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Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., N.A.

United States District Court, S.D. New York

May 8, 2013


As Corrected May 24, 2013.

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For Chesapeake Energy Corporation, Plaintiff: Ali Malik Arain, Anthony Scott Barkow, Michael W. Ross, Prashant Yerramalli, Richard Ferdinand Ziegler, Stephen Louis Ascher, Jenner & Block LLP (NYC), New York, NY; Anne Cortina Perry, Jenner & Block, New York, NY; Tobias Charles Berkman, Jenner & Block LLP, New York, NY.

For The Bank of New York Mellon Trust Company, N.A., Defendant: Paul Terry Weinstein, LEAD ATTORNEY, Mordechai Geisler, Tyler J Kandel, Emmet, Marvin & Martin, LLP, New York, NY; Steven M. Bierman, LEAD ATTORNEY, Alex Rafael Rovira, Benjamin Robert Nagin, James Daniel Arden, Kevin Christopher Hartzell, Sidley Austin LLP (NY), New York, NY; Allan Noel Taffet, Keith Evan Blackman, Duval & Stachenfeld LLP, New York, NY.

For Intervenor Ad Hoc Noteholder Group, Intervenor: Steven M. Bierman, LEAD ATTORNEY, Benjamin Robert Nagin, Sidley Austin LLP (NY), New York, NY.


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Paul A. Engelmayer, United States District Judge.

This case is about whether a corporation made, or missed, the deadline to exercise its right to redeem its outstanding notes early, on highly favorable terms. On March 15, 2013, plaintiff Chesapeake Energy Corporation (" Chesapeake" ) issued a notice to redeem approximately $1.3 billion in notes due in 2019 that it had issued in 2012. Chesapeake's notice stated that it was redeeming these " 2019 Notes" at par value plus interest. The notice called for the notes to be redeemed on May 13, 2013 ( i.e., next Monday). Chesapeake's view is that, under the Supplemental Indenture governing the notes, it had until March 15, 2013, to issue a notice of redemption on these terms. However, defendant Bank of New York Mellon Trust Company, N.A. (" BNY Mellon" ), the indenture trustee of those notes, representing the interests of the noteholders, takes a different view of the applicable deadline. BNY Mellon contends that, under the Supplemental Indenture, Chesapeake's deadline to issue a notice of early redemption was February 13, 2013. BNY Mellon therefore contends that Chesapeake's notice was untimely and ineffective.

To resolve the dispute, Chesapeake brought this declaratory judgment action. Between April 23 and 30, 2013, after expedited discovery, the Court held a bench trial. Trial was held on those dates to permit the Court to render decision before May 13, 2013--the redemption date that Chesapeake had set.

The following is the Court's decision. The Court holds, in favor of Chesapeake, that its March 15, 2013 notice of redemption was timely and effective to redeem the 2019 Notes at par value ( i.e., 100% of the principal amount) plus interest. The Court enters a declaratory judgment to that effect.

I. Background[1]

A. Overview: The 2019 Notes and § 1.7 of the Supplemental Indenture

Chesapeake is a publicly-traded Oklahoma corporation. It produces oil and natural gas.

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In February 2012, Chesapeake completed a public offering of $1.3 billion in senior notes due in 2019 (the " Notes" or " 2019 Notes" ). The Notes pay at a rate of 6.775%. The 2019 Notes were issued pursuant to two indentures. The first is a Base Indenture, dated August 2, 2010. PX 6 (the " Base Indenture" ). It governs a series of notes issued by Chesapeake since that date. BNY Mellon is named in the Base Indenture as trustee. Id . BNY Mellon is a national banking association with its principal place of business in Los Angeles, California.

The second indenture is Chesapeake's Ninth Supplemental Indenture, dated February 16, 2012. PX 4 (the " Supplemental Indenture" ). The Supplemental Indenture applies solely to the 2019 Notes. Both the Base Indenture and the Supplemental Indenture recite that they were entered into between Chesapeake as the issuer, certain Chesapeake subsidiaries as guarantors, and BNY Mellon as the indenture trustee. See Base Indenture, at BNY24, BNY94-97; Supplemental Indenture, at CHK368, CHK373-75.

This dispute centers on § 1.7 of the Supplemental Indenture. Entitled " Redemption," it provides in full:

(a) The Company shall have no obligation to redeem, purchase or repay the Notes pursuant to any mandatory redemption, sinking fund or analogous provisions or at the option of a Holder thereof.
(b) At any time from and including November 15, 2012 to and including March 15, 2013 (the " Special Early Redemption Period" ), the Company, at its option, may redeem the Notes in whole or from time to time in part for a price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest on the Notes to be redeemed to the date of redemption; provided, however, that immediately following any redemption of the Notes in part (and not in whole) pursuant to this Section 1.7(b), at least $250 million aggregate principal amount of the Notes remains outstanding. The Company shall be permitted to exercise its option to redeem the Notes pursuant to this Section 1.7 so long as it gives the notice of redemption pursuant to Section 3.04 of the Base Indenture during the Special Early Redemption Period. Any redemption pursuant to this Section 1.7(b) shall be conducted, to the extent applicable, pursuant to the provisions of Sections 3.02 through 3.07 of the Base Indenture.
(c) At any time after March 15, 2013 to the Maturity Date, the Company, at its option, may redeem the Notes in whole or from time to time in part for an amount equal to the Make-Whole Price plus accrued and unpaid interest to the date of redemption in accordance with the Form of Note.

