Opinion
23Civ.6787 (PAE)
08-02-2024
WILMINGTON SAVINGS FUND SOCIETY, FSB, solely in its capacity as successor Trustee of the 2.45% Notes due 2031 and 3.00% Notes due 2041 issued by Canadian Pacific Railway Company, Plaintiff, v. CANADIAN PACIFIC RAILWAY LIMITED, et al, Defendants.
OPINION & ORDER
PAUL A. ENGELMAYER, DISTRICT JUDGE
This case involves breach of contract claims by investors seeking to redeem $2.4 billion in corporate debt notes in which they had invested to help fund a then-pending railroad merger. The merger came to fruition. But it obtained the required regulatory approval from federal railroad authorities about one month later than anticipated at the time the notes issued. The investors now seek to take advantage of an early redemption provision in an indenture governing the notes. They claim that provision required the issuer, in these circumstances, to redeem the notes early. Hundreds of millions of dollars turn on this dispute, because the notes, which come due in 2031 and 2041, carry fixed interest rates that, although attractive when issued, are far lower than those prevailing today.
The plaintiff here, Wilmington Savings Fund Society, FSB ("WSFS"), is the successor Trustee of the notes in question: 2.45% notes due in 2031 and 3.00% notes due in 2041 (the "Notes"). These were issued pursuant to a Fifth Supplemental Indenture (the "Supplemental Indenture"). On behalf of the Notes' holders, WSFS sues Canadian Pacific Railway Limited ("CPRL"), the guarantor of the Notes; Canadian Pacific Kansas City Limited ("CPKC"), the successor-in-interest to CPRL; and Canadian Pacific Railway Company ("Canadian Pacific"), the issuer of the Notes. Canadian Pacific, a railroad company, had issued the Notes to help finance its acquisition of Kansas City Southern railway ("KCS"). The Supplemental Indenture included a Special Mandatory Redemption provision. It provided that if Canadian Pacific reasonably determined that it had not received or would not receive final regulatory approval of the acquisition by the United States Surface Transportation Board (the "STB") by March 25, 2023, Canadian Pacific was to redeem the outstanding 2031 and 2041 Notes on specified terms. In this breach of contract action, WSFS claims that Canadian Pacific did not obtain "STB Final Approval"-the critical defined term in the indenture-by March 25, 2023. It argues that the Special Mandatory Redemption provision was triggered, and that Canadian Pacific breached it by not redeeming the Notes. It seeks monetary and declaratory relief and specific performance.
Defendants (to whom the Court collectively refers as "Canadian Pacific") have moved to dismiss WSFS's Amended Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the Court grants the motion to dismiss.
The following facts are drawn from the Amended Complaint, Dkt. 36 ("AC"), and the contracts, agreements, and documents incorporated by reference into or integral to it. These are the Original Indenture, Dkt. 36, Ex. 1 ("Orig. Indenture"); the Supplemental Indenture, id., Ex. 2 ("Supp. Indenture''); the Voting Trust Agreement, id., Ex. 3 ("VTA"); and CPRL's Form F-4 Registration Statement, Dkt. 26 ("Burke Deel."), Ex. 2 ("03/20/2023 Form F-4"). For purposes of resolving the motion to dismiss, the Court assumes all well-pled facts to be true and draws all reasonable inferences in favor of the plaintiff. See Koch v. Christi's Int'/ PLC, 699 F.3d 141, 145 (2d Cir. 2012).
A. The Parties
WSFS is a federal savings bank organized under United States law, with its principal place of business in Wilmington, Delaware. Dkt 36 ("AC") ¶ 10. It is the successor Trustee under the Supplemental Indenture for the 2031 and 2041 Notes.
Canadian Pacific originally entered into the Supplemental Indenture with Computershare Trust Company, N.A., as trustee. Id. ¶ 19. On August 2, 2023, and May 17, 2024, WSFS became the successor Trustee. Dkt. 36 ("AC") ¶ 58.
Canadian Pacific is a corporation organized under Canadian law, with its principal place of business in Calgary, Alberta, Id., ¶ 12, It is a Canadian-based railroad company, providing rail and intermodal freight transportation services over a 13,000-mile network across North America. Id. It is one of the largest railroads in North America, and one of seven designated as a Class I railroad. Id. ¶ 17.
CPRL is a holding company organized under Canadian law, with its principal place of business in Calgary, Alberta. Id. ¶ 11. It is a publicly traded corporation that trades on the Toronto and New York Stock Exchanges. Id. CPRL's subsidiaries operate railways across North America, Canadian Pacific is CPRL's wholly owned subsidiary. Id.¶12.
CPKC is the successor-in-interest to CPRL. Id. ¶ 13, It is a holding company organized under Canadian law, with its principal place of business in Calgary, Alberta. Id.
B. September 2021: Canadian Pacific's Agreement to Acquire KCS and the Condition of Regulatory Approval by the STB
On September 15, 2021, Canadian Pacific announced an agreement (the "Merger Agreement") to acquire KCS railway for approximately $31 billion in cash and stock, including the assumption of $3.8 billion of KCS's outstanding debt. Id. ¶ 29.
The AC interchangeably refers to the proposed transactions as a merger and an acquisition.
The merger was subject to several conditions. Most relevant here was regulatory approval from the STB, the primary regulator of railroads in the United States. Id. ¶ 30. Federal law requires that the STB approve and authorize a railroad's acquisition of "control" over any other rail carrier. Id. ¶ 31 (citing 49 U.S.C. § 11323(a)). As a result, although Canadian Pacific and KCS had agreed to merge, Canadian Pacific could not exercise full "control" over KCS until it had obtained STB approval.
The Merger Agreement thus provided that the acquisition would proceed in two phases, Id. ¶ 30. In the first, KCS and CPRL shareholders were to vote on the Merger Agreement On December 8 and 10, 2021, CPRL and KCS shareholders approved the transaction, respectively. Id.¶ 33. After this approval, CPRL and KCS engaged in a series of transactions resulting in the merger of KCS into a wholly owned subsidiary of CPRL. Id.¶ 30.
The second phase covered the period until the STB's approval. Because federal law prohibited CPRL from exercising "control" over KCS before such approval, CPRL established an irrevocable voting trust into which it deposited its voting interest in KCS through the point of approval Id.¶ 31. An independent trustee was appointed to manage the trust, under a Voting Trust Agreement ("VTA"), attached to the Merger Agreement. Id. During this phase, KCS's day-to-day management and operations thus were not controlled by Canadian Pacific. Id. KCS's shareholders received their merger consideration upon establishment of the voting trust.
