     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1                                       UNITED STATES COURT OF APPEALS
 2                                           FOR THE SECOND CIRCUIT


 3                                                         August Term, 2013

 4                         (Argued: March 6, 2014                       Decided: November 25, 2014)


 5                                                      Docket No. 13-1893-cv


6    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X

7    CHESAPEAKE ENERGY CORPORATION,

8                        Plaintiff-Appellee,

9    v.

10   THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,

11                       Defendant-Appellant,

12   AD HOC NOTEHOLDER GROUP,

13                       Intervenor.

14   -------------------------------X

15   Before: LEVAL, CARNEY Circuit Judges, and FAILLA, District Judge.*

16            Defendant Bank of New York Mellon Trust Company, N.A. appeals from the judgment of
17   the United States District Court for the Southern District of New York (Engelmayer, J.) declaring
18   that the March 15, 2013 notice of redemption issued by Plaintiff Chesapeake Energy Corporation
19   was timely and effective to redeem certain senior notes on May 15, 2013 at the Special Price of
20   100% of the principal amount, plus accrued and unpaid interest to the date of redemption. The
21   Court of Appeals (Leval, J.) concludes that, under the unambiguous terms of the indenture, the
22   notice was not timely to redeem the Notes at the Special Price, as such a redemption needed to be
23   concluded no later than March 15, 2013, with 30 to 60 days prior notice. The judgment of the
24   district court is therefore REVERSED and the case REMANDED with instructions to consider
25   whether the notice operates as a notice of redemption under another provision of the indenture.

     *The Honorable Katherine Polk Failla of the United States District Court for the Southern District
     of New York, sitting by designation.
                                                     1
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

1           Judge Failla dissents by separate opinion.

 2                                                  ROY T. ENGLERT, JR. (Mark T. Stancil & Erin C.
 3                                                  Blondel, on the brief), Robbins, Russell, Englert,
 4                                                  Orseck, Untereiner & Sauber LLP, Washington, DC,
 5                                                  for Defendant-Appellant

 6                                                  RICHARD F. ZIEGLER (Stephen L. Ascher, Ali M.
 7                                                  Arain, Anne Cortina Perry & Michael W. Ross, on the
 8                                                  brief), Jenner & Block LLP, New York, New York, for
 9                                                  Plaintiff-Appellee

10   LEVAL, Circuit Judge:

11          Defendant Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”) appeals from

12   the judgment of the United States District Court for the Southern District of New York

13   (Engelmayer, J.) declaring that the Notice of Special Early Redemption issued by plaintiff

14   Chesapeake Energy Corporation (“Chesapeake”) on March 15, 2013 was timely and effective to

15   redeem certain senior notes (the “Notes”) at the “Special Price” of 100% of the principal amount,

16   plus interest accrued to the date of redemption. Joint App’x (“JA”) at 730, Chesapeake Energy

17   Corp. v. Bank of N.Y. Mellon Trust Co., N.A., No. 13-1893 (Aug. 23, 2013). BNY Mellon brings

18   this appeal in its capacity as indenture trustee for the benefit of the noteholders.

19          After an expedited bench trial, the district court adopted Chesapeake’s argument, construing

20   the Ninth Supplemental Indenture (the “Supplemental Indenture”), which governed the Notes, as

21   unambiguously authorizing Chesapeake to redeem the Notes at the Special Price by giving notice of

22   redemption during the Special Early Redemption Period––between November 15, 2012 and March

23   15, 2013––and redeeming the Notes 30 to 60 days thereafter. BNY Mellon contends that the

24   Supplemental Indenture authorized Chesapeake to redeem the Notes at the Special Price only if the

25   redemption would be accomplished within the Special Early Redemption Period, i.e., no later than

26   March 15, 2013, with notice of 30 to 60 days given during the Special Early Redemption Period.
                                                         2
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1   We agree with BNY Mellon. Accordingly, we reverse the judgment and remand for consideration

 2   of Chesapeake’s second claim for declaratory relief.

 3                                             BACKGROUND

 4           a.      Factual Background

 5           In February 2012, Chesapeake issued $1.3 billion in senior notes due on March 15, 2019

 6   bearing an interest rate of 6.775%. The Notes were issued under two indentures––a pre-existing

 7   Base Indenture, dated August 2, 2010, which applied to several series of notes, and the

 8   Supplemental Indenture, dated February 16, 2012, which specifically governed this series. JA at

 9   309, 726.

10           This dispute centers on the meaning of § 1.7 of the Supplemental Indenture, which governs

11   Chesapeake’s option to make a Special Early Redemption of the Notes. This section provides:

12          (a) The Company [Chesapeake] shall have no obligation to redeem, purchase or
13          repay the Notes pursuant to any mandatory redemption, sinking fund or analogous
14          provisions or at the option of a Holder thereof.

