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Citibank, N.A. v. Morgan Stanley & Co. Int'l

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK


May 25, 2011

CITIBANK, N.A., PLAINTIFF AND COUNTERCLAIM DEFENDANT,
v.
MORGAN STANLEY & CO. INTERNATIONAL, PLC, DEFENDANT AND COUNTERCLAIMANT.

The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.

OPINION AND ORDER

I. INTRODUCTION

This case arises out of a dispute over a credit default swap ("CDS") agreement between two of the most sophisticated financial institutions in the world -- Citibank, N.A. ("Citibank") and Morgan Stanley & Co. International, PLC ("MSIP"). In an opinion and order dated May 12, 2010 (the "May 12 Opinion"), I concluded that MSIP breached the unambiguous terms of that agreement.*fn1 Accordingly, I granted judgment on the pleadins to Citibank on its sole claim for breach of contract and dismissed MSIP's two mirror-image counterclaims. In a subsequent opinion and order dated October 8, 2010 (the "October 8 Opinion"), I addressed Citibank's motion for judgment on the pleadings on MSIP's two remaining counterclaims -- equitable estoppel and reformation -- granting the motion as to the counterclaim for equitable estoppel but denying it as to the counterclaim for reformation.*fn2 Now before the Court are cross-motions for summary judgment on MSIP's counterclaim for reformation. For the reasons that follow, MSIP's motion is denied and Citibank's motion is granted.

II. BACKGROUND

A. The Agreements

In 2006, Capmark VI Ltd. ("Capmark") issued a collateralized debt obligation (the "Capmark CDO") -- an asset-backed security ("ABS") backed by mortgages and other assets (the "Collateral"). The Capmark CDO is governed primarily by a July 24, 2006 indenture (the "Indenture").*fn3

Citibank provided $366 million in revolving credit to the Capmark CDO (the "Revolving Facility") that was memorialized by a Credit Agreement ("Credit Agreement" or "Capmark Credit Agreement") dated July 24, 2006 among Capmark as Issuer, Citibank as Lender, and Citibank as Administrative Agent.*fn4

Citibank was the senior stakeholder -- that is, the "Controlling Class" -- in the Capmark CDO at all relevant times.*fn5 As a result, Citibank held certain rights under the Indenture, including the right to direct that the Collateral be liquidated if the value of those assets fell below Citibank's obligation under the Revolving Facility ($366 million).*fn6

The Capmark CDO experienced an event of default in August of 2008.*fn7 In March of 2009, after the value of the Capmark CDO had collapsed, Citibank exercised its rights under the Indenture and directed that the Collateral be liquidated.*fn8 Approximately $121 million was recouped from the sale, leaving Citibank with a shortfall of $245,368,966.51.*fn9

Meanwhile, three days before the Capmark Credit Agreement was executed, Citibank had purchased credit protection on the Revolving Facility from MSIP via a credit default swap, memorialized by a letter of confirmation dated July 21, 2006 between MSIP and Citibank (the "Capmark Swap Agreement" or the "Capmark CDS Confirmation").*fn10 Under the terms of that agreement, the occurrence of any of four defined "Credit Events" occurring on the "Reference Entity" (the Capmark CDO) -- including a "Failure to Pay Principal" credit event -- obligated MSIP to pay Citibank any losses that it (Citibank) sustained under the Revolving Facility.*fn11 The ISDA Master Agreement contains an integration clause providing that "[t]his agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto."*fn12 The ISDA Master Agreement further provides that Citibank and MSIP are "not relying upon any representations (whether written or oral) of the other party other than the representations expressly set forth herein, in any Credit Support Document or in any Confirmation"*fn13 (the "no-reliance clause").

When the Collateral was liquidated in full on July 13, 2009 (pursuant to Citibank's directive), the $245,368,966.51 amount outstanding on the Revolving Facility triggered a Failure to Pay Principal Credit Event under the Swap Agreement, obligating MSIP to pay Citibank the $245,368,966.51 shortfall.*fn14 I have already held that, under the unambiguous terms of section 6(d) of the Swap Agreement (discussed further below), "Citibank's issuance of a direction under the Indenture did not implicate MSIP's consent rights under Section 6(d) of the Swap Confirmation."*fn15 In other words, MSIP's consent was not required in order for Citibank to direct liquidation of the Collateral -- the liquidation that triggered the Credit Event obligating MSIP to pay Citibank $245,368,966.51. The question now before the Court is whether -- notwithstanding the unambiguous language of section 6(d) -- the parties "mutually intended to transfer to [MSIP] all voting rights -- including Controlling Class rights -- associated with the Capmark Credit Agreement"*fn16 such that Citibank's liquidation of the Capmark CDO constituted a breach of the Capmark Swap Agreement, excusing MSIP from paying Citibank the $245,368,996.51 shortfall.