The Voting Trust Agreement provided that, if and when the STB allowed Canadian Pacific to take "control" of KCS, the voting trust would be immediately dissolved and voting power would then reside with CPRL via its ownership of the KCS subsidiary. To this end, the VTA provided;
In the event the STB Approval (as defined below) shall have been granted, then immediately upon the direction of Parent and the delivery of a certified copy of such order of the STB or other governmental authority with respect thereof, or, in the event that Subtitle IV of Title 49 of the United States Code, or other controlling law, is amended to allow Parent or its affiliates to acquire control of the Company without obtaining STB or other governmental approval, upon delivery of an opinion of independent counsel selected by the Trustee that no order of the STB or other governmental authority is required, the Trustee shall transfer to or upon the order of the registered holder(s) of Trust Certificates hereunder as then known to the Trustee, its right, title and interest in and to all of the Trust Stock then held by it in accordance with the terms, conditions and agreements of this Trust Agreement and not theretofore transferred by it as provided in subparagraph (a) hereof, and upon such transfer this Trust shall cease and come to an end.VTA § 9(b) (emphasis added). The VTA defined "STB Approval" as
the issuance by the STB of a decision, which decision shall become effective and which decision shall not have been stayed or enjoined, that (A) constitutes a final agency action approving, exempting or otherwise authorizing the acquisition of control over the Company's railroad operations by Parent and its affiliates, without the imposition of conditions that Parent, by written notice to the Trustee, has deemed to be unacceptable, and (B) does not require any change in the consideration paid or to be paid pursuant to the Merger Agreement or other material provisions thereof, or any change to the certificate of incorporation or by-laws of the Company, unless Parent, by written notice to the Trustee, has determined any such change to be acceptable to Parent,Id. § 9(h)(1).
The AC alleges that the content of the definition of STB approval in the Voting Trust Agreement is virtually identical to that in the Supplemental Indenture. AC ¶ 32.
However, the VTA provided, if the STB did not approve Canadian Pacific to take control of KCS by December 31, 2023, Canadian Pacific would be required to divest its economic ownership of KCS by selling its stake in the voting trust It provided, in relevant part:
In the event that there shall have been an STB Denial (as defined below), Parent shall use its reasonable best efforts to, directly or indirectly, (i) sell the Trust Stock to one or more eligible purchasers, or (ii) otherwise dispose of the Trust Stock, during a period of two years after such STB Denial or such extension of that period as the STB shall approve.Id. § 9(c). It defined "STB Denial" as
(A) STB Approval shall not have been obtained by December 31, 2023, or (B) the STB shall have, by an order which shall have become final and no longer subject to review by the courts, refused to approve the control referred to in clause (A) of the definition of STB Approval.Id. § 9(h)(ii).
C. The Indenture Terms Governing Canadian Pacific's Borrowing 36.7 Billion to Finance Its Acquisition of KCS
Contemporaneous with the execution of the Merger Agreement and the creation of the voting trust, Canadian Pacific borrowed $6.7 billion to help finance its proposed acquisition of KCS. It did so by issuing five series of notes. These carried maturity dates ranging from 2024 to 2051. Id. If 2. The five series of notes-two of which are at issue in this litigation-were governed by the terms of both a base indenture and note-specific borrowing terms.
1.The Original Indenture (dated September 11, 2015): General Borrowing Terms
A base indenture, entered into between Canadian Pacific and Wells Fargo Bank, N.A., ("Wells Fargo"), as indenture trustee, on September 11, 2015, set out general borrowing terms for Canadian Pacific's unsecured notes ("Original Indenture"). Id. ¶ 18; see Dkt. 36, Ex. 1 ("Orig. Indenture"). These terms applied to all five series of notes issued to finance the KCS acquisition. Section 8.01(7) of the Original Indenture provided that additional note-specific borrowing terms would be set forth in a supplemental indenture for particular series of notes at the time they issued. Section 8.01(7) provides, in relevant part:
SECTION 8.01 Supplemental Indentures Without Consent of Holders. Without the consent of the Holders of any series, the Corporation, when authorized by a
Directors' Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any one or more of the following purposes:
(7) to establish the form or forms and the terms of the Securities of any series as permitted by Sections 2.01 and 3.01 [.]Orig. Indenture § 8,01(7) (emphasis added).
2.The Supplemental Indenture (dated December 2, 2021) Governing the 2031 and 2041 Notes: Specific Borrowing Terms
On December 2, 2021, Canadian Pacific entered into a Supplemental Indenture with Computershare Trust Company, N.A. ("Computershare"), as trustee. Dkt 36, Ex, 2 ("Supp. Indenture"). The Supplemental Indenture provides that Canadian Pacific would be the issuer and CPRL the guarantor of a total of $6.7 billion of unsecured debt across five series of notes. The notes had the following principal amounts, interests, and maturities:
On or about November 1, 2021, Computershare acquired the assets of Wells Fargo's Corporate Trust Services group and became successor trustee under the Original Indenture, AC ¶ 19 n. 5.
| Maturity | Principal Amount (USD) | Interest Rate |
| 2024 | $1.5 billion | 1.35% |
| 2026 | $1.0 billion | 1.75% |
| 2031 | $1.4 billion | 2.45% |
| 2041 | $1.0 billion | 3.00% |
| 2051 | $1.8 billion | 3.10% |
Section 3,1 of the Supplemental Indenture, the key provision here, applies only to the 2031 and 2041 Notes. It contains a special mandatory redemption clause. It states:
3. REDEMPTION OF
3.1 Special Mandatory Redemption of 2031 Notes and 2041
In the event that the Issuer determines in its reasonable judgment that the STB Final Approval (as defined herein) will not be sought or has not or will not be received prior to March 25, 2023 (the "Special Mandatory Redemption Event"), the Issuer will redeem all outstanding 2031 and 2041 Notes (the "Special
Mandatory Redemption") at a redemption price equal to 101% of the principal amount of the applicable series of Notes, plus accrued and unpaid interest, if any, to, but excluding, the Special Mandatory Redemption Date (as defined herein).
If a Special Mandatory Redemption Event has occurred, the Issuer shall deliver notice of the occurrence of the Special Mandatory Redemption Event and that a Special Mandatory Redemption is to occur (the "Special Mandatory Redemption Notice") to the Trustee and mail by first class mail to each holder of the 2031 Notes and 2041 Notes at its registered address, or with respect to the Global Notes, to the extent permitted or required by applicable DTC procedures, send electronically, within five Business Days after the Special Mandatory Redemption Event. Upon the written request of the Issuer accompanied by an officers' certificate along with the form of Special Mandatory Redemption Notice, the Trustee shall give the Special Mandatory Redemption Notice in the Issuer's name and at the Issuer's expense. Such written request shall be received by the Trustee no later than three Business Days prior to when the Special Mandatory Redemption Notice is to be delivered to the holders of the 2031 Notes and 2041 Notes.
On such date specified in the Special Mandatory Redemption Notice as shall be no earlier than three Business Days and no later than 30 Business Days (or such other minimum period as may be required by DTC) after mailing or sending the Special Mandatory Redemption Notice, the Special Mandatory Redemption shall occur (the date of such redemption, the "Special Mandatory Redemption Date").Supp. Indenture § 3.1 (emphasis in original).
