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Bank of America, N.A., As Successor By Merger To Lasalle Bank N.A., In v. Morgan Stanley & Co. Inc.; Aozora Bank

June 24, 2011

BANK OF AMERICA, N.A., AS SUCCESSOR BY MERGER TO LASALLE BANK N.A., IN ITS CAPACITY AS TRUSTEE UNDER THAT CERTAIN INDENTURE, DATED AS OF JANUARY 18, 2007 BY AND AMONG ITSELF, GSC ABS FUNDING 2006-3G, LTD., AND GSC ABS FUNDING 2006-3G (DELAWARE) CORP., INTERPLEADER PLAINTIFF,
v.
MORGAN STANLEY & CO. INC.; AOZORA BANK, LTD.; CEDE & CO., AS HOLDER OF CERTAIN NOTES AND NOMINEE NAME OF THE DEPOSITORY TRUST COMPANY; AND DOES 1 THROUGH 50, OWNERS OF BENEFICIAL INTERESTS IN THE NOTES, INTERPLEADER DEFENDANTS.



The opinion of the court was delivered by: Richard J. Holwell, District Judge:

MEMORANDUM OPINION AND ORDER

Plaintiff Bank of America, N.A. ("BANA") commenced this interpleader action against defendants Morgan Stanley & Co. Inc. ("Morgan Stanley"); Aozora Bank, Ltd. ("Aozora"); Cede & Co. ("Cede"); and Does 1 through 50, owners of beneficial interests in certain notes issued pursuant to an indenture, on August 23, 2010, to resolve competing claims to the proceeds of the liquidation of certain collateral. Now before the Court is BANA's unopposed motion to disburse funds and obtain a discharge, permanent injunction, and attorneys' fees and other expenses. For the reasons that follow, BANA's motion is GRANTED.

BACKGROUND

This action arises out of an indenture (the "Indenture") pursuant to which GSC ABS Funding 2006-3g, Ltd., as Issuer, and GSC ABS Funding 2006-3g (Delaware) Corp., as Co-Issuer, issued certain Notes secured by a pool of Collateral.*fn1 (Compl. ¶ 9.) BANA, a Delaware corporation with its principal place of business in North Carolina, serves as Trustee under the Indenture. (Id. ¶¶ 1, 4.) Defendant Cede is the "nominee name of the Depositary [sic] Trust Company," a New York limited purpose trust company with its principal place of business in New York. (Id. ¶ 7.) Cede is the registered holder of record of the Class A-1-a, Class A-1LT-e, Class A-2, and Class B Notes, representing 100% of the aggregate principal amount outstanding on these classes of Notes, and holds the Notes for the ultimate benefit of others, including defendants Morgan Stanley and Aozora. (Id.) Morgan Stanley, a Delaware corporation with its principal place of business in New York, is the beneficial owner of all Class A-1LT-e Notes issued pursuant to the Indenture and is the Controlling Class under the Indenture. (Id. ¶ 5.) Aozora is a Japanese corporation with its principal place of business in Japan, and the beneficial owner of a portion of the Class B Notes issued pursuant to the Indenture. (Id. ¶ 6.) Defendants Does 1 through 50 are beneficial owners of the interests in the Class A-1-a, A-2, and B Notes held by Cede, of whose true identities BANA is ignorant. (Id. ¶ 8.)

On February 1, 2008, an Event of Default, as that term is defined in Sections 1.1 and 5.1(h) of the Indenture, occurred. (Id. ¶ 11.) On May 8, 2008, Morgan Stanley, as the Controlling Class, directed BANA to accelerate the maturity of the Notes and to liquidate the Collateral pursuant to Sections 5.2(a) and 5.5(a)(ii) of the Indenture. (Id. ¶¶ 12, 13.) The Collateral largely consisted of synthetic securities and other assets and accounts, and included all payments received on the synthetic securities and other assets. (Id. ¶ 10.) Pursuant to the Indenture, the Issuer had pledged the Collateral to BANA in its capacity as Trustee in order to secure its obligations under the Indenture. (Id. ¶ 10.)

On August 18, 2008, BANA notified interested parties of the liquidation and the designation of August 20, 2008, as the date for distribution of the liquidation's proceeds. (Id. ¶ 14.) Concerned with a possible ambiguity with respect to how the Indenture dictated distribution of the liquidation proceeds, BANA issued a notice on August 20, 2008, that it would hold in escrow a portion of the liquidation proceeds that it anticipated could be the subject of dispute based on this ambiguity. (Id. ¶¶ 16, 17.) The amount of the liquidation proceeds (the "Interpleader Stake") held by BANA in escrow was $1,859,269.29 as of the date of the Complaint. (Id. ¶ 22.)

In response to BANA's notice, Morgan Stanley and Aozora communicated to BANA competing interpretations of the Indenture's provisions with respect to the distribution of the liquidation proceeds on June 10, 2010, and May 31, 2010, respectively. (Id. ¶¶ 18-20.) Each defendant's interpretation of the Indenture favored the Notes it beneficially owned. (See id. ¶¶ 19-20.)

BANA then commenced this action on August 23, 2010. Cede, Aozora, and Morgan Stanley were served on August 25, 2010, August 26, 2010, and August 31, 2010, respectively. (See ECF Nos. 3, 4, 5.) Cede filed its Answer on September 23, 2010. (See ECF No. 7.) In its Answer, Cede asserted that it had "no beneficial interest in the subject Notes or any other securities identified in the Complaint," that any securities registered in its name were held for the benefit of third parties known as "Participants," who had all been notified of this litigation, and that Cede did "not intend to take an active role in the litigation of this case." (Answer of Cede & Co. to the Interpleader Complaint ¶¶ 6-8.) Morgan Stanley filed its Answer on October 29, 2010, advancing its interpretation of the Indenture, which would entitle it to 96.87% of the Interpleader Stake, with the remaining 3.13% to be disbursed to the holders of the Class A-1-a Notes. (See Answer and Cross-Claim of Morgan Stanley ¶ 25.) Morgan Stanley also filed cross-claims against the other Interpleader defendants based on its interpretation of the Indenture, to which Cede filed an Answer similar to its Answer to the Complaint. (See ECF No. 13.) Although Aozora was served with Morgan Stanley's cross-claim and with BANA's complaint, it never answered or otherwise responded to either pleading. (See ECF Nos. 5, 12.)

DISCUSSION

I.Interpleader Liability

A.The Two-Stage Process

This interpleader action was filed pursuant to 28 U.S.C. § 1335, which provides the district courts with original jurisdiction over "any civil action of interpleader" involving $500 or more if:

(1) Two or more adverse claimants, of diverse citizenship . . . , are claiming or may claim to be entitled to such money . . . ; and if (2) the plaintiff has deposited such money . . . into the registry of the court, there to abide the judgment of the court . . . .

28 U.S.C. § 1335(a). "Normally an interpleader action is concluded in two stages, the first determining that the requirements of § 1335 are met and relieving the plaintiff stakeholder from liability, and the second adjudicating the adverse claims of the defendant claimants . . . ." New York Life Ins. Co. v. Conn. Dev. Auth., 700 F.2d 91, 95 (2d Cir. 1983). "[T]his bifurcation is not mandatory, however, and the entire action may be disposed of at one time." Id. Combining the two stages of the interpleader action is appropriate where, as here, only one interpleader defendant asserts a claim to the fund in question. See id.; Life Ins. Co. of N. Am. v. Hale, No. ...


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