B. Capmark Swap Negotiations; June 22, 2006 Emails

In the parties' negotiations over the terms of the Capmark Swap Agreement, John Costango (Citibank) was the banker with "primary responsibility with respect to the day-to-day negotiations with Morgan Stanley."*fn17 For MSIP, George Wilkinson "worked with the business unit within [Citibank's Global Proprietary Credit Group] to negotiate and execute CDS documents,"*fn18 including the Capmark Swap Agreement. However, other Citibank agents -- including Adam Bentch, Steven Kolyer,*fn19 and Don Bendernagel (attorneys in Citibank's derivatives legal group*fn20 ); Grant Buerstetta (an attorney with Citibank's outside counsel, Clifford Chance); William Aprigliano (Citibank's "regulatory capital" corporate representative*fn21 ); and Nestor Dominguez (who "ultimately . . . said, okay, do the trade"*fn22 ) were involved in drafting, reviewing, or approving the Capmark Swap Agreement.*fn23 Kevin Starrett signed the Capmark Swap Agreement on Citibank's behalf and said "done" on the phone.*fn24

On June 22, 2006, a month before the Capmark CDS Confirmation was signed, Wilkinson (MSIP) sent an email to Costango (Citibank) setting forth "[s]ome additional comments on the CDS doc."*fn25 The first item read:

(i) As discussed, we should include language in the doc stating that no amendment, waiver, consent, etc. will be made or given by Citi under the Loan Agreement without the prior written consent of MS (i.e., Citi passes along to MS all voting rights it has under the Loan Agreement to MS).*fn26

Fourteen minutes later, Costango (Citibank) wrote that he would "not be able to focus on these comments in full tonight, but . . . will give you my quick thoughts before I head out today."*fn27 Forty minutes later, Costango responded by inserting his "preliminary comments in CAPS" into the text of Wilkinson's email.*fn28 He typed the words "OK"*fn29 under Wilkinson's first "comment" regarding "voting rights" quoted above.

Wilkinson (MSIP) testified that "when [he and Costango (Citibank)] discussed the topics of the passage of voting rights from Citi to Morgan Stanley in respect of this transaction, John Costango was in agreement that the rights that Citi had as a lender under the loan facility would pass to Morgan Stanley for so long as Morgan Stanley was on risk."*fn30 Wilkinson also testified that he had the same "conversations" concerning voting rights in the Capmark transaction with Michael Edman, Ross Feldman, Erick May, and Joseph Naggar -- other MSIP employees -- prior to the close of the transaction.*fn31 Costango testified that he has no recollection of any discussion with Wilkinson concerning voting rights prior to his receipt of the June 22 Email.*fn32 Nor did any other MSIP employee testify to remembering a conversation with Citibank or with Wilkinson concerning the passage of rights.*fn33

On June 25, 2006, Costango forwarded Wilkinson's June 22 Email both to Citibank's in-house counsel and to Clifford Chance.*fn34 Five days later, Costango forwarded Wilkinson a revised draft Capmark CDS Confirmation prepared by Clifford Chance, with the caveat that he "received this from outside counsel but our internal counsel has not yet reviewed thoroughly."*fn35 The attached draft confirmation included a new section "6(d)" entitled "Reference Obligation Amendments" -- added as a consequence of Wilkinson's June 22 Email*fn36 -- that read:

No amendment to, or waiver or consent of or with respect to, the Reference Obligation [the Revolving Facility] will be agreed or consented to by Buyer [Citibank] (or permitted by Buyer to be agreed or consented to) without the prior written consent of the Counterparty [MSIP].*fn37

Citibank's in-house counsel on the Capmark transaction authorized the inclusion of the language in section 6(d).*fn38

2. The Tallships Swap

Citibank provided a revolving credit facility to another CDO, the Tallships Funding, Ltd. CDO ("Tallships"), memorialized by a Revolving Credit Agreement (the "Tallships Credit Agreement").*fn39 Citibank purchased credit protection on the Tallships Credit Agreement from Morgan Stanley Capital Services Inc. ("MSCS"), memorialized by a letter of confirmation dated December 14, 2006 between MSCS and Citibank (the "Tallships Swap Agreement").*fn40 Unlike the Capmark Swap Agreement, the Tallships Swap Agreement effectively gave MSCS the ability to direct (in certain circumstances) Citibank's exercise of Controlling Class rights.*fn41

