Highland CDO Opportunity Master Fund, L.P. v. Citibank, N.A. et al

Filing 150

MEMORANDUM AND ORDER: granting 88 Motion for Summary Judgment; denying 119 Motion for Summary Judgment. For the foregoing reasons, we grant Citi's motion for summary judgment with respect to CDO Fund's breach-of-contract claim and CD O Fund's UCC claim to the extent it is based on the March Auction; deny the remainder of Citi's motion for summary judgment; and deny CDO Fund/Highland's motion for summary judgment in its entirety. The Clerk of the Court is respectfully directed to terminate the motions pending at docket entries 88 and 119. SO ORDERED. (Signed by Judge Naomi Reice Buchwald on 3/30/2016) (ama)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------X
HIGHLAND CDO OPPORTUNITY MASTER
FUND, L.P.,
Plaintiff,
- against -

MEMORANDUM AND ORDER
12 Civ. 2827 (NRB)

CITIBANK, N.A., CITIGROUP GLOBAL
MARKETS INC., CITIGROUP GLOBAL
MARKETS LIMITED, and CITIGROUP
FINANCIAL PRODUCTS INC.,
Defendants.
-------------------------------CITIBANK, N.A., CITIGROUP GLOBAL
MARKETS INC., CITIGROUP GLOBAL
MARKETS LIMITED, and CITIGROUP
FINANCIAL PRODUCTS INC.,
Counterclaim-Plaintiffs,
- against –
HIGHLAND CDO OPPORTUNITY MASTER
FUND, L.P.,
Counterclaim-Defendant,
and
HIGHLAND CDO OPPORTUNITY FUND GP, L.P.,
and HIGHLAND CAPITAL MANAGEMENT, L.P.,
Additional Defendants to
Counterclaim.
--------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

Plaintiff Highland CDO Opportunity Master Fund, L.P. (“CDO
Fund”), commenced this action in 2012 against defendants Citibank

N.A.

(“CBNA”),

Citigroup

Global

Markets

Limited

(“CGML”),

Citigroup Financial Products Inc. (“CFPI”), and Citigroup Global
Markets Inc. (together, “Citi”), asserting claims for, inter alia,
breach of contract and violation of Article 9 of the New York
Uniform Commercial Code (the “UCC”).

CDO Fund’s claims arise from

margin calls issued by Citi in December 2008 in connection with
credit default swaps (“CDS”) entered into by CDO Fund and Citi.
CDO Fund failed to meet the margin calls, ultimately leading to
Citi declaring an event of default, seizing the assets CDO Fund
had posted to collateralize the CDS, and conducting two auctions
to sell the collateral.

CDO Fund principally alleges that Citi’s

valuations giving rise to the margin calls were not in good faith
and were not commercially reasonable and thus in breach of the
parties’ agreements governing the CDS, and that Citi’s subsequent
auctions of CDO Fund’s collateral violated the UCC.

Citi brings

counterclaims for contractual indemnification and to recover the
deficit allegedly owed under the agreements as a result of CDO
Fund’s failure to meet the 2008 margin calls.

Citi seeks to hold

Highland CDO Opportunity Fund GP, L.P. (“Highland GP”) and Highland
Capital Management, L.P. (“HCM,” and together with Highland GP and
CDO Fund, “Highland”), jointly and severally liable for those
obligations.

-2-

CDO Fund/Highland now move for summary judgment on CDO Fund’s
claims against Citi and on Citi’s counterclaims against Highland,
and Citi moves for summary judgment on CDO Fund’s claims.

Because

no rational trier of fact could conclude that CDO Fund availed
itself of the mandatory dispute resolution mechanism contained in
the parties’ agreements for adjudicating objections to margin call
calculations, it cannot now challenge Citi’s calculation of the
2008 calls, and we grant Citi’s motion with respect to CDO Fund’s
breach-of-contract claim. We also grant Citi’s motion with respect
to CDO Fund’s UCC claim to the extent it is based on Citi’s sale
of collateral in March 2009; deny the remainder of Citi’s motion;
and deny CDO Fund/Highland’s motion in its entirety.

-3-

BACKGROUND1
I.

The Parties
HCM is an investment adviser specializing in, inter alia,

senior secured bank loans, credit, and structured products.
¶ 1.

Its co-founder and president is James Dondero.

D56.1

Id. ¶ 14;

P56.1 Ctr. Stmt. ¶ 14.
CDO Fund is an exempted limited partnership organized under

1

The facts recited throughout this Memorandum and Order are drawn from the
following sources: the complaint, filed in the Supreme Court of the State of
New York, County of New York, on April 5, 2012, and removed to this District on
April 10, 2012 (“Compl.”); Citi’s amended and supplemental counterclaims filed
on July 16, 2013 (“Am. Countercls.”); Plaintiff’s and Counter-Defendants’ Rule
56.1 Statement of Material Facts in Support of Motion for Summary Judgment
(“P56.1”); Defendants’ Counterstatement in Opposition to Highland’s Rule 56.1
Statement of Material Facts (“D56.1 Ctr. Stmt.”); the declaration of Isaac
Leventon in support of Highland’s motion for summary judgment (“Leventon Decl.”)
and the exhibits attached thereto; the declarations of Jeffrey Prudhomme filed
in support of Highland’s motion for summary judgment and in opposition to Citi’s
motion for summary judgment (“Prudhomme Decl.”) and the exhibits attached
thereto; Defendants’ Statement of Undisputed Material Facts (“D56.1”);
Plaintiff’s Response to Defendants’ Statement of Undisputed Material Facts
(“P56.1 Ctr. Stmt.”); Defendants’ Counterstatement in Opposition to CDO Fund’s
Supplemental Statement of Facts; the declaration of Robert J. McCallum in
support of Citi’s motion for summary judgment (“McCallum Decl.”) and the
exhibits attached thereto; the supplemental declaration of Robert J. McCallum
in opposition to Highland’s motion for summary judgment (“McCallum Supp. Decl.”)
and the exhibits attached thereto; the reply declaration of Robert J. McCallum
in support of Citi’s motion for summary judgment and the exhibits attached
thereto; the declaration of Brian Bejile in support of Citi’s motion for summary
judgment (“Bejile Decl.”) and the exhibits attached thereto; the memoranda
submitted in connection with the motions for summary judgment, including
Plaintiff’s and Counter-Defendants’ Memorandum of Law in Support of Motion for
Summary Judgment (“Highland Mem.”), and Plaintiff’s Response in Opposition to
Defendants’ Motion for Summary Judgment (“CDO Fund Opp. Mem.”); and the
transcript of the oral argument on the parties’ motions held on February 18,
2016 (“Oral Arg. Tr.”). We also cite to the transcripts of the depositions of
Philip Braner (“Braner Tr.”), James Dondero (“Dondero Tr.”), Ansel Eshelman
(“Eshelman Tr.”), Isaac Leventon (“Leventon Tr.”), Gibran Mahmud (“Mahmud Tr.”),
Paul Roos (“Roos Tr.”), and Daniel I. Castro, Jr. (“Castro Tr.”), excerpts of
which are included as exhibits to the above-referenced declarations.

-4-

Bermuda law.

P56.1 ¶ 3; D56.1 ¶ 11.

HCM served as CDO Fund’s

investment manager pursuant to an investment management agreement.
P56.1 ¶ 14; D56.1 ¶ 10.

Neither CDO Fund nor its general partner,

Highland GP, had any employees during the fourth quarter of 2008.
D56.1 ¶ 12; P56.1 Ctr. Stmt. ¶ 12. At that time, then-HCM employee
Gibran Mahmud was one of three portfolio managers for CDO Fund and
then-HCM employee Paul Roos was a senior analyst for structured
products reporting to Mahmud.

D56.1 ¶¶ 15-16; P56.1 Ctr. Stmt.

¶¶ 15-16.

CDO

HCM

collateralized
obligations.
A

structured

debt

obligations

Fund

to

trade

primarily

and

collateralized

loan

D56.1 ¶ 4.

collateralized

loan

obligation

(“CLO”),

a

species

of

collateralized debt obligation (“CDO”), is a securitized pool of
below investment grade corporate loans.

Id. ¶ 5.

The loan assets

serve as the collateral for the CLO, and cash flows that come from
the assets into the CLO are distributed in order of priority among
different

classes,

or

“tranches,”

including

multiple

debt

or

liability classes and an equity class, in accordance with a
documented payment waterfall.

Id. ¶ 7.

CDO Fund principally

invested in equity and mezzanine tranches of CLOs, the two lowest
priority classes: if cash flows generated by the assets underlying

-5-

the CLO were insufficient to pay all of the investors, the equity
interests were the first not to be paid.

Id. ¶¶ 6, 8.

Citi and HCM had a business relationship that predated the
events at issue: HCM was an important Citi client and one with
whom Citi conducted numerous transactions.

Id. ¶¶ 19-20.

As part

of the relationship, Citi’s CLO primary structuring desk would
arrange, originate and structure new CLOs for HCM and distribute
the securities issued by those CLOs into the market.

Id. ¶ 21.

The co-head of Citi’s CLO primary business was John Clements.
¶ 22.

Id.

Citi’s secondary CDO desk was a market maker that purchased

and sold CLO positions from and to Citi’s clients, and in the fall
of 2008, Brian Bejile was the associate on the desk principally
responsible for marking the collateral and pricing the CDS at issue
in this case.
II.

Id. ¶ 25.

The CDS Transactions
In the fall of 2008, CDO Fund was a party to two financing

transactions with Citi: (1) a secured loan facility with a maturity
date of December 1, 2008 (the “Loan Facility”); and (2) a series
of CDS with an aggregate notional value of $59 million (the “CDS
Transactions”).

Compl.

¶¶

20-21;

P56.1

¶¶

17,

82

&

n.103.

Pursuant to the Loan Facility, CBNA and CFPI loaned cash to CDO

-6-

Fund secured by CDO Fund’s collateral comprised of mezzanine and
equity tranches of CDOs and CLOs.

Id. ¶ 16.

While the Loan Facility was material to Citi’s motion to
dismiss, the claims and counterclaims remaining in this action are
primarily directed at the CDS Transactions, in which Citi was the
buyer and CDO Fund was the seller of credit protection relating to
“reference obligations” consisting primarily of relatively junior
tranches of CDOs and CLOs.

Id. ¶ 22.

As the protection buyer,

Citi agreed to make regular fixed payments to CDO Fund, while, as
seller, CDO Fund was obligated to make floating payments to Citi,
but only if certain credit events occurred with respect to a
reference obligation.

Id. ¶ 23.

The CDS Transactions were governed by the following agreements
between CDO Fund and certain of the Citi defendants (the “CDS
Contracts”): a 1992 ISDA Master Agreement and the accompanying
Schedule, dated January 12, 2007 (together with the Schedule, the
“ISDA”); a 1994 ISDA Credit Support Annex, dated January 12, 2007
(the

“CSA”);

and

the

Restated

Credit

Support

Administration

Agreement, dated October 10, 2008 (the “CSAA”), a master agreement
providing for coordinated administration of credit support under

-7-

the various transactions among CDO Fund and Citi.2

D56.1 ¶ 28;

Leventon Decl. ¶ 26; McCallum Decl., Ex. 75 (CSAA).

Each of the

CDS Contracts is governed by New York law.

See ISDA § 13(a); ISDA

Schedule Part 4(h); CSAA § 11(a).
Pursuant to the CDS Contracts, CDO Fund agreed to pledge
collateral consisting of cash and treasury bonds and, if agreed
upon by Citi, other types of collateral.

P56.1 ¶ 24. CDO Fund

posted initial cash collateral, referred to as the “initial margin”
or the “Independent Amount,” based on an agreed-upon percentage of
each reference obligation’s initial face value.

Id. ¶ 27; see CSA

¶ 13(b)(iv)(A) (defining “Independent Amount” as “USD equivalent
of

the

amount

as

specified

in

the

relevant

Confirmation”);

September 18, 2008 Amended Confirmation from Citibank, N.A. to CDO
Fund, Annex A, Leventon Decl., Ex. A-4 (listing “Initial Face
Amount”

and

obligations).

Independent

Amount

percentages

for

reference

By December 2008, as discussed below, CDO Fund had

posted noncash collateral, primarily in the form of CLO equity
tranches, to secure the CDS Transactions.

2

D56.1 ¶ 29.

CGML and CBNA each entered into an ISDA and CSA with CDO Fund. References to
either the ISDA or the CSA are to the agreements entered into with both Citi
entities. See Leventon Decl., Exs. A-5, A-6 (ISDA); A-7, A-8 (ISDA Schedule);
A-9, A-10 (CSA).

