Chesapeake Energy Corporation v. The Bank of New York Mellon Trust Company, N.A.

Filing 192

OPINION & ORDER: For the foregoing reasons, the Court grants BNY Mellon's motion for further relief, and denies Chesapeake's cross-motion for an order of restitution. Chesapeake shall pay the 2019 Noteholders $379,650,133.21, consi stent with their entitlement to be paid the Make-Whole Amount for a redemption on May 13, 2013. Further, the Court holds that the prejudgment interest rate is 6.775%, that it runs from May 13, 2013, and that it is to be calculated semiannua lly (on March 15 and September 15). The Clerk of Court is respectfully directed to terminate the motions pending at 160, 169, and 183, and to close this case. SO ORDERED. (As further set forth in this Order) (Signed by Judge Paul A. Engelmayer on 7/10/2015) (kl) Modified on 7/10/2015 (kl).

Make-Whole Price. The Court therefore grants BNY Mellon’s motion for further relief, and
denies Chesapeake’s cross-motion for an order of restitution.
I.

Background
The Court assumes familiarity with the facts of this case. These are chronicled in detail

in the Court’s May 8, 2013 decision and the Second Circuit’s decision. See Chesapeake Energy
Corp. v. Bank of N.Y. Mellon Trust Co., 957 F. Supp. 2d 316 (S.D.N.Y. 2013), rev’d and
remanded, 773 F.3d 110 (2d Cir. 2014). The Court recites here only the most central facts.
A.

Chesapeake’s May 2013 Redemption

In February 2012, Chesapeake issued $1.3 billion in senior notes due on March 15, 2019,
bearing an interest rate of 6.775% (“the 2019 Notes” or “the Notes”). The 2019 Notes were
governed by a Base Indenture applicable to several series of notes, and a Supplemental Indenture
specific to the 2019 Notes.
Section 1.7 of the Supplemental Indenture set out the terms under which Chesapeake
could redeem the 2019 Notes before the due date. Entitled “Redemption,” Section 1.7 provided,
in its entirety:
(a) The Company shall have no obligation to redeem, purchase or repay the
Notes pursuant to any mandatory redemption, sinking fund or analogous provisions
or at the option of a Holder thereof.
(b) At any time from and including November 15, 2012 to and including
March 15, 2013 (the “Special Early Redemption Period”), the Company, at its
option, may redeem the Notes in whole or from time to time in part for a price equal
to 100% of the principal amount of the Notes to be redeemed, plus accrued and
unpaid interest on the Notes to be redeemed to the date of redemption; provided,
however, that, immediately following any redemption of the Notes in part (and not
in whole) pursuant to this Section 1.7(b), at least $250 million aggregate principal
amount of the Notes remains outstanding. The Company shall be permitted to
exercise its option to redeem the Notes pursuant to this Section 1.7 so long as it
gives the notice of redemption pursuant to Section 3.04 of the Base Indenture
during the Special Early Redemption Period. Any redemption pursuant to this

2

Section 1.7(b) shall be conducted, to the extent applicable, pursuant to the
provisions of Sections 3.02 through 3.07 of the Base Indenture.
(c) At any time after March 15, 2013 to the Maturity Date, the Company, at
its option, may redeem the Notes in whole or from time to time in part for an amount
equal to the Make-Whole Price plus accrued and unpaid interest to the date of
redemption in accordance with the Form of Note.
Dkt. 1, Ex. B, at 6. Section 1.7(b) thereby referenced § 3.04 of the Base Indenture, which
provided, inter alia, that a notice of redemption must be made between 30 and 60 days before the
redemption itself:
At least 30 days but not more than 60 days before a redemption date, [Chesapeake]
shall mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed at such Holder’s registered address.
Dkt. 185 (“Baron Decl.”), Ex. I.
Section 1.7(c), in referring to the “Make-Whole Price” applicable to redemptions after the
Special Early Redemption Period, referenced a term defined elsewhere in the Supplemental
Indenture as “the sum of the outstanding principal amount of the Notes to be redeemed plus the
Make-Whole Amount of such Notes.” See Dkt. 1, Ex. B (Supplemental Indenture, Form of Note
(“Form of Note”)) ¶ 5, at A-4. The “‘Make-Whole Amount’ with respect to a Note” is, in turn,
defined as “an amount equal to the excess, if any, of (i) the present value of the remaining
principal, premium, if any, and interest payments due on such Note (excluding any portion of
such payments of interest accrued as of the redemption date) as if such Note were redeemed on
the Maturity Date, computed using a discount rate equal to the Treasury Rate plus 50 basis
points, over (ii) the outstanding principal amount of such Note.” Id.
On February 20, 2013, Chesapeake announced that it planned to redeem the 2019 Notes
at the Special Early Redemption price of 100% of the notes’ principal amount (i.e., par), plus
interest accrued to the date of redemption (the “Special Price”). In Chesapeake’s view, under

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§ 1.7(b), March 15, 2013 was the deadline to give a notice of a Special Early Redemption, not
the deadline for such a redemption itself.
BNY Mellon, however, notified Chesapeake that, in its view, the time to give notice of a
redemption at the Special Price had expired. BNY Mellon’s view, supported by various holders
of the 2019 Notes (“the 2019 Noteholders” or “the Noteholders”), was that the deadline under
§ 1.7(b) for a Special Early Redemption was March 15, 2013; it was therefore no longer possible
to meet that deadline while giving the required 30 days’ notice. Further, in an apparent effort to
deter Chesapeake from attempting such a redemption, BNY Mellon warned Chesapeake that any
such attempt could backfire: If Chesapeake issued a notice of Special Early Redemption that a
court held untimely such that no such redemption went forward, BNY Mellon stated that it
might, as indenture trustee, seek to treat such a notice as triggering a redemption under § 1.7(c),
requiring Chesapeake to pay the Make-Whole Price rather than holding the Notes to maturity.
On March 8, 2013, Chesapeake filed this action against BNY Mellon, bringing two
claims. Dkt. 1 (“Compl.”). Claim One sought a declaratory judgment that a notice of Special
Early Redemption at the Special Price, if issued on March 15, 2013 and providing for a
redemption on May 13, 2013, would be timely. Claim Two sought a declaratory judgment that
such a notice, if held untimely by this Court to effect a Special Early Redemption such that no
redemption occurred, would not trigger redemption at the Make-Whole Price under § 1.7(c), but
rather would be void. Chesapeake’s Complaint appended the notice it proposed to issue on
March 15, 2013 (“the Notice”). See id. Ex. D. The Notice stated that (1) redemption at the
Special Price would occur on May 13, 2013, if this Court by then had ruled the Notice timely to
effect a Special Early Redemption, but (2) if the Court had not so ruled by that date, the Notice
would be null and void and would not trigger a redemption at the Make-Whole Price.

4

Chesapeake contemporaneously moved for emergency relief along the lines of Claim
Two. It sought an order that, if Chesapeake issued the Notice for a Special Early Redemption
but this Court held it untimely to effect such a redemption, the notice would not bring about a
Make-Whole Redemption. On March 14, 2013, the Court denied Chesapeake’s motion, finding
that the standards for emergency relief had not been met. See Dkt. 43 (“3/14/13 Tr.”). But the
Court stated in strong terms its initial view, agreeing with Chesapeake, that, were the Court to
hold the Notice untimely to effect a Special Early Redemption such that no redemption went
forward, the Notice would be void, and would not trigger a Make-Whole redemption under
§ 1.7(c).
On March 15, 2013, Chesapeake issued the Notice.
In late April 2013, after expedited discovery, the Court held a bench trial.
On May 8, 2013, the Court issued a decision finding the Notice timely, and thus finding
for Chesapeake on Count One, on two grounds. Dkt. 115. First, the text of § 1.7(b) permitted a
Special Early Redemption so long as the notice of such a redemption had issued during the
Special Early Redemption Period (i.e., by March 15, 2013). Second, even if the indenture text
was ambiguous, the extrinsic evidence demonstrated that the parties who negotiated the
Supplemental Indenture had intended March 15, 2013 as the deadline for a notice of redemption,
not for the redemption itself. The Court therefore entered judgment for Chesapeake on Claim
One. Claim Two, the Court held, was moot.
On May 11, 2013, BNY Mellon filed a notice of appeal. Dkt. 117.
On May 13, 2013, Chesapeake proceeded with the redemption, paying the Noteholders
approximately $1.3 billion, calculated pursuant to the Special Early Redemption provision. See
Dkt. 178 (“2/24/15 Tr.”), 26–27.

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B.

The Second Circuit’s Ruling

On November 25, 2014, the Second Circuit reversed. It held that the Supplemental
Indenture authorized Chesapeake to redeem the 2019 Notes at par only if the redemption
occurred within the Special Early Redemption Period, i.e., no later than March 15, 2013, with
notice of 30 to 60 days also given during that period. Judgment was therefore to be entered for
BNY Mellon on Claim One. In remanding, the Second Circuit directed the Court to consider
Chesapeake’s Claim Two. See Chesapeake Energy Corp. v. Bank of N.Y. Mellon Trust Co.,
N.A., 773 F.3d 110, 117 (2d Cir. 2014).
C.

