The Bank of New York Mellon Trust Company, National Association v. Telos CLO 2006-1 Ltd. et al

Filing 113

OPINION: re: 69 MOTION for Summary Judgment on interpleader action, and on counterclaims filed by Telos Asset Management LLC. Telos' motion for summary judgment is denied. The parties will meet and confer with respect to a scheduling order to be submitted to the Court. A pretrial conference will be held if necessary to resolve any issues which the parties may wish to present. IT IS SO ORDERED. (Signed by Judge Robert W. Sweet on 8/07/2017) (ama)

UNITED STATES DISTRICT COURT
SOUTHERN DISTR I CT OF NEW YORK

--------------------------------------x
THE BANK OF NEW YORK MELLON TRUST
COMPANY , NATIONAL ASSOCIATION ,
Solely as Trustee,
Plaintiff ,
-against-

16 Civ. 8963
OPINION

TELOS CLO 100 6- 1 LTD.; TELOS CLO 2006-1 ,
INC .; TELOS ASSET MANAGEMENT LLC;
ELLINGTON CREDIT OPPORTUNITIES, LTD.;
CEDE & CO. AS NOMINEE FOR THE
DEPOSITORY TRUST COMPANY; GOLDMAN
SACHS & CO .; HARE & CO.; LLC ;
KNOTFLOAT CO.; MAC & CO , LLC; BK
OPPORTUNITIES FUND SP ; TIPTREE
OPERATING COMPANY LLC; and
JOHN DOES 1 THROUGH 100,
Defendants.

--------------------------------------x
A P P E A R A N C E S:
Attorney for Plaintiff

Attorneys for Telos and Tiptree
WINSTON & STRAWN LLP
200 Park Avenue
New York, NY 10166
By:
Cristina I. Calvar , Esq.
Ian C. Eisner, Esq.
Richard W. Reinthaler , Esq.

Attorneys for Ellington and BK Oppo J tunities
SCHINDLER COHEN & HOCHMAN LLP
100 Wall Street, 15th Floor
New York, NY 10005
By:
Lisa C . Cohen
Karen M. Steel

Sweet, D.J.

I

Interpleader defendant Telos Asset Management LLC
("Telos" or "Collateral Manager") has moved pursuant to Rule 56
of the Federal Rules of Civil Procedure for summary judgment to
dismiss the interpleader action brought by plaintiff, The Bank
of New York Mellon Trust Company, National As 1 ociation
("Plaintiff ," "BNYM," or the "T rustee " ) and to grant its
counterclaims for declaratory judgment. Based upon the
conclusions set forth below, the motion of Telos is denied
without prejudice to renew after further proceedings.

The instant motion raises the issue of the proper
timing and procedure to resolve the dispute between the parties
with respect to the performance of the Indent J re, which
establishes their rights and obligations . For the reasons set
forth below, it is concluded that the most appropriate procedure

1

to protect the rights of all the parties is the pending action,
and the motion for summary judgment is deemed premature .

I.

Prior Proceedings

On November 21 , 2006 , Telos CLO 2006-1 Ltd ., as Issuer
(the "Issuer"); Telos CLO 2006-1 , Inc ., as Co t Issuer (the "CoIssuer", and together with the Issuer, the "Co-Issuers"); and
BNYM , in its capacity as Trustee (the "Trustee") entered into an
I

indenture (the "Indenture") in connection with a collateralized
loan obligation ("CLO") transaction . Telos' Answer , Statement of
Claim to the Funds, and Verified Counterclaims Against The Bank
of New York Mellon Trust Company ("Telos Answer")

~

26 . Pursuant

to the terms of the Indenture, the Co -Iss uers issued eight
classes of Secured Notes. Telos' Statement of Material Facts in
Support of Telos' Motion for Summary Judgment
of Facts")

~

("Telos Statement

8 . The Issuer also entered into a Subordinated Note

Issuing and Paying Agency Agreement (the "Subordinated Note
Agreement") with BNYM; pursuant to that agreement , the Issuer
issued Subordinated Notes. Telos Answer

~

4.

Additionally , on the same date , the Issuer entered
into a Collateral Management Agreement (the

2

" ~MA " )

with Telos

(f/k/a Tricadia Loan Management LLC) in which Telos agreed to
act as Collateral Manager for distributions made on Distribution
Dates to subordinated noteholders. As Collate 4al Manager, Telos
was to provide certain management services with respect to the
CLO transaction. The management services in c lude: " (i)
identify[ing] and purchas[ing] Co llateral on behalf of the
[Issuer]; and (ii) retain[ing], sell[ing] or

~therwise

dispos[ing] of any Collatera l Debt Obligation or other asset as
required or permitted under the Indenture." Telos Statement of
Fa cts

'J[

19.

By the terms of the Indenture and the CMA, on the
Distribution Dates Telos is ent itl ed to receive an Incentive
Collateral Management Fee (th e "ICM Fee "), suJ ject to and in
accordance with the payment priority, or "waterfall," provisions
as set forth in Sections 11.l(a) and ll.2(a) of the Indenture.
Telos Statement of Facts

'J['J[

18, 28 . The waterfalls guide the

order of payment , and therefore the amount of the I CM Fee is
affected by which waterfa ll is applied: the "regular waterfall "
or the "redemption wate rfall." Telos Statement o f Fa cts

'J['J[

28 -

29 . Under a regular waterfall, the ICM Fee is higher, and the
distributions to subordinated noteholders is lower.

3

Ellington Credit Opportunit ies, Ltd.
BK Opportunities Fund SP ("BK")

(collectively

("Ellington") and
the "Subordinate

1

Noteholders") may also be entitled to a distribution on a given
Distribution Date, which varies in size according to, among
other things, the size of the ICM Fee on that Distribution Date.
The distribution that the Subordinate Noteholders may be
entitled to and the ICM Fee are inversely proJ ortional. Telos
Answer

~~

4, 34.

On the Oc tober 11, 2016 Distribution Date, if the
regular waterfall were applied, Telos would have been entitled
to an ICM Fee of $2,362,097.49. Telos
Statement of Facts

~

Answer~

35; Telos

42.

However, on October 11, 2016 , the Trustee received
corresponde n ce from Ellington objecting to the ICM Fee and the
recent sales of Collate ral. Telos Answer
Statement of Facts

~

~

36; see Telos

46. In that correspondence, Ellington

stated that the decision to accelerate redemption of the Notes
in the deal "may reflect bad faith on the part of the Trustee."
Edringt on Deel.

~

2, Ex. A.

4

The Trustee subsequently received several directions
from Telos demanding that the Trustee distribute the ICM Fees
that Telos would have been paid pursuant to the regular
waterfall . Telos Answer

~

37-38 . In Telos' October 28 , 2016

letter to the Trustee, Telos directed the Trustee to pay Telos
the ICM Fees, alleged that the Trustee had violated the terms of
the Indenture and related agreements, and "expressly reserve[d]
all of their rights, including rights against the Trustee under
the Indenture." Edrington Deel.

~

3, Ex. B; Telos Answer

~

38.

On November 1, 2016, the Trustee sent a letter to both
Telos and Ellington through their respective counsel , notifying
them that the Trustee had reviewed the correspondence from both
parties and that the Trustee may file an interpleader action if
the parties did not come to an agreement on or before November
15, 2016 . Answer

~

39 (admitting this allegation from the

Complaint) . Further , in a subsequent November 2, 2016 letter to
the Trustee, Telos requested the Trustee to "please immediately
file an interpleader" in the event the Trustee was not willing
to immediately distribute the ICM Fees to Telos. Edrington Deel .
~

4 , Ex. C.

5

On November 17, 2016, the Trustee initiated this
action by filing an interpleader complaint asserting that it
faces competing demands to assets it holds in connection with
the CLO transaction. See Complaint, Dkt. No. 1. In particular,
the Complaint alleges that Telos directed the Trustee to pay it
the ICM Fee for the October 11, 2016 Distribution Date

(the

"Disputed Funds") while Ellington requested the Trustee to
withhold payment to Telos. The Trustee has no claim to any of
the Disputed Funds. On or about January 11, 2017, a reserve was
established with the expectation that this reserve could be used
to pay for the Trustee's fees and costs incurred in this
interpleader action. Edrington Deel.

~

5. The Trustee filed an

Amended Interpleader Complaint on January 27, 2017, which, among
other things, added BK as a party.

On February 19, 2017, BK and Ellington each filed
substantially similar pleadings answering the I.Amended
Interpleader Complaint and asserting cross-claims

(the "Cross-

Claims") against Telos, in which they allege that Telos
committed fraud, breach of contract, gross negligence, and
breach of fiduciary duty, and is thus not entitled to the
Disputed Funds. Dkt. Nos.

64 & 65.

6

On that date, Telos also responde d to the Amended
Interpleader Complaint by filin g an Answer, Statement of Claim
to the Funds, and Verified Counterclaims (the "Counterclaims")
against the Trustee, alleging that the Governing Do c uments 1
require that t h e Trustee pay Tel o s the ICM Fees regardless o f BK
and Ellingt o n's claims that Telos engaged in v arious misconduct.
Dkt. No. 66. Telos alleged that the Trustee's withholding of the
Disputed Funds, and its correspo nding filing of the interpleader
a c ti o n, was impr oper and in breach o f the Inde n ture and seeks
d ec larat o r y r e li e f demanding that the Dispute d Funds be paid and
pr o hibiting the Trustee from paying its costs and fees o ut of
the interpleaded funds.

