This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2006).





Whitebox Advisors, LLC, et al.,


Brocade Communications Systems, Inc.,


Filed December 24, 2007

Affirmed in part and reversed in part

Kalitowski, Judge


Hennepin County District Court

File No. 27-CV-05-017854


Jeffrey I. Ross, Jonathan F. Mack, Anthony Ostlund & Baer, P.A., 3600 Wells Fargo Center, 90 South Seventh Street, Minneapolis, MN 55402-2230 (for respondents)


David P. Pearson, Justice Ericson Lindell, Winthrop & Weinstine, P.A., 225 South Sixth Street, Suite 3500, Minneapolis, MN 55402-4629; and


Steven D. Guggenheim (pro hac vice), Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304-1050 (for appellant)


            Considered and decided by Randall, Presiding Judge; Kalitowski, Judge; and Hudson, Judge.


U N P U B L I S H E D   O P I N I O N


Appellant Brocade Communications Systems, Inc. challenges the district court’s grant of summary judgment for respondents, Whitebox Advisors, LLC, et al., on their breach-of-contract claim.  By notice of review respondents dispute the applicable prejudgment interest rate under the terms of the parties’ indenture.  We affirm in part, concluding that the district court properly determined the interest rate.  But because appellant properly and timely discharged the indenture prior to the occurrence of an event of default, we reverse both the district court’s grant of respondents’ motion for summary judgment on their breach-of-contract claim and the court’s denial of appellant’s motion for summary judgment. 



Appellant Brocade Communications Systems, Inc. issued a number of convertible debt instruments, or notes.  These notes are governed by an indenture contract between appellant and State Street Bank as trustee.  Although appellant’s notes were initially sold to a number of investment firms, the notes were subsequently traded between investors in open-market transactions.  Respondents, collectively termed Whitebox Advisors, LLC, together from June to October of 2005 purchased $62,135,000 in notes issued by appellant.

In June of 2005, appellant failed to comply with a Securities and Exchange Commission filing covenant.  This failure to comply constituted a preliminary default under the terms of the indenture.  According to the indenture, appellant’s failure to eliminate this preliminary default within 60 days of receiving written notice would result in an “event of default” triggering the noteholders’ right to accelerate.  On the final day before the 60-day period elapsed, appellant took the steps necessary pursuant to section 13.1 of the indenture to satisfy the requirements for both redemption and discharge.  Shortly thereafter, respondents sent a letter demanding acceleration of their notes in accordance with the default provisions of section 7.1 of the indenture. 

            Following the trustee’s denial of a request to bring an action against appellant based on its continuing default, respondents commenced this action by filing a breach-of-contract claim against appellant.  The matter came before the district court on the parties’ cross-motions for summary judgment.  The court issued an order granting respondents’ motion for summary judgment and denying appellant’s motion for summary judgment.

            When reviewing summary-judgment determinations, this court considers “(1) whether there are any genuine issues of material fact and (2) whether the [district court] erred in [its] application of the law.”  State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990).  A court reviewing a grant of summary judgment  must view the record in the light most favorable to the nonmoving party.  Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).

            If no genuine issues of material fact exist, this court will review the district court’s application of the law de novo.  Hubred v. Control Data Corp., 442 N.W.2d 308, 310 (Minn. 1989).  Here, because contract construction is a question of law, this court reviews the instrument at issue between the parties–the indenture–de novo.  Wolfson v. City of St. Paul, 535 N.W.2d 384, 386 (Minn. App. 1995), review denied (Minn. Sept. 28, 1995).

The indenture contract provides that New York law is to be applied in construing its provisions.  And because New York law has consistently recognized that “the relationship between a corporation and its debentureholders is contractual in nature” a corporation’s duty toward its noteholders is strictly controlled and defined by the terms of the indenture agreement.  Lorenz v. CSX Corp., 1 F.3d 1406, 1417 (3d Cir. 1993) (interpreting New York law).  “[P]arties may agree that the law of another state shall govern their agreement and [Minnesota courts] will interpret and apply the law of another state where such agreement is made.”  Milliken & Co. v. Eagle Packaging Co., 295 N.W.2d 377, 380 n.1 (Minn. 1980).  Basic concepts of contract construction require contracts to be construed in a manner that reflects the parties’ intentions.  Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d 320, 323 (Minn. 2003).  The contract between the parties provides the best evidence of their true intentions.  Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 525-26 (Minn. 1990).  Therefore, when an agreement’s language is clear and unambiguous on its face, it should be enforced in accordance with the ordinary and plain meaning of its terms.  GreenField v. Philles Records, Inc., 98 N.Y.2d 562, 569 (N.Y. 2002).

