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Wells Fargo Bank, N.A. v. Holdco Asset Management, L.P.

United States District Court, S.D. New York

July 11, 2017

WELLS FARGO BANK, N.A., solely in its capacity as trustee for Soloso CDO 2005-1 Ltd., Plaintiff,
v.
HOLDCO ASSET MANAGEMENT, L.P.; HOLDCO OPPORTUNITIES FUND II, L.P.; and OPPORTUNITIES II LTD., Defendant.

          OPINION & ORDER

          KATHERINE B. FORREST, District Judge.

         This is a contract dispute arising from an auction conducted by Wells Fargo Bank, N.A. (“Wells Fargo”) on January 21, 2016 (the “ January Auction”) to liquidate the assets of Soloso CDO 2005-1 Ltd. and Soloso CDO 2005-1 Corp. (collectively, “Soloso”), a collateralized debt obligation (“CDO”) of which Wells Fargo serves as the trustee. The parties disagree about who owns three securities that Wells Fargo noticed for auction. HoldCo Asset Management, L.P., HoldCo Opportunities Fund II, L.P., and Opportunities II Ltd. (collectively, “HoldCo”) claim they own the securities because they submitted the highest qualifying bids on these assets in the January Auction. In HoldCo's view, Wells Fargo conducted the auction “without reserve, ” which means it did not reserve the right to reject qualifying bids, and Wells Fargo's failure to deliver the securities constitutes a breach of contract. Wells Fargo counters that Soloso still owns the securities because Wells Fargo conducted the auction “with reserve, ” which means it reserved the right not to accept, and in fact did not accept, HoldCo's bids.

         The parties have filed several motions in an attempt to resolve this ownership issue and pursue associated remedies. Now before the Court are Wells Fargo and HoldCo's cross-motions for summary judgment (ECF Nos. 24 and 46, respectively), Wells Fargo's motion to dismiss HoldCo's counterclaims (ECF No. 53) and HoldCo's motion for discovery pursuant to Federal Rule of Civil Procedure 56(d) (ECF No. 74).

         For the reasons set forth below, the Court GRANTS Wells Fargo's motion for summary judgment, DENIES HoldCo's motions for summary judgment and relief pursuant to Rule 56(d) and GRANTS in part and DENIES in part Wells Fargo's motion to dismiss under Rule 12(b)(6). The Court further DISMISSES as moot Counts One, Two and Three of HoldCo's counterclaims. (See ECF No. 38.)

         I. FACTUAL BACKGROUND

         The facts below are drawn from the undisputed facts in the record. This case arises from an auction that Wells Fargo, as trustee of the Soloso CDO, conducted after being directed by court order to liquidate trust assets owned by Soloso. The subsections below first describe the trust instruction proceeding that led Wells Fargo to conduct the auction at issue in this case, then discuss the notice and invitation to bid that Wells Fargo issued in advance of the auction, and, finally, describe the events that unfolded during the auction itself.

         A. The Trust Instruction Proceeding

         On September 8, 2015, Lansuppe Feeder, LLC (“Lansuppe”), a noteholder in Soloso, commenced a trust instruction proceeding in this District against Wells Fargo. (The Trustee's Statement of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 in Support of the Trustee's Motion for Summary Judgment (“Pl.'s 56.1”), ECF No. 28 ¶ 1; see also Affidavit of Charles Brehm in Support of Trustee's Motion for Summary Judgment (“Brehm Aff.”), ECF No. 26, Ex. 2.) That action is captioned Lansuppe Feeder, LLC v. Wells Fargo Bank, N.A., No. 15-cv-7034 (S.D.N.Y.), and proceeded before the Honorable Laura Taylor Swain. (See Brehm Aff., Ex. 2.) In that proceeding, Lansuppe alleged that in April 2013, Soloso defaulted on its obligations under the Soloso indenture (the “Indenture”) when it failed to pay interest owed to Class A-1 noteholders. (Pl.'s 56.1 ¶ 2; Brehm Aff., Ex. 2 ¶ 2.) Lansuppe further alleged that, as the holder of more than two-thirds of Class A-1 notes issued by Soloso, it had a right, which it exercised to direct Wells Fargo to liquidate the collateral held by Soloso. (Pl.'s 56.1 ¶ 2; Brehm Aff., Ex. 2 ¶¶ 2, 28-30.) Lansuppe sought a judicial instruction compelling Wells Fargo to comply with its liquidation directive. (Pl.'s 56.1 ¶ 2; Brehm Aff., Ex. 2 ¶ 55.)

         The Indenture sets forth the process Wells Fargo must follow in the event an eligible noteholder directs liquidation. Section 5.4 provides, in relevant part:

If the applicable Noteholders direct any sale or liquidation of the Trust Estate, or any portion thereof, the Trustee shall sell or liquidate the Trust Estate, or portion thereof, in accordance with Section 5.18 at one or more public or private sales conducted in any manner permitted by law.

