Metropolitan Life Insurance v. RJR Nabisco, Inc.

OPINION AND ORDER

I. INTRODUCTION

The corporate parties to this action are among the country’s most sophisticated financial institutions, as familiar with the Wall Street investment community and the securities market as American consumers are with the Oreo cookies and Winston cigarettes made by defendant RJR Nabisco, Inc. (sometimes “the company” or “RJR Nabisco”). The present action traces its origins to October 20, 1988, when F. Ross Johnson, then the Chief Executive Officer of RJR Nabisco, proposed a $17 billion leveraged buy-out (“LBO”) of the company’s shareholders, at $75 per share. 1 Within a few days, a bidding war developed among the investment group led by Johnson and the investment firm of Kohlberg Kravis Roberts & Co. (“KKR”), and others. On December 1, 1988, a special committee of RJR Nabisco directors, established by the company specifically to consider the competing proposals, recommended that the company accept the KKR proposal, a $24 billion LBO that called for the purchase of the company’s outstanding stock at roughly $109 per share.

The flurry of activity late last year that accompanied the bidding war for RJR Nabisco spawned at least eight lawsuits, filed before this Court, charging the company and its former CEO with a variety of securities and common law violations. 2 The *1506 Court agreed to hear the present action— filed even before the company accepted the KKR proposal — on an expedited basis, with an eye toward March 1, 1989, when RJR Nabisco was expected to merge with the KKR holding entities created to facilitate the LBO. On that date, RJR Nabisco was also scheduled to assume roughly $19 billion of new debt. 3 After a delay unrelated to the present action, the merger was ultimately completed during the week of April 24, 1989.

Plaintiffs now allege, in short, that RJR Nabisco’s actions have drastically impaired the value of bonds previously issued to plaintiffs by, in effect, misappropriating the value of those bonds to help finance the LBO and to distribute an enormous windfall to the company’s shareholders. As a result, plaintiffs argue, they have unfairly suffered a multimillion dollar loss in the value of their bonds. 4

On February 16, 1989, this Court heard oral argument on plaintiffs’ motions. At the hearing, the Court denied plaintiffs’ request for a preliminary injunction, based on their insufficient showing of irreparable harm. 5 An exchange between the Court and plaintiffs’ counsel, like the submissions before it, convinced the Court that plaintiffs had failed to meet their heavy burden:

THE COURT: How do you respond to [defendants’] statements on irreparable harm? What we’re looking at now is whether or not there’s a basis for a preliminary injunction and if there’s no irreparable harm then we’re in a damage action and that changes ... the contours of the suit.... We’re talking about the ability ... of the company to satisfy any judgment.

PLAINTIFFS: That’s correct. And our point ... is that if we receive a judgment at any time, six months from now, after a trial for example, that judgment will almost inevitably be the basis for a judgment for everyone else ... But if we get a judgment, everyone else will get one as well ...

THE COURT: [Y]ou’re ... asking me ... [to] infer a huge number of plaintiffs and a lot more damages than your clients could ever recover as being the basis for deciding the question of irreparable harm. And those [potential] actions aren’t before me.

*1507 PLAINTIFFS: I think that’s correct

Tr. at 39. See also P. Reply at 33. Plaintiffs failed to respond convincingly to defendants’ arguments that, although plaintiffs have invested roughly $350 million in RJR Nabisco, their potential damages nonetheless remain relatively small and that, upon completion of the merger, the company will retain an equity base of $5 billion. See, e.g., Tr. at 32, 35; D. Opp. at 48, 49. Given plaintiffs’ failure to show irreparable harm, the Court denied their request for injunctive relief. This initial ruling, however, left intact plaintiffs’ underlying motions, which, together with defendants’ cross-motions, now require attention.

The motions and cross-motions are based on plaintiffs’ Amended Complaint, which sets forth nine counts. 6 Plaintiffs move for summary judgment pursuant to Fed.R. Civ.P. 56 against the company on Count I, which alleges a “Breach of Implied Covenant of Good Faith and Fair Dealing,” and against both defendants on Count V, which is labeled simply “In Equity.”