Supplemental Indenture § 1.7 (emphasis in original).

The critical issue in this case is what the deadline is under § 1.7(b) for Chesapeake to give notice of redemption of the 2019 Notes at par plus interest. Under a Base Indenture provision (§ 3.04) expressly incorporated by § 1.7(b), Chesapeake, after giving notice of a redemption, must wait

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between 30 and 60 days before redeeming the subject Notes. The period during which Chesapeake may give notice of a special early redemption is, therefore, not coextensive with the period during which the redemption can be effectuated. Rather, the start of the notice period must precede the start of the redemption period by at least 30 days.

Chesapeake's position, based on the second sentence of § 1.7(b), is that the Special Early Redemption Period defined in § 1.7(b)-- i.e., November 15, 2012, to and including March 15, 2013--is a notice period. Chesapeake argues, therefore, that, under § 1.7(b), a redemption at par plus interest can occur as late as May 14, 2013 ( i.e., 60 days after March 15, 2013). Accordingly, it argues, the notice of a special early redemption that it gave on March 15, 2013, was timely. BNY Mellon's position is that the Special Early Redemption Period instead bounds the period during which the actual redemption of bonds pursuant to § 1.7(b) may occur. Because a minimum of 30 days' notice is required before redemption, BNY Mellon argues that Chesapeake's deadline to give notice of a special early redemption was February 13, 2013 ( i.e., 30 days before March 15, 2013).

Lots of money turns on this dispute. Because the 2019 Notes bear an attractive interest rate of 6.775%, redeeming them at par plus interest is, in today's low-interest-rate environment, far more advantageous to Chesapeake than its other contractual options. These are (1) paying the 6.775% rate out to the 2019 maturity date, or (2) redeeming the bonds before the maturity date, but after the opportunity to redeem at par plus interest has lapsed, which, under § 1.7(c), would oblige Chesapeake to pay the noteholders the " Make-Whole Price," i.e., the present value of the 6.775% interest rate payments to maturity. See PX 5, at BG2869-70. Conversely, a redemption by Chesapeake today at par plus interest deprives the holders of the 2019 Notes of an income stream not readily achievable elsewhere.

B. The Events of Late February and Early March 2013[2]

On February 20, 2013, Chesapeake notified Sharon McGrath, a BNY Mellon vice president, that it planned, by March 15, 2013, to redeem the 2019 Notes at par plus interest, pursuant to the special early redemption provision. McGrath did not initially object to that course. However, later that day, McGrath was contacted by James P. Seery, Jr., a partner in River Birch Capital LLC, a hedge fund, which had recently purchased a large volume of 2019 Notes. Seery notified McGrath that, in his view, the time period during which Chesapeake could redeem the 2019 Notes pursuant to the special early redemption provision had expired.

On February 22, 2013, McGrath, joined by counsel for BNY Mellon, notified Chesapeake that, in BNY Mellon's view, the time for Chesapeake to issue a notice of redemption pursuant to the special early redemption provision had passed. Six days later, in a call with Chesapeake's counsel, counsel for BNY Mellon reiterated that position. BNY Mellon also stated that, if Chesapeake issued a notice of redemption and it was held untimely, BNY Mellon might treat that notice as functioning as a notice of redemption pursuant to § 1.7(c) of the Supplemental Indenture. A redemption pursuant to § 1.7(c) would require Chesapeake, within 30 to 60 days, to pay the noteholders the Make-Whole Price. That payment would exceed by approximately $400 million the amount required

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to redeem the 2019 Notes pursuant to the special early redemption provision.

In an attempt to resolve this problem, Chesapeake prepared a proposed notice of redemption. See Compl. Ex. D (the " Notice" ). That Notice, entitled " Notice of Special Early Redemption," specified a redemption price, terms, and date (May 13, 2013) consistent with the special early redemption provision in § 1.7(b). Chesapeake's proposed Notice stated explicitly and prominently that, were a court to hold it untimely to effect a special early redemption, the Notice would be null and void. BNY Mellon objected to that approach. It notified Chesapeake that it viewed Chesapeake's proposed Notice as untimely; that such a " conditional notice" was improper; that Chesapeake's Notice, if issued, would be irrevocable; and that BNY Mellon would seek to have the Notice treated as a notice of an immediate Make-Whole Redemption pursuant to § 1.7(c).

C. Chesapeake's March 8, 2013 Complaint and Motion for Emergency Relief

On Friday, March 8, 2013, Chesapeake filed this diversity action against BNY Mellon. Dkt. 1. In its first cause of action, Chesapeake sought a declaration that its Notice of Special Early Redemption, if mailed on or before March 15, 2013, would be timely and effective to redeem the 2019 Notes at par plus interest. Compl. ¶ 26. In its second cause of action, Chesapeake sought a declaration that, in the event its Notice were held untimely to effect such a redemption, the Notice would be null and void, and would not operate as a notice of redemption at the Make-Whole Price. Id . ¶ 28.