Section 3.1 thus triggers a "Special Mandatory Redemption" of these Notes if the issuer, Canadian Pacific, "determines in its reasonable judgment that the STB Final Approval (as defined herein) will not be sought or has not or will not be received prior to March 25, 2023." Id
Section 3.3 of the Supplemental Indenture, in turn, defines "STB Final Approval" as
a decision of the United States Surface Transportation Board, which shall become effective and which decision shall not have been stayed or enjoined, that constitutes a final agency action approving, exempting or otherwise authorizing the acquisition of control over Kansas City Southern's railroad operations by the Guarantor and its affiliates, without the imposition of conditions that the Guarantor in its sole discretion has deemed to be unacceptable.Supp. Indenture § 3.3.
In the event of a Special Mandatory Redemption Event, Canadian Pacific was required to repay the Notes early at a pre-specified discounted redemption price "equal to 101% of the principal amount" plus any accrued and unpaid interest. Id. § 3.1. The Special Mandatory Redemption provision thus gave Canadian Pacific the ability to reduce some of its merger-related debt if it "determine[d] in its reasonable judgment" that "STB Final Approval" would not be received by March 25, 2023, but also required Canadian Pacific to redeem the 2031 and 2041 Notes at a "redemption price equal to 101% of the principal amount.. . plus accrued and unpaid interest" if it reasonably made that determination. Id.
D. The STB Approval Process
On November 26, 2021, Canadian Pacific's application for STB approval was formally accepted for review with the STB's publication in the Federal Register of a Notice of Acceptance. AC ¶34.
1. The STB Review Process for the KCS Merger as Anticipated
The STB's review process for proposed mergers of Class I railroads is governed by statutory and regulatory frameworks. Id. If 24. The process of regulatory review is formally initiated by the publication of the Notice of Acceptance in the Federal Register, and consists of a series of timed procedural phases. As explained herein, based on the November 26, 2021 publication date, the regulatory review process as to the Canadian Pacific/KCS merger was initially anticipated to conclude by March 25, 2023.
Under 49 U.S.C. § 11325(b)(3), the STB was required to "conclude evidentiary proceedings by the end of 1 year after the date of publication of notice" in the Federal Register. Based on the publication notice date of November 26, 2021, the expected completion date for evidentiary proceedings was one year later, on November 25, 2022. Id. ¶ 24.
The STB was then required to "issue a final decision by the 90th day after the date on which it concludes the evidentiary proceedings." Id. A final STB decision was thus expected by February 23, 2023, i.e., 90 days after November 25, 2022. Id.
A final decision of the STB, however, does not take effect immediately upon issuance. The pertinent regulation, 49 C.F.R. § 1115.3(f), provides: "In all proceedings, the action, if not stayed, will become effective 30 days after it is served, unless the Board provides for the action to become effective at a different date."
As of the outset of regulatory review, the STB's final decision was thus expected to become effective by March 25, 2023, 30 days after February 23, 2023, when the STB's final decision was expected to issue, AC ¶ 24. The timeline illustrates the anticipated sequence of events:
(IMAGE OMITTED)
Id. ¶ 25.
When Canadian Pacific had issued the 2031 and 2041 Notes on December 2, 2021, the Notice of Acceptance had been issued days earlier, on November 26, 2021. Id. f 26. Canadian Pacific, and the other parties involved in the transaction, thus were in position to calculate the expected date of the STB's final decision (February 23, 2023) and the date that decision would "become effective" (March 25, 2023). Consistent with that calculation, the Special Mandatory Redemption provision of the Supplemental Indenture, Section 3.1, used March 25, 2023, as a benchmark date with respect to "STB Final Approval" Supp. Indenture § 3.1.
2. The STB Approval Process for the KCS Merger in Actuality
On November 26, 2021, Canadian Pacific's application was formally accepted for review with the publication in the Federal Register of a Notice of Acceptance. AC If 34. The Notice of Acceptance described the scope of the proposed merger and aspects of the STB's review process, including the need for an environmental analysis. It stated: "Due to the potentially significant impact that the Transaction may have on the environment and communities in the affected area, the Board will prepare a full Environmental Impact Statement (EIS)." Surface Transportation Board Notice, 86 Fed.Reg. 67,574 (Nov. 26, 2021). The Notice of Acceptance set out a Procedural Schedule, setting deadlines for submissions by proponents, opponents, and other interested parties, with final briefs due July 1, 2022. Id. at 67,578. It added that the STB would "decide whether to conduct a public hearing in a later decision after the record has been more fully developed." Id. at 67,578 n.13. However, the STB noted, the need for environmental review could affect the schedule and the STB's ability to meet the prescribed deadlines otherwise applicable to the merger review. The Notice explained:
49 U.S.C. [§] 11325(b)(3) provides that the Board must issue its final decision within 90 days of the close of the evidentiary record and that evidentiary proceedings be completed within one year of the date of publication of this notice in the Federal Register. However, under NEPA [the National Environmental Policy Act of 1969], the Board may not issue a final decision until after the required environmental review is complete. In the event the EIS process is not able to be concluded in sufficient time for the Board to meet the 90-day provision set forth in § 11325(b)(3), the Board will issue a final decision as soon as possible after that process is complete.Id. at 67,578 n.14. Accordingly, the Procedural Schedule that the STB attached to the Notice of Acceptance listed the "[s]ervice date of final decision" as "TBD." Id. at 67,578.
On March 16, 2022, the STB determined that Canadian Pacific's application contained a deficiency. AC ¶ 35. It issued a decision identifying an "apparent inconsistency" between the required railway traffic density data Canadian Pacific had submitted as "Exhibit 14" in support. of its application, and the railway traffic density data Canadian Pacific had separately submitted to the STB's Office of Environmental Analysis ("OEA") before submitting its merger application. See Canadian Pac. Ry.-Control-Kan. City &, STB Docket No, FD 36500, Decision No. 16 (STB served Mar. 16, 2022). The STB directed Canadian Pacific to
explain further this apparent inconsistency between the 2019 baseline GT/M data in Exhibit 14 and the 2019 baseline GT/M data submitted to OEA, and to indicate which 2019 baseline data should be used in analyzing the environmental and transportation impacts of the Transaction, and the reasons why that data should be used. Should Applicants conclude that they wish to supplement or amend Exhibit 14, Applicants shall indicate what, if any, other data or information in the Application should be revised accordingly, and any necessary changes to the procedural schedule, Other parties will have the opportunity to respond.See id, at 3. The STB directed Canadian Pacific to file its submission by March 21, 2022, with any responses due five days after Canadian Pacific's submission. Id. The STB stated that "[t]he procedural schedule in this proceeding is suspended until further order by the Board." Id. at 4. In its ensuing submission of March 21, 2022, Canadian Pacific announced that it would rely on the data submitted to the OEA, not the 2019 density data in Exhibit 14 of the Application. AC ¶ 36. Two opponents of the transaction filed responses. Id. On March 29, 2022, Canadian Pacific filed a reply. Id.