Proceedings on Remand

On February 24, 2015, after the Second Circuit’s mandate had issued, the Court held a
conference to identify issues to be resolved on remand. Discussion at the conference centered on
the measure of compensation due to the Noteholders. Chesapeake and BNY Mellon agreed that,
given the Second Circuit’s holding that Chesapeake’s redemption did not qualify as a Special
Early Redemption, the 2019 Noteholders are entitled to be paid additional money by Chesapeake
beyond the Special Price that Chesapeake had paid. However, they disagreed as to the amount of
such payment.
BNY Mellon argued that under § 1.7(c) of the Supplemental Indenture, the Make-Whole
Price applies to all redemptions after March 15, 2013. Thus, it argued, the 2019 Noteholders are
entitled to be paid the difference between (a) the Special Price and (b) the Make-Whole Price.
Chesapeake argued that compensation should be calculated on the premise that, but for
this Court’s ruling that Chesapeake’s notice had been timely, Chesapeake would never have
redeemed at all, and the 2019 Notes would have been held to maturity. Therefore, Chesapeake
argued, the Noteholders are entitled to the difference between (a) the Special Price and (b) the

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present value of Chesapeake’s payouts to maturity. Chesapeake termed this the “restitutionary”
measure of damages. This measure, Chesapeake stated, yields a smaller payout than the MakeWhole Price because the Make-Whole Price is calculated using a defined formula—including a
discount rate 50 basis points above the yield then offered on comparable securities—that awards
the Noteholders a sum more than the present value of the payouts to maturity. 1
Including this dispute over the measure of compensation, the Court identified four issues
to be resolved on remand: (1) What is the proper resolution of Claim Two: Is that claim still
moot in light of the appellate reversal?; (2) What is the procedural vehicle by which the
Noteholders’ claim for compensation is to be resolved: Must they (or BNY Mellon on their
behalf) file a separate lawsuit seeking damages, or is there a mechanism by which the Court, on
remand, can resolve that claim?; (3) What is the proper measure of compensation due to the
Noteholders?; and (4) What rate of prejudgment interest applies to such an award? See
2/24/15 Tr.
The parties thereafter briefed these issues. See Dkt. 182 (“BNY Br.”), 184 (“Chesapeake
Br.”), 188 (“BNY Reply Br.”), 189 (“Chesapeake Reply Br.”). 2 At the Court’s request, the
parties also attempted to quantify the compensation due under the two alternatives—the “Make
Whole” measure advocated by BNY Mellon and the “restitutionary” measure urged by
Chesapeake. 3 On May 1, 2015, the Court heard argument. Dkt. 190 (“5/1/15 Tr.”).

1

Chesapeake states that this formula was chosen to discourage Chesapeake from redeeming the
Notes after the period for a Special Early Redemption had passed.
2

The parties had previously addressed some of these issues in submissions made before the
February 24, 2015 conference. See Dkt. 160–62.
3

The parties agree that, had they received the Make-Whole Amount, the Noteholders would
have received an additional $379.65 million on May 13, 2013. See BNY Br. 2; Chesapeake Br. 8
n.5. The parties do not agree as to the calculation of restitutionary damages, and Chesapeake, the
7

II.

Discussion
The major question before the Court is the measure of compensation due the 2019

Noteholders given the Second Circuit’s ruling that Chesapeake redeemed too late to effectuate a
Special Early Redemption. The Court addresses that issue after resolving two related procedural
questions—the proper disposition of Chesapeake’s Claim Two and the proper procedural vehicle
for deciding the issue of the Noteholders’ damages. Last, the Court addresses prejudgment
interest.
A.

Proper Resolution of Chesapeake’s Claim Two

In dismissing Claim Two as moot, this Court reasoned:
Chesapeake . . . seeks a declaratory judgment that “in the event that either (i) [the
Notice of Special Early Redemption] is determined not to be timely for [a
redemption at par], or (ii) this Court has not issued a decision with respect to the
declaratory relief sought in Claim I . . . prior to the May 13, 2013 redemption date,
then the Notice of Special Early Redemption shall be deemed null and void and
shall not be effective to redeem the 2019 Notes.” Compl. ¶ 28. BNY Mellon
opposed that motion. Dkt. 83–84.
Neither contingency posited by Chesapeake’s second claim has occurred. The
Court has held Chesapeake’s Notice timely, and has issued its decision prior to the
May 13, 2013 redemption date. Accordingly, Claim Two is moot. On that ground,
the Court denies Chesapeake’s request for a declaratory judgment on Claim Two.
Chesapeake Energy Corp., 957 F. Supp. 2d at 372 (alterations in original). The Second Circuit,
after finding Chesapeake’s Notice untimely, remanded “for consideration of Chesapeake’s

proponent of this approach, states that additional fact-finding would be needed to determine a
precise number. See, e.g., Chesapeake Br. 8; Chesapeake Reply Br. 18–21. The Court would
have to determine, inter alia, the interest rate on securities available to the Noteholders on May
13, 2013. See Chesapeake Br. 1–2. Inputting this variable, the Court would have to determine
the difference between the present values of (1) investing the par proceeds that the Noteholders
received on May 13, 2013 and (2) holding the bonds to maturity. Id. Chesapeake estimates that
a restitutionary damages award would be approximately $100 million—about $280 million less
than an award based on the Make-Whole amount. Id. at 7–8. BNY Mellon appears to estimate
that a restitutionary damages award would be some $325 million—“not that far off the MakeWhole Price.” BNY Br. 28 n.8. These figures are prior to prejudgment interest.
8

second claim for declaratory judgment that the redemption notice given by Chesapeake on
March 15, 2013 should not be deemed to have noticed redemption at the Make-Whole Price.”
Chesapeake Energy Corp., 773 F.3d at 117.
Claim Two remains moot. Claim Two was directed solely to the effect of Chesapeake’s
notice of a Special Early Redemption in the event such a redemption did not go forward. The
purpose of Claim Two was to assure that, if this Court either held the notice untimely to effect
such a redemption or had not ruled by the March 13, 2013 redemption date, the notice itself
would not be treated as triggering a different sort of redemption altogether—a Make-Whole
Redemption under § 1.7(c). Claim Two thereby sought to defuse BNY Mellon’s attempt in
February and March 2013 to deter Chesapeake from even attempting an at-par redemption, by
threatening to treat a notice that was held untimely as triggering a Make-Whole Redemption.
See Compl. ¶ 5 (“[T]he proposed relief will preserve the status quo by permitting Chesapeake to
begin the redemption process without prejudicing either BNY Mellon or the noteholders.”). In
the end, of course, Chesapeake was undeterred. It issued the notice, reassured, no doubt, by the
Court’s statement in addressing the application for emergency relief that if the Court held such a
notice untimely and no redemption occurred, it would almost certainly then find the notice void,
as opposed to triggering redemption on different terms.
And the redemption did go forward. Therefore, neither contingency posited by Claim
Two occurred: This Court held Chesapeake’s notice timely and so ruled before the May 13,
2013 redemption date. Presumably appreciating this, neither side appealed (or cross-appealed)

9

the Court’s finding that, in light of the Court’s ruling, Claim Two was moot. Nor does either
side now seek to alter the Court’s judgment on Claim Two. 4
Moreover, Chesapeake’s later act of redemption made Claim Two doubly moot. That
consequential act made academic the issue of what the effect of an untimely notice alone—i.e.,
one not followed by a redemption—would have been. See Penguin Books USA Inc. v. Walsh,
929 F.2d 69, 73 (2d Cir. 1991) (declaratory judgment action involving effect of publication of
book rendered moot by publication).
In remanding with instructions to consider Claim Two, the Second Circuit—recognizing
that its decision meant that Chesapeake’s par redemption left the 2019 Noteholders insufficiently
compensated—may have viewed Claim Two as a possible vehicle for resolving the measure of
compensation due to the Noteholders. That issue indeed must be resolved, as all agree. But
Claim Two ill fits that task, as it was not addressed to the circumstance in which a finding of
timeliness by this Court was followed by a redemption and then an appellate reversal. And, as
follows, a satisfactory alternative procedural vehicle has been identified that will allow the entry
of a declaration as to the compensation due to the Noteholders. The Court, accordingly, leaves
undisturbed the judgment that Claim Two is moot.

4

At the February 24, 2015 conference, Chesapeake briefly argued that Claim Two was not moot,
see 2/24/15 Tr., 21, but later appeared to retreat from that contention, id. at 23, recognizing that,
regardless how Claim Two was resolved, the Court would still need to decide the measure of
compensation due the 2019 Noteholders. On that issue, Chesapeake stated, “the effect of the
redemption that occurred is integrally tied to th[e] notice” it issued on March 15, 2013, id., so as
to favor the lesser measure of compensation that Chesapeake endorsed. The Court addresses that
separate argument infra. Notably, Chesapeake’s briefs after the February 24, 2015 conference
did not address Claim Two or dispute that Claim Two was moot. See Dkt. 184, 189.
10

B.

