## Facts

- Capital Equipment Leasing Corporation issued debentures in 1972 under a trust indenture naming First Pennsylvania Banking and Trust Company as indenture trustee.
- The indenture included provisions mandated by the Trust Indenture Act of 1939 (TIA) that specified trustee duties owed to debenture holders.
- In December 1976, the issuer defaulted on interest payments and later sought protection under Chapter XI of the Bankruptcy Act.
- Debenture holders Jay A. Zeffiro and Harry M. Bernard, Jr. filed class actions seeking damages, alleging the trustee breached duties contained in indenture provisions required by the TIA.
- The trustee argued the TIA created no federal cause of action and that any claim sounded only in state contract law.
- The district court denied the trustee’s Rule 12(b)(1) and 12(b)(6) motion to dismiss, recognizing a cause of action under the TIA; the trustee appealed.

## Issues

1. Whether the Trust Indenture Act of 1939 implies a federal cause of action allowing debenture holders to sue an indenture trustee for breach of indenture provisions required by the Act.
2. Whether such claims arise under federal law for purposes of federal-question jurisdiction, or are exclusively state-law contract claims.

## Decision

- The Third Circuit affirmed the denial of the motion to dismiss.
- The court held the TIA implies a federal cause of action for injured debenture holders against an indenture trustee for breach of TIA-mandated indenture provisions.
- The court concluded the claim arises under federal law, supporting federal-question jurisdiction under 28 U.S.C. § 1331.
- The case proceeded in federal court for litigation on the merits.

## Legal Principles

- When a federal statute mandates specific terms and duties in a regulated agreement to protect a defined class, courts may imply a private right of action to enforce those federally required obligations.
- Debenture holders are the intended beneficiaries of the TIA’s mandatory indenture provisions, supporting recognition of a federal remedy for violations of those provisions.
- The existence of some express enforcement mechanisms (including agency enforcement) does not by itself foreclose an implied private remedy where private enforcement is consistent with the statutory scheme.
- Federal enforcement is appropriate where uniform interpretation of federally required indenture terms is necessary to carry out the Act’s investor-protection purpose and to avoid inconsistent state-by-state outcomes.

## Conclusion

The Third Circuit held that debenture holders may sue an indenture trustee in federal court for damages based on breaches of indenture provisions required by the Trust Indenture Act, and it affirmed the district court’s refusal to dismiss the actions for lack of jurisdiction or failure to state a claim.


Zeffiro v. First Pa. Banking & Tr. Co., 623 F.2d 290 (3d Cir. 1980)