In the Matter of the Trusts established under the Pooling and Servicing Agreements

Filing 467

OPINION AND ORDER re: 445 MOTION for Attorney Fees and Expenses. filed by Appaloosa Investment L.P.I. and Palomino Master Ltd.., Case Stay Lifted. For the foregoing reasons, the Court REJECTS the objection to the proposed settlemen t filed by Cobalt and APPROVES the Parties proposed settlement. The Court also finds that Appaloosa is entitled to reimbursement from the Settlement Payment in the amounts of $6,329,642.24 in attorneys fees and $744,351.90 in litigation expenses. The Court directs the Trustee to submit a revised proposed Order Issuing Judicial Instructions on or before March 22, 2023. The Clerk of Court is directed to unstay this case and terminate the motion at docket entry 445. (Signed by Judge Katherine Polk Failla on 3/5/2024) (rro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In the Matter of the Trusts Established under the
Pooling and Servicing Agreements relating to the
Wachovia Bank Commercial Mortgage Trust
Commercial Mortgage Pass-Through Certificates,
Series 2007-C30; COBALT CMBS Commercial
Mortgage Trust 2007-C2 Commercial Mortgage
Pass-Through Certificates, Series 2007-C2;
Wachovia Bank Commercial Mortgage Trust
Commercial Mortgage Pass-Through Certificates,
Series 2007-C31; ML-CFC Commercial Mortgage
Trust 2007-5 Commercial Mortgage PassThrough Certificates, Series 2007-5; and MLCFC Commercial Mortgage Trust 2007-6
Commercial Mortgage Pass-Through Certificates,
Series 2007-6

17 Civ. 1998 (KPF)
OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge: 1
This Opinion and Order resolves a lingering dispute between the
remaining parties to this litigation, CWCapital Asset Management LLC (“CWC”)
on the one hand, and Appaloosa Investment L.P. I and Palomino Master Ltd.
(collectively, “Appaloosa,” and together with CWC, the “Parties”) on the other.
The underlying litigation was precipitated when, in early 2010, the owners of
the Peter Cooper Village and Stuyvesant Town property (“Stuy Town”) defaulted
on their mortgage. Appaloosa was one of several investors (the
“Certificateholders”) in five CMBS trusts (the “CMBS Trusts” or “Trusts”) that
held loans (collectively, the “Senior Loan”) secured by the doomed Stuy Town

1

Unless otherwise noted, citations to specific pages in docket entries reflect the page
numbers provided by the Court’s Electronic Case Filing (“ECF”) system. In addition, the
Court uses the citing and abbreviation conventions adopted in prior opinions in this
case.

mortgage. One of the CMBS Trusts, the C30 Trust, was charged with
administering the Senior Loan on behalf of the Trusts in accordance with a
Pooling and Servicing Agreement (the “PSA”). CWC was appointed as the
Special Servicer of the C30 Trust and was responsible for servicing the Senior
Loan.
The instant dispute concerns the allocation and distribution of certain
funds attributable to the eventual sale of Stuy Town in October 2015. The
Court considers both the Parties’ proposed settlement of the dispute and
Appaloosa’s related request for attorneys’ fees and expenses. For the reasons
set forth in the remainder of this Opinion, the Court approves the Parties’
proposed settlement and Appaloosa’s proposed allocation of that settlement,
overrules the objection of interested party CWCapital Cobalt Vr Ltd. (“Cobalt”)
to the allocation, and grants in part Appaloosa’s request for attorneys’ fees and
expenses.
BACKGROUND
Familiarity with the extensive procedural history of this case, outlined in
the prior opinions of this Court and the Second Circuit, is presumed. See
Matter of Pooling & Servicing Agreements, No. 17 Civ. 1998 (KPF), 2018 WL
1229702, at *2-5 (S.D.N.Y. Mar. 9, 2018) (denying cross-motions for judgment
on the pleadings) (“PSA I”); Matter of Trusts Established under the Pooling &
Servicing Agreements relating to the Wachovia Bank Com. Mortg. Tr. Com. Mortg.
Pass-Through Certificates, Series 2007-C30, 375 F. Supp. 3d 441, 445-46
(S.D.N.Y. 2019) (granting CWC’s motion to dismiss cross-claim filed by
2

Appaloosa) (“PSA II”); CWCapital Cobalt Vr Ltd. v. U.S. Bank Nat’l Ass’n, 790 F.
App’x 260, 264 (2d Cir. 2019) (summary order) (affirming the Court’s denial of
motion to intervene by proposed intervenor Cobalt) (“PSA III”); Matter of Trusts
Established under Pooling & Servicing Agreements relating to Wachovia Bank
Com. Mortg. Tr. Com. Mortg. Pass-Through Certificates, Series 2007-C30, No. 17
Civ. 1998 (KPF), 2020 WL 1304400, at *1-16 (S.D.N.Y. Mar. 19, 2020)
(resolving cross-motions for summary judgment and challenges to expert
testimony) (“PSA IV”), aff’d in part, rev’d in part and remanded sub nom.
Appaloosa Inv. L.P.I. v. Fed. Home Loan Mortg. Corp., No. 20-1708, 2022 WL
2720520 (2d Cir. July 14, 2022) (summary order) (“PSA V”); see also Dkt. #163
(order denying without prejudice motion to intervene of proposed intervenor
Inessoft LLC).
A.

The Appeal and the Remand
In its last substantive decision in this case, this Court summarized its

relevant holdings as follows:
As it currently stands, approximately $614 million in
disputed funds have been allocated to CWCapital Asset
Management LLC (“CWC”), which served as the Special
Servicer for the Stuy Town property, in the form of
Penalty Interest; and an additional $53 million has been
allocated to the Federal Home Loan Mortgage
Corporation (“Freddie Mac”) and the Federal National
Mortgage Association (“Fannie Mae,” and together with
Freddie Mac, the “Government-Sponsored Enterprises”
or “GSEs”) in the form of Yield Maintenance. Appaloosa
Investment L.P.I. and Palomino Master Ltd. (collectively,
“Appaloosa”), investors in various trusts that held
assets secured by a mortgage on Stuy Town, contest
those allocations. In Appaloosa’s view, the disputed
funds constitute Gain-on-Sale Proceeds that must be
3

directly deposited in a Gain-on-Sale Reserve Account for
the benefit of certificateholders like it.
The evidence disclosed after more than a year of
discovery makes clear that the funds in dispute are
Penalty Interest and Yield Maintenance, and not Gainon-Sale Proceeds. … Accordingly, and for the many
reasons detailed in this Opinion, CWC’s and the GSEs’
motions for summary judgment are granted;
Appaloosa’s motion for partial summary judgment is
denied; Appaloosa’s motion to exclude CWC’s and the
GSE’s expert testimony is denied in part on the merits
and denied in part as moot; and CWC’s and the GSEs’
motions to exclude Appaloosa’s expert testimony are
denied as moot.
PSA IV, 2020 WL 1304400, at *1.
On appeal, the Second Circuit found that this Court had not erred in
“concluding that extrinsic evidence supports CWC’s and the GSEs’ position
that Penalty Interest and Yield Maintenance must be paid prior to Gain-on-Sale
Proceeds.” PSA V, 2022 WL 2720520, at *3. The Court of Appeals disagreed,
however, with this Court’s rejection of Appaloosa’s argument that CWC was
required to reimburse the Trusts for certain Interest on Advances, finding
instead that “any portion of the $67.2 million attributable to Interest on
Advances accruing after June 3, 2014 must be paid out of Gain-on-Sale
Proceeds from the sale of Stuy Town; any portion attributable to Interest on
Advances accruing on or before June 3, 2014 must be paid out of late payment
charges and Penalty Interest.” Id. at *4. The Second Circuit then remanded
the matter to this Court to determine the relevant accrual dates and
concomitant amounts. Id.

4

B.