The Tallships Swap shared certain similarities with the Capmark Swap. First, under both agreements, Citibank paid 7 basis points per annum of notional exposure for approximately three years' credit protection.*fn42 Second, both swaps were "non-coterminous," meaning the maturity date of the swaps (three years) did not match the maturity date of the underlying Reference Obligations.*fn43 Third, Citibank claimed "regulatory capital" ("reg cap")*fn44 relief in respect of both Capmark and Tallships.*fn45 Fourth, while both the Capmark Credit Agreement and the Tallships Credit Agreement provided Citibank with the option of syndicating the revolving facilities, neither was ever syndicated (or intended to be syndicated), rendering Citibank the sole holder of Controlling Class rights.*fn46 The Capmark Swap was the "starting point" or the "reference point" for the Tallships Swap.*fn47

a. Tallships Swaps Negotiations

Costango and Wade (Citibank) shared responsibility for "negotiating with MSCS concerning the business terms" of the Tallships swap.*fn48 On November 28, 2006, Wilkinson (MSCS) sent an email to Wade (Citibank) -- copying Anna Choe (Citibank in-house counsel), six individuals from Clifford Chance, Feldman and Naggar (MSCS), and Costango (Citibank) -- requesting that (v) [t]he back-to-back swap between [MSCS] and Citi should state that Citi will pass through to [MSCS] all voting/consent rights of the Advance Swap Counterparty under the Advance Swap. In addition, the doc should provide that failure to do so (or failure to act in accordance with the instructions of MS) will result in a MTM termination.*fn49

Citibank's privilege log reflects that, on November 29, 2006 -- before responding to Wilkinson's request -- emails were exchanged among Choe (in-house counsel), Costango, Wade, and Buerstetta on the following subjects:

* "Communications providing [and requesting] legal advice concerning voting rights language requested by Morgan Stanley."

* "Communications reflecting a request for legal advice from Anna Choe concerning voting rights provisions in the Capmark VI CDS Confirmation."

* "Communications requesting legal advice concerning voting rights language requested by Morgan Stanley and the Capmark VI transaction."*fn50

Following these internal discussions, Wade (Citibank) responded to Wilkinson (MSCS) by inserting "comments and questions" into Wilkinson's email. In particular, below Wilkinson's fifth (v) point on "voting/consent" rights (quoted above), Wade inserted the word "[Agreed]."*fn51 But approximately two hours later, Costango (Citibank) sent another email to Wilkinson, copying Wade (Citibank), entitled "Voting Rights" that read:

We are struggling to recall how this was handled in capmark. Lawyers are telling me that we don't pass through voting rights but I seem to remember you being comfortable with the arrangement in capmark. Do you recall how we worked that out?*fn52

Wilkinson responded that same day with the following: I think in Capmark we just relied on the language that stated the credit agreement would not be amended without our prior written consent. I would prefer to be more specific in this trade. See attached rider.*fn53

The attached rider, entitled "Voting Provisions," stated:

[Citi] agrees that to the extent it is entitled to act in its capacity as a member of the Controlling Class or otherwise to consent to or vote with respect to any Proposed Action (as defined below) in its capacity as the Advance Swap Counterparty or Revolving Credit Agreement Agent under the Indenture, prior to [Citi] giving its written consent to, or casting its vote for or against, any waiver, amendment, vote, modification or other action of a similar nature under the Indenture (the "Proposed Action"), [Citi] shall . . . seek [MSCS's] written direction as to whether to give such consent or how to cast such vote and . . . act in accordance with such written direction from [MSCS].*fn54

That rider, with revisions, became section 6(e) of the Tallships Swap Agreement*fn55 -- an Agreement which also included a section 6(d) verbatim to section 6(d) of the Capmark CDS Confirmation.*fn56 It was this provision -- section 6(e) -- that gave MSCS the ability to direct, in certain circumstances, Citibank's exercise of Controlling Class rights.

b. December 7, 2006 Email

One week later, on December 7, 2006, Costango sent an email to Wilkinson entitled "Tallships -- voting" that stated, "Chaka [Wade of Citibank] and I have had a bunch of conversations with the internal legal people on the voting language. They have raised some additional concerns with our language of the 'what if this happens' variety" such as the implications of MSCS's asking Citibank "to vote in a way that is (a) illegal or (b) commercially unreasonable for [Citibank]."*fn57 After summarizing those concerns, Costango stated:

I've thought a lot about why changes like this are warranted here compared to Capmark, and I believe the difference is that in Capmark we agreed to not make any change without consent and here we are agreeing to consult you in all cases if we don't want to make a change. So it's more complicated.*fn58

