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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 24, 2018

Trustee Had Right to Take Direction from the Majority of Bondholders

On January 11, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in CNH Diversified Opportunities Master Account, L.P. v. Cleveland Unlimited, Inc., 2018 NY Slip Op. 30071(U), holding that a trustee had the right to take direction from a majority of bondholders, explaining:

Interpreting the[] unambiguous agreements [governing the trust and the trustee’s duties] together and shows that there was a collective design to this transaction, and the Collateral Trustee was to act for all the noteholders in the event of the issuer’s default, upon the direction of a majority of noteholders. None of the agreements, except for the noteholders’ individual notes, even individually name the noteholders, and they are simply referred to collectively as a group. Together, these agreements plainly grant the Collateral Trustee the right to pursue a remedy, such as a strict foreclosure under UCC ยงยง 9-620 and 9-622, if so directed by a majority of noteholders. Thus, the Collateral Trustee’s pursuit of the out-of-court debt restructuring transaction here at the direction of the Majority Noteholders was authorized under the parties’ agreements.

We frequently litigate issues the duties of trustees. Those representations range from individual trustees of family trusts to commercial trustees of business trusts, such a residential mortgage back securities trusts. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding litigation against a trustee.

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