Chesapeake Energy Corp. v. Bank of New York MellonTrust Co., N.A.

15‐2366‐cv
Chesapeake Energy Corp. v. Bank of New York MellonTrust Co., N.A.
In the
United States Court of Appeals
for the Second Circuit
A UGUST TERM 2015
No. 15‐2366‐cv
C HESAPEAKE E NERGY C ORPORATION,
Plaintiff‐Appellant,
v.
B ANK OF NEW Y ORK MELLON TRUST C OMPANY , N.A.,
Defendant‐Appellee.
On Appeal from the United States District Court
for the Southern District of New York
A RGUED: JUNE 13, 2016
D ECIDED: S EPTEMBER 15, 2016
Before: C ABRANES , L OHIER , and C ARNEY , Circuit Judges.

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On appeal from a July 17, 2015 judgment of the United States
District Court for the Southern District of New York (Paul A.
Engelmayer, Judge), awarding damages to Noteholders represented
by defendant‐appellee Bank of New York Mellon Trust Company,
N.A., as the Indenture Trustee, in the amount of $438,717,561.67. The
District Court’s damages award represented the difference between
the “At‐Par Price” paid to the Noteholders by plaintiff‐appellant
Chesapeake Energy Corporation for its early redemption of Notes in
May 2013 and the “Make‐Whole Price” it should have paid for that
redemption consistent with the Supplemental Indenture, plus
prejudgment interest.
Plaintiff principally contends on appeal that the District Court
erred by awarding the Noteholders damages in the amount of the
difference between the “At‐Par Price” and the “Make‐Whole Price.”
Plaintiff insists that the only reason it exercised its early‐redemption
right was because it had relied on the District Court’s declaratory
ruling that the price of its redemption would be “At Par”—a ruling
that this Court later reversed on appeal after the redemption was
complete. Plaintiff therefore argues that, on remand, the District
Court should have awarded restitution to the Noteholders, rather
than the higher quantum of contract‐based damages predicated on
the “Make‐Whole Price.”
We disagree. Substantially for the reasons set forth in the
District Court’s thorough July 10, 2015 opinion, we AFFIRM the
judgment of the District Court.

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PAUL M. SMITH , Jenner & Block LLP,
Washington, DC (Richard F. Ziegler,
Stephen L. Ascher, Elizabeth A.
Edmondson, Jenner & Block LLP, New
York, NY, on the brief), for Plaintiff‐Appellant.
R OY T. E NGLERT, JR . (Mark T. Stancil, Jeremy
C. Baron, Danielle B. Rosenthal, on the brief),
Robbins, Russell, Englert, Orseck,
Untereiner & Sauber LLP, Washington, DC,
for Defendant‐Appellee.
PER C URIAM :
The principal question presented is whether the District Court
correctly determined the measure of compensation due to
Noteholders, represented by defendant‐appellee Bank of New York
Mellon Trust Company, N.A. (“BNY Mellon”), arising from the
underpayment to the Noteholders by plaintiff‐appellant Chesapeake
Energy Corporation (“Chesapeake”) in connection with
Chesapeake’s early redemption of the Notes on May 13, 2013. See
Chesapeake Energy Corp. v. Bank of N.Y. Mellon Tr. Co. (Chesapeake III),
No. 13 Civ. 1582 (PAE), 2015 WL 4191419 (S.D.N.Y. July 10, 2015). We
conclude that it did.

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Accordingly, substantially for the reasons set forth in the
District Court’s thorough July 10, 2015 opinion, we AFFIRM the
judgment of the District Court.
BACKGROUND
At the outset, we note that a thorough account of the facts and
procedural history of the case—which are entwined—can be found in
the past opinions by our Court and the District Court in this case. See
Chesapeake Energy Corp. v. Bank of N.Y. Mellon Tr. Co. (Chesapeake II),
773 F.3d 110 (2d Cir. 2014); Chesapeake Energy Corp. v. Bank of N.Y.
Mellon Tr. Co. (Chesapeake I), 957 F. Supp. 2d 316 (S.D.N.Y. 2013),
rev’d, Chesapeake II, 773 F.3d at 112; see also Chesapeake III, 2015 WL
4191419. We therefore assume the readers’ familiarity with the
underlying facts, the procedural history of the case, and the issues on
appeal. Nevertheless, we pause to briefly recount the key facts and
procedural history necessary to explain our decision to affirm.
In February 2012, Chesapeake, a publicly traded oil‐and‐
natural‐gas producer, issued $1.3 billion in senior notes due March
15, 2019, bearing an interest rate of 6.775 percent (the “Notes”). The
Notes were governed by a Base Indenture as well as a Supplemental
Indenture, the latter of which is especially relevant to this appeal.
Indeed, the Supplemental Indenture established two types of early
redemption rights, exercisable at Chesapeake’s option, that have been
central to this case.
Section 1.7(b) of the Supplemental Indenture provided in
pertinent part that

