Citibank, N.A. v. Morgan Stanley & Co. International, PLC
Filing
89
OPINION AND ORDER. re: Denying 61 MOTION for Summary Judgment. filed by Morgan Stanley & Co. International, PLC; Granting 70 MOTION for Summary Judgment. filed by Citibank, N.A. The Clerk of Court is directed to close these motions (Docket Nos. 61 and 70). (Signed by Judge Shira A. Scheindlin on 5/25/11) (djc)
Plaintiff and
Counterclaim Defendant,
- against
OPINION AND ORDER
09 Civ. 8197 (SAS)
MORGAN STANLEY & CO.
INTERNATIONAL, PLC,
Defendant and
Counterclaim ant.
-------------------------------------------------------- )(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
This case arises out of a dispute over a credit default swap ("CDS")
agreement between two of the most sophisticated financial institutions in the world
- Citibank, N.A. ("Citibank") and Morgan Stanley & Co. International, PLC
("MSIP"). In an opinion and order dated May 12,2010 (the "May 12 Opinion"), I
concluded that MSIP breached the unambiguous terms of that agreement. I
Accordingly, I granted judgment on the pleadings to Citibank on its sole claim for
See CWbank, NA. v. Morgan Stanley & Co. Int'l, 724 F. Supp. 2d
398,404-07 (S.D.N.Y. 2010) ("May 12 Opinion").
breach of contract and dismissed MSIP’s two mirror-image counterclaims. In a
subsequent opinion and order dated October 8, 2010 (the “October 8 Opinion”), I
addressed Citibank’s motion for judgment on the pleadings on MSIP’s two
remaining counterclaims – equitable estoppel and reformation – granting the
motion as to the counterclaim for equitable estoppel but denying it as to the
counterclaim for reformation.2 Now before the Court are cross-motions for
summary judgment on MSIP’s counterclaim for reformation. For the reasons that
follow, MSIP’s motion is denied and Citibank’s motion is granted.
II.
BACKGROUND
A.
The Agreements
In 2006, Capmark VI Ltd. (“Capmark”) issued a collateralized debt
obligation (the “Capmark CDO”) – an asset-backed security (“ABS”) backed by
mortgages and other assets (the “Collateral”). The Capmark CDO is governed
primarily by a July 24, 2006 indenture (the “Indenture”).3
2
See Citibank, N.A. v. Morgan Stanley & Co. Int’l, 724 F. Supp. 2d
407, 420 (S.D.N.Y. 2010) (“October 8 Opinion”). This Opinion assumes
familiarity with the legal standards, analyses, and conclusions contained in the
May 12 and October 8 Opinions.
3
See Indenture, Ex. A to 1/9/10 Declaration of Rachel M. Cherington,
Counsel for Citibank, in Support of Citibank’s Motion for Judgment on the
Pleadings and Dismissal of Counterclaims [Docket No. 17].
2
Citibank provided $366 million in revolving credit to the Capmark
CDO (the “Revolving Facility”) that was memorialized by a Credit Agreement
(“Credit Agreement” or “Capmark Credit Agreement”) dated July 24, 2006 among
Capmark as Issuer, Citibank as Lender, and Citibank as Administrative Agent.4
Citibank was the senior stakeholder – that is, the “Controlling Class” – in the
Capmark CDO at all relevant times.5 As a result, Citibank held certain rights under
the Indenture, including the right to direct that the Collateral be liquidated if the
value of those assets fell below Citibank’s obligation under the Revolving Facility
($366 million).6
The Capmark CDO experienced an event of default in August of
2008.7 In March of 2009, after the value of the Capmark CDO had collapsed,
Citibank exercised its rights under the Indenture and directed that the Collateral be
4
See MSIP’s Statement of Undisputed Facts Pursuant to Local Rule
56.1 (“MSIP 56.1”) ¶ 3; Capmark Credit Agreement, Ex. A-1 to Declaration of
Andrew S. Corkhill, Counsel for MSIP, in Support of MSIP’s Motion for
Summary Judgment (“Corkhill Decl.”).
5
See Indenture §§ 5.2-5.5, 5.8, 5.13; MSIP 56.1 ¶ 11.
6
See Indenture § 5.5(a)(ii). This dispute centers on whether Citibank
and MSIP mutually agreed that those liquidation (and other) rights in fact passed to
MSIP.
7
Citibank’s Statement of Undisputed Facts Pursuant to Local Rule 56.1
(“Citibank 56.1”) ¶ 81.
3
liquidated.8 Approximately $121 million was recouped from the sale, leaving
Citibank with a shortfall of $245,368,966.51.9
Meanwhile, three days before the Capmark Credit Agreement was
executed, Citibank had purchased credit protection on the Revolving Facility from
MSIP via a credit default swap, memorialized by a letter of confirmation dated July
21, 2006 between MSIP and Citibank (the “Capmark Swap Agreement” or the
“Capmark CDS Confirmation”).10 Under the terms of that agreement, the
occurrence of any of four defined “Credit Events” occurring on the “Reference
Entity” (the Capmark CDO) – including a “Failure to Pay Principal” credit event –
obligated MSIP to pay Citibank any losses that it (Citibank) sustained under the
Revolving Facility.11 The ISDA Master Agreement contains an integration clause
8
See Complaint (“Compl.”) [Docket No. 1] ¶ 30; Answer and
Counterclaim (“Counter”) [Docket No. 11] ¶ 73; Indenture § 5.5(a)
9
See Compl. ¶ 32; Counter ¶ 52.
10
See MSIP 56.1 ¶ 4; Capmark Swap Agreement, Ex. A-1 to 1/21/11
Declaration of Rachel M. Cherington, Counsel for Citibank, in Support of
Citibank’s Motion for Summary Judgment and Opposition to MSIP’s Motion for
Summary Judgment (“Cherington Decl.”). The Capmark Swap Agreement
“supplements, forms a part of, and is subject to, the [1/19/1996] [International
Swaps and Derivatives Association, Inc. (“ISDA”)] Master Agreement” between
Citibank and MSIP. See Capmark Swap Agreement at 1.
11
See Citibank 56.1 ¶ 70. The Swap Agreement defines a “Failure to
Pay Principal” credit event as “(i) a failure by the Reference Entity [The Capmark
CDO] to pay an Expected Principal Amount on the Final Amortization Date . . . .”
4
providing that “[t]his agreement constitutes the entire agreement and understanding
of the parties with respect to its subject matter and supersedes all oral
communication and prior writings with respect thereto.”12 The ISDA Master
Agreement further provides that Citibank and MSIP are “not relying upon any
representations (whether written or oral) of the other party other than the
representations expressly set forth herein, in any Credit Support Document or in
any Confirmation”13 (the “no-reliance clause”).
When the Collateral was liquidated in full on July 13, 2009 (pursuant
Capmark Swap Agreement at 12-13. The “Expected Principal Amount” on the
Final Amortization Date is the outstanding principal. See id. at 12. The “Final
Amortization Date” includes “the date on which the assets securing the Reference
Obligation [the Revolving Facility] . . . are liquidated, distributed, or otherwise
disposed of in full and the proceeds thereof are distributed or otherwise disposed of
in full.” Id. at 13. Suffice it to say that a Failure to Pay Principal credit event was
highly unlikely to occur until the Capmark CDO’s maturity date – 29 years
after protection from MSIP expired – in the absence of a liquidation directed by
the Controlling Class under the Indenture. See Citibank 56.1 ¶ 71; MSIP’s
Response to Citibank’s Statement of Undisputed Facts Pursuant to Local Rule 56.1
(“MSIP Response to Citibank 56.1”) ¶ 71; Declaration of Frank Ianco, Expert
retained by Citibank, in Support of Citibank’s Motion for Summary Judgment and
Opposition to MSIP’s Motion for Summary Judgment (“Ianco Decl.”) (“If the
parties had agreed to full and unfettered transfer of controlling class rights for the
3-year term of the Capmark CDS, this would essentially have reduced the Failure
to Pay Principal Credit Event to an economic near-impossibility.”).
12
ISDA Master Agreement, Ex. A-2 to Cherington Decl., § 9(a).
13
Schedule to ISDA Master Agreement, Ex. A-2 to Cherington Decl.,
Part 5(d).
5
to Citibank’s directive), the $245,368,966.51 amount outstanding on the Revolving
Facility triggered a Failure to Pay Principal Credit Event under the Swap
Agreement, obligating MSIP to pay Citibank the $245,368,966.51 shortfall.14 I
have already held that, under the unambiguous terms of section 6(d) of the Swap
Agreement (discussed further below), “Citibank’s issuance of a direction under the
Indenture did not implicate MSIP’s consent rights under Section 6(d) of the Swap
Confirmation.”15 In other words, MSIP’s consent was not required in order for
Citibank to direct liquidation of the Collateral – the liquidation that triggered the
Credit Event obligating MSIP to pay Citibank $245,368,966.51. The question now
before the Court is whether – notwithstanding the unambiguous language of
section 6(d) – the parties “mutually intended to transfer to [MSIP] all voting rights
– including Controlling Class rights – associated with the Capmark Credit
Agreement”16 such that Citibank’s liquidation of the Capmark CDO constituted a
breach of the Capmark Swap Agreement, excusing MSIP from paying Citibank the
$245,368,996.51 shortfall.
B.
Capmark Swap Negotiations; June 22, 2006 Emails
14
See May 12 Opinion, 724 F. Supp. 2d at 407.
15
Id.
16
Memorandum of Law in Support of MSIP’s Motion for Summary
Judgment (“MSIP Mem.”) at 1.
6
In the parties’ negotiations over the terms of the Capmark Swap
Agreement, John Costango (Citibank) was the banker with “primary responsibility
with respect to the day-to-day negotiations with Morgan Stanley.”17 For MSIP,
George Wilkinson “worked with the business unit within [Citibank’s Global
Proprietary Credit Group] to negotiate and execute CDS documents,”18 including
the Capmark Swap Agreement. However, other Citibank agents – including Adam
Bentch, Steven Kolyer,19 and Don Bendernagel (attorneys in Citibank’s derivatives
legal group20); Grant Buerstetta (an attorney with Citibank’s outside counsel,
Clifford Chance); William Aprigliano (Citibank’s “regulatory capital” corporate
17
Transcript of 4/29/10 Deposition of John Costango (“Costango
Dep.”), Ex. B-4 to Cherington Decl. & Ex. B-1 to Corkhill Decl. & Ex. B-5 to
Supplemental Declaration of Andrew S. Corkhill in Support of MSIP’s Opposition
to Citibank’s Motion for Summary Judgment and Reply to Citibank’s Opposition
to MSIP’s Motion for Summary Judgment (“Supp. Corkhill Decl.”) at 29:25-30:5.
