News & Events

On April 1, 2010, the New York Court of Appeals unanimously affirmed the dismissal of an action brought by holders of Enron notes against JPMorgan Chase in its capacity as indenture trustee.  The noteholder plaintiffs, who purchased the notes on the secondary market after Enron filed for bankruptcy and were pursuing claims standing in the shoes of the original holders, sought damages against JPMorgan Chase in excess of a billion dollars.  JPMorgan Chase’s motion to dismiss the case had been denied by the New York Supreme Court, but that ruling was reversed on appeal by the Appellate Division, First Department.  The New York Court of Appeals had granted plaintiffs' motion for leave to appeal the First Department’s decision.

Plaintiffs alleged that Enron had defaulted under the indenture agreement long prior to its bankruptcy filing, by delivering to JPMorgan Chase, in its capacity as indenture trustee, copies of Enron’s inaccurate 10-K and 10-Q filings.  Plaintiffs’ theory was that the indenture agreement’s covenant that Enron file with the indenture trustee copies of documents Enron was “required to file with the SEC” (a covenant that is mandated by the Trust Indenture Act) imposed on Enron a contractual obligation that those SEC filings be accurate, and that Enron’s delivery of inaccurate SEC filings to JPMorgan Chase thus violated the indenture agreement.  Plaintiffs further argued that JPMorgan Chase knew Enron’s SEC filings were inaccurate (and, indeed, participated in creating the inaccuracies) and should have given notice of default, and accelerated the notes, thereby avoiding the losses that were incurred by the noteholders when Enron later filed for bankruptcy.  JPMorgan Chase denied that it was aware Enron’s SEC filings were inaccurate, but on appeal primarily advanced the contractual point that Enron had not breached the indenture agreement.  The New York Court of Appeals entirely adopted the Firm’s argument that the indenture agreement’s requirement that Enron file with the indenture trustee “copies” of documents it was “required to file with the SEC” merely imposed upon Enron a requirement that it deliver to the trustee copies of what it actually filed with the SEC (such a delivery requirement being a vestige of pre-internet times), and did not incorporate a contractual obligation that Enron’s SEC filings be accurate – that obligation separately was imposed upon Enron by the securities laws, but not by the indenture agreement.

The Simpson Thacher team comprised Thomas C. Rice (who argued both appeals), David J. Woll, Alan Turner, Janet A. Gochman, Christopher R. Kelly and Devin Ryan, with valuable assistance from paralegals Clyte White, Nicole Forbes and Austin Leach.