas B. Rosner, Cooper and
Kirk, PLLC, Kelley Drye & Warren LLP, and Goulston & Storrs, P.C.,
were on brief for appellant.
Dianne F. Coffino for Bank of New York and Patrick J.
McLaughlin for U.S. Bank with whom C. William Phillips, Robert M.
Hemm, Katherine A. Constantine, Todd Pearson, Pamela Foohey,
Covington & Burling LLP, and Dorsey & Whitney LLP were on brief for
appellees.
June 23, 2011
STAHL, Circuit Judge. HSBC Bank USA, N.A. appeals, for
the second time, a district court judgment that affirmed a
bankruptcy court's authorization of a distribution of assets from
the estate of Bank of New England Corporation ("BNEC") to holders
of BNEC junior debt. The parties agree that the holders of the
senior debt are entitled to priority payment of their principal
along with pre-petition interest – that is, interest that accrued
up until the filing of BNEC's bankruptcy petition – before the
holders of the junior debt may receive a distribution. At issue is
whether this senior priority also includes payment of post-petition
interest earned on the principal up until the principal was paid in
full, as HSBC contends. For the following reasons, we affirm.
I. Background
During the 1970s and 1980s, BNEC issued six series of
unsecured debt instruments that totaled over $700 million in
principal amount. Three of these offerings were issued in 1973,
1974, and 1986 and consist of senior, unsecured debt. The other
three offerings were issued in 1984, 1987, and 1989 and consist of
subordinated, or junior, unsecured debt. The holders of the senior
debt ("Senior Noteholders") are represented by indenture trustee
HSBC ("Senior Trustee"), and the holders of the junior debt
("Junior Noteholders") are represented by indenture trustees U.S.
Bank, N.A. and Bank of New York Mellon Trust Company, N.A.
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(collectively "Junior Trustees"). Choice of law clauses within the
indentures state that New York law controls the debt instruments.
The three junior indentures that govern the junior debt
contain virtually identical subordination provisions, as follows:
The Company . . . covenants and agrees, and
each Holder likewise covenants and agrees by
his acceptance thereof, that the obligations
of the Company to make any payment on account
of the principal of and interest on each and
all of the [Subordinated Notes] shall be
subordinate and junior, to the extent and in
the manner hereinafter set forth, in right of
payment to the Company's obligations to the
holders of Senior Indebtedness of the
Company . . . .
(emphasis added). In turn, each junior indenture further details:
The Company agrees that upon . . . any payment
or distribution of assets of the Company of
any kind or character . . . to creditors upon
any dissolution or winding up or total or
partial liquidation or reorganization of the
Company, whether voluntary or involuntary or
in bankruptcy, insolvency, receivership,
conservatorship or other proceedings, all
principal (and premium, if any), sinking fund
payments and interest due or to become due
upon all Senior Indebtedness of the Company
shall first be paid in full . . . before any
payment is made on account of the principal of
or interest on the indebtedness evidenced by
the [Subordinated Notes] due and owing at
the time . . . .
(emphasis added).
On January 7, 1991, BNEC filed a voluntary petition for
relief pursuant to Chapter 7 of the Bankruptcy Code. Dr. Ben S.
Branch was elected to serve as BNEC's Chapter 7 Trustee, and over
time, he made three distributions that satisfied in full the Senior
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Noteholders' principal and pre-petition interest due under the
senior notes, along with approved fees and expenses incurred
through the date of the third distribution. He also created a
reserve to cover future fees and legal expenses.
After the third distribution, made in 1999, the Chapter
7 Trustee concluded that the estate had satisfied the claims of the
Senior Noteholders, and so on May 23, 2001, he moved for
authorization to make a fourth distribution, of $11 million, which
would represent the first recovery by the Junior Noteholders.1 The
Senior Trustee objected, arguing that the Junior Noteholders were
not entitled to receive any payment until the Senior Noteholders
were paid post-petition interest.
The bankruptcy court granted the Chapter 7 Trustee's
motion over the Senior Trustee's objection and authorized the
distribution. In re Bank of New Eng. Corp., 269 B.R. 82 (Bankr. D.
Mass. 2001) ("BNEC I"). It held that, in accordance with the Rule
of Explicitness, as articulated in three court of appeals cases
1
The parties agree that although the motion concerns a
distribution of $11 million, the resolution of this dispute will
apply to the entire balance of the estate, which approximates $100
million.