Procedural Mechanism for Resolving the Noteholders’ Compensation

Before the February 24, 2015 conference, the Court solicited counsel’s views as to the
proper procedural vehicle by which to resolve the compensation due to the Noteholders as a
result of the ruling that Chesapeake was not entitled to redeem at par. Dkt. 175. At that
conference, and later in the briefs, the parties addressed that question. Significantly, although the
parties identify different mechanisms, they agree it is appropriate and within the power of this
Court on remand to resolve this issue by means of a declaration, and that it is unnecessary for
BNY Mellon or the Noteholders to institute a separate lawsuit.
BNY Mellon argues that the Declaratory Judgment Act, 28 U.S.C. § 2202, supplies the
proper procedure. See BNY Br. 7 (“Section 2202 provides the appropriate way to decide the
legal remedy for Chesapeake’s May 13, 2013, breach.”). Section 2202 provides that “[f]urther
necessary or proper relief based on a declaratory judgment or decree may be granted, after
reasonable notice and hearing, against any adverse party whose rights have been determined by
such judgment.” 28 U.S.C. § 2202. Section 2202 applies here, BNY Mellon argues, because the
Second Circuit’s mandate requires that declaratory judgment be entered in its favor on Claim
One, because that judgment affects both parties’ rights, and because BNY Mellon’s motion for
further relief seeks “necessary [and] proper relief based on” that declaratory judgment. 5 BNY
Br. 7–8.
Chesapeake, in contrast, urges the Court not to rely on § 2202, which it claims has not
been used in this precise factual scenario. Chesapeake instead situates the power to remedy the

5

On February 13, 2015—the day the Second Circuit’s mandate issued, Dkt. 151—BNY moved
“for further relief pursuant to 28 U.S.C. § 2202, and for such other and further relief that the
Court deems just and proper,” Dkt. 160, and filed a supporting memorandum of law, Dkt. 161, as
well as a declaration, Dkt. 162.
11

Noteholders’ injury in a court’s “inherent equitable power to fashion the appropriate relief.”
Chesapeake Br. 34; see also id. at 33 (“The Court’s inherent authority is sufficient to order the
requested relief.”). Chesapeake’s argument accords with its broader application that the remedy
that the Court fashion on remand is informed by equitable principles of restitution, not
contractually by the terms of the Supplemental Indenture. 6
The Court’s judgment is that while both procedural mechanisms could properly be used
as the basis for furnishing relief here, § 2202 is the more natural fit. Second Circuit precedent
solidly supports that § 2202 is an appropriate mechanism for resolving damages. The Circuit has
held that § 2202 permits a court to award relief to a defendant who prevails in a declaratory
judgment action, as BNY Mellon has here. See Starter Corp. v. Converse, Inc., 170 F.3d 286,
298 (2d Cir. 1999) (courts have invoked § 2202 to award relief to parties “who have won a
declaratory judgment from the court to enforce that judgment through injunction, damages and
other relief”) (citing Vt. Structural Slate Co. v. Tatko Bros. Slate Co., 253 F.2d 29, 29–30 (2d
Cir. 1958)). Further, relief under § 2202 may take the form of equitable or legal relief, and may
include monetary damages. See, e.g., Fred Ahlert Music Corp. v. Warner/Chappell Music, Inc.,
155 F.3d 17, 25 (2d Cir. 1998) (“A district court may grant further relief, including monetary
damages, whether or not it ‘ha[d] been demanded, or even proved, in the original action for
declaratory relief.’”) (quoting Edward B. Marks Music Corp. v. Charles K. Harris Music Publ’g,

6

Chesapeake, however, explicitly acknowledged that it does not dispute the Court’s power to
resolve this dispute. See 2/24/15 Tr., 36 (“THE COURT: I want to make sure that before we
figure out the math, and the right way to measure damages, that there isn’t any dispute between
the parties that the right people are convened here and that I have the power ultimately to issue
what appears from your point of view to be a declaration that, regardless of the number blank
that’s filled in, gives noteholders monetary relief. You [i.e., counsel for Chesapeake] and Mr.
Robbins [i.e., counsel for BNY Mellon], through somewhat different routes, appear to be saying
I have that power. MR. ZIEGLER: Yes.”).
12

Co., 255 F.2d 518, 522 (2d Cir. 1958)) (alteration in Fred Ahlert Music); Beacon Constr. Co. v.
Matco Elec. Co., 521 F.2d 392, 399–400 (2d Cir. 1975) (“further relief” under § 2202 includes
damages). Other circuits agree that § 2202 may be used to award monetary damages. See Ins.
Servs. of Beaufort, Inc. v. Aetna Cas. & Sur. Co., 966 F.2d 847, 851–52 (4th Cir. 1992); Horn &
Hardart Co. v. Nat’l Rail Passenger Corp., 843 F.2d 546, 548–49 (D.C. Cir. 1988); Alexander &
Alexander, Inc. v. Van Impe, 787 F.2d 163, 166 (3d Cir. 1986); Sec. Ins. Co. of New Haven v.
White, 236 F.2d 215, 220 (10th Cir. 1956). Section 2202 is properly utilized here, and
Chesapeake, while attempting to distinguish this case factually, has not pointed to any contrary
authority. 7
C.

The Compensation Due to the 2019 Noteholders

The parties take different approaches to the compensation due to the Noteholders. BNY
Mellon emphasizes that the Supplemental Indenture is a contract, and that it provides for only
two types of redemptions: Special Early Redemptions at par, which must occur by March 15,
2013; and redemptions after that date, which require Chesapeake to pay at the Make-Whole
Price. Because Chesapeake redeemed after March 15, 2013, BNY Mellon argues, it must pay
the Make-Whole Amount. In contrast, Chesapeake contends that damages should be determined
based on equitable principles, not based on the indenture’s text or breach-of-contract principles.
Emphasizing that it never intended to effect a Make-Whole redemption, Chesapeake argues that

7

Were § 2202 unavailable, the Court could use its inherent authority to issue a declaration as to
the compensation due. But § 2202 fits better here because this case is a declaratory judgment
action, and the need to award monetary relief to the Noteholders arises from the overturning of a
declaratory judgment. Contrary to Chesapeake’s evident premise in opposing the use of § 2202,
the choice of that procedural mechanism does not carry substantive implications as to damages
because § 2202 empowers the Court to issue both equitable and legal relief. See Fred Ahlert
Music, 155 F.3d at 25.
13

a restitutionary remedy—measuring damages by the present value of the payouts the Noteholders
would have received had there been no redemption and they held the Notes to maturity—is just.
i.

Applicable Legal Standards

The Second Circuit has addressed the circumstances in which, under New York law, 8 a
party’s recovery is to be set pursuant to a contract as opposed to under equitable principles.
Where a valid, enforceable contract governs the relevant subject matter, the Circuit has stated,
the contract ordinarily precludes recovery in quasi-contract (i.e., restitution). As the Second
Circuit put the point in MacDraw, Inc. v. CIT Group Equipment Financing, Inc.: “[W]ell-settled
principles of New York law would ordinarily preclude [plaintiff] MacDraw from pursuing an
unjust enrichment claim against [defendant] CIT under the circumstances presented here . . . .
‘[T]he existence of a valid and enforceable written contract governing a particular subject matter
ordinarily precludes recovery in quasi contract [i.e., unjust enrichment] for events arising out of
the same subject matter.’” 157 F.3d 956, 964 (2d Cir. 1998) (quoting U.S. E. Telecomms., Inc. v.
U.S. W. Comm’cns Servs., Inc., 38 F.3d 1289, 1296 (2d Cir. 1994)); accord Beth Israel Med. Ctr.
v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 587 (2d Cir. 2006) (“It is
impermissible, however, to seek damages in an action sounding in quasi contract where the suing
party has fully performed on a valid written agreement, the existence of which is undisputed, and
the scope of which clearly covers the dispute between the parties.”) (quoting Clark–Fitzpatrick,
Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 388–89 (1987)); Reilly v. Natwest Mkts. Grp. Inc.,
181 F.3d 253, 262–63 (2d Cir. 1999) (“Under New York law, the existence of an express

8

The indenture is expressly governed by New York law. See Base Indenture, § 13.08; Ninth
Supplemental Indenture, § 2.2.
14

contract governing a particular subject matter ordinarily precludes recovery in quantum meruit
for events arising out of the same subject matter.”). 9
This Second Circuit authority, in turn, draws upon a line of decisions by the New York
courts to the same effect. In the landmark case of Clark–Fitzpatrick, supra, the New York Court
of Appeals explained: “A ‘quasi-contract’ only applies in the absence of an express
agreement . . . . [A] quasi-contractual obligation is one imposed by law where there has been no
agreement or expression of assent, by word or act, on the part of either party involved. The law
creates it, regardless of the intention of the parties, to assure a just and equitable result.” 70
N.Y.2d at 388–89 (emphasis in original) (citations and internal quotation marks omitted). The
law of other states is in accord. 10