Tel os file d the instant mo tion for summar y judgment
seeking dismissal o f the Trustee's Amended Int e rpl e ader
Complaint and payment of the Disputed Funds on March 1, 2 017 .
Dkt . Nos . 69 - 72 . Telos has a s sert e d that its mo ti o n applies only

The " Governing Documents " shal l r efer to the I ndenture , dated as of November
21 , 2006 (the " Indenture " ) , among Telos CLO , as I s suer ; Telos CLO 2006 -1,
Inc . as Co - Issuer ; and The Bank of New York Mellon Trust Company , National
Associat i on (the " Trustee " ) , the Subordinated No t e Issuing and Pay i ng Agency
Agreement between Telos CLO 2006 - 1 Ltd . and the Tr ustee , dated as of November
21 , 2006 (the "Subo rdinated Note Agreement " ) ; the Co l lateral Management
agreement between Telos CLO 2006 - 1 and Telos , dated as o f November 21 , 2006
(the " CMA" ) ; and the Co llatera l Administration Agreement between Telos CLO
2 0 06 - 1 , Telos , and the Trustee , dated November 21 , 2006 (the " Collate r al
Administration Agreement " ) .
1

7

to the Truste e 's claims and Telos' Counterclaims, and not to the
Cross-Claims by Ellington and BK.

On March 27 , 2017, BK and Ellington served Telos with
document requests and interrogatories seeking discovery
concerning , inter alia: Tel os '

interpretation of the Governing

Documents, including the Optional Redemption a r d its impact on
the amount of ICM Fees owed; liquidation of the assets
underlying Telos CLO 2006 -1; holding of these same assets in
other CLO transactions it manages; commun i cations with the
Trustee,

in c luding with respect to the NOTE VALUATION REPORT and

ICM Fees purportedly owed; and meetings and commun i cat i ons with
the Subordinated Noteholders.

See Steel Deel.

~~

4-5, Exs. C &

D.

The instant motion was heard and marked fully
submitted on May 10, 2017 .

II.

The Facts

The facts have been set forth in the Telos Statement
of Facts,

Interpleader Plaintiff's Response and Counterstatement

("BN YM Counterstatement"), and Ellingt on Credit Opportunit ies

8

Ltd. and BK Opportunities Fund Counterstatement of Material
Facts ("Ellington and BK Counterstatement " ) pu r suant to Local
Rule 56 . 1 , and are not in dispute except as noted below.

1.

Telos is an asset manager focused on, among other

things, senior secured corporate credit, primarily in the form
of CLOs. Among other obl i gations , Telos manages Telos CLO 2006-1
Ltd., the Issuer. Telos

2.

2.

Answer~

Interpleader plaintiff and counterclaim defendant

BNYM operates as a nationally - chartered trust company that
provides , among other things , custody and trust services ,
including with respect to CLOs.

Id . at

~

3.

BNYM disputes this , stating that it is a limited
partnership national bank association with trust power . BNYM
Counterstatement

4.

~

2.

In November 2006 , Telos sponsored the formation

of the Telos CLO , a special - purpose entity created t o invest in
a portfolio of loans and other debt instruments and to issue
senior (i.e ., secured) note securities and subordinated note

9

~

securities backed by the portfolio. Telos Answer
Deel.

~

4; McCormick

4.
BNYM as Trustee takes no position.

3.

Interpleader defendants and crossclaim plaintiffs

Ellington and BK are alleged holders of Subordinated Notes
issued in connection with the Telos CLO. Compl.

5.

~~

1 2 , 19.

The Telos CLO makes distribution payments

pursuant to a priority of payment waterfall that requires, inter
alia, the payment of certain management fees payable to Telos,
as the Collateral Manager, in connect i on with the Telos CLO , the
payment of distributions to Subordinated Noteholders after
payments of amounts due to the Secured Noteholders and certa in
of the expenses of the issuer. Answer

~

4; McCormick Deel.

~

4).

BNYM as Trustee takes no position.

6.

As of October 11, 2016, all of the Secured

Noteholders have been paid in full and the Telos CLO has, to
date, been profitable for the Subordinated Noteholders, with an
internal rate of return in excess of twenty percent per annum
over ten years . Telos Answer

~

5 ; McCormick Dee l.

10

~~

4, 1 3.

BNYM as Trustee takes no position.
7.

Since inception , the Telos CLO has cumulatively

returned over $100 million, including principal, to Subordinated
Noteholders. Telos Answer

~

5; McCormick Deel.

~

4.

BNYM as Trustee takes no position.

8.

The Telos CLO issu ed eight classes of Secured

Notes pursuant to an Indenture, dated as of November 21 , 2006
(as amended, mo dified, or supplemented) , McCormick Deel., Ex. A;
[hereinafter the "Indenture "], among Telos CLO, as Issuer; Telos
CLO 2006 -1,

Inc., as Co -Issuer ; and BNYM, as Trustee.

Indenture §2.2(a)

See, e.g.,

(describ ing "[t]he aggregate principal amount

of Secured Notes which may be issued under th[e]

Indenture").

BNYM as Trustee takes no position and refers to the
Indenture for its complete terms.

9.

Telos and the Secured Noteholders are express

third party beneficiaries of the Indenture. See Indenture §
14.8.

11

10.

No actual or purported Subordinate Noteholder

(including Ellington or BK) is, in that capacity , a party to the
Indenture or among the entities expressly identified as third
party beneficiaries thereof.

Id .

The BNYM as Trustee and the Subordinated No teholders
refer to the Indenture for its comp lete terms and content. BNYM
as Trustee takes no position .

11.

With the proceeds received fr om the sale of

Secured Notes, the Telos CLO purchased a diversified portfolio
of loan obligations and other debt instruments securing the
obligations o f the Secured Noteholders.

BNYM as Trustee takes no position.

12.

The principal and interest generated by the loan

obligations and other collateral are used to, among other
things , make interest and principal payments to the Secured
Noteholders , pay the Telos CLO's expenses , and pay certain fees
to Telos, in its capacity as Collateral Manager. See Indenture
§§

11.1, 11.2.

12

The Subordinated Noteholders and BNYM ref er to the
Indenture for its complete terms and content. BNYM as Truste e
takes no position.

13.

Under the Indenture, the Telos CLO granted BNYM,

as Trustee f or the bene fit and security of the Secured Parties
(defined in the Indenture as the Secured Noteholders, the
Collateral Manager, and the Trustee), all the Telos CLO's
"right, t itle and interest" in the Collateral to secure the
Issuer's ob ligations to the Secured Parties under the Indenture.
See Indenture , Granting Clauses.

The Subordinated and the BNYM refer t o the Indenture
for its complete terms and content. BNYM as Trustee takes no
position.

14.

Such grant under the Indenture was made to BNYM,

as Trustee, t o hold in trust in order to secure, among other
things, the payment of (i) "all amounts due on the Secured Notes
in accordance with their respective terms," subject to certain
conditions set forth in the Indenture, and (ii) "all ot her sums
payable under [the] Indenture," including, as alleged in greater

13

detail below, any management fees owed to Telos. See Indenture,
Granting Clauses .

The Subordina ted Noteholders and BNYM refer to the
Indenture for its complete terms and content . BNYM as Trustee
takes no position .

15.

In accordance with the Indent ure 's terms, the

Telos CLO also issued Subordinated Notes pursuant to the
Subordinated Note Issuing and Paying Agency Agreement between
the Telos CLO and BNYM (in its capacity as the Subordinated Note
Issuing and Paying Agent) dated as of November 21 , 2006 . See
McCormick Deel., Ex. B [hereinafter, the "Subordinated Note
Agreement"] .

The Subordina te d Noteholders and BNYM refer to th e
Governing Documents for its complete terms and content. BNYM as
Trustee takes no position.

16.

The Subordinated Notes are not secured by the

Indenture. See Subordinated Note Agreement, Preliminary
Statement.

14

The Subordinated Noteholders and BNYM ref er to the
Governing Documents for its complete terms and content. BNYM as
Trustee takes n o position.

17.

The Telos CLO retained Telos on or about November

21 , 2006 to provide certain management services with respect to
the Telos CLO . See McCormick Deel ., Ex . C, Collateral Management
Agreement dated November 21 , 2006, by and between the Telos CLO
and Telos ( "CMA") .

The Subordinated Noteholders and BNYM refer to the CMA
for its complete terms and content. BNYM as Trustee takes no
position .

18.

In return for rendering services as the

Collateral Manager , Telos is entitled to certain management fees
in accordance with the CMA and the Indenture. See Indenture
11.11, 11.2 ; CMA

§

§§

8(a).

The Subordinated Noteholders and BNYM refer to the
Governing Documents for its complete terms and content . BNYM as
Trustee takes no position .

15

19.

As Collateral Manager , Telos is authorized to ,

among other things ,

(i) identi f y and purchase Collateral on

behalf of the Telos CLO ; and (ii)

retain, sell or otherwise

dispose of any Collateral Debt Obligation or other asset as
required or permitted under the I ndenture . See CMA § 2(e).

The Subordinated Noteholders and BNYM refer to the CMA
for its complete terms and content. The BNYM as Trustee takes no
pos i tion .

20 .

While BNYM is not an express party to the CMA ,

under Section 15.1 of the Indenture (and as acknowledged by the
Collateral Manager in Section 22 of the CMA) , the Telos CLO , as
Issuer , pledges to BNYM , as Trustee , "al l of the Issuer ' s
estate , right, title and interest in, to and under the CMA" for
the "benefit and on behalf of the Secured Parties ."

The Subordinated Noteho l ders and BNYM refer to the
Governing Documents for its complete terms and content . The BNYM
as Trustee takes no position .

21.

Concurrently with the execution of the Indenture ,

the CMA , and the Subordinated Note Agreement , Telos CLO , Telos

16

(in its capacity as Collateral Manager), and BNYM (in its
capacity as Collateral Administrator) executed a Collateral
Administration Agreement, dated November 21, 2006. See McCormick

Deel., Ex. D.

The Subordinated Noteholders and BNYM refer t o the
Collateral Administration Agreement for its complete terms and
content . The BNYM as Trustee takes no position.

22 .

Pursuant to the Collateral Administration

Agreement, BNYM is required to perform, inter alia, "certain
specified obl igations of the Issuer under the Indenture," as
well as certain obligations of Telos under the Indenture or the
CMA . See Collateral Administration Agreement, Recitals.

The Subordinated Noteholders and BNYM refer to the
Collateral Administration Agreement for its complete terms and
content .