"GT/M" means gross ton-miles per mile of road. AC ¶ 35 n,8.
On April 27, 2022, the STB issued a decision clarifying the railway traffic density data it would consider. See Canadian Pac. Ry.-Control-Kan, City S., STB Docket No. FD 36500, Decision No. 17 (STB served Apr. 27, 2022). Consistent with Canadian Pacific's March21, 2022 submission, the STB stated that, "for the sake of consistency, analysis of the Transaction's impacts, as well as analysis presented regarding the impacts of any responsive applications, should be assessed using the modeled baseline data from the Density Workpaper [previously provided to OEA] (to be resubmitted, as discussed below), rather than the raw historical data from Exhibit 14." Id. at 4. The STB added that, although «[t]he Density Workpaper is now understood to be an important component in the analysis underlying [the application's] Operating Plan,... it is not directly cited in that document." Id. at 5. It noted that the Density Workpaper "is also subject to certain technical issues that should be addressed, as are the other workpapers associated with the Operating Plan." Id. Accordingly, the STB ordered Canadian Pacific, by May 27, 2022, to submit certain modifications and supplemental disclosures and to amend the application "to ensure that all parties understand Applicants' modeling approach and are provided a meaningful opportunity to comment." Id. at 5-6.
On May 27, 2022, the STB published a revised procedural schedule. Final briefs were then due on September 20, 2022. Canadian Pac. By.-Control-Kan. City S., Docket No, FD 36500, Decision No. 16, slip op. at 3-4 (STB served May 27, 2022). The revised procedural schedule continued to list the "[s]ervice date of the final decision" as "TBD," again noting that completion of the Environmental Impact Statement could prevent compliance with the statutory time periods. Id. at 4.
The STB thereafter extended the procedural schedule on several occasions to accommodate additional submissions. AC ¶ 38. Public hearings were held between September 28 and October 7, 2022; and final briefs were received on October 21, 2022. Id. On January 27, 2023, OEA issued its final Environmental Impact Statement. Id. ¶ 39. Public comments continued to be filed through March 1, 2023. Id.
On March 15, 2023, the STB issued its final decision ("STB Decision"). Id. ¶ 40,STB's 175-page decision upheld the merger. It found Canadian Pacific's "acquisition of control" of KCS consistent with the public interest, subject to various conditions. Canadian Pac, Ry.-Control-Kan. City S., Docket No. FD 36500, Decision No, 16 (STB served Mar. 15, 2023). It stated: "Petitions for reconsideration of this decision must be filed by April 4, 2023, Requests for stay must be filed by March 27, 2023," Id. at 174. The STB Decision stated that "[t]his decision will be effective on April 14, 2023." Id. at 175.
The AC acknowledges that the STB decision become "final" as a matter of administrative law when it was issued on March 15, 2023. AC ¶ 41 (citing 49 U.S.C. § 1332(d) ("an action of the Board under this section is final on the date on which it is served,")).
E. Events Postdating the STB's Issuance of its March 15, 2023 Decision
On March 17, 2023, Canadian Pacific announced that it accepted the conditions set forth in the STB Decision. AC ¶ 44. On March 20, 2023, in a publicly filed Form F-4 Registration Statement and prospectus, Canadian Pacific stated that the STB Decision "authorizes us to exercise control of KCS as early as April 14, 2023," and that the Voting Trust would be dissolved at that time. Id. (citing 03/20/2023 Form F-4 at 3, 9, 11, 21, 38), The Form F-4 stated that Canadian Pacific "expect[ed] to exercise the authority granted in the STB decision to dissolve the Voting Trust and exercise control of KCS on April 14, 2023, but there can be no assurance that this will occur," and that "it is possible that we may never exercise control of KCS." Id. at 21,38,42.
The Form F-4 later restated this possibility in a list of "other risks" associated with the merger. 03/20/2023 Form F-4 at 42.
On March 27, 2023, an investor group with holdings in the 2031 and 2041 Notes (the "Noteholder Group") sent a letter to Canadian Pacific. AC ¶ 45. It asserted that, in light of the longer-than-anticipated process leading to STB approval, Canadian Pacific had been required by the Supplemental Indenture to provide notice of a Special Mandatory Redemption Event, which it had not done. Id. The letter demanded that Canadian Pacific redeem the 2031 and 2041 Notes, pursuant to the Special Mandatory Redemption Provision (§3.1). Id.
On April 5, 2023, Canadian Pacific responded by letter. It denied that it was "obligated to redeem the Notes pursuant to the Special Mandatory Redemption provision." Id. ¶ 46. Canadian Pacific stated that the STB Decision satisfied the definition of "STB Final Approval" in Section 3.3 of the Supplemental Indenture. On April 12, 2023, the Noteholder Group responded by letter, disputing Canadian Pacific's interpretation of the Supplemental Indenture. Id. ¶ 50.
On April 14, 2023, the STB Decision took effect, and the Voting Trust was dissolved. Id. ¶ 54.
After receiving the April 12, 2023 letter, Computershare, then the indenture trustee for the 2031 and 2041 Notes, advised noteholders that it intended to respect an officer's certificate, issued by Canadian Pacific, to the effect that the Special Mandatory Redemption had not been triggered, and would not take any further action. Id. ¶ 57. At the direction of beneficial holders of more than 50% of the outstanding 2031 Notes and 2041 Notes (collectively, the "Directing Noteholders"), Computershare was thereafter removed as trustee of both series of Notes. Id. 1} 58. On August 2, 2023, WSFS was duly installed as successor Trustee with respect to the 2041 Notes. Id. On May 17, 2024, WSFS was installed as successor Trustee with respect to the 2031 Notes. Id. The Directing Noteholders have directed WSFS to bring this lawsuit on behalf of all holders of the 2031 and 2041 Notes. Id. ¶ 59.
II. Procedural History of This Litigation
On August 2, 2023, WSFS filed the Complaint. Dkt. 1 ("Compl."). Originally brought solely on behalf of the 2041 Noteholders, it formally brings three claims, but each alleges the same breach of contract, based on Canadian Pacific's not having invoked the Special Mandatory Redemption provision. The counts differ only in the remedies they seek-declaratory judgment, money damages, and specific performance, respectively. Compl. ¶¶ 65-81.
On August 17, 2023, the Court approved a briefing schedule for Canadian Pacific's anticipated motion to dismiss. Dkt. 19. On September 22, 2023, Canadian Pacific filed that motion, Dkt. 22, and a memorandum of law, Dkt. 23 ("Def. Mem."), and declaration, Dkt. 24 ("Finn Decl."), in support. WSFS opted to forgo the opportunity to amend and instead opposed the motion. On November 3, 2023, WSFS filed an opposition, Dkt. 25 ("PL Opp.")5 and a supporting declaration, Dkt. 26 ("Burke Decl"). On November 22, 2023, Canadian Pacific filed a reply.