-8-

A. Margin Calls
Under the parties’ financing agreements, CDO Fund agreed to
post additional collateral (or “margin”) if the value of the
existing collateral decreased relative to Citi’s exposure.

With

respect to the CDS Transactions in particular, Citi was entitled
to ask CDO Fund to transfer a “Delivery Amount” of additional
collateral to Citi under certain circumstances.

CSA ¶ 3.

The “Delivery Amount” was calculated by Citi, the designated
“Valuation Agent” under the CSA, as the amount by which the sum of
Citi’s “Exposure” on the CDS Transactions and the Independent
Amount exceeded the “Value” of CDO Fund’s posted collateral.

See

CSA ¶ 13(c)(i) (defining “Valuation Agent” as “the Secured Party”);
id. ¶ 3(a) (defining “Delivery Amount” as equal to amount by which
“Credit Support Amount” exceeds “the Value as of that Valuation
Date of all Posted Credit Support held by the Secured Party”); id.
¶ 13(b)(i)(C) (defining “Credit Support Amount” to mean the “(i)
Secured Party’s Exposure for that Valuation Date plus (ii) the
aggregate of all Independent Amounts applicable to the Pledgor”).
Citi

calculated

its

“Exposure”

on

the

CDS

Transactions

by

determining the cost of replacement transactions, i.e., what Citi
would have to pay another party to purchase credit protection for
the underlying reference obligations if the CDS Contracts were

-9-

terminated.

P56.1 ¶ 32; see CSA ¶ 12 (defining “Exposure”).

The

“Value” of CDO Fund’s cash collateral was the amount thereof and
the “Value” of CDO Fund’s noncash collateral assets was determined
by the “bid price” (meaning the price at which a buyer would be
willing to purchase an asset) obtained by Citi, subject to agreedupon haircuts.

Id; D56.1 ¶ 120.

The CDS Contracts required that

“all calculations, valuations and determinations made by either
party” be “made in good faith and in a commercially reasonable
manner.”

CSA ¶ 11(d).

Absent a dispute, CDO Fund was required to pay any margin
call that Citi issued by 10:00 a.m. on a given business day on or
before 5:00 p.m. that same day.

CSAA §§ 1, 3, 4(b).

CDO Fund

agreed that it “shall not be excused” from the timely payment of
margin calls “for any reason whatsoever,” id. § 4(b), and that its
unjustified failure to make timely payment would constitute a
“Close-out Event” under the CSAA, see id. § 1 (defining “Closeout Event”).

A Close-out Event permitted Citi to terminate the

CSAA and/or any of the underlying contracts, net or set-off any
termination amounts due, and “liquidate, apply, collect on and set
off any or all Collateral and any Credit Support delivered under
any Contract . . . against any Net Payment or other obligation
(including delivery and collateral return obligations) owed to

-10-

it,” id. §§ 6(a)-(b); see CSA ¶ 8(a)(iv) (upon certain events of
default, Citi had the right to “liquidate any Posted Collateral
. . .

through

one

or

more

public

or

private

sales

or

other

dispositions . . . (with [Citi] having the right to purchase any
or all of the Posted Collateral to be sold) and to apply the
proceeds . . . from the liquidation of the Posted Collateral to
any amounts payable by [CDO Fund]”).

Both parties agreed that

“Posted Collateral in the form of securities may decline speedily
in value and is of a type customarily sold on a recognized market”
and therefore CDO Fund was “not entitled to prior notice of any
sale” of such collateral by Citi except any nonwaivable notice
required by law.

Id. ¶ 8(a).

B. The Dispute Resolution Provision
Paragraph five of the CSA provides a dispute resolution
process for margin calls.

Under that provision, if CDO Fund

“dispute[d] . . . the Valuation Agent’s calculation of a Delivery
Amount,” then, as the “Disputing Party,” it was first required to
“notify the other party and the Valuation Agent,” both of which
would have been Citi, “not later than the close” of the first
business day after “the date that the demand is made.”

CSA ¶ 5.

By that same time, CDO Fund must have transferred any “undisputed
amount” to Citi.

Id.

The parties were then required to “consult

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with each other in an attempt to resolve the dispute,” and if they
failed to reach a resolution by “1:00 p.m., New York time” on the
business day “following the date on which notice is given that
gives rise to a dispute,” Citi was required to recalculate the
Delivery Amount and to notify CDO Fund of its recalculation by
10:00 a.m. on the second business day after notice was given.
¶¶ 5, 13(c)(iv), (f)(i).

Id.

At the recalculation stage, Citi was

required to recalculate disputed Exposure and/or disputed Value of
posted collateral by, inter alia, seeking market quotations.

Id.

¶¶ 5(i), 13(f)(ii).3 Upon demand following notice of recalculation
or a resolution following consultation, the “appropriate party”
would then “make the appropriate Transfer.”
III.

Id. ¶ 5.

CDO Fund’s Performance in Fall 2008
The value of CDO Fund’s holdings plummeted in 2008, especially

in the fourth quarter.

Asset values across many different classes

3

The Valuation Agent, in this case Citi, would recalculate Exposure by utilizing
any calculations of Exposure that the parties “agreed are not in dispute” and
calculate disputed Exposure by “seeking four actual quotations at mid-market
from Reference Market-makers . . . taking the arithmetic average of those
obtained; provided that if four quotations are not available for a particular
Transaction . . . , then fewer than four quotations may be used for that
Transaction
. . . and if no quotations are available for a particular
Transaction . . . , then [Citi’s] original calculations will be used for that
Transaction.” CSA ¶ 5(i)(A)-(B) (emphasis in original). Similarly, Citi would
recalculate the “Value” of noncash collateral assets by adding accrued interest
for an asset to either (i) the mean of the mid-market quotations for that asset
on the relevant date obtained from three nationally recognized principal market
makers; or (ii) if no such quotes were available, the mean of the “closing bid
prices” for the asset “on the next preceding date.” Id. ¶ 13(f)(ii).

-12-

were falling at the time, including the assets in which CDO Fund
and other Highland funds were invested.

D56.1 ¶ 47.

Current and

former Highland employees testified to the extraordinary upheaval
in financial markets during the fourth quarter of 2008. See, e.g.,
Braner Tr. at 60 (fair to classify markets as “in a state of
extreme distress”); Mahmud Tr. at 35-37 (describing markets as
“chaos” and “chaotic”); Roos Tr. at 20 (market was “poor,” “not
good at all,” “[t]he world was coming to an end, Armageddon”);
Dondero Tr. at 57 (“[T]he world almost ended in the fourth quarter
of ’08 and nothing was trading normally.”).
Moreover, there was substantial panic by investors in the
type of assets that comprised the collateral for the financing
facilities between CDO Fund and Citi.

D56.1 ¶ 42; Compl. ¶ 2.

Investments in CLO mezzanine and equity tranches accounted for the
bulk of CDO Fund’s reported net loss of 26.38% in September 2008.
D56.1 ¶ 50. HCM’s October performance estimate for CDO Fund showed
an estimated gross return of negative 67.44% for that month and
negative 82.06% for the year to date, with the majority of the
losses attributable to CLO equity and mezzanine tranches.

Id.

¶ 52; see McCallum Decl., Ex. 10 (November 14, 2008 Highland email containing October 2008 performance estimate for CDO Fund).
On December 19, 2008, CDO Fund’s administrator circulated a draft

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net asset value calculation for CDO Fund reflecting a net asset
value of negative 113% as of the end of November.

D56.1 ¶ 53.

Highland testified that it was “safe to presume” that the
majority

of

CDO

Fund’s

financing

counterparties

were

issuing

margin calls to CDO Fund in the fall of 2008, and in October 2008,
CDO Fund received margin calls from Goldman Sachs, JPMorgan, and
Natixis.

Braner Tr. at 252-53; P56.1 Ctr. Stmt ¶ 64.

That same

month, HCM initiated a reduction in force, terminating and/or
eliminating 20% of its workforce, and sent letters to its lenders
informing them that it would be winding down two Highland-managed
hedge funds.

D56.1 ¶¶ 60-61.

During this period, CDO Fund was

paying its creditors “[g]enerally from cash flows of assets that
it owned.”

Braner Tr. at 128-29.

In mid-October 2008, Citi itself issued a series of margin
calls to CDO Fund, the last and operative of which was for
approximately $17.6 million.

D56.1 ¶¶ 79-86.

In lieu of paying

cash to meet the margin call, CDO Fund proposed that Citi accept
a pledge of securities, and agreed on or around October 23, 2008,
to post additional securities as collateral.
Ctr. Stmt. ¶ 96.

Id. ¶¶ 91, 96; P56.1

The selection of the assets to be pledged was

the result of a negotiation between HCM “as the investment manager
under

contract

to

CDO

Fund”

-14-

and

Citi,

and

reflected

a

“collaborative effort between the counterparties.”

Leventon Tr.

at 113-14.
CDO

Fund’s

pledge

of

additional

collateral

was

formally

memorialized as part of an agreement entered into by Citi, HCM,
and CDO Fund on November 25, 2008.

D56.1 ¶ 102; P56.1 ¶ 63;

Prudhomme Decl., Ex. B-11 (the “November 25 agreement”).

In

addition to Citi accepting CDO Fund’s pledge, the parties agreed,
inter alia, to the following: CDO Fund would pay down the Loan
Facility by December 1, 2008; HCM would guarantee repayment of the
Loan Facility; following termination of the Loan Facility, the
collateral securing that facility would be retained by Citi to
collateralize the CDS Transactions; and “Eligible Credit Support”
would “otherwise be limited on an ongoing basis to cash only,” id.
¶¶ 1, 2, 3, 9.

The parties also agreed that the Independent Amount

for the CDS Contracts would now be equal to $18,664,585.
IV.

Id. ¶ 6.

The December 2008 Margin Calls
By December 2008, pursuant to the November 25 agreement, CDO

Fund had posted over $18.7 million in cash and 34 securities to
collateralize the CDS Transactions.

P56.1 ¶ 28; D56.1 ¶¶ 106-08.

A. The December 11 Margin Call
Following the November 25 agreement, Citi generated new marks
on CDO Fund’s collateral on December 9 or 10, 2008.

-15-

D56.1 ¶ 117;

P56.1 Ctr. Stmt. ¶ 117.4

Prior to 10:00 a.m. on December 11, Citi

issued a margin call to CDO Fund for $5.22 million.

D56.1 ¶ 119;

P56.1 ¶ 74; Prudhomme Decl., Ex. B-24 (e-mail transmitting call).
Later

that

morning,

Citi’s

Bejile,

copying

other

Citi

employees including Clements, e-mailed HCM’s Roos stating, “As
requested, I have attached our equity marks that were used for
today’s margin call.”

McCallum Decl., Ex. 57.

He attached a

spreadsheet containing marks for CDO Fund’s collateral securities
and a “Highland Balance Sheet” listing $53,782,684 in “Assets,”
broken into CDO Fund’s cash and noncash collateral, and $59,000,000
in “Liabilities,” broken into $18,664,585 of initial margin and
$43,852,059 of Exposure.5

Id.

Two hours later, Roos responded:

Brian,
Irrespective of the marks on the cash securities (we can
discuss this further), you are ascribing a value of zero to
the CDS. The CDS positions have not defaulted and are still
cash-flowing, therefore there should be some value attributed
to them.
Prudhomme Decl., Ex. B-47.

After about twenty minutes, Bejile e-

mailed back:

4

While internal Citi e-mails dated December 2, 4, and 5, 2008, contain marks
on CDO Fund’s collateral, the marks therein were exactly the same as in the
November 25 agreement.
See Prudhomme Decl., Exs. B-16 (December 2); C-2
(December 4); B-23 (December 5); B-11 at Ex. B (November 25 agreement).
5

The two components of “Liabilities” sum up to more than the total, but Citi’s
greatest potential exposure was $59 million, the notional value of the CDS
Transactions, P56.1 ¶ 82 & n.103.

-16-

Actually there is value being attributed to the CDS.
Remember, its [sic] being marked at 43MM on a 59MM notional.
The difference there is the initial margin, which exists on
all CDS trades.
Bejile Decl., Ex. 5.

There is no evidence that Roos responded to

that e-mail or spoke to Bejile that day.

Later that afternoon,

Roos did e-mail Clements with the subject “Pls call me” and no
other text, to which Clements responded “I’m working on the case
as we speak.

Let me call you soon.”

replied “Thank you.”

Id.

McCallum Decl., Ex. 67.

Roos

CDO Fund did not pay Citi in response

to the December 11 margin call.
On the morning of Friday, December 12, Citi issued a margin
call for approximately $5.2 million to CDO Fund.
Decl., Ex. B-25 (e-mail transmitting call).

