Elliott Associates v. J. Henry Schroder Bank & Trust Co.

Elliott Associates (plaintiff) held convertible subordinated debentures issued by Centronics Data Computer Corporation (Centronics) pursuant to an indenture between Centronics and trustee J. Henry Schroder Bank & Trust Company (Schroder Bank) (defendant). The debenture holders were entitled to semiannual interest payments on the debentures and had the option of converting the debentures to Centronics common stock. The indenture gave Centronics the right to redeem the debentures by providing written notice to both the trustee and the debenture holders. A 50-day notice requirement applied to Centronics’s notice to Schroder Bank, though it was waivable by Schroder Bank. Centronics expressed an intent to Schroder Bank to redeem the debentures. Schroder Bank found that it needed only a week to handle the necessary tasks. Schroder Bank therefore waived the 50-day notice requirement. Centronics provided the requisite notice to the debenture holders, who were advised that conversion to stock would command a higher price than redemption. All debenture holders opted for conversion prior to the redemption date. Elliott Associates brought suit against Schroder Bank in federal district court, alleging that Schroder Bank’s waiver of the 50-day notice period constituted a breach of duties to the debenture holders, who would have been entitled to an additional $1.2 million interest payment had the full 50-day notice period been exercised. The court ruled in favor of Schroder Bank, holding that an indenture trustee’s predefault duties were limited to the express provisions of the indenture. Elliott Associates appealed. The United States Court of Appeals for the Third Circuit granted certiorari.