Appellant asserts that the district court’s grant of respondents’ summary judgment motion was erroneous because (1) appellant properly discharged the indenture before an event of default occurred; (2) the district court erred in finding that respondents had the right to accelerate; and (3) even if respondents did have the right to accelerate, they nonetheless (a) failed to comply with the acceleration requirements, (b) had a duty to mitigate their damages, (c) lacked standing to initiate this action, and (d) should not be awarded a redemption premium.



            Respondents do not dispute that appellant’s initial default could not mature into a formal “event of default” as defined in section 7.1 of the indenture unless it “continued” for the full, 60-day period and that the full 60-day period did not elapse before appellant took actions to discharge the indenture.  But respondents argue, and the district court agreed, that appellant could only cure its initial default and stop the 60-day clock from running by (1) correcting the conditions constituting a default, or (2) paying all principal on the notes if it has become due.  Because appellant’s discharge of the indenture effectively extinguished the SEC filing covenant at issue here, we disagree.

There Is No Cure Requirement in Section 7.1 

            When contract language is clear and unequivocal, a party will be bound by its plain meaning because courts are not to “fashion new contracts for the parties under the guise of contract construction . . . .”  Laba v. Carey, 277 N.E.2d 641, 644 (N.Y. 1971).  Here, there is no cure requirement in the plain language of the indenture.  Instead, section 7.1 simply states that a default will not become an “event of default” unless it continues for 60 days.  The section does not describe permissible ways to prevent an “event of default” from occurring.  In addition, there is no language in sections 7.1 or 13.1 of the indenture prohibiting appellant from discharging the indenture while in preliminary default.  Because the plain language of section 7.1’s default clause is clear, complete, and unambiguous on its face, the district court erred by implying a cure requirement restricting the default provision’s plain meaning.

No Event of Default Occurred to Trigger Respondents’ Right to Accelerate

            “Traditional defeasance clauses existed for the purpose of permitting the issuer’s and [t]rustee’s obligations to be discharged even if all Bonds and coupons had not been rendered for payment.”  Hutchinson, Shockey, Erley & Co. v. Evansville-Vanerburgh County Bldg. Auth., 644 N.E.2d 1228, 1233 (Ind. 1994).  Further, it is a basic contract-law principle that “[p]erformance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused.” Restatement (Second) of Contracts § 225(1) (1981).  Likewise, one of the customary and acceptable purposes for discharging an indenture “is to free the Company of the restrictive covenants in the indenture one year sooner than otherwise.”  American Bar Foundation, Commentaries on Indentures, § 4-1, at 198 (1986).

            Here, section 7.1 of the indenture states that a noteholder’s right to accelerate and demand immediate payment of the principal, premium, and interest accrued on its notes hinges on the occurrence of an “event of default” as defined in section 7.1(c).  Thus, respondent-noteholders’ right to accelerate payment on their notes will not vest, if at all, until after a preliminary default for which written notice was given has matured for the requisite 60-day period into an event of default.  See Trust for Certificate Holders of Merrill Lynch Mortgage Passthrough Certificates Series 1999-C1 v. Love Funding Corp., No. 04 Civ. 9890, 2005 WL 2582177, at *6 (S.D.N.Y. 2005).  Because appellant’s preliminary default relating to its filing covenant was extinguished before it continued for the contractually mandated 60 days, no event of default took place to trigger respondents’ right to accelerate payment on their notes. 