See Prudhomme

Roos again responded

to Clements’ e-mail wherein Clements had promised to call him:
“Just trying to stay in front of you on this . . . let me know
what we can do.”

McCallum Decl., Ex. 69 (ellipses in original).

B. The December 15 Margin Call
Later on December 12, 2008, Citi issued a margin call to CDO
Fund for $20.144 million.

P56.1 ¶ 79.6

Because the call was

issued after 10:00 am, CDO Fund was not required to meet it until

6

The parties dispute Citi’s justification for the increase in amount. As we
find CDO Fund to be precluded from bringing its claim based on Citi’s calculation
of the margin calls, we do not address the parties’ arguments on this issue.

-17-

the next business day.

Prior to 10:00 a.m. on Monday, December

15, Citi reissued the call.

D56.1 ¶ 122.

That morning, Roos e-mailed Citi, “Please send me the detail
behind the margin call.
53.7

Is 20m right?”

Prudhomme Decl., Ex. B-

Another individual from HCM responded to Citi’s e-mail

transmitting the margin call: “Please provide detail for this
call.”

Id. Ex. B-56.

Later that day, Bejile e-mailed Roos and

Mahmud a spreadsheet containing the marks on CDO Fund’s collateral
used

to

generate

the

December

15

margin

call,

“Gibran/Paul, Lets discuss when you receive these.”
57.

stating,

Id. Ex. B-

Although Citi continued to reissue a margin call to CDO Fund

of approximately $20 million each business day through December
24, 2008, it did not mark down the collateral after December 15.
P56.1 Ctr. Stmt. ¶ 284; D56.1 ¶ 123.
V.

CDO Fund Fails to Meet Payment Demands of Other Counterparties
Around this time in December 2008, CDO Fund was in discussions

concerning demands for payment related to financing transactions
with other counterparties.

On or around December 9, CDO Fund

received a demand from Credit Suisse (or “CS”) for payment in

7

It appears Roos attempted to call Clements before he sent the e-mail. See
Prudhomme Decl., Ex. B-52 (December 15 internal Citi e-mail to Clements with
subject “Missed call – paul from highland” stating “Re: $20mm margin call
received today”).

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connection with the unwinding of a CDS transaction.

D56.1 ¶ 71.

In a December 12 e-mail to CS concerning CDO Fund’s outstanding
balance pursuant to that transaction, Highland’s CFO wrote:
As
At
to
as

you know, the CDO fund invests in highly illiquid assets.
this point in time, the fund does not have the liquidity
send CS the $1 mm. We will send to you the money as soon
we can.

McCallum Decl., Ex. 11 at CDO00037198; see Braner Tr. at 303
(Highland’s 30(b)(6) witness testifying that he had no reason to
believe the statement contained in the CFO’s e-mail was untrue);
Roos Tr. at 178 (testifying that he did not find it surprising
that CDO Fund did not have the liquidity to make a $1 million
payment because “the asset class the CDO Fund invested in was very
illiquid”).

On December 16, CS asked Highland to confirm that CDO

Fund “currently” had no unencumbered cash and only two unencumbered
assets, both of which were potentially pledgable as collateral to
CS.

D56.1 ¶ 182.
By

December

15,

2008,

CDO

Fund’s

records

reflected

an

unrealized loss of $324 million with respect to the collateral it
had posted to its various counterparties.

Id. ¶ 73.

On or around

that date, Highland had discussions with CDO Fund’s investors
concerning the possibility of a capital contribution, but the
contribution was ultimately not realized.

-19-

Id. ¶ 74.

On or around December 19, UBS demanded payment from CDO Fund
for approximately $4.9 million, and after CDO Fund did not meet
the demand, UBS subsequently closed down its financing facility
with CDO Fund and liquidated CDO Fund’s collateral pledged under
that facility.
23,

Highland

Id. ¶¶ 75-76.
had

Similarly, on or around December

negotiations

with

Natixis

regarding

the

possibility of reorganizing CDO Fund’s financing; the two sides
were unable to reach an agreement, and Natixis ultimately seized
and sold the collateral pledged to it by CDO Fund.
VI.

Id. ¶¶ 77-78.

The Standstill Agreement and the Default
On

or

around

December

15,

2008,

Citi

and

Highland

had

discussions concerning possible resolutions to the outstanding
$20.1 million margin call.

D56.1 ¶ 178; see McCallum Decl., Ex.

13 (December 16, 2008 internal Highland e-mail from Mahmud stating
“I spoke with Clements last night and he and I discussed 3 or 4
possible solutions.

I need to walk Jim [Dondero] through those

when he is free to decide what we want to go back to them with and
how to move forward”).

Highland proposed to Citi that it would

pledge two additional pieces of collateral—the only unencumbered
assets held by CDO Fund that had any material value.

D56.1 ¶ 181.

Citi and Highland also discussed HCM providing a guarantee for

-20-

cash flows from CDO Fund’s collateral and CDO Fund receiving a
margin call holiday through February 5, 2009.

Id. ¶ 183.8

On December 22, Citi sent Highland a draft of a standstill
agreement.

Id. ¶ 184.

The draft agreement provided, inter alia,

that CDO Fund would pledge the two unencumbered assets with
material

value

as

additional

collateral;

HCM

would

guarantee

distributions on the existing collateral on or before February 5,
2009, up to $10 million; and Citi would provide CDO Fund with a
margin call holiday through February 5, 2009.

Id. ¶ 185.9

On the morning of December 24, 2008, Mahmud e-mailed Clements
to inform him that, given recent downgrades issued by ratings
agencies on CLO tranches and the loans underlying those CLOs, the
terms of the standstill agreement were no longer practical for HCM
and CDO Fund.

Id. ¶ 189.

The effect of the ratings downgrades

was to diminish the potential cash flow on CDO Fund’s existing

8

E-mails reflect discussions between Citi and Highland on December 19, 2008,
related to a possible agreement. See McCallum Supp. Decl., Exs. 43 (December
19, 2008 e-mail exchange between Roos and Clements); 44 (December 23, 2008 email from Clements to Dondero, Roos, and Mahmud).
9

While the draft agreement indicates that CDO Fund would post as additional
collateral 267,000 shares of “HCF” with a market value of $1,575,300, McCallum
Decl., Ex. 46 at CDO00028361, an e-mail sent from Clements to other Citi
employees the week prior concerning his discussions with Highland referred to
CDO Fund posting “279,452 shares of HCF . . . , market value $1.4MM,” id. Ex.
14. In both the draft agreement and the e-mail, the other additional collateral
was CLO equity with a notional value of $16.25 million. Id. Exs. 14, 41. The
draft agreement ascribed that asset a market value of $568,750. Id. Ex. 46 at
CDO00028361.

-21-

collateral, which HCM would have guaranteed under the agreement.
Id. ¶¶ 190-91.
“explore

In the e-mail, Mahmud said CDO Fund would like to

terming

out

the

financing

by

posting

additional

collateral,” to which Clements responded, “what is the type and
magnitude of collateral you have.”

McCallum Decl., Ex. 47.

At

that point, CDO Fund had “very little” in terms of cash or assets
that were unencumbered and available to pledge.

D56.1 ¶ 194.

Neither side has pointed to any evidence of anyone at Highland
responding to Clements’ query.

Later that day, Citi declared an

event of default under the CDS Contracts because CDO Fund failed
to satisfy its obligation under CSAA § 4(b) to timely meet the
margin call.

P56.1 ¶ 97.

It is undisputed that by December 31, 2008, CDO Fund had
liabilities that exceeded its assets.

P56.1 Ctr. Stmt. ¶ 54.

HCM

ultimately announced a wind down of CDO Fund on February 4, 2009:
its letter to CDO Fund investors stated that CDO Fund had “been
rendered insolvent,” and as of December 31, 2008, CDO Fund’s
liabilities to financing counterparties and other senior and trade
creditors exceeded its assets to such a degree that no assets
remained

available

to

satisfy

any

unpaid

distribute amounts to current investors.

-22-

redemptions

or

to

McCallum Decl., Ex. 41.

VII.

The December BWIC
On December 24, 2008, the day it declared a default, Citi

announced a bids wanted in competition (“BWIC”) on the assets
comprising CDO Fund’s collateral.
¶ 201.

D56.1 ¶ 201; P56.1 Ctr. Stmt.

A BWIC is an offer to sell securities to interested parties

by inviting them to submit bids on those securities by a given
time.

D56.1 ¶ 199.

Bids on the CDO Fund collateral were due by

10 a.m. on December 31, 2008.

Id. ¶ 201.

Citi sent the BWIC to various recipients at Bank of America,
Barclays Capital, Calyon, Credit Suisse, Goldman Sachs, JPMorgan,
Merrill

Lynch,

Morgan

Stanley,

Wachovia, and Deutsche Bank.

Royal

Bank

Id. ¶ 205.10

of

Scotland,

UBS,

On December 29, Citi

sent a Bloomberg message with the details of the BWIC to its
internal salesforce and over 80 market participants.

Id. ¶ 206.11

10

Citi cites to a December 24, 2008 e-mail stating that Citi had sent out
“solicitations of bids/offers from the following recipients” and listing
numerous e-mail addresses with the above banks’ domain names, Bejile Decl., Ex.
14. While it disputes Citi’s statement that the BWIC was sent to the banks’
“dealer trading desks” and notes that there is no transmission of the BWIC in
Citi’s e-mail itself, P56.1 Ctr. Stmt. ¶ 205, Highland does not assert that
Citi failed to transmit the BWIC to these financial institutions, seven of which
submitted bids in the BWIC, id. ¶ 209.

11

Highland disputes Citi’s statement that the Bloomberg message was sent to
over 80 market participants including hedge funds and asset managers, contending
that there is no identification of the recipients of the message as market
participants, hedge funds, or asset managers. P56.1 Ctr. Stmt. ¶ 206. While
Highland is correct that the message blind carbon copies a large number of
individual recipients without identifying them by category of investor, the
Court notes that many of the e-mail addresses copied on the message appear to
contain domain names associated with well-known banks, asset managers, and hedge
funds. See Bejile Decl., Ex. 15 (e-mail addresses with domain names associated

-23-

Citi set reserve prices for each of the assets, meaning prices
below which it would not sell to a third party.

Id. ¶ 211.

However, Citi’s secondary CDO trading desk was “interested in
bidding on some of these positions in the auction, given the lack
of liquidity and the likely low bids for the assets.” P56.1 ¶ 106.
Citi received bids from Royal Bank of Scotland, Merrill Lynch,
Morgan Stanley, Wachovia, Credit Suisse, JPMorgan, and Deutsche
Bank.

D56.1 ¶ 209.

There were 68 bids in total, resulting in ten

partial or full sales of the 34 assets.

Id. ¶ 210; P56.1 ¶ 107.

Highland received notice of and had an opportunity to bid in the
December BWIC.

D56.1 ¶ 214.

It bid on one of the assets, but

its bid was below Citi’s reserve price.

Id. ¶¶ 215-18.

Citi did

not ultimately purchase any assets in the December BWIC, see Oral
Arg. Tr. at 33, and any unsold collateral remained in Highland’s
account with Citi, D56.1 ¶ 213.
The total proceeds of the December BWIC were $2,518,355.
Prudhomme Decl., Ex. B-62 at Citi-HL-00024111.001 (December 31,
2008 Citi e-mail listing proceeds). After converting certain eurodenominated

securities

to

United

States

calculates the proceeds as $2,718,625.

dollars,

Highland

P56.1 ¶ 109 & n.133.

with, for example, “JP MORGAN CHASE BANK,” “APOLLO MANAGEMENT,” “MAGNETAR
CAPITAL,” “BLACKSTONE GROUP.”). Regardless, Highland does not seriously contend
that the recipients were not “market participants” broadly speaking.

-24-

Relying

on

its

expert’s

report,

Highland

contends

that

Citi

received approximately $6.3 million less than a conservative fair
market value, as of December 2008, for the assets sold. Id. ¶ 112.
VIII.

The March Auction
Citi engaged Sanders Morris Harris Capital, Inc. (“SMH”), an

investment bank and high net worth retail broker-dealer, to conduct
a public auction of the remaining collateral on March 6, 2009.
P56.1 ¶ 114; D56.1 ¶ 225.
income

group,

auction.

was

Ansel Eshelman, co-head of SMH’s fixed

principally

P56.1 ¶ 116.

responsible

for

conducting

the

At the time of the March Auction, SMH had

previously conducted between 12 and 24 auctions, either primarily
or entirely on behalf of JPMorgan.