15          (b) At any time from and including November 15, 2012 to and including March 15,
16          2013 (the “Special Early Redemption Period”), the Company, at its option, may
17          redeem the Notes in whole or from time to time in part for a price equal to 100% of
18          the principal amount of the Notes to be redeemed, plus accrued and unpaid interest
19          on the Notes to be redeemed to the date of redemption; provided, however, that,
20          immediately following any redemption of the Notes in part (and not in whole)
21          pursuant to this Section 1.7(b), at least $250 million aggregate principal amount of
22          the Notes remains outstanding. The Company shall be permitted to exercise its
23          option to redeem the Notes pursuant to this Section 1.7 so long as it gives the notice
24          of redemption pursuant to Section 3.04 of the Base Indenture during the Special
25          Early Redemption Period. Any redemption pursuant to this Section 1.7(b) shall be
26          conducted, to the extent applicable, pursuant to the provisions of Sections 3.02
27          through 3.07 of the Base Indenture.

28          (c) At any time after March 15, 2013 to the Maturity Date, the Company, at its
29          option, may redeem the Notes in whole or from time to time in part for an amount
30          equal to the Make-Whole Price plus accrued and unpaid interest to the date of
31          redemption in accordance with the Form of Note.

                                                        3
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1   JA at 730 (emphasis added).

 2          Section 1.7(b) cross-references § 3.04 of the Base Indenture, which provides:

 3           (a) At least 30 days but not more than 60 days before a redemption date,
 4           [Chesapeake] shall mail a notice of redemption by first-class mail to each Holder of
 5           Securities to be redeemed at such Holder’s registered address.

 6   JA at 338.

 7          These provisions allowed Chesapeake two elective options for early redemption. Pursuant to

 8   § 1.7(b), Chesapeake could elect early redemption of Notes at the Special Price during the Special

 9   Early Redemption Period. Pursuant to § 1.7(c), Chesapeake could elect early redemption of Notes

10   after the Special Early Redemption Period at a substantially higher “Make-Whole Price.”

11          On February 20, 2013, twenty-three days prior to the end of the Special Early Redemption

12   Period, Chesapeake announced that it planned to redeem the Notes at the Special Price pursuant to

13   § 1.7(b). Later that day, however, a hedge fund, which had purchased a large amount of the Notes,

14   protested that the time allowed for notice of redemption at the Special Price had expired because

15   redemption at the Special Price was permitted solely within the Special Early Redemption Period

16   and no less than 30 days following the giving of notice, which was no longer possible.

17          On February 22, 2013, BNY Mellon notified Chesapeake that it would not participate in the

18   proposed redemption. On February 28, 2013, BNY Mellon told Chesapeake that if Chesapeake

19   issued a notice of redemption, BNY Mellon might deem the notice as having triggered redemption

20   at the Make-Whole Price pursuant to § 1.7(c). Chesapeake nonetheless issued a Notice of Special

21   Early Redemption on March 15, 2013, calling for redemption at the Special Price on May 15, 2013.

22                b. The Trial and the District Court’s Decision

23          On March 8, 2013, Chesapeake filed this action against BNY Mellon seeking declaratory

24   judgment that its Notice of Special Early Redemption at the Special Price would be timely and
                                                        4
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1   effective if mailed by March 15, 2013. In the event the court ruled that the notice was not timely to

 2   effectuate early redemption at the Special Price, the complaint also sought a declaratory ruling that

 3   the notice would not trigger redemption at the Make-Whole Price.

 4          The court held an expedited bench trial on April 23-25, 2013 with closing arguments on

 5   April 30, 2013. On May 8, 2013, only eight days later, and with the date noticed for redemption

 6   only one week away, the court issued a detailed 92-page decision, and entered judgment thereon,

 7   ruling that § 1.7(b) of the Supplemental Indenture was unambiguous in setting March 15, 2013 as

 8   the deadline for notice of redemption at the Special Price, and in allowing actual redemption to

 9   occur 30 to 60 days thereafter. Chesapeake Energy Corp. v. Bank of N.Y. Mellon Trust Co., N.A.,

10   957 F. Supp. 2d 316, 339-40 (S.D.N.Y. 2013). The court further ruled that, even if the indenture

11   provisions were deemed ambiguous, “the extrinsic evidence convincingly establishes a meeting of

12   the minds among the negotiating parties” that “these parties intended and agreed that March 15,

13   2013 would serve as the deadline for Chesapeake to give notice of redemption.” Id. at 359.1

14          BNY Mellon appeals, arguing that § 1.7(b) authorized redemption at the Special Price only

15   if accomplished no later than March 15, 2013, with notice given 30 to 60 days before, also during

16   the Special Early Redemption Period.

17                                               DISCUSSION

18          We conclude that the terms of § 1.7 unambiguously terminated Chesapeake’s right to

19   redeem the Notes at the Special Price on March 15, 2013. Notice of such redemption needed to be

20   given no later than February 13, 2013; the notice given by Chesapeake on March 15, 2013 of

21   redemption to occur on May 15, 2013 was, therefore, untimely.