BNYM states that it complied with all of its
ob ligations under the Collateral Agreement and all related
agreements during the subject time period.

17

23.

Section 2(a) of the Co llateral Administration

Agreement provides that BNYM must

(i) assist Telos " with

monitoring the Collateral on an ongoing basis," and (ii) provide
to the Telos CLO and Telos "certain reports,

schedules and other

data" that the Telos CLO or Telos is required to prepare and
deliver under the Indenture.

The Subordinated Noteholders and BNYM refer to the
Col lateral Administration Agreement for its complete terms and
content .

BNYM, as Trustee, affirmatively states that it
complied with all of its obligations under the Indenture and all
related agreements during the subject time period and takes no
position as to the allegations .

24.

Section 10.9(b) of the Indenture, titled

"Distributi on Date Accounting," provides that the Telos CLO must
render or cause to be rendered an accounting, referred to as a
"Note Valuation Report," to, inter alia , Telos and the Trustee
in advance of a Distribution Date. Section 2 of the Co ll ateral
Administration Agreement requires that BNYM , in its capacity as
Collateral Administrator , calculate and prepare the Note

18

Valuation Report on behalf of the Telos CLO. See Collateral
Administration Agreement §§ 2 (a) ,

(c) and (h).

The Subordinated Noteholders and BNYM refer to the
Collateral Administration Agreement for its comple te terms and
content.

BNYM, as Trustee, affirmatively states that it
complied with all of its ob ligati ons under the Indenture and all
related agreements during the subject time peri od and takes no
position as to the allegations.

25 .

The Note Va luation Report sets forth, among other

information, the proceeds to be disbursed on the next
Distributi on Date, in c luding administrative expenses and
management fees,

if any, due to Telos as the Colla ter al Manager.

See Indenture§§ 10.9 (b) (1)-(4).

The Subordinated Noteholders and BNYM ref er to the
Indenture for its complete terms and content. BNYM as Trustee
takes no position.

19

26.

Pursuant to Secti on 2(h) of the Collateral

Administration Agreement , Telos is required to "review and
verify" the Note Valuation Report. Once Telos approves the
report , BNYM, in its capacity as Collateral Administrator, is
required to transmit it to the Telos CLO for execution. See
Collateral Administration Agreement§ 2(h) .

The Subordinated Noteholders and BNYM refer to the
Indenture for its complete terms and content . BNYM as Trustee
takes no position.

27 .

Section 10.9(b) of the Indenture makes clear that

BNYM , in its capacity as Trustee, must strictly adhere to the
distribution instructions set forth in the Note Valuation Report
after it is approved by Tel os . This Section provides, in
pert inen t part, that:

Each Note Valuation Report shall constitute
instructions to the Trustee to withdraw on the
related Distribution Date from the Payment
Account and pay or transfer amounts set forth in
such report in the manner specified, and in
accordance with the priorities established in,
Section 11.l(a).

Indenture§ 10.9(b).

20

The Subordinated Noteholders dispute that "Section
10.9(b) of the Indenture makes clear BNYM, in its capacity as
Trustee, must strictly adhere to the distribution instructions
set forth in the Note Va luati on Report after it is approved by
Telos,u as the Indenture does not say that. Ind enture§ 10.9(b)

BNYM, as Trustee, affirmatively states that it
complied with all of its obl igat i ons under the Indenture and all
related agreements during the subject time period and takes no
position as to the allegations.

28 .

Section 11.l(a) of the Indenture, titled

"Disbursement of Cash from Payment Accoun t,u is a "wate rfall u
provision that specifies the priority of payments to be
disbursed by the Trustee on a Distribution Date. Section 11.l(a)
provides , in pertinent part:

Notwithstanding any other provision in this
Indenture, but subject to the other c lauses of
this Section 11 and Section 13.1, on each
Distribution Date, the Trustee shall disburse
amounts transferred to the Payment Account from
the Collection Accounts pursuant to Section
10.2(f) as follows and for application by the
Trustee in accordance with the following
priorities (the Priority of Payments)

Indenture§ 11.l(a).
21

The Subordinated Noteholders and BNYM ref er to the
Indenture for its complete terms and content. BNYM as Trustee
takes no position.

29 .

Sections 11.l(a ) (i) (V) and 11.l(a) (ii) (P) of the

Indenture provide that on each Distribution Date, the Collateral
Manager will be paid an In ce ntive Co llateral Management Fee,
subject to and in accordance with the waterfall provisions.
Indenture§§ 11.l(a) (i) (V), 11.l(a) (i i) (P) .

The Subordinated Noteholders dispute this statement to
the extent it interprets Sections 11.1 (a) (i) (V) and ( ii) (P)

to

require payment of ICM Fees and note that Section 11.l(a)
contemp lates that such fees not be paid during a particular
Distribution Date because it provides for "the payment t o the
Collateral Manager of the Incentive Collateral Management Fee
( if any)." Indenture§ 11.l(a) (i) (V). They also state that the
Statement ignores , inter alia, Section 8(a) of the CMA, which
requires that Telos "perform[]

. its obligations under the

Agreement" before it may receive an Incentive Collatera l
Management Fee. CMA § 8(a) .

BNYM as Trustee takes no position.

22

30.

Section ll . 2(a) of the Indenture , titled "Post -

Enforcement Disbursement of Cash from Payment Account ," is a
conditional waterfall provision that specifies the priority of
payments to be d i sbursed by the Trustee i n connect i on wi th
certain events , inc l uding the exercise of an Opt i onal
Redemption . This Section provides , in pertinent part :

In connection with (i) any Optional Redemption or
Tax Redemption (ii) a declaration o f acce l eration
by the Trustee fol l ow i ng t he occur r ence of an
Event of Default , (iii) the enforcement of the
security interest granted in the Collateral or
(iv) the liquidation of the Co l lateral on the
Stated Mat u r i ty of the No t es , I nterest Proceeds ,
Principal Proceeds and/or net proceeds of the
enforcement of the security over the Co ll ateral
or , as app l icable , the liquidation of the
Col l ateral wi l l be appl i ed in t he order of
priority set forth under clauses (A) through (N)
below (the Post - Enforcement Prior i ty of
Payments) .

Indenture§ ll . 2(a) .

The Subordinated Noteholders and BNYM refer to the
Indenture for its comp l ete terms and content . BNYM as Trustee
takes no position.

31 .

Si milar to Section 11.l(a) , Section ll . 2(a) (M)

provides that , in connect i on with an Optiona l Redemption , the

23

Collateral Manager will be paid an ICM Fee. Indenture

§

11. 2 (a) (M).

The Subordinated Noteholders dispute this statement to
the extent it interprets Sections 11.l(a) (M) to require payment
of ICM Fees and note that Section ll.2(a) (M) contemplates that
such fees not be paid during a particular Distribution Date
because it provides for "the payment to the Collateral Manager
of the Incentive Collateral Management Fee (if any)." Indenture
§

11. 2 (a) (M). They also state that the Statement ignores,

inter

alia, Section 8(a) of the CMA, which requires that Telos

"perform []

. its obligations under the Agreement" before it

may receive an ICM Fee. CMA

§

8(a). BNYM as Trustees takes no

p o sition.

32.

"Optional Redemption" is defined in Section

9.l(a) of the Indenture, which provides, in pertinent part:

The Secured Notes shall be redeemable, in whole
but not in part, on any Distribution Date at the
option of the Issuer (such redemption, an
Optional Redemption) from Sale Proceeds and all
other funds standing to the credit of the
Collection Account, the Uninvested Proceeds
Account, the Expense Account, the Interest
Reserve Account, the Future Funding Account and
the Payment Account on such Distribution Date, at
the direction of a Special Majority of
24

Subordinated Notes , at the applicable Redemption
Price ...

Indenture§ 9 .l (a).

Th e Subordinated Noteholders and BNYM refer to the
Indenture for its complete terms and content . BNYM as Trustee
takes no position.

33 .

In the event that a Special Majority of

Subordinated Notes (defined in Section 1 .1 of the Indenture as
Holders of more than 66-2/3 % of the Aggregate Outstanding Amount
of Subordinate Notes) directs the Issuer to call an Optional
Redemption , Section 9 . 2 of the Indenture requires that the
Issuer notify the Trustee of t he Optional Redempt i on by a
specified period of time . That section states :

In the event of any redemption pursuant to
Section 9.1, the Issuer shall , at least 1 5
Business Days (but not more than 90 days) prior
to the Redemption Date (unless the Trustee sha ll
agree to a shorter notice period) , notify the
Trustee , and each Paying Agent of such Redemption
Date , the appl i cab l e Record Date, the pr incipal
amount of each Class of Secured Notes to be
redeemed on such Redemption Date and the
Redemption Price of such Secured Notes in
accordance with Section 9 . 1 .

Indenture § 9 . 2.
25

The Subordinated Noteholders and BNYM refer to the
Indenture for its complete terms and content . BNYM as Trustee
takes no pos i tion .

34 .

The Indenture also requires that the Tr u stee , in

turn , provide notice of the Optiona l Redemption by a specified
period of time . Section 9.3 states , in pertinent part :

Notice of redemption pursuant to Section 9 . 1 or
the Maturity of any Class of Secured Notes shall
be given by the Trustee by first class mail ,
postage prepa i d , mailed not less than 10 Bus i ness
Days prior to the applicable Redemption Date or
Maturity to each Holder of Secured Notes to be
redeemed pursuant to Section 9 . 1 or to mature at
such Holder ' s address in the appl i cable Secured
Note Register , and to the Subordinated Note
Issuing and paying Agent with a copy to each
Rating Agency .

Indenture § 9 . 3 .

The Subordinated Noteholders and BNYM ref er to the
Indenture for its comp l ete terms and content . BNYM as Trustee
takes no posit i on .

35 .