The same day, Chesapeake moved for a preliminary injunction. It sought two forms of emergency relief. First, Chesapeake sought an injunction prohibiting BNY Mellon from treating its Notice of Special Early Redemption as a notice of redemption requiring payment at the Make-Whole Price. Alternatively, Chesapeake sought an immediate declaration that, if the Notice were held untimely to achieve a redemption at par plus interest pursuant to § 1.7(b), then that Notice would be null and void, and ineffective to achieve any redemption. Chesapeake explained that it wished to invoke its right under § 1.7(b) to make an early redemption at par, which would save it approximately $100 million over the present value of letting the 2019 Notes run to maturity. However, Chesapeake asserted, without relief from the Court, it would be deterred from pursuing this right by BNY Mellon's threat to treat its Notice, if held untimely, as an unwitting notice of Make-Whole redemption under § 1.7(c), requiring it to redeem the 2019 Notes nearly immediately at the much higher Make-Whole Price.

Recognizing the urgent timetable, the Court, late on March 8, 2013, issued an order to show cause. The order (1) directed BNY Mellon to respond to Chesapeake's motion for a preliminary injunction by Tuesday morning, March 12, 2013; and (2) set a preliminary injunction hearing for that afternoon. Dkt. 2. On March 12, 2013, BNY Mellon filed its memorandum of law opposing Chesapeake's motion, and supporting materials. Dkt. 10-11, 28-29. The same day, the Court received a motion to intervene and opposition papers from a group calling itself the " Intervenor Ad Hoc Noteholder Group" (the " Intervenor Noteholders" or " Noteholders" ). Dkt. 13-16.

On the evening of March 12, 2013, the Court held a preliminary injunction hearing. The Court granted the Intervenor Noteholders' motion to intervene as of right under Federal Rule of Civil Procedure 24(b).[3] The Court also heard extended

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argument from counsel for Chesapeake, BNY Mellon, and Intervenor Noteholders. Counsel for an individual noteholder, Whitebox Advisors LLC, entered an appearance, but did not argue.

D. The Court's March 14, 2013 Ruling on the Preliminary Injunction Motion

On March 14, 2013, the Court issued a lengthy oral ruling from the bench. It ultimately denied Chesapeake's motion for a preliminary injunction. See 3/14/13 Hr'g Tr.

The Court first held that the dispute between two parties to the Supplemental Indenture over its proper construction presented a justiciable controversy ripe for review. Id . at 10-12.

Turning to the merits of Chesapeake's motion for a preliminary injunction, the Court considered (1) the likelihood of success on the merits; (2) whether the balance of hardships tipped decidedly in Chesapeake's favor; and (3) whether Chesapeake would suffer irreparable harm. See id . at 13-14; see also Pogliani v. U.S. Army Corps of Eng'rs , 306 F.3d 1235, 1238-39 (2d Cir. 2002) (quoting Kamerling v. Massanari , 295 F.3d 206, 214 (2d Cir. 2002)).

As to the likelihood of success, the Court addressed separately Chesapeake's two claims for declaratory relief. As to the first, for a declaration that a notice on March 15, 2013 of a special early redemption would be timely, the Court's preliminary assessment was that the parties' competing textual arguments based on the text of § 1.7(b) as to the deadline for such a notice appeared in rough equipoise. See 3/14/13 Hr'g Tr. 17-21; id . at 21 (" Neither party's interpretation accounts for or explains every feature of the short but difficult document that is the supplemental indenture." ). Because the Court's initial assessment was that § 1.7(b) was ambiguous, it stated that consideration of extrinsic evidence might be warranted to discern the parties' intentions. Id . at 21.[4] However, the Court emphasized, its initial assessment that § 1.7(b) was ambiguous was preliminary, based on the limited time frame in which the parties had briefed and the Court had studied the issue. Id . Accordingly, the Court held, Chesapeake had not demonstrated a likelihood of success on the merits of its claim for a declaration as to the timeliness of its redemption notice. Chesapeake had, however, established a sufficiently serious question going to the merits to justify continued inquiry. Id . at 24.

As to Chesapeake's second claim, the Court stated that Chesapeake had an overwhelming likelihood of success. Id . at 25. There was no serious basis for treating, against Chesapeake's will, an untimely notice of a special early redemption pursuant to § 1.7(b) as instead a notice for a Make-Whole redemption under § 1.7(c). On the contrary, the Court noted, Chesapeake's Notice, if so treated, would fail various requirements for a valid notice under the

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Base Indenture, including that it accurately recite the date, price, and terms of the upcoming redemption. Id . at 25-27; id . at 29 (citing Base Indenture § § 3.04-3.06). Chesapeake was, therefore, highly likely to prevail in seeking a declaration that its Notice, if held untimely, was null and void. Id . at 30-31.

