Wells Fargo Bank, National Association v. Davidson Kempner Capital Management LLC et al
Filing
42
OPINION AND ORDER re: 36 MOTION for Judgment on the Pleadings filed by Bedford CMBS Acquisitions LLC. For the foregoing reasons, Bedford's motion for judgment on the pleadings is GRANTED. The Clerk of the Court is directed to close this motion (Docket No. 36). A conference is scheduled for March 25, 2014 at 4:30 pm. (Signed by Judge Shira A. Scheindlin on 2/25/2014) (lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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WELLS FARGO BANK, NATIONAL
ASSOCIATION, as trustee,
Interpleader Plaintiff,
I
-
.
- againstDA VIDSON KEMPNER CAPITAL
MANAGEMENT LLC, WATERFALL
ASSET MANAGEMENT LLC, THE
NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, STS
PARTNERS FUND, LP,BEDFORD
CMBS ACQUISITIONS LLC, CEDE &
CO., as holder of certain Certificates and
nominee name of The Depository Trust
Company, and DOES 1 through 50, holders
of beneficial interests in the Certificates,
OPINION AND ORDER
13 Civ. 5981 (SAS)
Interpleader Defendants.
-----------------------------------------------------)(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
BACKGROUND
This case arises out of a dispute between Bedford CMBS Acquisitions
LLC ("Bedford") and Davidson Kempner Capital Management LLC, Waterfall
Asset Management LLC, and STS Partners Fund, LP (together, the «DWS
Parties") over Bedford's right to purchase certain securities administered by Wells
1
I
Fargo National Bank Association ("Wells Fargo"). Wells Fargo brings this
interpleader action l against Bedford, the DWS parties, and other certificate holders
to settle any claims stemming from this dispute and to restrain the parties from
bringing a separate suit against Wells Fargo. The DWS Parties bring a crossclaim
against Bedford challenging Bedford's right to exercise a purchase option.
Bedford moves for judgment on the pleadings to dismiss Wells Fargo's claims and
the DWS Parties' crossclaim pursuant to Federal Rule of Civil Procedure 12(c).
For the reasons stated below, Bedford's motion for judgment on the pleadings is
GRANTED.
Wells Fargo holds certain pooled mortgage-backed securities
certificates on behalf of depositor GS Mortgage Securities Corporation II,2 and
serves as trustee pursuant to the Commercial Mortgage-Backed Securities Pass-
Although Wells Fargo has pled jurisdiction under 28 U.S.C. § 1332, it
has not deposited the Disputed Securities or posted bond with the Court. See 28
U.S.C. § 1332(a)(2). However, this Court has jurisdiction over the proceeding
pursuant to Federal Rule of Civil Procedure 22 because there is complete diversity
of citizenship between the parties, and the Court acts sua sponte to convert the
action from "statutory" to "rule" interpleader. See Truck-A-Tune, Inc. v. Re, 23
F .3d 60, 62 (2d Cir. 1994).
See Commercial Mortgage-Backed Securities Pass-Through
Certificates, Series 2006-RR2 Pooling Agreement ("Pooling Agreement"), Ex. 1 to
12/20113 Declaration of Danielle C. Lesser, counsel for Bedford, in Support of
Bedford's Motion to Dismiss, § 2.01.
2
2
Through Certificates, Series 2006-RR2 Pooling Agreement (the "Pooling
Agreement,,).3 The Pooling Agreement can be amended by Wells Fargo and the
depositor without the consent of the certificate holders "to cure any ambiguity or
mistake.,,4
The Pooling Agreement provides for tiered classes of certificates
which offer different yields and risks. 5 The DWS Parties hold the highest class of
certificates. 6 Bedford holds the most junior class of certificates. 7 The Agreement
ameliorates the disadvantages of holding the most junior class of certificates 8 by
providing that, "[a]s of any date of determination," the majority holder of the most
junior class will be the Directing Securityholder. 9
3
See id. § 1.01 ("Trustee").
4
Pooling Agreement § 7.01.
5
See Pooling Agreement §§ 3.02, 3.03.
6
See Amended Interpleader Complaint ~~ 5, 6, 8.
7
See id.
~
9.
See Memorandum of Law in Support of Bedford's Motion for
Judgment on the Pleadings ("Bedford Mem."), at 6.
8
Pooling Agreement § 1.01 (defining "Directing Securityholder" as
"the holder or holders of the most junior [class of certificates] then outstanding that
has an outstanding Certificate Balance at least equal to 25% of the initial
Certificate Balance thereof').