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during the 1970s2 and as adhered to under New York law,3 senior
creditors can recover post-petition interest prior to a
distribution to junior creditors only when the subordination
agreement explicitly states the junior creditors' assumption of the
risk for such payment. Id. at 85-86. It then found that the
language within the junior indentures was not sufficiently explicit
to meet this standard. The district court affirmed. HSBC Bank USA
v. Bank of New Eng. Corp. (In re Bank of New Eng. Corp.), 295 B.R.
419 (D. Mass. 2003) ("BNEC II").
On appeal, we reversed. HSBC Bank USA v. Branch (In re
Bank of New Eng. Corp.), 364 F.3d 355 (1st Cir. 2004) ("BNEC III").
We explained that the accrual of interest on an unsecured claim
stops when a debtor files a bankruptcy petition, such that post-
petition interest "is generally not recoverable at all (at least,
not recoverable from the debtor)." Id. at 362, 367; see also 11
U.S.C. § 502(b)(2). We also acknowledged that subordination
agreements may sometimes prioritize the payment of post-petition
interest to senior creditors over any recovery on junior
indebtedness, entitling senior creditors to amounts that would
2
See Cont'l Ill. Nat'l Bank & Trust Co. of Chi. v. First Nat'l
City Bank of N.Y. (In re King Res. Co.), 528 F.2d 789 (10th Cir.
1976); Bankers Life Co. v. Mfrs. Hanover Trust Co. (In re Kingsboro
Mortg. Corp.), 514 F.2d 400 (2d Cir. 1975); In re Time Sales Fin.
Corp., 491 F.2d 841 (3d Cir. 1974).
3
The court relied on Chemical Bank v. First Trust of New York
(In re Southeast Banking Corp.), 156 F.3d 1114 (11th Cir. 1998), in
reaching this conclusion.
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otherwise be payable to junior creditors. BNEC III, 364 F.3d at
362. We noted that before the adoption of the Bankruptcy Code in
1978, the recovery of post-petition interest prior to any
distribution to junior creditors was controlled by the Rule of
Explicitness, an equitable doctrine fashioned by the courts that
prohibited senior creditors from recovering post-petition interest
absent unequivocal language in subordination agreements to the
contrary. Id. We concluded, however, that the 1978 enactment of
the Bankruptcy Code, and specifically § 510(a) therein,
"extinguished the Rule of Explicitness in its classic form." Id.
at 359.
In reaching our holding, we interpreted § 510(a), which
states: "A subordination agreement is enforceable in a case under
this title to the same extent that such agreement is enforceable
under applicable nonbankruptcy law." 11 U.S.C. § 510(a). We
explained that this section requires courts to reference general
principles of state contract law when enforcing subordination
agreements, and it prohibits states from creating bankruptcy-
specific rules of contract interpretation. Id. at 359, 362, 364.
In view of § 510(a), we examined New York's general
principles of contract law and found that they "do not embody any
canon that operates in the same manner as the Rule of
Explicitness." Id. at 360. Rather, we found that "New York courts
do not appear to have developed any rules of interpretation that
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apply specifically to subordination agreements," and that "the Rule
of Explicitness is not part of New York's general contract law."
Id. at 364-65.
We then applied New York contract law to determine the
meaning of the subordination provisions within the junior
indentures. Specifically, we examined whether the phrase "interest
due or to become due," owed first to the Senior Noteholders, was
meant to include post-petition interest. Id. at 366. Finding the
phrase ambiguous, we remanded to the bankruptcy court to conduct a
"contextual examination of the parties' intent, taking full account
of the surrounding facts and circumstances." Id. at 366-68. We
acknowledged that "the backdrop of bankruptcy may inform [this]
examination," id. at 368 n.5, as we noted that New York law
recognizes a "presumption that the parties had the law in force at
the time of agreement in contemplation when the contract was made
and that the contract generally will be construed in light of such
law," id. (internal marks omitted) (citing Dolman v. U.S. Trust
Co., 138 N.E.2d 784, 787 (N.Y. 1956)). We stated further, however,
that "the effect of that tenet is uncertain absent further
factfinding." Id.
On remand, the bankruptcy court bifurcated the
proceedings and decided first that each party had the burden to
establish its claim of entitlement to the disputed funds by a
preponderance of the evidence, a holding that neither party
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appealed. In re Bank of New Eng. Corp., 359 B.R. 384 (Bankr. D.
Mass. 2007) ("BNEC IV"). It then conducted a three-day evidentiary
hearing involving the testimony of several fact and expert
witnesses and approximately 200 exhibits. In re Bank of New Eng.