Turning to the balance of hardships, the Court found that a preliminary injunction would not work cognizable harm on BNY Mellon or the Noteholders. Id . at 31-37. The Noteholders, the Court stated, did not have a protected right to deter Chesapeake from issuing a Notice by threatening to have that Notice, if held untimely, treated as a notice of Make-Whole redemption. Id . at 33. An injunction that declared that an untimely notice would be null and void would merely clarify the parties' rights with respect to such a Notice, and would not work any real prejudice on the Noteholders. And Noteholders such as River Birch, that had purchased Notes after February 13, 2013, had assumed the risk that a Court might hold a notice of redemption at par timely until March 15, 2013. Id . at 35-37. Chesapeake, on the other hand, faced a degree of harm without the protection of an injunction. That was because BNY Mellon and the Noteholders were using the threat to treat an untimely notice as triggering a redemption at the Make-Whole Price to coerce Chesapeake not to issue any notice. It was plausible that the risk of being forced imminently to pay out $400 million extra might deter Chesapeake from exercising its rights under § 1.7(b). For these reasons, the balance of hardships tipped somewhat, but not heavily, in favor of Chesapeake. Id . at 37-40.

For several reasons, however, the Court rejected Chesapeake's argument that, without an injunction, it would suffer irreparable harm. First, Chesapeake retained the right to try to redeem its shares at the special early redemption price. The risk to Chesapeake that a Court would treat an untimely notice as requiring a redemption at the Make-Whole Price was inherent in doing business. And if Chesapeake were forced to pay out the money for a Make-Whole redemption on May 15, 2013, while it litigated whether its Notice had worked such a redemption, Chesapeake had a damages remedy: If its position prevailed, it could sue the Noteholders to recoup that money. Id . at 42-44. Second, if the time for a redemption at par had passed, Chesapeake was obliged, in 2019, to pay out a sum whose present value, by definition, matched the Make-Whole payment that the Noteholders threatened to demand. Thus, the dispute triggered by the Noteholders' Make-Whole demand involved only the timing, not the amount, of Chesapeake's payout. Id . at 39. And Chesapeake had not shown an inability to pay out the additional $400 million if required to do so. Id . Third, the assessment that the Court had given of Chesapeake's second claim for declaratory relief was relevant. Because the Court had opined that it was highly likely to treat an untimely Notice of Special Early Redemption as null and void, the Court stated that Chesapeake could issue the proposed Notice with little risk that it would be held to trigger a Make-Whole redemption. Id . at 39-40.

Because a showing of irreparable harm was necessary for Chesapeake to prevail, the Court denied the preliminary injunction. Id . at 45-46.[5]

The Court further stated that, if Chesapeake went ahead with its plan to issue a Notice of Special Early Redemption, the Court was prepared to hold an expedited

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trial to resolve Chesapeake's claims for declaratory relief. The Court stated that it would decide, before the May 13, 2013 redemption date, whether that Notice was timely. Id . at 46-47. The Court directed counsel that, if Chesapeake issued the Notice, they were to confer promptly to develop a proposed discovery and trial schedule. Id .

E. Chesapeake's Notice of Special Early Redemption, and Pretrial Proceedings

On March 15, 2013, Chesapeake issued a Notice of Special Early Redemption. It was identical to the proposed Notice appended to its Complaint. See Dkt. 30 Ex. A, at 14. On March 19, 2013, the Court met with counsel to set an expedited discovery and trial schedule.[6]

On March 22, 2013, the Court issued a case management plan. The plan provided for expedited discovery, ending April 19, 2013. Dkt. 34.[7] The Court scheduled a bench trial[8] for April 23-25, 2013, with closing arguments on April 30, 2013. Id . The Court proposed, and the parties agreed, to forego intervening summary judgment motions. Instead, the Court stated, it would take up such contentions in the decision it would issue after trial. Finally, the Court requested pretrial briefing on Claim Two (the Make-Whole issue). Id .

On March 25, 2013, the Intervenor Noteholders moved to withdraw, and to permit their lead counsel, Sidley Austin LLP, to be retained by BNY Mellon as lead counsel in this matter. Dkt. 40-42. After letter briefing, see Dkt. 48, 55, the Court granted that motion. Dkt. 60. This left Chesapeake and BNY Mellon as the sole parties to the case.

On March 31, 2013, BNY Mellon notified the Court that it was abandoning its argument that Chesapeake's Notice, if held untimely, would work a redemption at the Make-Whole Price. See Dkt. 58, at 3 n.2; 4/1/13 Hr'g Tr. 40. On that basis, BNY Mellon asked the Court to dismiss Chesapeake's second claim for declaratory relief. The parties, however, could not agree on the terms on which Chesapeake's Claim Two should be resolved: Chesapeake sought entry of judgment in its favor on Claim Two; BNY Mellon sought dismissal of that claim as moot. The Court reserved decision on that issue. See 4/1/13 Hr'g Tr. 38-48.

Between late March and April 21, 2013, the parties took extensive discovery, focused on the extrinsic evidence bearing on the intent of the drafters of § 1.7(b). At least 15 depositions were taken. These included of personnel from Chesapeake; Chesapeake's outside counsel (the law firm of Bracewell & Giuliani LLP (" Bracewell" ))

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that assisted it in drafting the Supplemental Indenture; the 2019 Note offering's lead underwriter, Bank of America Merrill Lynch, Pierce, Fenner & Smith Inc. (" BAML" ), which had negotiated with Chesapeake the language that ultimately appeared in § 1.7(b); and BAML's outside counsel in that process (the law firm of Cravath, Swaine & Moore LLP (" Cravath" )). Depositions were also taken of each side's experts.