18
Transcript of 6/25/10 Deposition of George Wilkinson (“Wilkinson
Dep.”), Ex. B-4 to Corkhill Decl. & Ex. B-12 to Cherington Decl. &
Ex. B-1 to Supp. Corkhill Decl. & Ex. D to Supplemental Declaration of Rachel M.
Cherington in Support of Citibank’s Reply to MSIP’s Opposition to Citibank’s
Motion for Summary Judgment (“Supp. Cherington Decl.”), at 26:6-8. Wilkinson
is a member of the bar of the State of New York. See id. at 4:25-5:3.
19
Bentch testified that Kolyer was responsible for inserting section 6(d)
into what became the Capmark Swap Agreement. See, e.g., Transcript of 11/5/10
Deposition of Adam Bentch (“Bentch Dep.”), Ex. B-5 to Corkhill Decl. & Ex. B-2
to Cherington Decl. & Ex. B-1 to Supp. Corkhill Decl. & Ex. A-2 to Supp.
Cherington Decl., at 193:15-20.
20
See id. at 153:12-16.
7
representative21); and Nestor Dominguez (who “ultimately . . . said, okay, do the
trade”22) were involved in drafting, reviewing, or approving the Capmark Swap
Agreement.23 Kevin Starrett signed the Capmark Swap Agreement on Citibank’s
behalf and said “done” on the phone.24
On June 22, 2006, a month before the Capmark CDS Confirmation
was signed, Wilkinson (MSIP) sent an email to Costango (Citibank) setting forth
“[s]ome additional comments on the CDS doc.”25 The first item read:
(i) As discussed, we should include language in the doc stating that
no amendment, waiver, consent, etc. will be made or given by Citi
under the Loan Agreement without the prior written consent of MS
(i.e., Citi passes along to MS all voting rights it has under the Loan
Agreement to MS).26
Fourteen minutes later, Costango (Citibank) wrote that he would “not be able to
focus on these comments in full tonight, but . . . will give you my quick thoughts
21
See Transcript of 8/11/10 Deposition of William Aprigliano
(“Aprigliano Dep.”), Ex. B-6 to Corkhill Decl. & Ex. B-1 to Cherington Decl. &
Ex. A-1 to Supp. Cherington Decl., at 23:6-12.
22
Costango Dep. at 29:14-22.
23
Citibank 56.1 ¶ 82; MSIP Response to Citibank 56.1 ¶ 82.
24
MSIP Response to Citibank 56.1 ¶ 82.
25
6/22/06 Email from Wilkinson to Costango (“June 22 Email”), Ex. C
to Corkhill Decl.
26
Id. (emphasis added).
8
before I head out today.”27 Forty minutes later, Costango responded by inserting his
“preliminary comments in CAPS” into the text of Wilkinson’s email.28 He typed
the words “OK”29 under Wilkinson’s first “comment” regarding “voting rights”
quoted above.
Wilkinson (MSIP) testified that “when [he and Costango (Citibank)]
discussed the topics of the passage of voting rights from Citi to Morgan Stanley in
respect of this transaction, John Costango was in agreement that the rights that Citi
had as a lender under the loan facility would pass to Morgan Stanley for so long as
Morgan Stanley was on risk.”30 Wilkinson also testified that he had the same
“conversations” concerning voting rights in the Capmark transaction with Michael
Edman, Ross Feldman, Erick May, and Joseph Naggar – other MSIP employees –
prior to the close of the transaction.31 Costango testified that he has no recollection
of any discussion with Wilkinson concerning voting rights prior to his receipt of the
27
6/22/06 Email from Costango to Wilkinson, Ex. D to Cherington
Decl.
28
Second 6/22/06 Email from Costango to Wilkinson, Ex. C to Corkhill
Decl. (“See my preliminary comments in CAPS below. . . . Can we discuss this in
more detail tomorrow?”).
29
Id.
30
Wilkinson Dep. at 80:24-81:6.
31
See id. at 35:12-18.
9
June 22 Email.32 Nor did any other MSIP employee testify to remembering a
conversation with Citibank or with Wilkinson concerning the passage of rights.33
On June 25, 2006, Costango forwarded Wilkinson’s June 22 Email
both to Citibank’s in-house counsel and to Clifford Chance.34 Five days later,
Costango forwarded Wilkinson a revised draft Capmark CDS Confirmation
32
See Costango Dep. at 272:5-11 (“[O]ther than what this email seems
to imply actually happened, I don’t . . . have a recollection [of having any
discussions with Mr. Wilkinson concerning voting rights in respect of Capmark
prior to receiving the June 22 Email.]”).
Wilkinson also testified that he and Costango had at least three oral
conversations in April 2009 concerning the parties’ understanding of the passage
of voting rights in the Capmark Swap. Leaving aside for the moment that
Wilkinson’s testimony as to Costango’s statements during these conversations is
inadmissible hearsay (since Costango was not an employee or agent of Citibank or
any Citibank affiliate at the time the statements were allegedly made), Costango
had no recollection of allegedly reconfirming during these conversations his
alleged understanding that Citibank had agreed to transfer Controlling Class rights
to MSIP under the Capmark Swap. See id. at 323:7-329:25. Costango testified
that he remembered only one telephone conversation, in which no specifics were
discussed, and one in-person meeting. See id. at 328:17-329:5. However, he
testified that he could not dispute Wilkinson’s recollection as to what he said on
those calls (or call) or during their in-person meeting. See id. at 327:10-328:3,
328:11-16.
33
See Transcript of 7/29/10 Deposition of Michael Edman (“Edman
Dep.”), Ex. B-5 to Cherington Decl. & Ex. A-3 to Supp. Cherington Decl. at
56:11-57:25; Transcript of 7/28/10 Deposition of Ross Feldman (“Feldman Dep.”),
Ex. B-6 to Cherington Decl. at 72:8-73:25; Transcript of 8/17/10 Deposition of
Joseph Naggar (“Naggar Dep.”), Ex. B-7 to Cherington Decl. & Ex. A-4 to Supp.
Cherington Decl. at 135:21-136:8.
34
See MSIP 56.1 ¶ 24.
10
prepared by Clifford Chance, with the caveat that he “received this from outside
counsel but our internal counsel has not yet reviewed thoroughly.”35 The attached
draft confirmation included a new section “6(d)” entitled “Reference Obligation
Amendments” – added as a consequence of Wilkinson’s June 22 Email36 – that
read:
No amendment to, or waiver or consent of or with respect to, the
Reference Obligation [the Revolving Facility] will be agreed or
consented to by Buyer [Citibank] (or permitted by Buyer to be
agreed or consented to) without the prior written consent of the
Counterparty [MSIP].37
Citibank’s in-house counsel on the Capmark transaction authorized the inclusion of
the language in section 6(d).38
2.
The Tallships Swap
Citibank provided a revolving credit facility to another CDO, the
Tallships Funding, Ltd. CDO (“Tallships”), memorialized by a Revolving Credit
Agreement (the “Tallships Credit Agreement”).39 Citibank purchased credit
35
6/30/06 Email from Costango to Wilkinson, Ex. F to Corkhill Decl.
36
See Citibank’s Response to MSIP’s Statement of Undisputed Facts
Pursuant to Local Rule 56.1 (“Citibank Response to MSIP 56.1”) ¶ 26.
37
Attachment to 6/30/06 Email from Costango to Wilkinson, Ex. F to
Corkhill Decl.
38
See MSIP 56.1 ¶ 27.
39
See id. ¶ 4; Tallships Credit Agreement, Ex. A-3 to Corkhill Decl.
11
protection on the Tallships Credit Agreement from Morgan Stanley Capital
Services Inc. (“MSCS”), memorialized by a letter of confirmation dated December
14, 2006 between MSCS and Citibank (the “Tallships Swap Agreement”).40 Unlike
the Capmark Swap Agreement, the Tallships Swap Agreement effectively gave
MSCS the ability to direct (in certain circumstances) Citibank’s exercise of
Controlling Class rights.41
The Tallships Swap shared certain similarities with the Capmark Swap.
First, under both agreements, Citibank paid 7 basis points per annum of notional
exposure for approximately three years’ credit protection.42 Second, both swaps
were “non-coterminous,” meaning the maturity date of the swaps (three years) did
not match the maturity date of the underlying Reference Obligations.43 Third,
40
See MSIP 56.1 ¶ 5; Tallships Swap Agreement, Ex. A-4 to Corkhill
Decl. MSCS was also “invested” in the Tallships CDO, having purchased a
portion of the equity tranche. See Feldman Dep. at 126:5-13.
41
See Tallships Swap Agreement § 6(e).
42
See Citibank Response to MSIP 56.1 ¶ 8.
43
See Citibank 56.1 ¶ 69. To Wilkinson’s knowledge, MSIP had never
entered into a non-coterminous CDS other than Capmark and, subsequently,
Tallships. See id. ¶ 74. Other Citibank and MSIP employees testified similarly
that they were unaware of any non-coterminous CDS-on-CDO transactions apart
from the Capmark Swap and Tallships Swap. See Costango Dep. at 51:5-23;
Transcript of 8/4/10 Deposition of Mihail Nikolov (“Nikolov Dep.”), Ex. B-8 to
Cherington Decl. & Ex. B-4 to Supp. Corkhill Decl., at 167:18-23; Feldman Dep.
at 108:9-25; Naggar Dep. at 115:24-116:8.