9

Cf. US Airways, Inc. v. McCutchen, 133 S. Ct. 1537, 1546–47 (2013) (“A valid contract defines
the obligations of the parties as to matters within its scope, displacing to that extent any inquiry
into unjust enrichment.”) (quoting Restatement (Third) of Restitution and Unjust Enrichment
§ 2(2) (2010)).
10

See, e.g., Clapp v. Goffstown Sch. Dist., 159 N.H. 206, 210–11 (2009) (“[U]njust enrichment
shall not supplant the terms of an agreement. . . . It is a well-established principle that the court
ordinarily cannot allow recovery under a theory of unjust enrichment where there is a valid,
express contract covering the subject matter at hand.”); Tolliver v. Christina Sch. Dist., 564 F.
Supp. 2d 312, 315 (D. Del. 2008) (“[T]he existence of an express, enforceable contract that
controls the parties’ relationship will defeat an unjust enrichment claim[].”); Trs. ex rel.
Teamsters Benefit Tr. v. Doctors Med. Ctr. of Modesto, Inc., 286 F. Supp. 2d 1234, 1239–40
(N.D. Cal. 2003) (“Plaintiff’s alleged overpayment for medical services in this case was not
simply the result of a clerical mistake, but arises from a dispute over the parties’ interpretation of
the contract. Even under the broader view of equitable restitution to remedy unjust enrichment, a
claim of unjust enrichment lies only where the defendant has no legal claim to the
overpayment.”) (footnote omitted); Meaney v. Conn. Hosp. Ass’n, Inc., 250 Conn. 500, 517
(1999) (“[A]n express contract between the parties precludes recognition of an implied-in-law
contract governing the same subject matter.”) (quoting 1 E. Farnsworth, Contracts (2d ed. 1998)
§ 2.20); accord DBSI/TRI V v. Bender, 130 Idaho 796, 805 (1997); Washa v. Miller, 249 Neb.
941, 950 (1996); Bright v. QSP, Inc., 20 F.3d 1300, 1306 (4th Cir. 1994) (applying West
Virginia law); Zuger v. N. Dakota Ins. Guar. Ass’n, 494 N.W.2d 135, 138 (N.D. 1992); Lord Jeff
Knitting Co. v. Lacy, 195 Ga. App. 287, 287 (Ga. Ct. App. 1990); S & M Constructors, Inc. v.
City of Columbus, 70 Ohio St. 2d 69, 71 (1982); Maxted v. Barrett, 198 Mont. 81, 87 (1982);
Kramer v. Fallert, 628 S.W.2d 671, 675 (Mo. Ct. App. 1981); La Throp v. Bell Fed. Sav. & Loan
15

The reason for deriving the measure of recovery from the parties’ agreement is explained
well in an oft-cited comment to the Restatement (Third) of Restitution and Unjust Enrichment:
Contract is superior to restitution as a means of regulating voluntary transfers
because it eliminates, or minimizes, the fundamental difficulty of valuation.
Considerations of both justice and efficiency require that private transfers be made
pursuant to contract whenever reasonably possible, and that the parties’ own
definition of their respective obligations—assuming the validity of their agreement
by all pertinent tests—take precedence over the obligations that the law would
impose in the absence of agreement. Restitution is accordingly subordinate to
contract as an organizing principle of private relationships, and the terms of an
enforceable agreement normally displace any claim of unjust enrichment within
their reach.
Restatement (Third) of Restitution and Unjust Enrichment [hereinafter “Rest. (Third) of
Restitution”], § 2, cmt. c; see, e.g., Anwar v. Fairfield Greenwich Ltd., 831 F. Supp. 2d 787, 797
(S.D.N.Y. 2011) (citing this comment), aff’d sub nom. Pujals v. Standard Chartered Bank, 533
F. App’x 7 (2d Cir. 2013) (summary order). Put differently, the law favors contractual
guideposts because a contract makes the parties the masters of their destiny. Where the parties
have set out, ex ante, their respective rights and obligations, using contractual guideposts to
allocate loss or damages will generally result in more voluntary, predictable, efficient, and fair
outcomes than the ex post application of common-law principles of equity. See Rest. (Third) of
Restitution § 2, cmt. c.
Significantly here, under this doctrine, for a written agreement to guide the terms of
recovery, it is not necessary that the agreement speak to the precise factual circumstances of the
dispute at hand. Instead, it is generally sufficient that the contract speak to the subject matter at
issue. See, e.g., Reilly, 181 F.3d at 262–63; MacDraw, 157 F.3d at 964; U.S. E. Telecomms.,

Ass’n, 68 Ill. 2d 375, 391 (1977); Brooks v. Valley Nat’l Bank, 113 Ariz. 169, 174 (1976); Lowell
Perkins Agency, Inc. v. Jacobs, 250 Ark. 952, 959 (1971); Paschall’s, Inc. v. Dozier, 219 Tenn.
45, 55 (1966).
16

Inc., 38 F.3d at 1296; Clark–Fitzpatrick, Inc., 70 N.Y.2d at 388; cf. Beacon Theatres, Inc. v.
Westover, 359 U.S. 500, 509 (1959).
A recent case usefully—indeed dramatically—illustrates this point. In Anwar v. Fairfield
Greenwich Ltd., supra, investors brought suit against intermediary banks, seeking to recover the
fees that the banks had charged them for managing investments in a hedge fund that had invested
its assets with Bernard Madoff. 831 F. Supp. 2d at 789–90. The plaintiffs brought claims for
breach of contract and unjust enrichment. Id. The district court dismissed both claims because a
form contract governed the service fees charged for managing investments, and that contract
precluded recovery in restitution. The court stated: “[T]he silence of the Form Contract with
regard to such an extreme contingency does not open the door for a quasi-contract remedy.
Although it is indeed unfair—and even unjust—that Plaintiffs paid fees on assets that were, in
actuality, worthless, ‘the law of restitution is very far from imposing liability for every instance
of what might plausibly be called unjust enrichment.’” Id. at 796–97 (quoting Rest. (Third) of
Restitution § 1, cmt. b). The Second Circuit summarily affirmed. See Pujals, 533 F. App’x at 11
(“Plaintiffs’ claims are thus covered by an express contract, and their unjust enrichment claim
was properly dismissed.”). 11
Salient here, to both the district court and the Second Circuit in Anwar, it was of no
consequence that the contracting parties had never contemplated, let alone specifically
addressed, the “extreme contingency” that, improbably, had occurred—their contract still

11

Anwar involved the application of Florida law, but that is of no consequence because Florida
law is substantively identical to New York law as to whether contract law or restitution governs.
See, e.g., In re Managed Care Litig., 185 F. Supp. 2d 1310, 1337 (S.D. Fla. 2002) (“An unjust
enrichment claim can exist only if the subject matter of that claim is not covered by a valid and
enforceable contract.”); cf. Singer v. AT & T Corp., 185 F.R.D. 681, 692 (S.D. Fla. 1998)
(“[B]reach of contract and unjust enrichment . . . are universally recognized causes of action that
are materially the same throughout the United States.”).
17

controlled. See, e.g., Valley Juice Ltd., Inc. v. Evian Waters of France, Inc., 87 F.3d 604, 610
(2d Cir. 1996) (invalidating supplier’s unjust enrichment claim against distributor where
relationship between these parties was governed by contract, despite fact that alleged misdeeds
by distributor either predated contract or involved conduct not specifically anticipated by
agreement); Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1053 (2d Cir.
1982) (overturning equitable award of interest earned on funds held in escrow during litigation to
aggrieved noteholders in dispute with issuer that had strategically defaulted, because no
“contractual provision” supported payment of interest to noteholders on such sums, and district
court’s application of equitable principles was barred by existence of contract).
To be sure, principles of restitution can sometimes come into play in cases involving a
contract. But as the Restatement (Third) of Restitution reflects, they are relevant only in unusual
and “margin[al]” circumstances—such as where “performance has been rendered under a
contract that is invalid, or subject to avoidance, or otherwise ineffective to regulate the parties’
obligations.” Rest. (Third) of Restitution § 2, cmt. c. As the Restatement explains, “[r]estitution
is the law of nonconsensual and nonbargained benefits in the same way that torts is the law of
nonconsensual and nonlicensed harms. Both subjects deal with the consequences of transactions
in which the parties have not specified for themselves what the consequences of their interaction
should be.” Id. § 1, cmt. d; see also, e.g., Porter v. Hu, 116 Haw. 42, 55–56 (Haw. Ct. App.
2007) (permitting unjust enrichment claim where contract between insurance agency and
independent agent simply did not address at all scenario in which agency fired agent and
subverted their contractual relationship in order to retain independent agent’s books of business).
The equitable principle of restitution, championed by Chesapeake, is far more commonly
utilized in circumstances where the parties’ relationship is not defined by contract. For example,