On December 12, 2023, the Court heard argument. Dkt. 32 (“Tr.”). After argument, by court-approved agreement, the claims on behalf of the 2031 Noteholders were added to this litigation.
At the time the Complaint was filed, WSFS was successor trustee for only the 2041 Notes. On May 17,2024, WSFS became successor trustee for the 2031 Notes. AC ¶ 58. On May 21,2024, the parties jointly moved by stipulation to amend the Complaint to reflect that WSFS was suing on behalf of all holders of both the 2041 and 2031 Notes. Dkt. 34. The parties agreed that the pending motion to dismiss would apply to the Amended Complaint. Id. On May 30, 2024, the Court issued the joint stipulated order. Dkt. 35. On May 31, 2024, WSFS filed the operative Amended Complaint. Dkt. 36.
III. Discussion
Notwithstanding the complex regulatory background from which this case springs, the decisive question here is narrow, WSFS brings what is effectively a single breach of contract claim. It raises one question: whether Canadian Pacific breached the Supplemental Indenture by not invoking the Special Mandatory Redemption provision (§3.1). That question, the parties agree, turns on the construction and application of one clause in the defined term ("STB Final Approval") referenced in that provision, The parties also agree that tills ease can be resolved on the facts pled. They agree that, were the Court to deny the motion to dismiss, a motion for judgment on the pleadings in favor of WSFS-the investors-would then be in order.
With one caveat: At argument, WSFS noted that, were the Court to find the Supplemental Indenture ambiguous, there might be a basis for considering extrinsic evidence as to its drafting history, Tr. 44-45, Neither party, however, argues that the indenture is ambiguous. See Tr. 43, 70.
In resolving this question, the Court applies familiar standards governing both motions to dismiss for failure to state a claim and substantive contract law, As to the former, to survive a motion under Rule 12(b)(6), a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl Corp. v. Twombfy, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint is properly dismissed where, as a matter of law, "the allegations in a complaint, however true, could not raise a claim of entitlement to relief." Twombty, 550 U.S. at 558. When resolving a motion to dismiss, the Court must assume all well-pled facts to be true, "drawing all reasonable inferences in favor of the plaintiff," Koch, 699 F.3d at 145. That tenet, however, does not apply to legal conclusions. See Iqbal, 556 U.S. at 678. Pleadings that offer only "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Twombfy, 550 U.S. at 555.
As to contract law, under governing New York law, a complaint, to state a claim for breach, must allege "(1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of contract by the defendant, and (4) damages." Eternity Glob, Master Fund Ltd. v. Morgan Guar. Tr. Co. of N.Y., 375 F.3d 168, 177 (2d Cir. 2004) (citations omitted). It must identify "the specific provisions of the contract upon which liability is predicated." Benihana of Tokyo, LLC v. Angelo, Gordon & Co., 259 F.Supp.3d 16, 33 (S.D.N.Y. 2017) (citing Sud v. Sud, 621 N.Y.S.2d 37, 38 (1st Dep't 1995)). "[T]he initial interpretation of a contract is a matter of law for the court to decide. Where the agreement is unambiguous, a court may not admit extrinsic evidence and interprets the plain language of the agreement as a matter of law." Kamfar v. New World Rest. Grp., Inc., 347 F. Supp, 2d 38, 48-49 (S.D.N.Y. 2004); see also Banks v. Corr. Servs. Corp., 475 F.Supp.2d 189,195 (E.D.N.Y. 2007) ("If the interpretation of a contract is at issue, a court is 'not constrained to accept the allegations of the complaint in respect of the construction of the [a]greement,' although all contractual ambiguities must be resolved in the plaintiffs favor."). "An ambiguity exists where the terms of [a contract] could suggest 'more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.'" Morgan Stanley Grp. v. New England Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000). "[T]he mere fact that the Parties disagree on the proper interpretation of the contract does not render the contractual language ambiguous." Serdarevic v. Centex Homes, 760 F.Supp.2d 322, 329 (S.D.NY. 2010). "No ambiguity exists ... when contract language has a definite and precise meaning, unattended by danger of misconception in the purport of the contract itself, and concerning which there is no reasonable basis for a difference of opinion." InspiRx, Inc. v. Lupin Atlantis Holdings SA> 554 F. Supp, 3d 542, 553 (S.D.N.Y. 2021) (cleaned up).
Section 6.6 of the Supplemental Indenture provides: "This Fifth Supplemental Indenture (including the Guarantee provided herein), the Original Indenture as supplemented hereby and the Notes shall be governed by and construed in accordance with the laws of the State of New York." Supp. Indenture § 6.6,
If there is an ambiguity, however, "[u]nless for some reason an ambiguity must be construed against the plaintiff, a claim predicated on a materially ambiguous contract term is not dismissible on the pleadings." Eternity Glob. Master Fund, 375 F.3d at 178.
WSFS's claim here of a contract breach arises from the interplay between Sections 3,1 and 33 of the Supplemental Indenture. Section 3.1 provides:
In the event that the Issuer [Canadian Pacific] determines in its reasonable judgment that the STB Final Approval (as defined herein) will not be sought or has not or will not be received prior to March 25, 2023 (the "Special Mandatory Redemption Event"), the Issuer [Canadian Pacific] will redeem all outstanding 2031 and 2041 Notes (the "Special Mandatory Redemption") at a redemption price equal to 101% of the principal amount of the applicable series of Notes, plus accrued and unpaid interest.Supp. Indenture § 3,L And Section 33 defines "STB Final Approval" as:
a decision of the United States Surface Transportation Board, which shall become effective and which decision shall not have been stayed or enjoined, that constitutes a final agency action approving, exempting or otherwise authorizing the acquisition of control over Kansas City Southern's railroad operations by the Guarantor [CPRL] and its affiliates, without the imposition of conditions that the Guarantor [CPRL] in its sole discretion has deemed to be unacceptable.Id. § 3.3. Therefore, if Canadian Pacific” determine[d] in its reasonable judgment" that "STB Final Approval . . will not be sought or has not or will not be received prior to March 25, 2023," the Special Mandatory Redemption provision (§3.1) was triggered, obliging Canadian Pacific to redeem the outstanding 2031 and 2041 Notes. In claiming breach, WSFS argues that such a conclusion was the only reasonable judgment Canadian Pacific could have reached between March 15, 2023, when the STB's decision issued, and March 25, 2023, Canadian Pacific counters that, applying its terms to the merger, Section 3.1 was objectively not triggered, because "STB Final Approval" had been obtained prior to March 25, 2023. In any event, it argues, its determination to that effect was a reasonable exercise of discretion.