12
Citibank claimed “regulatory capital” (“reg cap”)44 relief in respect of both
Capmark and Tallships.45 Fourth, while both the Capmark Credit Agreement and
44
See generally Federal Reserve Supervisory Release 96-17 (GEN)
dated August 12, 1996, Ex. M to Cherington Decl., at 1, 3. An Office of the
Comptroller of the Currency (“OCC”) Interpretive Letter indicates that whether a
non-coterminous CDS qualifies for regulatory capital relief depends on the extent
to which it protects against actual realized credit losses, not credit risk associated
with deteriorating credit quality. See OCC Interpretive Letter #945 dated
November 2002, Ex. M to Cherington Decl. (approving partial regulatory capital
relief even though the non-coterminous CDS “[did] not protect the bank from
changes in value of the reference assets due to deteriorating credit quality of the
issuers or changes in market conditions.”).
45
See MSIP ¶ 49; see also Citibank 56.1 ¶ 75 (“Citi entered into the
Capmark CDS, among other reasons, to obtain relief from reg cap requirements –
i.e., to reduce the amount of capital held against the Revolving Facility.”).
However, Citibank has taken the position in this litigation that “[a]s to Tallships,
this proved to be in error.” Citibank Response to MSIP 56.1 ¶ 49 (citing
Aprigliano Dep. at 32:15-33:10). As discussed in greater detail below, Citibank
contends that it would not have transferred Controlling Class rights to MSIP in
Capmark because doing so would have limited Citibank’s ability to obtain
regulatory capital relief. See MSIP 56.1 ¶ 44. Yet William Aprigliano – who
testified as Citibank’s Rule 30(b)(6) corporate representative as to the regulatory
capital relief requirements in Capmark and Tallships – did not recall whether
Citibank considered, at the time the Capmark Swap was negotiated, that it needed
to retain Controlling Class rights in order to obtain regulatory capital relief. See
Aprigliano Dep. at 193:13-21. Nor did he consider whether transferring
Controlling Class rights to MSIP would impact Citibank’s ability to obtain
regulatory capital relief in Tallships – because he did not review the Tallships
Swap, the Tallships Back-to-Back Swap (see below), or any other aspect of the
Tallships transaction at the time it was negotiated. See id. at 57:11-13. In fact,
Aprigliano could not recall whether, prior to the weeks leading up to his
deposition, he had ever previously considered whether transferring Controlling
Class rights to MSIP impacted Citibank’s ability to obtain reg cap relief. See id. at
63:5-22.
13
the Tallships Credit Agreement provided Citibank with the option of syndicating
the revolving facilities, neither was ever syndicated (or intended to be syndicated),
rendering Citibank the sole holder of Controlling Class rights.46 The Capmark
Swap was the “starting point” or the “reference point” for the Tallships Swap.47
a.
Tallships Swaps Negotiations
Costango and Wade (Citibank) shared responsibility for “negotiating
with MSCS concerning the business terms” of the Tallships swap.48 On November
28, 2006, Wilkinson (MSCS) sent an email to Wade (Citibank) – copying Anna
Choe (Citibank in-house counsel), six individuals from Clifford Chance, Feldman
and Naggar (MSCS), and Costango (Citibank) – requesting that
46
See MSIP 56.1 ¶¶ 10-11.
47
Transcript of 8/13/10 Deposition of Chaka L. Wade (“Wade Dep.”),
Ex. B-11 to Cherington Decl. & Ex. B-3 to Corkhill Decl., at 74:21-75:5. Distinct
from the Tallships Swap discussed in this paragraph, Citibank also entered into an
advance swap with Tallships (“Tallships Advance Swap”), memorialized by an
“Advance Swap Confirmation” dated December 14, 2006. See Ex. A-4 to
Cherington Decl. Citibank then purchased credit protection on the Tallships
Advance Swap from MSCS (the “Tallships Back-to-Back Swap”), memorialized by
a letter of confirmation dated December 14, 2006 between MSCS and Citibank.
See Ex. A-5 to Cherington Decl. For the Tallships Back-to-Back Swap, Citibank
paid MSCS 15 basis points per annum of the total notional exposure of $687.5
million. See id. The Tallships-Citibank Advance Swap was the “Reference
Obligation” for the Citibank-MSCS “Back-to-Back Swap” (whereas the Revolving
Facility was the “Reference Obligation” for the Capmark Swap).
48
Costango Dep. at 26:9-27:6.
14
(v) [t]he back-to-back swap between [MSCS] and Citi should state
that Citi will pass through to [MSCS] all voting/consent rights of
the Advance Swap Counterparty under the Advance Swap. In
addition, the doc should provide that failure to do so (or failure to
act in accordance with the instructions of MS) will result in a
MTM termination.49
Citibank’s privilege log reflects that, on November 29, 2006 – before responding to
Wilkinson’s request – emails were exchanged among Choe (in-house counsel),
Costango, Wade, and Buerstetta on the following subjects:
•
“Communications providing [and requesting] legal advice concerning voting
rights language requested by Morgan Stanley.”
•
“Communications reflecting a request for legal advice from Anna Choe
concerning voting rights provisions in the Capmark VI CDS Confirmation.”
•
“Communications requesting legal advice concerning voting rights language
requested by Morgan Stanley and the Capmark VI transaction.”50
49
11/28/06 Email from Wilkinson (MSCS) to Wade (Citibank)
(“November 28 Email”), Ex. G to Corkhill Decl. (emphasis added). The “Advance
Swap Counterparty” referenced in Wilkinson’s email was Citibank. “MTM”
stands for “mark-to-market.” See Wilkinson Dep. at 174:4-14.
50
Citibank Privilege Log, Ex. H to Corkhill Decl. MSIP has fought
vigorously for discovery of these emails on the ground that Citibank waived
privilege by placing their contents “at issue” in this litigation. At a conference held
on November 10, 2010, I denied MSIP’s request that Citibank be ordered to
produce them, but warned that “when [Citibank’s] brief comes in, if it does what
[MSIP] think[s] it might do, [the waiver issue is] going to be on the table again.”
See Transcript of 11/10/10 Conference [Docket No. 58] at 25:1-7. On January 21,
2011, having reviewed Citibank’s moving and opposition papers, MSIP again
15
Following these internal discussions, Wade (Citibank) responded to Wilkinson
(MSCS) by inserting “comments and questions” into Wilkinson’s email. In
particular, below Wilkinson’s fifth (v) point on “voting/consent” rights (quoted
above), Wade inserted the word “[Agreed].”51 But approximately two hours later,
Costango (Citibank) sent another email to Wilkinson, copying Wade (Citibank),
entitled “Voting Rights” that read:
moved for an order compelling Citibank to produce these emails based on
“Citibank’s assertions in its motion for summary judgment that, ‘[a]s a matter of
written policy and actual practice,’ (1) only in-house or approved external counsel
can approve ‘non-standard’ provisions such as Section 6(d) of the Capmark Swap,
and (2) when approving such provisions, counsel ‘Looks only to [their] terms – not
prior e-mails between negotiators – [to understand Citibank’s rights and
obligations].’” Letter from MSIP to the Court dated January 31, 2011 at 1
(emphasis removed) (quoting Citibank’s Memorandum of Law in Support of
Motion for Summary Judgment and in Opposition to MSIP’s Motion for Summary
Judgment (“Citibank Mem. & Opp.”) at 2. Meanwhile, Citibank argued that it
“painstakingly avoided relying on . . . the subjective intent of any agent” in making
its agency defense, see discussion infra Part IV.B, instead relying on “simply the
fact of approval” of the language ultimately included in the Capmark Swap
Agreement by Citibank counsel – a fact which it claimed was not privileged.
Letter from Citibank to the Court dated February 3, 2011 at 1. According to
Citibank, “Citi counsel’s subjective intent is not relied on and is irrelevant. . . .
There is no reference to the subjective intent or understanding of Citi counsel in
Citi’s brief. . . . Citi relies on its written policy and actual practice that are purely
and explicitly institutional.” Id. at 2. This Court declined to order production of
the emails based on waiver, but ordered them reviewed for privilege in camera by
Magistrate Judge Gorenstein, who concluded that they were in fact privileged.
Having now reviewed both parties’ fully submitted motions, I confirm my ruling
that Citibank has not put its counsel’s intent “at issue” in this litigation so as to
waive privilege. See In re County of Erie, 546 F.3d 222, 229 (2d Cir. 2008).
51
11/29/06 Email from Wade to Wilkinson, Ex. G to Corkhill Decl.
16
We are struggling to recall how this was handled in capmark.
Lawyers are telling me that we don’t pass through voting rights but
I seem to remember you being comfortable with the arrangement
in capmark. Do you recall how we worked that out?52
Wilkinson responded that same day with the following:
I think in Capmark we just relied on the language that stated the
credit agreement would not be amended without our prior written
consent. I would prefer to be more specific in this trade. See
attached rider.53
The attached rider, entitled “Voting Provisions,” stated:
[Citi] agrees that to the extent it is entitled to act in its capacity as
a member of the Controlling Class or otherwise to consent to or
vote with respect to any Proposed Action (as defined below) in its
capacity as the Advance Swap Counterparty or Revolving Credit
Agreement Agent under the Indenture, prior to [Citi] giving its
written consent to, or casting its vote for or against, any waiver,
amendment, vote, modification or other action of a similar nature
under the Indenture (the “Proposed Action”), [Citi] shall . . . seek
[MSCS’s] written direction as to whether to give such consent or
how to cast such vote and . . . act in accordance with such written
direction from [MSCS].54
52
11/29/06 Email from Costango to Wilkinson, Ex. I to Corkhill Decl.
According to Citibank’s privilege log, three minutes later, Costango forwarded that
email to Citibank’s external counsel at Clifford Chance, Buerstetta, “requesting
legal advice concerning section 6(d) of the Capmark VI CDS Confirmation.”
Citibank Privilege Log.
53
11/29/06 Email from Wilkinson to Costango, Ex. I to Corkhill Decl.
54
Id.
17
That rider, with revisions, became section 6(e) of the Tallships Swap Agreement55
– an Agreement which also included a section 6(d) verbatim to section 6(d) of the
Capmark CDS Confirmation.56 It was this provision – section 6(e) – that gave
MSCS the ability to direct, in certain circumstances, Citibank’s exercise of
Controlling Class rights.
b.