An Optional Redemption , as that term is defined

in the Indenture , only concerns Secured Notes , not Subordinated
Notes. See , e . g ., Indenture§§ 9.1 , 9 . 2 , 9.3 .
26

The Subordinated Noteholders dispute this statement
and note that, under the Indenture, an Optional Redemption is
called by the majority of Subordinated Noteholders and impacts
payment of Subordinated Notes under the Indenture. Indenture §§
9.1 - 9 . 3 . BNYM refers to the Indenture for its terms and as
Trustee takes no position.

36 .

It is undisputed that no direction to redeem the

Secured Notes was ever provided to the issuer by a Special
Majority of Subordinated Noteholders, no notice of Optional
Redemption was ever provided by the Issuer to the Trustee, and
no notice of Optional Redemption was ever provided by the
Trustee to the Holders of Secured Notes in connection with the
October 11, 2016 Distribution Date.

The Subordinated Noteholders note that Telos knew at
all times that they would be calling an Optional Redemption and
that no direction was prov i ded prior to October 11 , 2016 due to
Telos' fraud, breach of contract , and other misconduct.

See

Answer and Cross-Claims of Ellington Credit Opportunities , Ltd.,
Answer and Cross - Claims of BK Opportunities Fund SP
(collectively , the "Cross-Claims") i i 3 -11; 39 -5 3 . BNYM as
Trustee takes no position.

27

37.

Because the Secured Notes were paid in full on

October 11, 2016 , it was no longer possible after that date for
Subordinate Noteholders to call an Optiona l Redemption and
thereby trigger the application of the "redempti on" waterfall
under Section ll.2(a) of the Indenture, whether in connection
with the January 11, 2007 Distribution Date or any future
Distribution Date. See, e.g., Indenture§ 9 .1; Subordinated Note
Agreement § 6 . 1.

The Subordinated Noteholders dispute this statement
and state that no limitation on the right to cal l an Optional
Redemption appears in the Indenture or in any of the other
Governing Documents, and the call ing of an Optional Redemption
is intended to benefit and protect the Subordinated Noteholders .
Indenture§§ 9.1 , 11.2. They further state that Telos knew at
all times that the Subordinated Noteholders would be ca lling an
Optiona l Redemption and that no direction was provided prior to
October 11 , 2016 due to Telos' fraud, breach of contract , and
other misconduct. See Cross - Claims

~~

3 -11; 39 - 53 . BNYM as

Trustee refers to the Indenture and Subordinated Note Agreement
for their terms and takes no position.

28

38 .

Among the disbursements required under the

Indenture's " waterfall" provisions is an In centive Collateral
Management Fee due to Telos if certain conditions are satisfied.
See Indenture§ 11.l(a) .

The Subordinated Noteholders refer to the Governing
Documents for their terms and content. BNYM as Trustee refers to
the Indenture and Subordinated Note Agreement for their terms
and takes no position .

39.

Section 8(a) of the CMA provides , in pertinent

part, that:

[A]s compensat i on for services rendered and for
performance of its ob li gations under [the CMA] ,
the Issuer shall pay to the Col lat eral Manager
if applicable , the Incentive Collateral
Management Fee ... on each Distribution Date, to
the extent funds are available for such purpose
in accordance with the Priority of Payments set
forth in the Indenture.

The Subordinated Noteholders refer to the CMA for its
complete terms and content and note that CMA Section S(a)
requires that Telos "perform[]

. its obligations under the

Agreement" before it may receive an Incentive Co lla teral
Management Fee, including but not limit ed to Section 2(b) 's

29

requirement that Telos "a ct in good faith and exercise
reasonable care .
(Stee l Ex. B, CMA

in a commercially reasonable manner."
§

8(a) . )

BNYM as Trustee refers to the CMA and Subordin ated
Note Agreement for their terms and takes no position.

40 .

Section 1.1 of the Indenture defines the

Incentive Col l ateral Management Fee as follows:

[A] fee payable on each Distribution Date on or
after the Distribution Date on which the
Subordinated Noteholders have recei ved or will
receive an annualized Int erna l Rate of Return of
at least 1 2 % for the period fr om the Closing Date
to such Distribution Date (after taking into
account any payments made or to be made on the
Subordinated Notes on such Distribution Date and
all prior Distribution Dates in accordance with
the Priority Payments), in an amount, with
respect to any Distribution Date , equal to 20 % of
(x) the Interest Proceeds (if any) available
after the payment of amounts pursuant to clauses
(A) through (U) of Section 11.1 (a) (i) and (y) the
Principal Proceeds (if any) ava il able after the
payment of amounts pursuant to clauses (A)
through (0) of Section 11.1 (a) (ii) .

The Subordinated Noteholders and BNYM refer to the
Indenture for its comp lete terms and content . BNYM as Trustee
takes no position .

30

41 .

On or around October 4 , 2016 , BNYM , acting in its

capacity as Collateral Administrator , prepared and presented to
Telos for its approval a Note Valuation Report specifying the
distributions required by the "waterfa ll" provision in Section
11 . l(a) of the Indenture in connection with the then - upcoming
October 11 , 2016 Distribution Date . See McCormick Deel . Ex . E ,
[hereinafter the "October 2016 Note Valuation Report "] at 4 ; see

also McCormick Deel .

~

9) .

The Subordinated Noteholders d i spute that the
Governing Documents unconditionally "require" that the
distributions set forth in the NOTE VALUATION REPORT be paid and
note that Section ll . 2(a) (M) contemplates that such fees not be
paid during a particular Distribution Date because it provides
for "the payment to the Collateral Manager of the Incentive
Collateral Management Fee (if any)." Indenture§ ll . 2(a) (M).
They state that under Section 8(a) of the CMA, Telos must
"perform[]

. its obligations under the Agreement " before it

may receive an ICM Fee . CMA § 8(a) .

BNYM states that it complied with all of its
obligations under the Collateral Administration Agreement and

31

all related agreements during the subject time period and as
Trustee takes no position.

42 .

The Note Valuation Report prepared by BNYM

provided , among other things, that Telos was entitled to an ACM
Fee in the amount of $2 , 362 , 097.49 pursuant to Section 11.l(a)
of the Indenture , as al l conditions relating thereto had been
satisfied . See October 2016 Note Valuation Report; McCormick
Deel .

~

11.

The Subordinated Noteholders dispute that the
Governing Documents provide that Telos is unconditionally
" entitled " to the Incentive Collateral Management Fee set forth
in the October 2016 Note Valuation Report and note that Section
11 . 2(a) (M) contemplates that such fees not be paid during a
part i cu lar Distribution Date because it provides for "the
payment to the Collateral Manager of the In centive Collateral
Management Fee (if any) ." Indenture§ 11.2(a) (M). They state
that under Section 8(a) of the CMA , Telos must "perform[]
its obl i gations under the Agreement" before it may receive an
ICM Fee. CMA § 8(a) . The Subordinated Noteholders also dispute
the characterization that the Trustee "prepared" the Note
Valuation Report because, under Indenture Section 10.8, Telos

32

was the source of t h e Note Va luation Report's information about
the va lu e of the collateral and the amount of fees to be paid.
Indenture

§

10.8.

BNYM as Trustee takes no pos i tion .

43.

On or around October 7 , 2016 , Telos approved the

Note Valuation Report pursuant to Section (h) of the Collateral
Administration Agreement. See October 2016 Note Valuation Report
3-5; McCormick Deel.

~

10 .

The Subordinated Noteholders note that, under
Indenture Section 10 . 8 , Telos was the source of the Note
Validation Report's information about the value of the
collateral and the amount of fees to be paid. Indenture

10.8.

§

BNYM as Trustee takes no position.

44.

BNYM did not str i ctly adhere to the payment

instructions set forth in the Note Valuation Report for the
October 11, 2016 Distribution Date as required by, inter alia,
Sections 10.9(b) and 11.l(a) of the Indenture. Compl .

33

~~

5 , 47.

The Subordinated Noteholders do not dispute that the
Trustee withheld payment of ICM Fees to Telos, but otherwise
dispute Telos' characterization of the Indenture, and,

in

particular, that Sections 10.9 and 11.l (a) unconditionally
require payment of the ICM Fees set forth in the Note Valuation
Report and note that Section ll.2 (a) (M) contemplates that such
fees not be paid during a particular Distribution Date because
it provides for "the payment to the Collateral Manager of the
Incentive Collateral Management Fee

(if any)." Indenture §

ll. 2(a) (M) . They also state that under Section B(a) of the CMA,
Tel os must "perform[]

its obligations under the Agreement"

before it may receive an ICM Fee. CMA § B(a).

BNYM as Trustee affirmatively states that it complied
with all of its obl igations under the Indenture during the
subject time period and refers to the Amended Interpleader
Complain t

for a complete statement of its terms and except as

otherw ise stated takes no position as to the allegations stated
in paragraph 44 .

45.

Instead, BNYM withheld the ICM Fee due to Telos

in connection with the October 11, 2016 Distribution Date

34

despite distributing all other proceeds pursuant to the Note
Valuation Report.

Id.; McCormick Deel.

~

12.

BNYM as Trustee take no position.

46.

BNYM subsequently informed Telos that it had

withheld the ICM Fee because Ellington, an alleged holder of
Subordinated Notes, told BNYM that "it would be improper" to
distribute the fee to Telos because Ellington had intended to
" call an Optional Redemption under Section 9.l(a) of the
Indenture." Compl.

~~36,

40; McCormick Deel.

~

14.

The Subordinated Noteholders refer to the Complaint
and Amended Complaint filed by the Trustee for its terms and
content .

BNYM as Trustee states that on October 11, 2016 , the
Trustee received a request from Ellington not to distribute the
ICM Fee to Telos and in addition to objecting to the payment of
the ICM Fee, Ellington also objected to the recent sales of
Collateral and that, pursuant to Ellington's request, on the
October 11, 2016 Distribution Date, the Trustee held the
$2 , 362 , 097.49 earmarked for the ICM Fee under Section 11.l(a) of

35

the Indenture. The Trustee further refers to the Indenture for a
complete statement of its terms and otherwise takes no position .