For its part, RJR Nabisco moves pursuant to Fed.R.Civ.P. 12(c) for judgment on the pleadings on Count I in full; on Count II (fraud) and Count III (violations of § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder) as to most of the securities at issue; and on Count V in full. In the alternative, the company moves for summary judgment on Counts I and V. In addition, RJR Nabisco moves pursuant to Fed.R.Civ.P. 9(b) to dismiss Counts II, III and IX (alleging violations of applicable fraudulent conveyance laws) for an alleged failure to plead fraud with requisite particularity. Johnson has moved to dismiss Counts II, III and V. 7

Although the numbers involved in this case are large, and the financing necessary to complete the LBO unprecedented, 8 the legal principles nonetheless remain discrete and familiar. Yet while the instant motions thus primarily require the Court to evaluate and apply traditional rules of equity and contract interpretation, plaintiffs do raise issues of first impression in the context of an LBO. At the heart of the present motions lies plaintiffs’ claim that RJR Nabisco violated a restrictive covenant — not an explicit covenant found within the four corners of the relevant bond indentures, but rather an implied covenant of good faith and fair dealing — not to incur the debt necessary to facilitate the LBO and thereby betray what plaintiffs claim was the fundamental basis of their bargain with the company. The company, plaintiffs assert, consistently reassured its bondholders that it had a “mandate” from its Board of Directors to maintain RJR Nabisco’s preferred credit rating. Plaintiffs ask this Court first to imply a covenant of good faith and fair dealing that would prevent the recent transaction, then to hold that this covenant has been breached, and final *1508 ly to require RJR Nabisco to redeem their bonds.

RJR Nabisco defends the LBO by pointing to express provisions in the bond indentures that, inter alia, permit mergers and the assumption of additional debt. These provisions, as well as others that could have been included but were not, were known to the market and to plaintiffs, sophisticated investors who freely bought the bonds and were equally free to sell them at any time. Any attempt by this Court to create contractual terms post hoc, defendants contend, not only finds no basis in the controlling law and undisputed facts of this case, but also would constitute an impermissible invasion into the free and open operation of the marketplace.

For the reasons set forth below, this Court agrees with defendants. There being no express covenant between the parties that would restrict the incurrence of new debt, and no perceived direction to that end from covenants that are express, this Court will not imply a covenant to prevent the recent LBO and thereby create an indenture term that, while bargained for in other contexts, was not bargained for here and was not even within the mutual contemplation of the parties.

II. BACKGROUND

Summary judgment, of course, is appropriate only where “there is no genuine issue as to any material fact ...” Fed.R. Civ.P. 56(c). A genuine dispute exists if “a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The burden is on the moving party to show that no relevant facts are in dispute. While the Court must resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought, see, e.g., Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 444 (2d Cir.1980), the nonmoving party may not rely simply “on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment.” Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 12 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).

Both sides now move for summary judgment on Counts I and V. In support of their motions, the parties have filed extensive memoranda and supporting exhibits. Having carefully reviewed the submissions before it, the Court agrees with the parties that there is no genuine issue as to any material fact regarding these counts, and given the disposition of the motions as to Counts I and V, the Court, as it must, draws all reasonable inferences in favor of the plaintiffs.

A. The Parties:

Metropolitan Life Insurance Co. (“Met-Life”), incorporated in New York, is a life insurance company that provides pension benefits for 42 million individuals. According to its most recent annual report, Met-Life’s assets exceed $88 billion and its debt securities holdings exceed $49 billion. Bradley Aff. ¶ 11. MetLife is a mutual company and therefore has no stockholders and is instead operated for the benefit of its policyholders. Am.Comp. ¶ 5. MetLife alleges that it owns $340,542,000 in principal amount of six separate RJR Nabisco debt issues, bonds allegedly purchased between July 1975 and July 1988. Some bonds become due as early as this year; others will not become due until 2017. The bonds bear interest rates of anywhere from 8 to 10.25 percent. MetLife also owned 186,000 shares of RJR Nabisco common stock at the time this suit was filed. Am. Comp. II12.