The Court's ensuing analysis proceeds in two steps. First, the Court examines whether, objectively, the conditions requiring a Special Mandatory Redemption were met (i.e., whether "STB Final Approval," as defined, had been received before March 25, 2023). Second, the Court examines the impact of the language in Section 3.1 mandating a redemption only upon Canadian Pacific's reasonable determination that the conditions for such were met.
A. Were the Conditions for a Mandatory Special Redemption Met?
As "STB Final Approval" is defined in Section 3.3, it has five requirements: (1) "a decision of the United States Surface Transportation Board"; (2) "which shall become effective"; (3) "and which decision shall not have been stayed or enjoined"; (4) "that constitutes a final agency action approving, exempting or otherwise authorizing the acquisition of control over Kansas City Southern's railroad operations by the Guarantor and its affiliates"; (5) "without the imposition of conditions that the Guarantor in its sole discretion has deemed to be unacceptable." Id. § 3.3.
WSFS concedes that, by March 17, 2023, four of these requirements-all but the second-had been met. That is undeniably correct. The March 15, 2023 decision (1) was a decision of the STB; (3) had not been stayed or enjoined; (4) constituted final agency action approving Canadian Pacific's acquisition of control of KCS's railroad operations; and (5) as of Canadian Pacific's March 17 announcement accepting the STB's conditions, was without conditions deemed to be unacceptable. WSFS argues, however, that, as of March 25, 2023, the remaining requirement-that the STB decision "shall become effective"-was not met. It argues that, because the STB Decision stated that it would be effective on April 14, 2023, it, by definition, could not be found effective on March 25, 2023. WSFS thus construes Section 3.3 to require STB's decision to have been already effective by March 25, 2023.
See AC ¶ 41 (decision became final as a matter of administrative law when issued).
See AC ¶ 44 ("On March 17, 2023, Canadian Pacific announced that it accepted the conditions set forth in the STB Decision,")
Canadian Pacific urges a different reading. It argues that, although Section 3.3 required the decision to have issued by March 25, 2023, the requirement that the STB Decision "shall become effective" did not require it to be effective by that date. That provision required, Canadian Pacific argues, only that the decision would become effective in the future. And, Canadian Pacific argues, because the STB decision set out an April 14, 2023 effective date, it was assured-and Canadian Pacific was within its rights to determine-that the STB decision "shall become effective" in the future, thus satisfying the final requirement for "STB Final Approval."
Canadian Pacific's construction is correct. When interpreting a contract under New York Law, "words and phrases .. . should be given their plain meaning and the contract should be construed so as to give full meaning and effect to all of its provisions." LaSalle Bank Nat. Ass'n v. Nomura Asset Cap. Corp., 424 F.3d 195, 206 (2d Cir. 2005) (citation and internal quotation marks omitted). The requirement in Section 3.1 that the STB decision "shall become effective" has a plain meaning. On the point in dispute, it requires that the decision must become effective at a point in the future, not that it be so by March 25, 2023. That WSFS takes issue with this conclusion does not make this text any less clear. Serdarevic, 760 F.Supp.2d at 329.
The pertinent terms here are "shall," "become," and "effective." "Shall” is generally defined to mean "must." De Martinez v. Lamagno, 515 U.S. 417, 432 n.9 (1995) (noting that "'shall' generally means 'must'"); see also Kingdomware Techs., Inc. v. United States, 579 U.S. 162, 171 (2016) ("Unlike the word 'may,' which implies discretion, the word 'shall' usually connotes a requirement."); Shall, Black's Law Dictionary (12th ed. 2024) ("l. Has a duty to; more broadly, is required to"; "2. Should (as often interpreted by courts)"; "3. May"; "4. Will (as a future-tense verb)"; and "5. Is entitled to."). "Become" is defined as "l. (a) to come into existence; (b) to come to be. 2. to undergo change or development." Become, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/become. And "effective" is defined as "being in effect: operative." Effective, Merriam-Webster Dictionary, https://www.merriamwebster. com/ dictionary /effective.
WSFS urges uses of the Black's Law Dictionary definition of "shall." Canadian Pacific urges use of a Merriam-Webster definition that conveys marginally less certainty, defining "shall" as a word "(a) used to express what is inevitable or seems likely to happen in the future; (b) used to express simple futurity." Shall, Merriam-Webster Dictionary, https://www,merriam-webster.com/dictionary/shall The parties' dispute on the definition of "shall" is immaterial because even under WSFS's proposed definition, which the Court adopts here, Canadian Pacific prevails.
With respect to the parties' dispute about the operative date in Section 3.1, the key word within the phrase "shall become effective" is "become." That term unavoidably conveys that the requirement of effectiveness looks forward in time. It underscores that the provision turns on the future effectiveness of the STB decision, not whether the decision is effective immediately. In this respect, the term "become" stands in sharp contrast to the term "be"; a provision stating that an agency order "shall be effective" would, without more, more plausibly convey a requirement that the order be immediately operative. And there were other ready ways in which the drafters could have formulated Section 3.1 had they meant to convey-as WSFS urges-a requirement that the STB Decision actually be effective by March 25, 2023. The indenture could have required an "effective decision." Or it could have required that the STB decision "has become effective." The clause it used, "shall become effective," however, is "subject to only one reasonable interpretation." In re Coudert Bros., 487 B.R, 375, 389 (S.D.N.Y. 2013), As used in Section 3.3, it required that, to qualify as "STB Final Approval," the STB's decision must become effective at a definite point in the future.
Reading "shall become effective" in this manner also accords with the background regulatory framework. That framework ordinarily anticipates a 30-day period between the date of STB decision's issuance and its effective date. Under 49 C.F.R. § 1115.3(f), an STB decision does not become effective upon issuance. Instead, the default rule is that the STB decision ''will become effective 30 days after it is served, unless the Board provides for the action to become effective at a different date." 49 C.F.R. § 1115.3(f) (emphasis added). The term "shall become effective" in Section 3.3 nearly identically mirrors the text of that regulation, differing only in that it replaces "will" with "shall." The congruity of Section 3.3 and the underlying regulation strongly supports that the language in the indenture does not require the STB decision to have been effective on March 25, 2023, but instead to become effective on a definite date in the future.
Thus, construing Section 3.3, Canadian Pacific complied with-it did not breach-the Supplemental Indenture. The STB's decision, issued on March 15, 2023, stated that: "This decision will be effective on April 14, 2023." The decision, on its face, definitively provided that it would become effective at a definite point in the future. The requirement that the decision "shall become effective" was, therefore, satisfied.
WSFS makes several counter-arguments.
First, it argues, the word "shall" is superfluous if "shall become effective" is construed to require the decision to be effective in the future. That is wrong. The word "shall," meaning "must," plays a role in this construction. It establishes the provision's mandatory dimension, so as to require-like the underlying regulation, 49 C.F.R. § 1115.3(f)-that the STB decision become effective at a point in the future. Comparing "shall become effective" to a hypothetical alternative, "may become effective," underscores the provision's obligatory quality.