18

a party disadvantaged by a lower court’s ruling (e.g., an order to pay damages, or to refrain from
certain conduct) is typically entitled to be restored to its previous position after a higher court has
reversed that ruling. A court thus may issue a restitutionary award to protect the losing party
below which, against its will, was obliged to heed that court’s order before it was overturned on
appeal. See, e.g., Atl. Coast Line R.R. Co. v. Florida, 295 U.S. 301, 309 (1935) (“Decisions of
this court have given recognition to the rule as one of general application that what has been lost
to a litigant under the compulsion of a judgment shall be restored thereafter, in the event of a
reversal, by the litigants opposed to him, the beneficiaries of the error.”); Baltimore & Ohio R.R.
Co. v. United States, 279 U.S. 781, 786 (1929) (“The right to recover what one has lost by the
enforcement of a judgment subsequently reversed is well established.”); Arkadelphia Milling Co.
v. St. Louis Sw. Ry. Co., 249 U.S. 134, 145 (1919) (“[A] party against whom an erroneous
judgment or decree has been carried into effect is entitled, in the event of a reversal, to be
restored by his adversary to that which he has lost thereby.”); Nw. Fuel Co. v. Brock, 139 U.S.
216, 219–20 (1891) (higher court’s reversal of lower court’s judgment, due to lower court’s lack
of jurisdiction, did not deprive lower court of right, on remand, to order restitution to the
successful appellants in the amount collected on the judgment pending the appeal).
Even when restitution might be awarded, however, it “is not of mere right”; it is a
discretionary remedy. LiButti v. United States, 178 F.3d 114, 120 (2d Cir. 1999) (quoting Atl.
Coast, 295 U.S. at 310). As the Second Circuit has explained: “‘[A] court will not order [a
restitutionary remedy] where the justice of the case does not call for it.’ . . . ‘[T]he simple but
comprehensive question is whether the circumstances are such that equitably the defendant
should restore to the plaintiff what he has received.’ The essence of equity jurisdiction has been

19

its flexibility to tailor each decree to the necessities of the specific case.” Id. at 120–21 (quoting
Atl. Coast, 295 U.S. at 310).
ii.

Application

Both parties have ably litigated the remedy issue presented by the unusual series of
events here. However, when viewed in light of the above principles, BNY Mellon’s argument
for recovery measured by Make-Whole damages as defined by § 1.7(c) of the Supplemental
Indenture is substantially the more persuasive. For four reasons, each ultimately relating to the
law’s preference for contract-based remedies where a valid contract governs the parties’
relationship, Chesapeake’s approach, under which § 1.7(c) is irrelevant to damages, is
problematic.
1. The indenture covers the relevant subject matter: As reviewed above, where a valid
contract governs a particular subject matter, the contract ordinarily precludes recovery in quasicontract (i.e., restitution) for disputes concerning that subject matter, and courts have looked to
the contract to provide the measure of recovery. Such is the case here. The subject matter of
§ 1.7 is the early redemption of the 2019 Notes, including the precise money due to the
Noteholders depending on the date of that redemption. This case thus naturally invites the
application of the principle that where the parties have set out their respective rights and
obligations as to a particular subject matter in a valid, enforceable agreement, a court setting
remedies will be guided by that agreement.
Although it may be appropriate to fix remedies with reference to equitable principles in
non-contract cases or in rare contract cases where the injury giving rise to a need for remediation
is wholly unaddressed by the parties’ agreement, such is not the case here, at all. Rather, as in
Anwar, the parties’ agreement is capacious enough to cover the events at hand. (Indeed, the

20

unexpected circumstance in Anwar—that the assets on which bank fees were being charged were
phantom, as a result of the Madoff Ponzi scheme—was far harder to anticipate than that at issue
here.) The Supplemental Indenture is comprehensive as to the two types of redemptions that
may occur with respect to the 2019 Notes. And it defines them by date: Redemptions on or
before March 15, 2013 are Special Early Redemptions, see § 1.7(b); redemptions after that date
are Make-Whole Redemptions, see § 1.7(c). These provisions together cover the universe of
dates on which a redemption can occur.
Chesapeake’s approach, however, asks the Court effectively to recognize a third type of
redemption, unmentioned in the Supplemental Indenture. This redemption would be defined not
by its date, but by Chesapeake’s state of mind at the time of the redemption. For Chesapeake’s
argument is that, because it acted in good faith when it attempted a Special Early Redemption on
May 13, 2013 believing such still to be timely, it is entitled to pay its Noteholders less than had it
otherwise redeemed (i.e., under § 1.7(c)) the same day.
An indenture, however, is a form of contract. See, e.g., Quadrant Structured Prods. Co.
v. Vertin, 23 N.Y.3d 549, 559 (2014) (“A trust indenture is a contract, and under New York law
‘[i]nterpretation of indenture provisions is a matter of basic contract law.’”) (quoting Sharon
Steel, 691 F.2d at 1049, and collecting cases); Bank of N.Y. Tr. Co., N.A. v. Franklin Advisers,
Inc., 726 F.3d 269, 276 (2d Cir. 2013) (“It is a well-established rule in this Circuit that the
‘interpretation of Indenture provisions is a matter of basic contract law.’”) (quoting Jamie Sec.
Co. v. The Ltd., Inc., 880 F.2d 1572, 1576 (2d Cir. 1989)). And it would be at odds with basic
principles of contract law to effectively impute a new type of redemption into a contract that, by
its terms, listed two and only two types of redemptions and them by date. See, e.g., Vertin, 23
N.Y.3d at 559–60 (“In construing a contract we look to its language, for ‘a written agreement

21

that is complete, clear and unambiguous on its face must be enforced according to the plain
meaning of its terms.’”) (quoting Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (2002));
Law Debenture Tr. Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 468 (2d Cir. 2010)
(applying New York law) (“[C]ourts may not by construction add or excise terms, nor distort the
meaning of those used and thereby make a new contract for the parties under the guise of
interpreting the writing.”) (quoting Bailey v. Fish & Neave, 8 N.Y.3d 523, 528 (2007)); id. (“[I]f
the agreement on its face is reasonably susceptible of only one meaning, a court is not free to
alter the contract to reflect its personal notions of fairness and equity.”) (quoting Greenfield, 98
N.Y.2d at 569–70); Fiore v. Fiore, 46 N.Y.2d 971, 973 (1979) (“The courts may not rewrite a
term of a contract by ‘interpretation’ when it is clear and unambiguous on its face.”). Because
the contract here covers the subject matter at issue—the payouts due for redemptions on
particular dates—it is appropriate to award the Noteholders the recovery due under the indenture
for redemptions after March 15, 2013.
2. Implications of the holding that § 1.7 is unambiguous: Chesapeake’s proposal is
also in tension with the Second Circuit’s holding that § 1.7 is textually unambiguous. At
argument on remand, the Court asked counsel whether Chesapeake believed that restitutionary
damages would be appropriate if (1) Chesapeake had issued a notice of a Special Early
Redemption on March 16, 2013, and redeemed 30–60 days thereafter, but (2) an appellate court
later held the notice untimely to effect such a redemption. Chesapeake’s counsel conceded that
Chesapeake would then have to pay Make-Whole damages because § 1.7 clearly cannot
reasonably be read to permit notice of a Special Early Redemption after March 15, 2013.
In light of the Second Circuit’s ruling that the indenture text was clear, that logic applies
as well to a notice of redemption issued on March 15, 2013. For the Second Circuit held that

22

§ 1.7(b) unambiguously made March 15, 2013 the deadline for a Special Early Redemption
itself, and therefore made February 13, 2013 the deadline for noticing such a redemption. See
Chesapeake Energy Corp., 773 F.3d at 116–17. To be sure, this Court at all times took a
different view—it initially viewed that provision as ambiguous, and later, in granting declaratory
relief, held for Chesapeake that March 15, 2013 was the deadline for notice. But the Second
Circuit’s decision, not this Court’s overturned ruling, is authoritative as to the construction of the
indenture. And so is the Circuit’s basis for reaching that construction—a finding that the
indenture text was clear (as opposed to, for example, a finding of textual ambiguity, construed to
favor the Noteholders). See Chesapeake Energy Corp., 773 F.3d at 116–17. With the Second
Circuit having held that February 13, 2013 was at all times unambiguously the deadline for
giving notice of a Special Early Redemption, Chesapeake’s March 15, 2013 redemption notice is
not nearly as comfortably distinguished from the hypothetical of an unreasonable March 16,
2013 redemption notice as once might have appeared.
3. Respect due for investors’ expectations: For the Court to fashion what amounts to a
new type of redemption, with its pricing terms to be set post hoc by a Court with reference to
equitable principles, would confound investors’ valid expectations. Based on the Supplemental
Indenture’s text as construed by the Second Circuit, an investor who bought—or held—2019
Notes would have believed, after March 15, 2013, that there were only two possible dispositions
for his investment: (1) If Chesapeake did not redeem early such that Noteholders held to
maturity, Noteholders would receive a 6.775% annual income stream until March 15, 2019, and
recoup their principal. Or (2) if Chesapeake redeemed, Noteholders would be paid, in a lump
sum, the Make-Whole Amount, pursuant to § 1.7(c).