Jefferson-Pilot Life Insurance Co. (“Jefferson-Pilot”) is a North Carolina company that has more than $3 billion in total assets, $1.5 billion of which are invested in debt securities. Bradley Aff. ¶ 12. Jefferson-Pilot alleges that it owns $9.34 million in principal amount of three separate RJR Nabisco debt issues, allegedly purchased between June 1978 and June 1988. Those bonds, bearing interest rates of anywhere from 8.45 to 10.75 percent, become due in 1993 and 1998. Am.Comp. II13.

*1509 RJR Nabisco, a Delaware corporation, is a consumer products holding company that owns some of the country’s best known product lines, including LifeSavers candy, Oreo cookies, and Winston cigarettes. The company was formed in 1985, when R.J. Reynolds Industries, Inc. (“R.J. Reynolds”) merged with Nabisco Brands, Inc. (“Nabisco Brands”). In 1979, and thus before the R.J. Reynolds-Nabisco Brands merger, R.J. Reynolds acquired the Del Monte Corporation (“Del Monte”), which distributes canned fruits and vegetables. From January 1987 until February 1989, co-defendant Johnson served as the company’s CEO. KKR, a private investment firm, organizes funds through which investors provide pools of equity to finance LBOs. Bradley Aff. Mf 12-15.

B. The Indentures:

The bonds 9 implicated by this suit are governed by long, detailed indentures, which in turn are governed by New York contract law. 10 No one disputes that the holders of public bond issues, like plaintiffs here, often enter the market after the indentures have been negotiated and memorialized. Thus, those indentures are often not the product of face-to-face negotiations between the ultimate holders and the issuing company. What remains equally true, however, is that underwriters ordinarily negotiate the terms of the indentures with the issuers. Since the underwriters must then sell or place the bonds, they necessarily negotiate in part with the interests of the buyers in mind. Moreover, these indentures were not secret agreements foisted upon unwitting participants in the bond market. No successive holder is required to accept or to continue to hold the bonds, governed by their accompanying indentures; indeed, plaintiffs readily admit that they could have sold their bonds right up until the announcement of the LBO. Tr. at 15. Instead, sophisticated investors like plaintiffs are well aware of the indenture terms and, presumably, review them carefully before lending hundreds of millions of dollars to any company. -

Indeed, the prospectuses for the indentures contain a statement relevant to this action:

The Indenture contains no restrictions on the creation of unsecured short-term debt by [RJR Nabisco] or its subsidiaries, no restriction on the creation of unsecured Funded Debt by [RJR Nabisco] or its subsidiaries which are not Restricted Subsidiaries, and no restriction on the payment of dividends by [RJR Nabisco],

Bradley Resp.Aff., Exh. L at 24. 11 Further, as plaintiffs themselves note, the contracts at issue “[do] not impose debt limits, since debt is assumed to be used for productive purposes.” P. Reply at 34.

1. The relevant Articles:

A typical RJR Nabisco indenture contains thirteen Articles. At least four of them are relevant to the present motions and thus merit a brief review. 12

Article Three delineates the covenants of the issuer. Most important, it first provides for payment of principal and interest. It then addresses various mechanical provisions regarding such matters as payment *1510 terms and trustee vacancies. The Article also contains “negative pledge” and related provisions, which restrict mortgages or other liens on the assets of RJR Nabisco or its subsidiaries and seek to protect the bondholders from being subordinated to other debt.

Article Five describes various procedures to remedy defaults and the responsibilities of the Trustee. This Article includes the distinction in the indentures noted above, see supra n. 11. In seven of the nine securities at issue, a provision in Article Five prohibits bondholders from suing for any remedy based on rights in the indentures unless 25 percent of the holders have requested in writing that the indenture trustee seek such relief, and, after 60 days, the trustee has not sued. See, e.g., Bradley Aff.Exh. L, §§ 5.6, 5.7. Defendants argue that this provision precludes plaintiffs from suing on these seven securities. See D.Mem. at 22-25. Given its holdings today, see infra, the Court need not address this issue.

Article Nine governs the adoption of supplemental indentures. It provides, inter alia, that the Issuer and the Trustee can

add to the covenants of the Issuer such further covenants, restrictions, conditions or provisions as its Board of Directors by Board Resolution and the Trustee shall consider to be for the protection of the holders of Securities, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth

Bradley Aff.Exh. L, § 9.1(c).

