Shearman & Sterling achieved an appellate victory for Catholic Health East (“CHE”), a multi-institutional health system consisting of a network of not-for-profit health care facilities, when the First Department unanimously affirmed the lower court’s dismissal of claims against CHE based on a municipal bond transaction.
This litigation began in May 2011 when the plaintiffs-bondholders sought to enjoin a tender offer for, and the redemption of, municipal bonds. The preliminary injunction motion was denied and the transactions closed as scheduled. The plaintiffs continued to pursue a claim for damages for wrongful redemption. In September 2012, New York Supreme Court Justice Shirley Werner Kornreich dismissed the action, holding that the plaintiffs lacked standing based on their failure to comply with the no-action clauses. The plaintiffs appealed this decision, asserting that the no-action clauses did not apply to them as former bondholders and, even if they did, the “principal-and-interest” exception applied to their claim.
The First Department disagreed with plaintiffs’ assertions and issued an order unanimously affirming the lower court’s dismissal, holding that no-action clauses apply to former bondholders as well as current bondholders, and that the principal-and-interest exceptions did not apply.