December 7, 2006 Email
One week later, on December 7, 2006, Costango sent an email to
Wilkinson entitled “Tallships -- voting” that stated, “Chaka [Wade of Citibank]
and I have had a bunch of conversations with the internal legal people on the
voting language. They have raised some additional concerns with our language of
the ‘what if this happens’ variety” such as the implications of MSCS’s asking
Citibank “to vote in a way that is (a) illegal or (b) commercially unreasonable for
[Citibank].”57 After summarizing those concerns, Costango stated:
I’ve thought a lot about why changes like this are warranted here
compared to Capmark, and I believe the difference is that in
Capmark we agreed to not make any change without consent and
here we are agreeing to consult you in all cases if we don’t want
55
See Tallships Swap Agreement § 6(e).
56
See id. § 6(d); Capmark Swap Agreement § 6(d).
57
12/7/06 Email from Costango to Wilkinson, Ex. J to Corkhill Decl. It
is unclear whether this email was meant to address the Tallships Back-to-Back
Swap, the Tallships Swap, or both.
18
to make a change. So it’s more complicated.58
3.
Citibank’s Subprime Portfolio Group (“SPG”)
In late 2007, in the wake of the credit crisis, Citibank transferred
management of certain subprime-related assets to a “Subprime Portfolio Group”
(“SPG”),59 which was responsible for “try[ing] to figure out how to deal with more
than [sixty billion dollars] worth of exposure that Citigroup was facing to CDO
super senior positions” – including Capmark and Tallships.60 It was SPG’s
responsibility to examine each super-senior (“SS”) transaction to determine how to
mitigate Citibank’s exposure, including unwinding as many transactions as
possible.61 As part of that strategy, SPG exercised Citibank’s rights (where
available) to liquidate certain CDOs, including Capmark.62
In 2008, SPG created various iterations of a spreadsheet entitled “SS
58
Id.
59
See Citibank 56.1 ¶ 83.
60
Transcript of 9/1/10 Deposition of Brian W. Yarrington, SPG trader
(“Yarrington Dep.”), Ex. B-13 to Cherington Decl., at 62:17-22. Accord MSIP
56.1 ¶ 53. Net of hedges, that exposure amounted to approximately forty-three
billion dollars. See Yarrington Dep. at 62:5-13. Yarrington testified that Citibank
had exposure to roughly fifty to sixty ABS CDO super senior positions. See id. at
65:9-12.
61
See Citibank 56.1 ¶ 84.
62
See MSIP 56.1 ¶ 51; Citibank Response to MSIP 56.1 ¶ 51;
Yarrington Dep. at 69:5-10.
19
Summary Spreadsheet,” summarizing Citibank’s SS exposure.63 Each row listed a
“Deal” to which Citibank was exposed. Each column contained descriptive
information about the deal, including columns labeled, “Open / Closed,”
“Conditions to Liquidate” and “Citi Sole Discretion [to liquidate]?” A “Note” at
the bottom of the spreadsheet reads, “For closed positions, decisions regarding
acceleration or liquidation are not solely in Citi’s control.” Although all of the
entries for Capmark and Tallships indicate that they are “Closed” – either entirely
or through the maturity date of the three-year credit default swaps hedging
Citibank’s super-senior exposure to the deal – the Capmark entries indicate that
“Citi [has] Sole Discretion,” while the Tallships entries indicate that “Citi [does not
have] Sole Discretion.”64
63
See SS Summary Spreadsheet dated February 19, 2008, Ex. L to
Corkhill Decl.; SS Summary Spreadsheet dated February 20, 2008, Ex. K to
Corkhill Decl.; SS Summary Spreadsheet dated May 2, 2008, Ex. H to Cherington
Decl; SS Summary Spreadsheet dated December 4, 2008, Ex. I to Cherington Decl.
64
Although the February 19, 2008 version of the SS Summary
Spreadsheet stated that “Citi” did not have sole discretion over the decision to
liquidate Capmark (“Citi Sole Discretion?”: “No (GRB has control)”), the “No”
was changed to “Yes” within twenty-four hours so that the full text read “Yes
(GRB has control).” GRB is Citibank’s Global Relationship Bank. See Costango
Dep. at 33:8-13.
Neither party argues that the Court should infer anything about
liquidation rights from the fact that both positions were always marked as “closed”
– i.e., “decisions regarding acceleration or liquidation are not solely in Citi’s
control.”
20
By the time management of the Capmark Swap was transferred to
SPG, Costango had left Citibank and Bentch had transferred from in-house counsel
to a business position in another part of the bank.65 No member of SPG ever asked
Costango what the parties who negotiated the Capmark Swap intended.66 Instead,
SPG and the other Citibank employees involved in the decision to liquidate the
Capmark CDO were advised by counsel.67
At some point, SPG came to the understanding that MSIP believed
that Controlling Class rights had been transferred under the Capmark Swap,68
contrary to the unambiguous language of the Swap Agreement indicating
otherwise. Some SPG employees testified that they anticipated – prior to their
liquidation of the Capmark CDO – that it would lead to litigation with MSIP.69
4.
January 2008 Wilkinson Chart
In January 2008, before the present dispute arose, Wilkinson sent an
email to colleagues attaching a chart summarizing certain positions held by MSIP’s
65
See MSIP 56.1 ¶ 55.
66
See id. ¶ 56.
67
See Citibank 56.1 ¶ 87.
68
See MSIP 56.1 ¶ 58; Yarrington Dep. at 193:12-193:23.
69
See Citibank Response to MSIP ¶ 59.
21
Global Proprietary Credit Group (“January 2008 Wilkinson Chart”).70 The
document contained summaries of the provisions of twenty-one deals that
Wilkinson thought were important,71 including Tallships and Capmark.
The summary of Tallships indicates that MSIP held two swaps in
connection with that transaction – the Tallships Swap and the Tallships Back-toBack Swap.72 In the row entitled “Execution,” the Tallships summary states:
“Morgan Stanley faces Citibank via CDS; Citibank faces the deal; MS holds all
rights of Citibank as super senior swap counterparty.”73 In the row entitled
“Other,” Wilkinson provided a summary of the Tallships Swap (“MS has also sold
$250mm of super senior protection on the Tallships Revolving Credit Agreement
for 7bps.”) and then, directly below that summary, wrote, “Voting rights passed to
MSCS via CDS.”74
70
See Citibank 56.1 ¶ 61; January 2008 Wilkinson Chart, Ex. C to
Cherington Decl.
71
See Wilkinson Dep. at 252:13-24. I note that the summaries
contained different information for each transaction. See MSIP Response to
Citibank 56.1 ¶ 62.
72
See Citibank 56.1 ¶ 65; January 2008 Wilkinson Chart.
73
January 2008 Wilkinson Chart (emphasis added). This description
appears to apply to the Tallships Back-to-Back Swap.
74
Id. (emphasis added). It is unclear whether this mention of “voting
rights” applies to the Tallships Swap, the Tallships Back-to-Back Swap, or both.
22
In every other transaction in which Wilkinson believed voting rights
were passed to a Morgan Stanley entity, the summary explicitly states so.75 The
Capmark summary says nothing about the passage of “voting” or “super senior”
rights.76
III.
APPLICABLE LAW
A.
Reformation Based on Mutual Mistake
“Reformation of contract . . . is not a matter of resolving an ambiguity
in a contract but rather of supplying what the parties clearly intended to include but
inadvertently omitted.”77
“In the proper circumstances, mutual mistake . . . may furnish the
basis for reforming a written agreement.” [Chimart Assocs. v.
Paul, 66 N.Y.2d 570, 573 (1986).] . . . Because the remedy of
reformation presents the danger “that a party, having agreed to a
written contract that turns out to be disadvantageous, will falsely
75
See Wilkinson Dep. at 250:8-263:2. In fourteen of the twenty-one
trades, there were voting rights in connection with the exposure. See January 2008
Wilkinson Chart. In eleven trades, those rights are held by a counterparty; in three,
they are held by a Morgan Stanley entity. See id.
76
See id.
77
Robinson v. Metro N. Commuter R.R. Co., 325 F. Supp. 2d 411, 412
(S.D.N.Y. 2004) (citing Loewenson v. London Mkt. Cos., 351 F.3d 58, 61 (2d Cir.
2003)). Accord Backer Mgmt. Corp. v. Acme Quilting Co., 46 N.Y.2d 211, 219
(1978) (“Reformation is not granted for the purpose of alleviating a hard or
oppressive bargain, but rather to restate the intended terms of an agreement when
the writing that memorializes that agreement is at variance with the intent of both
parties.”).
23
claim the existence of a different, oral contract,” [id. at 573] the
New York courts have sharply limited the remedy of reformation
both procedurally and substantively [see id. at 574].78
Procedurally, there is a “‘heavy presumption that a deliberately prepared and
executed [agreement] manifest[s] the true intention[s] of the parties,’ especially
between counselled businessmen”79 and “a correspondingly high order of evidence
is required to overcome that presumption.”80 In particular, “mutual mistake must
be established by clear and convincing evidence.”81 “‘Only thus can the benefits of
78
Collins v. Harrison-Bode, 303 F.3d 429, 434-35 (2d Cir. 2002).
Accord Healy v. Rich Prods. Corp., 981 F.2d 68, 73 (2d Cir. 1992) (“Unilateral
mistake alone will not justify reformation of an instrument.”).
79
Healy, 981 F.2d at 73 (quoting Backer, 46 N.Y.2d at 219 and citing
Chimart, 66 N.Y.2d at 574) (citation omitted).
80
Chimart, 66 N.Y.2d at 574 (summarizing Backer’s finding that
“[v]arious statements allegedly made during negotiations were, as a matter of law,
too indefinite to form the basis for a claim of misrepresentation”).
81
Healy, 981 F.2d at 73. Accord Chimart, 66 N.Y.2d at 574 (“The
proponent of reformation must ‘show in no uncertain terms, not only that mistake .
. . exists, but exactly what was really agreed upon between the parties.’”) (quoting
Backer, 46 N.Y.2d at 219); id. (“[New York courts] have required a party resisting
pretrial dismissal of a reformation claim to tender a ‘high level’ of proof in
evidentiary form.”) (quoting Sagan v. Sagan, 53 N.Y.2d 635, 637 (1981)); Backer,
46 N.Y.2d at 220 (affirming grant of summary judgment dismissing reformation
where “[a]s a matter of law, no showing free of contradiction or equivocation
comes through from the affidavits submitted [in opposition to the motion].”). Cf.