During the discovery process, the Court held several conferences with counsel to resolve discovery disputes and to adjust the pretrial schedule. See 3/19/13 Hr'g; 4/1/13 Hr'g; 4/11/13 Hr'g. These disputes included a disagreement relating to the temporal scope of Chesapeake's court-approved written waiver of its attorney-client privilege. That waiver was limited to Chesapeake's communications with counsel governing the drafting, meaning, interpretation, and application of § 1.7 of the Supplemental Indenture, between February 8, 2012 (when Chesapeake first began the process that led it to issue the 2019 Notes) and February 21, 2013 (which Chesapeake represented had been the last day before its dispute with BNY Mellon first began to materialize). See Dkt. 51 (protective order concerning privilege waiver); see also 4/11/13 Hr'g Tr. 12-41. BNY Mellon asked the Court to expand the scope of that waiver until March 8, 2013, the date that Chesapeake brought this suit. On April 15, 2013, after a careful in camera review of privileged materials implicated by BNY Mellon's motion, the Court issued a written decision denying that motion. See Dkt. 77.

F. Trial

Trial commenced on April 23, 2013. The Court heard in-person testimony from 10 witnesses. As to eight, direct testimony was submitted by means of sworn declarations and cross-examination was live; as to the other two, direct and cross-examination were live.[9] With respect to six other witnesses, the Court received, in lieu of in-person testimony, deposition designations from each side.[10] The Court also received numerous exhibits. Each party submitted a pretrial (Dkt. 91, 93) and post-trial (Dkt. 110, 111) memorandum of law. Counsel's post-trial memoranda addressed, among other subjects, legal issues which the Court, after the close of evidence, asked counsel to address. See Tr. 480-83.

Closing arguments were held April 30, 2013. That day, the Court resolved various open evidentiary issues. See Tr. 487-91. However, the Court reserved ruling on a motion in limine BNY Mellon had submitted on the eve of trial. It sought to exclude extrinsic evidence of Chesapeake's negotiations with the offering's underwriters regarding § 1.7(b). The Court stated that it would resolve that motion in its decision. See Tr. 479, 489. The resolution of that motion is addressed infra at Part IV.A.

II. The Legal Framework Governing the Interpretation of § 1.7(b)

The central issue in this case is this: Under § 1.7(b), what is the deadline for giving notice of a special early redemption at par plus interest?[11] That issue

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turns on how § 1.7(b) of the Supplemental Indenture is interpreted. " Interpretation of indenture provisions is a matter of basic contract law." Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1049 (2d Cir. 1982); see Jamie Sec. Co. v. The Ltd., Inc., 880 F.2d 1572, 1576 (2d Cir. 1989); Aristocrat Leisure Ltd. v. Deutsche Bank Trust Co. Americas , 618 F.Supp.2d 280, 291 (S.D.N.Y. 2009). Accordingly, the Court begins by reviewing the principles applicable to contract interpretation.[12]

A. The Language of the Parties' Agreement

" The primary objective of a court in interpreting a contract is to give effect to the intent of the parties as revealed by the language of their agreement." Compagnie Financiere CIC L'Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153, 157 (2d Cir. 2000). " [T]he 'words and phrases [in a contract] should be given their plain meaning, and the contract should be construed so as to give full meaning and effect to all of its provisions.'" Olin Corp. v. Am. Home Assur. Co., 704 F.3d 89, 99 (2d Cir. 2012) (second alteration in original) (quoting LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195, 206 (2d Cir. 2005)). " A written agreement that is clear, complete and subject to only one reasonable interpretation must be enforced according to the plain meaning of the language chosen by the contracting parties." In re Coudert Bros., 487 B.R. 375, 389 (S.D.N.Y. 2013) (quoting Acumen Re Mgmt. Corp. v. Gen. Sec. Nat'l Ins. Co., No. 09 Civ. 1796 (GBD), 2012 WL 3890128, at *5 (S.D.N.Y. Sept. 7, 2012)).

Judgment as a matter of law " is generally proper in a contract dispute only if the language of the contract is wholly unambiguous." Compagnie Financiere , 232 F.3d at 157; see SR Int'l Bus. Ins. Co., Ltd. v. World Trade Ctr. Props., LLC (World Trade Ctr. Props.) , 467 F.3d 107, 138 (2d Cir. 2006). " The question of 'whether the language of a contract is clear or ambiguous' is one of law, and therefore must be decided by the court." Fed. Ins. Co. v. Am. Home Assur. Co., 639 F.3d 557, 568 (2d Cir. 2011) (quoting Compagnie Financiere , 232 F.3d at 158). " Where the parties dispute the meaning of particular contract clauses, the task of the court 'is to determine whether such clauses are ambiguous when read in the context of the entire agreement.'" Law Debenture Trust Co. of N.Y. v. Maverick Tube Co., 595 F.3d 458, 467 (2d Cir. 2010) (quoting Sayers v. Rochester Tel. Corp. Supp. Mgmt. Pension Plan , 7 F.3d 1091, 1095 (2d Cir. 1993)).

