Court Holds Indenture’s No-Action Clause Does Not Bar Minority Noteholders’ Claims To Enforce Their Individual Consent Rights

Posted: October 2, 2026 / Written by: Channing J. Turner / Categories Breach of Contract, Contract Interpretation, Motion to Dismiss

Court Holds Indenture’s No-Action Clause Does Not Bar Minority Noteholders’ Claims To Enforce Their Individual Consent Rights

On March 17, 2026, in CPPIB Credit Invs. II Inc. v. Deutsche Bank Trust Co. Ams., Index No. 654398/2024, Justice Joel M. Cohen of the New York County Commercial Division granted in part and denied in part motions to dismiss claims arising out of an “up-tiering” transaction. CPPIB and plaintiff-intervenor Thebes held notes issued by Lions Gate under a $1 billion indenture. They allege that Legacy Lions Gate obtained the consent of a majority of noteholders to a supplemental indenture that, among other things, released guarantors associated with one part of the company’s business—a successful “Studio Business”—but left the non-consenting minority with notes backed only by another struggling part of the company’s business. Defendants moved to dismiss on the ground that plaintiffs had not complied with the indenture’s no-action clause, which bars a holder from pursuing any remedy unless holders of at least 25 percent in principal amount have first directed the trustee to sue. Plaintiffs conceded that they had not satisfied that condition. Surveying several cases, and acknowledging that key language from one case was arguably dicta, the Court explained:

There is an obvious tension, however, when (as here) a no-action provision is deployed to block noteholders from enforcing their individual consent rights provided elsewhere in the indenture. . . . Although it is unclear whether Eaton Vance mandates that result (the issue of applying the no-action clause to sacred rights claims appears not to have been contested in that case, and thus certain language in the opinions arguably is dicta), the Court finds the reasoning of the foregoing decisions to be persuasive. . . . For the foregoing reasons, the Court finds that the no-action clause is inapplicable to Plaintiffs’ claims to the extent they are based on individual consent “sacred rights” under Section 9.2 of the Indenture. However, under Eaton Vance, contractual claims that allege breaches outside of the sacred rights provisions are barred by the no-action clause.

Reaching the merits, the court sustained plaintiffs’ declaratory judgment claim that Legacy Lions Gate breached the Notes Guarantee sacred right in Section 9.02(e)(8) of the indenture. It dismissed their claims under three other sacred rights provisions, their implied covenant claims, and their claims against the indenture trustee and the participating noteholders.

The attorneys at Schlam Stone & Dolan LLP have significant experience litigating structured finance disputes, including disputes arising under bond indentures. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.

To read more about the limits an indenture places on a securityholder’s right to sue, see Schlam Stone & Dolan’s related Commercial Division Blog posts on a decision holding that a no-action clause must be read narrowly and reached only claims asserted by virtue of a provision of the indenture and a decision holding that an indenture trustee had no authority to sue on noteholders’ behalf before an event of default because its powers are limited to those the indenture confers.