OPINION ORDER

DENISE COTE, District Judge

In bringing this action, plaintiff Petrohawk Energy Corporation ("Petrohawk") seeks the return of $1.2 million that defendant Law Debenture Trust Company of New York ("Law Debenture"), acting as indenture trustee for certain noteholders, received from Petrohawk's paying agent, the Bank of New York Trust Company, N.A. ("Bank of New York"). This lawsuit follows on the heels of litigation between the parties in the Delaware Court of Chancery, where Law Debenture has sued Petrohawk and others over issues arising under an indenture. Law Debenture intends to use the $1.2 million to fund its Delaware action against Petrohawk.

Law Debenture has filed a motion to dismiss this action for lack of standing under Rule 12(b)(1), Fed.R.Civ.P., and for failure to state a claim under Rule 12(b)(6). For the following reasons, defendant's motion is granted.

Background

The following facts are undisputed or taken from the complaint. Pursuant to an April 1, 2004 indenture (the "Indenture"), KCS Energy, Inc. ("KCS") issued $275 million in aggregate principal amount of 7.125% Senior Notes due 2012 (the "Notes"). On July 12, 2006, KCS merged with and into Petrohawk, and Petrohawk assumed KCS's rights and obligations relating to the Notes and the Indenture. The Indenture named U.S. Bank National Association ("U.S. Bank") as Indenture Trustee and Bank of New York as the "Paying Agent." The Paying Agent's duties included its obligation to "hold in trust for the benefit of Holders or the Trustee all money held by such Paying Agent for the payment of principal, premium, if any, and interest (if any)" on the Notes.

On August 24, 2006, Petrohawk received a letter from an attorney at Dechert LLP, which is the law firm representing the defendant, purporting to represent certain "institutions which collectively hold in excess of fifty percent (50%) of the outstanding principal amount" of the Notes. The letter stated that U.S. Bank was removed as Indenture Trustee, and defendant Law Debenture was being appointed as successor Indenture Trustee in its place. Petrohawk advised Law Debenture by a September 1 letter that the purported removal of U.S. Bank was invalid and ineffective on its face. On September 14, Law Debenture commenced an action in the Delaware Court of Chancery against Petrohawk and certain present and former members of the board of directors of Petrohawk and KCS, alleging that following the merger, a "change of control" under the Indenture had occurred, triggering the Noteholders' redemption rights, and claiming breach of the Indenture and related causes of action. Among other things, the subject of the Delaware action includes the question of whether Law Debenture is a validly appointed Indenture Trustee.

On October 1, Petrohawk deposited with Bank of New York approximately $9.8 million, in accordance with the Paying Agent Agreement between Petrohawk and Bank of New York, for the sole and exclusive purpose that such funds be held in trust and disbursed to Noteholders in satisfaction of Petrohawk's semiannual interest obligation. Petrohawk was obligated to deposit "by 11:00 a.m. on or prior to the due date . . . a sum in same day funds sufficient to pay the principal of, premium, if any, or interest so becoming due," with such funds being "considered paid on the date due if on such date the Paying Agent holds in accordance with this Indenture money sufficient to pay."

In order to fund the Delaware litigation, Law Debenture obtained $1.2 million of the deposited funds from Bank of New York. Law Debenture informed Petrohawk of this transfer through an October 6 letter. Petrohawk complains that the Indenture "does not authorize the advancement of a seven-figure war chest for Defendant to conduct litigation against Petrohawk."

Petrohawk filed this complaint on October 13, 2006, seeking relief for conversion, tortious interference, and constructive trust. Petrohawk seeks an order compelling Law Debenture to return the funds that were wrongfully appropriated, restitution and disgorgement of the funds, imposition of a constructive trust and/or equitable lien on the funds, damages for injury to business reputation, punitive damages, interest, and attorneys' fees and costs. Law Debenture filed this motion to dismiss, claiming that Petrohawk lacks Article III standing under Rule 12(b)(1) and that it has failed to state a claim upon which relief may be granted, under Rule 12(b)(6).