The Proposed Settlement
After the mandate issued from the Second Circuit, the Court entered an

order on August 30, 2022, directing the Parties to file a joint letter proposing
next steps in the litigation. (Dkt. #428 (mandate); Dkt. #429 (order)). On
September 29, 2022, the Parties advised the Court that they were “engaged in
discussions over a potential consensual resolution of the post-remand issues,”
and sought additional time to discuss settlement, which the Court granted.
(Dkt. #430 (joint letter); Dkt. #431 (endorsement)). Cobalt also announced its
reservation of rights to renew its motion for leave to intervene, though no such
motion was made. (Dkt. #432 (reservation of rights); Dkt. #433 (Court
endorsement acknowledging that Cobalt was not then renewing its motion, and
directing Cobalt to “inform the Court promptly should circumstances change”)).
By letter dated November 14, 2022, the Parties advised the Court that
“Appaloosa and [CWC] have reached an agreement in principle concerning the
amount of Interest on Advances to be reimbursed to the CMBS Trusts,” and
sought time to prepare the relevant documents and to discuss related issues
with the trustee of the C30 Trust (the “Trustee”). (Dkt. #434 (letter); Dkt. #435
(endorsement); see also Dkt. #436 (proposed schedule); Dkt. #437
(endorsement adopting schedule); Dkt. #438 (proposed order regarding notice
to certificateholders); Dkt. #439 (endorsed Order)). The cornerstone of the
proposed settlement was a $27.5 million payment from CWC (the “Settlement
Payment”), which payment would be distributed to the Certificateholders net of

5

fees and expenses. (See Dkt. #452-1 (Proposed Settlement Agreement) at 3741).
According to the Parties’ recitals, in order to avoid protracted litigation on
remand, the Parties stipulated that “the amount of Interest on Advances that
accrued on or before June 3, 2014 is $27.5 million.” (Dkt. #452-1 at 38). To
be clear, however, the Parties made no similar stipulation regarding the portion
of Interest on Advances that had accrued after that date. 2 Moreover, the
Parties agreed that execution of and/or performance pursuant to the
Settlement Agreement was not to be “understood as an acknowledgment of
responsibility, admission of liability, or other expression reflecting upon the
merits of any dispute or claim between the Parties; and any such responsibility
or liability is expressly denied.” (Id. at 39).
CWC agreed to transfer the $27.5 million Settlement Payment into an
escrow account for distribution to Certificateholders to reimburse Interest on
Advances. (Dkt. #452-1 at 38). Appaloosa then proposed that the Settlement
Payment, net of attorneys’ fees and expenses, be distributed pro rata among the
five Trusts based on their respective shares of the Senior Loan as of the date of
distribution, and that within each of the Trusts, the resulting funds be
characterized as principal and distributed in accordance with their respective

2

This was not an oversight, nor did the Parties intend for the Court to subtract the
Settlement Payment from the $67.2 million figure used by the Second Circuit to
calculate the portion of Interest on Advances that had accrued after June 3, 2014. To
the contrary, CWC explained that the $67.2 million figure “wasn’t the right number”
from which to make calculations, and that the Second Circuit had “shorthanded” PSA
§ 3.05 such that “there weren’t, in fact, $67 million of advances that were reimbursed
when the distribution was made.” (Dkt. #462 at 24-25).

6

PSAs. (Id. at 4-5; see also Dkt. #455 at 2). CWC took no position regarding
characterization of the Settlement Payment or Appaloosa’s proposed allocation
of it.
On December 27, 2022, Appaloosa filed its motion for attorneys’ fees and
expenses (the “Fee Petition”). (Dkt. #445-448). 3 Broadly speaking, Appaloosa
sought to recover $7,912,052.80 in attorneys’ fees, as well as $1,063,359.85 in
expenses from the $27.5 million settlement fund, noting that the Settlement
Payment was entirely attributable to its efforts over “more than six years of
intensive, hard-fought litigation.” (Dkt. #446 at 5).
On January 13, 2023, the Trustee filed a copy of the notice (the “Notice”
(Dkt. #452-1)) that was being distributed to the Certificateholders to advise
them that
(i) CWC and the objecting investors have reached a
settlement concerning the remaining unresolved issue
concerning the proper allocation of the Disputed Funds,
(ii) the objecting investors have filed a motion seeking
attorneys’ fees, and (iii) the deadline to appear in the
Proceeding and submit a memorandum of law objecting
to the settlement or opposing the objecting investors’
motion seeking attorneys’ fees is February 10, 2023.
(Dkt. #452-1 at 2; see also Dkt. #452 (declaration of Christopher Nuxoll
regarding dissemination of Notice)). The Notice included among its exhibits the
Court’s April 2020 Judgment, the Second Circuit’s July 2022 summary order,

3

Earlier filings of this motion on December 23 and 24, 2022, were rejected by the Clerk’s
Office. (See Dkt. #441-443).

7

the Settlement Agreement between the Parties, a proposed Post-Remand Order
Issuing Judicial Instructions, and a copy of Appaloosa’s Fee Petition.
Pursuant to the Notice, objections to the proposed settlement were due
on or before February 10, 2023. Only one objection was received, and it was
from Cobalt. (Dkt. #453, 454). 4 Cobalt objected both to the allocation of the
Settlement Payment and to the attorneys’ fees sought by Appaloosa. As to the
former, Cobalt argued that the Settlement Payment should be construed as a
reimbursement of Gain on Sale Proceeds:
[T]he amount of Interest on Advances that accrued
before June 2014 was $27.5 million. In other words,
[CWC]’s Penalty Interest was overstated by $27.5
million, and Gain-on-Sale Proceeds were understated by
$27.5 million. The settlement payment is thus a return
to the [CMBS] Trusts and their [C]ertificateholders of
$27.5 million of Gain-on-Sale Proceeds that should
have been distributed on the January 2016 distribution
date from the Stuy Town sale proceeds.
(Dkt. #453 at 5). According to Cobalt, the PSA “require[d] that these additional
Gain-on-Sale Proceeds be applied as of that January 2016 distribution date,”
and that it be applied “to reimburse Realized Losses of written-down
certificates, in order of priority, that existed when the liquidation sale that
generated those proceeds occurred.” (Id.). With respect to the Fee Petition,
Cobalt contended that the figure sought by Appaloosa was excessive, inasmuch
as (i) most of its arguments had been rejected by this Court and the Second

4

The Court received one letter from another Certificateholder, DW Partners, LP,
supporting both the settlement agreement and the proposed allocation, and requesting
immediate distribution of the unchallenged portion of the funds pending resolution of
the attorneys’ fees issue. (Dkt. #459).

8

Circuit, and (ii) the basis for remand that had engendered the Settlement
Payment had not been argued by the Parties. (Id. at 17-19).
Appaloosa replied in further support of its request for fees, and in
opposition to Cobalt’s objection, on February 22, 2023. (Dkt. #455). Focusing
first on the allocation issue, Appaloosa contended that Cobalt was misreading
the PSA, and raising arguments that had been rejected by another court that
had examined that PSA. (Id. at 4). In particular, Appaloosa explained that
“[n]ew money is coming into the Trusts that is now available for distribution to
Certificateholders, and in accordance with the PSAs’ terms, those funds must
be distributed to existing Certificateholders as of the next Distribution Date.”
(Id. at 5). Conversely, Appaloosa opposed construction of the Settlement
Payment as Gain on Sale Proceeds. (Id. (“The $27.5 million constitutes
reimbursement of Interest on Advances to the Trusts, which CWC was required
to make out of Penalty Interest under Sections 3.05(a)(ix) and 3.11(d) of the
PSA. In no way can the settlement fund be characterized as Gain-on-Sale
Proceeds.”)). As legal support for its arguments, Appaloosa cited decisions from
Minnesota and New York state courts. (Id. at 6-8, 12-13).
Of note, Appaloosa explained that the Parties’ proposed settlement had
obviated the inquiry that the Second Circuit had directed this Court to conduct
on remand:
The Second Circuit could not have been clearer on this
point when it held that “any portion of the $67.2 million
attributable to Interest on Advances accruing after
June 3, 2014 must be paid out of Gain-on-Sale
Proceeds from the sale of Stuy Town; any portion
9