Article Ten addresses a potential “Consolidation, Merger, Sale or Conveyance,” and explicitly sets forth the conditions under which the company can consolidate or merge into or with any other corporation. It provides explicitly that RJR Nabisco “may consolidate with, or sell or convey, all or substantially all of its assets to, or merge into or with any other corporation,” so long as the new entity is a United States corporation, and so long as it assumes RJR Nabisco’s debt. The Article also requires that any such transaction not result in the company’s default under any indenture provision. 13

2. The elimination of restrictive covenants:

In its Amended Complaint, MetLife lists the six debt issues on which it bases its claims. Indentures for two of those issues — the 10.25 percent Notes due in 1990, of which MetLife continues to hold $10 million, and the 8.9 percent Debentures due in 1996, of which MetLife continues to hold $50 million — once contained express covenants that, among other things, restricted the company’s ability to incur precisely the sort of debt involved in the recent LBO. In order to eliminate those restrictions, the parties to this action renegotiated the terms of those indentures, first in 1983 and then again in 1985.

MetLife acquired $50 million principal amount of 10.25 percent Notes from Del Monte in July of 1975. To cover the $50 million, MetLife and Del Monte entered into a loan agreement. That agreement restricted Del Monte’s ability, among other things, to incur the sort of indebtedness involved in the RJR Nabisco LBO. See promissory note §§ 2.6-2.15, attached as Exhibit A to Bradley Aff.Exh. E. In 1979, R.J. Reynolds — the corporate predecessor to RJR Nabisco — purchased Del Monte and *1511 assumed its indebtedness. Then, in December of 1983, R.J. Reynolds requested Met-Life to agree to deletions of those restrictive covenants in exchange for various guarantees from R.J. Reynolds. See Bradley Aff. U 17. A few months later, MetLife and R.J. Reynolds entered into a guarantee and amendment agreement reflecting those terms. See Bradley Aff. 1117, Exh. G. Pursuant to that agreement, and in the words of Robert E. Chappell, Jr., MetLife’s Executive Vice President, MetLife thus “gave up the restrictive covenants applicable to the Del Monte debt ... in return for [the parent company’s] guarantee and public covenants.” Chappell Dep. at 196.

MetLife acquired the 8.9 percent Debentures from R.J. Reynolds in October of 1976 in a private placement. A promissory note evidenced MetLife’s $100 million loan. That note, like the Del Monte agreement, contained covenants that restricted R.J. Reynolds’ ability to incur new debt. See Bradley Aff., Exh. H, §§ 2.5-2.9. In June of 1985, R.J. Reynolds announced its plans to acquire Nabisco Brands in a $3.6 billion transaction that involved the incurrence of a significant amount of new debt. R.J. Reynolds requested MetLife to waive compliance with these restrictive covenants in light of the Nabisco acquisition. See D.Mem. at 45; Bradley Aff. 1118.

In exchange for certain benefits, MetLife agreed to exchange its 8.9 percent debentures — which did contain explicit debt limitations — for debentures issued under a public indenture — which contain no explicit limits on new debt. An internal MetLife memorandum explained the parties’ understanding:

[MetLife’s $100 million financing of the Nabisco Brands purchase] had its origins in discussions with RJR regarding potential covenant violations in the 8.90% Notes. More specifically, in its acquisition of Nabisco Brands, RJR was slated to incur significant new long-term debt, which would have caused a violation in the funded indebtedness incurrence tests in the 8.90% Notes. In the discussions regarding [MetLife’s] willingness to consent to the additional indebtedness, it was determined that a mutually beneficial approach to the problem was to 1) agree on a new financing having a rate and a maturity desirable for [MetLife] and 2) modify the 8.90% Notes. The former was accomplished with agreement on the proposed financing, while the latter was accomplished by [MetLife] agreeing to substitute RJR’s public indenture covenants for the covenants in the 8.90% Notes. In addition to the covenant substitution, RJR has agreed to “debenturize” the 8.90% Notes upon [MetLife’s] request. This will permit [MetLife] to sell the 8.90% Notes to the public.