23

It is reasonable to assume that some investors decided to buy or hold the Notes because
they believed that, after March 15, 2013, only these two outcomes were possible. An investor
could realistically not have anticipated the third scenario in which—if Chesapeake missed the
deadline for a Special Early Redemption but redeemed in a good faith belief that it had met that
deadline—Noteholders would receive an early-redemption lump-sum payout materially smaller
than the Make-Whole Amount. That is not to say that Chesapeake’s notion of a “restitutionary”
payout is normatively unreasonable. It is not: As Chesapeake explains, it is anchored in familiar
equitable principles that calculate restitutionary damages as a present value (here, of payments to
maturity). But the investors who decided to buy (or hold) the 2019 Notes were beneficiaries of a
contract. It can safely be said that they did not have a restitutionary scenario in mind. They
presumably chose to buy or hold based on the comprehensive text of the indenture, which
presented binomial outcomes. Such investors may have chosen the Notes because they preferred
a steady payout over time to a lump sum, unless the lump-sum formula was defined (like the
Make-Whole Amount under § 1.7(c)) to include a premium over the present value of that payout.
The interest in respecting investors’ legitimate expectations therefore supports a payout
keyed to the indenture’s treatment of redemptions after March 15, 2013. See, e.g., Metro. Life
Ins. Co. v. RJR Nabisco, Inc., 716 F. Supp. 1504, 1520 (S.D.N.Y. 1989) (applying New York
law) (“The sort of unbounded and one-sided elasticity urged by plaintiffs would interfere with
and destabilize the market. And this Court, like the parties to these contracts, cannot ignore or
disavow the marketplace in which the contract is performed. Nor can it ignore the expectations
of that market—expectations, for instance, that the terms of an indenture will be upheld, and that
a court will not, sua sponte, add new substantive terms to that indenture as it sees fit.”) (citing,
inter alia, Sharon Steel, 691 F.2d at 1048 (“[U]niformity in interpretation is important to the

24

efficiency of capital markets. . . . [T]he creation of enduring uncertainties as to the meaning of
boilerplate provisions would decrease the value of all debenture issues and greatly impair the
efficient working of capital markets.”)). There is also a prospective dimension to this point. A
judicial ruling supervening an indenture’s comprehensive terms so as to excuse an issuer (based
on a good-faith misapplication) from a duty it would otherwise have would introduce uncertainty
into, and unhelpfully complicate, future indentures.
4. Chesapeake’s awareness that its redemption might be held to trigger a § 1.7(c)
payout: Chesapeake was on notice at all relevant times that the present scenario, involving the
need on remand to resolve damages arising from a Special Early Redemption held untimely,
might arise. From early on, Chesapeake knew that (1) the timeliness of its proposed Special
Early Redemption was hotly contested, and (2) if held untimely on appeal, its redemption might
be held to trigger a duty to pay the Make-Whole payment.
As to the first point, beginning February 20, 2013, BNY Mellon notified Chesapeake that
it believed that the deadline for noticing a Special Early Redemption had passed on February 13,
2013. And beginning March 8, 2013, this deadline was a principal subject of Chesapeake’s
litigation in this Court, including its application for emergency relief. Indeed, in denying that
relief, this Court stated that the indenture’s notice deadline appeared ambiguous, meaning
Chesapeake’s construction might ultimately be rejected. See 3/14/13 Tr., 17 (“As counsel have
ably demonstrated, both of the competing positions find textual support within the indentures.”).
The next day, Chesapeake gave notice of the redemption, binding itself to redeem if this Court
held its notice timely.
As to the latter point, BNY Mellon and the Noteholders took the position, in
communications with Chesapeake and before this Court, that a Special Early Redemption notice

25

alone, if held untimely by this Court such that no redemption occurred, could trigger a
redemption under § 1.7(c). Although this Court disdained that position, it explicitly reminded
Chesapeake, as all parties assuredly appreciated, that if Chesapeake redeemed the notes in
reliance on a decision that its notice had been timely, and the Second Circuit reversed,
Chesapeake could then be ordered to pay the Noteholders in a lump sum measured by the MakeWhole Amount, even though Chesapeake had never intended to trigger a § 1.7(c) redemption.
See 3/19/13 Tr., 52–59. 12 All parties further appreciated that, were Chesapeake to prevail at trial,
12

At the March 19, 2013 hearing, the Court addressed the various outcomes of the upcoming
trial with counsel, and engaged in the following colloquy with Chesapeake’s counsel (Richard
Ziegler, Esq.):
THE COURT: . . . [N]ow hypothetically you win but there’s an immediate
appeal. . . . Is [BNY Mellon] right that basically the remedy at that point was
not . . . to seek the reinstatement of the notices on the 2019 agreement schedule but
in effect to claim Judge Engelmayer got it wrong and the only way to make my
clients whole is to in effect pay them what amounts to the present value -- the 2019
value -- in effect giving him the make-whole value through the backdoor?
MR. ZIEGLER: And certainly I don’t think the Court will give the noteholders
the make-whole value through the backdoor.
THE COURT: Well, you don’t think that. But I’m asking you to assume that the
Court of Appeals disagrees with a ruling I make in your favor on timeliness and
now wants to fashion a remedy. What is that remedy?
***
THE COURT: The notion would be that, in effect, on appeal the victorious
noteholder would either get, as you say, the resuscitated new note, or, if you had to
monetize it into a chunk of money to pay now, it winds up looking very much like
the make-whole remedy.
MR. ZIEGLER: I just think the make-whole remedies in either case are
sufficiently unusual that the equitable mootness doctrine may apply.
THE COURT: You’re a creative lawyer, but it feels to me like there are money
damages available on th[at] scenario. . . .
3/19/13 Tr., 56–59.
26

BNY Mellon and the Noteholders would appeal, but an appeal could not realistically be
completed until long after the deadline for Chesapeake to redeem (60 days after its notice) had
passed. See id. at 48–59. Chesapeake thus knew that in committing to redeem based on a
finding of timeliness by a lower court only, it ran the risk of appellate reversal. See, e.g., Edgar
v. MITE Corp., 457 U.S. 624, 651 (1982) (Stevens, J., concurring) (“[E]very litigant is painfully
aware of the possibility that a favorable judgment of a trial court may be reversed on appeal.”).
The unhappy situation in which Chesapeake finds itself was thus a front-and-center, and
real, possibility at all times. All parties, and the Court, recognized this. In waiting until after
February 13, 2013 to issue its notice of Special Early Redemption, and in committing to redeem
if this Court held that notice timely, Chesapeake ran the known risk that this worst-case scenario
would come to pass. It went forward in the face of this “known unknown.” Chesapeake
assuredly hoped for a better outcome—ideally, that all courts would sustain its Special Early
Redemption; alternatively, that this Court would hold its notice untimely and thereby abort its
bid pre-redemption. But in identifying potential branches of the decision tree, Chesapeake had to
know that in one, it would redeem based on a ruling of timeliness which was later reversed,
giving the Noteholders, under the indenture, a substantial claim for Make-Whole damages based
on the date of the redemption.
For these reasons, the Court rejects Chesapeake’s suggestion that its characterization of
the redemption as other than a Make-Whole Redemption must be given significant weight.
Section 1.7(c) indeed states, as Chesapeake notes, that Chesapeake “at its option” may bring
about a Make-Whole Redemption; on that basis, Chesapeake argues that it never “opt[ed]” to
bring such a redemption about. But Chesapeake gains little mileage from that clause. That
clause makes the decision Chesapeake’s alone whether or not to redeem the Notes after March

27

15, 2013. But that clause did not permit Chesapeake, by labeling a redemption a “Special Early
Redemption,” to decide the payout required under such a redemption if held later to have
occurred within the period when only Make-Whole redemptions were authorized.
Nor, under the present circumstances, can Chesapeake carry the day by noting that it
consistently characterized the May 13, 2013 redemption as other than a Make-Whole
redemption—including in the March 15, 2013 Notice of redemption itself. See, e.g., 2/24/15 Tr.,
23 (argument of Chesapeake’s counsel that “the effect of the redemption that occurred is
integrally tied to th[e] notice” Chesapeake issued). Lewis Carroll notwithstanding, what
Chesapeake has said repeatedly is not necessarily so. See Lewis Carroll, The Hunting of the
Snark 3 (1876) (“I have said it thrice: What I tell you three times is true.”) (quoted in Parhat v.
Gates, 532 F.3d 834, 848–49 (D.C. Cir. 2008)). Chesapeake’s characterization of the
redemption as a Special Early Redemption, although an accurate reflection of its intentions,
cannot preempt the Court from applying the principles above to determine the proper remedy due
to the Noteholders given the Second Circuit’s contrary holding.
iii.