attributable to Interest on Advances accruing on or
before June 3, 2014 must be paid out of late payment
charges and Penalty Interest.” Appaloosa Investment
L.P. I v. Federal Home Loan Mortgage Corp., 2022 WL
272052, at *4 (2d Cir. July 14, 2022) (emphasis
modified). The issue the Court of Appeals resolved was
which source of funds — Penalty Interest or Gain-onSale Proceeds — would be used to reimburse the Trusts
for Interest on Advances. Regardless of which source is
used, however, the funds themselves are still
reimbursement for Interest on Advances — the
reimbursed amounts do not magically become Gain-onSale Proceeds merely because the reimbursement
comes from Penalty Interest. On remand, the parties
reached an agreement that CWC would repay $27.5
million of the Penalty Interest it retained to resolve the
factual issue identified by the Second Circuit concerning
what portion of the Trusts’ unreimbursed Interest on
Advances accrued on or before June 3, 2014. The
Settlement Payment themselves thus constitute
reimbursement to the Trusts for Interest on Advances.
They are not Gain-on-Sale Proceeds, and the Second
Circuit has never said they are.
(Dkt. #455 at 8-9 (emphasis added)). 5
C.

The May 5, 2023 Hearing on the Proposed Settlement
The Court held a lengthy hearing on the proposed settlement on May 5,

2023. (Dkt. #462 (transcript)). With somewhat greater detail, the Parties
explained to the Court how the proposed settlement resolved the dispute
between them (and thus obviated the need for further proceedings), but did not
fully resolve the issue on which the Second Circuit had predicated its remand. 6

5

Appaloosa also addressed Cobalt’s arguments regarding its Fee Petition, and requested
again that the Court award that motion in its entirety. (Dkt. #455 at 10-19).

6

The Court also heard oral argument on Appaloosa’s Fee Petition, which arguments are
discussed later in this Opinion.

10

Appaloosa emphasized that “[t]he only thing that the Second Circuit held
was that [CWC] had an obligation under the PSA to use penalty interest to
reimburse interest on advances that accrued prior to June of 2014 and then
remanded to this court to determine what the amount of that figure was, what
the amount of those interests on advances were.” (Dkt. #462 at 12; see also id.
at 13 (“[T]he Second Circuit did not hold that [CWC] had an obligation to remit
$27.5 million to the [T]rust[s] back in December of 2015.”); id. at 17 (“The only
thing CWC had an obligation to do, according to the Second Circuit, was to use
penalty interest to reimburse some portion of the interest on advances that had
accrued as of the time of sale.”)). According to Appaloosa, had there been
proceedings on remand, the Parties were fully prepared to return to the
trenches to litigate the amount of Interest on Advances reimbursable to the
Trusts, irrespective of accrual date. Indeed, and perhaps not surprisingly,
CWC was prepared to argue that “the amount of reimbursable interest on
advances was still zero.” (Id. at 14).
The Parties explained that to avoid adding more years to the six that had
already been spent in litigation, they had agreed to settle the matter by having
CWC contribute $27.5 million as reimbursement for Interest on Advances that
could then be distributed to Certificateholders. (Dkt. #462 at 17). CWC
underscored the point, making clear that the $27.5 million was a “true
settlement” in three ways. (Id. at 24). First, it resolved what CWC alleged to be
a “shorthand” in the Second Circuit’s read of PSA § 3.05 that had yielded
erroneous mathematical calculations by the Circuit. (Id. at 24-25). Second, it
11

forestalled what would have been extensive disputes with the Trustee regarding
CWC’s liability under a negligence standard. 7 (Id. at 25-26; cf. id. at 28-31
(counsel for Trustee explaining how such a dispute might have proceeded)). 8
Third, counsel emphasized that CWC was only willing to be party to a
settlement that had no finding, implicit or explicit, that it did something wrong:
[T]he one thing I was going to say today — and now I get
a chance to say it — is it is a crucial component of the
settlement that there is no admission of liability by
[CWC] of wrongdoing because I think the record is very
clear that their reading was reasonable, that the ruling
that we got was one-off and sort of a surprise to
everyone, and we are still in litigation with Cobalt
separately where they want to point to the outcome here
as some sort of admission of wrongdoing. And if it is
going to be written up that way or interpreted that way,
we are out with our [$27.5 million]. That was a key thing
in the settlement. We are willing to put the [$]27.5
[million] in and say we are done and nobody objects to
that determination and that number, but we don’t want
to do it if it results in that we somehow are admitting
that we did something wrong because we don’t believe
we did.

7

See also Dkt. #462 at 25-26:
What it would have resulted in is your excellent opinion and then
the Second Circuit layered on top; guidance with respect to how
these provisions should be interpreted in the PSA, and then that
guidance would have gone to the [T]rustee and then I would have
started arguing with Mr. Biron and he would have had more of a
speaking role because CW[C] would have said that’s a nice reading
but we are not tasked with perfection, we are only liable for
negligence. And your Honor’s opinion had said early on that our
reading of the PSA was reasonable. And the Second Circuit applied
a reasoning which had never been applied. And we came forward
with evidence that no one in the industry had ever adopted that.
And we would have said, well, that might be a perfect reading on a
going-forward basis, CW[C]’s reading in 2015 was reasonable, and
therefore we have no liability.

8

The Trustee did not take a position on the reasonableness of the settlement, but simply
sought instruction from the Court. (Dkt. #462 at 30).

12

(Id. at 26 (emphasis added)). 9 Precisely for this reason, CWC was unwilling to
characterize the Settlement Payment as anything other than a “pot of money,”
and was particularly resistant to efforts by Cobalt to characterize the funds in a
manner that suggested error or misconduct on the part of CWC. (See id. at 61
(“But we did just put a pot of money as a settlement, and paragraph 8 of the
settlement agreement is — actually, without paragraph 8 we would not settle,
we won’t pay the [$27.5 million], and that’s what you were being asked to step
behind in order to reach Cobalt’s argument which is to characterize this as a
mistake or an error.”)).
At the May 5, 2023 hearing, Cobalt maintained its objection to the
allocation of the Settlement Payment. (See Dkt. #462 at 33-35). Cobalt
considered Appaloosa’s proposed allocation to be “grossly inequitable and
unfair because the harm that was identified, the calculation error that was
finally determined to exist in front of the Second Circuit, was an error that
nobody here disputes caused harm to the holders of the senior-most written
down certificates as of January 2016.” (Id. at 36; see also id. (noting that such
a settlement was not “appropriate relief in a proceeding like this where the
Court is tasked with instructing the [T]rustee on how to fairly and equitably
administer the [C30 Trust]”)). According to Cobalt, the Court’s authority on
remand was “quite narrow,” and did not include approval of the proposed
settlement agreement. (Id.). Instead, Cobalt offered a modified Realized Loss

9

As a corollary to this position, CWC made clear that it was not taking a position with
respect to allocation of the Settlement Payment. (See Dkt. #462 at 27, 47, 61).