9
3
Pursuant to section 7.13 of the Pooling Agreement, the Directing
Securityholder receives an assignable option to purchase a pooled security that is
deemed defaulted or imminently defaulted. 10 "[T]he option will be deemed to be
irrevocably waived" if the Directing Securityholder does not give notice of receipt
within ten business days of receiving notice of the default. II When a Directing
Securityholder gives timely notice, Wells Fargo performs a "Fair Value
Determination" of the defaulted securities in accordance with the procedures
outlined in section 7.13. 12 The Directing Securityholder has ten business days from
receipt of notice of the Fair Value Determination to give Wells Fargo notice that it
is exercising the option. 13 Without such notice, the option "will be deemed to be
irrevocably waived,,,14 however, a "different or additional [default] event" can give
rise to a new purchase option "without regard to the prior waiver."15
10
See Pooling Agreement § 7.13.
11
Id.
12
See id.
13
See id.
14
15
Id.
Id.
4
In July 20l3, the Directing Securityholder at the time requested a Fair
Value Determination for certain defaulted securities (the "Disputed Securities"),
but did not exercise its purchase option within ten business days.16 "On August 9,
20 l3, Bedford notified Wells Fargo that it had become the Directing
Securityholder.,,17 It requested a Fair Value Determination for the Disputed
Securities four days later. 18 "On August 20,2013, Wells Fargo provided Bedford
with notice of the Fair Value of the Disputed [Securities].,,19 Bedford notified
Wells Fargo the next day that it intended to exercise its purchase option?O Wells
Fargo notified Bedford that it would accept exercise of the option, and the parties
agreed on a closing date for the purchase?1 Wells Fargo expressed no concern at
that time that Bedford's option to purchase the Disputed Securities had been
waived?2
16
See Amended Interpleader Complaint ~ 16.
17
Id.
18
See id.
~
17.
~
19
Id.~19.
20
See id.
18.
21
22
~
20.
See Bedford Mem. at 8.
Seeid.
5
The DWS Parties subsequently informed Wells Fargo that they
objected to Bedford's purchase of the Disputed Securities. 23 Wells Fargo initiated
this action, claiming that the Pooling Agreement is "ambiguous with respect to
Bedford's right to exercise the Purchase Option with respect to the Disputed
[Securities] ...."24 In their answer, the DWS Parties brought a crossclaim against
Bedford seeking a declaratory judgment that Bedford's purchase option was void
due to the previous Directing Securityholder's waiver.25 Nothing in the Pooling
Agreement explicitly addresses this contingency.
II.
APPLICABLE LAW
A.
Legal Standa rd
At any time after the pleadings are closed, but before trial commences,
a party may move for judgment on the pleadings under Rule 12(c).26 "A grant ofa
23
24
See Amended Interpleader Complaint ~ 21.
Id. ~ 23.
See Answer, Crossclaim and Counterclaim of the DWS Parties ~ 38.
The DWS Parties also seek "a declaration that the Purchase Option cannot be
exercised unless and until the Trustee makes the proper inquiry for determination
of Fair Value as required under the Pooling Agreement, and shares that
information with the DWS Parties." Id. ~ 54.
25
26
See Fed. R. Civ. P. 12(c).
6
motion pursuant to Rule 12(c) is proper •if, from the pleadings, the moving party is
entitled to judgment as a matter oflaw. ",27
The legal standards of review for motions to dismiss and motions for
judgment on the pleadings "'are indistinguishable. ",28 "On a motion to dismiss or
for judgment on the pleadings [courts] 'must accept all allegations in the complaint
as true and draw all inferences in the non-moving party's favor. ",29 Courts are not
bound to accept as true legal conclusions couched as factual allegations. 30 The
court "may consider the facts alleged in the complaint, documents attached to the
complaint as exhibits, and documents incorporated by reference in the
complaint.,,3 J
Dargahi v. Honda Lease Trust, 370 Fed. App'x 172, 174 (2d Cir.
2010) (quoting Burns Int 'I Sec. Servs., Inc. v. International Union, 47 F .3d 14, 16
(2d Cir. 1995) (per curiam)).
27
LaFaro v. New York Cardiothoracic Group, PLLC, 570 F.3d 471,475
(2d Cir. 2009) (quoting DeMuria v. Hawkes, 328 F.3d 704, 706 n.1 (2d Cir.
2003)).
28
Miller v. WolpofJ & Abramson, L.L.P., 321 F.3d 292,300 (2d Cir.