(Pl.'s 56.1 ¶ 3; Brehm Aff., Ex. 1 § 5.4.) Section 5.18 provides, in relevant part:

The power to effect any sale (a ‘Sale') of any portion of the Trust Estate pursuant to Section 5.4 and Section 5.5 hereof shall not be exhausted by any one or more Sales as to any portion of such Trust Estate remaining unsold, but shall continue unimpaired until the entire Trust Estate securing the Notes shall have been sold . . .

(Pl.'s 56.1 ¶ 4; Brehm Aff., Ex. 1 § 5.18(a).)

         On October 26, 2015, Judge Swain issued a Memorandum Opinion & Order granting partial summary judgment in favor of Lansuppe (the “Liquidation Order”), which stated, in relevant part:

Lansuppe's motion for summary judgment is granted insofar as it seeks an instruction from this Court that the Trustee liquidate the assets of the Trust Estate. The Trustee is hereby authorized and directed to liquidate the assets of the Trust Estate in accordance with the provisions of the Indenture. Such assets are to be held, pending further order of the Court, in a manner designed to preserve their value. The Trustee shall not be held liable to any Noteholder or other third party for any actions taken in compliance with this Memorandum Opinion and Order.

(Pl.'s 56.1 ¶ 5; Brehm Aff., Ex. 3 at 12.)[1]

         B. The Liquidation Process

         Pursuant to the Indenture and Liquidation Order, on November 18, 2015, the Trustee issued a Notification of Public Disposition of Collateral (the “Notice”) to Soloso and its noteholders, among others, stating that Wells Fargo would sell Soloso's assets “to the highest qualified bidder or bidders in five public sales, ” which the Notice defined as the “Sales.” (Brehm Aff., Ex. 4 at 2; see also Pl.'s 56.1 ¶ 7; The HoldCo Entities' Corrected Statement of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 in Support of the HoldCo Entities' Motion for Summary Judgment (“Def.'s 56.1”), ECF No. 78 ¶¶ 3, 6.) The Notice lists the dates of the five public auctions, defined as the “Sales”, and discloses that Wells Fargo had retained Dock Street Capital Management LLC (“Dock Street”) to serve as the liquidation agent. (Pl.'s 56.1 ¶ 8; Def.'s 56.1 ¶¶ 5, 7; Brehm Aff., Ex. 4 at 2.) It further provides that “[a]ny Collateral remaining unsold at the conclusion of the public Sales referenced above may be sold in one or more public or private sales on or after the date of Public Sale No. 5.” (Brehm Aff., Ex. 4 at 3.)

         Also pursuant to the Indenture and Liquidation Order, on November 20, 2015, Wells Fargo issued a Notice of Public Sale and Invitation to Bid (“Invitation to Bid”) to potential bidders and other parties. (Pl.'s 56.1 ¶ 9; Def.'s 56.1 ¶ 8; Brehm Aff., Ex. 5.) The Invitation to Bid provides, “You are officially invited to bid on the collateral described below (the ‘Collateral'), which will be sold at sales, as indicated below (the ‘Sales').” (Brehm Aff., Ex. 5 at 2; see also Pl.'s 56.1 ¶ 10; Def.'s 56.1 ¶ 10.) The Invitation to Bid identifies the assets to be sold and informs participants that the collateral will be sold in five separate auctions throughout December 2015 and January 2016 at specified dates and times (identified as “Sales”). (Pl.'s 56.1 ¶ 11; Def.'s 56.1 ¶¶ 10-11; Brehm Aff., Ex. 5.) The Invitation to Bid informs potential bidders that, “[b]y submitting a bid, the bidder agrees to be bound by the terms and conditions, representations and warranties of this [document].” (Brehm Aff., Ex. 5 § 3(i); Pl.'s 56.1 ¶ 12.)

         Section 3 of the Invitation to Bid sets forth several “Conditions of Sales, ” only some of which are pertinent here. (See Brehm Aff., Ex. 5 § 3.)

         Section 3(a) provides:

Each item of Collateral will be awarded only to the best bidder who is also a qualified bidder (the “Best Bidder”). The Trustee reserves the right to reject any bid which it deems to have been made by a bidder which is unable to satisfy the requirements imposed by the Trustee upon prospective bidders in connection with the Sales or to whom in the Trustee's sole judgment a Sale may not lawfully be made. The Trustee shall not be obligated to make any Sale and reserves the right to sell all or a part of the Collateral at a subsequent public or private Sale.

         (Brehm Aff., Ex. 5 § 3(a); see also Pl.'s 56.1 ¶ 13; Def.'s 56.1 ¶ 12.)

         Section 3(c) provides:

The winning bids shall be determined as follows:
(i) if (A) one or more qualified bids is submitted for a Portfolio and (B) the highest qualified bid for such Portfolio is greater than the sum of the highest qualified bids with respect to each of the items of Collateral included in such Portfolio, the winning bid with respect to each of the items of Collateral included in such Portfolio shall be such highest qualified bid for such Portfolio; and
(ii) otherwise, the winning bid for each item of Collateral shall be the highest qualified bid for each such item of Collateral.

         (Brehm Aff., Ex. 5 § 3(c); Def.'s 56.1 ¶ 13.)