13

Report that purported to explain how the Court could equitably allocate the
Settlement Payment. (Id. at 40-43).
In the course of the hearing, the Court discussed with the litigants its
authority vel non to modify the settlement proposal. Cobalt suggested that the
Court retained the ability to “re-characterize [the Parties’] settlement” by
accepting the $27.5 million figure but allocating it differently. (Dkt. #462 at
44). To the extent that its view was not accepted by the Court, Cobalt asked
that the proposed settlement be rejected, going so far as to argue that
Appaloosa lacked standing to participate in the proceedings on remand and, as
such, ought not be able to “achieve, by settlement, money that they had no
right to in the first place.” (Id. at 49). Appaloosa stated its view of the Court’s
discretion more directly:
OK, so taking the elephant in the room, because I think
it is important, our position is that your Honor does
have the authority to decide the allocation as part of this
and I don’t think any of the parties to this litigation
would be interested or believe it is in the best interests
of the [C30 Trust] for the Court to reject the settlement
so that we can enter into settlement negotiations over
an allocation that I will virtually guarantee you will not
lead to a settlement and the issue is just going to come
right back to the Court.
(Id. at 52). And finally, CWC believed that the Court could theoretically
reallocate the Settlement Payment, so long as it did so in a manner that did not
indicate liability on CWC’s part. (Id. at 61-62).
D.

The Request for Supplemental Briefing
On September 22, 2023, the Court requested supplemental briefing

concerning “the legal standards pursuant to which the Court should evaluate
14

the proposed settlement,” noting the complications to the analysis occasioned
“by choice-of-law issues, as well as the Trustee’s decision to take no position
concerning the proposed settlement.” (Dkt. #464). Appaloosa and Cobalt each
submitted a written letter brief articulating its respective position on
October 13, 2023. (Dkt. #465 (Appaloosa); Dkt. #466 (Cobalt)).
The litigants agreed as to two elements of the Court’s discretion. First,
both recognized that New York law governs the Court’s determination of the
substantive issues in play. (Dkt. #465 at 1 (“Because the Pooling and Servicing
Agreement (‘PSA’) for the C30 Trust contains a New York choice-of-law
provision, New York law provides the substantive standards for approval of the
settlement.”); Dkt. #466 at 2 n.1 (“Though this action was brought under
Minnesota’s trust-instruction statute, … New York law governs here.”)).
Second, both litigants agreed as to the implications of the Trustee’s
decision to take no position regarding the disputed settlement: The Trustee’s
indifference rendered inapposite a line of cases espousing a deferential
standard pursuant to which the Court should approve the settlement so long
as the Trustee acted “reasonably and in good faith.” (Dkt. #465 at 2 (“While the
decision to remain neutral is in itself an exercise of the Trustee’s discretion, it
does not fit the paradigm for application of the ‘reasonableness’ and ‘good faith’
standards from Bank of New York Mellon and similar cases, where the [t]rustee
affirmatively sought judicial approval on behalf of the trust as a whole of its
proposed resolution of litigation in accord with its duties as trustee. We have
not found a case that directly addresses the standard of review for approval of
15

a settlement in a [trust instruction] proceeding where the [t]rustee is taking a
neutral position on the settlement’s merits.”); Dkt. #466 at 1 (“Cases that
review a trustee’s discretionary decision to enter into a settlement agreement
for abuse of discretion do not apply because, here, the trustee has not
exercised its discretion (or, necessarily, undertaken the process required to
ensure a good-faith and reasonable exercise of its discretion).”)).
From this point, the legal standards proposed by the litigants varied.
Appaloosa suggested a specific standard, viz., the standard of “fair and
reasonable” that New York courts have employed in evaluating settlements in
shareholder derivative actions. (Dkt. #465 at 2-3). Such a standard,
Appaloosa argued, would “enable[ ] the Court to safeguard the interests of the
Trusts as a whole by kicking the tires on the proposed settlement and guarding
against the risks of collusion between the settling parties.” (Id. at 2). By
contrast, Cobalt argued a more generalized position, observing that “[w]here, as
here, a trustee asks for the court’s guidance on the proper distribution of funds
returned to the trust, the court exercises its equitable powers to fashion an
appropriate remedy.” (Dkt. #466 at 1; see also id. at 2 (“The ‘power to grant
instructions to trustees has long been viewed, in prior Restatements and in
most states, as inherent in the equitable powers of courts having jurisdiction
over trusts[.]’” (citing RESTATEMENT (THIRD) OF TRUSTS § 71 cmt. a))). 10

10

Both sides also took the opportunity to reargue their positions concerning the fairness
of the proposed settlement. (See Dkt. #465 at 2-4; Dkt. #466 at 3-6).

16

DISCUSSION
A.

The Court Approves the Proposed Settlement
1.

Applicable Law

To evaluate the proposed settlement in this case, this Court has adopted
Appaloosa’s suggestion of the legal framework that New York courts employ to
evaluate settlements shareholder derivative actions, as supplemented by New
York’s comparable framework for evaluating class action settlements. As
contrasted with Cobalt’s suggestions, Appaloosa’s suggested framework
provides actual guideposts for the Court’s exercise of its discretion. In
addition, the Court finds that the interests sought to be achieved by these
frameworks, including protection of minority/absent class members,
prevention of collusion between the parties to the litigation, and ensuring an
equitable distribution of assets obtained as part of the settlement, are also
applicable in this setting. And as suggested by the preceding section of the
Opinion, there is substantial overlap in the two proposals, and Appaloosa’s
differs from Cobalt’s principally in its granularity.
Because this case began with a trust instruction proceeding (“TIP”) in
Minnesota state court that was then removed to the United States District
Court for the District of Minnesota before being transferred to this District, the
applicable choice-of-law rules are those of Minnesota. See 12 U.S.C.
§ 1452(f)(2)-(3); 28 U.S.C. §§ 1404(a), 1442, 1446; see also Ferens v. John Deere
Co., 494 U.S. 516, 523 (1990) (requiring transferee forum, in cases transferred
pursuant to 28 U.S.C. § 1404(a), to apply the law of the transferor court,
17

irrespective of which party initiated the transfer); U.S. Bank Nat’l Ass’n v. Bank
of Am. N.A., 916 F.3d 143, 154 (2d Cir. 2019) (“Transfers under § 1404(a) by a
court that has jurisdiction are adjudicated in the transferee state under the law
of the transferor state. This is to avoid the unfairness of having a discretionary
transfer done for convenience change the law under which the case will be
decided.”). Courts in Minnesota, in turn, have consistently applied New York
law in mortgage-backed securities cases where the underlying agreements
contain a New York choice-of-law provision. See, e.g., Matter of Merrill Lynch
Mortg. Invs. Tr., Series 2006-RM4, No. A21-1350, 2022 WL 1769074, at *4
(Minn. Ct. App. May 31, 2022) (“The PSAs contain identical New York choice-oflaw provisions. We uphold choice-of-law provisions ‘and will interpret and
apply the law of another state where such an agreement is made.’” (internal
citation omitted) (collecting cases)); Matter of Am. Home Mortg. Assets Tr. 20075, No. A18-0768, 2019 WL 1431923, at *4 (Minn. Ct. App. Apr. 1, 2019) (“While
Minnesota law governs the procedural aspects of this court’s review,
interpretation of the PSA and Servicing Agreement is governed by New York law
under the choice-of-law provisions included in the trust documents.”).
New York courts analyze shareholder derivative action and class action
settlements under a “fair and reasonable” standard, which considers, among
other factors, “the likelihood of success, the extent of support from the parties,
the judgment of counsel, the presence of bargaining in good faith, and the
nature of the issues of law and fact.” Klurfeld v. Equity Enterprises, Inc., 436
N.Y.S.2d 303, 308 (2d Dep’t 1981) (collecting cases); accord Gordon v. Verizon
18

