On June 10, 2014, the New York Court of Appeals, in Quadrant Structured Products Co., Ltd. v. Vertin, held that a so-called "no-action" clause in an asset-backed securities (ABS) trust indenture that barred ABS noteholders from bringing claims arising under the indenture but which did not specifically refer to claims arising under the notes issued did not bar the noteholders from bringing claims against the issuer and its affiliates in connection with the transaction ().

Quadrant Structured Products Company, Ltd. (Quadrant) owned certain ABS issued by Althion Capital Corp. (Althion). Althion became insolvent and was acquired in 2010 by EBF & Associates, LP (EBF) which took control of the board of Althion. In October 2011, Quadrant sued Althion and its officers and directors, as well as EBF and one of its affiliates (collectively, defendants), asserting claims of breach of fiduciary duty in connection with the transaction and sought damages and injunctive relief. Defendants also asserted fraudulent transfer claims against EBF and one of its affiliates. Defendants moved to dismiss, claiming that Quadrant's claims were barred by a no-action clause contained in the trust indenture governing the notes.

Defendants cited two cases, Feldbaum v. McCrory Corp. () and Lange v. Citibank, N.A. (), in which the Delaware Court of Chancery relied on New York law in dismissing plaintiffs' claims based on a similar no-action clause. The Delaware Court of Chancery relied on these cases and dismissed Quadrant's complaint. On appeal to the Delaware Supreme Court, Quadrant distinguished the no-action clauses in Feldbaum and Lange from the one in this case, noting that the Althion no-action clause applied to contractual claims arising under the indenture whereas the other two no-action clauses specifically referenced claims arising under both the trust indenture and the securities. The Delaware Supreme Court remanded the case back to the Court of Chancery and the Court of Chancery complied by issuing a Report on Remand in which it concluded that the no-action clause applied only to contractual claims arising under the indenture and therefore the majority of Quadrant's claims in connection with the transaction were not barred under the no-action clause. Upon receipt of the report, the Delaware Supreme Court certified the following issues to the New York Court of Appeals to decide whether:

The New York Court of Appeals rejected the defendants' argument that, under New York law, the intent of the parties was to bar all legal action by individual noteholders. The New York Court of Appeals concluded that "the clear and unambiguous text of this no-action clause, with its specific references to [sic] indenture, on its face limits the clause to the contract rights recognized by the indenture agreement itself." Since the no-action clause made no mention of individual suits relating to the securities, the no-action clause did not preclude enforcement of the noteholders' independent common law or statutory rights under the notes.

This case provides a reminder to practitioners to always draft no-action clauses thoroughly and broadly, with due care, to provide clients with sufficient protection.