Third Circuit disposition — 081406np-pdf

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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-1406
In re: KAISER ALUMINUM CORPORATION, et al.,
Debtors
LAW DEBENTURE TRUST COMPANY OF NEW YORK,
Appellant
On Appeal from the United States District Court
for the District of Delaware
District Court No. 06-cv-00160
Senior District Judge: The Honorable Joseph J. Farnan, Jr.
Argued September 15, 2009
Before: SLOVITER, FUENTES, and SMITH, Circuit Judges
(Filed: November 2, 2009)

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Daniel J. DeFranceschi
Jason M. Madron
Richards, Layton & Finger
One Rodney Square
920 North King Street
Wilmington, DE 19899
Gregory M. Gordon
Daniel P. Winikka
Jones Day
2727 North Harwood Street
Dallas, TX 75201
David F. Herr (Argued)
Maslon, Edelman, Borman & Brand
90 South Seventh Street
3300 Wells Fargo Center
Minneapolis, MN 55402
Counsel for Kaiser Aluminum Corporation
Roy T. Englert, Jr. (Argued)
Robbins, Russell, Englert, Orseck & Untereiner
1801 K Street, N.W.
Suite 411
Washington, DC 20006
Counsel for Law Debenture Trust Company of New York
David J. Baldwin
1313 North Market Street
6th Floor, P.O. Box 951
Wilmington, DE 19801
Isaac M. Pachulski
Kenneth J. Shaffer
Stutman, Treister & Glatt
1901 Avenue of the Stars

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12th Floor
Los Angeles, CA 90067
Counsel for Liverpool LTD Partnership
David F. Herr (Argued)
Kesha L. Tanabe
Maslon, Edelman, Borman & Brand
90 South Seventh Street
3300 Wells Fargo Center
Minneapolis, MN 55402
Counsel for U.S. Bank National Association
William P. Bowden
Ashby & Geddes
500 Delaware Avenue
P.O. Box 1150, 8th Floor
Wilmington, DE 19899
Counsel for JP Morgan Trust Co. and
Official Committee of Unsecured Creditors
David N. Crapo
Brian McMahon
Gibbons, P.C.
One Gateway Center
Newark, NJ 07102
David F. Herr (Argued)
Maslon, Edelman, Borman & Brand
90 South Seventh Street
3300 Wells Fargo Center
Minneapolis, MN 55402
Counsel for Citadel Equity Fund
David N. Crapo
Brian McMahon
Gibbons, P.C.

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One Gateway Center
Newark, NJ 07102
Counsel for Bear Stearns & Co.
Karen C. Bifferato
Marc J. Phillips
Connolly, Bove, Lodge & Hutz
1007 North Orange Street
P.O. Box 2207
Wilmington, DE 19899
George A. Davis
Gregory A. Markel
Cadwalader, Wickersham & Taft
One World Financial Center
New York, NY 10038
Adam C. Dembrow
Greenberg Traurig
200 Park Avenue
MetLife Building
New York, NY 10166
David F. Herr (Argued)
Maslon, Edelman, Borman & Brand
90 South Seventh Street
3300 Wells Fargo Center
Minneapolis, MN 55402
Counsel for Ad Hoc Group of Senior Noteholders
David F. Herr (Argued)
Maslon, Edelman, Borman & Brand
90 South Seventh Street
3300 Wells Fargo Center
Minneapolis, MN 55402

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Carl N. Kunz, III
Morris James
500 Delaware Avenue
P.O. Box 2306, Suite 1500
Wilmington, DE 19899
Counsel for Deutsche Bank Trust
Sharon M. Zieg
Young, Conaway, Stargatt & Taylor
1000 West Street, P.O. Box 391
17th Floor, Brandywine Building
Wilmington, DE 19899
Counsel for Cent Indemnity Co.
Allstate Ins. Co.
Canmart Co.
Pension Benefit Guaranty Corp.
Asbestos Futures Representative
Marc S. Casarino
White & Williams
824 North Market Street
P.O. Box 709, Suite 902
Wilmington, DE 19801
Counsel for Silica Future Claimants
ACE Inc. Co., LTD
Mark T. Hurford
Campbell & Levine
800 North King Street
Suite 300
Wilmington, DE 19801
Counsel for Personal Injury Comm.
Asbestos Creditors Comm.
David M. Klauder
United States Department of Justice

