Lansuppe Feeder, LLC v. Wells Fargo Bank, Na, for Soloso Cdo 2005-1 Ltd.

LANSUPPE FEEDER, LLC, Plaintiff, v. WELLS FARGO BANK, NA, as trustee for Soloso CDO 2005-1 Ltd. Defendant,andSOLOSO CDO 2005-1 LTD., Nominal Defendant,andOXFORD UNIVERSITY BANK; CITIZENS BANK & TRUST COMPANY;COASTAL COMMERCE BANK; GUARANTY BANK AND TRUST COMPANY;BANKFIRST FINANCIAL SERVICES; THE FIRST, A NATIONAL BANKING ASSOCIATION;COPIAH BANK, NATIONAL ASSOCIATION; & PRIORITYONE BANK; BANK OF MORTON;BANK OF KILMICHAEL; HOLMES COUNTY BANK AND TRUST COMPANY;FIRST COMMERCIAL BANK; and FIRST STATE BANK; Intervenors.

No. 15-CV-7034-LTS

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 29, 2016

MEMORANDUM OPINION AND ORDER

This trust instruction proceeding, in which Plaintiff Lansuppe Feeder, LLC ("Lansuppe" or "Plaintiff"), as the holder of more than two-thirds of a class of senior notes issued by Nominal Defendant Soloso CDO 2005-1 Ltd. ("Soloso" or the "Issuer"), an issuer of collateralized debt obligations backed by investments in trust-preferred securities, seeks a court order directing Soloso's trustee, Defendant Wells Fargo Bank, NA ("Wells Fargo" or the "Trustee"), to liquidate and distribute Soloso's assets in accordance with certain provisions of the relevant trust indenture. Intervenors, consisting of holders of junior notes, oppose Lansuppe's request for relief, contending among other things that Soloso is in violation of the Investment Company Act of 1940 (the "ICA"), 15 U.S.C. § 80a et seq., and that all noteholders are entitled to rescission of their investments or pro rata distribution of Soloso's assets.

The Court has subject matter jurisdiction of this action pursuant to 12 U.S.C. § 632.

This Memorandum Opinion and Order addresses the issues outstanding with respect to the parties' cross-motions for summary judgment. The motion practice was commenced in September 2015 by Order to Show Cause in connection with Lansuppe's motion seeking the relief described above. The Court thereafter granted a motion to intervene by certain of the junior noteholders,¹ and the Intervenors moved to dismiss or transfer the case to Mississippi in deference to previously-commenced litigation and cross-moved for summary judgment, seeking dismissal of Lansuppe's claim and rescission of their investments or pro rata distribution of the Soloso trust assets. (Docket Entry No. 36.) Following oral argument on October 20, 2015, the Court denied the Intervenors' motion for transfer or dismissal in favor ofthe Mississippi litigation and granted Lansuppe's motion to the extent of authorizing the Trustee to liquidate the Soloso trust assets and hold them pending further order of the Court. 2015 WL 6455274 (S.D.N.Y. Oct. 26, 2015). The Court reserved decision on the remaining aspects of the pending motion practice.

The Court has reviewed thoroughly all of the parties' submissions and arguments. For the reasons explained below, the Court now grants summary judgment in Lansuppe's favor and denies the Intervenors' cross-motion for summary judgment.

BACKGROUND²

Soloso is a trust. (See Compl. ¶¶ 1, 15.) It issued Notes pursuant to the terms of an Indenture dated August 24, 2005. (See Pl. 56.1 St., Docket Entry No. 7, ¶ 1; see also Declaration of a Representative of Lansuppe Feeder, LLC, Docket Entry No. 8, Ex. A (the "Indenture").) The Notes were co-issued by Soloso and Soloso CDO 2005-1 Corp. ("Co-Issuer"). (Pl. 56.1 St. ¶ 1.) When the Notes were issued, they were initially purchased by Bear, Stearns & Co. Inc. and SunTrust Capital Markets, Inc. (the "Initial Purchasers"), and the Initial Purchasers were authorized to resell those assets pursuant to the Indenture. (See Indenture §§ 1.1, 2.5(b)(ix).) The trust issued Notes in several tranches, and holders of the different tranchesof Notes have varying rights with respect to rates of return on the Notes and repayment of principal in the event of liquidation of the trust's assets. (Compl. ¶¶ 15-17, 22.) Lansuppe holds Class A-1 Notes, which have priority in payment of interest and principal, while the Intervenors hold Notes that earn a higher rate of interest but have distribution rights that are junior to those of the Class A-1 Notes, notably with respect to payment priority if the trust's assets are insufficient to pay interest and/or principal. (See id. ¶ 12; Pl. 56.1 St., Docket Entry No. 7, ¶ 7; Intervenors' 56.1(b) St., Docket Entry No. 35, ¶ 27.) The Intervenors purchased their respective Notes either from the Initial Purchasers or on the secondary market; they did not purchase their Notes from the Issuer or Co-Issuer. (See Intervenors' 56.1(a) St., Docket Entry No. 55, ¶¶ 1-8.)