47.

Neither Ellington nor any other actual or

purported Subordinated Noteholder, let alone holders of a
Special Majority of the Subordinated Notes as required under
Section 9 .l (a) of the Indenture, has ever submitted the
requisite notice directing the issuer to call an Optional
Redemption of the Secured Notes in connection with the October
11, 20 1 6 Distribution Date or an optional redemption of the
Subordinated Notes in connection with the January 11, 2017
Distribution Date or any other Distribution Date. See Indenture
§ 9 .l (a) ; Subordinated Note Agreement§ 6.1; McCormick Deel .

~~

19 - 21 .

The Subordinated Noteholders state that Telos knew at
all times that the Subordinated Noteholders would be calling an
Optional Redemption and that no direction was provided prior to
October 11, 2016 due to Telos' fraud, breach of contract , and
other misconduct. See Cross - Claims

~~

3-11; 39-53.

BNYM as Trustee refers to the Indenture and the
Subordinated Note Agreement .

36

48.

BNYM, as Trustee, has no authority under the

Indenture to withhold the ICM Fee Set forth in the Note
Valuation Report Merely because Ellington, an alleged h olde r of
Subordinated Notes, has objected to the payment of such fee.

See

Indenture§ 11.l(a).

The Subordinated Noteholders dispute this statement,
and further provide that the Trustee has the authority under the
interpleader statute - 28 U.S.C. § 1335 - and under the
Governing Documents to withhold the ICM Fee and bring this
Interpleader Action. In particular, Section 8(a) of the CMA
expressly provides that the ICM Fee shall be paid "as
compensation for services render ed and for performance of its
obligat ions under this Agreement." CMA § 8(a). Article 2 of the
CMA, entitled General Duties of the Collateral Manager,
enumerates several ob ligations of Telos as collateral manager,
which it must perform in order t o receive its fees,

one of the

express obligations imposed on Telos as collateral manager is
that it "shall act in good faith and exercise reasonable care
in a commercially reasonable manner," id. § 2(b) , and the
CMA also states that Telos' failure to abide by Section 2(b)
constit utes a Collatera l Manager Breach:

37

Collateral Manager Breach means (i) acts or
omissions of the Collateral Manager .
constituting bad faith, willful misconduct or
gross negligence in the performance, or reckless
disregard , of the obligations of the Collateral
Manager hereunder and under the terms of the
Indenture applicable to the Collateral Manager

Id. § l (a) .

BNYM as Trustee states that it complied with all of
its obligations under the Indenture and all related agreements
during the subject time period, refers to the Amended
Interpleader Complaint for a complete statement of its terms and
takes no position.

49.

There is no provision in the Indenture that

authorizes the Trustee, or empowers the Subordinated
Noteholders, or a requisite majority thereof, to instruct the
Trustee to withhold any ICM Fee the Trustee is directed, and
thus contractually obligated, to pay pursuant to a particular
Note Va luation Report . See Indenture§§ 10.9, 11.l(a).

The Subordinated Noteholders dispute this statement,
and further provide that the Trustee has the authority under the
interpleader statute - 28 U.S . C. § 1 335 - and under the

38

Governing Documents to withhold the ICM Fee and bring this
Interpleader Action, as set forth in their response to Telos '
Statement No. 48 .

BNYM as Trustee states that it complied with all of
its obligations under the Indenture and all related agreements
during the subject time period , refers to the Amended
Interpleader Complaint for a complete statement of its terms and
takes no position.

50. Since filing its Complaint , BNYM has withheld an
additional ICM Fee of $485 , 057.55 due to Telos in connection
with the January 11 , 2017 Distribution Date and , upon
information and belief , intends to withhold any additional ICM
Fee to which Telos may be entitled on any future Distribution
Date . See Monthly Report dated January 31, 2017 , McCormick Deel .
Ex . F [hereinafter , the " January 2017 Monthly Report " ] ;
McCormick Deel.

~

15.

The Subordinated Noteholders refer to the Amended
Interpleader Complaint for its complete terms and content.

BNYM as Trustee takes no position.

39

51 .

The Indenture protects the Trustee when making

disbursements pursuant to the instructions set forth in the
approved Note Valuation Report on Distribution Dates. See
Indenture§§ 6 .l (c) (iii) , 6.3(a).

The Subordinated Noteholders and BNYM refer to the
Indenture for its complete terms and content. BNYM as Trustee
takes no position .

52 .

Section 6 .1 of the Indenture states, in relevant

part:

[T]he Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in
good faith in accordance with the direction of
the Issuer, the Co -Is suer or the Collateral
Manager in accordance with this Indenture .

Indenture §6 . 1 (c) (iii).

The Subordinated Noteholders refer to the Indenture
for its complete terms and content . BNYM as Trustee takes no
position .

53 .

Section 6.3(a) of the Indenture states:

40

[T]he Trustee may conclusively rely and shall be
fully protected in acting or ref raining from
acting upon any resolution, certificate ,
statement, instrument, opinion, report, notice,
request, direction , consent , order , bond, note or
other paper or document (in cluding the Note
Va luation Report) reasonably believed by it to be
genuine and to have been signed or presented by
the proper party or parties[.]

Indenture§ 6 . 3(a) .

The Subordinated Noteholders refer to the Indenture
for its complete terms and content. BNYM as Trustee takes no
position.

54.

Section 1.1 of the Indenture defines

"Administrati ve Expenses" to in c lude:

any amounts, including in respect of any
indemnities, due or accrued with respect to any
Distribution Date and payable by the Issuer or
the Co -Issuer to (i) the Trustee pursuant to
Section 6.8 .
(ii) the Bank under the
Co llat era l Administration Agreement,
( i v)
the Subordinated Note Issuing and Paying Agent
under the Subordinated Note Issuing and Paying
Agency Agreement,
(vii) the Collateral
Manager under this Indenture and the CMA
(including amounts payable by the Issuer to any
Indemnified Part y pursuant to Section 10 of the
CMA) ,
(x) any other Person in respect of
any other fees or expenses (including
indemnities ) permitted under this Indenture and
the documents delivered pursuant to or in
connection with this Indenture and the Secured
41

Notes .
. provided that Administrative Expenses
shall not include (a) any amounts due or accrued
with respect to the actions taken on or in
connection with the Cl osing Date , (b) amounts
payable in respect of the Secured Notes or the
Subordinated Notes and (c) any Collateral
Management Fee payable pursuant to the CMA.

Indenture§ 1.1 .

The Subordinated Noteholders and BNYM refer to the
Indenture for its complete terms and content . BNYM as Trustee
takes no position .

55 .

Section 6. 8 (a) (iii) of the Indenture states, in

pertinent part , that the Issuer will :

indemnify the Trustee and its Officers,
directors , emp l oyees and agents for, and to hold
them harmless against, any loss, liabi l ity or
expense incurred without negligence , willful
misconduct or Bad Faith on their part , arising
out of or in connection with the acceptance or
administration of this trust , including the costs
and expenses (including reasonable counsel fees)
of defending themse l ves against any claim or
liability in connection with the exercise or
performance of any of the i r powers or duties
hereunder .

Indenture § 6. 8 (a) (iii) .

42

The Subordinated Noteholders and BNYM refer to the
Indenture for its complete terms and content . BNYM as Trustee
takes no position .

56 .

After commencement of the instant action,

pursuant to Sect i on 10 . 9(a) o f the I ndenture , BNYM , as
Co ll ateral Administrator , prepared and c i rculated a Monthly
Report to , among others , the Collate r al Manager and the Trustee ,
providing that approximate l y $2 , 000 , 000 had been reserved for
the payment of Administrat i ve Fees . See January 2017 Monthly
Report at 8 ; McCormick Deel .

~~

16 - 17 .

The Subordinated Noteholders refer to the January 2017
Monthly Report for its terms and content .

57 .

BNYM and Telos agreed that this reserve for

Admi n i strative Expenses wo ul d cover , among other t h ings , BNYM ' s
lega l fees and costs incur r ed i n connect i on with the instant
action subject to the sat i sfaction of certain conditions .
McCormick Deel.

~~

17 -1 8 .

The Subordinated Noteholders neither dispute nor
confirm this statement .

43

BNYM as Trustee admits that a reserve for
Administrative Expenses was set aside in order to cover , among
other things , the Trustee 's legal fees and costs in connection
with the current action and , except as so admitted takes no
position.

III .

Additional Facts by Subordinated Noteholders

Numerous facts asserted by Telos in its motion for
summary judgment and in affidavits submitted in support thereof
are disputed by the following facts submitted by the
Subordinated Noteholders .

1.

Ellington and BK hold Subordinated Notes in Telos

CLO 2006-1 . The Subordinated Notes are termed the "equity
tranche" because they receive only residual cash flow after all
senior notes are paid . Cross - Claim

2.

~

20.

When it became clear that the Secured Noteholders

were to be paid off by about October 2016, Telos, as Collateral
Manager , was obligated to continue to manage the collateral in
the interests of the Subordinated Noteholders . More

44

specifically , Telos CLO 2006-1 is governed by the Indenture and
the CMA , among other documents . Under those governing documents ,
Telos is compensated for its position as collateral manager by
various fees , including the ICM Fees . Indenture§§ 11.1, 11.2;
CMA § 8 (a) .

3.

Under the CMA , i n order to receive these fees ,

Telos must perform certain duti es set forth in the CMA. CMA §§
2(b) , 8(a).

4.

Section 8(a) of the CMA expressly provides that

the ICM Fee shall be paid " as compensation for services rendered
and for performance of its obligation under this Agreement ." Id.
§

8 (a) .

5.

Telos' duties are enumerated in Art i cle 2 of the

CMA , entitled General Duties of the Co llat era l Manager. In
particular , Section 2(b) provides :

The Collateral Manager , in performing its
obligations under the Transaction Documents shall
act in good faith and exerc i se reasonable care
( i ) using a degree of skill and attention no less
than that which the Co ll ateral Manage r exercises
with respect to comparab l e assets that it manages
for itself or its Affiliates and (ii) without
limiting the foregoing, in a commercially
45

reasonable manner consistent with its
understanding of accepted practices and
procedures that are customarily applied by
reasonable and prudent institutional managers of
national standing in connection with the
management of assets of the nature and the
character of the Collateral Debt Obligations .