Discussion

Under the pleading standard set forth in Rule 8(a) of the Federal Rules of Civil Procedure, a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). "[A] plaintiff is required only to give a defendant fair notice of what the claim is and the grounds upon which it rests." Leibowitz v. Cornell Univ., 445 F.3d 586, 591 (2d Cir. 2006). Article III standing is properly challenged through a motion to dismiss under Rule 12(b)(1). Alliance for Envtl. Renewal, Inc. v. Pyramid Crossgates Co., 436 F.3d 82, 88 n. 6 (2d Cir. 2006). A district court must generally establish that the plaintiff has Article III standing first, before deciding a case on the merits, such as on a Rule 12(b)(6) motion to dismiss. See id. at 85 (citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 101 (1998)).

A. Article III Standing

Law Debenture claims Petrohawk lacks Article III standing. Standing is challenged on the basis of the pleadings, and thus the court accepts as true "all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Bldg. Constr. Trades Council v. Downtown Dev., Inc., 448 F.3d 138, 144 (2d Cir. 2006). "Under Article III of the Constitution, it is 'axiomatic' that a federal court may not exercise jurisdiction over a dispute unless the plaintiff shows 'that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant.'" Jones v. Unum Life Ins. Co. of Am., 223 F.3d 130, 141 (2d Cir. 2000) (citing Blum v. Yaretsky, 457 U.S. 991, 999 (1982)). "To meet the Article III standing requirement, a plaintiff must have suffered an 'injury in fact' that is 'distinct and palpable'; the injury must be fairly traceable to the challenged action; and the injury must be likely redressable by a favorable decision." Denney v. Deutsche Bank AG, 443 F.3d 253, 263 (2d Cir. 2006) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). "An injury-in-fact must be 'distinct and palpable,' as opposed to 'abstract,' and the harm must be 'actual or imminent,' not 'conjectural or hypothetical.'" Id. at 264 (citing Whitmore v. Arkansas, 495 U.S. 149, 155-56 (1990)).

Petrohawk claims it has Article III standing because Law Debenture diverted funds that Petrohawk had provided for the benefit of its Noteholders. According to Petrohawk, the Noteholders retain their right to receive those funds, and Petrohawk has an ongoing obligation to provide those funds. The injury-in-fact that Petrohawk identifies is its potential liability to the Noteholders for the diverted funds.

Petrohawk has a "financial stake in the funds because they had a liability" to the Noteholders "in an amount equal" to the diverted funds. United States v. Cambio Exacto, S.A., 166 F.3d 522, 528 (2d Cir. 1999). "Those liabilities exposed them to substantial economic loss," which is "plainly the type of injury for which parties may seek redress in federal court." Id. Petrohawk has pleaded that it suffered a distinct, actual, and particularized injury when Law Debenture diverted funds Petrohawk had supplied for the purpose of discharging Petrohawk's payment obligation.

Law Debenture argues that Petrohawk lacks Article III standing because Petrohawk does not own the diverted funds and does not have an ongoing obligation to the Noteholders for those funds. Law Debenture's argument impermissibly "conflate[s] the threshold question of [Petrohawk's] standing under Article III . . . with the question of whether [Petrohawk] has a valid claim on the merits. The two questions, however, are distinct."Lerman v. Bd. of Elections, 232 F.3d 135, 143 n. 9 (2d Cir. 2000). "[A]n injury-in-fact need not be capable of sustaining a valid cause of action under applicable law." Denney, 443 F.3d at 264. Petrohawk's claim over the funds is precisely what is at dispute in this case, and determination of that question is a determination of the merits of this case. Whether Petrohawk's injury-in-fact rises to the level of a valid cause of action for conversion, tortious interference, or constructive trust is a question better considered in the context of Law Debenture's motion to dismiss under Rule 12(b)(6) for failure to state a claim.