Id. ¶ 121.12

At Citi’s request, SMH advertised the March Auction in the
Wall Street Journal (“WSJ”) over three consecutive days.
¶ 131; D56.1 ¶ 230.

Id.

Eshelman testified that he had “represented

other large banks and they haven’t asked for anything to go into
[the WSJ].”

Eshelman Tr. at 144-45.

12

SMH also circulated the

The parties dispute whether SMH had conducted auctions on behalf of other
entities. D56.1 Ctr. Stmt. ¶ 121. Eshelman’s testimony suggests he may have
had previous experience with BWICs for clients other than JPMorgan.
See
Eshelman Tr. at 132 (“Q. Before the auctions you conducted for JPMorgan, did
you have any experience in conducting security liquidations? A. Not other
than seeking liquidity or bids for institutional customers, but could have been
on regular mortgage-backed securities or government agencies or any of those
things. We bought and sold. And when we were selling for somebody, it was a
bid-wanted and . . . I would source the street for the best bid.”).

-25-

details of the March Auction to its own distribution list of more
than 150 contacts.

P56.1 ¶ 231.13

According to Eshelman, he had

“a large network of . . . associations with firms and people,” and
“people knew us and people knew me.”

Eshelman Tr. at 24-25.

Highland and Citi dispute whether SMH made any efforts to
contact the types of potential buyers who traded in the particular
kind of security SMH was auctioning.

Eshelman testified that he

did not remove or add certain contacts based on the type of asset
being

auctioned;

instead,

“over

the

time

of

developing

this

business and having people respond to these bids,” SMH “built out
or added to the list,” and “kept them all in there.”
76.

Id. at 175-

With respect to the March Auction, he testified that his

distribution list included “all the recognizable primary dealer
names, all the regional dealers,” as well as any others who SMH
had come into contact with doing prior liquidations “that reached
out to us.”

Id. at 56-57.

The website Creditflux carried advance news of the March
Auction, and in a March 4, 2009 e-mail responding to a question

13

While Highland disputes this statement of fact generally, it does not dispute
that SMH circulated the details to SMH’s distribution list of over 150 contacts,
and thus we consider that fact undisputed. See P56.1 Ctr. Stmt. ¶ 231 (disputing
on grounds that Eshelman testified that SMH made no effort to contact buyers
who traded in the type of security being sold and that the list included
recipients who did not trade in that type of security); see also Fed. R. Civ.
P. 56(e)(2).

-26-

about that article, Mahmud wrote, “These are the assets that Citi
was financing in CDO Fund. They margin called CDO Fund in December
and the fund didn’t have the cash to pay.”

D56.1 ¶¶ 232-33.

Citi submitted bids, which functioned as implied reserve
prices, but Citi’s participation did not change the way SMH ran
the auction.
determined

Id. ¶¶ 236-38.

the

winning

bidder

For each asset auctioned, SMH
through

a

neutral,

mechanical

process, and Citi received no preferential treatment.

Id. ¶ 242.

During the auction, SMH received a total of 82 bids from six
entities other than Citi.

Id. ¶ 239.

There were between two and

six bidders (including Citi) for each of the 23 collateral assets.
Id. ¶ 240.

In addition, JPMorgan submitted an all-or-nothing bid

of $90,000 for all of the assets.

Id. ¶ 241.

Again, Highland

received notice of and had the opportunity to bid in the auction.
Id. ¶ 247.14

HCM bid on two pieces of collateral, purchasing one,

with the other bid coming in lower than Citi’s reserve price.

Id.

¶¶ 248-53.
Eight assets sold to third-party buyers for a total of
$1,249,060.

P56.1 ¶¶ 133, 135.

Because Citi’s reserve prices

were higher than the bids obtained from third parties for 15 of

14

HCM opened its account with SMH on behalf of Longhorn Credit Funding, LLC,
which HCM manages largely for the pension fund manager Calpers. P56.1 Ctr.
Stmt. ¶¶ 248-50.

-27-

the 23 assets, those assets were not sold to third parties.

D56.1

¶ 244; see McCallum Decl., Ex. 35 (spreadsheet attached to March
6, 2009 e-mail from Eshelman to Bejile showing Citi as high bidder
for 15 of 23 listed assets).

Citi and Highland dispute whether

Citi “retained” or “acquired” the 15 assets at the reserve prices,
but Highland does not dispute that Citi moved the 15 assets from
Highland’s

account

to

Citi’s

secondary

inventory by the end of March 2009.
Relying

on

its

expert’s

report,

CDO

trading

desk’s

P56.1 Ctr. Stmt. ¶ 245.

Highland

contends

that

Citi

received approximately $8.7 million less for the eight assets sold
to third parties than a conservative fair market value for those
assets as of December 15, 2008.
IX.

P56.1 ¶ 136.

Procedural Background
In April 2012, CDO Fund commenced this action asserting claims

for breach of contract, breach of the implied covenant of good
faith

and

enrichment.

fair

dealing,

violation

of

the

UCC,

and

unjust

CDO Fund alleged that Citi, facing an existential

threat from the credit crisis and motivated to secure “cash any
way it could,” “engineered a scheme, at the expense of CDO Fund,
to provide itself with an undeserved windfall.”

Compl. ¶ 4.

More

specifically, CDO Fund claimed that Citi improperly marked down
assets comprising CDO Fund’s collateral and calculated “inaccurate

-28-

margin calls based on the improper marks,” so as to force CDO Fund
to pay “millions of dollars in margin calls that it did not
actually owe” and ultimately permit Citi to “seize assets at rock
bottom prices and create a windfall for itself upon the inevitable
market correction.”

Id. ¶ 5.

With respect to the December margin

calls, CDO Fund alleged that it “disputed” Citi’s “dramatic mark
downs”

on

its

collateral

and

“requested

specific

details

justifying the mark-downs from CITI” on December 11; that its
“requests for back-up or support were essentially ignored by CITI”;
and that it “continued to request support for the marks and margin
call” between December 15 and 31.

Id. ¶¶ 32-35.

According to the

complaint, Citi refused to revise or provide requested support for
its calculations despite CDO Fund informing Citi of “higher levels
on similar assets throughout the market,” in addition to higher
“third-party

marks

for

the

specific

assets

comprising”

the

collateral, and “insist[ing] that CITI revise its marks and margin
requirements accordingly, or at least provide some justification”
for them.

Id. ¶ 35.

With respect to the auctions of the

collateral, CDO Fund asserted that Citi’s “alleged efforts . . .
to market the seized assets were nothing more than an elaborate
sham designed to make it look like CITI was marketing assets when,
in reality, it was placing itself in a position to retain these

-29-

assets.”

Id. ¶ 40.

CDO Fund claimed that “CITI failed to market

or offer the assets to typical industry players, essentially
failing to even attempt to engage third parties,” and that Citi
only sold two assets via the auctions.

Id.

In June 2012, Citi moved to dismiss, which motion we granted
in part and denied in part.

Highland CDO Opportunity Master Fund,

L.P. v. Citibank, N.A., No. 12 CIV. 2827 (NRB), 2013 WL 1191895
(S.D.N.Y. Mar. 22, 2013) (“Highland”). CDO Fund’s surviving claims
were its breach-of-contract claim based on Citi’s alleged failure
to use good faith in determining the value of CDO Fund’s collateral
and the resultant declaration of an event of default and seizure
of assets, and its UCC claim for Citi’s alleged failure to sell
the collateral in a commercially reasonable manner and to provide
a post-sale accounting.

Id. at *9-*11.

In May 2013, Citi answered and brought counterclaims against
Highland, which Citi amended in July 2013, and of which two remain:
(1) a claim for a termination payment based on CDO Fund’s default
on its obligations on the CDS Contracts; and (2) a claim for
indemnification under the contracts governing the Loan Facility
and the CDS Transactions.

As to both counterclaims, Citi alleges

that Highland GP and HCM are jointly and severally liable for the
debts of CDO Fund.

-30-

After over two years of discovery, Citi has moved for judgment
on CDO Fund’s claims against Citi, and CDO Fund/Highland has moved
for judgment on both CDO Fund’s claims and Citi’s counterclaims.

DISCUSSION
I.

Summary Judgment Standard
Summary

judgment

is

appropriate

when

the

pleadings

and

admissible evidence proffered to the court show that there is “no
genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law,” Fed. R. Civ. P. 56(a).

A genuine

dispute of material fact exists if a reasonable factfinder could
decide in the nonmoving party's favor.

Nabisco, Inc. v. Warner–

Lambert Co., 220 F.3d 43, 45 (2d Cir. 2000).

It is generally “the

movant's burden to show that no genuine factual dispute exists,”
Vt. Teddy Bear Co. v. 1–800 Beargram Co., 373 F.3d 241, 244 (2d
Cir. 2004).

“However, when the burden of proof at trial would

fall on the nonmoving party, it ordinarily is sufficient for the
movant to point to a lack of evidence to go to the trier of fact
on an essential element of the nonmovant's claim,” in which case
“the nonmoving party must come forward with admissible evidence
sufficient to raise a genuine issue of fact for trial in order to
avoid summary judgment.”

CILP Assocs., L.P. v. Pricewaterhouse

-31-

Coopers LLP, 735 F.3d 114, 123 (2d Cir. 2013) (alterations and
internal quotation marks omitted); see Fed. Hous. Fin. Agency v.
Nomura Holding Am. Inc., 68 F. Supp. 3d 439, 466 (S.D.N.Y. 2014)
(“Once the moving party has asserted facts showing that the nonmovant's claims . . . cannot be sustained, the opposing party must
set

out

specific

facts

showing

a

genuine

(internal quotation marks omitted)).
resolve

all

ambiguities

and

draw

issue

for

trial.”

At this stage, courts must
all

justifiable

inferences in favor of the nonmoving party.

factual

Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 255 (1986).
When, as here, each side moves for summary judgment, we are
“required to assess each motion on its own merits and to view the
evidence in the light most favorable to the party opposing the
motion, drawing all reasonable inferences in favor of that party.”
Wachovia Bank, Nat'l Ass'n v. VCG Special Opportunities Master
Fund, Ltd., 661 F.3d 164, 171 (2d Cir. 2011).

However, a party

“may

by

not

survive

summary

judgment

merely

conjuring

a

hypothetical issue of material fact.” Robinson v. Concentra Health
Servs., Inc., 781 F.3d 42, 44 (2d Cir. 2015).

The nonmovant “may

not rely on mere speculation or conjecture as to the true nature
of the facts to overcome a motion for summary judgment,” and
“conclusory allegations or denials cannot by themselves create a

-32-

genuine issue of material fact where none would otherwise exist.”
Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (internal
quotation marks and ellipses omitted).
II.

The Dispute Resolution Provision
Citi moves for summary judgment on CDO Fund’s breach-of-

contract claim on the ground that the failure of CDO Fund to
unequivocally invoke the dispute resolution provision precludes it
from now challenging the valuations supporting Citi’s December
2008 margin calls.

We agree that no rational trier of fact could

decide that CDO Fund provided Citi with sufficient notice that it
was disputing the December 2008 margin calls under the CSA.
A.

Legal Principles

New York State public policy favors the use and enforceability
of alternative dispute resolution mechanisms between informed
parties.

See Westinghouse Elec. Corp. v. N.Y.C. Transit Auth., 82

N.Y.2d 47, 53-54, 623 N.E.2d 531, 534 (1993); Ferguson Elec. Co.
v. Kendal at Ithaca Inc., 274 A.D.2d 890, 891, 711 N.Y.S.2d 246,
249 (3d Dep’t 2000).