MetLife Southern Office Memorandum, dated July 11, 1985, attached as Bradley Aff.Exh. J, at 2 (emphasis added).

3. The recognition and effect of the LBO trend:

Other internal MetLife documents help frame the background to this action, for they accurately describe the changing securities markets and the responses those changes engendered from sophisticated market participants, such as MetLife and Jefferson-Pilot. At least as early as 1982, MetLife recognized an LBO’s effect on bond values. 14 In the spring of that year, MetLife participated in the financing of an LBO of a company called Reeves Brothers (“Reeves”). At the time of that LBO, Met-Life also held bonds in that company. Subsequent to the LBO, as a MetLife memorandum explained, the “Debentures of Reeves were downgraded by Standard & Poor’s from BBB to B and by Moody’s from Baal to Ba3, thereby lowering the value of the Notes and Debentures held by *1512 [MetLife].” MetLife Memorandum, dated August 20, 1982, attached as Bradley Reply Aff. Exh D, at 1.

MetLife further recognized its “inability to force any type of payout of the [Reeves’] Notes or the Debentures as a result of the buy-out [which] was somewhat disturbing at the time we considered a participation in the new financing. However,” the memorandum continued,

our concern was tempered since, as a stockholder in [the holding company used to facilitate the transaction], we would benefit from the increased net income attributable to the continued presence of the low coupon indebtedness. The recent downgrading of the Reeves Debentures and the consequent “loss” in value has again raised questions regarding our ability to have forced a payout. Questions have also been raised about our ability to force payouts in similar future situations, particularly when we would not be participating in the buyout financing.

Id. (emphasis added). In the memorandum, MetLife sought to answer those very “questions” about how it might force payouts in “similar future situations.”

A method of closing this apparent “loophole, ” thereby forcing a payout of [MetLife’s] holdings, would be through a covenant dealing with a change in ownership. Such a covenant is fairly standard in financings with privately-held companies ... It provides the lender with an option to end a particular borrowing relationship via some type of special redemption ...

Id., at 2 (emphasis added).

A more comprehensive memorandum, prepared in late 1985, evaluated and explained several aspects of the corporate world’s increasing use of mergers, takeovers and other debt-financed transactions. That memorandum first reviewed the available protection for lenders such as MetLife:

Covenants are incorporated into loan documents to ensure that after a lender makes a loan, the creditworthiness of the borrower and the lender’s ability to reach the borrower’s assets do not deteriorate substantially. Restrictions on the in-currence of debt, sale of assets, mergers, dividends, restricted payments and loans and advances to affiliates are some of the traditional negative covenants that can help protect lenders in the event their obligors become involved in undesirable merger/takeover situations.

MetLife Northeastern Office Memorandum, dated November 27,1985, attached as Bradley Aff.Exh. U, at 1-2 (emphasis added). The memorandum then surveyed market realities:

Because almost any industrial company is apt to engineer a takeover or be taken over itself, Business Week says that investors are beginning to view debt securities of high grade industrial corporations as Wall Street’s riskiest investments. In addition, because public bondholders do not enjoy the protection of any restrictive covenants, owners of high grade corporates face substantial losses from takeover situations, if not immediately, then when the bond market finally adjusts.... [T]here have been 10-15 merger/takeover/LBO situations where, due to the lack of covenant protection, [MetLife] has had no choice but to remain a lender to a less creditworthy obligor.... The fact that the quality of our investment portfolio is greater than the other large insurance companies ... may indicate that we have negotiated better covenant protection than other institutions, thus generally being able to require prepayment when situations become too risky ... [However,] a problem exists. And because the current merger craze is not likely to decelerate and because there exist vehicles to circumvent traditional covenants, the problem will probably continue. Therefore, perhaps it is time to institute appropriate language designed to protect Metropolitan from the negative implications of mergers and takeovers.

