IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 16, 2009
No. 08-10235 Charles R. Fulbruge III
Clerk
AFFILIATED COMPUTER SERVICES INC
Plaintiff - Appellee
v.
WILMINGTON TRUST COMPANY, solely in its capacity as Indenture
Trustee on behalf of all Holders of Affiliated Computer
Services Incs’s 5.20% Senior Notes Due 2015 and all Holders
of Affiliated Computer Services Inc’s 4.70% Senior Notes Due
2010
Defendant - Appellant
Appeal from the United States District Court
for the Northern District of Texas
Before JONES, Chief Judge, WIENER and STEWART, Circuit Judges.
CARL E. STEWART, Circuit Judge:
Affiliated Computer Services, Inc. (“ACS”) brought a declaratory judgment
action against The Bank of New York Trust Company (“Bank of New York”),
later substituted by Wilmington Trust Company (“Wilmington Trust”), seeking
a determination that ACS was not in breach of an indenture agreement
(“Indenture”) entered into between ACS and the Bank of New York. Wilmington
Trust filed a counterclaim for a declaratory judgment that ACS breached the
Indenture by failing timely to file a Form 10-K with the Securities and Exchange
No. 08-10235
Commission (“SEC”), that ACS breached its covenant of good faith and fair
dealing, and that ACS violated § 314(a) of the Trust Indenture Act of 1939
(“TIA”). The parties filed cross-motions for summary judgment, and the district
court granted ACS’s motion and entered judgment in favor of ACS. For the
following reasons, we affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
The relevant facts are undisputed in this case. On June 6, 2005, ACS
entered into the Indenture and supplemental indentures pursuant to which ACS
issued two sets of notes, one at 5.20% and another at 4.70%. The notes issued
at 5.20%, which are due on June 1, 2015, are the only notes relevant to this
appeal. ACS timely made semi-annual interest payments on the notes.
The notes were publicly traded throughout the relevant time period, and
thus, ACS was required to file reports with the SEC pursuant to Sections 13 and
15(d) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78m, 78o(d). ACS’s
Form 10-K for 2006 was due to be filed with the SEC on September 13, 2006. On
September 14, 2006, ACS filed a Notification of Late Filing explaining that it
was unable timely to file its 10-K because of an ongoing internal investigation
into its historical stock option practices. ACS eventually filed its 10-K with the
SEC on January 23, 2007, and two days later, it delivered a copy of the 10-K to
Wilmington Trust.
The Indenture contains the following “Event of Default”, among others:
“[ACS] fails to comply with any of its other covenants or agreements in, or
provisions of, the Securities of that series or this Indenture . . . .” Indenture §
6.01(3). In the Event of Default, the trustee may accelerate the notes by written
notice and declare the principal and interest due and payable immediately.
Indenture § 6.02. On September 22, 2006, Cede & Co., acting on behalf of
beneficial owners, delivered a Notice of Default to ACS and The Bank of New
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No. 08-10235
York, the trustee at the time. On September 29, 2006, the Bank of New York
delivered a similar Notice of Default to ACS, and on October 5, 2006, other
holders of notes forwarded default notices to ACS. The notices asserted that
ACS defaulted on the Indenture by failing timely to file the Form 10-K. Cede &
Co. delivered a Demand to Accelerate Notes on September 29, 2006, and the
Bank of New York submitted a similar demand on October 6, 2006. Both
demands declared the principal and interest due and payable immediately. ACS
did not honor either acceleration notice.
ACS responded to the notice of default by filing a declaratory judgment
action on September 26, 2006, seeking a determination that it was not in default
under the Indenture. The Bank of New York resigned as Indenture Trustee and
Wilmington Trust succeeded as trustee and defendant in the declaratory
judgment action. Wilmington Trust filed a counterclaim against ACS, bringing
claims for breach of contract based on §§ 4.03 and 6.02 of the Indenture, breach
of the covenant of good faith and fair dealing, and for violation of § 314(a) of the
TIA.
Section 4.03 of the Indenture provides in pertinent part as follows:
[ACS] shall file with the Trustee, within 15 days after it files the
same with the SEC, copies of the annual reports and the
information, documents and other reports (or copies of those
portions of any of the foregoing as the SEC may by rules and
regulations prescribe) that [ACS] is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. [ACS] shall
also comply with the provisions of TIA 314(a).
Indenture § 4.03(a). Section 314(a) of the TIA similarly requires an issuer of
bonds to
file with the indenture trustee copies of the annual reports and of
the information, documents, and other reports (or copies of such
portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which such obligor is required to file with the
Commission . . . .