Id.

§

2(b) .

6.

Furthermore , the CMA clearly defines a

"Collateral Manager Breach " as follows:

Collateral Manager Breach means (i) acts or
omissions of the Collateral Manager .
constituting bad faith , willful misconduct or
gross negligence in the performance , or reckless
disregard , of the obligations of the Collateral
Manager hereunder and under the terms of the
Indenture applicab l e to the Collateral Manager .

Id . § l(a) .

The CMA also provides that "nothing herein shall
be deemed to protect, or purport to protect , the Collateral
Manager against liability for any Collateral Manager Breach

"Id.

7.

§

lO(a) .

In early 2016 , when it appeared that all of the

Secured Notes were going to be paid off by about October 2016,
46

Ellington and BK began discussing with Telos the issue of when
to declare an Optional Redemption, as the remaining collateral
in the deal was to be held for their benefit. Cross-Claim

~~

3,

39 .

8.

When an Optional Redemption occurs , the

col lateral is liquidated and distribution of payments is
governed by an Optional Redemption "waterfall." Here, the
payment distribution was expected to larg e ly go to Ellington and
BK. Indenture § 11.2.

9.

Telos, as collateral manager, was to receive an

ICM Fee. The Indenture def i nes the ICM Fee as follows:

Incentive Collateral Management Fee means a fee
payable on each Distribution Date on or after the
Distribution Date on which the Subordinated
Noteholders have received or will receive an
annualized Internal Rate o f Return of at least
12 % for the period from the Closing Date to such
Distribution Date (after taking into account any
payments made or to be made on the Subordinated
Notes on such Distribution Date and a ll prior
Distribution Dates in accordance with the
Priority of Payments), in an amount, with respect
to any Distribution Date, equa l to 20% of (x) the
Interest Proceeds (if any) available after the
payment of amounts pursuant to clauses (A)
through (U) of Section 11.1 (a) (i) and (y) the
Principal Proceeds (if any) available after the
payment of amounts pursuant to clauses (A)
through (O) of Section 11.1 (a) (ii).
47

Id. § 1.1.

10 .

Indenture Section 11 . l(a) (i)

sets forth how

Interest Proceeds are distributed in the waterfall for ordinarycourse Distribution Dates . Id.

11 .

§

11 . l(a) (i) .

Indenture Section 11 . l(a) (ii) sets forth how

Principal Proceeds are distributed in the waterfall for
ordinary- course Distribution Dates. Paragraph 32 of the Amended
Interpleader Complaint refers to these two waterfalls together
as the "regular waterfall . " Id .

12.

The Indenture does not contemplate that Te l os

will receive twenty percent (20%) of all Interest Proceeds and
Principal Proceeds . Instead , for ordinary- course Distribution
Dates , the Indenture contemplates that there will be Interest
Payments made to others in steps

(A) through (U) of Section

11.l(a) (i) of the Indenture , and there will be Pr i ncipal
Payments made to others in steps

(A) through (O) of Section

11 . l(a) (ii). Thus , the ICM Fee is calculated as twenty percent
(20 %) of whatever amounts remain of the I nterest Payments and

48

the Principal Payments after those prior payments are made . Id .
§§

11.1 (a) (i ) & (ii).

13.

An Optional Redemption triggers its own

distribution waterfall , f ound at Indenture Section 11. 2 .
Paragraph 31 of the Amended Interpleader Complaint refers to
this waterfall as the "Redemption Waterfall ." Id. §§ 11 . 2.

14.

In the Redemption Waterfall, the ICM Fee is

distributed at Section 11. 2 (a) (M). That section caps the ICM Fee
at 50 % of the Interest Proceeds following earlier distributions
in the payment waterfall prioritized above the payment of the
ICM Fee . Id . § 11.2 (a) (M).

15.

More specifically, Section 11. 2 (a) (M)

a distribution is made
11. 2 (a) (A) thr ough

states that

(following the steps outlined in Sections

(L)) as follows:

to the payment to the Collateral Manager of the
Incentive Collateral Management Fee (if any);
prov ided that the amount distributable on any
Distribution Date pursuant to this paragraph (M)
shall not exceed 50% of the aggregate amount of
Interest Pr oc eeds remaining on such Distributi on
Date after the payment of all amounts payable
pursuant to paragraphs (A) through (L)
abo ve ; .

49

Id.

16.

Thus, both the regular waterfall and the

Redemption Waterfall place limits on the ICM Fee ; in the regular
waterfall , the 20 % calcu l ation is only made after the Trustee
makes payments pursuant to certain provisions of the Indenture,
and in the Redemption Waterfall, the 50% ca l culation is only
made of the remaining Interest Proceeds after the Trustee makes
payments pursuant to other provisions of the Indenture ,
regardless of the amount of Principal Proceeds.

Id.

§§

11.1 &

11.2.

17 .

In early 2016 , as Ellington,

joined at relevant

times by BK , engaged in discussions with Telos about exercising
an Optional Redemption , Telos convinced Ellington and BK to
delay exercising the Optional Redemption by stating that many of
the deal's assets were undervalued and, theref o re, that it would
be advantageous for the CLO to ref rain from selling those
assets. Ellington and BK followed Telos's advice and delayed
exercising the Optional Redemption . Cross - Claim

18 .

~

3.

In the summer of 2016 , Ellington and BK informed

Telos that they would not delay exercising the Optional

50

Redemption beyond the October 2016 Distribution Date . In
discussing the process that would thereafter occur, Telos
inf ormed Ellington and BK that it did not believe its ICM Fee
would be capped upon Ellington and BK's exercising an Optional
Redemption . Id .

19.

~~

5 , 6.

Although Telos subsequently admitted that its

view of the ICM Fee ran contrary to the clear language of
Indenture Section ll.2 (a) (M) , Telos claimed that the Indenture
had not been drafted properly , as -

in Telos ' s view - the

payment waterfall failed to provide f or an in cent ive fee payment
to which Telos believed it was entitled . Id.

20 .

~

7.

Despite the clear language of the Indenture

limiting the ICM Fee to which Telos would be entitled, Ellington
and BK decided that , rather than engaging in a protracted
dispute with Telos, they would engage in discussions with Telos
in an attempt to structure alternative arrangements so as to
reach a resolution with Telos about the I CM Fee that it would be
seeking upon the Optional Redemption.

2 1.

Id.

~

8.

However , as alleged in the Cross-Claim , Telos was

acting in bad faith . Although Telos cont inued to engage in

51

discussions with Ellington and BK knowing their intent to
exercise the Optional Redemption before the October 20 16
Distribution Date and knowing that Ellington and BK were trying
to resolve Telos' claim for an outsized ICM Fee, Telos was in
fact secretly selling the assets underlying the CLO. In doing
so, Telos thereby mooted any opportunity for Ellington and BK to
call an Optional Redemption and increased the amount of ICM
Fees.

Id.

~

9.

22 .

At no time during the discussions did Tel os ever

state that it had decided to liquidate the CLO, or that, in
fact,

such liquidation was already occurring. No notice was

provided to the Noteholders about Telos' liquidation. Nor did
Telos sell t he assets in the usual commercial manner, which
would include seeking bids in open auctions in order to achieve
the best price for the asset. Had Telos sold the assets through
the usual bid process, Ellington and BK would have known that
Telos was engaged in wrongful conduct in an effort to
artificially increase the ICM Fees at the expense of the
Subordinated Noteholders.

23.

Id.

~

10.

The manner and timing of the sell-off of the CLO

assets was intentionally done by Telos in order to make an

52

inappropriate grab of funds as ICM Fees : before September 1 ,
2016 , Telos , in its capac i ty as fiduciary to the Noteholders ,
made few sales of the CLO assets , but , as soon as Ellington and
BK stated that it would be exercising the Optional Redemption by
a date certain , Telos secretly liquidated virtually the entire
CLO asset pool in extremely short order . Id .

24 .

~~

12 , 47 .

Moreover , as Ellington and BK allege , Telos '

secretive sale of collateral breached Sect i on 12 of the
Indenture , which permits Telos to sell only collateral that
qualifies as a Defaulted Ob l igation , Equity Security , Cred i t
Risk Obl i gation , Credit I mproved Obligation , or the subjects of
a Discretionary Sale. Id .

25.

~

55 ; Indenture§ 12 . l(a) .

As the securities comprising the collateral were

not Defaulted Obligations , Equity Secur i t i es , or the subjects of
a Discretionary Sale, they could only have been legitimately
sold if they were Credit Risk or Credit Improved Obligations .
Cross - Claim

~

26.

56 .

Telos appears to have suddenly des i gnated at

least s i xteen of these assets as Credit Risk Obligations due to
their being sold for a Market Value less than 99 . 5 % of the

53

original purchase price at which they were initially acquired by
the I ssuer . Id .

27 .

~

49 .

Though Te l os suddenly class i f i ed of all of these

securities as Credit Risk necessitating a sale, Telos continues
to hold these very same securities in a number of other deals
that i t manages . According to Ell i ngton and BK , the only
explanat i on for Telos '

inconsistent treatment of these same

assets across deals is Telos ' s improper placement of its own
interests above those of the Subordinated Noteholders . Id .

~~

49 - 50 .

28 .

Also , as al l eged , El l ington , BK , and the other

Subordinated Noteholders were harmed by the manner in which
Telos undertook its asset sa l es .

29 .

First , because the Subordinated Noteholders are

holders of equity tranche Notes , Telos ' wrongful inflation of
the ICM Fees sharply decreases the residual cash flow to which
the Subordinated Noteho l ders are entitled . Indenture §§ 12.1 ,
12 . 2 .

54

30.