Ambiguity is " defined in terms of whether a reasonably intelligent person viewing the contract objectively could interpret the language in more than one way." Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 68 (2d Cir. 2008). " An ambiguity exists where the terms of the contract 'could suggest 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

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customs, practices, usages and terminology as generally understood in the particular trade or business.'" Law Debenture Trust , 595 F.3d at 466 (quoting Int'l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002)).

In contrast, " [n]o ambiguity exists where the contract language 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.'" Law Debenture Trust , 595 F.3d at 467 (second alteration in original) (quoting Hunt Ltd. v. Lifschultz Fast Freight , 889 F.2d 1274, 1277 (2d Cir. 1989)). " The mere assertion of an ambiguity does not suffice to make an issue of fact." Palmieri v. Allstate Ins. Co., 445 F.3d 179, 187 (2d Cir. 2006) (quoting Thompson v. Gjivoje , 896 F.2d 716, 721 (2d Cir. 1990)); see Sayers , 7 F.3d at 1095 (" Parties to a contract may not create an ambiguity merely by urging conflicting interpretations of their agreement." ). " Thus, the court should not find the contract ambiguous where the interpretation urged by one party would 'strain[] the contract language beyond its reasonable and ordinary meaning.'" Law Debenture Trust , 595 F.3d at 467 (quoting Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456, 459, 141 N.E.2d 590, 161 N.Y.S.2d 90 (1957)). As the Second Circuit has put the point: " [N]o ambiguity exists where the alternative construction would be unreasonable." Readco, Inc. v. Marine Midland Bank , 81 F.3d 295, 299 (2d Cir. 1996); accord Mycak v. Honeywell, Inc., 953 F.2d 798, 802 (2d Cir. 1992) (no ambiguity exists unless " the contractual language is susceptible of at least two fairly reasonable meanings" (citation omitted)).

That a text is complex or imperfect does not mean it is ambiguous. See Aramony v. United Way of Am., 254 F.3d 403, 411 (2d Cir. 2001) (finding contract unambiguous and noting that " [t]he fact that we remanded to the district court for an initial determination of the meaning of this complex contract in no way implies that we found it ambiguous as a matter of law" ); Carolina First Bank v. Banque Paribas , No. 99 Civ. 9002 (NRB), 2000 WL 1597845, at *6 (S.D.N.Y. Oct. 26, 2000) (that a contract is not a " portrait of clarity" does not prevent a finding that it is unambiguous where the court finds only one reasonable interpretation); cf. Lamie v. U.S. Trustee , 540 U.S. 526, 535, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004) (" The statute is awkward, and even ungrammatical; but that does not make it ambiguous on the point at issue." ).

B. Consideration of Extrinsic Evidence

Where the language of a contract is held ambiguous, the factfinder--here, the Court--may properly consider " extrinsic evidence as to the parties' intent." JA Apparel Corp. v. Abboud , 568 F.3d 390, 397 (2d Cir. 2009); see also Collins v. Harrison-Bode , 303 F.3d 429, 433-34 (2d Cir. 2002) (" [W]here . . . there are internal inconsistencies in a contract pointing to ambiguity, extrinsic evidence is admissible to determine the parties' intent." (citation omitted)). " Where there is such extrinsic evidence, the meaning of the ambiguous contract is a question of fact for the factfinder." JA Apparel Corp., 568 F.3d at 397; accord Compagnie Financiere , 232 F.3d at 158; U.S. Naval Inst. v. Charter Commc'ns, Inc., 875 F.2d 1044, 1048 (2d Cir. 1989) (" In determining the meaning of an ambiguous contract term, the finder of fact seeks to fathom the parties' intent. That intent may be proven by extrinsic evidence." ).

Analysis of extrinsic evidence may entail review of " negotiations . . . made prior to or contemporaneous with

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the execution of a written contract which may tend to vary or contradict its terms." U.S. Fire Ins. Co. v. Gen. Reinsurance Corp., 949 F.2d 569, 571 (2d Cir. 1991) (alteration omitted) (quoting 67 Wall St. Co. v. Franklin Nat'l Bank , 37 N.Y.2d 245, 248-49, 333 N.E.2d 184, 371 N.Y.S.2d 915 (1975)); accord Shann v. Dunk , 84 F.3d 73, 80 (2d Cir. 1996). The review of the surrounding facts and circumstances may also include consideration of industry custom and practice, see U.S. Naval Inst., 875 F.2d at 1048-49, and any relevant course of performance or course of dealing, see Hoyt v. Andreucci , 433 F.3d 320, 332 (2d Cir. 2006).

C. The Doctrine of Contra Proferentem

Finally, if unable to determine the parties' intent based either on the text of an agreement or after evaluating admissible extrinsic evidence, the Court may, in some circumstances, apply the doctrine of contra proferentem to construe any ambiguity against the drafter of the contract.[13] See M. Fortunoff of Westbury Corp. v. Peerless Ins. Co., 432 F.3d 127, 142 (2d Cir. 2005). This, however, is a matter of last resort. See id . (" [C]ourts should not resort to contra proferentum [ sic ] until after consideration of extrinsic evidence to determine the parties' intent." (citation omitted)); Albany Sav. Bank, FSB v. Halpin , 117 F.3d 669, 674 (2d Cir. 1997) (New York applies the rule of contra proferentem " only as a matter of last resort after all aids to construction have been employed without a satisfactory result" and " the rule does not preclude the admission of parol evidence" (citation omitted)); see also U.S. Fire Ins., 949 F.2d at 574 (" Where . . . the justifications for applying [ contra proferentem ] seem to be lacking, and there exists ample extrinsic evidence, which, properly considered, clarifies the . . . ambiguity, we find that the district court erred in applying the doctrine of contra proferentem ." ).