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No. 08-10235
15 U.S.C. § 77nnn(a).
The parties filed cross-motions for summary judgment. The district court
addressed the following issue: whether the Indenture requires ACS to timely file
with the trustee the reports that it files with the SEC, even if the SEC filings are
themselves untimely. The court agreed with ACS’s interpretation that the
provisions merely require ACS timely to file with the trustee the reports that
ACS has filed with the SEC. The parties also briefed whether acceleration of the
notes was proper. The district court did not address those arguments because
the court found that ACS was not in default. From the judgment in favor of
ACS, Wilmington Trust timely appealed.
II. STANDARD OF REVIEW
We review a district court’s grant of summary judgment de novo. LeMaire
v. La. Dep't of Transp. & Dev., 480 F.3d 383, 386 (5th Cir. 2007). Summary
judgment is appropriate when “the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to
any material fact and that the movant is entitled to a judgment as a matter of
law.” F ED. R. C IV. P. 56(c). Legal questions of statutory construction and
contract interpretation are also reviewed de novo. S.D. ex rel Dickson v. Hood,
391 F.3d 581, 585 (5th Cir. 2004); Gonzalez v. Denning, 394 F.3d 388, 392 (5th
Cir. 2004). The Indenture’s choice-of-law provision specifies that it is to be
governed and construed by New York law, while interpretation of the TIA is a
matter of federal law. See Henderson v. Stalder, 407 F.3d 351, 356 (5th Cir.
2005).
III. DISCUSSION
Wilmington Trusts argues that ACS failed timely to file its annual report
with the SEC and, after missing that filing, failed timely to file an annual report
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No. 08-10235
with the trustee. Wilmington Trust argues that this was a breach of the
Indenture and in violation of § 314(a) of the TIA, and it asserts three reasons
why ACS and the district court’s interpretations to the contrary are wrong.
First, Wilmington Trust argues that § 314(a) of the TIA requires ACS to provide
the trustee with copies of reports that it is “required to file” with the SEC, and
it does not limit the requirement to only reports that are actually filed. Second,
Wilmington Trust contends that ACS’s failure timely to file reports with the SEC
was the failure of a condition precedent to its obligation to the trustee, and it
cannot take advantage of its failure to fulfill a condition precedent to argue that
it has not breached its obligation to provide the trustee with the required
reports. Finally, Wilmington Trust relies on the purpose of the Indenture to
argue that ACS was required to file with the trustee even though it did not
timely file with the SEC. We will address each of these arguments.
A. Section 314(a) of the TIA
Section 314(a) of the TIA requires an issuer of bonds to file with the
trustee copies of the annual reports which it is “required to file” with the SEC.
See 15 U.S.C. § 77nnn(a). The Indenture also requires compliance with § 314(a),
and ACS does not dispute that it was required to comply with the provision of
the section. The dispute turns on the interpretation of § 314(a), which is a
matter of first impression for this court. Wilmington Trust contends that §
314(a) requires ACS to provide copies of the reports it is required to file with the
SEC regardless of whether ACS actually filed the reports. ACS argues that §
314(a) requires that it only file with the trustee the reports that it has in fact
filed with the SEC. The district court held that § 314 obligates ACS to file with
Wilmington Trust “copies of the reports and documents that ACS files with the
SEC, but § 314(a) does not require that ACS file anything with the SEC.”
After the district court entered its judgment, the Eighth Circuit addressed
this same issue in UnitedHealth Group Inc. v. Wilmington Trust Co., 548 F.3d
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No. 08-10235
1124 (8th Cir. 2008). In UnitedHealth, the court held that “TIA § 314(a) requires
only that debt issuers forward to their trustees copies of such reports as are
actually filed with the SEC.” Id. at 1131. The court explained that “the TIA’s
reference to §§ 13 and 15(d) of the Exchange Act merely identifies which reports
must eventually be forwarded to the trustee. It does not independently impose
any particular timetable for filing nor does it incorporate the SEC’s regulatory
deadlines.” Id. at 1130.
Wilmington Trust argues that SEC Rule 19a-1 and circumstances
surrounding it demonstrate that the SEC has interpreted the TIA to require
timely filing of SEC reports. In 2002, the SEC issued the 34 Act Order
permitting companies normally audited by Arthur Andersen LLP,1 an
accounting firm, to file unaudited financials with their annual and quarterly
reports with the SEC. 34 Act Order, SEC Release No. 45589, 2002 WL 417359
(Mar. 18, 2002). The SEC concurrently promulgated Rule 19a-1, titled
“Compliance with Section 314(a)(1) of the Trust Indenture Act for certain eligible
indenture obligors,” 2 which states that
[a]n “eligible indenture obligor” that files with the indenture trustee
those Exchange Act reports filed with the Commission in accordance
with the Release referred to in paragraph (b)(2) of this section has
met its duty under Section 314(a)(1) of the Act (15 U.S.C.