The Indenture provides that an "Event of Default" occurs if the periodic interest amount due on the senior notes is not paid. (Indenture § 5.1(a)(iii)(A).) An Event of Default arising from the failure to pay interest on the Class A-1 Notes occurred in April 2013 and Lansuppe exercised its right to accelerate the payment of the aggregate principal amount of those Notes following the default. (Compl. ¶ 2.) The Indenture permits two-thirds of the senior noteholders (the "Requisite Noteholders") to trigger liquidation following such an Event of Default. (See Indenture §§ 1.1, 5.2(a), 5.4(a)(iv).) In such a liquidation, the Indenture provides, Soloso's assets would first be distributed to senior noteholder classes, and junior noteholder classes would be paid only after the obligations to the senior classes are satisfied (the "Waterfall Provision"). (See Indenture § 11.1.) On July 31, 2015, Lansuppe, as the Requisite Noteholders, directed the Trustee to liquidate the Trust Estate pursuant to Section 5.4 of the Indenture. (Pl. 56.1 St., Docket Entry No. 7, ¶ 6.) It is undisputed that the trust's assets are insufficient to provide payment to the Intervenors if they are distributed in accordance with the Waterfall Provision. (See Intervenors' 56.1(b) St., Docket Entry No. 35, ¶ 27.)

The ICA requires an "investment company" to register with the Securities and Exchange Commission (the "SEC") unless the entity qualifies for an exemption. See 15 U.S.C. § 80a-3. Soloso is not registered with the SEC under the ICA, as it relied on an exemption for issuers whose securities are owned only by investors who are "qualified purchasers" within the meaning of the ICA. 15 U.S.C. § 80a-3(c)(7A); (see also Affidavit of Andrew Dean in Opposition to the Proposed Intervenors' Motion to Stay, Oct. 13, 2015, Docket Entry No. 71, ¶ 9). Some of the Intervenors are "Non-Qualified Purchasers" ("NQPs") under the ICA, and represent that they were not "qualified purchasers" at the time they purchased Soloso notes. In support of those representations, the Intervenors have proffered affidavits reciting statutory language (see Docket Entry Nos. 38-53); the evidentiary sufficiency of the affidavits is disputed by Lansuppe and Soloso.

DISCUSSION

Legal Standard

A motion for summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A genuine dispute of material fact exists where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). By contrast, if "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial," and summary judgment is appropriate. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

The burden of demonstrating that no genuine dispute of material fact remainsrests initially on the moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the movant makes the requisite showing, the nonmoving party must present specific facts demonstrating that there is a genuine issue for trial, which cannot be done merely through "[c]onclusory allegations, conjecture, and speculation." Niagara Mohawk Power Corp. v. Jones Chem., Inc., 315 F.3d 171, 175 (2d Cir. 2003) (citations and internal quotation marks omitted). In determining whether a genuine dispute of material fact exists, the Court draws all inferences in favor of the nonmoving party. Scott v. Harris, 550 U.S. 372, 380 (2007). Where there are cross-motions for summary judgment, "each party's motion must be examined on its own merits, and in each case all reasonable inferences must be drawn against the party whose motion is under consideration." Morales v. Quintel Entm't, Inc., 249 F.3d 115, 121 (2d Cir. 2001) (citation omitted).

"Under New York law, the initial interpretation of a contract is a matter of law for the court to decide." Int'l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 83 (2d Cir. 2002) (citing K. Bell & Assocs., Inc. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir. 1996)) (internal quotation marks and citation omitted). "Interpretation of indenture provisions is a matter of basic contract law." Sharon Steel Corp. v. Chase Manhattan Bank, N.A., 691 F.2d 1039, 1049 (2d Cir. 1982). "In interpreting a contract under New York law, words and phrases should be given their plain meaning, and the contract should be construed so as to give full meaning and effect to all of its provisions." Orange County Choppers, Inc. v. Olaes Enters., 497 F. Supp. 2d 541, 551 (S.D.N.Y. 2007) (citing LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195, 206 (2d Cir. 2005)) (ellipses, internal quotation marks, and citations omitted). "Language that has a generally prevailing meaning should be interpreted in accordance with that meaning." Id. at 552 (citing Restatement 2d Contracts § 202).

Lansuppe's Motion for Summary Judgment - Liquidation of the Trust

There is no dispute that Lansuppe constitutes the Requisite Noteholders under the Indenture, that Lansuppe gave the Trustee the required notice and instruction regarding the liquidation of the Trust's assets following the Event of Default in April 2013 in...