3. Citibank's Subprime Portfolio Group ("SPG")

In late 2007, in the wake of the credit crisis, Citibank transferred management of certain subprime-related assets to a "Subprime Portfolio Group" ("SPG"),*fn59 which was responsible for "try[ing] to figure out how to deal with more than [sixty billion dollars] worth of exposure that Citigroup was facing to CDO super senior positions" -- including Capmark and Tallships.*fn60 It was SPG's responsibility to examine each super-senior ("SS") transaction to determine how to mitigate Citibank's exposure, including unwinding as many transactions as possible.*fn61 As part of that strategy, SPG exercised Citibank's rights (where available) to liquidate certain CDOs, including Capmark.*fn62

In 2008, SPG created various iterations of a spreadsheet entitled "SS Summary Spreadsheet," summarizing Citibank's SS exposure.*fn63 Each row listed a "Deal" to which Citibank was exposed. Each column contained descriptive information about the deal, including columns labeled, "Open / Closed," "Conditions to Liquidate" and "Citi Sole Discretion [to liquidate]?" A "Note" at the bottom of the spreadsheet reads, "For closed positions, decisions regarding acceleration or liquidation are not solely in Citi's control." Although all of the entries for Capmark and Tallships indicate that they are "Closed" -- either entirely or through the maturity date of the three-year credit default swaps hedging Citibank's super-senior exposure to the deal -- the Capmark entries indicate that "Citi [has] Sole Discretion," while the Tallships entries indicate that "Citi [does not have] Sole Discretion."*fn64

By the time management of the Capmark Swap was transferred to SPG, Costango had left Citibank and Bentch had transferred from in-house counsel to a business position in another part of the bank.*fn65 No member of SPG ever asked Costango what the parties who negotiated the Capmark Swap intended.*fn66 Instead, SPG and the other Citibank employees involved in the decision to liquidate the Capmark CDO were advised by counsel.*fn67

At some point, SPG came to the understanding that MSIP believed that Controlling Class rights had been transferred under the Capmark Swap,*fn68 contrary to the unambiguous language of the Swap Agreement indicating otherwise. Some SPG employees testified that they anticipated -- prior to their liquidation of the Capmark CDO -- that it would lead to litigation with MSIP.*fn69

4. January 2008 Wilkinson Chart

In January 2008, before the present dispute arose, Wilkinson sent an email to colleagues attaching a chart summarizing certain positions held by MSIP's Global Proprietary Credit Group ("January 2008 Wilkinson Chart").*fn70 The document contained summaries of the provisions of twenty-one deals that Wilkinson thought were important,*fn71 including Tallships and Capmark.

The summary of Tallships indicates that MSIP held two swaps in connection with that transaction -- the Tallships Swap and the Tallships Back-to-Back Swap.*fn72 In the row entitled "Execution," the Tallships summary states: "Morgan Stanley faces Citibank via CDS; Citibank faces the deal; MS holds all rights of Citibank as super senior swap counterparty."*fn73 In the row entitled "Other," Wilkinson provided a summary of the Tallships Swap ("MS has also sold $250mm of super senior protection on the Tallships Revolving Credit Agreement for 7bps.") and then, directly below that summary, wrote, "Voting rights passed to MSCS via CDS."*fn74

In every other transaction in which Wilkinson believed voting rights were passed to a Morgan Stanley entity, the summary explicitly states so.*fn75 The Capmark summary says nothing about the passage of "voting" or "super senior" rights.*fn76

III. APPLICABLE LAW

A. Reformation Based on Mutual Mistake

"Reformation of contract . . . is not a matter of resolving an ambiguity in a contract but rather of supplying what the parties clearly intended to include but inadvertently omitted."*fn77

"In the proper circumstances, mutual mistake . . . may furnish the basis for reforming a written agreement." [Chimart Assocs. v. Paul, 66 N.Y.2d 570, 573 (1986).] . . . Because the remedy of reformation presents the danger "that a party, having agreed to a written contract that turns out to be disadvantageous, will falsely claim the existence of a different, oral contract," [id. at 573] the New York courts have sharply limited the remedy of reformation both procedurally and substantively [see id. at 574].*fn78

Procedurally, there is a "'heavy presumption that a deliberately prepared and executed [agreement] manifest[s] the true intention[s] of the parties,' especially between counseled businessmen"*fn79 and "a correspondingly high order of evidence is required to overcome that presumption."*fn80 In particular, "mutual mistake must be established by clear and convincing evidence."*fn81 "'Only thus can the benefits of the written form be preserved.'"*fn82 Although a "mutual mistake must exist at the time the agreement is signed,"*fn83 "the parties' course of performance under the contract is considered to be the most persuasive evidence of the agreed intention of the parties."*fn84