77nn(a)(1)) to “file with the indenture all reports required to be filed
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934.”
17 C.F.R. § 260.19a-1(c). The Release referred to in paragraph (b)(2) of the
section is the 34 Act Order. See id. § 260.19a-1(b)(2). The 34 Act Order allowed
1
No party contends that ACS was a client of Arthur Andersen LLP.
2
According to the rule, an “eligible indenture obligor” is an obligor that is required to
file reports with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act
and that may rely on the provisions of the 34 Act Order. 17 C.F.R. § 260.19a-1(b).
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No. 08-10235
certain exemptions to companies audited by Arthur Andersen LLP, provided
those companies met certain conditions. See 34 Act Order.
Wilmington Trust suggests that if the TIA imposed no time for filing SEC
reports, there was no need to adopt Rule 19a-1 because issuers simply could
have waited until they were able to obtain an audit, however long that may have
taken, without violating Section 314(a)(1), and the only possible reason for the
accommodation was that bond issuers unable to complete a timely audit due to
Arthur Andersen’s circumstances would have been late on the filings required
of them by the TIA. Wilmington Trust also contends that the rule and
circumstances surrounding it demonstrate that the SEC has recognized that the
TIA requires timely filing of SEC reports. ACS suggests a different purpose for
Rule 19a-1, stating that it simply recognizes that a report without audited
financials is not the type of report required by the Exchange Act, but if a filer
takes advantage of the 34 Act Order exemption and forwards to the trustee
reports filed under the 34 Act Order, the filer has complied with § 314(a)(1).
After Arthur Andersen LLP was indicted, the SEC adopted rules “to
assure a continuing and orderly flow of information to investors and the U.S.
capital markets and to minimize any potential disruptions” as a result of the
indictment. Requirements for Arthur Andersen LLP Auditing Clients, SEC
Release No. 2018, 2002 WL 417378 (Mar. 18, 2002). The circumstances
surrounding Rule 19a-1 thus indicate that the rule was clarifying that
companies potentially affected by the indictment of Arthur Andersen LLP may
file unaudited financials as opposed to audited financials. The TIA does not
impose any independent obligation timely to file reports with the SEC, and
Wilmington Trust’s import of Rule 19a-1 to conclude otherwise ignores the
limited purpose of Rule 19a-1.
Wilmington Trust also seeks to rely on Bank of New York v. BearingPoint,
Inc., 824 N.Y.S.2d 752 (N.Y. Sup. Ct. 2006) (unpublished table decision), arguing
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No. 08-10235
that this court should afford it “the weight due the only New York decision on
point.” Construction of § 314(a) is a matter of federal law, and we do not find
BearingPoint to be persuasive. We agree with the reasoning of the Eighth
Circuit and hold that § 314(a) of the TIA does not impose an independent
obligation timely to file reports with the SEC. Rather, § 314(a) requires ACS to
provide copies of reports that are actually filed with the SEC.
B. The Indenture
i. Indenture § 4.03
Wilmington Trust’s other arguments center on the Indenture. Under New
York law, “[t]he words and phrases used by the parties must, as in all cases
involving contract interpretation, be given their plain meaning.” Brooke Group
Ltd. v. JCH Syndicate 488, 87 N.Y.2d 530, 534 (N.Y. 1996) (citing Levine v. Shell
Oil Co., 28 N.Y.2d 205, 211 (N.Y. 1971)). “[C]ourts may not fashion a new
contract under the guise of contract construction; rather, they are required to
discern the intent of the parties, to the extent that the parties evidenced what
they intended by what they wrote.” Slatt v. Slatt, 64 N.Y.2d 966, 967 (N.Y.
1985) (internal quotation marks and citations omitted).
At least one New York state court has construed an indenture provision
similar to the provision at issue in this case. In BearingPoint, the court
considered the following provision:
[T]he Company shall file with the Trustee, within fifteen days after
it files such annual and quarterly reports, information, and
documents and other reports with the SEC, copies of its annual
report and of the information, documents and other reports (or
copies of such portions of any of the foregoing the SEC may by rules
and regulations prescribe) which the Company is required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act.
The Company shall comply with the other provisions of TIA Section
314(a).
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No. 08-10235
BearingPoint, 2006 WL 2670143, at *2. The court rejected BearingPoint’s
argument that it did not breach the indenture by failing to provide the trustee
with timely SEC filings. The court stated that the provision “unambiguously
obligates BearingPoint to make the required SEC filings and to provide copies
of them to the Trustee,” and BearingPoint’s “tortured parsing” of the provision
vitiated the clear purpose of the indenture to provide information to investors
so they could protect their investments. Id. at *7. In making that
determination, the court focused on the following phrases in the indenture
provision: “[T]he Company shall file with the Trustee . . . copies of its annual
reports and of the information, documents, and other reports . . . which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act.” Id. (emphasis and omissions in original).