B. Failure to State a Claim

When considering a motion to dismiss under Rule 12(b)(6), a trial court "must accept as true all the factual allegations in the complaint and draw all reasonable inferences in plaintiffs' favor." In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 200 (2d Cir. 2006) (citation omitted). It may "dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations" set forth therein. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002) (citation omitted); see also Twombly v. Bell Atl. Corp., 425 F.3d 99, 106 (2d Cir. 2005). At the same time, "conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to defeat a motion to dismiss." Actman v. Kirby, McInerney Squire, LLP, 464 F.3d 328, 337 (2d Cir. 2006). Although the focus should be on the pleadings, a court may also consider any written instrument attached to the complaint as an exhibit, "or any statements or documents incorporated in it by reference." Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000) (citation omitted); see also Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991).

All parties have relied on New York law to defend their claims in this diversity action. The parties having consented to the application of forum law, that consent is sufficient to end the choice of law inquiry. 3Com Corp. v. Banco do Brasil, S.A., 171 F.3d 739, 743 (2d Cir. 1999).

1. Conversion

Petrohawk first brings a claim against Law Debenture for conversion, claiming that Law Debenture was engaged in "an unauthorized and wrongful exercise of dominion" over the $1.2 million which Petrohawk had "ownership, possession, and/or control of" through its agent, Bank of New York. Law Debenture argues that Petrohawk does not, as a matter of law, have ownership, possession, or control of the Bank of New York funds.

Under New York law, "conversion is the unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights." Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 403-04 (2d Cir. 2006) (citation omitted). An essential element of conversion is "legal ownership or an immediate superior right of possession to a specific identifiable thing" by the plaintiff. Castaldi v. 39 Winfield Assoc., 820 N.Y.S.2d 279, 279 (App.Div. 2006) (citation omitted). The plaintiff must have "ownership, possession, or control." Id. at 280. When the determination of ownership turns on interpretation of provisions of an unambiguous contract, "the effect of those terms on ownership is strictly a question of law." New Windsor Volunteer Ambulance Corps, Inc. v. Meyers, 442 F.3d 101, 111 (2d Cir. 2006).

The Indenture and the Paying Agent Agreement govern the status of the funds in this case. Petrohawk was required, "on or prior to the due date of the principal of or premium, if any, or interest on any Securities," to deposit with Bank of New York, the Paying Agent, "a sum in same day funds sufficient" to pay the amount due. Such amounts were "considered paid on the date due if on such date the Paying Agent holds in accordance with this Indenture money sufficient to pay" all amounts due. The Paying Agent would hold the funds "in trust for the benefit of Holders or the Trustee." The right of a Noteholder to receive payment for principal, premium, or interest, however, "shall not be impaired or affected without the consent of such Holder." After payment of all obligations, the Trustee and the Paying Agent were required to return to Petrohawk any excess money upon request.

The language of the Indenture dictates that the funds be held "in trust." Moreover, funds held by a trustee or paying agent for the purpose of paying principal or interest to noteholders "obtain the character of trust funds." Am. Bar Found.,Commentaries on Indentures 318 (1986) [hereinafter "ABF Commentaries"]; see also People v. City Bank of Rochester, 96 N.Y. 32, 36 (1884); Finn v. Dillon, 287 N.Y.S. 858, 860 (City Ct. 1936). Once the funds were deposited to be held in trust for the purpose of paying the Noteholders, Petrohawk no longer had control over the funds. See, e.g., Steel Cities Chem. Co. v. Va.-Carolina Chem. Co., 7 F.2d 280, 283 (2d Cir. 1925); Rogers Locomotive Mach. Works v. Kelley, 88 N.Y. 234, 238-39 (1882);Brown v. J.P. Morgan Co., 40 N.Y.S.2d 229, 233 (App.Div. 1943). Even when there has been insufficient evidence of the existence of a trust, courts have observed that where a trust exists, depositors lose control over deposited funds. See, e.g., In re Interborough Consol. Corp., 288 F. 334, 347 (2d Cir. 1923); Ehag Eisenbahnwerte Holding Aktiengesellschaft v. Banca Nationala A Romaniei, 117 N.E.2d 346, 350 (N.Y. 1954).