     1
      The court also held that Chesapeake’s notice was not defective, that Chesapeake’s second claim
     for declaratory relief was moot in light of the court’s holding, and that Chesapeake’s claim was not
     barred by laches, equitable estoppel, or waiver. Id. at 372-74.
                                                        5
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1          When interpreting a contract, our “primary objective . . . is to give effect to the intent of the

 2   parties as revealed by the language of their agreement.” Compagnie Financiere de CIC et de

 3   L’Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153, 157 (2d Cir.

 4   2000). “[T]he words and phrases [in a contract] should be given their plain meaning, and the

 5   contract should be construed so as to give full meaning and effect to all of its provisions.” Olin

 6   Corp. v. Am. Home Assur. Co., 704 F.3d 89, 99 (2d Cir. 2012) (internal quotation marks omitted).

 7          Under New York law, a contract is ambiguous if its terms “could suggest more than one

 8   meaning when viewed objectively by a reasonably intelligent person who has examined the context

 9   of the entire integrated agreement and who is cognizant of the customs, practices, usages and

10   terminology as generally understood in the particular trade or business.” Law Debenture Trust Co.

11   of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 466 (2d Cir. 2010) (internal quotation marks

12   omitted). “No ambiguity exists where the contract language has a definite and precise meaning,

13   unattended by danger of misconception in the purport of the [contract] itself, and concerning which

14   there is no reasonable basis for a difference of opinion.” Id. at 467 (internal quotation marks

15   omitted). “[W]hen the terms of a written contract are clear and unambiguous, the intent of the

16   parties must be found within the four corners of the contract . . . .” Howard v. Howard, 740

17   N.Y.S.2d 71, 71 (2d Dep’t 2002) (citations omitted).

18          The district court adopted Chesapeake’s argument. It read § 1.7(b)’s Special Early

19   Redemption Period as fixing the period during which Chesapeake could begin the redemption

20   process by providing notice, and not requiring actual redemption within that period. Accordingly, it

21   read the term “may redeem,” in the first sentence of § 1.7(b) to mean “may commence the

22   redemption process [by giving notice].” Chesapeake Energy Corp., 957 F. Supp. 2d at 336. In the


                                                        6
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1   court’s view, this interpretation was required in order to avoid what the court perceived to be an

 2   “irreconcilable conflict” in the indenture’s terms. Id. at 337.

 3          Because the first sentence of § 1.7(b) provides that Chesapeake “may redeem” the Notes at

 4   the Special Price “[a]t any time from and including November 15, 2012 to and including March 15,

 5   2013,” the court interpreted that sentence as guaranteeing Chesapeake four full months in which it

 6   could effectuate the redemption. However, the second sentence of § 1.7(b) (incorporating by

 7   reference § 3.04 of the Base Indenture) required Chesapeake to give 30 to 60 days notice, which

 8   notice was required to be given during the same four-month period. The notice obligation provided

 9   by the second sentence thus prevented Chesapeake from redeeming during the first 30 days of the

10   specified Special Early Redemption Period. The effect of the second sentence was, thus, to allow

11   three months during which Chesapeake could effectuate the redemption. In the court’s view this

12   created an irreconcilable conflict. Id. The court explained,

13           Under BNY Mellon’s reading of § 1.7(b), there is no four-month period for doing
14           anything, including for giving notice or for a redemption. Rather, there is, implicitly,
15           a three-month period for a notice of at-par redemption (November 15, 2012 through
16           February 13, 2013) and a separate, implicit three-month period for redemption itself
17           on such terms (December 15, 2012 through March 15, 2013) . . . .

18   Id. at 338.

19           While the court’s observation (that Chesapeake did not have four months in which it could

20   redeem) was correct, we respectfully disagree that this created an irreconcilable conflict.

21   Chesapeake’s interpretation is flawed in several respects.

22           The Supplemental Indenture does not purport to give Chesapeake four months in which to

23   accomplish redemption at the Special Price, or four months in which to give notice of the

24   redemption. Nor does the indenture purport to give Chesapeake the opportunity to redeem at any


                                                         7
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1   time between November 15, 2012 and March 15, 2013. The indenture was simply drafted using a

 2   “so long as” clause, in the nature of a proviso, which limited the scope of a prior provision.

 3          It is true that the first sentence of § 1.7(b) of the Supplemental Indenture, if it were written

 4   in isolation, would give Chesapeake the right to redeem Notes at the Special Price “at any time

 5   from and including November 15, 2012 to and including March 15, 2013,” defined as the “Special

 6   Early Redemption Period.” But that first sentence does not appear in isolation. The immediately

 7   following sentence makes clear that Chesapeake’s right of redemption set forth in the first sentence

 8   is subjected to a limiting qualification. The second sentence states, “[Chesapeake] shall be

 9   permitted to exercise its option to redeem the Notes pursuant to this Section 1.7 so long as it gives

10   the notice of redemption pursuant to Section 3.04 of the Base Indenture during the Special Early

11   Redemption Period.” JA at 730 (emphasis added).

12          Reading the first and second sentences together makes clear that Chesapeake may exercise

13   this right of early redemption only during the Special Early Redemption Period and only after

14   giving the required notice of 30 to 60 days “during the Special Early Redemption Period.” JA at

15   730 (emphasis added).