Gulf Ins. Co. v. Transatlantic Reinsurance Co., 886 N.Y.S.2d 133, 143 (1st Dep’t
2009) (reversing grant of summary judgment for defendant because, “[u]nlike the
parties raising reformation claims in Chimart and Backer, . . . [the party seeking
reformation] did not rely solely on conclusory or equivocal assertions of mistake”);
24
the written form be preserved.’”82 Although a “mutual mistake must exist at the
time the agreement is signed,”83 “the parties’ course of performance under the
contract is considered to be the most persuasive evidence of the agreed intention of
the parties.”84
IV.
DISCUSSION
A.
MSIP’s Motion
MSIP argues that “[t]he uncontroverted evidence shows that the
parties intended to do just what Wilkinson proposed in his June 22 Email: namely,
to ensure that ‘Citi passes along to MS all voting rights it has under the Loan
Agreement to MS.’”85 However, drawing all inferences in favor of Citibank, the
id. at 142 (“[T]he course-of-performance evidence and the other evidence . . .
relied on constitutes unequivocal and persuasive evidence of mutual mistake.”).
82
Chimart, 66 N.Y.2d at 574 (quoting 3 Corbin, Contracts § 607, at
659-60).
83
Shults v. Geary, 660 N.Y.S.2d 497, 499 (3d Dep’t 1997).
84
Federal Ins. Co. v. Americas Ins. Co., 691 N.Y.S.2d 508 (1999)
(quotation marks omitted). Accord Gulf Ins. Co., 886 N.Y.S.2d at 143 (“How the
parties perform a contract necessarily is manifested after execution of the contract,
but their performance is highly probative of their state of mind at the time the
contract was signed.”).
85
MSIP Mem. at 14 (emphasis MSIP’s) (quoting June 22 Email).
25
non-movant in the context of MSIP’s motion,86 a reasonable trier of fact could find
that the parties were not mutually mistaken as to the meaning of section 6(d) of the
Capmark Swap Agreement.
1.
The June 22 Emails
While it is undisputed that Costango replied “OK” to Wilkinson’s
June 22 Email – proposing the addition of language “stating that no amendment,
waiver, consent, etc. will be made or given by Citi under the Loan Agreement
without the prior written consent of MS (i.e., Citi passes along to MS all voting
rights it has under the Loan Agreement to MS)”87 – this does not establish as an
evidentiary or legal matter that Citibank (or even MSIP) intended to transfer
Controlling Class rights under the Indenture to MSIP in the Capmark Swap. First,
drawing all inferences in Citibank’s favor, the phrase “all voting rights [Citibank]
has under the Loan Agreement” does not necessarily refer to Citibank’s
Controlling Class liquidation rights under the Indenture. Even if it were
undisputed that the parties mistakenly neglected to pass some voting rights to
86
“The standard to be applied when deciding cross-motions for
summary judgment is the same as that for individual motions for summary
judgment and the court must consider each motion independent of the other.”
Schultz v. Stoner, 308 F. Supp. 2d 289, 298 (S.D.N.Y. 2004) (quotation marks
omitted).
87
June 22 Email.
26
MSIP under the Capmark Swap Agreement, the phrase “all voting rights [Citibank]
has under the Loan Agreement” does not necessarily encompass Citibank’s right to
direct liquidation which – as I discussed extensively in the October 8 Opinion –
Citibank held by virtue of the Indenture.88 In this vein, the fact that Wade
(Citibank) testified that the term voting rights is generally understood to “at least
include[] controlling class rights”89 does not render Wilkinson’s email – which
refers to voting rights under a particular agreement – unambiguous.
Second, Citibank negotiators and attorneys involved in Capmark and
Tallships testified that they do not understand the term “voting rights”
unambiguously to include Controlling Class rights.90 Moreover, the parties have
offered dueling expert testimony as to (1) whether it was understood in the
“industry” generally that the term “voting rights” included Controlling Class
88
See May 12 Opinion, 724 F. Supp. 2d at 407.
89
Wade Dep. at 83:17-85:2.
90
See Costango Dep. at 67:19-68:10 (testifying that the term “voting
rights” “can have a lot of meanings. It depends on what we’re talking about. . . .
[T]he context is important . . . .”); Wade Dep. at 84:2-9 (“not sure” whether the
term “voting rights” would “include whatever controlling class rights the party
may have, plus additional rights”); Transcript of 10/12/10 Deposition of Anna
Choe, Citibank in-house counsel (“Choe Dep.”), Ex. B-3 to Cherington Decl., at
18:4-15 (Q: “In your experience, does . . . the party that possesses voting rights,
have the ability under certain circumstances to direct the liquidation of the
collateral of the SPV?” A: “I think it depends on the transaction.”).
27
rights;91 (2) whether there was a custom or practice of transferring Controlling
Class rights in CDS on ABS CDOs;92 (3) and whether the non-coterminous nature
91
Compare MSIP Mem. at 4 (“It is undisputed that the phrase ‘voting
rights’ is commonly understood in the CDO industry to encompass Controlling
Class rights under a CDO’s indenture.”) (citing 9/1/10 Declaration of Michael
Llodra, Expert retained by MSIP (“Llodra Decl.”) ¶ 14 (“The term ‘voting rights’
is a well-accepted and understood term in the CDO industry and, especially in the
context of discussions regarding the sale of super senior credit protection, would
immediately and universally be understood by a CDO banker to refer to rights that
included the controlling class rights under the CDO.”); 9/1/10 Declaration of Scott
Gordon, Expert retained by MSIP (“Gordon Decl.”) ¶ 16 (“[I]n the context of
negotiating the sale of CDO credit protection, the terms ‘voting rights’ and
‘Controlling Class rights’ were used interchangeably to refer to the rights of the
Controlling Class under the CDO indenture.”)) with Ianco Decl. ¶ 22 (“In my
experience, a term such as ‘voting rights’ may be used by transactors as a
shorthand in negotiations, but there is no universally-understood standard as to the
details of what that term means . . . . While it may be fair to say that ‘controlling
class rights’ are a type of ‘voting right,’ the two terms are not synonymous.
Controlling class rights have characteristics that make them different than [sic]
voting rights with respect to amendments, waivers and consents. As a result, the
question of their transfer is more complex.”).
92
Compare Llodra Decl. ¶ 8 (“In my experience, as a way of ensuring
that their risk of loss remained remote, it has been the case that sellers of credit
protection on super senior CDO tranches have required the protection buyer to pass
the voting rights it had as the super senior note-holder to the protection seller
during the term of the CDS.”); Gordon Decl. ¶ 11 (“I am not aware of any
transaction in the CDO industry in which a credit protection seller on super-senior
risk did not obtain Controlling Class rights.”); id. ¶ 12 (“[I]t became widely
understood within the CDO community [prior to 2006] that Controlling Class
rights were expected to follow the super-senior risk.”) with Ianoco Decl. ¶ 14 (“In
general, voting and controlling class rights are not transferred under CDS
contracts. . . . Voting rights and controlling class rights are not transferred by
default or presumption.”). See also Citibank Mem. & Opp. at 11 (“The derivatives
industry association, ISDA, rejected a proposal that would have made the transfer
of such rights standard for inter-dealer CDS on [ABS], including CDS on CDOs
28
of the Capmark (and Tallships) Swaps affected these assumptions.93 Thus, the
June 22 Email cannot establish by clear and convincing evidence “exactly what
was really agreed upon between” Costango and Wilkinson – let alone Citibank and
MSIP.94
Third, even assuming MSIP has proven by clear and convincing
evidence that Wilkinson thought “all voting rights [Citibank] has under the Loan
with ABS as their assets.”).
93
Compare Ianco Decl. ¶ 26 (“The non-coterminous feature impacts the
overall economics such that the protection buyer has a much more compelling
interest in retaining such rights.”); id. ¶ 27 (the passage of voting rights in noncoterminous transactions creates a “stark conflict of interest . . . not present in the
case of a fully-coterminous CDS with a creditworthy protection seller”) with
Llodra Decl. ¶ 10 (“In my opinion, the ‘non-coterminous’ nature of this trade
would not have any impact on whether voting rights were transferred. . . . I cannot
imagine that a credit protection seller would be willing to forego this protection
simply because its CDS was for less than the term of the CDO.”); Gordon Decl. ¶
21 (“[I]n my expert opinion . . . [f]rom the protection seller’s perspective,
obtaining Controlling Class rights would be essential regardless of whether the
credit protection was technically coterminous or non-coterminous.”). Ianco
suggests that, because the Controlling Class’s exercise of liquidation rights is
essentially the only way to trigger a Failure to Pay Principal Credit Event before
the CDO’s maturity (or near-maturity), Citibank’s transfer of liquidation rights to
MSIP in Capmark would have rendered meaningless its purchase of protection for
a Failure to Pay Principal Credit Event. But that is exactly what Citibank did in
Tallships.
94
Backer, 46 N.Y.2d at 219. In any event, Citibank argues, because
upon any (theoretical) syndication of the Revolving Facility, Citibank would lose
sole discretion over the decision to liquidate, MSIP cannot have intended to obtain
“all” voting rights. See Citibank Mem. & Opp. at 14-15 at 17.
29
Agreement” included Controlling Class rights, Costango’s “preliminary” response,
“OK,” does not unequivocally establish Costango’s understanding as to what
Wilkinson meant.95 Although Costango testified that he understood Wilkinson’s
November 28 Email about “voting/consent rights” in connection with Tallships to
refer to Controlling Class rights under the Tallships indenture,96 no Citibank agent
could recall how he understood Wilkinson’s reference to “all voting rights
[Citibank] has under the Loan Agreement.”97 Moreover, the fact that “Citibank”
95
See Healy v. Rich Prods. Corp., No. Civ-89-1526E, 1992 WL 50924,
at *7 (W.D.N.Y. Mar. 2, 1992) (“[Rich Products’ attorney] included language that
covered what [the Healys’ attorney] had conveyed to him, and [the Healys’
attorney] took no remedial action upon receiving this language from [Rich
Products’ attorney]. [Rich Products’ attorney] could only assume that what he had
covered was what [the Healys’ attorney] wanted. . . . This does not mean,
however, that they had agreed on anything. [Rich Products’ attorney] may have
thought that [the Healys’ attorney] wanted one thing, when in fact he wanted
something else – something to which [Rich Products’ attorney] was not agreeing
and to which he had no power to agree.”).