Petrohawk claims that the cases cited here are inapposite because they arise in the context of attachment. It is unclear why the heightened standard of attachment should matter, where the ultimate issue is the question of ownership. What is important is whether there was an unambiguous intention to create a trust in the underlying Indenture. See, e.g., In re Nat'l Public Serv. Corp., 3 F. Supp. 262, 264 (S.D.N.Y. 1933); Sinclair Cuba Oil Co., S.A. v. Menati Sugar Co., 2 F. Supp. 240, 241 (S.D.N.Y. 1932); see also 5A William F. Fratcher, Scott on Trusts § 531.1, at 23, 25-26 [hereinafter "Scott on Trusts"]. The language of the Indenture shows a clear intent to place the funds in a trust and have the funds applied to the specific purpose of making interest payments to Noteholders. Despite Petrohawk's conclusory claims of ownership, once it deposited the funds with Bank of New York, it relinquished control over the funds and cannot claim ownership of the funds.

Petrohawk claims that despite the trust character of the funds, it still has an interest in the deposited funds because it continues to be obligated to the Noteholders for the interest payment, for which the funds were originally intended. For support, Petrohawk points to Indenture Section 6.7, mandated by Section 316(b) of the Trust Indenture Act of 1939, 15 U.S.C. § 77ppp(b), that provides that the "right of any Holder to receive payment . . . shall not be impaired or affected without the consent of such Holder." The statutory provision, however, was enacted to proscribe "so-called 'majority action clauses' in indentures" by prohibiting "use of an indenture that permits modification by majority securityholder vote of any core term of the indenture," such as the holder's right to receive payment of principal or interest. UPIC Co. v. Kinder-Care Learning Ctrs., Inc., 793 F. Supp. 448, 452 (S.D.N.Y. 1992). The rights of Noteholders to bring an action to enforce payment generally, as is guaranteed by Indenture Section 6.7, is irrelevant to the specific circumstance here where the Noteholders' trustee is alleged to have diverted the funds already paid by the company.

Petrohawk also points to Section 8.4 of the Indenture, which provides for return of unclaimed funds to Petrohawk, as showing its ongoing interest. Similar clauses returning unexpended funds to the issuer, however, have been deemed consistent with an intent to create a trust under the Indenture. See, e.g., Steel Cities Chem., 7 F.2d at 282-83; Rogers Locomotive, 88 N.Y. at 239. The right to unclaimed funds does not presently confer upon Petrohawk ownership of or control over the funds at issue here.

The parties dispute whether deposit of funds to a paying agent or trustee discharges the obligations of an issuer, and there was much litigation during the Depression over this question. ABF Commentaries 320-21; see also Scott on Trusts § 531.1. Petrohawk points out that the Model Provisions of the ABF Commentaries has the issuer bear "the risk of failure of any of its depositaries." ABF Commentaries 321. Law Debenture counters that Section 4.1 of the Indenture — which states that amounts "shall be considered paid" on the date the Paying Agent holds such amount — is not found in the Model Provisions and establishes that when funds are deposited with the Paying Agent, the issuer is "considered to have honored its obligation . . . and those Securities cease to be outstanding." Am. Bar Assoc., Revised Model Simplified Indenture, 55 Bus. Law. 1115, 1183-84 (2000).

If it were necessary to reach this issue, it is unlikely to assist Petrohawk given the formulation adopted in Section 4.1 of the Indenture. But, the situation here is not remotely similar to that envisioned by this portion of the Model Provisions in the ABF Commentaries. This is not a situation where a depositary has failed, and the Noteholders are seeking relief from the issuer. In fact, this is a case where the purported trustee for the Noteholders themselves, with their consent, diverted funds held in trust for those Noteholders. Should the Noteholders ever seek to recover those diverted funds, the action lies against the trustee, not Petrohawk. Where the Noteholders have no claim against Petrohawk, there is no obligation by Petrohawk which can support an allegation of "ownership, possession, or control" sufficient to state a claim for conversion.

2. Tortious Interference

Petrohawk also claims that Law Debenture tortiously interfered with the Paying Agent Agreement between Petrohawk and Bank of New York by intentionally inducing Bank of New York to pay to Law Debenture the funds it held in trust for the Noteholders. Law Debenture argues that there can be no claim for tortious interference because Petrohawk cannot identify any injury.