         Section 3(g) provides, in relevant part, “The Trustee will accept bids only from such of those persons to whom in its sole judgment a Sale may lawfully be made.” (Brehm Aff., Ex. 5 § 3(g).) Section 3(k) provides, “All bids submitted must be irrevocable and unconditional and held open for no less than three (3) hours.” (Id. § 3(k); see also id. § 3(n) (“All bids submitted must be irrevocable and unconditional.”).)

         Section 3(o) provides, in relevant part, “Unless otherwise specified, the Sale of each security will settle not later than on a T basis (the ‘Settlement Date').” (Brehm Aff., Ex. 5 § 3(o); Def.'s 56.1 ¶ 14.)

         Section 3(q) provides:

The Trustee reserves the right to offer the Collateral in any other commercially reasonable manner. The Trustee may adjourn or cancel the Sales or cause such Sales to be adjourned, recessed and/or reconvened from time to time, without further written notice or further publicity, by announcement at the time and place appointed for such Sales or at any adjournment, recess and/or reconvening and, without further written notice or publication, such Sales may be held at the time and place to which they may have been so adjourned.

         (Brehm Aff., Ex. 5 § 3(q).)

         Section 3(r) provides:

No Sale will be completed until the Best Bidder completes its purchase as provided herein and, in the case of any failure to complete a purchase, the Trustee may without further notice accept the next best bid from a qualified bidder.

         (Brehm Aff., Ex. § 3(r).)

         Neither the Invitation to Bid nor the Notice explicitly provides that “reserve levels may apply, ” “reserve levels shall apply, ” or “reserve levels will apply.” (Def. 56.1 ¶ 15.)

         C. The January Auction

         On January 21, 2016, the fourth of the five scheduled Sales was held (the “January Auction”). (Pl.'s 56.1 ¶ 20; Def.'s 56.1 ¶ 23.) This action concerns three of the securities listed for sale in the January Auction: (1) $15, 000, 000 in original principal amount of trust preferred securities issued by MB Financial Capital Trust II (the “MB Asset”); (2) $10, 000, 000 in original principal amount of trust preferred securities issued by Arrow Capital Statutory Trust III (the “Arrow Asset”); and (3) $10, 000, 000 in original principal amount of trust preferred securities issued by SWBT Statutory Trust II (the “SWBT Asset”) (collectively, the “Subject Securities”). (Pl.'s 56.1 ¶ 20; see also Brehm Aff., Ex. 5 at Ex. B-4; Brehm Aff., Ex. 4 at Ex. A.)

         Before the January Action, a HoldCo entity approached Sandler O'Neill & Partners, L.P. (“Sandler”) and Guggenheim Securities LLC (“Guggenheim”) to represent them in the Sales.[2] (Def.'s 56.1 ¶ 19; Trustee's Response to HoldCo's Statement of Undisputed Material Facts Pursuant to Local Rule 56.1 in Support of HoldCo's Cross-Motion for Summary Judgment (“Pl. Counter Statement”), ECF No. 58 ¶ 19.) Guggenheim and Sandler submitted the following bids relating to the Subject Securities to Dock Street:

Security

Guggenheim Bid Price (as a % of the notional value of the security)

Sandler Bid Price (as a % of the notional value of the security)

MB Asset

30.50

40.52

Arrow Asset

41.53

37.55

SWBT Asset

43.48

40.10

(Pl.'s 56.1 ¶ 21; see also Def.'s 56.1 ¶ 27.)

         After the period allotted for bidding closed, Dock Street informed Wells Fargo's counsel that the Subject Securities “didn't meet reserves and we're [sic] not traded.” (Affidavit of David Crowle in Support of the Trustee's Motion for Summary Judgment, dated September 21, 2016 (“Crowle Aff.”), ECF No. 27, Ex. E.) Dock Street also exchanged instant chat messages with Guggenheim on the afternoon of January 21, 2016, in which Dock Street explained that the some of the securities were “DNTs” (i.e., did not trade) because they “didn't meet reserves.” (Id., Ex. F at 12:18 PM - 12:33 PM; see also id. ¶ 11.) In response to inquiries from Guggenheim, Dock Street told Guggenheim that it had placed the high bid on two of the DNTs, lots 1 and 12 (id., Ex. F at 1:31 PM - 2:43 PM), which corresponded to the Arrow Asset and the SWBT Asset, respectively (Pl.'s 56.1 ¶ 27). Sandler also asked Dock Street whether it had been “high” on any of the securities that “dnt'd.” (Crowle Aff., Ex. G at 1:49 PM; see also Pl.'s 56.1 ¶ 28.) Dock Street stated that Sandler had submitted the high bids on lots 6 and 7 (Crowle Aff., Ex. G at 1:50 PM), with lot 7 corresponding to the MB Asset (Pl.'s 56.1 ¶ 29).

         II. PROCEDURAL HISTORY

         Wells Fargo commenced this action against HoldCo on August 10, 2016, seeking a declaratory judgment pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57 that (1) no contract for sale of any of the Subject Securities was formed as a result of the January Auction; (2) HoldCo has no right or interest in the Subject Securities; and (3) HoldCo has no cause of action against Soloso, Wells Fargo, Lansuppe, Dock Street or any of ...


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