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Wells Fargo Bank, National Association v. Davidson Kempner Capital Management LLC

United States District Court, S.D. New York

March 6, 2014

WELLS FARGO BANK, NATIONAL ASSOCIATION, as trustee, Interpleader Plaintiff,
v.
DAVIDSON KEMPNER CAPITAL MANAGEMENT LLC, WATERFALL ASSET MANAGEMENT LLC, THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, STS PARTNERS FUND, LP, BEDFORD CMBS ACQUISITIONS LLC, CEDE CO., as holder of certain Certificates and nominee name of The Depository Trust Company, and DOES 1 through 50, holders of beneficial interests in the Certificates, Interpleader Defendants.

Carolyn Renee O'Leary, Esq., Michael Edward Johnson, Esq., Alston & Bird, LLP, New York, New York, for Interpleader Plaintiff, Wells Fargo.

Thomas H. Golden, Esq., Willkie Farr & Gallagher, LLP, New York, New York, for Interpleader Defendants, the DWS Parties.

Danielle C. Lesser, Esq., Latisha V. Thompson, Esq., Y. David Scharf, Esq., Morrison Cohen, LLP, New York, New York, for Interpleader Defendant, Bedford.

Vincent Bauer, Esq., Law Offices of Vincent. E. Bauer, New York, New York, for Interpleader Defendant, Northwestern.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. BACKGROUND

This case arises out of a dispute among Bedford CMBS Acquisitions LLC ("Bedford") and The Northwestern Mutual Life Insurance Company ("Northwestern"), Davidson Kempner Capital Management LLC, Waterfall Asset Management LLC, and STS Partners Fund, LP (together, the "DWS Parties") over Bedford's right to purchase certain securities administered by Wells Fargo National Bank Association ("Wells Fargo"). Wells Fargo brings this interpleader action[1] against Bedford, the DWS parties, Northwestern, and other certificate holders to settle any claims stemming from this dispute and to restrain the parties from bringing a separate suit against Wells Fargo. The DWS Parties bring a crossclaim against Bedford challenging Bedford's right to exercise a purchase option. Bedford moves for judgment on the pleadings to dismiss Wells Fargo's interpleader action and the DWS Parties' crossclaim pursuant to Federal Rule of Civil Procedure 12(c).[2]

Wells Fargo holds certain pooled mortgage-backed securities certificates on behalf of depositor GS Mortgage Securities Corporation II, [3] and serves as trustee pursuant to the Pooling Agreement.[4] The Pooling Agreement provides for tiered classes of certificates which offer different yields and risks.[5] The Agreement ameliorates the disadvantages of holding junior classes of certificates[6] by providing that, "[a]s of any date of determination, " the majority holder of the most junior class that has an outstanding certificate balance of at least 25% of the initial certificate balance will be the Directing Securityholder.[7] Bedford is currently the Directing Securityholder.[8]

Pursuant to section 7.13 of the Pooling Agreement, the Directing Securityholder has an assignable option to purchase a pooled security that has been deemed defaulted or imminently defaulted.[9] The option price is either: "(i) if the Trustee has not yet determined the Fair Value of the [defaulted security], the unpaid principal amount thereof plus accrued and unpaid interest thereon, " or "(ii) if the Trustee has made a Fair Value determination, the Fair Value of the" defaulted security as determined by the trustee in accordance with the procedures outlined in section 7.13.[10]

"If the Directing Securityholder has not provided notice to the Trustee of its exercise of the Purchase Option within 10 Business Days of its receipt of notice that a [certificate has become a defaulted security], the Purchase Option calculated pursuant to clause (i) above will be deemed to be irrevocably waived...."[11] If a Directing Securityholder has received notice of the Fair Value determination, but "does not provide notice to the Trustee of its exercise of the Purchase Option within 10 Business Days of its receipt of the notice of the determination of the Fair Value... the Purchase Option will be deemed to be irrevocably waived with respect to the [defaulted security]."[12]

In July 2013, the Directing Securityholder (previous to Bedford) requested a Fair Value determination for certain defaulted securities (the "Disputed Securities"). Neither Wells Fargo nor the DWS Parties allege that this Directing Securityholder ever received notice of the Fair Value of the Disputed Securities.[13] It is undisputed that the then Directing Securityholder did not exercise its option to purchase the Disputed Securities for the price of the unpaid principal plus accrued and unpaid interest, as calculated pursuant to clause (i).

"On August 9, 2013, Bedford notified Wells Fargo that it had become the Directing Securityholder."[14] Four days later, it requested a Fair Value determination for the Disputed Securities.[15] "On August 20, 2013, Wells Fargo provided Bedford with notice of the Fair Value of the Disputed [Securities]."[16] The next day Bedford notified Wells Fargo that it intended to exercise its purchase option.[17] Wells Fargo then notified Bedford that it would accept exercise of the option, and the parties agreed on a closing date for the purchase.[18] Wells Fargo expressed no concern at that time that Bedford's option to purchase the Disputed Securities may have been waived by the previous Directing Securityholder.[19]

The DWS Parties and Northwestern subsequently informed Wells Fargo that they objected to Bedford's purchase of the Disputed Securities.[20] Wells Fargo initiated this action, claiming that the Pooling Agreement is "ambiguous with respect to Bedford's right to exercise the Purchase Option with respect to the Disputed [Securities]....[21] In their answer, the DWS Parties brought a crossclaim against Bedford seeking a declaratory ...


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