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This Court has jurisdiction under 28 U.S.C. § 158(d) and 28 U.S.C. § 1291.1
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Office of the Trustee
844 King Street
Suite 2207, Lockbox 35
Wilmington, DE 19801
Counsel for David M. Klauder, Trustee
OPINION
SMITH, Circuit Judge.
In this Chapter 11 reorganization case about a 1993 indenture (the “Indenture”),
Law Debenture Trust Company of New York (“LDTC”), the indenture trustee under the
Indenture, challenges the subordination of a guarantee made in the Indenture (the “1993
Guarantee”) to later guarantees (the “1994 and 1996 Guarantees”) that it believes were
improperly designated as “Senior Indebtedness” under the Indenture. Opposing LDTC
are the indenture trustees and noteholders for the notes that were the subject of the 1994
and 1996 Guarantees (collectively, the “1994 and 1996 Noteholders”).
LDTC raises two issues on appeal. First, it claims that the District Court erred in1
affirming the Bankruptcy Court’s conclusion that the 1994 and 1996 Guarantees could
be designated as Senior Indebtedness under the Indenture. Second, it argues that the
District Court erred by permitting the Bankruptcy Court’s consideration of extrinsic

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evidence when construing the Indenture. Our conclusion on the first issue disposes of
this appeal and obviates the need for discussion of extrinsic evidence.
We will affirm the District Court’s conclusion that the Indenture permitted the
designations of the 1994 and 1996 Guarantees as Senior Indebtedness. As such, the
1993 Guarantee is subordinated to the 1994 and 1996 Guarantees.
I.
In 1993, Kaiser Aluminum & Chemical Corporation (“KACC”) issued $400
million in notes (the “1993 Notes”) under the Indenture. These notes were guaranteed, in
the 1993 Guarantee, by KACC’s subsidiaries: Kaiser Aluminum Australia, Alpart
Jamaica, and Kaiser Jamaica (the “Subsidiary Guarantors”).
In 1994 and 1996, KACC issued additional notes (the “1994 and 1996 Notes”) in
the amounts of $225 million and $175 million, respectively. Like the 1993 Notes, the
1994 and 1996 Notes were guaranteed, in the 1994 and 1996 Guarantees, by the
Subsidiary Guarantors.
In 2002, KACC and each of the Subsidiary Guarantors filed Chapter 11
reorganization petitions. LDTC moved the Bankruptcy Court to determine the relative
priority of the 1993 Guarantee vis-á-vis the 1994 and 1996 Guarantees, and the parties
agreed to convert the motion into an objection to the proposed Chapter 11 reorganization
plan offered by KACC and the Subsidiary Guarantors.

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Both parties agree that the Indenture controls the relative priority of the 1993,
1994, and 1996 Guarantees. LDTC asserts that the 1994 and 1996 Guarantees cannot be
designated as Senior Indebtedness under the Indenture and, therefore, the 1993
Guarantee is not subordinated to the 1994 and 1996 Guarantees. The 1994 and 1996
Noteholders, on the other hand, claim that the 1994 and 1996 Guarantees qualify as
Senior Indebtedness under the Indenture and therefore have priority over the 1993
Guarantee.
The Bankruptcy Court, in concluding that the 1994 and 1996 Guarantees were
properly designated as Senior Indebtedness under the Indenture, noted that “it [was]
abundantly clear that the [pari passu treatment of the 1993, 1994, and 1996 Guarantees]
suggested by LDTC was not created by the Indenture.” Accordingly, the Bankruptcy
Court overruled LDTC’s objection to the proposed Chapter 11 reorganization plan.
LDTC appealed to the District Court, which affirmed the Bankruptcy Court’s order.
LDTC now appeals to this Court.
II.
LDTC’s first argument, that the 1994 and 1996 Guarantees could not be
designated as Senior Indebtedness under the Indenture, is based on its rejection of the
Bankruptcy Court’s construction of the Indenture. We review that construction de novo.
STV Eng’rs, Inc. v. Greiner Eng’g, Inc., 861 F.2d 784, 787 (3d Cir. 1988).

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As described below, we conclude that when a Subsidiary Guarantor attempts
reorganization, Article 16 of the Indenture subordinates guarantees that are not Senior
Indebtedness to all Senior Indebtedness of that Subsidiary Guarantor. We also conclude
that the definition of Senior Indebtedness, contained in Article 1 of the Indenture,
permitted KACC to designate the 1994 and 1996 Guarantees as Senior Indebtedness and
that it properly did so.
A. Article 16 of the Indenture Subordinates all of a Subsidiary Guarantor’s
Guarantees that are not Senior Indebtedness to all Senior Indebtedness.
Section 16.02 of the Indenture subordinates each Subsidiary Guarantor’s
obligations under the 1993 Guarantee to the Senior Indebtedness of that Subsidiary
Guarantor. It states that “all payments pursuant to the [1993] Guarantee by [any]
Subsidiary Guarantor are hereby expressly subordinated . . . in right of payment to the
prior payment in full . . . of all Senior Indebtedness of [that] Subsidiary Guarantor.”
In the event of a Subsidiary Guarantor’s reorganization, Section 16.03 provides
“the holders of all Senior Indebtedness of [the] Subsidiary Guarantor [the right] to
receive payment in full . . . before the holders of the [1993] Notes or the Trustee on
behalf of the noteholders shall be entitled to receive, pursuant to the [1993] Guarantee,
any direct or indirect payment or distribution on or with respect to the [1993] Notes.” In
other words, if a Subsidiary Guarantor is reorganizing, it must pay the holders of its
Senior Indebtedness in full prior to any payment it is obligated to make under the 1993