IV. DISCUSSION

A. MSIP's Motion

MSIP argues that "[t]he uncontroverted evidence shows that the parties intended to do just what Wilkinson proposed in his June 22 Email: namely, to ensure that 'Citi passes along to MS all voting rights it has under the Loan Agreement to MS.'"*fn85 However, drawing all inferences in favor of Citibank, the non-movant in the context of MSIP's motion,*fn86 a reasonable trier of fact could find that the parties were not mutually mistaken as to the meaning of section 6(d) of the Capmark Swap Agreement.

1. The June 22 Emails

While it is undisputed that Costango replied "OK" to Wilkinson's June 22 Email -- proposing the addition of language "stating that no amendment, waiver, consent, etc. will be made or given by Citi under the Loan Agreement without the prior written consent of MS (i.e., Citi passes along to MS all voting rights it has under the Loan Agreement to MS)"*fn87 -- this does not establish as an evidentiary or legal matter that Citibank (or even MSIP) intended to transfer Controlling Class rights under the Indenture to MSIP in the Capmark Swap. First, drawing all inferences in Citibank's favor, the phrase "all voting rights [Citibank] has under the Loan Agreement" does not necessarily refer to Citibank's Controlling Class liquidation rights under the Indenture. Even if it were undisputed that the parties mistakenly neglected to pass some voting rights to MSIP under the Capmark Swap Agreement, the phrase "all voting rights [Citibank] has under the Loan Agreement" does not necessarily encompass Citibank's right to direct liquidation which -- as I discussed extensively in the October 8 Opinion -- Citibank held by virtue of the Indenture.*fn88 In this vein, the fact that Wade (Citibank) testified that the term voting rights is generally understood to "at least include[] controlling class rights"*fn89 does not render Wilkinson's email -- which refers to voting rights under a particular agreement -- unambiguous.

Second,Citibank negotiators and attorneys involved in Capmark and Tallships testified that they do not understand the term "voting rights" unambiguously to include Controlling Class rights.*fn90 Moreover, the parties have offered dueling expert testimony as to (1) whether it was understood in the "industry" generally that the term "voting rights" included Controlling Class rights;*fn91 (2) whether there was a custom or practice of transferring Controlling Class rights in CDS on ABS CDOs;*fn92 (3) and whether the non-coterminous nature of the Capmark (and Tallships) Swaps affected these assumptions.*fn93 Thus, the June 22 Email cannot establish by clear and convincing evidence "exactly what was really agreed upon between" Costango and Wilkinson -- let alone Citibank and MSIP.*fn94

Third, even assuming MSIP has proven by clear and convincing evidence that Wilkinson thought "all voting rights [Citibank] has under the Loan Agreement" included Controlling Class rights, Costango's "preliminary" response, "OK," does not unequivocally establish Costango's understanding as to what Wilkinson meant.*fn95 Although Costango testified that he understood Wilkinson's November 28 Email about "voting/consent rights" in connection with Tallships to refer to Controlling Class rights under the Tallships indenture,*fn96 no Citibank agent could recall how he understood Wilkinson's reference to "all voting rights [Citibank] has under the Loan Agreement."*fn97 Moreover, the fact that "Citibank" (the institution) drafted section 6(d) of the Capmark Swap Agreement (1) using language that unambiguously did not transfer Controlling Class rights to MSIP (2) and titled it "Reference Obligation Amendments" supports the reasonable inference that, to the extent Citibank understood MSIP to be requesting the passage of any rights, it understood those rights to be confined to Citibank's right to withhold consent for amendments to and waivers and consents with respect to the Capmark Credit Agreement, not to direct liquidation of the CDO.*fn98 Whether or not this was a reasonable interpretation on the part of Citibank -- even one that flew in the face of industry practice -- Citibank's lawyers' reduction of Wilkinson's request to the language that ultimately became section 6(d), and Citibank's ultimate execution of the Capmark Swap Agreement containing section 6(d), supports the reasonable inference that the parties were not mutually mistaken as to the passage of Controlling Class rights under the Indenture, especially given the "heavy presumption that a deliberately prepared and executed written instrument manifest[s] the true intention of the parties."*fn99 The most it could establish on summary judgment is unilateral mistake, which is insufficient for reformation of the contract.