2003) (quoting Patel v. Contemporary Classics ofBeverly Hills, 259 F.3d 123, 126
(2d Cir. 2001)).
29
See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
30
3J
DiFolco v. A1SNBC Cable L.L.c., 622 F.3d 104, 111 (2d Cir. 2010).
7
B.
Applicable Law
"Under New York law, 'the initial interpretation of a contract is a
matter oflaw for the court to decide.",32 The court's "'fundamental objective' is to
determine the intent of the contracting parties 'as derived from the language
employed in the contract. ",33 '" Extrinsic evidence of the parties' intent may be
considered only if the agreement is ambiguous .... ",34 "Even where a
contingency has been omitted, [the court] will not necessarily imply a term since
'courts may not by construction add or excise terms, nor distort the meaning of
those used and thereby make a new contract for the parties under the guise of
interpreting the writing.' ,,35
Overseas Direct Import Co. v. Family Dollar Stores Inc., 929 F. Supp.
2d 296, 313 (S.D.N.Y. 2013) (quoting K. Bell & Assocs., Inc. v. Lloyd's
Underwriters, 97 F.3d 632, 637 (2d Cir. 1996)).
32
Consolidated Edison, Inc. v. Northeast Uti!. , 426 F 3d 524, 527 (2d
Cir. 2005) (quoting Abiele Contracting v. New York City Sch. Constr. Auth., 91
N.Y.2d 1,9 (1997)).
33
Innophos, Inc. v. Rhodia, S.A., 10 N.Y.3d 25,29 (2008) (quoting
Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002).
34
Reiss v. Financial Performance Corp., 97 N.Y.2d 195, 199 (2001)
(quoting Schmidt v. Magnetic Head Corp., 468 N.Y.S.2d 649,654 (2d Dep't
1983)) (some quotation marks omitted).
35
8
C.
Ambiguity of Contract Terms
A district court can only construe a contract as a matter of law
'''where the language and the inferences to be drawn from it are unambiguous. ",36
"[T]he language of a contract is ambiguous if it is capable of more than one
meaning when viewed objectively by a reasonably intelligent person who has
examined the context of the entire integrated agreement.,,37 '''A contract is not
ambiguous where there is no reasonable basis for a difference of opinion. ",38 "The
mere assertion of an ambiguity does not suffice to make an issue of fact.,,39
Moreover, a "contract's failure to address a contingency does not create an
ambiguity where [the] contract's terms were otherwise unambiguous.,,40
4Kids Entm 't, Inc. v. Upper Deck Co., 797 F. Supp. 2d 236, 246
(S.D.N.Y. 2011) (quoting Alexander & Alexander Servs., Inc. v. These Certain
Underwriters at Lloyd's, London, Eng., 136 F.3d 82, 86 (2d Cir. 1998)).
36
37
Lockheed Martin Corp. v. Retail Holdings, N V, 639 F.3d 63,69 (2d
Cir. 2011).
38
RJE Corp. v. Northville Indus. Corp., 329 F.3d 310, 314 (2d Cir.
2003) (quoting Red Rock Commodities, Ltd. v. Standard Chartered Bank, 140 F.3d
420,424 (2d Cir. 1998)).
39
Palmieri v. Allstate Ins. Co., 445 F.3d 179, 187 (2d Cir. 2006)
(quoting Thompson v. Gjivoje, 896 F.2d 716,721 (2d Cir. 1990)).
In re Coudert Bros., 487 B.R. 375, 392 (Bankr. S.D.N.Y. 2013)
(citing Reiss, 97 N.Y.2d at 199). Accord Vermont Teddy Bear Co. v. 538 Madison
Realty Co., 1 N.Y.3d 470,475 (2004) (''' [C]ourts should be extremely reluctant to
40
9
D.
Waiver of Contractual Rights
"Contractual rights may be waived if they are knowingly, voluntarily
and intentionally abandoned.,,41 "Waivers of rights will not be inferred unless the
intent to waive is clear.,,42 "The Second Circuit has cautioned that '[w]aiver of
rights under a contract should not be lightly presumed. ",43
III.
DISCUSSION
Wells Fargo submits that the Pooling Agreement is ambiguous and
seeks relief that would shield it from liability stemming from disposition of the
Disputed Securities. The DWS Parties argue that Bedford's purchase option for
the Disputed Securities was voided by the previous Directing Securityholder's
interpret an agreement as impliedly stating something which the parties have
neglected to specifically include. ''') (quoting Rowe v. Great At!. & Pac. Tea Co.,
46 N.Y.2d 62, 72 (1978)).
Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt.,
L.P., 7 N.Y.3d 96, 104 (2006) (citation omitted).
