The Bank of New York Mellon, London Branch v. CART 1, LTD.

Background

The Bank of New York Mellon, London Branch, acting as indenture trustee, filed this interpleader case against CART 1, Ltd., Deutsche Bank AG Frankfurt, and CRC Credit Fund, Ltd. The opinion concerns a prior order addressing CRC’s breach-of-contract claim against Deutsche Bank AG Frankfurt and its affiliates, referred to collectively as “DB.”

In the prior order, the court held that CRC had plausibly alleged that DB violated the terms of a confirmation governing an underlying credit default swap. The court had interpreted Reference Obligation Eligibility Criterion (e) to incorporate all servicing principles in Schedule F, meaning that violating one of those principles could make loans ineligible as reference obligations. DB moved for reconsideration of that interpretation.

Reasoning

The court explained that reconsideration is an extraordinary remedy generally reserved for an overlooked controlling decision or fact, new evidence, an intervening change in controlling law, clear error, or manifest injustice. The court agreed with DB that it had overlooked language in the confirmation.

The court found that Criterion (e) could be read as addressing the types of credit instruments eligible for inclusion in the reference portfolio, rather than the way those instruments were serviced. The court also noted that Criterion (a) separately addressed creditworthiness. Reading Criterion (e) as requiring DB to assess creditworthiness could duplicate Criterion (a), which required the relevant enterprises to have a specified DB internal rating.

The court further distinguished DB’s standard credit and collection policies from the servicing standards in Schedule F. In the court’s view, Criterion (e) referred to the credit and collection policies and did not incorporate every servicing principle in Schedule F. The specific Schedule F limitation that CRC alleged DB violated was separate from, and additional to, any limitations in those policies.

The court rejected the interpretation that every violation of Schedule F would cause a reference obligation to lose that status and require DB to forgo default protection payments. The court stated that serious violations could instead constitute a material breach, but treating every violation—including a short delay in updating accounting records—as automatically causing forfeiture would be commercially unreasonable.

Ruling

Judge Oetken granted DB’s motion for reconsideration. The court vacated the earlier Opinion and Order insofar as it denied DB’s motion to dismiss CRC’s breach-of-contract claim. The court directed the clerk to close the reconsideration motion at Docket Number 59. The opinion does not state that the court separately granted the motion to dismiss.