United States District Court, S.D. New York
OPINION AND ORDER
RICHARD J. SULLIVAN, District Judge.
Plaintiff House of Europe I. Ltd. ("HOE I"), a special purpose vehicle and issuer of collateralized debt obligations ("CDOs"), brings this action against Defendants Collineo Asset Management GMBH ("Collineo") and Wells Fargo Bank, N.A. ("Wells Fargo") for breach of contract and declaratory judgment in connection with Defendants' alleged mismanagement of the assets underlying HOE I. Now before the Court is HOE I's motion to dismiss Wells Fargo's counterclaims. For the reasons set forth below, the Court grants HOE I's motion.
The Court presumes the parties' familiarity with the facts of this case, which are set forth more fully in the Court's March 31, 2014 Opinion and Order granting in part and denying in part Defendants' motion to dismiss (Doc. No. 47 (the "March 31 Opinion" or "March 31 Op.").) As noted in that opinion, this case arises out of investment losses that were allegedly sustained by HOE I and its senior noteholder, Erste Abwicklungsanstalt ("EAA"), as a result of breaches by Collineo and Wells Fargo of agreements governing the assets underlying HOE I. In essence, HOE I alleges that Collineo and Wells Fargo breached these agreements by purchasing or causing HOE I to purchase financial assets that failed to comply with certain eligibility criteria that the assets in the CDO transaction were required to meet.
The agreements governing this CDO transaction (the "Governing Documents") are the Amended and Restated Indenture (the "Indenture"), entered into by and among HOE I, House of Europe Funding I LLC, and Wells Fargo; the Collateral Administration Agreement (the "CAA"), entered into by and among HOE I, Wells Fargo, and Collineo; and the Asset Management Agreement (the "AMA"), entered into by and between HOE I and Collineo. (March 31 Op. at 2.) For the Governing Documents, HOE I was the Issuer, Wells Fargo was the Indenture Trustee, and Collineo was the Asset Manager. ( Id. )
In essence, HOE I alleges that multiple provisions in the Governing Documents obligated Wells Fargo, as Trustee, and Collineo, as Asset Manager, to avoid selecting or investing in underlying assets when doing so would breach certain criteria that the assets in the CDO were required to meet (the "Eligibility Criteria" (Indenture § 12.02)). (Compl. ¶¶ 32-41.) According to the Complaint, on at least six separate occasions between April 2006 and July 2007, Defendants invested in assets (the "Disputed Assets") that failed to comply with the Eligibility Criteria. ( Id. ¶¶ 50-51.) The Complaint further alleges that on March 15, 2011, EAA, the "Controlling Party" that owned a majority of the senior notes, demanded that Wells Fargo bring appropriate legal action on behalf of HOE I to recover losses sustained as a result of investment in the Disputed Assets, but that Wells Fargo refused to do so. (Compl. ¶ 58.) On January 23, 2013, when HOE I and EAA filed the Complaint, the CDO at issue here had accrued losses of approximately $143 million. (March 31 Op. at 3.)
On May 9, 2014, Wells Fargo filed an answer, denying these allegations and asserting two counterclaims. (Doc. No. 59.) The first counterclaim is a "contingent counterclaim" premised on HOE I's core allegation that Collineo and Wells Fargo breached the Governing Documents by purchasing or causing HOE I to purchase the Disputed Assets that failed to comply with the Eligibility Criteria. Specifically, Wells Fargo alleges that Section 7.11 of the Indenture required HOE I to deliver annual Officer's Certificates to Wells Fargo, attesting that HOE I performed a review of its activities and performance and that HOE I had fulfilled all of its obligations under the Indenture. (Ans. ¶ 27.) Wells Fargo further alleges that one of HOE I's obligations under the Indenture was to ensure that the Disputed Assets complied with the Eligibility Criteria. Thus, Wells Fargo argues that "[i]n the event the Court accepts HOE I's assertion" that Wells Fargo and Collineo breached the Governing Documents by purchasing or causing HOE I to purchase the Disputed Assets in violation of the Eligibility Criteria, then "HOE I's certification contained in the... Officer's Certificate[s] [dated July 20, 2007 and April 4, 2008 were] materially false" because HOE I could not have truthfully represented that it had fulfilled its obligations under Section 7.11 if the Disputed Assets in fact breached the Indenture. ( Id. ¶¶ 28-33.)