Second , the manner in which Telos sold the assets

- by private, secret sales and not by competitive bids artificial l y reduced the prices at which the assets were so l d .
Cross - Cl aim

~~

31 .

13 , 51 .

As Ellington and BK allege , Telos breached its

obligat i ons under the CMA and violated its duties to refrain
from self - dealing , to act in good faith , and to execute
collateral sales in a commercially reasonable manner . For the
same reasons , Ellington and BK also allege that Telos engaged in
fraudulent conduct and , further , would be unjustly enriched if
the interpleaded funds were paid to it . Id.

IV.

~

19.

Additional Facts by BNYM

BNYM has also provided a counter - statement of facts ,
summarized in relevant part below .

On October 11 , 2016, the Trustee received
correspondence from Ellington objecting to the ICM Fee and the
recent sales of Col l ateral. Telos Answer
of Facts

~

~

36 ; Telos Statement

46 . In that correspondence , El lington stated that the

decision to accelerate redempt i on of the Notes in the deal "may

55

reflect bad faith on the part of the Trustee." Edrington Deel.

~

2, Ex. A.

The Trustee subsequently received several directions
from Telos demanding that the Trustee distribute the ICM Fees
that Telos would have been paid pursuant to the regular
waterfall . Telos Answer

~

37-38 . In Telos ' October 28 , 2016

letter to the Trustee, for example, Telos directed the Trustee
to pay Telos the ICM Fees, alleged that the Trustee had violated
the terms of the Indenture and related agreements, and
"expressly reserve[s] all of their rights, including rights
against the Trustee under the Indenture," implying a threat to
file suit against the Trustee. Edrington Deel.
Answer

~

~

3, Ex. B; Telos

38 . Further , in a subsequent November 2 , 2016 letter to

the Trustee, Telos in fact instructed the Trustee t o "please
immediately file an interpleader" in the event the Trustee was
not willing to immediately distribute the ICM Fees to Telos.
Edrington Deel.

~

4, Ex. C.

On November 1, 2016, the Trustee sent a letter to both
Telos and Ellington through their respective counsel notifying
them that the Trustee had reviewed the correspondence from both
parties and that the Trustee may file an interpleader action if

56

the parties did not come to an agreement on or before November
15 , 2016. Answer

~

39 (admitting this al l egation from the

Complaint) . On November 17, 2017, the Trustee filed this
interpleader action to avoid multiple liability posed by the
compet ing claims of Ellington and Tel os .

On or about January 11 , 2017 , a reserve was
establ i shed for Administrative Expenses with the expectation
that this reserve could be used to pay for,

among o ther things ,

the Trustee ' s fees and costs in curred in this interpleader
action . Edrington Deel .

~

5.

The Trustee submitted requests for payment in the past
but that payment was delayed f or several months by Telos ,
purportedly for procedural reasons, before ultimatel y being
approved. Edringt on Deel .

V.

~

6.

The Applicable Standard

Summary judgment is appropriate only where " there is
no genuine issue as to any material fact and .

. the mov i ng

party is entitled to a judgment as a matter of law." Fed . R .
Civ. P . 56 (c) . "[T]he substantive law will ide ntify wh i ch facts

57

are material." Anderson v . Liberty Lobby, Inc.,
248

477 U.S. 242 ,

(1986) .

A dispu te is " genuine " if "the evidence is such that a
reasonable jury cou ld return a verdict for the nonmoving party."

Id. The relevant inquiry on application for summary judgment is
"whether the evidence presents a sufficient disagreement to
require submission to a jury or whether it is so one-sided that
one party must prevail as a matter of law." Id. at 251 - 52 .

A

court is not charged with weighing the evidence and determining
its truth, but with determining whether there is a genuine issue
for trial . Westinghouse Elec. Corp . v . N . Y . City Transit Auth .,
735 F. Supp . 1205, 1212

(S . D.N. Y. 1990)

(quoting Anderson,

477

U.S . at 249). "[T] he mere existence of some alleged factual
dispute between the parties will not defeat an otherwise
properly supported motion for summary judgment; the requirement
i s that there be no genuine issue of material fact." Anderson,
477 U. S . at 247-48

(emphasis in original).

While the moving party bears the initial burden of
showing that no genuine issue of material fact exists , Atl. Mut.

Ins. Co . v . CSX Lines, L.L.C., 432 F.3d 428, 433

(2d Cir . 2005),

in cases where the non-moving party bears the burden of

58

persuasion at trial , "the burden on the moving party may be
discharged by ' showing ' -that is , pointing out to the district
court-that there is an absence of evidence to support the
nonmoving party ' s case ." Celotex Corp. v . Catrett , 477 U. S. 317 ,
325 (1986) . "It is ordinarily sufficient for the movant to po i nt
to a lack of evidence
movant ' s claim .

. on an essent i al element of the non [T ] he nonmov i ng party must [then] come

forward with admissible evidence sufficient to raise a genuine
issue of fact for trial ." Jaramillo v . Weyerhaeuser Co . , 536
F . 3d 140 , 145 (2d Cir . 2008)

(internal c i tations omitted) ; see

also Goenaga v . March of Dimes Birth Defects Found ., 51 F . 3d 14 ,

18 (2d Cir . 1995)

(" Once the moving party has made a properly

supported showing sufficient to suggest the absence of any
genuine issue as to a material fact , the nonmoving party
must come forward with evidence that wou l d be sufficient to
support a jury verdict in his favor") . In evaluating the record
to determine whether there is a genuine i ssue as to any material
fact , "[t ] he evidence of the non - movant is to be believed , and
all justifiable inferences are to be drawn in his favor."
Anderson, 477 U.S . at 255 .

59

VI.

The Interpleader Action is Appropriate

As a general propos i t i on , i nterp l eader is increasingly
favored by Courts and should not be undu l y restricted.

6247

Atlas Coro . v . Marine Ins . Co ., Ltd., No . 2A/C , 1 55 F.R . D. 454 ,
462

(S.D.N . Y. 1994)

("T hus , the trend , both with regard to

statutory revision and judicial interpretation, has been
directed toward increasing the availability of i nterpleader and
eliminating those technical restraints on the device that are
not founded on adequate po li cy considerations ." )

(citation

omitted) . The existence of multiple claims to the disputed res
and vexatious litigation are suff i cient to susta i n an
interpleader action regardless of the merits of the competing
c laims. See id.

(" As provided by Rule 22 , interpleader is

available when a stakeholder ' is or may be exposed to double or
multiple liability .'" )

(c iting Fed . R. Ci v. P . 22); see also

Fidelity Brokerage Servs., LLC v . Bank o f China , 192 F. Supp. 2d
173 , 177-178 (S . D.N . Y. 2002)

("[I]nterpleader is designed to

protect stakeholders from undue harassment in the face of
multiple claims against the same fund , and to relieve the
stakeholder from assessing which claim among many has merit ." )

60

An interpleading plaintiff has no obligatio n to weigh
competing claims to the res; "[t]he availability of interpleader
does not depend on the merits of the potential claims against
the stakeholder." William Penn Life Ins. Co . of N. Y. v. Viscuso ,
569 F. Supp. 2d 355 , 359 (S.D.N.Y. 2008)

(citing Sotheby's, Inc.

v . Garcia, 802 F. Supp. 1058, 1065 (S .D.N.Y. 1992)); see also
John Hancock Mut. Life Ins. Co. v . Kraft, 200 F.2d 952 ,

Cir. 1953)

953 (2d

("The stakeholder should not be obliged at its peril

to determine wh i ch of two claimants has the better claim ." ) . The
interpleader plaintiff "is not required to evaluate the merits
of [the interpleader defendants'] conf licting claims at its
peril; rather, it need only have a good-faith concern of
expensive litigation and multiple liabilit y if it responds to
the instructions of certain claimants and not ot hers." Bache
Halsey Stuart Shields Inc. v. Garmaise, 51 9 F. Supp. 682,

684 -

685 (S.D.N.Y. 1 981) ; see also 7 Charles Alan Wright, Arthur R.
Miller & Mary Kay Kane, Federal Practice & Procedure: Civil 3d
1704 (3d ed. 2001)

("I t is immaterial whether the stakeholder

believes that all the claims against the fund are meritorious.
Indeed, in the usual case , at least one of the claims will be
quite tenuous.").

61

§

The Trustee corrunenced this interpleader action because
it had received mutually exclusive directions from Telos and
Ellington. On the one hand , El lington directed the Trustee to
not distribute the ICM Fees to Telos, claiming it would be
improper for the Trustee to do so and that the Trustee may be
guilty of bad faith conduct if it did so ; on the other , Telos
alleged that to withhold the ICM Fees would amount to a breach
of the Indenture by the Trustee . See Edrington Deel .

~

3 , Ex. B.

By their positions , Ellington and Telos signaled that each were
willing to file suit, possib l y against the Trustee , in the eve0t
that their competing demands for the res were not met .

Indeed Telos' initial position adopted the position of
the authorities cited above . Te l os d i rec t ed the Trustee to
corrunence the interp l eader if it was unwilling to irrunediately
distribute the disputed res to Telos in November 2016. Telos '
November 2, 2016 letter to the Trustee stated :

In response to your letter dated November 1 ,
2016 , we reiterate our request that you [the
Trustee] irrunediately pay Telos the $2 , 362 , 097 . 49
Incentive Col l ateral Management Fee due on
October 11 , 2016 . If you are not willing to do
so, please irrunediately file an interpleader in
the corrunerc i al division of the State of New York .

62

Edrington Deel .

~

4 , Ex . C.

Throughout its submiss i ons on the pending motion ,
Telos alleges that BNYM ' s withho l ding of the ICM Fees through
the commencement of the interpleader action was improper. Mot .
at 6-12 . Telos not only authorized, but actually requested the
filing of the interpleader action .

The Trustee is a disinterested stakeholder because in
its Complaint and submission with respect to the pending motion ,
the Trustee has no interest in the outcome of the action. Compl .
~

5. The Trustee has made no claim to the f unds in dispute nor

does it dispute the amount of those funds. The Trustee brought
this interpleader action to preserve the funds for the benefit
of the successful claimant .