Corp., 404 B.R. 17, 26 (Bankr. D. Mass. 2009) ("BNEC V"). Upon
evaluation of the witnesses, exhibits, and submissions of counsel,
along with the backdrop of bankruptcy, the court concluded that the
parties to the junior indentures did not intend to permit the
holders of senior debt to receive post-petition interest prior to
payment on the junior debt. Id. at 18-19, 39. The district court
affirmed. In re Bank of New Eng. Corp., 426 B.R. 1 (D. Mass. 2010)
("BNEC VI").
On appeal, the Senior Trustee argues that the bankruptcy
court must again be reversed. It asserts that the court looked to
the incorrect law when analyzing the "backdrop of bankruptcy," and
that it essentially found that New York law does include the Rule
of Explicitness despite this court's opposite conclusion. It also
argues that the court improperly analyzed the factual evidence
presented in holding that the parties to the junior indentures did
not intend to include post-petition interest. It claims, lastly,
that because there was no competent extrinsic evidence to discern
the parties' intent, the bankruptcy court should have construed the
subordination agreements as a matter of law.
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II. Analysis
We review directly a bankruptcy court decision and give
"no special deference to the district court's determinations."
Paging Network, Inc. v. Arch Wireless, Inc. (In re Arch Wireless,
Inc.), 534 F.3d 76, 80 (1st Cir. 2008) (internal marks omitted)
(quoting Grella v. Salem Five Cent Sav. Bank, 42 F.3d 26, 30 (1st
Cir. 1994)). The bankruptcy court's conclusions of law are
accorded de novo review, and its findings of fact are reviewed for
clear error. Id.; see also BNEC III, 364 F.3d at 361. Findings of
fact "are not to be disturbed if 'supportable on any reasonable
view of the record,' viz., 'unless, on the whole of the record, we
form a strong, unyielding belief that a mistake has been made.'"
McMullen v. Sevigny (In re McMullen), 386 F.3d 320, 329 (1st Cir.
2004) (quoting Gannett v. Carp (In re Carp), 340 F.3d 15, 22 (1st
Cir. 2003)).
As we explained in BNEC III, general principles of New
York contract law must be applied to determine the meaning of the
phrase "interest due or to become due" found within the junior
indentures. 364 F.3d at 366-67. Under New York law, a
straightforward and unambiguous contract is to be interpreted as a
matter of law, but "when the meaning of the contract is ambiguous,"
as we found the provisions to be, "the intent of the parties
becomes a matter of inquiry, [and] a question of fact is
presented." Eden Music Corp. v. Times Square Music Publ'ns Co.,
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514 N.Y.S.2d 3, 5 (N.Y. App. Div. 1987). In addition,
courts may determine the meaning of ambiguous terms based on the
law in force at the time the agreements are made, as "the law in
force . . . becomes . . . part of the agreement . . . and the
contract will be construed in the light of such law." Dolman, 138
N.E.2d at 787 (interpreting the term "condemnation" found within a
lease agreement based on the New York City Administrative Code);
see also Mayo v. Royal Ins. Co. of Am., 662 N.Y.S.2d 654 (N.Y. App.
Div. 1997) (construing settlement stipulation not to allow recovery
over $50,000 in view of state statutory limit).
The bankruptcy court sought to apply New York's law-in-
force doctrine to the junior indenture agreements. It first stated
that it considered this court's prior account of New York law,
which we explained did not include a state-specific version of the
Rule of Explicitness, to be dicta. BNEC V, 404 B.R. at 27. It
then looked to determine the substantive law in effect at the time
the agreements were executed, analyzing the common law of England,
which New York adopted as its own common law, as related to
insolvency proceedings. Id. at 28-29. The court concluded:
Based upon this authority, I am convinced and
hold that, under the law of New York, interest
on an obligation ceases upon the filing of an
insolvency proceeding of whatever nature by
the obligor. This appears to have been the
law of New York for so long that the memory of
man runneth not to the contrary.
Id. at 29.
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The Senior Trustee argues that the bankruptcy court erred
by dismissing as dicta this court's previous conclusion that New
York law does not include an analog to the Rule of Explicitness.
It also claims that the bankruptcy court applied bankruptcy-
specific New York (and English) law, rather than general principles
of New York contract law. Lastly, it argues that, in reality, the
bankruptcy court's holding did little to resolve the controversy
because it simply concerned the obligations of the debtor in
bankruptcy – namely, that a debtor is not responsible for paying
post-petition interest (a principle of law neither side disputes)
– and not the subordination rights of senior creditors as compared
to junior creditors.