16           When a proposition is followed by a clause beginning with “so long as,” the “so long as”

17   clause typically serves as a proviso, introducing a condition that narrows the broader initial

18   proposition. See, e.g., Burrage v. United States, 571 U.S. __, 134 S.Ct. 881, 888 (2014) (“[I]f

19   poison is administered to a man debilitated by multiple diseases, it is a but-for cause of his death

20   even if those diseases played a part in his demise, so long as, without the incremental effect of the

21   poison, he would have lived.”); The Chicago Manual of Style § 4.3 (16th ed. 2010) (“Whenever a

22   book or article, poem or lecture, database or drama comes into the world, it is automatically

23   covered by copyright so long as it is ‘fixed’ in some ‘tangible’ form and embodies original
                                                        8
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

1    expression.”). Section 1.7(b)’s “so long as” clause is not in conflict with the first sentence; it is a

 2   proviso, which limits the scope of Chesapeake’s right.

 3          The use of such a proviso in a contract can indeed narrow the scope of a contract term, but it

 4   does so in a manner dictated by the contractual text. As employed in the Supplemental Indenture,

 5   this common linguistic device was used to set forth the different components of a set of rights and

 6   obligations in separate sentences. The contractual text required reading these different sentences in

 7   tandem. When read in tandem, these sentences communicated a clearly defined right, contingent on

 8   the performance of clearly specified obligations.

 9          If instead of describing the Special Early Redemption process in two consecutive sentences,

10   the indenture had stated in a single sentence, “At any time during the Special Early Redemption

11   Period from November 15, 2012 to March 15, 2013, Chesapeake may redeem the Notes at the

12   Special Price, so long as it gives notice pursuant to Section 3.04 of the Base Indenture during the

13   Special Early Redemption Period,” what Chesapeake calls an “irreconcilable conflict” would be

14   equally present, and yet no one could fail to understand that both notice and redemption must occur

15   during the Special Early Redemption Period. By spreading those provisions through two successive

16   sentences, the indenture perhaps required more patience on the part of the reader, but it had the

17   same unmistakable meaning.

18          A further flaw in Chesapeake’s interpretation is that it introduces conflict and contradiction

19   into the contractual text. This interpretation construes the words “may redeem” in the first sentence

20   of § 1.7(b) to mean “may commence the redemption process [by giving notice].” Chesapeake

21   Energy Corp., 957 F. Supp. 2d at 336. It attributes to the word “redeem” an unnatural meaning,

22   substantially different from its normal meaning. Additionally, it causes the word to carry different


                                                         9
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1   meanings in different iterations within the same contractual provision, indeed within the same

 2   sentence.

 3          “Redeem” (in the verb form) or “redemption” (in its noun form) refers to “[t]he

 4   reacquisition of a security by the issuer.” Black’s Law Dictionary 1390 (9th ed. 2009) (defining

 5   “redemption” as “[t]he reacquisition of a security by the issuer”); Barron’s Dictionary of Finance

 6   and Investment Terms 587 (8th ed. 2010) (defining “redemption” as “repayment of a debt security

 7   or preferred stock issue, at or before maturity”); Webster’s New International Dictionary 2085 (2d

 8   ed. 1934) (defining “redeem” as “[t]o regain possession of by payment of a stipulated price; to

 9   repurchase”). Chesapeake’s interpretation gives the term a very different meaning––not “[t]he

10   reacquisition of a security by the issuer,” but the giving of notice by the issuer that it would

11   reacquire the security.

12          Furthermore, Chesapeake’s interpretation causes the term to mean different things in

13   different instances of its appearance. “Redeem” (or “redemption”) appears numerous times in § 1.7,

14   and six times within the affected first sentence of § 1.7(b). For the first and second appearances of

15   the term in that sentence––“Special Early Redemption Period” and “[Chesapeake], at its option may

16   redeem the Notes”––Chesapeake’s interpretation changes its meaning so that instead of referring to

17   the act of redemption, it refers to the giving of notice of a future redemption. For this sentence to

18   make sense, however, “redeem” needs to retain its normal meaning in other appearances within the

19   sentence. Unpaid interest to “the date of redemption” cannot reasonably refer to the date of the

20   notice. It necessarily refers to the date on which Chesapeake pays the debt represented by the Notes

21   (or otherwise reacquires them), as interest would continue to accrue so long as any part of the debt

22   remains outstanding. Likewise, it is clear that in requiring that $250 million aggregate principal

23   remain outstanding “immediately following any redemption,” the sentence refers to actual
                                                        10
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1   redemption, not the date the redemption is noticed. The word “redemption” in the phrase “notice of

 2   redemption,” which appears in the second sentence, necessarily refers to the reacquisition of the

3    Notes and not the giving of notice. Finally, there would be no making sense of the provision

4    requiring that notice be mailed to noteholders “[a]t least 30 days but not more than 60 days before a