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At any time from and including November 15, 2012 to
and including March 15, 2013 (the “Special Early
Redemption Period”), . . . [Chesapeake], at its option,
may redeem the Notes . . . for a price equal to 100% of
the principal amount . . . plus accrued and unpaid
interest on the Notes to be redeemed to the date of
redemption [the “At‐Par Price”] . . . . [Chesapeake] shall
be permitted to exercise its option . . . so long as it gives
the notice of redemption pursuant to Section 3.04 of the
Base Indenture during the Special Early Redemption
Period.
J.A. 567.1 In turn, Section 3.04 of the Base Indenture required that
Chesapeake give the notice of redemption at least 30 days but not
more than 60 days before the date of redemption. J.A. 656.
Separately, Section 1.7(c) of the Supplemental Indenture
provided in pertinent part that “[a]t any time after March 15, 2013 to
the Maturity Date, [Chesapeake], at its option, may redeem the Notes
. . . for an amount equal to the Make‐Whole Price plus accrued and
unpaid interest to the date of redemption . . . .” J.A. 567. The Make‐
Whole Price was defined to mean the sum of the present value of the
principal of the Notes and remaining interest payments. J.A. 574.
On February 20, 2013, Chesapeake announced that it planned
to exercise its right of redemption pursuant to Section 1.7(b) of the
1 “J.A.” refers to the Joint Appendix.

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Supplemental Indenture—for the At‐Par Price. BNY Mellon notified
Chesapeake, however, that, in its view, the notice deadline for a
redemption under Section 1.7(b) had already passed. In the view of
BNY Mellon, Chesapeake was required to give at least 30 days’ notice
before March 15, 2013 to redeem “At Par” under Section 1.7(b). BNY
Mellon further warned Chesapeake that it might, as indenture
trustee, treat a prospective redemption as requiring payment of the
Make‐Whole Price under Section 1.7(c), due to the redemption’s
tardiness under Section 1.7(b). On March 8, 2013, Chesapeake filed an
action against BNY Mellon in the District Court seeking a declaratory
judgment on two counts: that (1) its Notice of Redemption attached
to its complaint would be timely under Section 1.7(b) to redeem “At
Par” if mailed by March 15, 2013, and would be effective on May 13,
2013; and (2) in the event that the Notice is determined not to be
timely, or if the District Court has not ruled by the May 13
redemption date, the Notice shall be deemed null and void (rather
than deemed to trigger redemption at the Make‐Whole Price).
Chesapeake issued its Notice of Redemption on March 15, 2013.
On May 8, 2013, following a bench trial, the District Court
ruled that the Notice of Redemption was timely under Section 1.7(b),
and the District Court therefore entered judgment in favor of
Chesapeake on its first count. See Chesapeake I, 957 F. Supp. 2d at 374.
As a result of that decision, the District Court ruled that
Chesapeake’s second count was moot. Id. BNY Mellon filed a notice
of appeal on May 11, 2013. Two days later, on May 13, 2013,
Chesapeake proceeded with its early redemption, paying the

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Noteholders approximately $1.3 billion pursuant to Section 1.7(b) of
the Supplemental Indenture. The completion of this redemption,
however, did not conclude this litigation.
On November 25, 2014, this Court reversed the District Court’s
May 8, 2013 judgment in favor of Chesapeake on its first count,
holding that Chesapeake’s Notice of Redemption was untimely to
effect an “At Par” redemption under Section 1.7(b) of the
Supplemental Indenture. See Chesapeake II, 773 F.3d at 117. We
remanded the cause to the District Court for consideration of
Chesapeake’s second count, however, which had requested a
declaratory judgment that Chesapeake had not noticed a redemption
at the Make‐Whole Price. See id.
The subject of the instant appeal is the District Court’s July 10,
2015 decision on remand from this Court. First, the District Court
determined that the second count of Chesapeake’s complaint
remained moot insofar as it sought nullification only of Chesapeake’s
notice of redemption, but had no bearing on the redemption itself,
which had already been completed.2 See Chesapeake III, 2015 WL
4191419, at *5–6. Second, the District Court, after receiving briefing
from the parties, awarded the Noteholders contract‐based damages
in the amount of the difference between the At‐Par Price that
Chesapeake had already paid to the Noteholders for the redemption
and the Make‐Whole Price that Chesapeake should have paid, equal
2 Chesapeake does not challenge this ruling on appeal.