96
See Costango Dep. at 113:12-14.
97
See id. at 272:17-22; id. at 318:19-319:8 (“All I can say is I was
involved in putting [the Capmark Swap Agreement] together. I’m not certain
whether I knew for sure what [section 6(d)] was intended to do at the time, other
than it was acceptable to us, and it appeared to be acceptable to Morgan Stanley.
Now, it’s possible that my recollection could be refreshed with respect to specific
conversations. Like I said before, there might be notes or something that I haven’t
had a chance to review. I have given this a lot of thought over the last few months.
I wish I remembered more and I don’t.”); Bentch Dep. at 161:6-23 (“Q: Do you
have any reason to believe you did not review [Wilkinson’s June 22 Email]? A: I
don’t know. . . . I think that . . . when I came back from vacation I might have
picked up at that point and been looking at what was the actual draft of the
30
(the institution) drafted section 6(d) of the Capmark Swap Agreement (1) using
language that unambiguously did not transfer Controlling Class rights to MSIP (2)
and titled it “Reference Obligation Amendments” supports the reasonable
inference that, to the extent Citibank understood MSIP to be requesting the passage
of any rights, it understood those rights to be confined to Citibank’s right to
withhold consent for amendments to and waivers and consents with respect to the
Capmark Credit Agreement, not to direct liquidation of the CDO.98 Whether or not
this was a reasonable interpretation on the part of Citibank – even one that flew in
the face of industry practice – Citibank’s lawyers’ reduction of Wilkinson’s request
to the language that ultimately became section 6(d), and Citibank’s ultimate
execution of the Capmark Swap Agreement containing section 6(d), supports the
reasonable inference that the parties were not mutually mistaken as to the passage
document that the parties were looking at, and not have to go back in previous emails to see what iterations were prior to that point.”); id. at 175:16-25 (“Q: Do
you believe that you ever saw the ‘OK’ e-mail . . . ? . . . A: I don’t – I don’t
know.”).
98
Similarly, Costango’s testimony that section 6(d) was intended “to
give Morgan Stanley what they wanted” does not establish that he or anyone at
Citibank understood that MSIP “wanted” Controlling Class rights under the
Indenture, much less that Citibank shared such a desire. See Costango Dep. at
316:23-317:15 (“Well, all I can say is, from my perspective, the intent was to give
Morgan Stanley what they wanted, so we could sign the – sign the agreement. I
just don’t remember exactly what that meant . . . . It was my intent to come up
with an agreement that Morgan Stanley and Citi would both sign. That was my
intent. And I appear to have been successful.”).
31
of Controlling Class rights under the Indenture, especially given the “heavy
presumption that a deliberately prepared and executed written instrument
manifest[s] the true intention of the parties.”99 The most it could establish on
summary judgment is unilateral mistake, which is insufficient for reformation of
the contract.
Fourth, Wilkinson’s testimony as to Costango’s “agreement that the
rights that Citi had as a lender under the loan facility would pass to Morgan
Stanley for so long as Morgan Stanley was on risk”100 does not unequivocally
establish Citibank’s corporate intent. Leaving aside for the moment that Costango
testified that he did not remember coming to any such verbal agreement with
Wilkinson prior to Wilkinson’s June 22 Email, Costango was just one of many
agents that worked on the Capmark Swap Agreement. Even assuming that he was
the “chief negotiator” for Citibank – and that his intent was to effect a transfer of
Controlling Class rights and that his understanding was that 6(d) effected that
transfer – the undisputed facts establish that (1) Wilkinson knew the parties’
ultimate “intentions” would be reduced to a fully-integrated contract, (2) Costango
did not have authority to override that contract by responding “OK” to a request in
99
Chimart, 66 N.Y.2d at 574.
100
Wilkinson Dep. at 80:24-81:6.
32
an informal email exchange a month before the closing of Capmark,101 (3) MSIP
was on notice that any executed agreement would require “Citi final internal
approvals,”102 and (4) the parties agreed that they were “not relying upon any
representations (whether written or oral) of the other party other than the
representations expressly set forth” in the Capmark Swap Agreement.103
In other words, even if Wilkinson and Costango were mutually mistaken as to
whether the parties intended to transfer Controlling Class rights, in the absence of
any evidence that any of the other individuals involved in the negotiation, drafting,
and execution of the Capmark CDS had such an intention,104 and in the face of
101
See infra Part IV.B.
102
6/16/06 Email from Frontero (Citibank) to Edman (MSIP), Ex. C to
Supp. Cherington Decl. Accord 6/16/06 Email from Frontero (Citibank) to
Wilkinson, Feldman, and Edman (MSIP) (attaching the Capmark CDS
Confirmation and explaining that “[w]e are still awaiting internal approvals”).
103
Schedule to ISDA Master Agreement, part 5(d). Wilkinson’s own
January 2008 Chart also indicates that MSIP did not hold Controlling Class rights
under the Capmark Swap (or the right to veto their exercise). This supports the
inference that – notwithstanding his initial alleged intent to secure the passage of
such rights – he understood that the parties ultimately agreed only to the
unambiguous language of section 6(d). Drawing inferences in Citibank’s favor,
this supports the conclusion that Wilkinson made – and subsequently accepted that
he made – a unilateral mistake.
104
Cf. Fidelity and Guar. Ins. Co. v. Global Techs., 117 F. Supp. 2d 911,
917 (D. Minn. 2000) (“[W]here it is uncontroverted that the agent is the sole
communicator/negotiator, it is not proper to consider the principal’s intent.”)
(emphasis added).
33
unambiguous contract language that failed to transfer such rights, MSIP cannot
establish, as a matter of law, based on the June 22 Email that MSIP and Citibank
were mutually mistaken as to the passage of Controlling Class rights.
2.
The Tallships Swap
MSIP contends that “[t]he undisputed evidence concerning the
Tallships negotiations likewise confirms that it was the parties’ mutual
understanding that Controlling Class rights had been transferred under the
Capmark Swap.”105 First, the fact that Citibank understood Wilkinson’s November
28 Email – requesting that Citibank “pass through to MS all voting/consent rights
of the Advance Swap Counterparty under the Advance Swap”106 – to refer to
Controlling Class rights does not wholly defeat the reasonable inference that
Citibank did not understand Wilkinson’s June 22 Email – requesting that Citibank
“pass[] along to MS all voting rights it has under the Loan Agreement to MS”107 –
to be referring to such rights. The November 28 Email included more specific
language than the June 22 Email (“In addition, the doc should provide that the
failure to do so (or failure to act in accordance with the instructions of MS) will
105
MSIP Mem. at 16.
106
November 28 Email (emphasis added).
107
June 22 Email (emphasis added).
34
result in a MTM termination.”). Moreover, it was a request for the passage of
voting and consent rights in the Tallships Back-to-Back Swap Agreement, not the
Tallships Swap Agreement for which MSIP argues the Capmark Swap Agreement
served as a roadmap.
Second, although the Capmark Swap Agreement served as the starting
point for the Tallships Swap Agreement, the reasonable explanation (drawing
inferences in Citibank’s favor) is that both were non-coterminous, three-year
credit-default-swaps – not that Citibank knew it had transferred Controlling Class
rights in Capmark and intended to do so yet again. Similarly, the reasonable
inference (if any) to draw from the flurry of internal Citibank emails that followed
Wilkinson’s November 28 Email is that Citibank was realizing for the first time
that Wilkinson had intended to communicate a similar request in his June 22
Email.108 But such an after-the fact realization does not establish mutual mistake
“at the time the [Capmark Swap Agreement] [was] signed.”109
108
Incidentally, such a realization would also explain why certain
members of SPG suspected that liquidation of Capmark might lead to litigation
with MSIP. Thus, Yarrington’s testimony that Citibank “knew that Morgan
Stanley believed they had the rights to control liquidation” before SPG liquidated
Capmark does not establish that Citibank held such knowledge and shared such a
view at the time it drafted and then bound itself to section 6(d). Yarrington Dep.
192:19-23.
109
Shults, 660 N.Y.S.2d at 499.
35
Third, Costango’s November 29 “Voting rights” Email to Wilkinson
(“We are struggling to recall how this was handled in Capmark”) does not
unequivocally support the inference that “it was the parties’ mutual understanding
that Controlling Class rights had been transferred under the Capmark Swap.”110
“Lawyers are telling me that we don’t pass through voting rights” supports the
reasonable inference that, institutionally, Citibank never thought the parties
intended to transfer voting rights. Costango’s caveat – “but I seem to remember
you being comfortable with the arrangement in Capmark” – can be reasonably
interpreted to express Costango’s surprise that Wilkinson was insisting on voting
rights in Tallships when, as “lawyers are telling [him (Costango)],” Wilkinson
didn’t do so in Capmark, and yet was “comfortable with the arrangement.” And
drawing all reasonable inferences in Citibank’s favor, Wilkinson’s response – “I
think in Capmark we just relied on the language that stated the credit agreement
would not be amended without our prior written consent. I would prefer to be
more specific in this trade. See attached rider.” – supports the inference that
“[Wilkinson] was clearly embarrassed about his error in Capmark,”111 i.e., his
unilateral mistake in failing adequately to communicate his intentions to Citibank
110
MSIP Mem. at 16.
111
Citibank Response to MSIP 56.1 ¶ 35.