5    redemption date,” JA at 338, unless “redemption” carries its customary meaning. Under

6    Chesapeake’s interpretation of the Supplemental Indenture, the indenture trustee, charged with the

7    fiduciary duty to protect the rights of the noteholders, would be left to guess when the contractual

 8   term meant what it said, and when a different, artificial meaning was to be substituted.2

 9          The terms of the Supplemental Indenture had a definite and precise meaning. The contract

10   made perfect sense with the term “redeem” carrying its normal meaning in each usage. The

11   governing indenture unambiguously provided that, in order to exercise the right to early redemption


     2
      Judge Failla argues that our reading of the indenture is defective because it renders untrue the
     statement implicit in the first sentence of § 1.7(b) that Chesapeake may redeem the Notes between
     November 15 and December 14 at the Special Price. Under our reading, she contends, the term
     “Special Early Redemption Period” of November 15, 2012 to March 15, 2013 “would cease to have
     independent meaning.” We respectfully disagree with both propositions. As Judge Failla earlier
     acknowledges, the term Special Early Redemption Period continues to have meaning under our
     reading. It is the period during which Chesapeake must do all actions necessary under the contract
     to effectuate redemption at the Special Price: the giving of notice and the redemption. And while it
     is correct that, if the first sentence of § 1.7(b) were to be read in isolation, its statement that
     Chesapeake “may redeem the Notes” at any time from November 15, 2012 to March 15, 2013,
     would prove untrue as to the first 30 days of the period, the first sentence is not to be read in
     isolation. It is immediately qualified by the next sentence, which explains that Chesapeake may
     “exercise its option to redeem the Notes . . . so long as it gives the notice of redemption . . . during
     the Special Early Redemption Period.” As is commonplace, the proviso limits the scope of the
     statement to which it serves as a proviso.
             Judge Failla further asserts that our reading is structurally incoherent and elevates form over
     substance. We do not see how that is the case. Our reading simply reads the word “redeem” to mean
     what it says. When the word is read to retain its meaning in each of its appearances, the provisions
     of § 1.7(b), although set forth in a complicated structure, have a clear, coherent, and understandable
     meaning.


                                                        11
     13-1893-cv
     Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

 1   at the Special Price, Chesapeake was obliged, as the indenture trustee has correctly insisted, to

 2   effectuate the redemption within the specified Special Early Redemption Period upon notice of 30

 3   to 60 days also given within that period. Chesapeake’s option to make Special Early Redemption at

 4   the Special Price could therefore be exercised only by effectuating redemption no later than March

 5   15, 2013, upon notice given no later than February 13, 2013. The notice Chesapeake gave on March

 6   15, 2013, calling for redemption on May 15, 2013, was untimely and ineffective to redeem at the

 7   Special Price.3

 8                                              CONCLUSION

 9          For the reasons stated above, we REVERSE the district court’s judgment and REMAND

10   for consideration of Chesapeake’s second claim for declaratory judgment that the redemption notice

11   given by Chesapeake on March 15, 2013 should not be deemed to have noticed redemption at the

12   Make-Whole Price.




     3
      Because we find that the Supplemental Indenture is unambiguous, we have no need to rule on the
     district court’s findings relating to extrinsic evidence. See Howard, 740 N.Y.S.2d at 71.


                                                        12
FAILLA, District Judge, dissenting:

       Both the district court and the majority have it half-right: the majority is correct that

Section 1.7(b) of the Supplemental Indenture cannot be read to unambiguously support

Chesapeake‟s position, and the district court is correct that it cannot be read to unambiguously

support BNY Mellon‟s position. The text is ambiguous, and the case should be remanded to the

district court to reevaluate the extrinsic evidence with due regard for the principles of

unmanifested subjective intent and course of performance discussed below. In evaluating the

extrinsic evidence in the alternative, the district court should have accorded less weight to the

negotiations between Chesapeake and its underwriter, and more weight to Chesapeake‟s post-

drafting statements. Accordingly, I respectfully dissent.

                                          DISCUSSION

               a. The Text Is Ambiguous

       The conflict between the first and second sentences of Section 1.7(b) is not susceptible to

any single unambiguous resolution. “Contract language is unambiguous when it has „a definite

and precise meaning, unattended by danger of misconception in the purport of the contract itself,

and concerning which there is no reasonable basis for a difference of opinion.‟” Revson v.

Cinque & Cinque, P.C., 221 F.3d 59, 66 (2d Cir. 2000) (quoting Hunt Ltd. v. Lifschultz Fast

Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989)). “Ambiguous language is language that is

„capable of more than one meaning when viewed objectively by a reasonably intelligent person

who has examined the context of the entire integrated agreement and who is cognizant of the

customs, practices, usages and terminology as generally understood in the particular trade or

business.‟” Id. (quoting Seiden Assocs. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992)).

Ambiguity is a question of law, and thus a district court‟s decision as to whether a contract is



                                                  1
ambiguous is reviewed de novo. JA Apparel Corp. v. Abboud, 568 F.3d 390, 396-97 (2d Cir.