III. Textual Analysis of Supplemental Indenture § 1.7(b)

Pursuant to this familiar analytic framework, the Court considers, first, the text of § 1.7(b)--viewed, of course, in conjunction with the surrounding language of the Supplemental Indenture and the terms of the Base Indenture. This Court has conducted this textual inquiry without regard to the extrinsic evidence of the parties' intent that was admitted at trial.

With equal certitude, Chesapeake and BNY Mellon each insist that its construction of § 1.7(b) based on its text is patently and obviously correct. A more detached assessment is that § 1.7(b) is a flawed and awkwardly drafted provision. As the Court recognized at the time that it addressed Chesapeake's motion for emergency relief, § 1.7 is a short but difficult document, and its text presents challenges for the construction advocated by each party.

However, the fact that the text of § 1.7(b) is challenging and imperfectly drafted does not necessarily mean that it is ambiguous. The test of ambiguity, as explained above, is instead whether there is a reasonable construction of the contract language that affords a definite and precise meaning, and no other reasonable construction. See, e.g., Law Debenture Trust , 595 F.3d at 467; Readco , 81 F.3d at 299; Mycak , 953 F.2d at 802.

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At the time the Court first considered § 1.7(b), its preliminary assessment was that both parties had offered reasonable alternative constructions as to the deadline for giving a notice of special early redemption. On that premise, the Court stated that its initial assessment was that § 1.7(b) was ambiguous as to that point.

Guided now by the parties' far more extensive briefing on the issue, and with the benefit now of time to apply thoughtfully the canons of contractual interpretation to § 1.7(b), the Court has assessed anew whether each party's construction of that provision is indeed reasonable. The Court's considered conclusion is that Chesapeake's construction is reasonable as to the operative deadline for giving notice, and that BNY Mellon's construction is not reasonable. Indeed, when evaluated in light of these canons, BNY Mellon's construction is tortured and incoherent. Accordingly, presented with a reasonable interpretation that affords a definite and precise meaning as to the notice deadline, and an alternative construction that is unreasonable, the Court holds that § 1.7(b) is not ambiguous. Chesapeake's construction is correct.

In conducting this review, the Court has been guided by the following tenets of contractual interpretation, used under New York law. These canons are commonly applied at this stage of the analysis:[14]

o An agreement is to be considered as a whole.

"The rules of contract interpretation . . . do not contemplate considering any provision of the contract in isolation 'but in the light of the obligation as a whole and the intention of the parties as manifested thereby.'" U.S. ex rel. Anti-Discrimination Ctr. of Metro N.Y., Inc. v. Westchester Cnty., No. 12-2047-cv, 712 F.3d 761, 2013 WL 1352537, at *3 (2d Cir. Apr. 5, 2013) (quoting JA Apparel Corp., 568 F.3d at 397); accord Kass v. Kass , 91 N.Y.2d 554, 566, 696 N.E.2d 174, 673 N.Y.S.2d 350 (1998).

o Specific language controls general language.

"[C]ourts construing contracts must give specific terms and exact terms . . . greater weight than general language." Cnty. of Suffolk v. Alcorn , 266 F.3d 131, 139 (2d Cir. 2001) (citation omitted); see also John Hancock Mut. Life Ins. Co. v. Carolina Power & Light Co., 717 F.2d 664, 669 n.8 (2d Cir. 1983) (" New York law recognizes that definitive, particularized contract language takes precedence over expressions of intent that are general, summary, or preliminary." ).

o Language is to be afforded its reasonable and ordinary meaning.

"[T]he 'words and phrases [in a contract] should be given their plain meaning.'" Olin Corp., 704 F.3d at 99 (second alteration in original) (quoting LaSalle Bank Nat'l Ass'n, 424 F.3d at 206). No ambiguity exists " where the interpretation urged by one party would 'strain[] the contract language beyond its reasonable and ordinary meaning.'" Law Debenture Trust , 595 F.3d at 467 (quoting Bethlehem Steel, 2 N.Y.2d at 459).

o A construction of a provision should not create internal inconsistencies.

In interpreting a contract, " [t]he entire

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contract must be considered, and all parts of it reconciled, if possible, in order to avoid an inconsistency." Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435, 439 (2d Cir. 1995) (citation omitted); accord Nat'l Conversion Corp. v. Cedar Bldg. Corp., 23 N.Y.2d 621, 625, 246 N.E.2d 351, 298 N.Y.S.2d 499 (1969) (" All parts of an agreement are to be reconciled, if possible, in order to avoid inconsistency." ).
o The construction should be commercially reasonable and not absurd.