"To establish tortious interference, a plaintiff must show (1) the existence of a valid contract between plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional procuring of the breach, and (4) damages." White Plains Coat Apron Co. v. Cintas Corp., 460 F.3d 281, 285 (2d Cir. 2006) (citation omitted). The cause of action for tortious interference of a contract does not arise "until actual damages are sustained," and "nominal damages associated with the underlying breach of contract will not stand in the stead of actual damages." Kronos, Inc. v. AVX Corp., 612 N.E.2d 289, 294 (N.Y. 1993).

Petrohawk has not alleged any actual damages arising from the alleged tortious interference. For the reasons stated in discussing Petrohawk's conversion claim, as a matter of law Petrohawk does not have ownership of the funds, nor does it have any continuing obligation to the Noteholders from paid funds. Bank of New York's alleged breach of the Paying Agent Agreement caused no injury to Petrohawk because it no longer had any control of the funds. The Noteholders' relief lies with its purported trustee Law Debenture or potentially the Bank of New York, but not with Petrohawk.

3. Constructive Trust

Lastly, Petrohawk claims that a constructive trust should be imposed in favor of Petrohawk to prevent unjust enrichment by Law Debenture. "New York law generally requires four elements for a constructive trust: (1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer of the subjectres made in reliance on that promise; and (4) unjust enrichment."In re First Cent. Fin. Corp., 377 F.3d 209, 212 (2d Cir. 2004) (citation omitted). New York law, however, does "not insist that a constructive trust must fit within [this] framework." Counihan v. Allstate Ins. Co., 194 F.3d 357, 362 (2d Cir. 1999). While the factors serve as "important guideposts," the constructive trust doctrine is equitable in nature and should not be "rigidly limited." Id. (citation omitted). Of the four factors, "[t]he fourth element is the most important since the purpose of the constructive trust is prevention of unjust enrichment." In re First Cent. Fin., 377 F.3d at 212 (citation omitted). A cause of action for unjust enrichment requires a claim that "(1) the defendant was enriched, (2) at the expense of the plaintiff, and (3) that it would be inequitable to permit the defendant to retain that which is claimed by the plaintiff." Clifford R. Gray, Inc. v. LeChase Constr. Servs., LLC, 819 N.Y.S.2d 182, 187 (App.Div. 2006). "[T]he existence of a written agreement," however, "precludes a finding of unjust enrichment." In re First Cent. Fin., 377 F.3d at 213.

As Law Debenture points out, and Petrohawk does not dispute, Petrohawk has pleaded none of the first three elements of a constructive trust claim. In addition, Petrohawk cannot assert the fourth element for unjust enrichment either, because the element requires the defendant's enrichment to be at the expense of the plaintiff. As discussed above in considering Petrohawk's conversion and tortious interference claims, Petrohawk has no ownership interest or other ongoing obligation with regard to the diverted funds. Where the funds are no longer connected to Petrohawk, Law Debenture's acquisition of those funds cannot be said to have been at the expense of Petrohawk. Equally important, there are valid contracts governing the relationship between Petrohawk and Law Debenture — the Indenture and the Paying Agent Agreement — which together cover all of the transactions between Petrohawk, Law Debenture, Bank of New York, and the Noteholders.

Petrohawk cites to In re Estate of Cohen, 629 N.E.2d 1356 (N.Y. 1994), and Markwica v. Davis, 472 N.Y.S.2d 510 (App.Div. 1984), to argue that constructive trusts have been imposed even where a contract governs the subject matter. Such cases, however, involving "willful breaches of family obligations arising from matrimonial relationships" (such as the mutual wills in In re Estate of Cohen) or "separation agreements and divorce decrees" (such as the separation agreement naming life insurance beneficiaries in Markwica) are distinguishable. In re First Cent. Fin., 377 F.3d at 215. In this complex commercial dispute between sophisticated financial entities, a constructive trust does not lie.

Conclusion

Defendant's motion to dismiss for failure to state a claim is granted, and the complaint is dismissed. The Clerk of Court is directed to enter judgment for the defendant and to close the case.

SO ORDERED: