Bank of New York Mellon Trust Company v. Liberty Media Corporation

Liberty Media Corporation and its wholly owned subsidiary Liberty Media LLC (collectively, Liberty) (plaintiff) held equity positions in various public and private entities. Liberty entered an indenture with Bank of New York Mellon Trust Company, N.A. (Bank of New York) (defendant) as trustee. The indenture contained a boilerplate successor-obligor provision prohibiting the disposition of substantially all of Liberty’s assets unless the recipient entity assumed Liberty’s obligations under the indenture. Over the next few years, Liberty engaged in a series of transactions in which it attempted to convert its portfolio of investments into stakes in operating businesses. Two spin-offs and a split-off resulted in the transfer of 19, 10, and 23 percent of Liberty’s assets, respectively. Liberty then sought to effectuate a split-off in which another 15 percent of Liberty’s assets would be removed from Liberty’s balance sheet. Counsel for an anonymous bondholder sent a letter alleging that Liberty’s various transactions constituted a strategy to remove substantially all of Liberty’s assets from its corporate structure, thus violating the successor-obligor provision. Liberty sought injunctive relief and a declaratory judgment to prevent a declaration of default in light of the alleged violation. The Delaware Chancery Court ruled in favor of Liberty, finding that the proposed split-off did not constitute the disposition of substantially all of Liberty’s assets and that it was unnecessary to aggregate the proposed split-off with previous transactions. Bank of New York appealed. The Delaware Supreme Court granted certiorari.