The Indenture’s Affirmative Covenants Are Not Incorporated into Section 7.1


            Alternatively, respondents contend that all of the indenture’s affirmative covenants are incorporated into section 7.1.  Yet respondents cannot, and do not, dispute the plain language of section 13.1 stating that upon discharge, the indenture ceases to be of further effect as to all of the notes issued, except for those provisions expressly stated to survive. Nor do respondents dispute the fact that the SEC filing covenant is not listed among the provisions in section 13.1 that survive discharge.   Since a general principle of contract construction requires that “the expression in the contract of one or more things of a class implies exclusion of all not expressed,” section 13.1 of the indenture is limited by its plain language to allow survival of only those items expressly listed.  Eden Music Corp. v. Times Square Music Publ’ns Co., 514 N.Y.S.2d 3, 5 (N.Y. App. Div. 1987).

The Filing Covenant’s Viability at the Start of the 60-Day Period Is Insufficient

            Respondents assert that evidence of the filing covenant’s viability at the start of the 60-day cure period is sufficient to support their acceleration argument.  But this is correct only if appellant’s discharge of the indenture was not a viable and appropriate way for it to respond to its initial default.  Regardless of the filing covenant’s viability at the start of the 60-day period, under the terms of the indenture, respondents’ right to accelerate does not vest unless a preliminary default continues for a period of 60 days and matures into an event of default.  Because Brocade’s preliminary default did not continue for the requisite 60 days, respondents’ right to accelerate did not vest, and thus the principal, premium, and interest on their notes was not immediately due and payable.  

Sections 7.1 and 13.1 of the Indenture Are Not in Conflict

            Respondents also argue that section 7.1’s default provision conflicts with section 13.1’s discharge provision.  The district court adopted respondents’ argument, and accordingly found that because the indenture’s default provision was controlling, appellant’s compliance with the discharge provisions of section 13.1 was ineffective.  We disagree. 

            General principles of contract construction require this court to read the indenture as a whole and, if possible, interpret it to reconcile all of the provisions of the document.  Westmoreland Coal Co. v. Entech, Inc., 794 N.E.2d 667, 670 (N.Y. 2003).  An interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.  Mionis v. Bank Julius Baer & Co., 749 N.Y.S.2d 497, 502 (N.Y. App. Div. 2002). 

            Here, it was unnecessary and irrelevant for the district court to read the indenture’s default and discharge provisions as conflicting measures because respondents had no right to accelerate in the absence of an event of default.  Because respondents had no right to accelerate, their breach-of-contract claim does not invoke section 7.1’s default provision.    

            Moreover, the policy argument that indentures should be liberally construed in favor of investors and against the drafter has little application in the face of an unambiguous contract.  New York courts have consistently held that “when parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.” W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 162 (N.Y. 1990).  Because there is nothing inconsistent or unclear in the language of sections 7.1 and 13.1 necessitating the court’s finding of conflict, the district court’s interpretation was in error.                       

            In conclusion, because a formal event of default never occurred, and because standard principles of contract interpretation require this court to try to reconcile the indenture’s various provisions, the district court’s construction of the indenture and grant of summary judgment for respondents and denial of summary judgment for appellant was erroneous.  Having reached this conclusion, we need not address appellant’s alternative arguments for reversing the district court. 


Although in light of our reversal of the district court’s grant of summary judgment we need not address respondents’ issue raised by notice of review, we nevertheless will address its merits.  Respondents argue that the district court erredin finding that the prejudgment interest to which respondents were entitled should be measured in accordance with the two-percent rate expressly provided in section 7.2 of the indenture as opposed to the nine-percent New York statutory rate.  Because section 7.2 of the indenture expressly specifies the rate of interest applicable upon default, we disagree.

            When a contract includes an express provision stating that interest shall be paid at a specified rate until the principal is paid, this contractual rate governs until the principal is paid or until the contract is merged in a judgment.  Schwall v. Bergstol, 468 N.Y.S.2d 47, 47 (N.Y. App. Div. 1983).  Although respondents concede that a prejudgment rate of interest higher than the statutory rate will apply if called for in the contract, they argue that a contractual rate lower than the applicable statutory rate will not govern.  But because there is no caselaw to support respondents’ argument, this court will not rewrite the indenture’s unambiguous provisions under the guise of contract interpretation.  Laba, 277 N.E.2d at 644.  Accordingly, we conclude that the district court correctly enforced the indenture’s clear and unambiguous interest-rate provision in determining that respondents were entitled to two-percent prejudgment interest.

            Affirmed in part and reversed in part.