2009). While ambiguity is not found by counting noses, the simple fact that the judges of the

court below and the majority—all, it can safely be said, “reasonably intelligent person[s]”—have

arrived at opposite conclusions as to the meaning of the language suggests the presence of

ambiguity.

       Two principles of interpretation push against the majority‟s reading of the text. First,

“court[s] should read the integrated contract „as a whole to ensure that undue emphasis is not

placed upon particular words and phrases,‟ and „to safeguard against adopting an interpretation

that would render any individual provision superfluous.‟” Law Debenture Trust Co. of N.Y. v.

Maverick Tube Corp., 595 F.3d 459, 468 (2d Cir. 2010) (quoting Bailey v. Fish & Neave, 8

N.Y.3d 523, 528 (2007); Int’l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 86

(2d Cir. 2002)). This principle cautions against a reading of the second sentence of Section 1.7(b)

of the Supplemental Indenture as simply excising the November 15-December 14 period from

the “Special Early Redemption Period” identified in the first sentence. Admittedly, this is not a

prototypical application of the canon against surplusage: in the majority‟s reading of the text

both sentences continue to have meaning, and the “Special Early Redemption Period” continues

to have some effect in defining the limits of both notice and redemption. Yet insofar as the first

sentence of Section 1.7(b) says, in part, that Chesapeake may redeem the Notes between

November 15 and December 14, that portion has become entirely untrue under the majority‟s

reading. The complete nullification of this portion distinguishes Section 1.7(b) from the

examples of provisos offered by the majority, see supra at 8-9, where all portions of the sets

identified in the first clause can be true under certain circumstances, so long as they meet the

requirements of the proviso. Here, under the majority‟s reading, it is rendered misleading and



                                                 2
unnecessary for the Supplemental Indenture ever to have identified November 15 to December

14 as part of the period in which Chesapeake could redeem the Notes.

         Second, for largely the same reasons just identified, the reading offered by BNY Mellon

and adopted by the majority is structurally incoherent, even if it does follow the precise wording

of Section 1.7(b).1 New York courts have repeatedly emphasized that “[f]orm should not prevail

over substance and a sensible meaning of words should be sought.” Kass v. Kass, 91 N.Y.2d 554,

566 (N.Y. 1998) (quoting William C. Atwater & Co. v. Pan. R.R. Co., 246 N.Y. 519, 524 (N.Y.

1927)). As the district court points out, under BNY Mellon‟s reading the “Special Early

Redemption Period” not only ceases to be a “redemption period,” it ceases to be any meaningful

period at all. See Chesapeake Energy Corp., 957 F. Supp. 2d at 338-39. The period in which the

Notes can be redeemed would span December 15, 2012, to March 15, 2013, while the period in

which notice must be given would span from November 15, 2012, to February 13, 2013; the

“Special Early Redemption Period” of November 15, 2012, to March 15, 2013, would cease to

have independent meaning. Even if this is the result suggested by a literal reading of the text,

under New York law it cannot be stated that such a bizarre outcome is unambiguously that

intended by the parties.

         The district court, recognizing the implausible result reached by a strictly literal reading

of the text, arrived at an interpretation that restores coherence to the contested clause: the phrase

“may redeem” in the first sentence of Section 1.7(b) becomes “may give notice of redemption,”

and the “Special Early Redemption Period” becomes a single, four-month period in which

Chesapeake may give notice of redemption. See Chesapeake Energy Corp., 957 F. Supp. 2d at

335-36. Nevertheless, as found by the majority, the interpretation proffered by the district court


1
 While I agree that the Section 1.7(b) could have been written as a single, structurally coherent sentence, I do not
believe that the sentence offered by the majority faithfully represents Section 1.7(b). See supra at 9.

                                                          3
is a bridge too far. The district court‟s reading would require the word “redeem” to take on

multiple meanings within the Indentures, within Section 1.7(b), and even within the same

sentence. While, as the district court notes, unusual constructions of a term can prevail where

reasonable interpretation of the contract so requires, id. at 335-37, this principle does not extend

so far as to allow two distinct constructions of a single term to coexist within the same

contractual clause. Cf. Md. Cas. Co. v. W.R. Grace & Co., 128 F.3d 794, 799 (2d Cir. 1997), as

amended (Nov. 18, 1997) (“Terms in a document, especially terms of art, normally have the

same meaning throughout the document in the absence of a clear indication that different

meanings were intended.”).