Commc’ns, Inc., 46 N.Y.S.3d 557, 561 (1st Dep’t 2017); cf. Carson v. American
Brands, Inc., 450 U.S. 79, 88 n.14 (1981) (“Courts judge the fairness of a
proposed compromise by weighing the plaintiff’s likelihood of success on the
merits against the amount and form of the relief offered in the settlement[.]”
(citing Protective Comm. for Independent Stockholders v. Anderson, 390 U.S.
414, 424-425 (1968))); In re Colt Indus. S’holder Litig., 553 N.Y.S.2d 138, 141
(1st Dep’t 1990) (“While [New York Civil Practice Law and Rules (‘CPLR’)] Rule
908 does not prescribe specific guidelines for a Court to follow in determining
the merits of a proposed class action settlement ‘case law suggests the
components which should be considered in reviewing a settlement: the
likelihood of success, the extent of support from the parties, the judgment of
counsel, the presence of bargaining in good faith, and the nature of the issues
of law and fact[.]” (internal citations omitted)), aff’d as modified sub nom. Colt
Indus. S’holder Litig. v. Colt Indus. Inc., 77 N.Y.2d 185 (1991). 11 Such a

11

Cf. Fiala v. Metro. Life Ins. Co., 899 N.Y.S.2d 531, 537-38 (Sup. Ct. N.Y. Cnty. 2010):
CPLR § 908 requires the court to approve any compromise of a
class action. Although the statute does not define the criteria for
such approval, New York’s courts have recognized that its class
action statute is similar to the federal statute [In re Colt Indus.
Shareholder Litig. v. Colt Indus. Inc., 77 N.Y.2d 185, 194, 565
N.Y.S.2d 755, 566 N.E.2d 1160 (1991); Avena v. Ford Motor Co., 85
A.D.2d 149, 152, 447 N.Y.S.2d 278 (1st Dept. 1982); Friar v.
Vanguard Holding Corp., 78 A.D.2d 83, 93, 434 N.Y.S.2d 698 (2d
Dept. 1980)] and have looked to federal case law for guidance.
Klein v. Robert’s Am. Gourmet Food, Inc., 28 A.D.3d 63, 808
N.Y.S.2d 766 (2d Dept. 2006); In re Colt Indus. Shareholder
Litigation v. Colt Indus., Inc., 155 A.D.2d 154, 160, 553 N.Y.S.2d
138 (1st Dept. 1990), modified on other grds. 77 N.Y.2d 185, 565
N.Y.S.2d 755, 566 N.E.2d 1160 (1991). Hence, court approval is
determined by the fairness of the settlement, its adequacy, its
reasonableness and the best interests of the class members. Klein,
id. at 73, 808 N.Y.S.2d 766; Rosenfeld v. Bear Stearns & Co., 237
A.D.2d 199, 655 N.Y.S.2d 473 (1st Dept.), lv. denied 90 N.Y.2d 811,

19

standard allows courts to strike an appropriate balance “balance between the
tyranny of majority shareholders and the selfish recalcitrance of minority
shareholders.” Klurfeld, 436 N.Y.S.2d at 309. 12
2.

Analysis

The Court begins its analysis of the proposed settlement by considering
several threshold issues that were occasioned by the Parties’ and Cobalt’s
arguments on May 5, 2023, and reiterated in the supplemental submissions of

666 N.Y.S.2d 100, 688 N.E.2d 1382 (1997). See Joel A. v. Giuliani,
218 F.3d 132, 138 (2d Cir. 2000); Grunin v. International House of
Pancakes, 513 F.2d 114, 123 (8th Cir.), cert. denied 423 U.S. 864,
96 S.Ct. 124, 46 L.Ed.2d 93 (1975) (settlement should be fair,
reasonable and adequate).
Adequacy requires “balancing the value of that settlement against
the present value of the anticipated recovery following a trial on the
merits, discounted for the inherent risks of litigation.” Klein, id.
See Colt Indus., 155 A.D.2d at 154, 553 N.Y.S.2d 138 (fairness is
determined by weighing plaintiff’s likelihood of success against
settlement offered). Other factors to be considered are the support
of the class members, the opinion of counsel, lack of collusion and
counsels’ and class representatives’ adherence to fiduciary
standards. Hibbs v. Marvel Enters., 19 A.D.3d 232, 233, 797
N.Y.S.2d 463 (1st Dept. 2005); Avena, 85 A.D.2d at 153, 447
N.Y.S.2d 278. See Klurfeld v. Equity Enterprises, Inc., 79 A.D.2d
124, 133, 436 N.Y.S.2d 303 (2d Dept. 1981) (factors to be
considered in reviewing class settlement are: likelihood of success,
support of parties, judgment of counsel, good faith and nature of
law and fact); Joel A., 218 F.3d at 139 (lack of collusion is factor to
be considered); Wal-Mart Stores Inc. v. Visa USA Inc., 396 F.3d 96,
116 (2d Cir. 2005) (“A presumption of fairness, adequacy, and
reasonableness may attach to a class settlement reached in arm’slength negotiations between experienced, capable counsel after
meaningful discovery.”). Consideration of the relevant criteria
weigh in favor of approval here.
12

The Court recognizes that the fit is not perfect, inasmuch as courts in the shareholder
derivative setting lack the power to modify the settlement, and certain of the litigants
here have suggested that this Court, sitting in equity, has such power. See generally
Benedict v. Whitman Breed Abbott & Morgan, 910 N.Y.S.2d 474, 475 (2d Dep’t 2010)
(“The court must determine whether a proposed settlement of a shareholder derivative
claim is fair and reasonable to the corporation and its shareholders, then ‘either
approve or disapprove the settlement.’” (collecting cases)). However, the Court agrees
with Appaloosa that the factors used to ascertain the fairness of shareholder derivative
and other class actions are also useful in this context.

20

October 13, 2023. First, given the foundational premise of many of Cobalt’s
claims, the Court considers whether the proposed settlement is the product of
collusion between the Parties, and finds easily that it is not. 13 The Parties have
agreed on precious little during this litigation, as the number of entries in this
docket attests. Even now, CWC demurs in characterizing the Settlement
Payment, and takes no position on Appaloosa’s proposed allocation.
This Court also agrees with the Parties that a remand proceeding
focusing on identifying accrual dates and correlative amounts of Interest on
Advances would entail more of the same, with hard-fought litigation on both
sides followed by an appeal to the Second Circuit from the losing side. What is
more, having considered the issue in greater detail after the May 5, 2023
hearing, the Court agrees with CWC that it has creditable (albeit not slamdunk) arguments regarding its obligation to make any payments to
Certificateholders. In other words, were the Court to reject the proposed
settlement and attempt the historical reconstruction envisioned by the Second
Circuit, there would be both the certainty of protracted litigation and the
possibility of the Court arriving at the exact same conclusions, although for
different reasons, at the end of those proceedings.
13

Related to this point is the question of whether Cobalt was improperly excluded from
the settlement discussions. (Dkt. #453 at 4 (“That Proposed Allocation contravenes the
[ ] Trusts’ PSAs and reflects a blatant effort by Appaloosa, the only [C]ertificateholder at
the negotiating table, to benefit itself at the expense of the affected [C]ertificateholders
who are the rightful recipients of those amounts.”)). It was not. Cobalt’s prior motion
to intervene was denied and that denial upheld by the Second Circuit; it was,
accordingly, not entitled to a seat at the table. And to the extent that Appaloosa’s and
Cobalt’s interests diverged regarding the proper allocation of the Settlement Payment,
Cobalt was given a full and fair opportunity to object, including the opportunity to
speak at oral argument and to submit supplemental briefing.

21

Second, the Court has considered Cobalt’s argument that the proposed
settlement is an impermissible end-run around the Second Circuit’s remand
order. 14 For similar reasons, the Court finds in the negative. CWC has
clarified for the Court how the Second Circuit’s analysis may have departed
from the text of PSA § 3.05 and the underlying record, and such imprecision
would almost certainly have yielded extensive litigation on remand. Put
somewhat differently, the task suggested by the Circuit’s summary order
cannot be completed with simple arithmetic. And if the two parties who have
spent the most and fought the most in this litigation wish to resolve it in a way
that yields millions of dollars for Certificateholders, it would confound logic for
this Court to force them to continue fighting. See Klein v. Robert’s Am.
Gourmet Food, Inc., 808 N.Y.S.2d 766, 774 (2d Dep’t 2006) (“Where, as here,
the action is primarily one for the recovery of money damages, determining the
adequacy of a proposed settlement generally involves balancing the value of
that settlement against the present value of the anticipated recovery following a
trial on the merits, discounted for the inherent risks of litigation[.]” (internal
citations omitted)); Conolly v. Universal Am. Fin. Corp., 873 N.Y.S.2d 232
(Table), 2008 WL 4514098, at *8 (Sup. Ct. Westchester Cnty. Oct. 8, 2008)
(“The court should also take into account the risks and costs of continued

14

The Court adds “impermissible” because, by obviating the need for proceedings on
remand, the Parties’ proposed settlement is, technically, an end-run around the Second
Circuit’s decision.

