。
A loud noise at night terrified him.
Literal
Night [gen-の] big sound [by-で] he [topic-は] was-frightened.
で here marks the cause of the fear — instrumental/causal で. おびえる ('become frightened, cower in fear') describes a stronger fear reaction than the more general 怖がる. The pattern [cause]で[reaction] is a common way to express 'frightened by X.'