The Trustee has already conceded liability with
respect to the funds.

In the first paragraph of the Complaint ,

the Trustee has stated , " [t]his .

. interpleader action [is]

brought for the purpose of adjudicating t he respective rights of
the interpleader defendants with respect to [the Disputed
Funds]." The Complaint does not contain any allegations
regarding any r i ghts of the Trustee with respect to the funds .

63

Specifically, the Trustee conceded that, as of the date of the
Complaint, it was liable to the Interpleader Defendants for
$2,362,097.49.

With respect to the requirement that the money be
deposited with the Court, the Trustee requests in the Complaint
that it be allowed to hold the disputed res in an Interpleader
Escrow account subject to direction by the Court during the
pendency of the interpleader litigation. The Trustee proposed
this procedure because it is more efficient, since it allows the
Trustee to quickly distribute the disputed res to the winner of
the interpleader action, and does not burden the Court with the
actual administration of the funds.

With respect to the requirement that the interpleader
plaintiff seeks discharge from liability, the Trustee initiated
this interpleader action to seek such a discharge, particularly
where both Telos and Ellington had effectively threatened suit
against the Trustee if the Trustee did not follow their
contradictory instructions. Compl.

~

7.

The filing of the interpleader action by BNYM was
appropriate.

64

VII .

The Motion for Summary Judgment is Denied

Early summary judgment in this action is disfavored as
premature. "[S]ummary judgment should only be granted '[i]f
after discovery, the non-moving party ' has failed to make a
sufficient showing on an essential element of [its] case with
respect to which [it] has the burden of proof . " Hellstrom v .
U. S. Dep't . of Veterans Affairs, 201 F.3d 94 , 97

(2d Cir . 2000)

(citing Berger v . United States , 87 F.3d 60, 65 (2d Cir . 1996).
Courts in this district reject summary judgment motions as
premature where no discovery took place prior to the motion
being filed . See id .; see also DiBella v. Hopkins , No . 01 Civ.
11779 (DC), 2002 WL 31357812 (S . D. N.Y. Oct . 18 , 2002). Further ,
denial of the motion is particularly appropriate where , as here ,
the summary judgment motion was filed before the parties had an
opportunity to file responsive pleadings to the claims that are
the subject of the motion.

Toussie v . Allstate Insurance Co. , 14

Civ. 2705 (FB) (CLP) , 20 1 6 WL 5678528

(E.D . N. Y. Sept . 30, 20 1 6) .

"The purpose of a statutory i nterp l eader action is to
avoid the problem of multiple , conf l icting c l aims to a single
fund by forcing all ' claimants ' to resolve their claims in one
action . " Rubinbaum LLP v. Related Corp. Partners V, L.P ., 154 F .

65

Supp. 2d 481 , 486 (S.D . N.Y . 2001). As explained in A&E
Television Networks, LLC v . Pivot Point Entm ' t, LLC, No . 10 CIV
9422 PGG , 2011 WL 182083 , at *3 (S.D . N.Y . Jan . 18, 2011) :

Interpleader is designed to prevent claimants
from racing to the courthouse to obtain a
judgment , and thereby obtaining a
disproportionate slice of the fund before
fellow claimants [are ] able to establish their
claim . The difficulties such a race to judgment
pose for the [stakeholder] , and the unfairness
which may result to some claimants , were among
the principal evils the interpleader device was
designed to remedy.

Id .

(citing State Farm Fire & Casualty Co . v . Tashire , 386 U. S .

523, 533

(1967)

(quotations omitted)) .

The commencement of an interpleader action cannot form
the basis of an interpleader defendant's counterclaims against
the interp l eading plaintiff . "[C]ounterclaims [that] arise from
acts taken [by an interpleader plaintiff ] within the rights
granted to it by law in bringing its interpleader action .
fail as a matter of law. " Bank of New York v. First Millennium,
Inc ., 607 F.3d 905 , 922

(2d Cir. 2010)

(quoting Merrill Lynch,

Pierce, Fenner & Smith, Inc. v. Clemente , No . 98 Civ. 1756 , 2001
WL 11070 , at *6 (S.D.N.Y. Jan. 4 , 2001)

(brackets and internal

quotation marks omitted)) . Furthermore , to be viable , a

66

counte r c laim against an interpleading plaintiff must a ll ege
specific "wrongfu l conduct related to the events in issue " that
is distinct f rorn proper commencement of the interpleader and the
corresponding non-payment of moneys to the counterclaiming
defendant. U.S.
290 , 307

Tr. Co. of New York v. Alpert, 10 F. Supp. 2d

(S .D.N.Y. 19 98) , aff'd sub nom. U.S.

York v. Jenner,

168 F.3d 630

Tr.

Co. of New

(2d Cir. 1999); see also Bank of

New York v. First Millennium, Inc., No. 06 Civ. 13388(CSH), 2008
WL 9536 1 9 , at *7

922-23

(S .D.N.Y. Apr. 8, 2008) , aff'd 607 F.3d 905 ,

(2d Cir . 2010)

(only "'independent' claims for relief

against the interpleader plaintiff may f orrn proper
counterclaims").

Telos' countercla im against the Trustee and its
summary judgment motion is not based on any wrongful conduct
that is distinct from the subject of the interpleader complaint
and sterns from the Trustee's effort to have all parties' claims
to the funds res olved in a single proceeding by withholding the
fees that Telos claims and commencing the interpleader action.
Because the Trustee's lawful commencement of this interpleader
action cannot serve as the ground for Telos' counterclaim for
breach of contract , Telos' motion for summary judgment
dismissing the interpleader complaint and granting i ts

67

counterclaims against the Trustee " fail [ s ] as a matter of law ."

Bank of New York , 607 F . 3d at 922 .

The granting of the Te l os motion for summary judgment
would unnecessari l y comp l icate the procedura l posture of this
dispute , undoubtedly giv i ng rise to a d i rect action against
Telos , and presumably BNYM as Trustee , to reso l ve precisely the
issue presented by this act i on . No damage to Telos' ultimate
position by the denia l of the premature motion for summary
judgment has been established .

Telos has sought to frame its motion as one "of pure
contract interpretation , " while casting the Subordinated
Noteholder ' s counterclaims " challenging Telos '

conduct as

Collateral Manager [as] the subject of a separate dispute . "
Telos Br. at 1 , 16. However, the grant of summary judgment in
Telos '

favor would effectuate exactly what the interpleader

statute was designed to prevent: a race to the Courthouse. Telos
wou l d "obtain[] a disproportionate slice of the fund before [the
Subordinated Noteho l ders would be] able to establish their
claim. " A&E Television Networks,

2011 WL 182083 , at *3.

68

•

In seeking summary judgment at this early stage , Telos
asserts that its claim "of pure contract interpretation" can be
neatly severed from El li ngton and BK ' s allegations of misconduct
and breach of the Governing Documents , which require discovery .
Telos Br . at 1 . However, Telos cannot recover under a contract
absent a showing that it performed its obligations under that
contract . See Harris v. Seward Park Rous . Corp. , 79 A . D.3d 425 ,
426 (1st Dep't 2010)

(a successful claim for breach of contract

requires a party to show "the existence of a contract , the
plaintiff ' s performance thereunder , the defendant ' s breach
thereof , and resulting damages"); see also Diesel Props S . r .l.
v . Greystone Bus . Credit II LLC, 631 F.3d 42 , 52

(2d Cir . 2011)

(same).

Moreover , "[w]here factual issues exist as to the
commercial reasonableness of any aspect of the sale , summary
judgment must be denied ." Merchants Bank of New York v . Gold
Lane Corp ., 28 A.D . 3d 266 , 268 - 69 (1st Dep ' t 2006) ; see also
Bank of China v . Chan,

937 F . 2d 780 , 787

(2d Cir . 1991)

(reversing grant of summary judgment on damages where defendant
"raised a genuine issue of fact as to the commercial
reasonableness of the Bank's handling of the company ' s accounts
receivable " ) . And "whether a party to a contract has acted in

69

r

good faith generally presents a question of fact for a jury." RJ
Capital, S.A. v. Lexington Capital Funding III, Ltd ., No. 10

Civ . 0025
2013)

(PGG) , 2013 WL 1294515, at *13 (S.D.N.Y. Mar . 30 ,

(denying surrunary judgment concerning Trustee's assertion

that its actions were taken in good faith pursuant to the
Indenture) . As Teles' own performance under the Governing
Documents is crucial to its counterclaim , Teles' allegations are
thus intertwined with Ellington and BK's claims condemning that
performance.

As established by the facts as stated by the parties
and as set forth above, there are material issues of fact with
respect to Teles ' performance of its obligations and duties .
Teles '

surrunary judgment motion is therefore denied as premature,

as an inappropriate invalidation of the interpleader action , and
as barred by issues of material facts.

VIII.

The Motion With Respect to Fees is Withdrawn

Teles has disputed that BNYM is permitted, pursuant to
the Indenture, to "pay for the costs of this suit" out of the
interpleaded funds. Compl .

~

48. BNYM has asserted in its

opposition brief that it would only attempt to pay its legal

70

r

fees and costs incurred in connection with the instant action
from the "disputed res as a backup to the reserve should Telos
decide to restrict payment of fees in the future or should this
reserve be prematurely depleted ." BNYM Opp ' n 12. Telos has
therefore withdrawn , without prejudice and without conceding any
of the arguments in BNYM ' s opposition , and with a full
reservation of rights, the portion of the instant motion
concerning the source of payment for BNYM ' s legal fees and
costs . Telos Reply Mem. at 18 .

IX .

Conclusion

Telos' motion for summary judgment is denied. The
parties will meet and confer with respect to a scheduling order
to be submitted to the Court . A pretrial conference will be held
if necessary to resolve any issues which the parties may wish to
present .

71

It is so ordered .

7,

New York, NY
August
2017

U . S.D.J.

72