22

litigation and balance those risks and costs against the benefits to be derived
from the settlement[.]” (citing Klein, Inc., 808 N.Y.S.2d at 775)).
As its third and final antecedent issue, the Court has considered the
Parties’ and Cobalt’s positions regarding the Court’s ability to modify the
proposed allocation, rather than reject the proposed settlement outright. Even
assuming the Court had such discretion, there is an information asymmetry
that forecloses its practical ability to characterize, much less carve up, the
Settlement Payment. In this regard, the Court accepts the fact that the $67.2
million figure cited in PSA V is overstated (see Dkt. #462 at 24 (“CW[C] would
have argued that if you were doing the math you would have been at $19.1
million against $33.3 million, so that when you applied [PSA §] 305(a) and you
look at [PSA V], you could have been at either of those places.”)), and
acknowledges that it lacks sufficient information to calculate either the correct
figure of reimbursable Interest on Advances or the dates on which each
accrued. 15 The Court also shares CWC’s concern that re-characterization of
the Settlement Payment could not be accomplished without ascribing some
degree of liability to CWC, which would then imperil the entire settlement.
(Dkt. #462 at 61 (“We are specifically putting forward a pot of money to resolve
everything…. And anything that goes beyond that in order to get to a
resolution, we object to and that is contrary to what we agreed to do.”)). Faced

15

Echoing its prior point, the Court is not going to force the Parties to continue this
litigation just to obtain that information.

23

then with a binary decision on the proposed settlement, the Court chooses
approval.
Having addressed the antecedent issues raised by the Parties and Cobalt,
the Court evaluates the settlement in view of the factors set forth in cases like
Colt Industries, Klurfeld, and Klein. As just noted, the proposed settlement was
reached after extensive, good-faith negotiations. The Settlement Payment
would be a sum certain distributed to Certificateholders in the short term,
rather than a potentially larger (but also potentially much smaller) sum
distributed to Certificateholders, if at all, after additional years of litigation and
net of even more attorneys’ fees and costs. And only one Certificateholder has
objected to the proposed settlement.
The Court’s decision to approve is aided by the fact that it agrees with
Appaloosa’s factual and legal arguments regarding the characterization (and
thus the allocation) of the Settlement Payment. The Second Circuit found that
any portion of the $67.2 million “attributable to Interest on Advances accruing
on or before June 3, 2014 must be paid out of late payment charges and
Penalty Interest.” PSA V, 2022 WL 272052, at *4. The parties have stipulated
that that amount is $27.5 million. But as Appaloosa notes (Dkt. #455 at 8-9),
what the Second Circuit actually resolved was from which bucket the
reimbursement would come, Penalty Interest or Gain on Sale Proceeds; in
either case, the funds still constituted reimbursements to the Trusts for

24

Interest on Advances. 16 Under the PSA, these funds are to be deposited in the
Distribution Account, from which they would be distributed to
Certificateholders on the next Distribution Date. (See, e.g., C30 PSA §§ 1.01
(definitions), 3.04(b) (distribution accounts), 4.01(a) (distributions to
certificateholders), 4.05(a) (calculation of distributions and allocations)).
The allocation Appaloosa proposes accords with that adopted by the
Ramsey County (MN) District Court in a separate trust proceeding involving the
C30 Trust (the “Wells TIP”). See In re the Trust Established Under the Pooling
and Servicing Agreement Relating to the Wachovia Bank Commercial Mortgage
Trust Commercial Mortgage Pass-Through Certificates, Series 2007-C30, Court
File No. 62-TR-CV-19-33 (Minn. Dist. Ct.) (Dkt. #455-3 (opinion granting senior
certificateholders’ motion for summary judgment); Dkt. #455-4 (order issuing
judicial instructions)). In brief, the Wells court construed the PSA both to allow
CWC to establish litigation reserves and to require that unused reserves be
distributed by the Paying Agent to Certificateholders “on the Distribution Date
immediately following the entry of this order,” without consideration of “how

16

See also Dkt. #455 at 10:
Because the reimbursement of Interest on Advances with Penalty
Interest does not reduce the Purchase Price of the loan, it by
definition also does not increase Gain-on-Sale Proceeds. The effect
of using Penalty Interest for reimbursement of Interest on Advances
is simply to reduce the Penalty Interest retained by CWC, which is
outside the Purchase Price calculation altogether. It does not
convert the money used for reimbursement of Interest on Advances
into Gain-on-Sale Proceeds. Appaloosa’s proposed allocation of the
settlement funds thus fully accords with the PSA.

25

such funds would have been distributed in December 2018.” (Dkt. #455-4 at
4). 17
Conversely, the Court disagrees with Cobalt’s request that the Settlement
Payment “be treated as ‘Gain-on-Sale Proceeds’ in accordance with the PSAs
and distributed according to the capital structures of the Stuy Town Trusts as
of the distribution date in January 2016.” (Dkt. #453 at 4). For starters, the
Parties to the settlement went out of their way to construe the payment as
reimbursement of Interest on Advances in accordance with the Second Circuit’s
directive — indeed, CWC refuses to characterize the Settlement Payment at all,
and certainly not in any manner that suggests liability. That said, even if one
were obligated to characterize the Settlement Payment, the Court agrees with
Appaloosa that “the reimbursed amounts do not magically become Gain-on-

17

See also U.S. Bank Nat’l Ass’n v. Fed. Home Loan Bank of Boston, No. 652382/2014,
2016 WL 9110399, at *14 (Sup. Ct. N.Y. Cnty. Aug. 12, 2016):
More significant than the burden of W&L’s proposal is W&L’s
failure to point to any provision in the Governing Agreements
authorizing, let alone requiring, BNYM to distribute settlement
proceeds as if they had been acquired years earlier in the form of
repurchase payments, or to discriminate among certificates on any
basis other than their contracted-for level of seniority. W&L does
not explain how the representation in the Prospectus Supplements,
that repurchase payments would be distributed to investors “in the
month following the month of [the] repurchase,” is inconsistent
with the Distribution Methodology, given that there has been no
formal repurchase of loans, and the settlement proceeds will not
come into the Trust collection accounts until some time in the
future. As the Trustees further convincingly argue, W&L’s
argument reduces to the untenable contention that the Trustees
must “roll back the clock” and distribute the settlement payment
as if it had been paid before W&L’s certificates were written down,
at the time losses from breaches of representations and warranties
were realized. (Pets.’ Suppl. Memo., at 4.) Any such distribution
would be a significant departure from the way in which funds are
distributed to certificateholders under the PSAs in the regular
course of the Trustees’ business.