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to $379,650,133.21, plus prejudgment interest, for a total of
$438,717,561.67. Id. at *18.3 The District Court entered judgment on
July 13, 2015, and entered an amended judgment on July 17, 2015.
This appeal followed.
DISCUSSION
On appeal, Chesapeake principally contends that the District
Court erred by awarding contract‐based damages—calculated based
on the difference between the At‐Par Price and the Make‐Whole
Price—and that the District Court should instead have awarded
restitution to the Noteholders for Chesapeake’s underpayment.
Chesapeake argues that “federal law is clear that the remedy for
actions taken in reliance on a judgment that is later reversed is
restitution putting the note holders back in the same economic
position they occupied before the redemption, not a claim for breach
of contract.” Pl. Br. 2; see id. at 21–43. Chesapeake refers to this
principle as “the long‐established doctrine of restitution after
reversal.” Id. at 3. Chesapeake further argues that, “even applying a
contract‐based analysis, the district court should have ended up at
3 The District Court exercised its authority under 28 U.S.C. § 2202 of the
Declaratory Judgment Act to grant “[f]urther necessary or proper relief based on
[its] declaratory judgment . . . against any adverse party whose rights [had] been
determined by such judgment.” 28 U.S.C. § 2202. Chesapeake, which had
originally filed the action for declaratory judgment, but against whom the relief
was granted, does not argue on appeal that the District Court erred in holding
that § 2202 was the proper procedural mechanism for awarding compensation to
the Noteholders.

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the same place because under New York law it was flatly improper
to treat the Make‐Whole Price as the measure of contract damages.”
Id. at 2; see id. at 43–58. We disagree in both respects.
Substantially for the reasons set forth in the District Court’s
thorough July 10, 2015 opinion, see generally Chesapeake III, 2015 WL
4191419, at *7–17, we conclude that the District Court correctly
determined the measure of compensation due to the Noteholders in
the circumstances presented. We summarize those reasons as
follows.
Under New York law, as the District Court explained, an
indenture like the one at issue here is a form of contract. See, e.g., Bank
of N.Y. Tr. Co. v. Franklin Advisers, Inc., 726 F.3d 269, 276 (2d Cir.
2013); Quadrant Structured Prods., Co. v. Vertin, 23 N.Y.3d 549, 559
(2014). And where a valid and enforceable contract governs the
relevant subject matter of the parties’ dispute, the contract—rather
than principles of restitution—should determine the measure of a
party’s recovery for events arising from that subject matter. See, e.g.,
MacDraw, Inc. v. CIT Grp. Equip. Fin., Inc., 157 F.3d 956, 964 (2d Cir.
1998) (observing that, under “well‐settled principles of New York
law . . . . the existence of a valid and enforceable written contract
governing a particular subject matter ordinarily precludes recovery
in quasi contract . . . for events arising out of the same subject matter”
(internal quotation marks omitted)); Clark‐Fitzpatrick, Inc. v. Long
Island R.R. Co., 70 N.Y.2d 382, 389 (1987) (“It is impermissible . . . to
seek damages in an action sounding in quasi contract where the
suing party has fully performed on a valid written agreement, the

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existence of which is undisputed, and the scope of which clearly
covers the dispute between the parties.”).4 The cases relied upon by
Chesapeake do not hold otherwise.5
Here, applying New York law, Section 1.7 of the Supplemental
Indenture—a contract Chesapeake does not contend was invalid or
4 Section 2(2) of the Restatement (Third) of Restitution and Unjust Enrichment
observes that “[a] valid contract defines the obligations of the parties as to matters
within its scope, displacing to that extent any inquiry into unjust enrichment.”
Restatement (Third) of Restitution and Unjust Enrichment § 2(2) (Am. Law Inst.
2011). Contract‐based remedies are superior to restitution, the Restatement
explains, because a contract “eliminates, or minimizes, the fundamental difficulty
of valuation. . . . [T]he parties’ own definition of their respective obligations . . .
take[s] 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.” Id. § 2, cmt.
c.
5 For example, the principal case involving a contract that Chesapeake relies
upon is Northwestern Fuel Co. v. Brock, where the Supreme Court upheld an award
of restitution to defendants who had paid breach‐of‐contract damages to a
plaintiff pursuant to a judgment that the trial court had no jurisdiction to enter.
139 U.S. 216 (1891). The Court reasoned that the trial court had the power “to
undo what it had no authority to do originally, and in which it, therefore, acted
erroneously, and to restore, so far as possible, the parties to their former position.”
Id. at 219. But Brock did not hold that restitution should displace the parties’
contract rights and obligations. And whereas restitution was necessary in Brock to
“undo” the trial court’s erroneous judgment, restitution is unnecessary and
inappropriate here, where the Supplemental Indenture determined the price of
the redemption. Cf. Restatement (Second) of Contracts § 373(2) (Am. Law Inst.
1981) (“The injured party has no right to restitution if he has performed all of his
duties under the contract and no performance by the other party remains due
other than payment of a definite sum of money for that performance.”).

