U.S. Bank National Association v. Triaxx Asset Management LLC et al

Filing 194

MEMORANDUM OPINION & ORDER re: 182 MOTION for Sanctions Against Triaxx Asset Management LLC filed by Pacific Investment Management Company, LLC, 185 LETTER MOTION for Oral Argument addressed to Judge Alison J. Nathan f rom Sandeep Savla dated December 22, 2020. filed by Pacific Investment Management Company, LLC. For the reasons stated above, Interpleader Defendant PIMCO's motion for sanctions is DENIED. The request for oral argument is DENIED as moot. This resolves Dkt. Nos. 182, 185. SO ORDERED. (Signed by Judge Alison J. Nathan on 9/27/2021) (vfr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

SDCSDN¥
DOCUMENT

KL 11:CTRO:NIC.A'LLY. FILED
DOC#:._ _ _ _ _ _ __
DAT

FlLED: 9/27/21

U.S. Bank National Association,
Plaintiff,
16-cv-8507 (AJN)
–v–
MEMORANDUM
OPINION & ORDER

Triaxx Asset Management, LLC, et al,
Defendants.

ALISON J. NATHAN, District Judge:
Interpleader Defendant Pacific Investment Management Company, LLC brings a motion
for sanctions against Defendant Triaxx Asset Management LLC for the conduct of its sole nonmanagerial employee in this litigation. For the reasons that follow, that motion is DENIED.
I.

BACKGROUND
Plaintiff U.S. Bank National Association brought this action against Triaxx Management

in November of 2016 by filing an interpleader complaint seeking a declaratory judgment with
respect to certain securities that it held as Trustee. Dkt. No. 1. The central dispute between the
parties was whether Defendant Triaxx Management was required to sell the securities. See Dkt.
No. 159. U.S. Bank National argued that the terms of the governing contracts required Triaxx
to sell the securities because they had been “Defaulted Securities” for three years, whereas
Triaxx argued that the disputed securities were “Credit Improved Securities” and therefore the
contract gave them discretion on whether to sell. Id.
Following a bench trial, the Court issued its findings of fact and conclusions of law on
September 16, 2019. Dkt. No. 159. The Court ruled in U.S. Bank National’s favor and held that

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Triaxx was required to sell the securities. In coming to that conclusion, the Court made various
findings of fact and credibility determinations. In particular, the Court assessed the testimony of
Mr. Nicholas Calamari, who was the sole non-managerial employee of Triaxx and the one who
made the determination that the securities were “Credit Improved” in his role as “Collateral
Manager.” Id. In its opinion, the Court made three findings with respect to Mr. Calamari. First,
the Court determined that Mr. Calamari had serious conflicts of interest when he made the
decision not to sell the securities because the securities provided a source of income for separate
entities with which the record revealed Mr. Calamari was deeply involved. Second, the Court
assessed Mr. Calamari’s testimony and determined that he was not credible. The Court found
him to be evasive and his answers to questions self-serving, noting that he continued to shift
positions on in order to justify his decision not to sell the securities. Third, the Court noted that
the timing of Mr. Calamari’s determination that the securities were “Credit Improved” lent
“further weight to the conclusion that he did not act in good faith.” Id. at 15. The timeline of
events led the Court to conclude that Mr. Calamari instead made the determination in preparation
for litigation. Based in part on those findings, the Court held that Triaxx was required to sell the
securities and entered judgment for U.S. Bank National.
Following Triaxx’s unsuccessful appeal, Pacific Investment Management Company LLC
(“PIMCO”) filed a motion for sanctions against Triaxx. Dkt. No. 182. PIMCO, which is the
most-senior noteholder for the securities at issue in this case, entered this action as an
interpleader defendant and argued that the securities were required to be sold. Dkt. No. 183 at 2.
PIMCO argues in its motion that Mr. Calamari’s conduct, as explained in the Court’s factual
findings from the bench trial, is grounds for sanctions and requests that the Court order Triaxx to
pay PIMCO’s attorney’s fees. Id. at 14. That motion is now fully briefed. Dkt. Nos. 188–89.

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II.

DISCUSSION
“Courts of justice are universally acknowledged to be vested, by their very creation, with

power to impose silence, respect, and decorum, in their presence, and submission to their lawful
mandates.” Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991). “Because of its potency,
however, a court’s inherent power must be exercised with restraint and discretion,” and “[w]hen
it comes to monetary sanctions, that means a court should sanction only bad faith, vexatious, or
wanton acts or actions otherwise undertaken for oppressive reasons.” Int'l Techs. Mktg., Inc. v.
Verint Sys., Ltd., 991 F.3d 361, 368 (2d Cir. 2021) (cleaned up). One ground for sanctions
through the Court’s inherent powers is “a party’s decision to prosecute a knowingly frivolous
claim.” Id. But that requires showing that “the challenged claim was without a colorable basis
and[] . . . that the claim was brought in bad faith, i.e., motivated by improper purposes such as
harassment or delay.” Id. (cleaned up). The Second Circuit has instructed that “[c]onduct is
entirely without color when it lacks any legal or factual basis; it is colorable when it has some
legal and factual support, considered in light of the reasonable beliefs of the attorney whose
conduct is at issue,” and “[a] finding of bad faith, and a finding that conduct is without color or
for an improper purpose, must be supported by a high degree of specificity in the factual
findings.” Wolters Kluwer Fin. Servs., Inc. v. Scivantage, 564 F.3d 110, 114 (2d Cir. 2009).
The Court determines that sanctions are not warranted. The governing contracts in this
case provided that, in certain circumstances, a security may be considered “Credit Improved”
based on the “reasonable business judgment of the Collateral Manager in good faith.” Dkt. No.
159 at 8. The contract presumably could have, but did not, include a fee-shifting provision in the
event of lack of good faith. In its role as factfinder at trial, the Court found that Mr. Calamari’s
determination as Collateral Manager that the securities were “Credit Improved” was not in “good

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faith,” but instead was made in preparation for litigation. That factual finding was relevant
because it meant that the securities should not have been considered “Credit Approved” under
the terms of the governing contracts.
However, that decision on the merits of Plaintiff’s claim did not amount to a finding that
Triaxx and Mr. Calamari acted in sanctionable “bad faith” in this litigation by defending Mr.
Calamari’s determination that the securities were “Credit Improved.” The Court did not find,
and does not find now, that any of Mr. Calamari’s or Triaxx’s positions asserted in this litigation
were frivolous, or that their conduct was otherwise in bad faith for purposes of sanctions. Triaxx
put forth contrary evidence and made colorable arguments with respect to Mr. Calamari’s
determination that the securities were “Credit Improved,” which the Court considered and
ultimately did not find persuasive at trial. But because Mr. Calamari did not engage in any
vexatious, wanton, or bad faith conduct in this case that would warrant the rare and extreme use
of the Court’s inherent sanctions power, the Court will not sanction Triaxx for Mr. Calamari’s
conduct.
III.

CONCLUSION
For the reasons stated above, Interpleader Defendant PIMCO’s motion for sanctions is

DENIED. The request for oral argument is DENIED as moot. This resolves Dkt. Nos. 182, 185.

SO ORDERED.
Dated: September 27, 2021
New York, New York

____________________________________
ALISON J. NATHAN
United States District Judge

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