Wednesday, December 03, 2008

Indenture Did Not Require Timely SEC Filing

By Rodney Tonkovic
Associate Writer-Analyst
CCH Federal Securities Law Reporter

In a case of first impression, an Eighth Circuit panel affirmed a district court judgment that a company had no obligation under an indenture to file timely reports with the SEC. The indenture provided that the company file with the indenture trustee copies of periodic reports within fifteen days after they were filed with the SEC. The company, however, had come under scrutiny for its involvement in backdating employee stock options and filed a notice with the SEC stating that it would delay filing reports for certain quarters.

When the company eventually filed its reports, it then delivered copies to the trustee within the required fifteen days. The company had asked for a declaratory judgment that it was not in default, while the trustee claimed that the failure to timely file with the SEC breached the indenture agreement. The district court (District of Minnesota) granted summary judgment in favor of the company, finding that the agreement only required that the trustee be provided with copies of the reports required by the Exchange Act, and that there was no obligation to timely file.

On appeal, the trustee argued that the district court erroneously construed the contractual and statutory duties imposed by the indenture agreement, specifically that the language of the indenture imposed an independent obligation to file timely SEC reports. The panel found that the language of the agreement imposed no independent obligation to timely file. According to the plain language of the agreement, stated the panel, it was the Exchange Act, and not the terms of the indenture that compelled the company to produce a particular report. The agreement only established when the reports should have been forwarded to the trustee, and references to the Exchange Act merely identified which reports were to have been forwarded. The panel pointed out that the parties or their attorneys could have specified a timetable, but they did not do so.

The panel similarly disagreed with the trustee's argument that the Trust Indenture Act requires an issuer to make timely SEC filings. According to the panel, Section 314 of the Act requires only that a trustee be provided with copies of SEC filings and does not provide an independent obligation for an indenture obligor to timely file reports. Since the required reports were eventually filed and promptly forwarded to the trustee, the panel found no violation of the TIA.

The panel affirmed the district court and summed up by stating that the company was "indisputably delinquent," but "whatever duties [the company] might have neglected were imposed by the SEC and the Exchange Act and not by the indenture or the TIA." The company was only obliged to forward copies of SEC reports within fifteen days of filings, and it "met all of its contractual and statutory duties."

UnitedHealth Group Inc. v. Wilmington Trust Co.
[Note: The link takes you to the general opinions page]