Although the bankruptcy court's law-in-force analysis
appears somewhat contradictory at times, nonetheless we need not
credit it, as, in the end, the discussion was unnecessary to the
holding. As we explain below, the bankruptcy court's factual
findings as to the intent of the parties were sufficient in
themselves to support the conclusion that the parties did not
intend to subordinate the Junior Noteholders to post-petition
interest.
In accordance with New York law, the parties' intended
meaning of an ambiguous term found in an agreement is to be
"ascertained in the light of the surrounding facts and
circumstances," Tobin v. Union News Co., 239 N.Y.S.2d 22, 25 (N.Y.
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App. Div. 1963), based upon the "credibility of the extrinsic
evidence or on a choice among reasonable inferences to be drawn
from it," Williams v. Brosnahan, 746 N.Y.S.2d 219, 222 (N.Y. App.
Div. 2002) (internal marks and citation omitted). A "'court may
accept any available extrinsic evidence to ascertain the meaning
intended by the parties during the formation of the contract.'"
Morgan Stanley Grp. Inc. v. New Eng. Ins. Co., 225 F.3d 270, 275-76
(2d Cir. 2000) (quoting Alexander & Alexander Servs. Inc. v. These
Certain Underwriters at Lloyd's, London, 136 F.3d 82, 86 (2d Cir.
1998)). "The varieties of extrinsic evidence that may demonstrate
circumstances surrounding formation of the contract are as
limitless as are the types of circumstances." Margaret N. Kniffin,
5 Corbin on Contracts § 24.10 (Joseph M. Perillo, ed., rev. ed.
1998). Indeed, "dictionaries, treatises, articles, and other
published materials created by strangers to the dispute . . . are
. . . entirely appropriate for use in contract cases as
interpretive aids." In re Envirodyne Indus. Inc., 29 F.3d 301, 305
(7th Cir. 1994) quoted in Corbin on Contracts § 24.10. Only if the
extrinsic evidence supplied is conclusory or unable to resolve the
ambiguity will the meaning of the term remain a question of law for
the court. New York v. Home Indem. Co., 66 N.Y.2d 669, 671 (1985).
As stated above, we review a court's factual findings
under the deferential clearly erroneous standard. See Anderson v.
Bessemer City, 470 U.S. 564, 566 (1985). In deciding whether
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factual findings are clearly erroneous, we "'must give due regard
to the trial court's opportunity to judge the witnesses'
credibility.'" Monahan v. Romney, 625 F.3d 42, 46 (1st Cir. 2010)
(quoting Fed. R. Civ. P. 52(a)(6)). "Where there are 'two
permissible views of the evidence,' the 'factfinder's choice
between those competing views cannot be clearly erroneous.'" Id.
(quoting Fed. Refinance Co. v. Klock, 352 F.3d 16, 26-27 (1st Cir.
2003)).
Here, the bankruptcy court engaged in substantial fact-
finding and determined that the parties to the subordination
agreements did not intend to subordinate the junior debt to post-
petition interest accrued on the senior debt. Although the
bankruptcy court acknowledged that no party actually involved in
the drafting of the junior indentures was located to testify, the
court relied on several other pieces of evidence to support its
conclusion. See BNEC V, 404 B.R. at 26. The court heard direct
testimonial evidence from John Cashin, the senior trust officer who
headed the trust department at Chemical Bank Delaware, the original
indenture trustee under the 1989 junior indenture, and who executed
the 1989 junior indenture. See id. at 33. Although his function
was only to comment on the duties of the trustee, he testified that
it was the bank's position that Senior Noteholders would be
entitled to "'interest and principal due to the senior holders up
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to and including the petition, but not post-petition interest.'"
Id. (quoting Cashin testimony).
The court also heard from the Junior Trustees' corporate
trust expert, James Gadsden, a practicing attorney with thirty-four
years of experience in the debt securities market and whose
testimony "added substantially to the picture of what was going on
in this field in the 1980 period." Id. at 37. Mr. Gadsden
testified that participants in the debt securities market during
the 1980s understood that a debtor's obligation to pay interest on
unsecured debt ceased upon the filing of a bankruptcy petition, and
that a junior creditor's subordination obligations were coextensive
with that of the debtor's unless the subordination agreements
explicitly stated otherwise. Id. at 37-38. He explained "'that
you needed to convey to the person who was going to acquire the
subordinated debt that the rule that interest on the senior
indebtedness would cease on the bankruptcy case was not going to
apply.'" Id. at 38 (quoting Gadsden testimony).