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Guarantee.
Because the Subsidiary Guarantors are reorganizing, Section 16.03 applies and the
holders of their Senior Indebtedness are entitled to payment prior to any payment under
the 1993 Guarantee.
B. The Definition of Senior Indebtedness Permitted the 1994 and 1996 Guarantees
to be Designated as Senior Indebtedness.
To designate a certain indebtedness as Senior Indebtedness, KACC must provide
notice of the designation in writing and the type of indebtedness must fall under one of
the categories described in the definition of Senior Indebtedness, which is located in
Section 1.01 of the Indenture.
It is undisputed that KACC provided proper notice for the 1994 and 1996
Guarantees. Accordingly, the crux of this appeal rests on whether the Indenture permits
the 1994 and 1996 Guarantees, guarantees made by the Subsidiary Guarantors for
KACC’s 1994 and 1996 Notes, to be designated as Senior Indebtedness. The 1994 and
1996 Noteholders argue that clauses (ii)(A)(1) and (ii)(D) of the definition of Senior
Indebtedness permitted designation of those guarantees as Senior Indebtedness. We
agree.
Clause (ii)(A)(1), as applied to each Subsidiary Guarantor, states that “the
principal of, premium, if any, and interest on all indebtedness of [the Subsidiary
Guarantor] for money borrowed (including all such indebtedness evidenced by notes,

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KACC cannot designate the 1994 and 1996 Guarantees as Senior Indebtedness2
under clause (ii)(A)(5) because it is the parent company of the Subsidiary Guarantors.
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debentures or other securities issued for money, whether issued or assumed by [the
Subsidiary Guarantor])” may be designated as Senior Indebtedness by KACC. A
guarantee involves an “agree[ment] to answer for a debt or default.” BLACK’S LAW
DICTIONARY 773 (9th ed. 2009). Such agreements are “[a] promise to answer for the
payment of some debt . . . in case of the failure of another who is liable in the first
instance.” Id. (defining “guaranty”). The Subsidiary Guarantors assumed indebtedness,
the promise to answer for KACC’s debts in case of its failure to repay money borrowed,
by guaranteeing the 1994 and 1996 Notes.
LDTC argues that such an understanding of the Indenture would render clause
(ii)(A)(5) of the definition of Senior Indebtedness superfluous. That clause states that
“all guarantees by [the Subsidiary Guarantor] of any indebtedness referred to in . . .
clause (ii)(A) of any Subsidiary of [the Subsidiary Guarantor]” may be designated as
Senior Indebtedness if proper notice is issued by KACC. LDTC properly notes that
clause (ii)(A)(5) only covers a Subsidiary Guarantor’s guarantees of its own
subsidiaries. If clause (ii)(A)(1) covers all guarantees, then, according to LDTC, clause2
(ii)(A)(5) would serve no purpose because it covers a subset of all guarantees. To avoid
rendering clause (ii)(A)(5) superfluous, LDTC asserts, clause (ii)(A)(1) must be
construed to exclude guarantees.

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Clauses (ii)(A)(1), (ii)(A)(5), and (ii)(A)(7) are illustrative. Clause (ii)(A)(7)3
covers “all obligations of [a Subsidiary Guarantor] in connection with the issuance of
industrial revenue bonds.” Assuming, hypothetically, that a subsidiary of a Subsidiary
Guarantor issued industrial revenue bonds, that proper written notice was provided, and
that the Subsidiary Guarantor guaranteed those industrial revenue bonds, clauses
(ii)(A)(1), (ii)(A)(5), and (ii)(A)(7) would all permit the guarantee to be designated as
Senior Indebtedness. Clause (ii)(A)(1) would apply because the indebtedness incurred
was for money borrowed, (ii)(A)(5) would apply because it was a guarantee of a
subsidiary by a Subsidiary Guarantor, and (ii)(A)(7) would apply because it was an
“obligation” incurred by the Subsidiary Guarantor in connection with the issuance of
industrial revenue bonds.
Clause (ii)(D) also shows the Indenture’s tolerance of superfluous drafting—it
contains overlap even within itself. It uses the phrase “Indebtedness, obligation or
guarantee” yet the definition of “Indebtedness” in Section 1.01 of the 1993 Indenture
includes at least some obligations and all guarantees.
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We disagree with LDTC’s argument. Clause (ii)(A)(1) is narrower than clause
(ii)(A)(5), because the former is limited to indebtedness for money borrowed, whereas
the latter includes all guarantees, for any purpose, made by a Subsidiary Guarantor for its
own subsidiaries. For example, clause (ii)(A)(5) would include a Subsidiary Guarantor’s
guarantee of a subsidiary’s lease obligations, while clause (ii)(A)(1) would not. Some
overlap in the two clauses is not fatal, especially in light of the other overlapping
provisions in the definition of Senior Indebtedness.3
LDTC also argues that we must presume that the Indenture intended to exclude a
Subsidiary Guarantor’s guarantee of a parent company because clause (ii)(A)(5) only
covers a Subsidiary Guarantor’s guarantee of a subsidiary. LDTC’s argument runs
contrary to the structure of the Indenture. Clauses (a) through (e) of the definition of

