On March 17, 2026, Justice Cohen of the New York County Commercial Division issued a decision in CPPIB Credit Invs. II Inc. v. Deutsche Bank Trust Co. Ams., 2026 NY Slip Op. 31052(U), holding that a no-action clause did not bar a claim based on the denial of a plaintiff’s rights specifically listed in the indenture, explaining:
This action involves a variant of an “up-tiering” or “liability management” transaction. In its broadest terms, such transactions involve arrangements in which a borrower cuts a favorable deal with a majority of its joint lenders/noteholders to the purported economic detriment of the minority, typically via a contractual amendment to which only the majority consented. Not surprisingly, this has sometimes led to litigation. In some cases, the minority creditors sufficiently alleged that the transaction ran afoul of contractual “sacred rights” provisions—which cannot be amended without their consent—and their claims survived dispositive motion. This one, as described below, is a bit of both.
In this case, according to Plaintiffs, the borrower (Legacy Lions Gate) sought for commercial reasons to separate its business into two parts: (i) its successful “Studio Business;” and (ii) a recently acquired but struggling “Starz Business.” An obstacle to doing so was Legacy Lions Gate’s obligations under a $1 billion Indenture agreement that were guaranteed by both businesses. To eliminate the problem, Legacy Lions Gate persuaded a majority of noteholders to consent to various Indenture amendments that, among other things, permitted the Studio Business guarantors to be released. In return, Legacy Lions Gate permitted these “Participating Noteholders” to exchange their old notes for longer term, higher interest rate notes that were guaranteed by the Studio Business that was cleaved from the Indenture. That left the nonconsenting minority noteholders (including Plaintiffs) with their existing notes—and the “gutted” Indenture—now backed only by the purportedly struggling Starz Business. The market value of the Indenture notes declined significantly. Plaintiffs allege that this transaction breached, among other things, various “sacred rights” provisions in the Indenture that could not be modified without their consent. This litigation ensued.
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As an initial matter, Legacy Lions Gate, the Participating Noteholders, and the Trustee contend that the Plaintiffs’ claims must be dismissed for failure to comply with the no-action clause of the Indenture, a provision that was not amended in the challenged transaction.
Specifically, this provision (entitled “Limitation on Suits”) states that: “Subject to Section 6.07 [relating to enforcement of certain payment obligations], no Holder may pursue any remedy with respect to this Indenture or the Notes unless: (a) such Holder has previously given the Trustee notice that an Event of Default is continuing; (b) the Holders of at least 25% in principal amount of the then outstanding Notes have requested the Trustee to pursue the remedy; (c) such Holders have offered the Trustee security or indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and (e) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period”. The provision goes on to state that “[a] Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder.”
It is undisputed that Plaintiffs did not satisfy certain of the conditions of Section 6.06, including the requirement that holders of at least 25 percent of the principal amount have requested the Trustee to bring the instant claims on behalf of noteholders. Accordingly, the no-action clause would support dismissal of Plaintiffs’ claims unless such claims are found to be outside the scope of the clause or the clause is found to be unenforceable as applied to claims in this case.
The Court of Appeals has held that no-action clauses must be construed strictly and read narrowly. The primary purpose of such provisions is to protect issuers from the expense involved in defending individual lawsuits that are either frivolous or otherwise not in the economic interest of the corporation and its creditors. These limitations protect against the risk of strike suits and make it more difficult for individual bondholders to bring suits that are unpopular with their fellow bondholders. Within those parameters, no-action clauses typically are not unenforceable as violative of public policy, given their salutary purpose of preventing undue expense to certificate holders and inconvenience to the investment vehicle in general, and are not unconscionable.
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. In Cypress, a plaintiff bondholder sued to challenge the borrower’s amendment of an agreement that purportedly required, under the trust indenture, the prior written consent of holders of 80 percent of the principal amount of the outstanding bonds (which the plaintiff held sufficient interests to veto on its own). Vice Chancellor (later Chief Justice) Strine rejected the borrower’s argument that the claim should be dismissed for failure to comply with the indenture’s no-action provision, which prohibited claims by bondholders unless holders of at least 51 percent of principal amount of the outstanding bonds requested the Trustee to pursue a claim but it declined to do so. The court recognized the contractual tension of having a 20 percent bondholder veto right effectively blocked by requiring approval by a 51 percent majority to challenge the transaction: By its plain terms, § 9.4 – when it applies – invests a minority of 20% or greater with the power to block an amendment favored by a majority of the Bondholders. A provision like the no-action provision that is designed to limit suits on behalf of all holders unless a majority supports the suit arguably does not speak at all to claims under provisions like § 9.4 which are brought only for the benefit of the dissenting minority. The court went on to conclude that it would be a futile exercise for plaintiff to ask the majority of the Bondholders who disagree with it to join with it in a suit to declare an Amendment they support invalid. Thus, the no-action clause does not bar this suit.
This Court (Kornreich, J.) cited Cypress with approval in Eaton Vance Mgt. v Wilmington Sav. Fund Soc., FSB (2018 NY Slip Op 30727[U] [Sup Ct, NY County 2018], affd sub nom. Eaton Vance Mgt. v Wilmington Sav. Fund Socy., FSB, 171 AD3d 626 [1st Dept 2019]). In that case, holders of 10 percent of a syndicated term loan sought to challenge certain actions undertaken by the borrower with the support of the majority holders, including actions that purportedly violated a sacred rights provision—similar to one in this case—requiring unanimous consent for transactions involving all or substantially all of the collateral. The Court held that the plaintiff’s claims other than sacred rights claim were barred by the agreement’s no-action clause, distinguishing Cypress with respect to such claims on the ground that the Delaware case merely held that a no-action clause does not bar a claim by a minority lender to enforce its consent rights. As to plaintiff’s sacred rights claim, the Court noted, it is undisputed that the plaintiffs in this action do not lack standing to sue for the alleged violation of their consent rights. On appeal, the First Department affirmed, holding that the motion court correctly found that the no-action clause barred all but the sacred rights breach of contract claims, which allege that all or substantially all of the collateral was transferred without unanimous approval; claims alleging the transfer of substantially all of the collateral without unanimous approval are a specifically delineated exception to the no-action clause.
Another judge of this Court has relied upon Eaton Vance in permitting sacred rights claims to proceed notwithstanding a broad no-action provision, as has a federal bankruptcy court applying New York law (In re TPC Group Inc., 22-10493 (CTG), 2022 WL 2498751, at 9 [Bankr D Del July 6, 2022].
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. By contrast, Legacy Lions Gate’s reliance upon Chatham Capital Holdings, Inc. v Conru (92 F4th 107 [2d Cir 2024]) for a contrary position is misplaced. That case did not involve claims to enforce a noteholder’s individual consent right and did not address Eaton Vance. 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. Accordingly, Thebes’ breach of contract claim against Legacy Lions Gate (Count II) is dismissed on that ground. Thebes’ conclusory reference to futility as a ground for avoiding the no-action provision as to ordinary breach of contract claims against Legacy Lions Gate is unavailing.
The same reasoning would not, however, apply to Thebes’ claims against the Trustee. As stated in Quadrant, a no-action clause cannot serve as an outright prohibition on a suit because there are claims which, by law, cannot be prohibited by a no-action clause, most notably claims against the trustee.
(Internal quotations and citations omitted).