Gadsden also stated that, as an active participant in the
American Bar Association's Business Bankruptcy Committee and Trust
Indenture Subcommittee during the 1980s, he had been and was still
familiar with the three court of appeals decisions from the 1970s
that articulated the Rule of Explicitness. Id. at 37-38.
Notwithstanding this court's conclusion that the Rule of
Explicitness did not survive the 1978 enactment of the Bankruptcy
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Code, Mr. Gadsden testified that, as a factual matter, those three
cases were the only cases on point as to the construction of
subordination articles at the time that the junior indentures were
executed. As such, lawyers drafting indentures during the mid-
1980s knew the cases and would take them into account when drafting
subordination provisions. Id. at 38. He explained that those
cases "'form[ed] the background against which people drafted
indentures in the '80s. So they are . . . still part of what you
have to analyze in understanding what people thought they would
accomplish and would accomplish by a choice of words in the
1980s.'" Id. (quoting Gadsden testimony (emphasis in original)).
Additionally, Gilbert E. Matthews, an expert with forty
years of experience in the investment banking industry and who was
involved in the issuance of subordinated debt issues during the
1980s, testified to his opinion "that the investment banking
community understood that senior debt was paid in full when it had
received the amount owed as of the petition date." Id. at 36.
Further, he stated that the market did not believe that typical
subordination clauses like those in the junior indentures included
post-petition interest, and "'post-petition interest was not
payable, absent a specific provision that . . . permitted it.'"
Id. (quoting Matthews testimony). With respect to the interests of
the parties to a subordination agreement, Mr. Matthews noted that
such parties, which typically include the issuer and the
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underwriters and not a senior debt representative, generally have
aligned interests because the issuing company has an incentive to
make the terms favorable to junior debt so that the debt is more
easily marketed and sold.
Beyond testimonial evidence, the bankruptcy court also
considered documentary evidence supporting the Junior Trustees'
position that specific language providing for post-petition
interest was required in order to prioritize its recovery. For
example, the court considered the 1983 American Bar Association
Model Simplified Indenture, which was an update to its 1971
predecessor. The 1971 model was created before the three court of
appeals decisions articulating the Rule of Explicitness, and it
only entitled senior debt holders to "payment in full"; it did not
include express language allowing for post-petition interest. See
id. at 34. In 1983, however, the ABA published a new model
indenture, put forward after the three court of appeals cases and
the enactment of the Bankruptcy Code and around the time of the
junior indentures. This model offered practitioners an example of
the type of explicit language that would prioritize post-petition
interest. Id. at 34-36.
The 1983 Model Simplified Indenture stated that in the
event of bankruptcy or a similar proceeding, "holders of Senior
Debt shall be entitled to receive payment in full in cash of the
principal of and interest (including interest accruing after the
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commencement of any such proceeding)" before other creditors are
entitled to receive any payment. Id. at 35 (emphasis in original)
(quoting Model Simplified Indenture § 11.03 (1983)). The notes
accompanying the provision clarified further that the language used
"specifies that priority in right of payment will extent to
interest accruing on Senior Debt even after the commencement of a
bankruptcy proceeding." Id. (emphasis added) (quoting Model
Simplified Indenture § 11.03 cmt. 3). Mr. Gadsden, who studied the
1983 Model Simplified Indenture and then-market conditions when
drafting the 1999 Revised Model Simplified Indenture, explained
that at the time of the junior indentures, the market wanted senior
noteholders to recover post-petition interest, and the 1983 model
provided the type of express language required to permit its
recovery. Id. at 38.