Fourth, Wilkinson's testimony as to Costango's "agreement that the rights that Citi had as a lender under the loan facility would pass to Morgan Stanley for so long as Morgan Stanley was on risk"*fn100 does not unequivocally establish Citibank's corporate intent. Leaving aside for the moment that Costango testified that he did not remember coming to any such verbal agreement with Wilkinson prior to Wilkinson's June 22 Email, Costango was just one of many agents that worked on the Capmark Swap Agreement. Even assuming that he was the "chief negotiator" for Citibank -- and that his intent was to effect a transfer of Controlling Class rights and that his understanding was that 6(d) effected that transfer -- the undisputed facts establish that (1) Wilkinson knew the parties' ultimate "intentions" would be reduced to a fully-integrated contract, (2) Costango did not have authority to override that contract by responding "OK" to a request in an informal email exchange a month before the closing of Capmark,*fn101 (3) MSIP was on notice that any executed agreement would require "Citi final internal approvals,"*fn102 and (4) the parties agreed that they were "not relying upon any representations (whether written or oral) of the other party other than the representations expressly set forth" in the Capmark Swap Agreement.*fn103

In other words, even if Wilkinson and Costango were mutually mistaken as to whether the parties intended to transfer Controlling Class rights, in the absence of any evidence that any of the other individuals involved in the negotiation, drafting, and execution of the Capmark CDS had such an intention,*fn104 and in the face of unambiguous contract language that failed to transfer such rights, MSIP cannot establish, as a matter of law, based on the June 22 Email that MSIP and Citibank were mutually mistaken as to the passage of Controlling Class rights.

2. The Tallships Swap

MSIP contends that "[t]he undisputed evidence concerning the Tallships negotiations likewise confirms that it was the parties' mutual understanding that Controlling Class rights had been transferred under the Capmark Swap."*fn105 First, the fact that Citibank understood Wilkinson's November 28 Email -- requesting that Citibank "pass through to MS all voting/consent rights of the Advance Swap Counterparty under the Advance Swap"*fn106 -- to refer to Controlling Class rights does not wholly defeat the reasonable inference that Citibank did not understand Wilkinson's June 22 Email -- requesting that Citibank "pass[] along to MS all voting rights it has under the Loan Agreement to MS"*fn107 -- to be referring to such rights. The November 28 Email included more specific language than the June 22 Email ("In addition, the doc should provide that the failure to do so (or failure to act in accordance with the instructions of MS) will result in a MTM termination."). Moreover, it was a request for the passage of voting and consent rights in the Tallships Back-to-Back Swap Agreement, not the Tallships Swap Agreement for which MSIP argues the Capmark Swap Agreement served as a roadmap.

Second, although the Capmark Swap Agreement served as the starting point for the Tallships Swap Agreement, the reasonable explanation (drawing inferences in Citibank's favor) is that both were non-coterminous, three-year credit-default-swaps -- not that Citibank knew it had transferred Controlling Class rights in Capmark and intended to do so yet again. Similarly, the reasonable inference (if any) to draw from the flurry of internal Citibank emails that followed Wilkinson's November 28 Email is that Citibank was realizing for the first time that Wilkinson had intended to communicate a similar request in his June 22 Email.*fn108 But such an after-the fact realization does not establish mutual mistake "at the time the [Capmark Swap Agreement] [was] signed."*fn109

Third, Costango's November 29 "Voting rights" Email to Wilkinson ("We are struggling to recall how this was handled in Capmark") does not unequivocally support the inference that "it was the parties' mutual understanding that Controlling Class rights had been transferred under the Capmark Swap."*fn110

"Lawyers are telling me that we don't pass through voting rights" supports the reasonable inference that, institutionally, Citibank never thought the parties intended to transfer voting rights. Costango's caveat -- "but I seem to remember you being comfortable with the arrangement in Capmark" -- can be reasonably interpreted to express Costango's surprise that Wilkinson was insisting on voting rights in Tallships when, as "lawyers are telling [him (Costango)]," Wilkinson didn't do so in Capmark, and yet was "comfortable with the arrangement." And drawing all reasonable inferences in Citibank's favor, Wilkinson's response -- "I think in Capmark we just relied on the language that stated the credit agreement would not be amended without our prior written consent. I would prefer to be more specific in this trade. See attached rider." -- supports the inference that "[Wilkinson] was clearly embarrassed about his error in Capmark,"*fn111 i.e., his unilateral mistake in failing adequately to communicate his intentions to Citibank or to ensure that such an intent was truly shared by Citibank and memorialized in the Capmark Swap Agreement. This inference is bolstered by (1) Wilkinson's attachment of draft language to be included in the Tallships Swap Agreement -- language that became section 6(e), which supplemented rather than replaced section 6(d) after extensive discussion about its implications; (2) Wilkinson's lack of concern about and failure to protest, after reading Costango's November 29 Email, Citibank lawyers' view that Citibank did not pass Controlling Class rights in Capmark;*fn112 and (3) Wilkinson's preparation of a chart before any dispute arose between the parties, conveying that MSIP had no Controlling Class rights in Capmark.*fn113

