## Facts

- Cleveland Unlimited, Inc. issued $150 million in senior secured notes under an indenture governed by New York law.
- The indenture included a holder-protection provision stating that, notwithstanding any other indenture term, each noteholder’s right to receive principal and interest when due, and to sue to enforce payment, could not be impaired or affected without that holder’s consent.
- The indenture also granted the trustee broad remedial authority and permitted the trustee to act at the direction of a majority of noteholders regarding the time, method, and place of pursuing remedies.
- The notes were supported by guarantees and secured, in relevant part, by a pledge of all Cleveland Unlimited stock held by its parent, with the trustee holding the pledged stock as collateral agent.
- After financial distress, a majority noteholder group (over 96% of the principal) directed the trustee to pursue a UCC Article 9 strict foreclosure on the pledged stock over the objection of minority noteholders holding roughly $5 million of notes.
- The trustee accepted the pledged stock in full satisfaction of the debt and distributed the stock to noteholders; the transaction treated all notes as cancelled and the indenture and guarantees as extinguished.
- Minority noteholders sued for breach of contract, alleging the transaction eliminated their payment and enforcement rights without their consent in violation of the holder-protection clause.
- The trial court granted summary judgment to defendants; the intermediate appellate court affirmed.

## Issues

1. Whether an indenture provision protecting each holder’s right to receive payment and to sue for payment, absent that holder’s consent, was violated by a majority-directed UCC strict foreclosure that purported to cancel the notes over dissenting holders’ objection.
2. Whether majority control over remedial actions authorized the trustee to use a foreclosure remedy that effectively eliminated dissenting holders’ core payment and enforcement rights.

## Decision

- The Court of Appeals modified the order below, reversed summary judgment for defendants, and granted partial summary judgment to plaintiffs on contract liability.
- The court held the minority noteholders’ right to sue for payment survived the strict foreclosure, and the attempted cancellation of their notes without consent violated the indenture.
- The court rejected the view that the holder-protection clause was limited to formal amendments of the indenture; the clause protected payment and enforcement rights from impairment by transaction structure as well.
- Remaining issues (including remedy and damages) were left for further proceedings.

## Legal Principles

- A no-impairment clause protecting each holder’s right to receive principal and interest and to sue for payment, and stating it applies “notwithstanding” other indenture terms, prevents nonconsensual impairment of those rights by any mechanism, not only by formal indenture amendment.
- Contract language giving a majority control over the trustee’s pursuit of remedies does not authorize a remedy that extinguishes dissenting holders’ protected payment and enforcement rights when a “notwithstanding” holder-protection clause applies.
- A UCC strict foreclosure that accepts collateral in full satisfaction and purports to cancel the notes can constitute an impairment of protected payment and enforcement rights if imposed on nonconsenting holders.

## Conclusion

The court enforced the indenture’s holder-protection clause to preserve dissenting noteholders’ core rights to payment and to sue for payment, holding that a majority-directed strict foreclosure could not be used to cancel those rights without each affected holder’s consent.


CNH Diversified Opportunities Master Account, L.P. v. Cleveland Unlimited, Inc., 36 N.Y.3d 1, 160 N.E.3d 667 (N.Y. 2020)