36
or to ensure that such an intent was truly shared by Citibank and memorialized in
the Capmark Swap Agreement. This inference is bolstered by (1) Wilkinson’s
attachment of draft language to be included in the Tallships Swap Agreement –
language that became section 6(e), which supplemented rather than
replaced section 6(d) after extensive discussion about its implications; (2)
Wilkinson’s lack of concern about and failure to protest, after reading Costango’s
November 29 Email, Citibank lawyers’ view that Citibank did not pass Controlling
Class rights in Capmark;112 and (3) Wilkinson’s preparation of a chart before any
dispute arose between the parties, conveying that MSIP had no Controlling Class
rights in Capmark.113
Fourth, MSIP asks this Court to infer – from Costango’s subsequent
email to Buerstetta (Clifford Chance) requesting legal advice concerning section
6(d) – “that Citibank itself understood that Section 6(d) was intended to effect the
112
See Wilkinson Dep. at 186:6-12. Wilkinson did not recall whether he
ever spoke with any of the lawyers at Citibank about the passage of Controlling
Class rights in Capmark; whether he ever spoke with anyone at Citibank to ask
what Citibank’s position was as to who held voting rights in Capmark; or asked
Costango for more detail about what “lawyers [were] telling [him].” See id. at
186:6-189:18. The only “conversations” Wilkinson recalled with respect to
Controlling Class rights in Capmark versus Tallships were the emails exchanged
between him and Costango in which he contends that “Morgan Stanley expressed
its view yet again to Citi that it was of the opinion that voting rights had passed to
Morgan Stanley.” Id. at 190:3-8. Accord id. at 191:5-10.
113
See Wilkinson January 2008 Chart.
37
transfer of Controlling Class rights.”114 But this email – at most – suggests that
Costango, not “Citibank,” thought he recalled the parties’ transferring rights, and
was puzzled that such a recollection was not reflected in the language of section
6(d). It bears noting, however, that Costango was only one of (at least) six
Citibank agents involved in drafting, reviewing, or approving the Capmark Swap
Agreement.115 In any event, the content of the email is privileged, so that any
inference arising solely from the fact that it was sent is speculative.
Fifth, Costango’s December 7 “Tallships -- voting” Email –
I’ve thought a lot about why changes like this are warranted here
compared to Capmark, and I believe the difference is that in
Capmark we agreed to not make any change without consent and
here we are agreeing to consult you in all cases if we don’t want
to make a change. So it’s more complicated.116
– does not unequivocally establish that “in Tallships, Citibank agreed to consult
Morgan Stanley whenever it had the ability to exercise a Controlling Class right
[whereas] in Capmark, Citibank agreed only to allow Morgan Stanley to consent to
or veto Citibank’s exercise of Controlling Class rights.”117 Costango’s December 7
114
MSIP Mem. at 17.
115
See infra Part IV.B.
116
Ex. J to Corkhill Decl.
117
MSIP Mem. at 17.
38
Email contains no mention of “Controlling Class” rights or voting rights. Instead,
drawing inferences in Citibank’s favor, it is consistent with the unambiguous terms
of section 6(d), which required Citi to “ask Morgan Stanley to say yes” if Citi “was
going to do something, certain things,” as Costango later testified118 and as I held
in the October 8 Opinion.119 Even drawing all inferences in MSIP’s favor, it
merely reflects Costango’s own (mistaken) understanding as to the meaning of
section 6(d) vis-a-vis section 6(e) – not Citibank’s.
Sixth, the reasonable explanation for “why it took the parties two
weeks to negotiate the wording of [s]ection 6(e) of the Tallships Swap
Confirmation” – drawing all inferences in Citibank’s favor – is that Citibank did
not believe it had transferred Controlling Class rights in Capmark, but intended to
do so in Tallships and, consequently, had to carefully consider the implications.
Costango’s statement to Wilkinson – that “the internal legal people . . . have raised
some additional concerns with [Wilkinson’s proposed language] of the ‘what if this
happens’ variety”120 – could support the inference MSIP asks the Court to draw,
namely that “transferring to Morgan Stanley the right to direct Citibank how to act
118
Costango Dep. at 147:23-148:2 (emphasis added).
119
See May 12 Opinion, 724 F. Supp. 2d at 407.
120
Ex. J to Corkhill Decl.
39
raised complicated issues not raised by the consent rights transferred in
Capmark.”121 But it does not rule out the possibility that Citibank’s substantial
vetting of Wilkinson’s proposed language derived at least in part from Citibank’s
understanding that in Tallships Citibank not only was passing to MSIP the right to
direct (as opposed to consent to) Citibank’s exercise of certain rights, but also was
passing much more substantial rights.122
3.
Contemporaneous Evidence
MSIP asserts that Citibank offers no contemporaneous evidence that
the parties intended not to pass all Controlling Class rights under the Indenture to
MSIP.123 First, this statement inappropriately attempts to shift the burden of proof
from MSIP to Citibank. Second, MSIP is mistaken. In addition to the language of
the Capmark Swap Agreement, Citibank has proffered Wilkinson’s January 2008
121
MSIP Mem. at 17 n.15.
122
In any event, it is reasonable to infer that Citibank’s lawyers would
have raised the same concerns of the “‘what if this happens’ variety” if they had
understood Wilkinson to be requesting the conferral of veto rights in Capmark.
From a legal standpoint, the ability to direct another entity to exercise a right
versus the ability to withhold consent for another entity’s exercise of that right
would seem to raise similar (albeit not identical) concerns. In other words, such
“complicated” issues as “how long do you have to give [MSIP] to answer, and
what if [MSIP] doesn’t answer, and what if [MSIP] tells you to do something you
don’t want to do or something that’s illegal” would seem to be implicated in the
passage of veto rights, too. Costango Dep. at 147:5-12.
123
MSIP Mem. at 18-19.
40
Chart,124 SPG’s SS Summary Spreadsheet,125 Citibank’s internal policies and
written corporate intent,126 Citibank’s purported goal of obtaining regulatory
capital relief,127 and Citibank’s opposition to ISDA’s proposal to accept as standard
the transfer of voting rights in CDSs on ABS CDOs.128 Certainly, if Citibank bore
the burden of proof, and if I were drawing inferences in MSIP’s favor, I would not
find this evidence particularly compelling.129 But in light of the “high level” of
evidentiary proof MSIP must proffer to avoid pretrial dismissal of a reformation
124
See Citibank Mem. & Opp. at 14-15.
125
See id. at 15.
126
See id. at 20.
127
See id. at 19-20.
128
See id. at 21.
129
First, both the January 2008 Wilkinson Chart and the SS Summary
Spreadsheet were created long after the fact – the latter by members of Citibank’s
SPG. Second, Citibank took reg cap relief for the Tallships Swap, too – a noncoterminous swap under which Citibank undisputedly agreed to transfer
Controlling Class rights to MSIP for the same price (7 basis points). Third, the SS
Summary Spreadsheet shows that Citibank ceded control over liquidation to
protections sellers for every other CDO where Citibank purchased super senior
credit protection, undermining the argument that an email sent by Bentch to ISDA
in 2004 – urging that “Voting Rights provisions should not be applicable to CDS
on ABS,” 7/29/04 Email from Bentch to ISDA, Ex. B to Bentch Decl. – serves as
“potent evidence of [Citibank’s] corporate intent not to pass Controlling Class
rights.” Citibank Mem. & Opp. at 21 (emphasis omitted).
41
claim130 – i.e., the clarity with which it must prove Citibank’s institutional intent –
this contemporaneous evidence further supports my conclusion that MSIP’s motion
must be denied.
B.
Citibank’s Motion
Citibank moves for summary judgment on two grounds: first, that
because Costango had authority only to negotiate the terms of a written agreement,
but not the authority to bind Citibank, any alleged “understanding” between
Costango and Wilkinson that is at odds with the Capmark Swap Agreement’s
unambiguous contractual terms cannot “bind” Citibank; and second, that no
reasonable trier of fact could find by clear and convincing evidence that the parties
intended to pass Controlling Class rights to MSIP.
Before addressing Citibank’s arguments, it is necessary to provide
some additional background relevant to Citibank’s motion: The parties do not
dispute that Costango had authority to negotiate the terms of a written
agreement.131 Although Wilkinson had no knowledge of whether Costango had
signing authority with respect to any Citibank entity, Costango never told
130
Sagan, 53 N.Y.2d at 637.
131
See Citibank 56.1 ¶ 88; MSIP Mem. at 24 (“evidence . . . establishes
that . . . Costango [was] authorized . . . to negotiate the terms of the Capmark
Swap”).
42
Wilkinson that he was authorized to sign on behalf of Citibank.132 Wilkinson
himself was not authorized to sign on behalf of MSIP,133 but he testified that he had
the authority to review and give legal approval of the final deal documents for
MSIP.134 As a matter of written internal policy, Citibank Legal Department’s
approval of all final, integrated written documents was required to bind Citibank to
any non-standard confirmations,135 including the Capmark Swap Agreement.
Citibank argues that “[t]here is no legal basis on which to reform a
principal’s unambiguous written agreement to reflect an imputed subjective intent
of an agent with no authority to bind the principal to any agreement” and that
“[n]one of the cases cited by MSIP reforms an unambiguous written agreement to
reflect the imputed subjective intent of an agent with limited authority.”136 While
132
Citibank 56.1 ¶¶ 101-102. See also 7/21/06 Email from Costango to
Wilkinson, Ex. E to Cherington Decl. (“When you are prepared to trade, can you
please call Kevin Starrett? He will say ‘done’ for Citigroup.”).
133
See id. ¶ 103.
134
See Wilkinson Dep. at 90:20-25.
135
See CIB [Citi Corporate and Investment Bank] Credit Risk Principles,
Policies and Procedures, April 2006, Ex. J to Cherington Decl., at V-16
(“Confirmations must be done under the standard forms approved by CIB Legal.
Any non-standard confirmations require review and approval by CIB Legal or
approved external counsel.”); id. at V-17 (same). See also Bentch Dep. at 176:616; Citibank 56.1 ¶¶ 90-93, 96.
136
Citibank Mem. & Opp. at 4.
43
the intent and understanding of the agents involved in negotiating an institution’s
contract may be relevant, in some instances, in determining an institution’s
intent,137 the evidentiary basis for MSIP’s claim for reformation is simply
insufficient. MSIP’s claim rests solely on its proof that Costango may have
believed Citibank passed voting rights to MSIP. This cannot support reformation
137
See, e.g., Investors Ins. Co. of America v. Dorinco Reinsurance Co.,
917 F.2d 100, 105 (2d Cir. 1990) (director’s testimony provided “only limited
evidence of [the corporate entity’s] intent, as [the director] was not a primary
participant in the negotiations between [the two entities]”) (emphasis added); In re
Department of Energy Stripper Well Exemption Litig., 855 F.2d 865, 870-71
(Temp. Emer. Ct. App. 1988) (rejecting argument that negotiator’s understanding
of settlement agreement should be discounted because he lacked authority to
approve the settlement); Karas v. Katten Muchin Zavis Rosenman, No. 04 Civ.