Citing that policy, courts have found that

a party’s failure to invoke a CSA dispute resolution provision
precludes the party from later challenging its counterparty’s
“request for additional collateral without having first vetted
[its] claim in the manner agreed upon in the CDS Contract,” VCG

-33-

Special Opportunities Master Fund Ltd. v. Citibank, N.A., 594 F.
Supp. 2d 334, 343 (S.D.N.Y. 2008), aff'd, 355 F. App'x 507 (2d
Cir. 2009); see CDO Plus Master Fund Ltd. v. Wachovia Bank, N.A.,
No. 07 CIV 11078(LTS)(AJP), 2009 WL 2033048, at *7 (S.D.N.Y. July
13, 2009).
the

The New York Court of Appeals has similarly described

provision

in

mandatory

terms,

explaining

that,

prior

to

triggering its consultation and recalculation requirements, a
disputing party “must” notify the other party of the dispute and
“must” transfer the undisputed amount, if any, to the other party.
BDC Fin. L.L.C. v. Barclays Bank PLC, 25 N.Y.3d 37, 40, 44, 29
N.E.3d 877, 878, 880 (2015).15

15

Notably, earlier in that case, the Commercial Division of the New York State
Supreme Court rejected the argument of plaintiff-counterclaim-defendant BDC
that defendant-counterclaim-plaintiff Barclays’s alleged improper calculation
of margin calls issued to BDC provided a basis for BDC to terminate the parties’
contracts where BDC did not “follow” the provision, holding that BDC, the
margin-call recipient, “cannot now seek to avoid the CSA’s requirements and
retroactively challenge Barclays’ calculation of its . . . collateral calls,”
BDC Fin. L.L.C. v. Barclays Bank PLC, No. 650375/2008, 2012 N.Y. Slip. Op.
33758(U), at *23-*24 (Sup. Ct. N.Y. County Aug. 15, 2012), aff’d as modified,
110 A.D.3d 582, 974 N.Y.S.2d 39 (1st Dep't 2013), aff'd as modified, 25 N.Y.3d
37, 29 N.E.3d 877 (2015). On appeal in the First Department, both the majority
and dissenting opinions agreed with that portion of the Commercial Division’s
ruling, see BDC Fin. L.L.C. v. Barclays Bank PLC, 110 A.D.3d at 585 n.2, 974
N.Y.S.2d at 42 n.2; id. at 593, 974 N.Y.S.2d at 48, and it was not discussed by
the Court of Appeals.
The Court of Appeals decision instead focused on whether Barclays
defaulted by failing to pay BDC’s collateral call issued to Barclays. While
the Appellate Division granted BDC’s motion for summary judgment on the basis
that “the evidence in the record established as a matter of law that Barclays
did not properly dispute the . . . collateral call because Barclays neither
notified BDC of the dispute nor transferred the undisputed amount” by the next
day, the Court of Appeals vacated the decision due to questions of fact regarding
Barclays’s compliance with the requirement to transfer the undisputed amount of
the call, BDC Fin., 25 N.Y.3d at 42, 44, 29 N.E.3d at 879, 881. On the notice
issue, the Court stated: “BDC does not deny that Barclays gave notice that it

-34-

Accordingly, a failure by CDO Fund to invoke the dispute
resolution provision with respect to Citi’s December 2008 margin
calls would preclude its breach-of-contract claim.

Highland does

not suggest that CDO Fund was not subject to the provision, nor
does it contend that CDO Fund may bring a claim based on Citi’s
calculations

of

the

calls

without

having

first

invoked

it.

Instead, Highland contends that Citi itself breached the provision
because it failed to recalculate its margin calls by seeking market
quotes after CDO Fund “notified Citi that it was disputing the
December

2008

margin

calls

through

a

number

of

telephone

conversations and by email” and “timely consult[ed]” with Citi in
an attempt to resolve the dispute.

CDP Fund Opp. Mem. at 11.16

disputed the collateral call. Indeed, within hours of receiving the collateral
call, Barclays emailed BDC stating that it did not agree with the call, and
queried whether BDC wanted to invoke the dispute mechanism.” Id. at 44, 29
N.E.3d at 880 (emphases added).
16

In our decision on Citi’s motion to dismiss, we questioned how the no-waiver
provision in the CSAA, see CSAA § 18(a), (c), interacted with other contractual
provisions, including the dispute resolution provision, see Highland, 2013 WL
1191895, at *7 n.14 (noting that some courts had “suggested that a party's
‘failure to provide notice pursuant to a contractual provision effectively
abrogate[s] that contract's non-waiver provision’” (alteration in Highland)
(quoting In re Arbitration Between Atherton & Online Video Network, Inc., 274
F. Supp. 2d 592, 595–96 (S.D.N.Y. 2003))). In moving for summary judgment, Citi
contends that enforcing the no-waiver clause here would vitiate the mandatory
dispute resolution mechanism. In response, Highland disclaims any reliance on
the no-waiver clause to “excuse any alleged failure to invoke the dispute
resolution provisions,” focusing on the purported breach by Citi of its
“subsequent obligations under those provisions.”
CDO Fund Opp. Mem. at 17.
Despite its assertion that it invoked the dispute resolution provision and that
Citi did not thereafter perform the required recalculations, CDO Fund did not
reference the provision in its complaint. We already dismissed, on the basis
that CDO Fund failed to set forth the relevant contractual provisions, claims
based on Citi’s alleged failure to “specify the nature of the potential

-35-

B.

Application

As set forth above, the dispute resolution provision required
CDO Fund to “notify” Citi that it was disputing Citi’s calculation
of a margin call and transfer any undisputed amount to Citi by the
close of the business day following the date of Citi’s demand for
additional collateral.

CSA ¶ 5.

The parties were then required

to consult in an attempt to resolve the dispute by 1:00 p.m. on
the business day following the date of the notice of dispute, and
if they failed to resolve the dispute by then, Citi was to
recalculate the margin call using the prescribed procedures.

Citi

would then have to notify CDO Fund of its recalculated call by
10:00 a.m. the next business day.
In construing the provision, we have held that it “do[es] not
require that the notice adhere to a particular form or means (e.g.,
a written demand), nor that the notice formally reference the
dispute resolution process.”

Highland, 2013 WL 1191895, at *8.

Be that as it may, a party invoking it must still sufficiently
communicate disagreement with the margin call such that the other

termination event or provide relevant information reasonably requested by CDO
Fund” and to “provide any statement or other information to CDO Fund detailing
any deficiency in any of the financing transactions.”
Highland, 2013 WL
1191895, at *9 (internal quotation marks omitted).
Regardless, because we
conclude Highland has not raised a genuine dispute with respect to CDO Fund
triggering the dispute resolution provision, we need not address this aspect of
CDO Fund’s breach-of-contract claim.

-36-

party would have actual knowledge or reason to know that the
dispute mechanism had been triggered.

See Korea Life Ins. Co. v.

Morgan Guar. Trust Co. of New York, 269 F. Supp. 2d 424, 443
(S.D.N.Y. 2003) (discussing notice provision).
As both sides agree, the dispute resolution provision is
designed

to

ensure

a

speedy

process

for

resolving

valuation

differences underlying a margin call based on contemporaneous
assessments of the complex instruments at issue.
Tr. at 42-43.

See Oral Arg.

If CDO Fund’s dispute was not readily apparent from

its notification, Citi could not be expected to understand that
CDO Fund was exercising its rights under the provision, nor could
Citi be expected to initiate efforts to cure any deficiency within
the tight deadlines imposed.

For similar reasons, if CDO Fund

expressed dissatisfaction with an aspect of Citi’s calculation of
the margin call and Citi timely provided an explanatory response,
it

was

CDO

Fund’s

responsibility

maintaining its dispute.

to

make

clear

that

it

was

Implicit in CDO Fund’s obligation to

engage in timely consultation with Citi to resolve the dispute was
an obligation to inform Citi that its efforts to address CDO Fund’s
disagreement did not resolve the dispute; otherwise, Citi could
not know whether the parties had reached a resolution or whether
it had to recalculate the margin call, and it would again be

-37-

deprived

of

an

opportunity

to

cure

calculation by the agreed-upon methods.

any

deficiency

in

its

Permitting a disputing

party to preserve its rights to challenge a margin call based on
equivocal language and conduct would thus risk depriving the
nondisputing party of its contractual benefit of having such
disputes resolved through consultation and a swift market check,
as opposed to a battle of experts months or years after the fact.
Keeping

these

principles

in

mind,

we

address

Highland’s

contentions that the record shows that CDO Fund timely disputed
the December margin calls by e-mail and by phone, and that Citi’s
internal e-mails demonstrate acknowledgement of a dispute.
i.

Argument that CDO Fund Invoked the Provision in Writing

There is no contemporaneous written evidence of CDO Fund
engaging in a dispute under the CSA.

With respect to the December

15 margin call for approximately $20.1 million—the call that
triggered the default leading to Citi’s seizure of CDO Fund’s
collateral—Highland

relies

on

CDO

Fund’s

December

15

e-mails

requesting that Citi “[p]lease provide detail for this call” and
asking “[i]s 20m right,” Prudhomme Decl., Exs. B-53, B-56. Neither
e-mail

indicates

that

CDO

Fund

was

asserting

that

Citi’s

calculation of the margin call was wrong, and no reasonable
factfinder

could

conclude

that

these

-38-

requests

for

supporting

information put Citi on notice that CDO Fund triggered the dispute
mechanism.

Moreover, later that day, Citi provided a spreadsheet

setting forth the collateral marks used to generate the call, see
id. Ex. B-57, and there is no evidence of CDO Fund subsequently
disagreeing with either those marks or the margin call generally.
With respect to the December 11 margin call, only Roos’s
December 11 e-mail to Bejile communicated any disagreement with
Citi’s margin call. As discussed above, Roos responded to Bejile’s
e-mail attaching the marks used for the December 11 margin call by
taking

issue

with

Citi’s

calculation

of

Citi’s

Exposure:

“Irrespective of the marks on the cash securities (we can discuss
this further), you are ascribing a value of zero to the CDS.

The

CDS positions have not defaulted and are still cash-flowing,
therefore there should be some value attributed to them.”
B-47.

Id. Ex.

However, CDO Fund cannot rely on this e-mail to show it

engaged the dispute mechanism because, as Citi points out, Bejile
responded shortly thereafter explaining that “[a]ctually there is
value being attributed to the CDS” and that the CDS Transactions
were

“being

marked

at

43MM

on

a

59MM

notional,”

with

the

“difference” reflecting the “initial margin, which exists on all
CDS

trades,”

Bejile

Decl.,

Ex.

5;

see

P56.1

¶¶ 33-34

(in

determining “Delivery Amount,” Citi was required to calculate the

-39-

excess of “Exposure on the CDS Transactions plus any Independent
Amount” over the value of all posted credit support). Accordingly,
Bejile explained that Citi was ascribing value to CDO Fund’s CDS
positions, but that the calculation of the margin call also
accounted for agreed-upon initial margin, i.e., the Independent
Amount.

Highland does not argue that Bejile’s response failed to

address

Roos’s

concern,

and

there

is

no

evidence

of

Roos

disagreeing with the response or requesting additional information
concerning Citi’s Exposure calculation.

Absent any evidence of

disagreement after its response, Citi was entitled to conclude
that CDO Fund was not engaging the dispute resolution mechanism.
ii.

Argument that CDO Fund Invoked the Provision by Phone

Lacking

contemporaneous

written

evidence

of

a

dispute,

Highland suggests that evidence of discussions between the parties
over the telephone demonstrates that CDO Fund disputed Citi’s
calculation.

However, a factfinder would be required to speculate

as to the contents of such conversations to conclude that CDO Fund
met its burden to show it sufficiently notified Citi that it was
disputing the calculation of the margin calls.

That is inadequate

to forestall summary judgment here, where the record renders such
conjecture unsupported.

See Bickerstaff v. Vassar Coll., 196 F.3d

435, 448 (2d Cir. 1999) (“As a [trier of fact] would be entitled

-40-

to review the evidence as a whole, courts must not view the
evidence in piecemeal fashion in determining whether there is a
trial-worthy issue.”).
At the outset, Citi’s submissions highlight at least two
aspects

of

the

summary

judgment

record

that

demonstrate

the

futility of relying on evidence of these phone conversations to
create a genuine factual dispute.
evidence

shows

may

have

had

First, Roos and Mahmud, who the
phone

conversations

with

Citi

concerning the December margin calls and the underlying marks on
collateral, testified that they did not recall disputing the
valuation

of

CDO

Fund’s

resolution provision.

collateral

or

invoking

the

dispute

Specifically, while Mahmud testified that

he thought “[g]enerally” “Highland” would have been disputing
marks with “everybody” during the “fourth quarter” of 2008 because
Highland thought “[t]he value[s] of the assets . . . were much
higher” than its counterparties did, he had no recollection of the
December margin calls; did not recall any discussions concerning
such

calls

with

Highland

or

Citi

personnel;

did

not

recall

disputing any marks issued by Citi in or around December 2008; was
unaware that there was a formal dispute resolution provision for
disputing margin calls under the governing contracts and did not
recall invoking it with respect to Citi during the relevant time

-41-

period.

Mahmud Tr. at 154-55.