41
42
22A New York Jurisprudence 2d, Contracts § 380 (citing
Fundamental Portfolio Advisors, 7 N.Y.3d at 96; Team Mktg. USA Corp. v. Power
Pact, LLC, 839 N.Y.S.2d 242 (3d Dep't 2007); Navillus Tile, Inc. v. Turner
Constr. Co., 770 N.Y.S.2d 3 (1st Dep't 2003)).
Arakelian v. Omnicare, Inc., 735 F. Supp. 2d 22,34 (S.D.N.Y. 2010)
(quoting Globecon Group, LLC v. Hartford Fire Ins. Co., 434 F.3d 165, 176 (2d
Cir. 2006)) (some quotation marks omitted).
43
10
waiver.
44
Bedford argues that the Pooling Agreement unambiguously gave rise to
a valid purchase option for the Disputed Securities.
Under the plain terms of the Pooling Agreement, Bedford's purchase
option for the Disputed Securities was not waived by the previous Directing
Securityholder. The title of Directing Securityholder changes depending on the
date of determination. 45 Although the Pooling Agreement contemplates that
different entities will hold this title, section 7.l3 does not include any language
indicating that waiver by one Directing Securityholder will bind the next. Failure
to specifically address this scenario does not render the Pooling Agreement
"ambiguous.,,46 Read in the context of the entire Pooling Agreement, section 7.13
44
Bedford contends that the DWS Parties are barred from bringing this
crossclaim by the Pooling Agreement, which requires that two-thirds of holders of
the same class of certificates make a written request upon Wells Fargo before a
certificate holder may bring a lawsuit based on the Pooling Agreement. See Reply
Memorandum of Bedford in Further Support of Its Motion for Judgment on the
Pleadings, at 3; Pooling Agreement § 7.02. Because Bedford's motion to dismiss
the DWS crossclaim succeeds on the merits for the same reasons as its motion to
dismiss Wells Fargo's claims, the Court need not address the procedural
requirements of the Pooling Agreement.
45
46
See Pooling Agreement § 1.01.
See In re Coudert Bros., 487 B.R. at 392.
11
describes the circumstances in which a Directing Securityholder can waive its own
purchase optionY
In addition to interpolating a term not in the Pooling Agreement, the
DWS Parties' construction of section 7.13 would permit a Directing Securityholder
to divest all future Directing Securityholders of a right granted by the Pooling
Agreement. This Court declines to construe a waiver provision so broadly.
Wells Fargo's actions lend credence to the Court's construction of the
Pooling Agreement. Despite having the express power to amend the Pooling
Agreement "to cure any ambiguity,,,48 Wells Fargo apparently never sought to do
so. Furthermore, by performing a Fair Value Determination for Bedford, accepting
Bedford's notice of exercise, and failing to raise any concerns about waiver, Wells
47
The DWS Parties argue that this interpretation renders meaningless
the clause in section 7.13 which says that a "different or additional [default] event"
can resurrect a waived purchase option. See Memorandum of Law in Support of
the DWS Parties' Opposition to Bedford's Motion for Judgment on the Pleadings
("Opp. Mem."), at 12. Because this is the only mention in section 7.13 of a way in
which an "irrevocable waiver" can be remedied, the DWS Parties contend that
Bedford's reading adds an unintended waiver exception. But this section merely
defines the circumstances under which a Directing Securityholder's purchase
option will be revived following its own waiver. Thus, this term is not rendered
meaningless, and the argument is unavailing.
48
Pooling Agreement § 7.01.
12
Fargo demonstrated that it believed Bedford's purchase option was valid. That it
now claims the Pooling Agreement is ambiguous does not create an issue of fact. 49
Finally, the DWS Parties argue that this motion cannot succeed
because Bedford has not provided information regarding "customs, practices,
usages and terminology as generally understood in this particular trade or
business."so Because the contract is unambiguous, extrinsic evidence is neither
necessary nor permissible. 51
IV.
CONCLUSION
For the foregoing reasons, Bedford's motion for judgment on the
pleadings is GRANTED. The Clerk of the Court is directed to close this motion
(Docket No. 36). A conference is scheduled for March 25, 2014 at 4:30 pm.
ShItait:
V.S.DJ.
Dated:
New York, New York
February 25,2014
49
See Palmieri, 445 F.3d at 187.
50
Opp. Mem. at 14.
51
See Greenfield, 98 N.Y.2d at 569.
13
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