WSFS next argues that construing "shall become effective" to require that the STB's decision will become effective in the future, as opposed to by March 25, 2023, adds nothing to the definition of "STB Final Approval," because any final agency action approving a merger would become effective at some point in the future unless stayed or enjoined. Thus, WSFS argues, the clause adds nothing to the separate provision of Section 3.3 requiring that the decision "shall not have been stayed or enjoined." That too is wrong. The provisions are distinct and contribute differently to the meaning of "STB Final Approval." The provision "shall become effective" is forward looking-it requires an STB decision by March 25, 2023, that either has or will become effective at a definite point in the future. The provision "shall not have been stayed or enjoined" is backward looking-it requires an STB decision that has not been stayed or enjoined as of March 25, 2023. The two provisions are not coextensive. A decision that had not been stayed or enjoined by March 25, 2023, is not necessarily one that carries a definitive effective date. And a decision that carries a definitive effective date is capable of having been stayed or enjoined.
WSFS next argues that the Voting Trust Agreement supports construing Section 3.1 to require the STB decision to have been actually effective by March 25, 2023. WSFS's argument on this point is not entirely pellucid. It appears to be that, because the VTA's trigger for the dissolution of the trust was also an STB decision "which shall become effective," and because the trust in practice was dissolved not on March 25, 2023, but instead on April 14, 2023, the parties must have understood that clause to refer to the actual effectiveness date of the decision.
For multiple reasons, that argument is unpersuasive. At the threshold, the VTA is a separate agreement from the Supplemental Indenture. It is between CPRL and a different counterparty: the voting trust trustee. The Supplemental Indenture does not incorporate the VTA, explicitly or by reference (and the AC does not so allege). And the VTA was not entered into in connection with the 2031 and 2041 Notes or to facilitate the KCS acquisition's financing. It was executed to ensure that the day-to-day management and operation of KCS would not be controlled by Canadian Pacific, As such, the VTA, at best, would take the form of distant extrinsic evidence that could be considered had the Court found the Supplemental Indenture ambiguous, which it has not. See United States v. Prevezon Holdings, Ltd,, 289 F.Supp.3d 446, 451 (S.D.N.Y. 2018) ("[E]xtrinsic evidence may not be introduced in an attempt to create ambiguity.").
The VTA provided, in relevant part: "This Voting Trust Agreement ("Trust Agreement"), dated as of December 14, 2021, by and among Canadian Pacific Railway Limited, a Canadian corporation ("Parent"), Cygnus Holding Corp., a Delaware corporation and an indirect wholly owned subsidiary of Parent ("Holdco") and David L, Starling ("Trustee" and, together with the Parent and Holdco, the "Parties" and each, a "Party."). VTA at 2.
In any event, WSFS's argument based on the VTA does not follow. The VTA did not require the voting trust to be dissolved the moment regulatory approval was granted by the STB. Instead, section 9(b) of the VTA provided that "[i]n the event the STB Approval (as defined below) shall have been granted, then immediately upon the direction of Parent [CPRL] and the delivery of a certified copy of such order of the STB," the trustee shall transfer the trust stock and the trust shall cease, VTA § 9(b). The voting trust's dissolution was thus not dictated by the date of STB Approval. Also, non-probative of the meaning of Section 3.3 is the fact that, in actuality, the voting trust was not dissolved until the actual effective date of the STB's decision. As alleged in the AC, the trust was created for a functional purpose: to assure that Canadian Pacific, consistent with federal law, would not exercise "control" over KCS "unless and until STB had approved the transaction and that approval had become effective," AC f 31 (citing 49 U.S.C. § 11323(a)). That CPRL waited until April 14, 2023-the date the STB decision actually became effective-before dissolving the voting trust merely accorded with that purpose.
Finally, WSFS argues that the regulatory framework supports that the parties expected STB's approval to become effective on March 25, 2023. It explains that, based on the timeline of merger review steps as could be envisioned at the time of the Supplemental Indenture, the March 25, 2023 deadline for obtaining "STB Final Approval" corresponded to the anticipated date of the STB's decision becoming effective It farther explains that the delay in the STB review process prompted by the need to submit corrected railway traffic density data resulted in the decision issuing on March 15, 2023, some 20 days later than envisioned, and thereby becoming effective on April 14, 2023. AC ¶¶ 24-26.
As explained above: (1) the STB published its notice of acceptance of Canadian Pacific's application on November 26, 2021; (2) evidentiary proceedings were expected to conclude one year later on November 25, 2022; (3) the STB's final decision was expected to issue 90 days later on February 23, 2023; and (4) that decision was expected to become effective 30 days later, on March 25, 2023. The AC alleges that the parties entered into the Supplemental Indenture on December 2, 2021-after the November 26, 2021 Notice of Acceptance-and thus selected the March 25, 2023 deadline to correspond to the date by which Canadian Pacific would have been expected to receive an effective STB decision. Id. ¶ 26.
The inference that the merger participants forecast such a timetable at the time the Supplemental Indenture was drafted is plausible. But it is irrelevant to the Court's charter here. That is to "determine the intention of the parties from the language employed, as gleaned from the several provisions of the Agreement." Curtiss-Wright Corp v. Kennecott Corp., 504 F.Supp. 1044, 1050 (S.D.N.Y. 1980) (internal citations omitted) (emphasis added). "The law in New York is clear that a court may not in the guise of interpreting a contract rewrite it to express the real intention of the parties if to do so would contradict the clearly expressed language of the contract." Id. (citations omitted). There were many ways the parties could have drafted the indenture, including in defining "STB Final Approval" to provide that if the STB's decision were not effective as of March 25, 2023, Canadian Pacific was mandated to redeem the 2031 and 2041 Notes early. But, for the reasons above, as a matter of construction, "STB Final Approval," a defined term, cannot be so read, "Mere disappointment in plaintiffs expectations does not permit the Court to make a new contract for the parties or to insert protective conditions which the parties failed to provide for themselves." Laish, Ltd. v. Jafora-Tabori, Ltd., No. 02 Civ. 1322 (SLT) (MDG), 2006 WL 270250, at *6 (E.D.N.Y. Feb. 1, 2006). "There [being] no ambiguous term in the agreement, the court 'must give the words and phrases employed their plain meaning.'" Id. ("The conduct of the parties may fix a meaning to words of doubtful import. It may not change the terms of a contract.").