Wells Fargo's second counterclaim is premised on an alleged indemnification agreement that HOE I executed with EAA after EAA voluntarily dismissed its claims against Defendants. ( Id. ¶ 16.) Wells Fargo argues that HOE I agreed to the indemnification arrangement with EAA in violation of Section 7.10(d) of the Indenture, which, in relevant part, prohibited HOE I from entering into a "material new agreement" without providing notice to noteholders and rating agencies. ( Id. ¶ 13.) Wells Fargo alleges that HOE I never disclosed its indemnification agreement with EAA, and therefore breached Section 7.10(d) of the Indenture. ( Id. ¶ 21.) Wells Fargo also argues that any benefits or proceeds from the alleged indemnification agreement with EAA fall within the Indenture's Granting Clause, which provides that HOE I pledges to Wells Fargo all title to and rights in assets owned by HOE I (the "Collateral" (Indenture at 1-2)). ( Id. ¶ 10.) Wells Fargo alleges that HOE I has breached the Granting Clause because it has not turned over to Wells Fargo any benefits or proceeds from the indemnification agreement, including attorney's fees that may have been advanced to HOE I by EAA during the course of this litigation. ( Id. ¶¶ 20, 23.)
On June 18, 2014, HOE I filed a motion to dismiss Wells Fargo's counterclaims for failure to state a claim. (Doc. No. 74.) The motion was fully submitted on July 14, 2014. (Doc. No. 83.)
II. LEGAL STANDARD
To survive a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint or counterclaim must "provide the grounds upon which [the] claim rests." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). The claimant must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the [claimant] pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In reviewing a Rule 12(b)(6) motion to dismiss, a court must accept as true all factual allegations in the pleading and draw all reasonable inferences in favor of the claimant. ATSI Commc'ns, 493 F.3d at 98. However, that tenet "is inapplicable to legal conclusions." Iqbal, 556 U.S. at 678. Thus, a pleading that only offers "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. If the claimant "ha[s] not nudged [his] claims across the line from conceivable to plausible, [his] [claims] must be dismissed." Id. at 570.
Under New York law, which governs the Indenture and CDO notes ( see Indenture § 14.10), "the initial interpretation of a contract is a matter of law for the court to decide." Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., 837 F.Supp.2d 162, 189 (S.D.N.Y. 2011) (quoting K. Bell & Assocs., Inc. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir. 1996). "Included in this initial interpretation is the threshold question of whether the terms of the contract are ambiguous." Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, London, 136 F.3d 82, 86 (2d Cir. 1998). "[T]he presence or absence of ambiguity is determined by looking within the four corners of the document, without reference to extrinsic evidence." Chapman v. N.Y. State Div. for Youth, 546 F.3d 230, 236 (2d Cir. 2008) (citation omitted). "Ambiguity in a contract is the inadequacy of the wording to classify or characterize something that has potential significance." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 178 (2d Cir. 2004). And except when "an ambiguity must be construed against the [claimant], a claim predicated on a materially ambiguous contract term is not dismissible on the pleadings." Id.
Wells Fargo claims that HOE I breached the Indenture by failing to (1) deliver accurate Officer Certificates in 2007 and 2008 in violation of Section 7.11, (2) disclose its material agreement with EAA concerning this litigation in violation of Section 7.10(d), and (3) turn over the proceeds of its indemnification agreement with EAA concerning this litigation to Wells Fargo in violation of the Granting Clause. Having applied the principles of New York contract interpretation to the relevant provisions of the ...