Id. at 2-4 (emphasis added). 15

Indeed, MetLife does not dispute that, as a member of a bondholders’ association, it *1513 received and discussed a proposed model indenture, which included a “comprehensive covenant” entitled “Limitations on Shareholders’ Payments.” 16 As becomes clear from reading the proposed — but never adopted — provision, it was “intend[ed] to provide protection against all of the types of situations in which shareholders profit at the expense of bondholders.” Id. The provision dictated that the “[corporation will not, and will not permit any [subsidiary to, directly or indirectly, make any [shareholder [p]ayment unless ... (1) the aggregate amount of all [shareholder payments during the period [at issue] ... shall not exceed [figure left blank].” Bradley Resp.Aff.Exh. H, at 9. The term “shareholder payments” is defined to include “restructuring distributions, stock repurchases, debt incurred or guaranteed to finance merger payments to shareholders, etc.” Id. at i.

Apparently, that provision — or provisions with similar intentions — never went beyond the discussion stage at MetLife. That fact is easily understood; indeed, MetLife’s own documents articulate several reasonable, undisputed explanations:

While it would be possible to broaden the change in ownership covenant to cover any acquisition-oriented transaction, we might well encounter significant resistance in implementation with larger public companies ... With respect to implementation, we would be faced with the task of imposing a non-standard limitation on potential borrowers, which could be a difficult task in today’s highly competitive marketplace. Competitive pressures notwithstanding, it would seem that management of larger public companies would be particularly opposed to such a covenant since its effect would be to increase the cost of an acquisition (due to an assumed debt repayment), a factor that could well lower the price of any tender offer (thereby impacting shareholders).

Bradley Reply Aff.Exh. D, at 3 (emphasis added). The November 1985 memorandum explained that

[o]bviously, our ability to implement methods of takeover protection will vary between the public and private market. In that public securities do not contain any meaningful covenants, it would be very difficult for [MetLife] to demand takeover protection in public bonds. Such a requirement would effectively take us out of the public industrial market. A recent Business Week article does suggest, however, that there is increasing talk among lending institutions about requiring blue chip companies to compensate them for the growing risk of downgradings. This talk, regarding such protection as restrictions on future debt financings, is met with skepticism by the investment banking community which feels that CFO’s are not about to give up the option of adding debt and do not really care if their companies’ credit ratings drop a notch or two.

Bradley Resp.Aff.Exh. A, at 8 (emphasis added).

The Court quotes these documents at such length not because they represent an “admission” or “waiver” from MetLife, or an “assumption of risk” in any tort sense, or its “consent” to any particular course of conduct — all terms discussed at even greater length in the parties’ submissions. See, *1514 e.g., P. Opp. at 31-36; P. Reply at 16-17; D. Reply at 15-16. Rather, the documents set forth the background to the present action, and highlight the risks inherent in the market itself, for any investor. Investors as sophisticated as MetLife and Jefferson-Pilot would be hard-pressed to plead ignorance of these market risks. Indeed, MetLife has not disputed the facts asserted in its own internal documents. Nor has Jefferson-Pilot — presumably an institution no less sophisticated than MetLife — offered any reason to believe that its understanding of the securities market differed in any material respect from the description and analysis set forth in the MetLife documents. Those documents, after all, were not born in a vacuum. They are descriptions of, and responses to, the market in which investors like MetLife and Jefferson-Pilot knowingly participated.

These documents must be read in conjunction with plaintiffs’ Amended Complaint. That document asserts that the LBO “undermines the foundation of the investment grade debt market ...,” Am. Comp. ¶ 16; that, although “the indentures do not purport to limit dividends or debt ... [s]uch covenants were believed unnecessary with blue chip companies ... ”, Am. Comp. ¶ 17 17 ; that “the transaction contradicts the premise of the investment grade market ... ”, Am.Comp. 1133; and, finally, that “[t]his buy-out was not contemplated at the time the debt was issued, contradicts the premise of the investment grade ratings that RJR Nabisco actively solicited and received, and is inconsistent with the understandings of the market ... which [pjlaintiffs relied upon.” Am.Comp. II51.