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Section 15.04 of the Indenture states that the Indenture is governed by New4
York law.
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Senior Indebtedness exclude specific categories of indebtedness from being designated
as Senior Indebtedness. Guarantees of a parent company are not categorically excluded
in those clauses. The mere presence of the exclusion clauses negates LDTC’s argument
that the Indenture was intended to implicitly exclude guarantees of a parent company. If
the Indenture was intended to exclude such guarantees, the exclusion could have been
listed with the other exclusion clauses. In short, we will not presume an implicit
exclusion of guarantees of a parent company where the Indenture has exclusion clauses.
Finally, LDTC argues that clause (ii)(A)(1) covers only money borrowed by each
Subsidiary Guarantor. LDTC would have us include additional terms in clause (ii)(A)(1)
so that it reads as follows: “all indebtedness of such Person for money borrowed [by such
Person].” This Court, however, is prohibited from adding terms to the Indenture.
W.W.W. Assocs. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990) (“[W]hen parties set
down their agreement in a clear, complete document, their writing should as a rule be
enforced according to its terms.”) . “Indebtedness for money borrowed,” including4
“notes . . . whether issued or assumed,” may be designated as Senior Indebtedness. The
Subsidiary Guarantors’ assumptions of indebtedness for money borrowed by KACC
through the 1994 and 1996 Guarantees, therefore, is covered under clause (ii)(A)(1).
The designations of the 1994 and 1996 Guarantees as Senior Indebtedness were

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also proper under clause (ii)(D). That clause, as applied to each Subsidiary Guarantor,
states that “all penalties, fees, premiums, expenses, reimbursements, indemnity
obligations and all other monetary obligations of [the Subsidiary Guarantor] in respect of
any Indebtedness, obligation, or guarantee described [anywhere in clause (ii) of the
definition of Senior Indebtedness]” may be designated as Senior Indebtedness by KACC.
LDTC concedes that the 1994 and 1996 Notes are Senior Indebtedness under the
Indenture. The 1994 and 1996 Guarantees were monetary obligations undertaken by the
Subsidiary Guarantors in respect of the 1994 and 1996 Notes issued by KACC.
Therefore, the 1994 and 1996 Guarantees may properly be designated as Senior
Indebtedness under clause (ii)(D).
LDTC argues that the monetary obligations incurred by each Subsidiary Guarantor
must be in respect of its own “Indebtedness, obligation, or guarantee” that could
otherwise be properly designated as Senior Indebtedness. LDTC’s construction of clause
(ii)(D) cannot be reconciled with the text. See W.W.W. Assocs., 566 N.E.2d at 642.
Clause (ii)(D) states that each Subsidiary Guarantor’s monetary obligation may arise
from “any Indebtedness, obligation or guarantee,” that would otherwise qualify as Senior
Indebtedness under clause (ii). This includes KACC’s 1994 and 1996 Notes and any
other “Indebtedness, obligation, or guarantee” of any entity that would otherwise qualify
as Senior Indebtedness under clause (ii) of the Indenture, not just the Subsidiary

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Guarantor’s “Indebtedness, obligations and guarantees.”
III.
LDTC also argues that the Bankruptcy Court’s evaluation of extrinsic evidence
was improper under New York law. Because the Indenture is unambiguous, we resolve
this appeal on the construction of the Indenture alone and need not discuss extrinsic
evidence.
IV.
The Indenture’s definition of Senior Indebtedness permitted designation of the
1994 and 1996 Guarantees as Senior Indebtedness. Because the Indenture’s language is
unambiguous, this Court need not address whether the extrinsic evidence was properly
admitted. Accordingly, we will affirm the District Court’s judgment.

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