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unenforceable—dictates the Noteholders’ recovery arising from
Chesapeake’s underpayment for its May 13, 2013 redemption.
Indeed, properly framed, the relevant subject matter of the parties’
dispute is the measure and amount of compensation Chesapeake
should have paid the Noteholders for its early redemption. Section
1.7 governed this subject matter, specifying the price Chesapeake was
required to pay the Noteholders for an early redemption, which in
turn depended on the date of the redemption. See J.A. 567. Whereas
Section 1.7(b)’s At‐Par Price applied to redemptions on or before
March 15, 2013, Section 1.7(c)’s Make‐Whole Price applied to
redemptions after March 15, 2013. See id. Because Chesapeake
completed its redemption on May 13, 2013, it owed the Noteholders
the Make‐Whole Price for that redemption, pursuant to Section 1.7(c),
see id., and it breached the Supplemental Indenture by paying only
the At‐Par Price. The correct damages award, then, was the
difference between the At‐Par Price and the Make‐Whole Price, plus
prejudgment interest.6
To hold otherwise would frustrate the Noteholders’ legitimate
expectations regarding their rights under the Supplemental
Indenture. As the District Court explained, “[f]or 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,
6 Although not explicitly contested by the parties on appeal, the District
Court’s calculation of prejudgment interest correctly used the 6.775 percent rate
applicable to overdue payments under the Base and Supplemental Indentures. See
Chesapeake III, 2015 WL 4191419, at *18.

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would confound investors’ valid expectations.” Chesapeake III, 2015
WL 4191419, at *12. Indeed, “[a]n 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 the deadline—Noteholders would receive
an early‐redemption lump‐sum payout materially smaller than the
Make‐Whole Amount.” Id. It follows, therefore, that “[t]he interest in
respecting investors’ legitimate expectations . . . supports a payout
keyed to the indenture’s treatment of redemptions after March 15,
2013.” Id. at *13.
Chesapeake was similarly on notice at all relevant times that
the District Court could require it to pay the Make‐Whole Price for its
May 13, 2013 redemption. Under the terms of the Supplemental
Indenture, which we have previously held to be unambiguous and to
have “a definite and precise meaning,” Chesapeake’s March 15, 2013
notice calling for a redemption on May 13, 2013 “was untimely and
ineffective to redeem” at the At‐Par Price. Chesapeake II, 773 F.3d at
117. Moreover, Chesapeake knew that this had been BNY Mellon’s
litigation position since the outset and had been confronted with the
possibility that a holding by this Court that the redemption was
untimely to effect a Special Early Redemption could trigger
Chesapeake’s obligation to pay the Make‐Whole Price on remand.7
7 For example, during a March 19, 2013 conference, the District Court asked
counsel for Chesapeake what would happen if the District Court ruled that
Chesapeake’s redemption was timely to effectuate a Special Early Redemption but
the ruling was later reversed on appeal. The District Court queried whether “the

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Finally, we reject Chesapeake’s contention that, even if the
District Court properly awarded breach‐of‐contract damages, it erred
by awarding compensation that allowed the Noteholders to recoup
in excess of the value of the Notes before the redemption, which
Chesapeake argues is equal to “the present value of the lost interest
[on the Notes] offset by the lower interest they would have earned
from entering into similar transactions” on the date of the
redemption. Pl. Br. 55. By analogy to bankruptcy cases where
borrowers were forced to prepay loans, Chesapeake argues that,
“under New York law, the relevant inquiry is not whether a
contractual provision sets forth an amount to be paid for prepayment
on a certain date, but whether the relevant contractual provisions
clearly and unambiguously provide that the prepayment premium is
payable for an unauthorized prepayment under the relevant
circumstances.” Id. at 50. But this syllogism relies on a false premise:
Chesapeake did not involuntarily exercise its right of redemption.
Instead, Chesapeake opted to redeem early, albeit with the
anticipation that it would pay only the At‐Par Price. The cases relied
upon by Chesapeake are thus inapposite.
only way to make [the Noteholders] whole [would be] to in effect pay them what
amounts to the present value . . . in effect giving [them] the make‐whole value
through the backdoor.” J.A. 301. Counsel for Chesapeake responded, “[C]ertainly
I don’t think the Court will give the noteholders the make‐whole value through
the backdoor,” to which the Court replied, “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?” J.A. 301–02.

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In sum, we conclude, substantially for the reasons set forth in
the District Court’s July 10, 2015 opinion, which we have
summarized here, that the District Court did not err in awarding the
Noteholders the difference between the At‐Par Price Chesapeake had
already paid for its redemption and the Make‐Whole Price it should
have paid, plus prejudgment interest.
CONCLUSION
For the foregoing reasons, we AFFIRM the July 17, 2015
judgment of the District Court.

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