Solely for the purposes of these motions, the Court accepts various factual assertions advanced by plaintiffs: first, that RJR Nabisco actively solicited “investment grade” ratings for its debt; second, that it relied on descriptions of its strong capital structure and earnings record which included prominent display of its ability to pay the interest obligations on its long-term debt several times over, Am.Comp. 1114; and third, that the company made express or implied representations not contained in the relevant indentures concerning its future creditworthiness. Id. H15. In support of those allegations, plaintiffs have marshaled a number of speeches made by co-defendant Johnson and other executives of RJR Nabisco. 18 In addition, plaintiffs rely on an affidavit sworn to by John Dow-dle, the former Treasurer and then Senior Vice President of RJR Nabisco from 1970 until 1987. In his opinion, the LBO “clearly undermines the fundamental premise of the [cjompany’s bargain with the bondholders, and the commitment that I believe the [cjompany made to the bondholders ... I firmly believe that the company made commitments ... that require it to redeem [these bonds and notes] before paying out the value to the shareholders.” Dowdle Aff. 11114, 7.

III. DISCUSSION

At the outset, the Court notes that nothing in its evaluation is substantively altered by the speeches given or remarks made by RJR Nabisco executives, or the opinions of various individuals — what, for instance, former RJR Nabisco Treasurer Dowdle personally did or did not “firmly believe” the indentures meant. See supra, and generally Chappell, Dowdle and Howard Affidavits. The parol evidence rule bars plaintiffs from arguing that the speeches made by company executives *1515 prove defendants agreed or acquiesced to a term that does not appear in the indentures. See West, Weir & Bartel, Inc. v. Mary Carter Paint Co., 25 N.Y.2d 535, 540, 307 N.Y.S.2d 449, 452, 255 N.E.2d 709, 712 (1969) (“The rule in this State is well settled that the construction of a plain and unambiguous contract is for the Court to pass on, and that circumstances extrinsic to the agreement will not be considered when the intention of the parties can be gathered from the instrument itself.”) In interpreting these contracts, this Court must be concerned with what the parties intended, but only to the extent that what they intended is evidenced by what is written in the indentures. See, e.g., Rodolitz v. Neptune Paper Products, Inc., 22 N.Y.2d 383, 386-7, 292 N.Y.S.2d 878, 881, 239 N.E.2d 628, 630 (1968); Raleigh Associates v. Henry, 302 N.Y. 467, 473, 99 N.E.2d 289 (1951).

The indentures at issue clearly address the eventuality of a merger. They impose certain related restrictions not at issue in this suit, but no restriction that would prevent the recent RJR Nabisco merger transaction. See supra at 1510 (discussion of Article 10). The indentures also explicitly set forth provisions for the adoption of new covenants, if such a course is deemed appropriate. See supra at 1510 (discussion of Article 9). While it may be true that no explicit provision either permits or prohibits an LBO, such contractual silence itself cannot create ambiguity to avoid the dictates of the parol evidence rule, particularly where the indentures impose no debt limitations.

Under certain circumstances, however, courts will, as plaintiffs note, consider extrinsic evidence to evaluate the scope of an implied covenant of good faith. See Valley National Bank v. Babylon Chrysler-Plymouth, Inc., 53 Misc.2d 1029, 1031-32, 280 N.Y.S.2d 786, 788-89 (Sup.Ct. Nassau), aff'd, 28 A.D.2d 1092, 284 N.Y.S.2d 849 (2d Dep’t 1967) (Relying on custom and usage because “[w]hen a contract fails to establish the time for performance, the law implies that the act shall be done within a reasonable time .. .”). 19 However, the Second Circuit has established a different rule for customary, or boilerplate, provisions of detailed indentures used and relied upon throughout the securities market, such as those at issue. Thus, in Sharon Steel Corporation v. Chase Manhattan Bank, N.A., 691 F.2d 1039 (2d Cir.1982), Judge Winter concluded that

[b]oilerplate provisions are ... not the consequences of the relationship of particular borrowers and lenders and do not depend upon particularized intentions of the parties to an indenture. There are no adjudicative facts relating to the parties to the litigation for a jury to find and the meaning of boilerplate provisions is, therefore, a matter of law rather than fact. Moreover, uniformity in interpretation is important to the efficiency of capital markets ... Whereas participants in the capital market can adjust their affairs according to a uniform interpretation, whether it be correct or not as an initial proposition, the creation of enduring uncertainties as to the meaning of boilerplate provisions would decrease the value of all debenture issues and greatly impair the efficient working of capital markets ... Just such uncertainties would be created if interpretation of boilerplate provisions were submitted to juries sitting in every judicial district in the nation.