         Despite very thoughtful efforts by both the majority and the district court, the first and

second sentences of Section 1.7(b) cannot be reconciled. Where two contractual clauses conflict,

the Second Circuit has found ambiguity where there is not a compelling reason to favor one over

the other. See Seiden Assocs., 959 F.2d at 429-30 (“We see two possible readings—each of

which denigrates the plain meaning of the other . . . . In sum, because the interrelationship of the

two provisions in the letter agreement is susceptible to several reasonable interpretations, the

contract is ambiguous. It cannot be definitely and precisely gleaned which reading was intended

by the parties.”); cf. Collins v. Harrison-Bode, 303 F.3d 429, 434 (2d Cir. 2002) (“The

impossibility of sensibly reconciling the usage of the term „Monet‟ throughout the contract with

the definition set forth in the release clause leads to our conclusion that the Settlement

Agreement is ambiguous.”).2 Section 1.7(b) is therefore ambiguous due to the conflict between


2
  While “it is a fundamental rule of contract construction that „specific terms and exact terms are given greater
weight than general language,‟” Aramony v. United Way of Am., 254 F.3d 403, 413 (2d Cir. 2001) (quoting
Restatement (Second) of Contracts § 203(c) (1981)), I do not agree with the district court that the second sentence of
the clause is more specific than the first, see Chesapeake Energy Corp., 957 F. Supp. 2d at 336. This canon of
interpretation is usually applied not to distinguish between consecutive sentences, as here, but to distinguish between
vague clauses indicating contractual purposes and specific clauses indicating concrete obligations. See, e.g.,
Aramony, 254 F.3d at 414.

                                                          4
the two sentences, and the case should be remanded for reconsideration of the extrinsic evidence.

See FLLI Moretti Cereali S.p.A. v. Cont’l Grain Co., 563 F.2d 563, 566 (2d Cir. 1977) (finding

that where a contract shows inconsistency between two provisions, “[t]he parties have a right to

present extrinsic evidence to aid in interpreting the assignment” (citing, inter alia, Hotel Credit

Card Corp. v. Am. Express Co., 13 A.D.2d 189, 193 (1st Dep‟t 1961) (“The discernible purpose

of an agreement and the circumstances surrounding its execution may properly serve as a guide

to resolving apparent contradictions and defining obligations imperfectly expressed.”))).

               b. The Lower Court Should Reevaluate the Extrinsic Evidence

       While the district court has already evaluated the extrinsic evidence as part of its finding

in the alternative, it did not accord proper weight to certain aspects of that evidence. Specifically,

the district court placed undue weight on testimony from and correspondence between the

persons who drafted Section 1.7(b), see Chesapeake Energy Corp., 957 F. Supp. 2d at 354-59,

and too easily discounted the statements made by officers of Chesapeake who did not personally

participate in the drafting, see id. at 359-70. In doing so, the district court concluded that the

extrinsic evidence supported Chesapeake‟s interpretation that Section 1.7(b) allowed Chesapeake

to give notice of redemption up to March 15, 2013, and to redeem up to 60 days after giving

notice. Id. at 370. This conclusion should be reevaluated to ascribe less weight to subjective

intent and more weight to what was successfully communicated to the purchasers of the bonds.

       The common subjective understanding of an issuer and an underwriter, when

uncommunicated to bondholders or an indenture trustee, should be ascribed minimal weight

when evaluating extrinsic evidence. This doctrine of “unmanifested subjective intent” is not

merely concerned with collusion or post hoc rationalization, but with the knowledge of the party

to whom the subjective intent is not overtly communicated. See Hotchkiss v. Nat’l City Bank of



                                                   5
N.Y., 200 F. 287, 294 (S.D.N.Y. 1911) (Hand, J.) (“Yet the question always remains for the court

to interpret the reasonable meaning to the acts of the parties, by word or deed, and no

characterization of its effect by either party thereafter, however truthful, is material.” (emphasis

added)), aff’d sub nom. Ernst v. Mechs.’ & Metals Nat’l Bank of N.Y.C., 201 F. 664 (2d Cir.

1912); cf. Webster v. N.Y. Life Ins. & Annuity Corp., 386 F. Supp. 2d 438, 442 n.2 (S.D.N.Y.

2005) (“It is not the real intent but the intent expressed or apparent in the writing which is

sought; it is the objective, not the subjective, intent that controls.” (quoting 11 Samuel Williston

& Richard A. Lord, A Treatise on the Law of Contracts § 31:4 (4th ed. 1993 & Supp. 1999)

(hereinafter “Williston on Contracts”))). Because the parties to this contract are the issuer and the

indenture trustee, negotiations between the issuer and the underwriter—no matter how arm‟s-

length or contentious—cannot be used to impose an interpretation on the indenture trustee of

which it was not aware. Cf. Zell v. Am. Seating Co., 138 F.2d 641, 646 (2d Cir. 1943) (stating

that courts consider “only those manifestations of intention which are public („open to the

scrutiny and knowledge of the community‟) and not private” (footnote omitted)), rev’d on other

grounds, 322 U.S. 709 (1944). While such communications are admissible and can provide some

aid in interpreting the objective actions of a party, they are not to be accorded decisive weight in

interpreting ambiguous contractual language. See SR Int’l Bus. Ins. Co. v. World Trade Ctr.

