## Facts

- Plaintiffs were noteholders of unsecured notes issued by Caesars Entertainment Operating Company, Inc. (CEOC) under New York-law indentures; Caesars Entertainment Corporation (CEC) had guaranteed the notes until 2014.
- Plaintiffs alleged that CEC and related parties executed transactions shifting valuable assets away from CEOC, leaving CEOC highly distressed and unable to repay noteholders.
- In August 2014, CEC and CEOC executed supplemental indentures releasing CEC’s guarantee of the notes (the Amendments).
- Plaintiffs claimed the Amendments were implemented without required consent and effectively left them with claims against an insolvent or near-insolvent issuer, materially reducing expected recovery.
- Shortly before the decision, creditors filed an involuntary chapter 11 petition against CEOC; the automatic stay prevented adjudication of claims against CEOC but not against CEC.
- Defendants moved to dismiss under Rule 12(b)(6) claims under the Trust Indenture Act of 1939 (TIA), indenture breach theories, and the implied covenant of good faith and fair dealing.

## Issues

1. Whether TIA § 316(b) prohibits transactions that do not change stated payment terms but allegedly eliminate noteholders’ practical ability to obtain payment without their consent.
2. Whether plaintiffs plausibly alleged that the guarantee release and related steps breached the indentures’ express conditions for releasing the guarantee.
3. Whether the alleged restructuring conduct plausibly stated a claim for breach of the implied covenant of good faith and fair dealing under New York law.
4. Whether indenture no-action clauses barred plaintiffs’ claims, and whether certain claims failed for lack of adequately pleaded note ownership/control.

## Decision

- The court denied CEC’s motion to dismiss the Danner complaint in full.
- The court granted in part and denied in part the motion to dismiss the MeehanCombs complaint.
- The court held plaintiffs plausibly stated claims under TIA § 316(b) based on allegations that the guarantee release and related transactions left them with only a hollow right to payment.
- The court held core payment-related claims were not barred by the no-action clauses.
- The court dismissed without prejudice MeehanCombs’ TIA § 316(a) claim for failure to adequately plead the required ownership/control of the relevant notes.

## Legal Principles

- TIA § 316(b) can protect not only formal payment terms, but also a noteholder’s practical ability to receive payment when a transaction allegedly renders payment effectively unattainable without holder consent.
- At the pleading stage, a claim under § 316(b) may proceed where plaintiffs plausibly allege an out-of-court restructuring that leaves holders with an “empty” right to sue an insolvent or asset-depleted obligor.
- Indenture interpretation and the permissibility of a guarantee release under specific contractual preconditions may present fact- and contract-intensive questions not suitable for resolution on a motion to dismiss when plausible breach is alleged.
- Under New York law, the implied covenant is breached when a party acts to destroy or injure the other party’s right to receive the benefits of the contract, but it cannot be used to override express terms.
- No-action clauses generally do not bar suits asserting an individual holder’s right to payment (and statutory protections tied to that right), and cannot be applied to negate § 316(b).
- Claims requiring a threshold showing of holder ownership/control may be dismissed without prejudice if the complaint does not adequately plead that requirement.

## Conclusion

The court allowed noteholders to proceed on theories that a nonconsensual guarantee release and related restructuring steps could violate TIA § 316(b) by impairing the practical ability to obtain payment, while trimming claims that lacked sufficient allegations of required note ownership/control.


MeehanCombs Glob. Credit Opportunities Funds, LP v. Caesars Ent. Corp., 80 F. Supp. 3d 507 (S.D.N.Y. 2015)