Cases relied on by Chesapeake

The Court has carefully considered the cases on which Chesapeake relies in advocating
for a non-contractual remedy. This authority is inapposite for the reasons that follow.
Chesapeake first relies on Supreme Court cases awarding restitution on remand after an
appellate reversal. These cases apply the principle that “what has been lost to a litigant under the
compulsion of a judgment shall be restored thereafter, in the event of a reversal, by the litigants
opposed to him, the beneficiaries of the error.” Atl. Coast, 295 U.S. at 309; see also Baltimore
& Ohio R.R., 279 U.S. at 786 (“The right to recover what one has lost by the enforcement of a
judgment subsequently reversed is well established.”); Arkadelphia, 249 U.S. at 145 (“[A] party

28

against whom an erroneous judgment or decree has been carried into effect is entitled, in the
event of a reversal, to be restored by his adversary to that which he has lost thereby.”).
This principle does not assist Chesapeake. In the cases which it cites, the Court applied
this principle to award damages to (1) a losing-defendant-turned-victorious-appellant who
(2) lost something under compulsion of a court order. The rationale is that “[o]bedience was
owing” to the lower court’s order (or the Interstate Commerce Commission’s order) “while th[at]
order was in effect.” Atl. Coast, 295 U.S. at 309. In Baltimore & Ohio Railroad, for example,
the “west side” railroads sought, and obtained from the Interstate Commerce Commission
(“ICC”), an order that the “east side” railroads should bear the cost of trans–Mississippi River
travel. The east side railroads then brought suit in federal court, seeking to set aside the ICC’s
order; after the district court dismissed the suit for want of equity, the Supreme Court reversed.
On remand, the district court set aside the ICC’s order, but, while holding that the east side
railroads had complied with the ICC’s order while in effect, denied their bid for restitution. On
appeal, the Supreme Court again reversed. 279 U.S. at 783–84. It held that the east side
railroads were entitled to restitution because they had made payments “in compliance with the
[ICC’s] invalid order,” and those payments “inured to the benefit of the west side roads just as if
made directly to them.” Id. at 785–86.
For a number of reasons, this case is a far cry from that scenario. Chesapeake is not a
losing-defendant-turned-victorious-appellant; it is a winning-plaintiff-turned-unsuccessfulappellee. And Chesapeake was not compelled by a court to do (or refrain from doing) anything;
it affirmatively chose to pursue a course leading to a redemption knowing that timeliness was
contested and that it might be held on appeal to have missed the deadline for Special Early

29

Redemption. Unlike the east side railroads, Chesapeake controlled its choices and ran a known
risk.
Significantly, too, the relationship among the parties in the railroad-rate cases like
Baltimore & Ohio Railroad, Arkadelphia Milling, and Atlantic Coast was not governed by
contract; the litigation challenged regulatory rate-setting and court injunctions. These cases thus
do not displace the principle, reviewed above, that where the parties’ relationship is defined by
contract, courts should look to the contract in setting remedies.
Finally, these decisions do not limit the right of a party on remand to a restitutionary
remedy. Later decisions have held that, in the situation where a contractual provision initially
has been misinterpreted, the losing-defendant-turned-successful-appellant may, on remand, seek
either a contractual or a restitutionary remedy. 13 Contrary to Chesapeake’s claim, restitution on

13

Munoz v. MacMillan, 195 Cal. App. 4th 648, 651 (Cal. Ct. App. 2011), supplies a good
illustration. There, landlord MacMillan sued tenant Munoz for unlawful detainer. MacMillan
prevailed in the trial court, and evicted Munoz. Munoz won on appeal. Munoz then sued for
damages under the lease. MacMillan argued that he had evicted Munoz in reliance on the trial
court and that restitution therefore was Munoz’s only remedy. The appellate court disagreed:
If Munoz has suffered damages as a result of the alleged breach, she can pursue
applicable remedies for breach of contract. Were this not the rule, it would be
difficult to explain doctrinally what happened to Munoz’s contract rights. Munoz
did not at any time voluntarily relinquish her right to possession under the lease for
the term prescribed, either during the pendency of the unlawful detainer action or
following the initial judgment. . . . MacMillan now contends the existence of a
restitution remedy precludes a contract remedy. . . . But we are unaware of any
authority for the proposition that the existence of a remedy in restitution precludes
a plaintiff from suing on an express contract. It would be odd to say Munoz is
required to seek restitution for the loss of her rights, but cannot seek recovery for
breach of contract. It is the lease (an actual contract, not one implied by law) that
entitled Munoz to possession of the premises. It is the lease that defines the rights
Munoz lost when the initial judgment was enforced (the time period she was
entitled to possess the premises). There is no need in this case for Munoz to plead
quasi-contract or quantum meruit—she has an actual contract.
Id. at 659–61 (footnote omitted).
30

remand is neither mandatory nor exclusive, see Chesapeake Br. 14, and the cases Chesapeake
cites do not support that proposition. 14
Second, Chesapeake relies on a section (§ 18) of the Restatement (Third) of Restitution
derived, in part, from the foregoing Supreme Court cases. It states that “[a] transfer or taking of
property, in compliance with or otherwise in consequence of a judgment that is subsequently
reversed or avoided, gives the disadvantaged party a claim in restitution as necessary to avoid
unjust enrichment.” But § 18 does not avail Chesapeake. Chesapeake relies on the broadly
worded clause, “in compliance with or otherwise in consequence of a judgment that is
subsequently reversed or avoided,” but it puts more weight on that clause than it fairly bears.
There is no authority for viewing this clause as displacing the scores of cases (reviewed earlier),
or for that matter § 2 of the Restatement, that give primacy to contractual remedies where
available. See pp. 14–20, supra. The comments to § 18 confirm Chesapeake’s overreach:

14

Some of these cases involved the calculation of a restitution award sought by a successful
appellant; they do not speak to the situation where such an appellant seeks a different form of
recovery. See, e.g., U.S. Indus., Inc. v. Gregg, 457 F. Supp. 1293 (D. Del. 1978), aff’d, 605 F.2d
1199 (3d Cir. 1979); see also In re Popkin & Stern, 263 B.R. 885, 889 (8th Cir. B.A.P. 2001).
Other cases examined the motive for a breach of contract only because a statute made it relevant
whether the breach had been “wrongful” or “unjustified.” See, e.g., Nat’l Union Fire Ins. Co. of
Pittsburgh, PA v. Seagate Tech., Inc., No. 04 Civ. 01593 (WHA), 2013 WL 1282971, at *3
(N.D. Cal. Mar. 27, 2013), (addressing whether insurer’s refusal to defend insured had been
“wrongful” under California statute, and noting that insured was “entitled to the benefit of its
own bargain”); Auto-Owners Ins. Co. v. Potter, 242 F. App’x 94, 97–98 (4th Cir. 2007)
(unpublished) (addressing whether insurer’s withdrawal of defense of insured had been
“unjustified” under North Carolina statute). Finally, several cases are sufficiently far afield as to
have no bearing here. See, e.g., Chafin v. Chafin, 133 S. Ct. 1017, 1028 (2013) (in Hague
Convention child custody dispute, district court ordered child repatriated to Scotland, appeals
court held the appeal moot, and Supreme Court found the appeal not moot because district court
could order the child to return to the U.S.); In re Cathedral of Incarnation in Diocese of Long
Island, 90 F.3d 28, 35–36 (2d Cir. 1996) (holding that bankruptcy court should wait to see if
later events confirmed that restitution was available); Am. Gen. Ins. Co. v. Equitable Gen. Corp.,
493 F. Supp. 721 (E.D. Va. 1980) (at plaintiff’s request, court granted rescission of a contract
and awarded rescissory damages rather than return to the status quo).
31