Further as to this argument, nothing in the Supplemental Indenture suggests the parties viewed a modest delay in the 16-month timetable as unlikely-or that such a delay would frustrate the indenture's purpose of financing the acquisition. On the contrary, given the scale of the transaction and the complexity of the review process, the parties, sophisticated business actors, cannot be assumed to have viewed a modest delay as unlikely or consequential. Yet WSFS's construction would, improbably, require a Special Mandatory Redemption of the Notes if the STB decision became effective a single day after March 25, 2023. Although the record does not explain the purpose for the Supplemental Indenture's definition of "STB Final Approval"-requiring an approval decision to issue by March 25, 2023, but allowing for a later definitive effective date-the indenture's definition, in practice, lent a degree of flexibility to the timetable. In the end, on March 15, 2023 (i.e., by March 25, 2023), Canadian Pacific had secured regulatory approval of the merger, and STB had ordered that it would become effective April 14, 2023, just 20 days after the date WSFS claims the parties anticipated at the start of the review process. The 2031 and 2041 Notes served their purpose: financing the KCS acquisition.
Finally, WSFS's alternative construction is linguistically untenable. As reviewed above, it ignores the word "become" from the phrase "which shall become effective." And it renders superfluous other requirements of "STB Final Approval." As defined, that term requires that the STB decision "constitute[] a final agency action approving, exempting or otherwise authorizing the acquisition of control over Kansas City Southern's railroad operations" by Canadian Pacific; "shall not have been stayed or enjoined"; and not "impos[e] conditions" deemed unacceptable by Canadian Pacific. But those features necessarily inhere in an STB decision that is actually and presently effective. "[W]ell-settled rules of construction require the giving of due consideration to all parts of a contract... as to give effect and meaning to every word and expression." Laish, 2006 WL 270250, at *5 (quoting Benvenuto v. Rodriguez, 108 N.Y.S.2d 410, 412 (1st Dep't 1951). WSFS's proposed construction does not do so.
The Court thus finds that Section 3.3's definition of "STB Final Approval" to require receipt of an STB decision "which shall become effective" unambiguously required that the STB decision become effective at a definite point in the future. The STB decision that issued March 15, 2023, which stated that the decision would become effective by April 14, 2023, satisfied this requirement (and all others) for "STB Final Approval." By March 25, 2023, Canadian Pacific had received the required "STB Final Approval" of the KCS acquisition.
B. Was Canadian Pacific's Determination Reasonable?
A separate hurdle for WSFS is presented by the formulation of Section 3.1, which keys Canadian Pacific's duty to make a Special Mandatory Redemption to its having "reasonably] determine[ed]" that "STB Final Approval" had not been or would not be received by March 25, 2023. Canadian Pacific did not make such a determination. On the contrary, at argument, it represented that, on March 17, 2023, upon accepting the conditions set by the STB, it determined that "STB Final Approval" had been received. Tr. at 5. The Court assumes (and Canadian Pacific does not dispute) that an unreasonable failure on its part to determine that "STB Final Approval" would not be received by March 25, 2023 would trigger its redemption obligation. But with the Court's having found that "STB Final Approval" had been received, it follows that Canadian Pacific's determination to that effect was necessarily reasonable.
The reasonableness of Canadian Pacific's determination supplies an independent basis for dismissing WSFS's contract-breach claims. That is because Section 3.1, in keying Canadian Pacific's redemption obligation to its having made a reasonable determination that "STB Final Approval" would not be received in time, gave rise to a condition precedent. Under New York law, "a condition precedent is 'an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises.'" Bank of N.Y. Mellon Tr. Co. v. Morgan Stanley Mortg. Cap., Inc., 821 F.3d297, 305 (2dCir. 2016) (quoting Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 636N.Y.S.2d 734, 737 (1995)). New York courts generally require that conditions precedent be "expressed in unmistakable language," of which certain "linguistic conventions of condition" qualify-such as "if," "on condition that," "provided that," "in the event that," and "subject to." Id. (cleaned up); see also Israel v. Chabra, 537 F.3d 86, 93 (2d Cir. 2008). Section 3.1 uses one such recognized formulation: "[i]n the event that."
Accordingly, Section 3.1 created a condition precedent to Canadian Pacific's duty to undertake the redemption. The reasonableness of Canadian Pacific's determination that "STB Final Approval" had been timely received therefore-independent of the Court's finding that such was objectively so-blocks WSFS's claim. Indeed, that dimension of Section 3 J would require dismissal of WSFS's complaint provided that Canadian Pacific's determination to that effect was so much as found rational and non-arbitrary. "Under New York law, where, as here, a contract vests one party with the right to make a discretionary determination, courts 6 will not interfere with that discretionary determination unless it is performed arbitrarily or irrationally.'" Bus. Exposure Reduction Grp, Assocs., LLC v. Pershing Square Cap. Mgrn L.P., No. 21 Civ.1980, 2022 WL 950959, at *2 (2d Cir. Mar. 30, 2022), cert denied, 143 S.Ct 204, (2022) (quoting Dalton v. Educ, Testing Serv,, 87 N.Y.2d 384, 392 (1995)); see Schweizer v. Sikorsky Aircraft Corp, 634 Fed.Appx. 827, 830 (2d Ch\ 2015) (summary order) (courts "will not interfere with [a] discretionary determination unless it is performed arbitrarily or irrationally").
The case law generally treats the obligation not to act arbitrarily or irrationally in exercising contractual discretion as an aspect of the implied covenant of good faith. Although WSFS has not brought such a claim, the Court treats that duty of good faith as incident to its breach of contract claims.
Although WSFS makes legal arguments as to contract construction, the AC lacks factual allegations that Canadian Pacific's finding "STB Final Approval" to have occurred based on the undisputed facts was arbitrary, irrational, or otherwise incorrect. The Court's like reasoning above situates Canadian Pacific's assessment within the range of reasonable determinations.
In challenging reasonableness, WSFS argues that Canadian Pacific could not guarantee the decision's effectiveness, because the deadlines to request a stay of the decision (March 27, 2023) and to file a petition for its reconsideration (April 4, 2023) post-dated the March 25, 2023 deadline. But the AC does not plead facts making these other than theoretical possibilities. It does not allege that Canadian Pacific was aware of any intention by any party or person to move to unsettle the STB Decision* WSFS likewise notes Canadian Pacific's statement, in its March 20, 2023 Form F-4 Registration Statement and prospectus, that "there can be no assurance that [the exercise of control over KCS] will occur,' and that 'it is possible we may never exercise control of KCS.'" See AC ¶ 44 (citations omitted). The AC, however, does not plead facts making that risk disclaimer other than pro forma. See Tr, at 27 (Canadian Pacific counsel, describing disclaimer as "boilerplate" to cover an "act of God" or "a comet could hit the earth").
There is thus no factual basis pled on which a finder of fact could find Canadian Pacific to have acted arbitrarily or irrationally in determining that the STB's determination would-as it explicitly provided-become effective on April 14, 2023. For this independent reason, the AC does not state a claim.
CONCLUSION
For the foregoing reasons, the Court grants defendants' motion to dismiss. The Clerk of the Court is respectfully directed to terminate the motion at Docket 22 and close this case.
SO ORDERED.