Similarly, while Roos testified

that “[e]very mark was almost always disputed, especially during
this time frame,” Roos Tr. at 246, he had no recollection of
disputing marks used for the December 11 margin call or ever
invoking the provision with Citi during the relevant time period,
nor did he know whether he had ever invoked it or how one would do
so, see id. at 168-69.
Second, as described in detail above, see supra pp. 12-14,
19-22, Citi has presented undisputed evidence that CDO Fund, facing
substantial liquidity constraints in mid-December 2008, was not
making cash payments to satisfy its outstanding obligations and
was

attempting

counterparties.

to

negotiate

For

alternative

example,

Highland’s

resolutions
CFO

with

informed

its

Credit

Suisse on December 12 in response to a December 9 demand that CDO
Fund did not have the liquidity to send $1 million to Credit Suisse
because it “invests in highly illiquid assets,” D56.1 ¶¶ 71-72;
Highland had unsuccessful discussions on or around December 15
with CDO Fund’s investors concerning the possibility of a capital
contribution; Credit Suisse asked Highland on December 16 to
confirm that CDO Fund had “no unencumbered cash” and “only two
unencumbered assets, both of which are potentially pledgable to
[CS],” id. ¶ 182 (internal quotation marks omitted); CDO Fund did

-42-

not meet a December 19 demand for approximately $4.9 million
related to its UBS financing facility and Highland entered into
ultimately unsuccessful “negotiations with UBS for other options”
to see “if there was any way we could work around terming out that
facility

similar

to

discussions

we

were

having

with

other

counterparties at the time,” Braner Tr. at 369-70; and similar
negotiations were held with Natixis on or around December 23.17
Further, it is undisputed that as early as December 15, Citi and
Highland themselves were discussing a potential resolution of the
outstanding margin call; the two sides ultimately discussed a
standstill agreement involving CDO Fund’s pledge of additional
collateral, HCM’s guarantee of a certain amount of cash flows on
CDO Fund’s existing collateral, and a margin call holiday.

When

Mahmud informed Citi on December 24 that recent ratings downgrades
meant the agreement was no longer practical for HCM and CDO Fund,
he noted the prospect of “posting additional collateral,” although

17

Highland claims its CFO’s e-mail to Credit Suisse concerning CDO Fund’s
inability to meet a $1 million demand was not accurate. P56.1 Ctr. Stmt. ¶ 72.
Reviewing the e-mail, Dondero testified “[w]hat this just says, you have to
take on its surface, is just negotiating with CS versus stating any accounting
facts,” but conceded he did not discuss with Highland’s CFO “whether or not CDO
Fund had liquidity to send a million dollars to [CS].” Dondero Tr. at 238-39.
Even if we assume that Highland’s CFO intentionally misrepresented CDO Fund’s
liquidity as a negotiation tactic, the e-mail is consistent with evidence of
Highland engaging in talks with its counterparties to stave off demands on CDO
Fund’s limited funds.

-43-

“previously contemplated solutions involving additional monies or
guarantees [we]re not possible.”
In

light

of

the

above,

McCallum Decl., Ex. 47.
Highland’s

evidence

of

phone

discussions between the parties does not create a triable issue.
Highland points to the following as evidence of CDO Fund disputing
the margin calls by phone: Bejile’s December 11 e-mail to Roos
attaching, “[a]s requested,” Citi’s marks used for that day's
margin call, id. Ex. 57; Roos and Clements’s later December 11 email exchange, in which Roos e-mailed Clements stating “[p]ls call
me,” Clements responded he was “working on the case as we speak[,]
[l]et me call you soon,” and Roos followed up the next day stating
“[j]ust trying to stay in front of you on this . . . let me know
what we can do,” id. Exs. 67, 69; and Bejile’s December 15 e-mail
to Roos and Mahmud, after Roos requested “detail behind the margin
call,” attaching Citi’s marks used to generate the call and stating
“[Mahmud]/[Roos], Lets discuss when you receive these,” Prudhomme
Decl., Exs. B-53, B-57.
We may infer based on these e-mails that Roos and/or Mahmud
and Citi engaged in discussions concerning the December margin
calls, but cannot speculate that during those discussions Roos or
Mahmud invoked the dispute resolution provision.
mails

refer

to

a

dispute,

much

-44-

less

a

None of the e-

dispute

with

Citi’s

calculation of the margin call.

Roos’s and Mahmud’s testimony

provides no basis to infer that either did such a thing.
contrast,

evidence

of

Highland’s

engagement

with

CDO

In

Fund’s

counterparties, including Citi, to find alternatives to meeting
demands for payment provides an explanation for Highland and Citi’s
phone calls that is factually supported.

Indeed, given CDO Fund’s

financial condition and the size of Citi’s margin calls, Highland
had every reason to call Citi to negotiate a workaround.

Thus,

even though Clements told Roos he was working on “the case,” given
the record, a conclusion that the vague and unexplained reference
was specifically to a calculation dispute would be unjustifiable.
See Bickerstaff, 196 F.3d at 448 (explaining that “‘an inference
is not a suspicion or a guess. It is a reasoned, logical decision
to conclude that a disputed fact exists on the basis of another
fact that is known to exist.’” (brackets omitted) (quoting 1
Leonard B. Sand, et al., Modern Federal Jury Instructions ¶ 6.01,
instr. 6–1 (1997))).18

18

Highland also cites to the testimony of its 30(b)(6) witness Philip Braner.
Braner testified repeatedly that Highland disputed the margin calls, see Braner
Tr. at 283 (“I know in general we disputed the margin call. . . .”); 315
(“[T]here was daily conversations with everyone involved . . . so I know that
there were discussions that occurred[,] I just can’t recite to you exactly what
was going on in those conversations.”), but, placed in context, his statements
are conclusory factual assertions that cannot raise a material dispute for
summary judgment purposes. As to the December 11 margin call, he speculated
that Highland disputed the call by e-mail or by phone. See id. at 282-84 (“Q.
When you received this margin call of $5.2 million on December 11, what did
Highland do? A. I believe we requested support from Citi. Q. Okay. Who did

-45-

iii.

Argument that Citi Acknowledged a Dispute

Finally, Highland argues that Citi’s internal e-mails show
that Citi did or should have acknowledged a dispute.
first

relies

on

e-mails

from

Citi’s

Cross

Product

Highland
Margining

Operations unit (“CPM”) during the relevant time period.

CPM

distributed a daily “summary to highlight disputed calls / failed
deliveries of margin collateral.”

Prudhomme Decl., Exs. B-35-44.

On December 11, 2008, the summary listed the $5.22 million margin
call to CDO Fund as “Unconfirmed,” and another margin call to a

you request support from? A. It would have been documented in e-mails. We
can review those. Q. I am asking you as the 30(b)(6) designated corporate
representative . . . , who at Highland would have made the request for support?
A. Again, it would have been documented in e-mails. I’m not sure the exact
person that would have come from. Q. So you don’t know? A. I know in general
that we disputed the margin call, but I don’t have specifics of where those emails came from.
Q.
How did you dispute the call?
A.
That’s what I am
saying. I would like to see generally in e-mails that we disputed the margin
call. It could have been over the phone, it could have been by e-mail. I don’t
recall specifically on this date.”). As to the December 15 margin call, he
knew generally e-mails and phone calls disputing the call occurred, but could
not recount any details of such e-mails or phone calls. See id. at 314-17 (“Q.
So does Highland have any understanding of what was said in these phone calls
that you are referencing? A. That’s what I am saying, is there would have
been phone calls disputing and e-mails disputing the $20 million. Q. Okay.
Who would have been placing the phone calls? A. Again, that could have come
from [Mahmud], [Roos], likely, to Citi. Q. Does Highland know that there were
phone calls or is this a guess or an assumption?
A.
No, there was daily
conversations with everyone involved, so, I mean, it happened every day, so I
know that there were discussions that occurred. I just can’t recite to you
exactly what was going on in those conversations.”); id. at 352-53 (“Q. Were
there any discussions about these marks that Highland had with Citi between
December 15 and December 31, 2008? A. Yeah, I believe we disputed the values
they were using. . . .
Q. Who were the personnel at Highland disputing those
marks? A. Again, it was a constant conversation between [Mahmud] and Citi and
[Roos] and Citi. Q. But there is no specific conversation that you can point
to? A. No. We didn’t pay the margin call and we—clearly I think if you look
through the e-mails, we clearly disputed the marks that they were using for the
collateral.”).

-46-

different counterparty as “Disputed.”
presentation

entitled

“Derivatives

Id. Ex. B-35.
Collateral

and

A Citi
Margining

Process” dated January 22, 2009, explained that the status of
outgoing margin calls to a counterparty (“CP”) was to be updated
“with one of five statuses”:
[1] Agreed: CP agreed to call in full [; 2] Partial Dispute:
CP agrees to a portion of the margin call [; 3] Dispute: CP
disputes the full call amount [; 4] Invalid:
There is an
issue caused by booking/economics, static data, coding of
legal terms in Oasys that causes a margin call to be reflected
incorrectly [; 5] Unconfirmed: CP did not respond and could
not be reached.
McCallum Decl., Ex. 70 at Citi-HL-00110784 (emphases in original).
From December 11 to 24, the summaries listed margin calls to CDO
Fund as “Unconfirmed,” and margin calls to other counterparties as
“Disputed” or “Agreed.”
response

to

the

December

Prudhomme Decl., Exs. B-35-44.
11

summary

listing

CDO

Fund

In
as

“Unconfirmed,” a Citi employee asked, “Do you know on what grounds
is Highland disputing the call?”

Id. Ex. B-49.

Highland argues

that because the only record evidence states that a designation of
“Unconfirmed” means a counterparty “did not respond and could not
be reached,” and it is undisputed that Citi and Highland were
having discussions during this period, it follows that Citi knew
CDO Fund disputed the margin calls.

-47-

Highland further contends

that the question, “Do you know on what grounds is Highland
disputing the call,” indicates that Citi recognized a dispute.
We are not persuaded that these e-mails raise a triable issue.
While the e-mails summarized “[t]oday’s disputed margin calls /
failed deliveries” of collateral, they included margin calls to
other

counterparties

that

were

labeled

(i)

“Disputed,”

(ii)

“Agreed and failed to pay,” or (iii) “Agreed and paid” some amount
less than the amount of the call, id. Exs. B-35-44, and Highland
does not proffer any evidence of how the alleged inaccuracy in CDO
Fund’s contemporaneous “Unconfirmed” designation tends to show
that the call was in fact “Disputed,” another designation that was
available to Citi.

Highland’s reliance on the employee’s question

is also unavailing: the question does not speak to Citi’s knowledge
of a dispute under the CSA—to the contrary, it self-evidently
demonstrates a lack of knowledge on the part of its author, and
there is no evidence suggesting communication between the author
and Highland.
Finally, Highland contends that in disputing the December
2008 margin calls, CDO Fund followed the same procedure it used to
dispute Citi’s margin calls in October 2008, after which Citi had
acknowledged a “dispute.” The e-mails to which it cites to support
this argument bear no resemblance to the evidence it relies on

-48-

with respect to the December margin calls.

In response to Citi’s

October 20 margin call, Roos e-mailed Citi that evening noting
that the “marks look[ed] off” based on earlier marks Citi had sent
CDO Fund, and followed up by, inter alia, pointing out specific
marks that were “off,” complaining that the “CDS marks seem
punitive as well,” and noting a specific CDS-related mark he
thought was incorrect.

Id. Exs. B-9, B-10.

Roos’s e-mails were

forwarded internally by Citi, with Citi stating that “Highland
disputed our margin call today and indicated the below issues.”
Id. Ex. B-9.

It is not clear that Citi understood CDO Fund to be

invoking the CSA’s dispute provision, but even inferring that it
did, Roos’s e-mails are unequivocal expressions of a dispute with
Citi’s calculation of the margin call.

Further, there is no

indication, unlike with his December 11 e-mail taking issue with
Citi’s Exposure calculation, that Citi addressed Roos’s complaints
of error before characterizing them as disputes.

Accordingly, the

October e-mails are not probative evidence of CDO Fund invoking
the dispute mechanism two months later.
At oral argument, Highland confirmed that it had obtained all
the factual deposition testimony it could and put forward its best
case for its positions, and that the Highland and Citi e-mails
discussed above were its strongest evidence of CDO Fund invoking

-49-

the dispute resolution provision.
18.

See Oral Arg. Tr. at 3-8, 17-

Nevertheless, even with all justifiable factual inferences

drawn in its favor, Highland has not put forward concrete evidence
that CDO Fund adequately communicated its dispute with the December
margin calls such that Citi would have known or have had reason to
know

that

CDO

Fund

was

following

the

agreed-upon

procedure.

Accordingly, summary judgment is granted to Citi with respect to
CDO Fund’s breach claim.19
III.

The UCC Claim
Both sides move for summary judgment on CDO Fund’s UCC claim.

Under Article 9, “[e]very aspect of a disposition of collateral,
including the method, manner, time, place, and other terms, must
be commercially reasonable.”

N.Y. U.C.C. Law § 9-610(b).