Fourth, MSIP asks this Court to infer -- from Costango's subsequent email to Buerstetta (Clifford Chance) requesting legal advice concerning section 6(d) -- "that Citibank itself understood that Section 6(d) was intended to effect the transfer of Controlling Class rights."*fn114 But this email -- at most -- suggests that Costango, not "Citibank," thought he recalled the parties' transferring rights, and was puzzled that such a recollection was not reflected in the language of section 6(d). It bears noting, however, that Costango was only one of (at least) six Citibank agents involved in drafting, reviewing, or approving the Capmark Swap Agreement.*fn115 In any event, the content of the email is privileged, so that any inference arising solely from the fact that it was sent is speculative.

Fifth, Costango's December 7 "Tallships -- voting" Email --

I've thought a lot about why changes like this are warranted here compared to Capmark, and I believe the difference is that in Capmark we agreed to not make any change without consent and here we are agreeing to consult you in all cases if we don't want to make a change. So it's more complicated.*fn116

-- does not unequivocally establish that "in Tallships, Citibank agreed to consult Morgan Stanley whenever it had the ability to exercise a Controlling Class right [whereas] in Capmark, Citibank agreed only to allow Morgan Stanley to consent to or veto Citibank's exercise of Controlling Class rights."*fn117 Costango's December 7 Email contains no mention of "Controlling Class" rights or voting rights. Instead, drawing inferences in Citibank's favor, it is consistent with the unambiguous terms of section 6(d), which required Citi to "ask Morgan Stanley to say yes" if Citi "was going to do something, certain things," as Costango later testified*fn118 and as I held in the October 8 Opinion.*fn119 Even drawing all inferences in MSIP's favor, it merely reflects Costango's own (mistaken) understanding as to the meaning of section 6(d) vis-a-vis section 6(e) -- not Citibank's.

Sixth, the reasonable explanation for "why it took the parties two weeks to negotiate the wording of [s]section 6(e) of the Tallships Swap Confirmation" -- drawing all inferences in Citibank's favor -- is that Citibank did not believe it had transferred Controlling Class rights in Capmark, but intended to do so in Tallships and, consequently, had to carefully consider the implications. Costango's statement to Wilkinson -- that "the internal legal people . . . have raised some additional concerns with [Wilkinson's proposed language] of the 'what if this happens' variety"*fn120 -- could support the inference MSIP asks the Court to draw, namely that "transferring to Morgan Stanley the right to direct Citibank how to act raised complicated issues not raised by the consent rights transferred in Capmark."*fn121 But it does not rule out the possibility that Citibank's substantial vetting of Wilkinson's proposed language derived at least in part from Citibank's understanding that in Tallships Citibank not only was passing to MSIP the right to direct (as opposed to consent to) Citibank's exercise of certain rights, but also was passing much more substantial rights.*fn122

3. Contemporaneous Evidence

MSIP asserts that Citibank offers no contemporaneous evidence that the parties intended not to pass all Controlling Class rights under the Indenture to MSIP.*fn123 First, this statement inappropriately attempts to shift the burden of proof from MSIP to Citibank. Second, MSIP is mistaken. In addition to the language of the Capmark Swap Agreement, Citibank has proffered Wilkinson's January 2008 Chart,*fn124 SPG's SS Summary Spreadsheet,*fn125 Citibank's internal policies and written corporate intent,*fn126 Citibank's purported goal of obtaining regulatory capital relief,*fn127 and Citibank's opposition to ISDA's proposal to accept as standard the transfer of voting rights in CDSs on ABS CDOs.*fn128 Certainly, if Citibank bore the burden of proof, and if I were drawing inferences in MSIP's favor, I would not find this evidence particularly compelling.*fn129 But in light of the "high level" of evidentiary proof MSIP must proffer to avoid pretrial dismissal of a reformation claim*fn130 -- i.e., the clarity with which it must prove Citibank's institutional intent -- this contemporaneous evidence further supports my conclusion that MSIP's motion must be denied.