9570, 2006 WL 20507, at *9 (S.D.N.Y. Jan. 3, 2006) (“Because the language is
ambiguous, and because both Katten Muchin and Karas have offered relevant
extrinsic evidence of the parties’ actual intent in the form of sworn affidavits of
individuals involved in the negotiations leading to the Agreement, summary
judgment is not appropriate.”); Webb v. GAF Corp., 936 F. Supp. 1109, 1123
(N.D.N.Y. 1996) (rejecting challenge to admissibility of negotiators’ testimony
regarding their “subjective understanding” of provision at issue); Geico Corp. v.
Pennsylvania Power & Light Co., 689 F. Supp. 351, 353-54 (S.D.N.Y. 1988)
(relying on affidavits of “individuals involved in the negotiation and execution of
the [contract], both of whom stated . . . that there was no intent” to arbitrate); In re
PCH Associates, 60 B.R. 870, 874-75 (S.D.N.Y. 1986) (ruling that participant in
contract negotiations was qualified to testify as to parties’ intent); Gateway Dev. &
Mfg., Inc. v. Commercial Carriers, Inc., 744 N.Y.S.2d 778, 782-83 (4th Dep’t
2002) (noting that one of the defendants had submitted affidavits from “its
attorneys involved in the negotiation of the [contracts at issue] that bear on the
intent of the parties”). While some of these cases involve the interpretation of
ambiguous contract language (as opposed to reformation of those contracts), this
Court is aware of no special limitation, as a matter of law, on the type of evidence
from which intent may be inferred in reformation versus contract interpretation
cases – even if the standard of proof for reformation is higher.
44
of a contract. Even if MSIP has established that Costango was Citibank’s “chief”
negotiator, he was not the only negotiator. And even assuming (1) that Costango
understood that Wilkinson’s intent was to pass Controlling Class rights to MSIP
and (2) that he himself believed section 6(d) passed such rights, MSIP has
proffered no evidence that he ever communicated this understanding – or any
understanding with respect to the passage of Controlling Class rights – to anyone
else at Citibank.
Moreover, it is not as if the derivatives lawyers who drafted section
6(d) are mere scribes charged with reducing bankers’ intent to writing; they are
members of teams responsible for negotiating the rights and obligations of
Citibank when entering into complex financial contracts like the Capmark Swap
Agreement.138 The documentary evidence shows that the drafting process at both
MSIP and Citibank was an iterative one in which multiple individuals weighed in
138
See Bentch Dep. at 177:15-19 (“[T]he process is constant open
communication between internal legal and external legal counsel and the
transactors, to ensure that what is binding is what the firm understands the
agreement to be.”); id. at 318:20-319:3 (“[T]he only way that I can know what the
negotiator is providing for in the negotiation is to talk to that person. Like I said,
it’s not practice to review e-mails to deduce intent. It’s practice to work through
drafts of documents in collaboration with everybody who is relevant.”) (emphasis
added).
45
on the content of the Capmark Swap Agreement.139 I have already found that the
final version of that Agreement – which required the approval of Citibank’s
counsel140 (as both Wilkinson and Costango knew) – unambiguously did not
transfer voting rights to MSIP. Further, the history of Tallships strongly suggests
that, when Citibank intended to afford MSIP any power over Citibank’s voting
rights under the Indenture, it did so explicitly and after extensive negotiation. For
all of these reasons, the evidence simply does not support the argument that section
6(d) was merely an “oversight” or “scrivener’s error” requiring reformation of a
139
See, e.g., 6/20/06 Email from Wilkinson to Costango (copying
Frontero, Feldman, and Edman), Ex. D to Supp. Corkhill Decl. (“Attached are our
initial comments on the Capmark VI confirmation. Note that we are still talking
internally with our ‘Loan CDS’ people regarding the LSTA provisions.”); 6/20/06
Email from Costango to Wilkinson (copying Feldman, Edman, Frontero, Nikolov,
and one other individual), Ex. D to Supp. Corkhill Decl. (“Agree that in several
cases we can remove language which is more general . . . than we need for this
specific trade.”); id. (“Once we receive your further comments from the loan CDS
colleagues and any thoughts on the above I will schedule a time to speak to the
appropriate legal reps on this side to answer your questions.”); 7/11/06 Email from
Costango to Aprigliano (copying Bendernagel, Bentch, Nikolov, Starrett,
Dominguez, and four other individuals), Ex. F to Cherington Decl. (“Can we touch
base, if needed, on the Capmark CDS? We’ve incorporated your earlier guidance
but need final approval on the terms.”); 7/21/06 Email from Costango to Wilkinson
(copying Starrett and Nikolov) with Subject: “Capmark VI Supersenior Confirm
20060721_2.pdf,” Ex. F to Supp. Corkhill Decl. (“Changes as discussed: (1)
removed Fixed Rate Payer Period End Dates and (2) Changed counterparty name
in header and signature block.”).
140
See CIB Credit Risk Principles, Policies and Procedures at V-16
(“Any non-standard confirmations require review and approval by CIB Legal or
approved external counsel.”).
46
fully-integrated contract containing a no-reliance clause.141 In the absence of
contemporaneous or course-of-performance evidence142 that anyone at Citibank –
other than possibly Costango – intended to pass all Controlling Class rights under
the Indenture to MSIP, or thought section 6(d) effected transfer of those rights,
MSIP has failed to establish mutual mistake by clear and convincing evidence.
Even if Costango’s subjective intent were highly probative of
Citibank’s intent, my discussion of MSIP’s motion in Part IV.A
supra demonstrates that “no showing free of contradiction or equivocation comes
through from the affidavits submitted [in opposition to Citibank’s motion for
141
Cf. Fidelity & Guar. Ins. Co., 117 F. Supp. 2d at 918 (insurance
policy reformed because defendant never sought, and knew it never purchased,
products liability coverage that was accidentally included in the policy due to
“errors [that] were unintentional and not unlike a scrivener’s error”); Metro N.
Commuter R.R., 325 F. Supp. 2d at 412-13 (settlement agreement reformed where
attorneys for both parties agreed that two categories of covered employees had
inadvertently been combined under a single heading in an attachment); Ribacoff v.
Chubb Group Ins. Cos., 770 N.Y.S.2d 1, 2 (1st Dep’t 2003) (insurance policy
reformed where plaintiff’s insurance broker, who had full authority to obtain
coverage for her principal, testified that the plaintiff told her he did not intend to
purchase jewelry coverage, that she as a result never sought it, but that it was
accidentally not excluded from the policy).
142
Cf. Gulf Ins. Co., 886 N.Y.S. 2d at 144-45 (reversing grant of
summary judgment dismissing reformation counterclaims where undisputed
documentary evidence showed payments of several million dollars in accordance
with mutually mistaken understanding and internal post-contractual accounting
documents).
47
summary judgment].”143 MSIP has simply not shown, “‘in no uncertain terms, not
only that mistake . . . exists, but exactly what was really agreed upon between
[Wilkinson and Costango].’”144 Yet that is the showing MSIP must make in order
to overcome the “‘heavy presumption that a deliberately prepared and executed
[agreement] manifest[s] the true intention[s] of the parties,’ especially between
counselled businessmen.”145 For all of these reasons, I conclude that no reasonable
trier of fact could find by clear and convincing evidence that MSIP and Citibank
mutually intended for the Capmark Swap Agreement to transfer all Controlling
143
Backer, 46 N.Y.2d at 220. As Citibank argues in opposing MSIP’s
motion,
[a]ll documentary evidence relied on by MSIP is at best equivocal;
nothing clearly and unambiguously supports MSIP’s claim that
both sides intended that Citi pass Controlling Class rights to
MSIP. MSIP’s case for summary judgment thus boils down to the
following: Wilkinson swears that he came to an oral
understanding with Costango that MSIP would control [] the
exercise of all of Citi’s ‘voting rights;’ that the term ‘voting
rights’ includes Citi’s Controlling Class rights under the
Indenture; and that, because Costango has no recollection either
confirming or contradicting that assertion, the Confirmation must
be reformed.
Citibank Mem. & Opp. at 10.
144
Chimart, 66 N.Y.2d at 574 (quoting Backer, 46 N.Y.2d at 219)
(emphasis added).
145
Healy, 981 F.2d at 73 (quoting Backer, 46 N.Y.2d at 219 and citing
Chimart, 66 N.Y.2d at 574) (citation omitted).
48
Class rights under the Indenture to MSIP. 146 Therefore, Citibank's motion for
summary judgment dismissing MSIP's claim for reformation is granted.
V.
CONCLUSION
For the reasons stated above, MSIP's motion for summary judgment
is denied, and Citibank's cross-motion is granted. The Clerk of Court is directed to
close these motions (Docket Nos. 61 and 70).
SO ORDERED:
Dated:
May 25, 2011
New York, New York
This is all the more so where the Court has seen all of the relevant
evidence and would be the trier of fact. See, e.g., Citigroup Inc. v. VDN Sys., Inc.,
No. 08-Civ-7527, 2008 WL 5274091, at *2 (S.D.N.Y. Dec. 16,2008) (,"[While
a]ctions for money damages for breach of contract are legal in nature and are
triable to a jury[, a]ctions seeking reformation of contract, rescission or
cancellation of contract, or specific performance of contract are all equitable in
nature, and [do not give rise to a Seventh Amendment jury trial right]."') (quoting
8 James Wm. Moore et aI., Moore's Federal Practice § 38.30[4] (3d ed. 2008)).
146
49
- Appearances For Plaintiff:
Gregory P. Joseph, Esq.
Peter R. Jerdee, Esq.
Sandra M. Lipsman, Esq.
Rachel Cherington, Esq.
Gregory P. Joseph Law Office LLC
485 Lexington Avenue, 30th floor
New York, New York 10017
(212) 407-1200
For Defendant:
Kathleen M. Sullivan, Esq.
Michael B. Carlinsky, Esq.
Jonathan E. Pickhardt, Esq.
Andrew S. Corkhill, Esq.
Quinn Emanuel Urquhart & Sullivan, LLP
51 Madison Avenue
New York, New York 10010
(212) 849-7000
50
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?