A

disposition is commercially reasonable if it is made: “(1) in the
usual manner on any recognized market; (2) at the price current in
any recognized market at the time of the disposition; or (3)
otherwise in conformity with reasonable commercial practices among

19

It also bears noting that CDO Fund did not transfer any “undisputed amount”
to Citi by the close of business on the day following Citi’s issuance of the
December 11 or 15 margin calls, as would be required under the CSA. Highland
now argues that it disputed the margin calls in their “entirety,” e.g., Highland
Mem. at 6, CDO Fund Opp. Mem. at 4, and thus was not required to transfer any
amount to Citi. Relying on its expert’s report, Highland contends that Citi
was actually over-collateralized in mid-December 2008, see P56.1 ¶ 180.
However, there is no evidence that Highland shared its views that Citi was overcollateralized with Citi contemporaneously.

-50-

dealers in the type of property that was the subject of the
disposition.”

Id. § 9-627(b).

Citi does not dispute that because

Highland has put at issue the amount of Citi’s alleged deficiency,
it

is

ultimately

Citi’s

burden

to

prove

its

disposition

of

collateral was commercially reasonable, see id. § 9-626(a)(2).
Commercial reasonableness hinges “on the totality of the
circumstances, including the good faith efforts of the creditor.”
F.D.I.C. v. Wrapwell Corp., No. 93 CIV 859 (CSH), 2002 WL 14365,
at *9 (S.D.N.Y. Jan. 3, 2002).

In conducting its inquiry, a court

should consider “accepted business practices” in the particular
industry “as a guide to what is most likely to protect both debtor
and creditor.”

Bankers Trust Co. v. J. V. Dowler & Co., 47 N.Y.2d

128, 134, 390 N.E.2d 766, 769 (1979).

Highland does not contend

that selling the CLO positions at issue through a BWIC or public
auction failed to conform to practices of dealers of such assets,
but takes issue with specific aspects of each sale.
A.

The December BWIC

While the undisputed evidence of seven sophisticated bidders
participating and Citi’s use of reserve prices to protect the
collateral from being sold below certain levels suggests that Citi
met its obligations, Highland has raised a material question of
fact with respect to the December BWIC.

-51-

Highland’s argument is

principally that the timing of the BWIC, for which bids were due
December

31,

2008,

rendered

it

commercially

unreasonable.

According to Highland’s expert, Daniel I. Castro, Jr., the December
BWIC was “poorly timed and poorly executed” because it was not
conducted

“under

normal

business

conditions

when

market

participants are fully staffed and have available balance sheet
and appetite to purchase securities.”
¶ 122.

Prudhomme Decl., Ex. B-72

Citi responds that Castro’s opinions are inadmissible

conjecture, as Castro had never been a trader at a broker-dealer
and was not trading CLO securities in December 2008, and further
that the opinions lack evidentiary support, as he failed to
identify any specific market participants who would have been less
likely to bid because of the date of the BWIC.
Citi is correct that “[a]n expert's opinions that are without
factual basis and are based on speculation or conjecture are . . .
inappropriate material for consideration on a motion for summary
judgment,” Major League Baseball Props., Inc. v. Salvino, Inc.,
542 F.3d 290, 311 (2d Cir. 2008), and an expert may not give an
unsupported

opinion

merely

because

he

has

experience

in

a

particular field, see Fed. R. Evid. 702 advisory committee's note
(2000) (witness “relying solely or primarily on experience” must
“explain how that experience leads to the conclusion reached, why

-52-

that experience is a sufficient basis for the opinion, and how
that experience is reliably applied to the facts”).
Here, Castro’s opinions on the December BWIC were based on
his “industry knowledge, experience, and expertise,” Prudhomme
Decl., Ex. B-72 ¶ 13.

Specifically, in his experience, on the

last day of the year “most broker-dealers and investors are only
partially staffed,” “[m]any or most of the senior personnel take
the day off, and typically a skeleton crew is in place to conduct
any minor business that may come up”; moreover, “most buy-side
(investment) firms close their books well before Christmas, year
after year” and thus “most potential bidders for an auction held
on the last day of the year would not have been able to participate”
in the BWIC. Id. ¶ 122. Although Castro has provided scant detail
to support these statements, given the straightforward nature of
the proposition he is advancing, he has sufficient experience
investing in and advising investments in structured financial
products and consulting with traders at a broker-dealer to opine
on market customs with respect to trading in such products on
December 31.20

Despite his failure to name dealers or buy-side

20

In addition to other related employment, from 2005 through April 2008, Castro
was managing director, chief credit officer, and a portfolio manager for the
structured finance group at GSC Group, an investment management firm and asset
manager that invested in, among other things, leveraged loans, RMBS, CMBS, ABS
and other real estate structured products. See Prudhomme Decl., Ex. B-72 ¶ 9.
While at GSC, he helped manage two hedge funds investing in primarily CDO equity

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firms that were poorly staffed or had closed their books the day
of the BWIC, his opinions regarding common practices are still
probative of the reasonableness of choosing that date.
Moreover,

as

Highland

points

out,

Citi’s

secondary

CDO

trading desk was “interested in bidding on some of these positions
in the auction, given the lack of liquidity and the likely low
bids for the assets,” P56.1 ¶ 106.

While Citi may simply have

been interested in bidding on the assets generally, construing the
facts in the light most favorable to CDO Fund, Citi was enticed by
the lack of liquidity and likely low bids on that specific date,
suggesting that it was aware that the timing was not likely to
enhance competitive bidding.

While Citi is correct that it “was

not bound to wait and undertake the risk of a declining market,”
Citibank, N.A. v. Solow, 92 A.D.3d 569, 569, 939 N.Y.S.2d 361, 362
(1st Dep’t 2012), the record does not demonstrate one way or the
other whether Citi risked inferior market conditions if it chose
another date close in time.

Accordingly, both sides’ motions for

summary judgment with respect to the December BWIC are denied.

and “illiquid/distressed ABS/MBS,” respectively. Id. For the thirteen years
prior, he was head of the structured finance research department at Merrill
Lynch, where he “interacted extensively with Merrill Lynch’s institutionalinvestor clients regarding sales, trading, and origination” of various products.
Id. ¶ 10. While not a trader, he had a seat on the trading desk for the duration
of his employment and the traders “often asked [his] advice,” Castro Tr. at 40.

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B.

The March Auction

In contrast, Citi is entitled to summary judgment on CDO
Fund’s UCC claim with respect to the March Auction.

Citi has put

forward

commercially

evidence

demonstrating

that

it

employed

reasonable procedures with respect to that sale.

As discussed, it

is undisputed that Citi hired a third-party, SMH, to conduct the
auction;

SMH

advertised

the

auction

in

the

WSJ

over

three

consecutive days, and circulated details of the auction to its own
distribution list of more than 150 contacts; Citi submitted bids
which functioned as implied reserve prices, thereby reducing CDO
Fund’s potential deficiency; Citi did not receive preferential
treatment; SMH received a total of 82 bids on the 23 assets from
six entities other than Citi, in addition to an all-or-nothing bid
from JPMorgan; and Highland was notified of and did participate in
the auction, although one of its two bids was lower than Citi’s
reserve price.

In response, Highland argues that SMH was an

inexperienced and unqualified broker, chosen by Citi to ensure
limited participation by true market players in an auction in which
Citi would bid, so that Citi could secure the collateral at lowball bids.

Highland further takes issue with SMH’s solicitation

of bids, emphasizing SMH’s marketing methods and the ultimate
number of bidders.

None of these arguments has merit.

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With respect to SMH’s qualifications, Highland contends that
prior to the March Auction, SMH had conducted only 12-24 auctions,
all for JPMorgan, that it had to ask JPMorgan for permission to
conduct the auction for anyone else, and that SMH’s procedures
were developed by JPMorgan’s attorneys.

While Citi disputes

aspects of these assertions, see D56.1 Ctr. Stmt. ¶¶ 121, 124,
129,

even

if

true,

they

are

commercial reasonableness here.

immaterial

to

the

question

of

It is undisputed that between

January 2007 and the March Auction, SMH had liquidated over $10
billion in assets and had auctioned both CDO and CLO securities,
including CDO and CLO equity.

D56.1 ¶ 227.

Highland does not

explain why one to two dozen auctions on behalf of a large
financial institution is an insufficient amount of experience as
an

auctioneer

to

attract

participants,

nor

how

JPMorgan’s

procedures failed to conform to commercially reasonable practices
for liquidating the assets at issue.

Indeed, while Highland

impugns SMH’s qualifications to run an auction, it does not present
any evidence of how SMH’s alleged lack of experience or skill
manifested itself when SMH conducted the “neutral, mechanical
process” of determining winning bids, id. ¶ 242.
Instead,
bidders.

Highland’s

focus

is

on

SMH’s

solicitation

of

Highland argues that the WSJ was not a typical industry

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source for securities auctions, but its argument is based entirely
on

Eshelman’s

testimony

that

other

large

banks

Eshelman

had

represented had not asked “for anything to go into the Wall Street
[Journal],”

Eshelman

Tr.

at

144,

and

its

30(b)(6)

witness’s

testimony that “typically” Highland itself does not “review the
[WSJ]

for

auctions

of

assets,”

Braner

Tr.

at

418.

Neither

statement indicates whether the WSJ was a typical industry source
for

securities

auctions,

or

more

generally,

whether

advertising was unlikely to reach potential bidders.21

Cf.

such
DeRosa

v. Chase Manhattan Mortg. Corp., 10 A.D.3d 317, 321, 782 N.Y.S.2d
5, 9 (1st Dep’t 2004) (choice of paper for publication of sale of
real property “would not, by itself, make the sale commercially
unreasonable”).

Similarly,

Highland

relies

on

Eshelman’s

testimony that SMH included recipients on its contact list that
did not trade in the specific type of security being offered, but
does not dispute that SMH circulated details of the March Auction
to more than 150 contacts, including “all the recognizable primary
dealer names, all the regional dealers,” as well as others who had

21 Eshelman also testified that he no longer, in general, advertised auctions
in the WSJ, but that he had done it in the past in connection with other
liquidations; thought doing so helped attract bidders because “people who were
involved in that market knew that these liquidation notices were out there”;
and that SMH in general had “plenty of people” coming to them that had seen
their notices in the WSJ, although he could not say if that happened with
respect to the March Auction. Eshelman Tr. at 144-47.

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expressed an interest in liquidation auctions to SMH, D56.1 ¶ 231.
Indeed, despite allegations that Citi “failed to market or offer
the assets to typical industry players, essentially failing to
even attempt to engage third parties,” Compl. ¶ 40, Highland does
not identify any industry participants that should have been
included in the SMH Auction but were excluded, see D56.1 ¶ 234.
Highland relies on cases where courts considered a secured
party’s failure to market a yacht or heavy construction equipment
to the most likely customer base as part of the totality of the
circumstances demonstrating unreasonableness.

See Comerica Bank

v. Mann, 13 F. Supp. 3d 1262, 1289 (N.D. Ga. 2013) (commercially
unreasonable sale of yacht where, inter alia, accepted offer was
significantly

lower

than

next

lowest

offer;

facts

suggested

pressure from “aggressive and perhaps threatening buyer” to sell
yacht at below-market price; marketing was not directed at European
buyers despite yacht being built in “European style” and relative
strength of European market at the time; and seller did not engage
in a full direct marketing campaign); Gen. Elec. Credit Corp. v.
Durante Bros. & Sons, 79 A.D.2d 509, 509-10, 433 N.Y.S.2d 574, 576
(1st Dep’t 1980) (commercially unreasonable sale of “1975 model
backhoe” where prospective bidders were not informed of features
that “significantly” enhanced its value; method of advertising

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violated the seller’s own rules; newspaper selected was “clearly
not the most appropriate one for reaching the intended market”;
and seller rejected tentative offer “substantially in excess of
the price ultimately received”).

These cases are inapposite here,

where the prospective bidders for the assets at issue would be
sophisticated financial entities with the incentive and means to
obtain

information

newspaper

of

disseminated

wide

circulation

broadly
and

through
to

a

national

numerous

market

participants.22
Also without merit is CDO Fund’s argument that the number of
bidders—seven including Citi, in addition to an all-or-nothing bid
from JPMorgan—is evidence of the March Auction’s unreasonableness.
To the extent that the number of bidders was low, which is far
from

clear,

“[w]hen

the

sale

is

conducted

so

as

to

give

a

sufficiently broad group of buyers the opportunity to bid, their
failure to respond in any particular number may itself be an
indication of the market value of the item offered for sale,”
Bankers Trust, 47 N.Y.2d at 135-36, 390 N.E.2d at 770. Ultimately,
Highland’s

contention

that

SMH’s

procedures

failed

to

notify

sufficient potentially interested parties is based on speculation,

22

It is also undisputed that the website Creditflux had a story on the March
Auction in the days before it occurred and that HCM employees saw that coverage.
See D56.1 ¶¶ 232-33.