B. Citibank's Motion

Citibank moves for summary judgment on two grounds: first, that because Costango had authority only to negotiate the terms of a written agreement, but not the authority to bind Citibank, any alleged "understanding" between Costango and Wilkinson that is at odds with the Capmark Swap Agreement's unambiguous contractual terms cannot "bind" Citibank; and second, that no reasonable trier of fact could find by clear and convincing evidence that the parties intended to pass Controlling Class rights to MSIP.

Before addressing Citibank's arguments, it is necessary to provide some additional background relevant to Citibank's motion: The parties do not dispute that Costango had authority to negotiate the terms of a written agreement.*fn131 Although Wilkinson had no knowledge of whether Costango had signing authority with respect to any Citibank entity, Costango never told Wilkinson that he was authorized to sign on behalf of Citibank.*fn132 Wilkinson himself was not authorized to sign on behalf of MSIP,*fn133 but he testified that he had the authority to review and give legal approval of the final deal documents for MSIP.*fn134 As a matter of written internal policy, Citibank Legal Department's approval of all final, integrated written documents was required to bind Citibank to any non-standard confirmations,*fn135 including the Capmark Swap Agreement.

Citibank argues that "[t]here is no legal basis on which to reform a principal's unambiguous written agreement to reflect an imputed subjective intent of an agent with no authority to bind the principal to any agreement" and that "[n]one of the cases cited by MSIP reforms an unambiguous written agreement to reflect the imputed subjective intent of an agent with limited authority."*fn136 While the intent and understanding of the agents involved in negotiating an institution's contract may be relevant, in some instances, in determining an institution's intent,*fn137 the evidentiary basis for MSIP's claim for reformation is simply insufficient. MSIP's claim rests solely on its proof that Costango may have believed Citibank passed voting rights to MSIP. This cannot support reformation of a contract. Even if MSIP has established that Costango was Citibank's "chief" negotiator, he was not the only negotiator. And even assuming (1) that Costango understood that Wilkinson's intent was to pass Controlling Class rights to MSIP and (2) that he himself believed section 6(d) passed such rights, MSIP has proffered no evidence that he ever communicated this understanding -- or any understanding with respect to the passage of Controlling Class rights -- to anyone else at Citibank.

Moreover, it is not as if the derivatives lawyers who drafted section 6(d) are mere scribes charged with reducing bankers' intent to writing; they are members of teams responsible for negotiating the rights and obligations of Citibank when entering into complex financial contracts like the Capmark Swap Agreement.*fn138 The documentary evidence shows that the drafting process at both MSIP and Citibank was an iterative one in which multiple individuals weighed in on the content of the Capmark Swap Agreement.*fn139 I have already found that the final version of that Agreement -- which required the approval of Citibank's counsel*fn140 (as both Wilkinson and Costango knew) -- unambiguously did not transfer voting rights to MSIP. Further, the history of Tallships strongly suggests that, when Citibank intended to afford MSIP any power over Citibank's voting rights under the Indenture, it did so explicitly and after extensive negotiation. For all of these reasons, the evidence simply does not support the argument that section 6(d) was merely an "oversight" or "scrivener's error" requiring reformation of a fully-integrated contract containing a no-reliance clause.*fn141 In the absence of contemporaneous or course-of-performance evidence*fn142 that anyone at Citibank -- other than possibly Costango -- intended to pass all Controlling Class rights under the Indenture to MSIP, or thought section 6(d) effected transfer of those rights, MSIP has failed to establish mutual mistake by clear and convincing evidence.

Even if Costango's subjective intent were highly probative of Citibank's intent, my discussion of MSIP's motion in Part IV.A supra demonstrates that "no showing free of contradiction or equivocation comes through from the affidavits submitted [in opposition to Citibank's motion for summary judgment]."*fn143 MSIP has simply not shown, "'in no uncertain terms, not only that mistake . . . exists, but exactly what was really agreed upon between [Wilkinson and Costango].'"*fn144 Yet that is the showing MSIP must make in order to overcome the "'heavy presumption that a deliberately prepared and executed [agreement] manifest[s] the true intention[s] of the parties,' especially between counseled businessmen."*fn145 For all of these reasons, I conclude that no reasonable trier of fact could find by clear and convincing evidence that MSIP and Citibank mutually intended for the Capmark Swap Agreement to transfer all Controlling Class rights under the Indenture to MSIP.*fn146 Therefore, Citibank's motion for summary judgment dismissing MSIP's claim for reformation is granted.

V. CONCLUSION

For the reasons stated above, MSIP's motion fo summary judgment is denied, and Citibank's cross-motion is granted. The Clerk of Court is directed to close these motions (Docket Nos. 61 and 70).

SO ORDERED.


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