Racepoint Partners, LLC v. JPMorgan Chase Bank, N.A.

Enron issued a series of notes and named Chase Manhattan Bank (Chase) (defendant) as the indenture trustee. The note indenture required Enron to file copies of its annual financial reports with the indenture trustee after filing the reports with the Securities and Exchange Commission as required by the Securities Exchange Act of 1934. This provision of the indenture echoed a filing requirement imposed by the Trust Indenture Act of 1939, which required companies to file annual reports with the indenture trustee to keep the indenture trustee informed of the corporation’s financial health. Enron engaged in widespread accounting fraud and filed inaccurate financial reports with the Securities and Exchange Commission. Enron then filed its inaccurate reports with Chase under the indenture requirement. Racepoint Partners, LLC, and Willow Capital (collectively, the plaintiff noteholders) (plaintiffs) held $1 billion of notes issued by Enron. The plaintiff noteholders filed a lawsuit in New York state court against Chase for breach of contract, alleging that Enron defaulted on the indenture by filing inaccurate reports and that Chase violated the indenture by failing to discover Enron’s inaccuracies and report the inaccuracies to the noteholders. The plaintiff noteholders believed that Enron defaulted on the indenture by filing inaccurate reports with Chase, thus failing to file the reports as required by the Securities Exchange Act. Chase moved to dismiss the complaint, arguing that it did not have a duty to ensure that the information contained in the reports was accurate. The New York Supreme Court denied Chase’s motion. The New York Supreme Court, Appellate Division reversed the supreme court and granted Chase’s motion to dismiss the complaint. The plaintiff noteholders appealed.