"Unless otherwise indicated, words should be given the meanings ordinarily ascribed to them and absurd results should be avoided." Mastrovincenzo v. New York , 435 F.3d 78, 104 (2d Cir. 2006) (citation omitted); accord Bank Julius Baer & Co., Ltd. v. Waxfield Ltd., 424 F.3d 278, 283 (2d Cir. 2005) (" absurd results" are " forbidden by canons of construction" ). A court should not interpret a contract in a way that would be " commercially unreasonable, or contrary to the reasonable expectations of the parties." Samba Enters., LLC v. iMesh, Inc., No. 06 Civ. 7660 (DLC), 2009 WL 705537, at *5 (S.D.N.Y. Mar. 19, 2009) (quoting Lipper Holdings, LLC v. Trident Holdings, LLC , 1 A.D.3d 170, 171, 766 N.Y.S.2d 561 (1st Dep't 2003)), aff'd , 390 F. App'x 55 (2d Cir. 2010) (summary order); see also Newmont Mines Ltd. v. Hanover Ins. Co., 784 F.2d 127, 135 (2d Cir. 1986) (contracts should be examined " in light of the business purposes sought to be achieved by the parties" (citation omitted)).

o Language should not be rendered superfluous.

"An interpretation of a contract that has the effect of rendering at least one clause superfluous or meaningless . . . is not preferred and will be avoided if possible." LaSalle Bank Nat'l Ass'n , 424 F.3d at 206 (citation omitted); accord Lawyers' Fund for Client Prot. of State of N.Y. v. Bank Leumi Trust Co. of N.Y., 94 N.Y.2d 398, 404, 727 N.E.2d 563, 706 N.Y.S.2d 66 (2000) (interpretation that would render contractual provision superfluous is " unsupportable under standard principles of contract interpretation" ).

The Court's review of the text of § 1.7(b) in light of these principles properly begins with its second sentence. It is the one sentence specifically addressed to the issue in this case: the deadline for a notice of redemption. It reads:

The Company shall be permitted to exercise its option to redeem the Notes pursuant to this Section 1.7 so long as it gives the notice of redemption pursuant to Section 3.04 of the Base Indenture during the Special Early Redemption Period.

Supplemental Indenture § 1.7(b) (emphasis added). That sentence is the only part of § 1.7 to address the subject of notice. The word " notice" does not otherwise appear in the Supplemental Indenture.

Viewed within its four corners, the second sentence of § 1.7(b) unequivocally supports Chesapeake's position that it had until March 15, 2013, to give a notice of special early redemption, with the actual redemption (pursuant to § 3.04 of the Base Indenture) occurring between 30 and 60 days afterwards. That is because the preceding sentence of § 1.7(b) defines the " Special Early Redemption Period" as " any time from and including November 15, 2012 to and including March 15, 2013." Thus, the one sentence in § 1.7 that is specific to the central issue here--the deadline for giving notice of a special early

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redemption at par--when read in isolation is decisive as to that issue.

The cleanliness of this reading favoring Chesapeake is tarnished, however, when the focus broadens to consider other text within § 1.7(b) and § 1.7(c). That is because the initial sentences of both § 1.7(b) and § 1.7(c) use the verb " redeem" : Section 1.7(b) states that at any time during the Special Early Redemption Period, Chesapeake, " at its option, may redeem the Notes [at par]" ; and § 1.7(c) states that " [a]t any time after March 15, 2013 to the Maturity Date, [Chesapeake], at its option, may redeem the Notes [at the Make-Whole Price]." Supplemental Indenture § 1.7 (emphases added). Neither of these sentences is couched in terms of notice to redeem. And, as BNY Mellon has persuasively shown, " to redeem," as defined in dictionaries,[15] and as customarily used in the securities industry,[16] refers to an act . It ordinarily and customarily refers to the act of paying a noteholder in exchange for his or her note. It does not ordinarily or customarily refer to the act of giving notice of a redemption or to the overall redemption process.

Chesapeake's construction of § 1.7(b) thus necessarily requires one to construe the words " may redeem" --as used at the start of both § 1.7(b) and § 1.7(c)--to mean " may commence the redemption process." Without this uncommon construction of that phrase, Chesapeake's overall interpretation would be unsustainable. As to § 1.7(b), that is because, were " may redeem" assigned its customary meaning, the first sentence of § 1.7(b) would contemplate a redemption at par during the first 30 days of the Special Early Redemption Period, i.e., November 15 through December 14, 2012. That, however, is an impossible result given (1) the second sentence's mandate that notice of such a redemption first be given during the Special Early Redemption Period and (2) the requirement of Base Indenture § 3.04 that there be at least 30 days notice before a redemption. Similarly, as to § 1.7(c), if " may redeem" were assigned its customary meaning, any redemption that occurred after March 15, 2013, pursuant to the terms of § 1.7(c), could not be at par. It would have to be at the Make-Whole Price. But that, in turn, would contravene the second sentence of § 1.7(b), which permits a notice of Special Early Redemption to be made up until March 15, 2013, with redemption on such terms to follow (pursuant to Base Indenture § 3.04) between 30 and 60 days later.

Chesapeake's construction of " redeem" as used in ยง 1.7 is also inconsistent with the use of that term in the Base Indenture and the earlier supplemental indentures. Those documents all use that term in its customary sense, albeit in the course of describing redemption mechanics in general (the Base Indenture) or timetables or ...

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