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and thus its argument that Citi designed the auction to be a sham
also does not withstand scrutiny.

Because we find that the record

establishes that the March Auction was conducted in a commercially
reasonable manner, we grant Citi’s motion for summary judgment on
CDO Fund’s UCC claim with respect to that sale.
IV.

Citi’s Counterclaims
Having

found

that

CDO

Fund

cannot

now

challenge

Citi’s

valuation of the December margin calls, it follows that Citi had
the right to foreclose and liquidate the collateral and offset the
proceeds against amounts owed by CDO Fund.

Citi has calculated a

deficit of $24,110,175.72, based on its calculation of the fee
payable to Citi to terminate the CDS Contracts and subtracting (i)
fixed payments on the CDS Contracts in January, February, and March
2009; (ii) the proceeds of the December BWIC and March Auction;
and

(iii)

the

Transactions.
However,

cash

posted

as

initial

margin

on

the

CDS

meet

its

D56.1 Ctr. Stmt. ¶ 188.
Highland

argues

that

Citi

cannot

requirement to show the existence of damages with respect to CDO
Fund’s breach and otherwise disputes Citi’s calculation of its
deficit.

See Highland Mem. at 20-22.

We need not resolve at this

juncture the issue of whether Citi’s deficit calculation should
include cash flows and sale proceeds for the collateral it seized

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because there appear to be least two other open issues with respect
to Citi’s deficit calculation. First, we have permitted CDO Fund’s
UCC claim to go forward with respect to the December BWIC, the
resolution of which may affect the amount of the deficit.

Second,

Highland contends that Citi’s calculation failed to include cash
flow distributions it received from CDO Fund’s collateral prior to
the March Auction.

See id. at 20.

While at oral argument, Citi

suggested that it took those distributions into account, see Oral
Arg. Tr. at 44, whether it did so is not clear from the proof
submitted, see D56.1 Ctr. Stmt. ¶ 188 (Citi’s calculation of the
deficit amount).

Given that there are unresolved genuine issues

with respect to the amount, if any, Citi is owed, the Court will
not sua sponte enter summary judgment in favor of Citi on its first
counterclaim.

Accordingly, it is also premature to rule on Citi’s

indemnification counterclaim, although Highland’s only defense
with respect to the indemnification claim under the CDS Contracts-that CDO Fund is not a “Defaulting Party” under the ISDA and thus
is not subject to its indemnification provision—is foreclosed by
the ruling on CDO Fund’s breach-of-contract claim.23

23

The ISDA provides that “[a] Defaulting Party will, on demand, indemnify and
hold harmless the other party for and against all reasonable out-of-pocket
expenses, including legal fees . . . incurred by such other party by reason of
the enforcement and protection of its rights” under the CDS Contracts. ISDA
§ 11. A “Defaulting Party” is a party with respect to which an Event of Default
has occurred. Id. §§ 6(a), 14.

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V.

HCM’s Joint and Several Liability
Finally, Highland moves for summary judgment with respect to

HCM’s joint and several liability.

Highland’s position is that

HCM is not a limited partner in CDO Fund and Citi’s amended
counterclaims seek to impart joint and several liability based
solely on HCM’s status as such, see Am. Countercls. ¶¶ 84, 106
(alleging that HCM was a “Limited Partner of CDO Fund that took
part in its day-to-day management and control, and the day-to-day
management and control of the transactions at issue”).

Citi

responds that discovery has raised material questions of fact
concerning whether CDO Fund, and its limited and general partners,
were alter egos of HCM such that HCM is liable for CDO Fund’s debts
under a veil-piercing theory.

Both in its opening and reply

briefs, Highland argues that Citi cannot press new theories of
joint and several liability for the first time in opposition to
summary judgment.
While a district court need not consider claims raised for
the first time in opposition to summary judgment, “a district court
may consider claims outside those raised in the pleadings so long
as doing so does not cause prejudice.” Cruz v. Coach Stores, Inc.,
202 F.3d 560, 569 (2d Cir. 2000) (citing Fed. R. Civ. P. 15(b)).
Here, we are not persuaded that Highland was prejudiced by Citi’s

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articulation of its veil-piercing arguments given the totality of
the circumstances.
under

New

York

Notably, Citi is not pressing a new claim:

law,24

“piercing

the

corporate

veil

does

not

constitute an independent cause of action,” but a “theory of
liability,” First Keystone Consultants, Inc. v. Schlesinger Elec.
Contractors, Inc., 871 F. Supp. 2d 103, 124 (E.D.N.Y. 2012)
(internal quotation marks omitted); see Morris v. New York State
Dep't of Taxation & Fin., 82 N.Y.2d 135, 141, 623 N.E.2d 1157,
1160 (1993) (“[A]n attempt of a third party to pierce the corporate
veil does not constitute a cause of action independent of that
against the corporation; rather it is an assertion of facts and
circumstances which will persuade the court to impose the corporate
obligation on its owners.”).

Moreover, Highland was not unfairly

surprised by Citi’s arguments where Citi’s amended counterclaims
made clear that Citi was seeking to hold HCM jointly and severally
liable; the relevant information related to the details of the
relationship between CDO Fund and HCM was in the possession of
Highland,

not

Citi;

Citi

sought

in

discovery

information

concerning HCM’s control of CDO Fund and transactions between CDO

24

As discussed below, the parties dispute the law applicable to Citi’s arguments
for piercing CDO Fund’s veil, but we nonetheless consider it significant that
under the law of the forum state, Citi’s veil-piercing theory would not
constitute an independent cause of action.

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Fund and HCM, as well as between CDO Fund and other Highlandrelated entities, in the fourth quarter of 2008, see D56.1 Ctr.
Stmt. ¶ 14, giving notice to Highland of the facts Citi would be
asserting to persuade the Court to impose liability on HCM; and
Highland’s summary judgment opening brief addressed alternative
“avenues of liability” that Citi had failed to “properly allege[],”
including a veil-piercing theory under Bermuda law, Highland Mem.
at 23, 25.
Considering the veil-piercing theory on its merits, Citi’s
arguments have raised potentially material factual issues with
respect to HCM and CDO Fund’s relationship during the relevant
time period.

Citi points to evidence, see generally D56.1 Ctr.

Stmt. ¶ 14, suggesting that CDO Fund was under-capitalized in the
fall of 2008; that HCM personnel managed CDO Fund out of HCM’s
office in Dallas; that HCM made multiple loans to CDO Fund,
totaling over $11 million, in October 2008, see McCallum Supp.
Decl., Ex. 48 RFA Responses Nos. 3, 8, 12, and 16, for which Citi
asserts there is no evidence of documentation, repayment, or
consideration; and that HCM guaranteed CDO Fund’s repayment of the
Loan Facility, see November 25 agreement ¶ 2, with no evidence
that the guarantee was supported by consideration either, see
Braner Tr. at 256 (“I don’t recall there being consideration.”).

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More importantly, Citi presents evidence that in September 2008,
at HCM’s direction, CDO Fund acquired approximately $47.7 million
in notes issued by Highland Financial Partners, L.P. (“HFP,” and
the “HFP Notes”), a partnership managed by HCM, in exchange for 19
mezzanine tranches of CLO securities worth approximately $52.8
million, see Schedule A to HFP Note Purchase Agreement, dated
September 26, 2008, McCallum Supp. Decl., Ex. 13 at Citi-HL00009498.25

Less than four weeks later, CDO Fund pledged the HFP

Notes to Citi as additional collateral to meet Citi’s October
margin call, see D56.1 ¶ 114; however, in January 2009, HCM
announced to HFP investors that HFP’s adjusted book value had
fallen from “$5.78” to “$.07” during October 2008 and to “$0.00”
the next month, McCallum Supp. Decl., Ex. 15 at Citi-HL-00014718.
Such evidence may be enough to raise a question of fact as to
whether Citi can meet the two prongs of New York’s veil-piercing
analysis, assuming New York law were to apply.

As to the first

prong, the facts above tend to show the existence of factors
considered pertinent to whether HCM “exercised complete domination
of [CDO Fund] in respect to the transaction attacked,” Morris, 82

25

According to the Note Purchase Agreement, CDO Fund transferred assets with a
market value greater than the principal amount of the HFP Notes in exchange for
HFP’s forgiveness of a prior loan. See McCallum Supp. Decl., Ex. 13 at CitiHL-00009498.

-65-

N.Y.2d at 141, 623 N.E.2d at 1160, including whether HCM failed to
deal with CDO Fund “at arms length” and treat CDO Fund as an
“independent profit center[],” “the amount of business discretion”
displayed by CDO Fund, and whether CDO Fund “had property that was
used by other of the corporations as if it were its own,” Wm.
Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933
F.2d 131, 139 (2d Cir. 1991).

As to the second prong, whether the

dominating party used its control over the dominated organization
“to commit a fraud or wrong against the [claimant] which resulted
in [claimant’s] injury,” Morris, 82 N.Y.2d at 141, 623 N.E.2d at
1160-61, courts have found it met where a “controlling party strips
the assets from a previously legitimate corporation in order to
avoid satisfying preexisting obligations that the corporation
incurred in the ordinary course of business,” Am. Federated Title
Corp. v. GFI Mgmt. Servs., Inc., 126 F. Supp. 3d 388, 2015 WL
5091113, at *13 (S.D.N.Y. 2015). Given that CDO Fund’s acquisition
of the HFP Notes predated Citi’s October and December margin calls
and that much of the evidence cited by Citi evinces an intent by
HCM to sustain CDO Fund’s viability by loaning it money in October
2008 and guaranteeing its obligations in November 2008, we are
skeptical that Citi will be able to adequately link any inability

-66-

to collect its deficit from CDO Fund to affirmative acts taken by
HCM pursuant to any domination of CDO Fund.
However, in light of our rejection of Highland’s contention
that Citi waived its veil-piercing arguments, the facts identified
by Citi, and the inadequately developed record on this issue, we
do not grant Highland judgment on HCM’s liability.

We note that

the record is incomplete with respect to two other issues material
to the veil-piercing inquiry.

First, while the general rule is

that the law of the state of incorporation of the entity subject
to potential piercing determines when the liability shield will be
disregarded, see Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d
Cir. 1995), when the entity at issue has no substantive contacts
with its place of incorporation, there is support in New York case
law for ignoring that jurisdiction and instead applying New York’s
choice-of-law “interest analysis” to determine the governing law,
see Serio v. Ardra Ins., 304 A.D.2d 362, 362, 761 N.Y.S.2d 1, 1-2
(1st Dep't 2003) (defendant reinsurance company was incorporated
in Bermuda but was not authorized to sell insurance there or to do
business with Bermuda residents, was controlled from New York, and
all transactions giving rise to the complaint occurred in New
York); UBS Sec. LLC v. Highland Capital Mgmt., L.P., 924 N.Y.S.2d
312, 2011 WL 781481, at *3 (N.Y. Sup. Ct. 2011) (defendant was

-67-

incorporated in the Cayman Islands, but had no other “obvious ties”
to that jurisdiction and the contracts at issue were negotiated in
New York and governed by New York law), aff'd in part, modified in
part, 93 A.D.3d 489, 940 N.Y.S.2d 74 (2012).

The current record

says little about any contacts CDO Fund had with Bermuda other
than being organized as an exempted limited partnership under its
laws. Second, Citi has indicated that all of its theories of HCM’s
liability depend on Citi piercing the separate legal identity of
at least one Highland-related entity in addition to CDO Fund before
reaching HCM.

See Oral Arg. Tr. at 45-46.

However, in its

briefing, Citi has not pointed to any evidence in the record
concerning those other entities that supports disregarding their
legal forms. Because these questions remain and Highland suggested
that it wishes to retain an expert on this issue, we will permit
limited additional discovery on veil-piercing, and Highland may
renew its present motion directed to Citi’s veil-piercing theory.
If Highland and/or Citi wish to conduct additional discovery, the
parties should confer and propose an expedited discovery schedule.

CONCLUSION
For the foregoing reasons, we grant Citi’s motion for summary
judgment with respect to CDO Fund’s breach-of-contract claim and

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COO Fund's UCC claim to the extent it is based on the March Auction;
deny the remainder of Citi's motion for summary judgment; and deny
COO Fund/Highland's motion for summary judgment in its entirety.
The Clerk of the Court is respectfully dlrected to terminate the
motions pending at docket entries 88 and 119.

SO ORDERED.

Dated:

New York, New York
March 30, 2016

£.-~~~
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

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