Properties, LLC, 467 F.3d 107, 126 (2d Cir. 2006) (“[W]ith respect to a negotiated agreement, a

party‟s subjective understanding, while not controlling, may shed light on the state of those

negotiations and could bear on that party‟s objective actions.”). Accordingly, the understanding

arrived at by the four people who drafted Section 1.7(b)—consisting of Chesapeake‟s chief

financial officer and executive vice president; a partner at Bracewell & Giuliani, Chesapeake‟s

outside counsel; a managing director at Bank of America Merrill Lynch, Pierce, Fenner & Smith



                                                  6
Inc., Chesapeake‟s underwriter; and a partner at Cravath, Swain & Moore, underwriter‟s counsel,

see Chesapeake Energy Corp., 957 F. Supp. 2d at 346-47—cannot, standing alone, control the

meaning of Section 1.7(b). The district court should not have rested its analysis of the extrinsic

evidence on this common understanding without a closer inquiry into the awareness of BNY

Mellon and the bondholders.

       Meanwhile, the district court should have given more weight to the statements made by

Chesapeake and its officers after the contract‟s formation. The district court concluded that such

statements were irrelevant, as only conduct could demonstrate Chesapeake‟s understanding of

March 15, 2013, as the final deadline for redemption. Chesapeake Energy Corp., 957 F. Supp. 2d

at 366. Yet evidence of the “course of performance,” as it is sometimes labeled, is not limited to

actions, but encompasses statements as well. See 5 Margaret N. Kniffin, Corbin on Contracts

§ 24.16 (Joseph M. Perillo ed., rev. ed. 1998) (“In the process of interpreting a contract, the court

can receive great assistance from the interpreting statements made by the parties themselves or

from their conduct in rendering or in receiving performance under it. The practical interpretation

of a contract may thus be evidenced by the parties‟ acts or by their words.”); 11 Williston on

Contracts § 32:14 (“Once it is determined in a particular jurisdiction that the underlying

requirements have been met so as to permit evidence of the parties‟ conduct, their own

interpretation may be shown by acts of the parties as well as precise words.” (internal quotation

marks omitted)). Courts in this Circuit have followed this rule, looking to post-drafting

statements as well as actions of parties to a contract in interpreting ambiguous provisions. See

Ocean Transp. Line, Inc. v. Am. Philippine Fiber Indus., Inc., 743 F.2d 85, 90 (2d Cir. 1984)

(looking to “a series of memoranda and correspondence exchanged” after the drafting of the

contract, and stating that “the doctrine of practical construction is ordinarily limited to the acts



                                                   7
and statements of the contracting parties” (emphasis added)); Pressed Steel Car Co. v. Union

Pac. R. Co., 297 F. 788, 790 (2d Cir. 1924) (“[I]nterpretation may be given to a contract by the

acts and/or declarations of the parties, done or made while the agreement is in process of

fulfillment, and before any differences have arisen between them.”); Gestetner Holdings, PLC v.

Nashua Corp., 784 F. Supp. 78, 82-83 (S.D.N.Y. 1992) (looking to the post-drafting statements

of a corporate officer, and finding “these statements reflecting the parties‟ practical interpretation

of the contract to be highly probative of the intended meaning”).

        Moreover, courts do not confine this inquiry to the statements of those personally

involved in drafting a contested contractual provision, but look more broadly to statements that

can be attributed to a party to the contract. See Ocean Transp. Line, 743 F.2d at 91 (looking to

correspondence among corporate officers without any discussion of their personal participation

in drafting); Gestetner Holdings, 784 F. Supp. at 83 (attributing to the defendant corporation the

statements of its “vice-president of finance and chief financial officer,” with no indication that he

had personally participated in drafting the arbitration clause at issue); Mobil Oil Corp. v. Fraser,

55 A.D.2d 824, 825 (1st Dep‟t 1976) (“[T]he initial concurrence by Mobil‟s agents in

defendants‟ interpretation of the now contested paragraph reflects the interpretation that the

parties themselves placed on the agreement subsequent to its formation.”). BNY Mellon and the

bondholders were entitled to rely on the statements made by Chesapeake‟s officers without

inquiring into their personal knowledge of the negotiations, and the district court should

accordingly factor these statements into its evaluation of the extrinsic evidence.3




3
 As the district court recognized, see Chesapeake Energy Corp., 957 F. Supp. 2d at 332, if the meaning of Section
1.7 could not be ascertained even after consideration of extrinsic evidence, the court could apply the doctrine of
contra proferentem.

                                                         8
                                         CONCLUSION

       Section 1.7(b)‟s two sentences are facially in tension: Chesapeake‟s reading requires the

word “redeem” to take on shifting meanings, and BNY Mellon‟s attempt to harmonize them by

making the latter a proviso to the former does excessive violence to the structural integrity of the

clause, and in particular the nature of the “Special Early Redemption Period.” The text of the

Indentures is thus ambiguous. The extrinsic evidence, however, is not as universally favorable to

Chesapeake as the district court indicated. Faithful application of the doctrine of unmanifested

intent requires allocating little persuasive weight to the negotiations between Chesapeake and

BAML, while a more complete view of course of performance evidence lends significant support

to BNY Mellon. Accordingly, this case should be remanded for reevaluation of the extrinsic

evidence.




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