The bankruptcy court also reviewed a manual prepared in
1977 by attorneys at the law firm Davis Polk & Wardwell, LLP, which
was counsel to the original indenture trustee under the 1984 and
1987 junior indentures and to the underwriters for the 1987 and
1989 junior indentures. See id. at 32. The manual, which remained
unaltered through the 1980s even after the enactment of the
Bankruptcy Code, demonstrated the law firm's understanding that
explicit language was required in order to prioritize post-petition
interest. The model contained a section entitled "Subordinated
Issues" and discussed the three Rule of Explicitness circuit court
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cases. Id. It explained that, in view of the circuit precedent,
lawyers representing senior debt may wish to include specific
language providing for post-petition interest recovery in order to
"eliminate[] one obstacle to the senior creditor's right to post-
petition interest." Id.; Davis Polk & Wardwell, LLP, Manual
Regarding Matters to be Examined in Representing Morgan Guar. Trust
Co. of N.Y. as Corporate Tr. of New Indentures 84-86 (1977). The
bankruptcy court acknowledged that there was no evidence that
anyone who drafted the junior indentures' subordination provisions
relied upon the manual, but the manual did "suggest[] the existence
of an institutional knowledge at Davis Polk with respect to the
Rule of Explicitness." BNEC V, 404 B.R. at 32. Also presented to
the bankruptcy court were scholarly articles published during the
1980s that corroborated the Junior Trustees' position regarding the
need for explicit language to prioritize the recovery of post-
petition interest.
To challenge this evidence, the Senior Trustee presented
the testimony of only one expert, William H. Purcell, with forty
years of experience in investment banking. Mr. Purcell analyzed
forty-six indentures culled from 1984, 1987, and 1989, the years
that the junior indentures were executed, and found three versions
of subordination provisions: one utilizing express language like
that in 1983 Model Simplified Indenture, one comparable to the
junior indentures at issue in this case, and one comparable to the
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1971 model that was silent on post-petition interest and simply
required that senior debt be "paid in full" before any payment on
the junior debt. He testified that, despite the different language
used in these sample indentures, each guaranteed that senior
noteholders were entitled to collect post-petition interest before
junior noteholders received any payment. Id. at 35, 38-39. The
bankruptcy court found this testimony "not credible" because it
required the illogical conclusion that variances in language within
indenture agreements were meaningless. Id. at 36, 39.4
In the end, the court relied on the testimony of several
witnesses, both fact and expert, documentary evidence such as the
1983 Model Simplified Indenture and the Davis Polk manual, and
contemporaneous scholarly articles in reaching the conclusion that
the Junior Trustees proved by a preponderance of the evidence that
the parties to the junior indentures did not intend to subordinate
the junior notes to post-petition interest on the senior notes. In
view of this evidence, which supports that bankruptcy court's
conclusion, we find this holding reasonable and not clearly
erroneous.
The Senior Trustee advances that the bankruptcy court
committed legal error because it effectively applied the Rule of
Explicitness by finding that explicit language was required to
4
Mr. Purcell also identified one indenture out of the forty-
six that explicitly restricted the payment of post-petition
interest.
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prioritize post-petition interest. It also argues that the
evidence presented was insufficient under New York's custom and
practice doctrine to demonstrate a custom and practice of including
explicit language within indenture agreements. We disagree.
First, the bankruptcy court's factual analysis was not a backdoor
application of the Rule of Explicitness. The court engaged in a
comprehensive, fact-intensive inquiry into the parties' intent at
the time of the agreements, not an application of a per se rule of
construction. Second, we acknowledge that the bankruptcy court
stated in a footnote at the very end of its opinion that "the
Junior Trustees failed to demonstrate that including language which
satisfies the Rule of Explicitness was part of the custom and
practice in the investment banking industry in the 1980s." BNEC V,
404 B.R. at 39 n.149. We, however, do not take this to mean that
the Junior Trustees failed to prove custom and practice. Rather,
we understand this to simply recognize that not all subordination
agreements during the 1980s included explicit language that
provided for post-petition interest, such that not all of the
agreements prioritized its recovery.
Third, in any event, even if the evidence presented did
not satisfy the doctrine of custom and practice, a court evaluates
a wide range of evidence when considering the surrounding facts and
circumstances of an agreement to determine the parties' intent as
to an ambiguous term, and it is not limited solely to the custom
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and practice doctrine. See Morgan Stanley, 225 F.3d at 275-76; 5
Corbin on Contracts § 24.10; see also E.R. Squibb & Sons, Inc. v.
Lloyd's & Co., 241 F.3d 154, 174-75 (2d Cir. 2001) (finding no
clear error in district court's interpretation of an ambiguous
contract provision that relied on expert testimony regarding a
widely recognized industry standard despite some evidence arguably
to the contrary); Evans v. Famous Music Corp., 807 N.E.2d 869, 873
(2004) (using multiple types of extrinsic evidence to interpret an
ambiguous contract provision). Here, the court engaged in a multi-
day trial full of fact and expert witness testimony and
approximately 200 exhibits, and it used this array of evidence to
reach its conclusion.
III. Conclusion
For the following reasons, we affirm the district court's
decision.
So ordered.
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