The Eighth Circuit, however, rejected BearingPoint”s parsing of the
indenture provision.
The [BearingPoint] court’s analysis focused on the mandatory
language of the indenture but did not distinguish between two
distinct duties: one to file reports with the SEC in the first instance
and another to forward copies of the reports to the trustee. More
importantly, the court did not consider any timing issues and simply
eliminated the phrase “within 15 days after it files such . . . reports
. . . with the SEC,” replacing it with a set of ellipses.
UnitedHealth, 548 F.3d at 1129-30 (omissions in original). The court in
UnitedHealth did not set out the full text of the pertinent indenture provision in
that case, but it stated its essence as follows: “the Company shall cause copies
of . . . financial reports . . . which the Company is then required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act to be filed with
the Trustee . . . within fifteen days of filing with the Commission.” Id. at 1128
(omissions in original). The Eighth Circuit, in a matter of first impression, held
that the plain meaning of the indenture provision imposed no independent
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No. 08-10235
obligation timely to file SEC reports. The court emphasized that “the plain
language of [the indenture provision] makes clear that any duty actually to file
the reports is imposed pursuant to Section13 or 15(d) and not pursuant to the
indenture itself.” Id. at 1128-29 (internal quotation marks omitted). The court
further explained the “then required to file” language:
[T]he phrase “then required to file” is part of a longer clause
introduced by the relative pronoun “which.” The antecedent of
“which” is clearly and unambiguously the word “reports.” Thus, as
a simple matter of syntax, the phrase “then required to file”
modifies the word “reports” and indicates which reports are subject
to § 504(i)’s terms. Just as clearly and just as unambiguously, the
phrase “within fifteen days of filing with the Commission” modifies
“shall cause . . . to be filed” and indicates when § 504(i)’s commands
must be fulfilled.
Id. at 1128 (omission in original).
We find UnitedHealth’s reasoning persuasive. In this case, § 4.03 of the
Indenture provides in part that “[ACS] shall file with the Trustee, within 15
days after it files the same with the SEC, copies of the annual reports . . . that
[ACS] is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act.” The unambiguous language of § 4.03 does not impose an
independent obligation actually timely to file reports with the SEC. Rather, the
phrase “that [ACS] is required to file” indicates those reports copies of which
ACS is required to file with the Trustee. “[W]ithin 15 days after it files the same
with the SEC” designates the time in which to file the reports with the Trustee.
At best, the provision anticipates that ACS “is required to file” reports with the
SEC pursuant to Section 13 or 15(d), but the provision neither incorporates the
SEC’s timing requirements nor imposes a deadline by which ACS must actually
file the reports. We therefore hold that § 4.03 of the Indenture does not impose
an obligation timely to file reports with the SEC.
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No. 08-10235
ii. Alleged Condition Precedent
Wilmington Trust also contends that ACS cannot take advantage of its
failure to fulfill its statutory obligation timely to file reports with the SEC to
argue that it has not breached its obligation to provide the Trustee with the
required reports. ACS argues that in the absence of a deadline in § 4.03 for
filing with the SEC, ACS did not fail to perform under the Indenture. We find
no condition precedent timely to file reports with the SEC. We have already held
that neither the Indenture nor § 314 of the TIA requires ACS timely to file
reports with the SEC. Wilmington Trust may not rely on ACS’s failure to
comply with statutory obligations not made part of the parties’ contract to argue
that ACS breached its contractual obligation. See Camp Kennybrook Inc. v.
Kuller, 632 N.Y.S.2d 874, 875 (N.Y. App. Div. 1995) (“While plaintiff assumed
a duty of care and supervision over Max, . . . , such duty is imposed of law
independent of and extraneous to the contract . . . . Accordingly, plaintiff had no
contractual or quasi-contractual duty to care for and supervise Max.”) (citations
omitted); see generally Nuzzi Family Ltd. Liability Co. v. Nature Conservancy,
Inc., 758 N.Y.S.2d 364, 365 (N.Y. App. Div. 2003) (rejecting time of the essence
argument and stating that “[c]ontrary to the plaintiff’s contention, the contract
did not contain a condition precedent that its validity or the plaintiff’s
performance under the contract required its assignment to the DEC by a date
certain”) (citations omitted)
IV. CONCLUSION
Because we hold that neither § 314 of the TIA nor the Indenture requires
ACS timely to file reports with the SEC, we need not address the parties’
arguments regarding the acceleration of the notes. For the foregoing reasons,
we affirm the district court’s judgment.
AFFIRMED.
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