26

Sale Proceeds merely because the reimbursement comes from Penalty Interest.”
(See, e.g., Dkt. #455 at 9)). Moreover, the Court believes that Appaloosa has
the better of the argument regarding the proper construction of the PSA, and
thus adopts it here:
“Gain-on-Sale Proceeds” for a given loan is defined in
Section 1.01 of the PSA as “the excess of (i) Liquidation
Proceeds of the Mortgage Loan or related REO Property
net of any related Liquidation Expenses, over (ii) the
Purchase Price for such Mortgage Loan on the date on
which such Liquidation Proceeds were received.” (PSA
at 41.) …
***
[W]hat matters for purposes of calculating the Purchase
Price is when the Interest on Advances accrued, not how
it is reimbursed. Here, the Interest on Advances at
issue accrued before Stuy Town was sold in December
2015 and remained accrued, yet unpaid, as of the sale
date (the “date of purchase”), which means it was
included in Purchase Price for the Stuy Town loan. The
fact that Penalty Interest is now being used to
reimburse the Trusts for the Interest on Advances does
not affect the calculation of Purchase Price at all,
because it does not change the fact that said Interest on
Advances was still accrued as of the date of the sale.
Cobalt’s argument is the equivalent of saying that,
because the loan principal was paid off from the
proceeds of selling the property, principal is excluded
from the Purchase Price because it was no longer
“outstanding.” That obviously makes no sense.
Because the reimbursement of Interest on Advances
with Penalty Interest does not reduce the Purchase
Price of the loan, it by definition also does not increase
Gain-on-Sale Proceeds. The effect of using Penalty
Interest for reimbursement of Interest on Advances is
simply to reduce the Penalty Interest retained by CWC,
which is outside the Purchase Price calculation
altogether. It does not convert the money used for
reimbursement of Interest on Advances into Gain-on27

Sale Proceeds. Appaloosa’s proposed allocation of the
settlement funds thus fully accords with the PSA.
(Id. at 9-10).
After six years of litigation, the Court is sympathetic to the Parties’ desire
to distribute the remaining disputed funds and move on. On review, the Court
finds that the proposed settlement accords with the factors that courts in New
York have developed to evaluate fairness and adequacy in analogous settings.
With respect to procedural reasonableness, the proposed settlement was
reached in the course of extensive, arm’s-length negotiations between
exceptionally sophisticated parties and their counsel. With respect to
substantive reasonableness, Appaloosa’s characterization — and proposed
allocation — of the Settlement Payment is fair, faithful to the provisions of the
PSAs, and respectful of the particular priority rights for which the
Certificateholders bargained. It results in a tangible, and significant, benefit to
the Certificateholders. Finally, Appaloosa’s position does not require the Court
to prolong this litigation in order to imagine counterfactual timelines.
Accordingly, for all of the reasons set forth in this section, the Court approves
the proposed settlement, and rejects Cobalt’s objection to it.
B.

The Court Grants in Part Appaloosa’s Motion for Attorneys’ Fees and
Expenses
1.

Appaloosa’s Arguments

There remains the issue of the fees and costs, if any, to which Appaloosa
is entitled. In its opening brief, Appaloosa argued that full reimbursement from
the Settlement Payment of the attorneys’ fees and expenses it had incurred in
28

the instant litigation was warranted. (Dkt. #446). Among other things, it
argued that “[g]iven how hard CWC fought this case and how persistently it
denied owing the Trusts any portion of the Penalty Interest it retained, this is a
remarkable result.” (Id. at 5-6; see also id. at 17 (“[B]y any measure, Appaloosa
achieved a superlative result.”)). During the May 5, 2023 hearing, the Court
was a bit more realistic about what Appaloosa had achieved, and expressed
some concern about awarding the totality of the fees and expenses sought:
I am fine with people bringing lawsuits to clarify issues
and I actually wrote a decision saying that the provision
was ambiguous …. But my fear is I don’t want to
incentivize someone to bring a lawsuit that makes an
argument that is legally tenable in the sense that the
relevant agreements don’t exclude it, however it goes
entirely against the course of practice in the industry,
the understanding of the parties and things of that
nature. So, that’s the problem that I have. So, I would
welcome your thoughts. If you just want to stand on
your papers that’s fine too, but I wanted you to be aware
that these were the concerns that I have.
(Id. at 65). To his credit, Appaloosa’s counsel then tempered his arguments,
focusing first on the benefits to Certificateholders and the prevention of unjust
enrichment. (Id. at 65-66). From there, counsel outlined the extensive efforts
Appaloosa had undertaken — at its own expense — to address CWC’s
treatment of Penalty Interest, from the initial action in New York State Supreme
Court through the Minnesota TIP that was ultimately transferred to this Court.
(Id. at 66-68). Counsel also acknowledged that Appaloosa had failed with
respect to its claims against the GSEs. (Id. at 69). Ultimately, Appaloosa
argued, $9 million was reasonable to spend to achieve a $27.5 million result,
but it asked the Court to determine “what you think a reasonable percentage of
29

the fund is to award for the work that was done and the result that was
achieved.” (Id. at 70-71).
2.

Applicable Law

In the United States, “the general rule [is] that, absent statute or
enforceable contract, litigants pay their own attorneys’ fees.” Alyeska Pipeline
Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 257 (1975). That said, the
Supreme Court has recognized that “[l]imited exceptions to the American rule
have, of course, developed. They have been sanctioned by this Court when
overriding considerations of justice seemed to compel such a result.”
Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718-19 (1967).
In Boeing Co. v. Van Gemert, the Supreme Court stated that “a litigant or
a lawyer who recovers a common fund for the benefit of persons other than
himself or his client is entitled to a reasonable attorney’s fee from the fund as a
whole.” 444 U.S. 472, 478 (1980); see also Goldberger v. Integrated Res., Inc.,
209 F.3d 43, 47 (2d Cir. 2000). The exception exists not only to incentivize
counsel to take on appropriate cases, but also to prevent unjust enrichment.
See Fleischmann Distilling Corp., 386 U.S. at 719 (“[T]o have allowed the others
to obtain full benefit from the plaintiff’s efforts without requiring contribution
or charging the common fund for attorney’s fees would have been to enrich the
others unjustly at the expense of the plaintiff.”). 18

18

See also Fresno Cnty. Employees’ Ret. Ass’n v. Isaacson/Weaver Fam. Tr., 925 F.3d 63,
68 (2d Cir. 2019):
In contrast to fees awarded pursuant to fee-shifting provisions, fees
awarded pursuant to the common-fund doctrine do not extract a
tax on the losing party but instead confer a benefit on the victorious

30

For purposes of evaluating the reasonableness of attorneys’ fees, courts
in the Second Circuit consider the following factors: (i) counsel’s time and effort
in connection with the litigation; (ii) the quality of the representation; (iii) the
complexity of the litigation; (iv) the risks of litigation; (v) the relationship of the
fee to the settlement; and (vi) public policy concerns. Goldberger, 209 F.3d at
50. Of these factors, “[g]enerally, the factor given the greatest emphasis is the
size of the fund created, because ‘a common fund is itself the measure of
success ... [and] represents the benchmark from which a reasonable fee will be
awarded.’” MANUAL FOR COMPLEX LITIGATION (FOURTH), § 14.121 (2004) (quoting 4
ALBA CONTE & HERBERT B. NEWBERG, NEWBERG ON CLASS ACTIONS, § 14:6, at 547,
550 (4th ed. 2002)); see also Hensley v. Eckerhart, 461 U.S. 424, 436 (1983)
(the “critical factor is the degree of success obtained”).
Appaloosa maintains, however, that the determination of attorneys’ fees
and costs should be undertaken under New York law, and Cobalt does not

attorney for her representation of her client and the class members.
See Boeing, 444 U.S. at 478, 100 S. Ct. 745. “The doctrine rests
on the perception that persons who obtain the benefit of a lawsuit
without contributing to its cost are unjustly enriched at the
successful litigant’s expense.” Id. The common-fund doctrine is
therefore rooted in the courts’ “historic power of equity to permit”
a person who secures a fund for the benefit of others to collect a
fee directly from the fund. Alyeska Pipeline Serv. Co., 421 U.S. at
257, 95 S. Ct. 1612 (citing Trustees v. Greenough, 105 U.S. 527,
531-33, 26 L. Ed. 1157 (1881)). Under the common-fund doctrine,
a district court may select “either the lodestar or percentage of the
recovery methods” to calculate fees. Goldberger v. Integrated Res.,
Inc., 209 F.3d 43, 45 (2d Cir. 2000); see also McDaniel v. County of
Schenectady, 595 F.3d 411, 419 (2d Cir. 2010). A common-fundpercentage fee must still be evaluated for reasonableness, see, e.g.,
McDaniel, 595 F.3d at 423, but may exceed the lodestar — i.e., it
may be less than, equal to, or greater than the lodestar, see, e.g.,
Goldberger, 209 F.3d at 47.