Id. at 1048. See also Morgan Stanley & Co. v. Archer Daniels Midland Co., 570 F.Supp. 1529, 1535-36 (S.D.N.Y.1983) (Sand, J.) (“[Plaintiff concedes that the legality of [the transaction at issue] would depend on a factual inquiry ... This case-by-case approach is problematic ... [Plain *1516 tiffs theory] appears keyed to the subjective expectations of the bondholders ... and reads a subjective element into what presumably should be an objective determination based on the language appearing in the bond agreement.”); Purcell v. Flying Tiger Line, Inc., No. 82-3505, at 5, 8 (S.D.N.Y. Jan. 12, 1984) (CES) (“The Indenture does not contain any such limitation [as the one proposed by plaintiff].... In light of our holding that the Indenture unambiguously permits the transaction at issue in this case, we are precluded from considering any of the extrinsic evidence that plaintiff offers on this motion ... It would be improper to consider evidence as to the subjective intent, collateral representations, and either the statements or the conduct of the parties in performing the contract.”) (citations omitted). Ignoring these principles, plaintiffs would have this Court vary what they themselves have admitted is “indenture boilerplate,” P. Reply at 2, of “standard” agreements, P. Mem. at 14, to comport with collateral representations and their subjective understandings. 20

A. Plaintiffs’ Case Against the RJR Nabisco LBO:

1. Count One: The implied covenant:

In their first count, plaintiffs assert that [defendant RJR Nabisco owes a continuing duty of good faith and fair dealing in connection with the contract [i.e., the indentures] through which it borrowed money from MetLife, Jefferson-Pilot and other holders of its debt, including a duty not to frustrate the purpose of the contracts to the debtholders or to deprive the debtholders of the intended object of the contracts — purchase of investment-grade securities.

In the “buy-out,” the [c]ompany breaches the duty [or implied covenant] of good faith and fair dealing by, inter alia, destroying the investment grade quality of the debt and transferring that value to the “buy-out” proponents and to the shareholders.

Am.Comp. ¶¶ 34, 35. In effect, plaintiffs contend that express covenants were not necessary because an implied covenant would prevent what defendants have now done.

A plaintiff always can allege a violation of an express covenant. If there has been such a violation, of course, the court need not reach the question of whether or not an implied covenant has been violated. *1517 That inquiry surfaces where, while the express terms may not have been technically breached, one party has nonetheless effectively deprived the other of those express, explicitly bargained-for benefits. In such a case, a court will read an implied covenant of good faith and fair dealing into a contract to ensure that neither party deprives the other of “the fruits of the agreement.” See, e.g., Greenwich Village Assoc. v. Salle, 110 A.D.2d 111, 115, 493 N.Y.S.2d 461, 464 (1st Dep’t 1985). See also Van Gemert v. Boeing Co., 553 F.2d 812, 815 (“Van Gemert II”) (2d. Cir.1977) Such a covenant is implied only where the implied term “is consistent with other mutually agreed upon terms in the contract.” Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329, 335, 514 N.Y.S.2d 209, 212, 506 N.E.2d 919, 922 (1987). In other words, the implied covenant will only aid and further the explicit terms of the agreement and will never impose an obligation “ 'which would be inconsistent with other terms of the contractual relationship.’ ” Id. (citation omitted). Viewed another way, the implied covenant of good faith is breached only when one party seeks to prevent the contract’s performance or to withhold its benefits. See Collard v. Incorporated Village of Flower Hill, 75 A.D.2d 631, 632, 427 N.Y.S.2d 301, 302 (2d Dep’t 1980). As a result, it thus ensures that parties to a contract perform the substantive, bargained-for terms of their agreement. See, e.g., Wakefield v. Northern Telecom, Inc., 769 F.2d 109, 112 (2d Cir.1985) (Winter, J.)

In contracts like bond indentures, “an implied covenant ... derives its substance directly from the language of the Indentu