Tang Capital Partners L.P. v. Norton, C.A. No. 7476-VCG. 

Issue:

Can a noteholder buying its note subject to an indenture be held to have waived (or be contractually estopped from asserting) its statutory right to seek appointment of a receiver for its debtor, if the indenture so provides? 

Short Answer:  Yes. 

Overview:

Plaintiffs are holders of Savient Pharmaceuticals, Inc. convertible senior notes, which were unsecured and subject to the terms of the indenture.  Savient’s board approved a financing transaction that would exchange some of Savient’s existing unsecured notes for new senior notes with a later maturity date.  As a result of that board approval, plaintiffs filed suit seeking, among other things, the appointment of a receiver under Section 291 of the DGCL to manage the company’s affairs because plaintiffs alleged it was insolvent.  Defendants moved to dismiss the receivership claim for a lack of standing based on the argument that plaintiffs had not met the pre-suit requirement of the no-action clause of the Indenture. 

The Indenture contained language that, subject to certain exceptions, precluded noteholders from bringing suit against the company for, among other things, the appointment of a receiver.  Plaintiffs argued that there was an exception if there was written notice of an event of default.  The parties agreed that New York law applied in interpreting the Indenture, however, the Court stated that principles of contract interpretation under New York law do not differ materially from those under Delaware law with respect to the Indenture at issue here.  The Court noted that it had previously interpreted a no-action clause with nearly identical language in Elliott Associates, L.P. v. Bro-Response, Inc., (Del. Ch., 1989 WL 55070) and found that it encompassed statutory receivership actions.  Following that precedent, the Court dismissed the claim regarding a receivership, and granted summary judgment on the issue of whether an event of default had occurred.