## Facts

- Enron entered an indenture naming Chase Manhattan Bank (now JPMorgan Chase Bank, N.A.) as indenture trustee for certain Enron notes.
- The indenture required Enron to deliver to the trustee copies of reports Enron filed with the SEC within a stated time period.
- The indenture stated that delivery of reports to the trustee was “for informational purposes only,” that the trustee’s receipt did not constitute constructive notice of matters in the reports (including covenant compliance), and that the trustee could rely on officers’ certificates.
- The indenture defined events of default to include failure to comply with the reporting covenant if not cured within a stated period after notice.
- Enron filed materially false financial reports with the SEC and delivered the same reports to the trustee under the indenture.
- After Enron’s collapse and bankruptcy, Racepoint Partners, LLC and Willow Capital-II, L.L.C. acquired roughly $1 billion of the notes on the secondary market and asserted the sellers’ associated claims.
- The noteholders sued the trustee for breach of contract and, derivatively, breach of fiduciary duty, alleging the false SEC filings constituted a contractual default and that the trustee failed to notify Enron and noteholders despite alleged actual knowledge.
- The trial court denied the trustee’s motion to dismiss; the Appellate Division reversed and dismissed; the New York Court of Appeals affirmed dismissal.

## Issues

1. Whether an issuer breaches an indenture covenant to deliver SEC-required reports to the trustee when the issuer files and delivers reports that later prove false or misleading.
2. Whether alleged knowledge of the issuer’s false SEC filings triggers an indenture trustee’s contractual duties to declare or report an event of default and notify noteholders.
3. Whether a fiduciary-duty claim against an indenture trustee can proceed where no contractual event of default is adequately pleaded.

## Decision

- The Court of Appeals affirmed dismissal of the complaint.
- Enron did not breach the reporting covenant by filing and delivering reports that were false; the covenant required delivery of copies of the reports filed with the SEC, not a warranty of their accuracy.
- Because no event of default was pleaded on the reporting-covenant theory, the trustee had no contractual obligation to treat the falsity as a default or to notify Enron or the noteholders on that basis.
- The fiduciary-duty claim failed because it depended on establishing a contractual breach/event of default that would expand the trustee’s obligations.

## Legal Principles

- A standard indenture reporting covenant modeled on Trust Indenture Act § 314(a) is satisfied when the issuer delivers to the trustee copies of the periodic reports the issuer files with the SEC.
- Inaccuracies in SEC filings do not, without more, convert compliance with the filing-and-delivery covenant into a contractual noncompliance or “event of default.”
- Where the indenture states that delivered reports are for informational purposes only, disclaims constructive notice, and permits reliance on officers’ certificates, courts will not infer a pre-default duty for the trustee to verify the truth of reports or police securities-law compliance.
- A claim for breach of fiduciary duty against an indenture trustee that is premised on an alleged indenture default fails if the complaint does not adequately allege a contractual default and resulting contractual duties.

## Conclusion

The court held that an issuer’s delivery of false SEC reports to an indenture trustee does not, by itself, breach a covenant requiring delivery of SEC-filed reports, and therefore does not trigger default-based notice or enforcement duties by the trustee; related fiduciary-duty claims premised on such a default are dismissed.


Racepoint Partners, LLC v. JPMorgan Chase Bank, N.A., 928 N.E.2d 396 (N.Y. 2010)