This section addresses the restitution issues that arise when a transfer of the
claimant’s property results, directly or indirectly, from an adverse judgment in a
judicial or administrative proceeding to which the claimant is a party, and that
judgment is subsequently reversed or otherwise set aside. It is often possible to
postpone compliance with an adverse judgment, by a bonding procedure or
otherwise, pending a challenge by direct appeal or in collateral proceedings. If
there has been no transfer in consequence of the judgment that is later set aside,
there is naturally no issue of restitution. But a party is under no obligation to
postpone compliance with a judgment that he seeks to overturn[], and
postponement is not always feasible.
Rest. (Third) of Restitution § 18, cmt. a (emphases added). Section 18 is thus aimed at ensuring
recovery by the originally losing party that had acted (or refrained from acting) in “compliance”
with an “adverse” judgment. As noted, this case does not fit that paradigm.
Third, Chesapeake argues that awarding Noteholders the § 1.7(c) Make-Whole remedy
would award a windfall that is barred by the case law. But Chesapeake does not identify any
case inconsistent with using, to determine the amount of relief, a contractual provision that sets
out the monies due the appellate victors upon the very action (a redemption on a given day) for
which they seek recompense. The cases involving TIAA entities, on which Chesapeake relies,
do not aid its cause. See Teachers Ins. & Annuity Ass’n of Am. v. Coaxial Commc’ns of Cent.
Ohio, Inc., 799 F. Supp. 16 (S.D.N.Y. 1992); Teachers Ins. & Annuity Ass’n v. Ormesa
Geothermal, 791 F. Supp. 401 (S.D.N.Y. 1991). Chesapeake notes that that those cases rejected
make-whole provisions and instead awarded damages equal to the discounted present value of
the incremental interest income that the investors lost due to the breach. See Coaxial Commc’ns,
799 F. Supp. at 19; Ormesa Geothermal, 791 F. Supp. at 415–16. But the TIAA cases concerned
a different type of agreement (a private term loan, not a registered corporate bond), which had
not yet been funded, see Coaxial Commc’ns, 799 F. Supp. at 18; Ormesa Geothermal, 791 F.
Supp. at 416; thus, the make-whole provision was not yet in force when the breach occurred.
The TIAA cases therefore did not reject an applicable make-whole provision in favor of
32

restitution, so much as they declined to transport a make-whole provision to govern a time period
with respect to which the parties had agreed it would not apply. And the court in Coaxial
Communications emphasized the primacy of contractual remedies when available, stating that
“absent a clear violation of public policy it is important to preserve the freedom of parties to
contract. It is not for a fact-finder to second-guess the wisdom of their choices. Both parties
elected to sign the commitment letter as written despite the risks, and defendant cannot now be
heard to seek to avoid its contract because of regrets on its side about a strategic business
decision.” 799 F. Supp. at 18. These decisions thus accord with the Second Circuit’s emphasis
on upholding the “particularized intentions of the parties,” so as to promote predictability and
market efficiency. Sharon Steel, 691 F.2d at 1048.
The Court therefore agrees with BNY Mellon: With respect to the redemption on May
13, 2013 of the 2019 Notes, Chesapeake must pay compensation to the Noteholders consistent
with their entitlement to Make-Whole relief for such a redemption under §1.7(c).
D.

Prejudgment Interest

The parties next dispute the appropriate measure of the prejudgment interest due to the
2019 Noteholders.
The principles governing prejudgment interest under New York law are supplied by New
York CPLR § 5001 et seq. Section 5001(a) provides that “[i]nterest shall be recovered upon a
sum awarded because of a breach of performance of a contract, or because of an act or omission
depriving or otherwise interfering with title to, or possession or enjoyment of, property, except
that in an action of an equitable nature, interest and the rate and date from which it shall be
computed shall be in the court’s discretion.” Under § 5001(a), in a breach of contract action, the
prevailing party is entitled to prejudgment interest on its damages “as a matter of right.” See

33

U.S. Naval Inst. v. Charter Commc’ns, Inc., 936 F.2d 692, 698 (2d Cir. 1991). In a breach of
contract action, CPLR § 5004 establishes a default prejudgment interest rate of 9% per year,
subject to the right of the parties to agree, by contract, to a different rate. Thus, the “applicable
rate of prejudgment interest [may] var[y] depending on the nature and terms of the contract.”
NML Capital v. Republic of Argentina, 17 N.Y.3d 250, 258 (2011); see also id. (explaining that
CPLR § 5004 applies “[i]f the parties failed to include a provision in the contract addressing the
interest rate that governs . . . in the event of a breach”). By contrast, in an equitable action,
§ 5001(a) gives the Court discretion to select a fair prejudgment interest rate. See, e.g., Franklin
Advisers, 726 F.3d at 282; United States v. Con. Edison Co., 452 F. Supp. 638, 658–59
(S.D.N.Y. 1977), aff’d, 580 F.2d 1122 (2d Cir. 1978) (court has “broad discretion in fashioning
an award of interest[,] if any,” when “recovery is based upon equitable principles”). In either
circumstance—an action based in contract or in equity—prejudgment interest runs from “the
earliest ascertainable date the cause of action existed, except that interest upon damages incurred
thereafter shall be computed from the date incurred.” N.Y. CPLR § 5001(b).
The parties’ positions as to prejudgment interest echo their arguments as to the amount of
money due. Chesapeake casts the issue as equitable, not contractual, and therefore argues that
the prejudgment interest rate is left to the Court’s discretion under § 5001. Chesapeake proposes
an interest rate of 2.3% per year, which, it states, was its “borrowing rate for short-term loans”
on May 13, 2013 and therefore the interest that a 2019 Noteholder could have obtained had it
invested redemption proceeds that day. Chesapeake Reply Br. 24–25; see also Chesapeake Br.
33. By contrast, BNY Mellon argues that this damages inquiry in substance, if not form, sounds
in breach of contract. Indeed, BNY Mellon notes, the 2019 Noteholders, rather than pursuing
relief on remand in this litigation under § 2202, could have brought a breach of contract action,

34

claiming that Chesapeake breached its indenture-based duty to them to pay the Make-Whole
Amount upon the May 13, 2013 redemption. BNY Mellon therefore argues that prejudgment
interest is as of right, not discretionary, and that the Court should set the prejudgment interest
rate using the 6.775% annual rate applicable to the 2019 Notes under the Supplemental
Indenture; consistent with this argument, BNY Mellon argues that this rate displaces the 9%
default rate in contract cases under New York law. See BNY Br. 33–34. The parties agree that
prejudgment interest runs from the redemption date (May 13, 2013). See Chesapeake Br. 33;
BNY Br. 33–34. BNY Mellon urges that this interest be calculated semi-annually, on March 15
and September 15, again, consistent with the Supplemental Indenture. 15
The Court again agrees with BNY Mellon. That the prejudgment interest rate is to be
determined contractually by reference to the indenture, if the indenture speaks to that point,
logically follows from the Court’s holding that the Noteholders’ damages are contractual in
nature, based on Chesapeake’s breach of its duties upon redemption under the indenture. To be
sure, the Supplemental Indenture does not set, in haec verba, a prejudgment interest rate. The
6.775% rate that appears in the indenture instead is used to measure the interest on the 2019
Notes to their maturity (i.e., assuming no redemption). But although these contexts are distinct,
there is good logic to binding Chesapeake to that same rate in the context of setting the interest
rate upon breach. After all, Chesapeake, the driving force behind, and a drafter of, the indenture,
agreed to pay such an interest rate on the Notes, over a seven-year period (2012 through 2019),
to the same class of Noteholders. And § 3.06 of the Base Indenture appears to signal an intent

15

See Dkt. 1, Ex. B, at 12 (Ninth Supplemental Indenture, Reverse Side of Note, ¶ 1)
(“Chesapeake Energy Corporation . . . promises to pay interest on the principal amount of this
Note at the rate per annum shown above [6.775%]. The Company will pay interest semiannually
on March 15 and September 15 of each year . . . .”).
35

that the 6.775% rate would apply to overdue redemption payments, a characterization that is fair
as to the sums due here. It states: “If any Security called for redemption shall not be so paid
upon redemption because of the failure of the Company to [deposit the required redemption
price], interest will continue to be payable on the unpaid principal and any premium including
from the redemption date until such principal and any premium is paid, and, to the extent lawful,
on any interest not paid on such unpaid principal, in each case at the rate provided in the
Securities and in Section 4.01 hereof.” Baron Decl., Ex. I (Base Indenture, § 3.06). Moreover,
given the Court’s holding that the Noteholders’ monetary entitlement is contractual in nature, a
conclusion that that the 6.775% interest rate set in the indenture did not apply in the context of
prejudgment interest would not benefit Chesapeake. The Court would then, pursuant to § 5004,
impose the default prejudgment interest of 9% that applies in contract cases. 16
The Court, accordingly, holds that the prejudgment interest rate here is 6.775%; that it
runs from May 13, 2013; and that interest is to be calculated semi-annually (on March 15 and
September 15).
CONCLUSION
For the foregoing reasons, the Court grants BNY Mellon’s motion for further relief, and
denies Chesapeake’s cross-motion for an order of restitution. Chesapeake shall pay the 2019
Noteholders $379,650,133.21, consistent with their entitlement to be paid the Make-Whole
Amount for a redemption on May 13, 2013. Further, the Court holds that the prejudgment

16

For avoidance of doubt, were the prejudgment interest rate left to the Court’s discretion, as
Chesapeake posits, the Court would still choose the 6.775% rate on which the parties to the
indenture agreed. The Court finds this rate more appropriate under the circumstances than either
the 2.3% borrowing rate for short-term loans available to Chesapeake on May 13, 2013, or the
9% default rate in breach of contract cases.
36