31

disagree. (Dkt. #446 at 12 (“The law of New York thus also governs Appaloosa’s
entitlement to attorneys’ fees.” (first citing RLS Assocs. v. United Bank of
Kuwait PLC, 464 F. Supp. 2d 206, 213 (S.D.N.Y. 2006), and then citing Ancile
Inv. Co. v. Archer Daniels Midland Co., 992 F. Supp. 2d 316, 320 (S.D.N.Y.
2014))); Dkt. #453 at 14 (discussing New York state courts’ approach to fee
awards)). See generally Fed. Ins. Co. v. Am. Home Assurance Co., 639 F.3d
557, 566 (2d Cir. 2011) (“[W]here the parties agree that New York law controls,
this is sufficient to establish choice of law.”); Krumme v. WestPoint Stevens Inc.,
238 F.3d 133, 138 (2d Cir. 2000) (applying New York law and stating that
“implied consent ... is sufficient to establish choice of law” (quotation marks
and internal citation omitted)).
New York courts allow the recovery of attorneys’ fees and expenses from
a common fund for reasons identical to their federal counterparts. See, e.g.,
Ital Assocs. v. Axon, 90 N.Y.S.3d 164, 165-66 (1st Dep’t 2018) (allowing
recovery of attorneys’ fees against parties who did not sign retainer agreement
with plaintiffs’ counsel but still benefited, finding that to hold otherwise “would
be inconsistent with the purpose of the common fund doctrine to prevent
unjust enrichment by ‘allow[ing] the others to obtain full benefit from the
plaintiff’s efforts without contributing equally to the litigation expenses’”
(internal citations omitted)); see generally Woodruff v. New York, Lake Erie & W.
R.R. Co., 129 N.Y. 27, 30-31 (1891) (“one who successfully conducts a
litigation ... for the benefit of a fund, shall be protected in the distribution of
such fund for the expenses necessarily incurred by him in the performance of
32

his duty”). Similarly, in awarding attorneys’ fees, New York courts consider
factors analogous to those in Goldberger, which factors include: (i) the time and
labor required, the difficulty of the questions involved, and the skill required to
handle the problems presented; (ii) the lawyer’s experience, ability, and
reputation; (iii) the amount involved and benefit resulting to the client from the
services; (iv) the customary fee charged for similar services; (v) the contingency
or certainty of compensation; (vi) the results obtained; and (vii) the
responsibility involved. See, e.g., RMP Cap. Corp. v. Victory Jet, LLC, 32
N.Y.S.3d 231, 235 (2d Dep’t 2016) (collecting cases); accord In re Freeman’s
Est., 34 N.Y.2d 1, 9 (1974). As in federal cases, “[c]ourts have used the
lodestar method and the percentage approach as a way of cross-checking the
appropriateness of the legal fees in common fund cases[.]” M.F. v. Amida Care,
Inc., 167 N.Y.S.3d 771 (Sup. Ct. Kings Cnty. 2022).
3.

Analysis

The instant case implicates both the lodestar method and the percentage
method. Appaloosa seeks reimbursement for the entirety of the fees and costs
it expended in this matter, comprising $7,912,052.80 in attorneys’ fees (which
it notes is approximately 28.7% of the Settlement Payment), as well as
$1,063,359.85 in expenses. Many of the factors just listed counsel in favor of
an award of attorneys’ fees at or near the amount requested. As evidenced by
the billing statements that accompanied Appaloosa’s Fee Petition (Dkt. #447),
numerous attorneys spent numerous hours addressing esoteric issues of
contract law in a protracted litigation that yielded three decisions from this
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Court (one exceeding 100 pages) and two from the Second Circuit. The quality
of representation on all sides was exceptional, as it needed to be in order to
address the issues presented. Appaloosa has actually paid all of the fees and
expenses sought in its petition (Dkt. #447 at ¶¶ 9-11), which is “solid evidence”
of their reasonableness in the market. Bleecker Charles Co. v. 350 Bleecker St.
Apt. Corp., 212 F. Supp. 2d 226, 230-31 (S.D.N.Y. 2002); see generally
A.V.E.L.A., Inc. v. Estate of Monroe, No. 12 Civ. 4828 (KPF) (JCF), 2014 WL
3610902, at *2 (S.D.N.Y. July 18, 2014) (“[T]he actual billing arrangement is a
significant, though not necessarily controlling, factor in determining what fee is
‘reasonable.’” (alteration in original) (internal quotation marks and citation
omitted)). And, despite a few bumps in the District Court road, Appaloosa was
ultimately able to garner a settlement fund of $27.5 million for
Certificateholders.
There remain, however, several factors that counsel against complete
reimbursement of Appaloosa’s attorneys’ fees. The most obvious is the fact
that this Court rejected all of Appaloosa’s arguments at summary judgment,
and to the extent that the Second Circuit disagreed with this Court as to one
small piece of the approximately $615 million in challenged funds, it was on a
basis not advanced by the Parties. Furthermore, the whole of Appaloosa’s case
against the GSE’s was rejected by this Court and upheld by the Second Circuit.
This Court also remains critical of several of Appaloosa’s expert witnesses, who
offered minimal assistance to the Court in resolving the many issues in

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dispute, but rather seemed intent on making abstruse, often irrelevant, points
in the service of trying to generate material disputes of fact.
As suggested by its colloquy with Appaloosa’s counsel, the Court
appreciated counsel’s pivot from the hyperbole of its written Fee Petition, to a
more measured presentation of the timeline of its efforts and the actual
benefits it realized. Balancing the fact of the Settlement Payment, the
complexity of the issues, and the intensity of the litigation, with the limited
scope of success, the Court will reduce the legal fees sought by Appaloosa by
20%, and it thus finds that the reasonable amount of attorneys’ fees in this
matter is $6,329,642.24.
With respect to the issue of reimbursable litigation expenses, both federal
and state courts allow the recovery of such expenses. See, e.g., Fleisher v.
Phoenix Life Ins. Co., Nos. 11 Civ. 8405 (CM), 14 Civ. 8714 (CM), 2015 WL
10847814, at *23 (S.D.N.Y. Sept. 9, 2015) (“Courts routinely note that counsel
is entitled to reimbursement from the common fund for reasonable litigation
expenses.” (internal quotations omitted)); Ital Assocs., 90 N.Y.S.3d at 165-66.
On this point, the Court agrees that the majority of Appaloosa’s litigationrelated expenses should be covered, but that a reduction is warranted to reflect
the comparative unhelpfulness of certain of Appaloosa’s expert witnesses.
Accordingly, the Court will reduce the expenses figure by 30%, and it thus
finds that $744,351.90 is the reasonable amount of reimbursable litigation
expenses.

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CONCLUSION
For the foregoing reasons, the Court REJECTS the objection to the
proposed settlement filed by Cobalt and APPROVES the Parties’ proposed
settlement. The Court also finds that Appaloosa is entitled to reimbursement
from the Settlement Payment in the amounts of $6,329,642.24 in attorneys’
fees and $744,351.90 in litigation expenses. The Court directs the Trustee to
submit a revised proposed Order Issuing Judicial Instructions on or before
March 22, 2023.
The Clerk of Court is directed to unstay this case and terminate the
motion at docket entry 445.
SO ORDERED.
Dated: March 5, 2024
New York, New York
KATHERINE POLK FAILLA
United States District Judge

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