Chatham Capital Holdings, Inc. v. Conru, No. 23-154 (2d Cir. 2024)
Annotate this CaseIn this case before the United States Court of Appeals For the Second Circuit, two investment firms, held debt securities issued by FriendFinder Networks, Inc., and an affiliate. Several years later, FriendFinder’s founder, through a trust in his own name, unilaterally reduced the securities’ payment terms under the governing Indenture. The investment firms sued, alleging that the Trust Indenture Act (TIA) barred FriendFinder and its founder from changing the payment terms without their consent. The district court dismissed the case, holding that the TIA did not protect this Indenture because the underlying exchange offer was a private placement under the Securities Act of 1933, and the TIA does not apply to private placements. On appeal, the Second Circuit affirmed the district court's decision. The court held that, since the securities were issued through a private offering rather than a public one, the TIA did not apply. Therefore, the no-action clause in the Indenture, which barred the plaintiffs' lawsuit unless certain conditions were met, was not invalidated by the TIA. The court also determined that the plaintiffs' claim did not fall within the payment carve-out from the no-action clause, which allows suit for the enforcement of the right to receive payment of principal or interest on the securities. The court concluded that the plaintiffs' lawsuit was barred by the no-action clause and that the TIA did not invalidate that clause.
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