Metropolitan Life Insurance Co. v. RJR Nabisco
(S.D.N.Y. 1989) (note approaches taken in implying covenant of good faith and granting equitable relief).
FACTS
-Ps, bondholders, allege breach of good faith and fair dealing by failing to maintain its good credit rating. -Indentures explicitly stated that they did not limit additional incurrence of debt. At best, a small number of the debentures included restrictive covenants which were bargained away by Ps.
-Additional docs show Metlife was aware of covenants restricting S/H payouts and knew risks, even, that it had been burned in past by LBOs where debentures didn’t include them.
Holding: (1) Covenant to restrict add’l debt cannot be implied because:
(a) Action did not cause D to be unable to perform express guarantee.
(b) Fruits of K (regular pmt. of interest) were not spoiled. Adhesion K tends to favor Ps.
(c) Other factors include: Fact that investors had included these provisions in other bonds, through negotiation, and didn’t here (sophistication) AND market probably priced in LBO risk.
(2) Relief cannot be granted on equitable basis because:
(a) No unjust enrichment since no contract violation.
(b) No frustration of purpose since no evidence that preventing additional debt was principal purpose of debenture.
(c) No FD to creditors.
(S.D.N.Y. 1989) (note approaches taken in implying covenant of good faith and granting equitable relief).
FACTS
-Ps, bondholders, allege breach of good faith and fair dealing by failing to maintain its good credit rating. -Indentures explicitly stated that they did not limit additional incurrence of debt. At best, a small number of the debentures included restrictive covenants which were bargained away by Ps.
-Additional docs show Metlife was aware of covenants restricting S/H payouts and knew risks, even, that it had been burned in past by LBOs where debentures didn’t include them.
Holding: (1) Covenant to restrict add’l debt cannot be implied because:
(a) Action did not cause D to be unable to perform express guarantee.
(b) Fruits of K (regular pmt. of interest) were not spoiled. Adhesion K tends to favor Ps.
(c) Other factors include: Fact that investors had included these provisions in other bonds, through negotiation, and didn’t here (sophistication) AND market probably priced in LBO risk.
(2) Relief cannot be granted on equitable basis because:
(a) No unjust enrichment since no contract violation.
(b) No frustration of purpose since no evidence that preventing additional debt was principal purpose of debenture.
(c) No FD to creditors.
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