11-2592-cv(L)
Citibank, N.A. v. Morgan Stanley & Co. International, PLC

                                 UNITED STATES COURT OF APPEALS
                                    FOR THE SECOND CIRCUIT

                                        SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after
January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this
Court’s Local Rule 32.1.1. When citing a summary order in a document filed with this Court, a party
must cite either the Federal Appendix or an electronic database (with the notation “summary order”).
A party citing a summary order must serve a copy of it on any party not represented by counsel.

        At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on
the 2nd day of October, two thousand twelve.

PRESENT:

         JON O. NEWMAN,
         JOSÉ A. CABRANES,
         CHESTER J. STRAUB,
                       Circuit Judges.

__________________________________________

CITIBANK, N.A.,

                   Plaintiff-Counter-Defendant-Appellee,
                                                                              No. 11-2592-cv(L)
                            v.                                                No. 11-2806-cv(CON)

MORGAN STANLEY & CO. INTERNATIONAL, PLC,

            Defendant-Counter-Claimant-Appellant.
__________________________________________


FOR PLAINTIFF-COUNTER-
DEFENDANT-APPELLEE:                                             GREGORY P. JOSEPH (Peter R. Jerdee, Sandra
                                                                M. Lipsman, and Rachel M. Cherington, on the
                                                                brief), Gregory P. Joseph Law Offices LLC,
                                                                New York, NY.



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FOR DEFENDANT-COUNTER-
CLAIMANT-APPELLANT:                                   KATHLEEN M. SULLIVAN (Michael B.
                                                      Carlinsky, Jonathan E. Pickhardt, William B.
                                                      Adams, and Andrew S. Corkhill, on the brief),
                                                      Quinn Emanuel Urquhart & Sullivan, LLP,
                                                      New York, NY.

        Appeal from a May 27, 2011 judgment of the United States District Court for the Southern
District of New York (Shira A. Scheindlin, Judge).

     UPON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the District Court is AFFIRMED.

        Defendant-Counter-Claimant-Appellant Morgan Stanley & Co. International, PLC (“Morgan
Stanley”) appeals from a May 25, 2011 decision granting summary judgment to Citibank, N.A.
(“Citibank”) in a breach of contract action involving a collateralized debt obligation (“CDO”) swap
transaction. We assume the parties’ familiarity with the facts and procedural posture of this case,
which we reference only as necessary to explain our decision to affirm.

                                         BACKGROUND

        This dispute arises from the interaction of three financial agreements: (1) an agreement (the
“Capmark Indenture”) setting up the Capmark CDO, a vehicle created to generate cash flow to
investors secured by certain collateral; (2) an agreement (the “Capmark Credit Agreement”) whereby
Citibank provided credit to the Capmark CDO; and (3) an agreement (the “Capmark Swap”)
whereby Morgan Stanley sold Citibank credit protection on the credit it provided to the Capmark
CDO. These agreements (collectively, the “Transaction Documents”) were executed in July 2006.

         On August 5, 2008, the Capmark CDO suffered an “Event of Default” when the principal
value of its collateral fell below $366 million. On March 9, 2009, Citibank directed the Trustee to
liquidate the CDO’s collateral pursuant to § 5.5(a)(ii) of the Capmark Indenture. The proceeds of
the liquidation, however, were insufficient to pay the $366 million, leaving a shortfall of
approximately $245 million. On July 24, 2009, Citibank issued a “Credit Event Notice” to Morgan
Stanley seeking payment for the $245 million in losses. On July 27, 2009, Morgan Stanley notified
Citibank that it was refusing to pay, claiming that Citibank had breached the Capmark Swap by
failing to obtain Morgan Stanley’s consent before directing liquidation of the CDO’s collateral.

       In September 2009, Citibank filed this action against Morgan Stanley for breach of contract
based on Morgan Stanley’s failure to pay Citibank the $245 million in losses from the liquidation.


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Morgan Stanley counterclaimed, seeking a declaration that it had no payment obligation on the
theory that Citibank had breached the Capmark Swap by failing to obtain Morgan Stanley’s consent
before directing the liquidation. The parties cross-moved for judgment on the pleadings pursuant to
Federal Rule of Civil Procedure 12(c). In May 2010, the District Court granted Citibank’s motion
and denied Morgan Stanley’s cross-motion, relying solely on the Transaction Documents and finding
them “unambiguous.”

        While the Rule 12(c) motions were pending, Morgan Stanley amended its answer to add
counterclaims for equitable estoppel and reformation. In August 2010, Citibank moved for
judgment on the pleadings on these counterclaims. The District Court granted Citibank’s motion
with respect to the equitable estoppel counterclaim, but denied the motion with respect to the
reformation counterclaim. After fact discovery, both parties moved for summary judgment on
Morgan Stanley’s reformation counterclaim.

        On May 25, 2011, the District Court denied Morgan Stanley’s summary judgment motion on
the reformation counterclaim and granted Citibank’s motion for summary judgment. Judgment was
entered on May 27, 2011.

       This appeal followed.

                                           DISCUSSION

        On appeal, Morgan Stanley argues that the District Court erred in granting summary
judgment in favor of Citibank on the contract and reformation claims. We disagree. While we
affirm substantially for the reasons stated by the District Court in its careful and comprehensive
opinions, we comment briefly on a few qualifications underlying our decision.

        First, in affirming the District Court’s grant of summary judgment on the contract claims, we
do not rely on or consider Citibank’s argument that § 6.07 of the Capmark Credit Agreement is
inapplicable because only one lender was involved in this case. Like the District Court, we assume
without deciding that § 6.07 applies despite Citibank’s argument. Special App’x 18–19 n.70.

        Second, while we agree with the District Court that Citibank’s issuance of a “direction”
under the Capmark Indenture did not implicate Morgan Stanley’s “consent” rights, we do so on the
basis that, pursuant to the Transaction Documents, a “direction” does not fall within the definition
of “consent.” See id. at 19–20. We place no weight on the District Court’s view that because
Citibank had two roles under the Capmark Credit Agreement (Lender and Administrative Agent), it
“makes no sense” that “Citibank was required to consent to or authorize its own action.” Id. at 19.


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                                           CONCLUSION

        We have reviewed Morgan Stanley’s arguments and find each of them to be without merit.
Substantially for the reasons stated by the District Court, as qualified above, we conclude that it did
not err in granting summary judgment for Citibank under Rule 12(c) on the contract claim and in
granting summary judgment for Citibank on Morgan Stanley’s reformation counterclaim.
Accordingly, its May 27, 2011 judgment is AFFIRMED.



                                                        FOR THE COURT,
                                                        Catherine O’Hagan Wolfe, Clerk of Court




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