Waterfall asset management1/8/2024 The payment waterfall is structured so that “lower-tiered creditors receive principal and interest payments only after the higher-tiered creditors are paid in full.” BNYM’s Br. 2 Case 1:18-cv-00295-GHW Document 69 Filed 03/13/19 of 21 In its capacity as Trustee, Wells Fargo holds the Portfolio Collateral and “distributes available proceeds (the ‘Available Adjusted Collections’) to Noteholders pursuant to Section 11.1 of the Indenture,” otherwise known as the payment waterfall. “The Notes are secured by a portfolio of fixed income assets (the ‘Portfolio Collateral’) owned by the Issuer.” AC ♡4. The Indenture establishes six classes of notes subject to various terms and conditions established in the Indenture (the “Notes”). This case stems from that indenture (the “Indenture”), which was executed among Wells Fargo as Trustee, Tropic CDO IV Ltd., as Issuer, and Tropic, as Co-Issuer. (“Tropic”), brought to market a CDO governed by an indenture (the “Tropic CDO IV”). The Contractual Context The operative facts are not in dispute. Accordingly, for the reasons that follow, BNYM’s motion to dismiss is GRANTED, interpleader is DENIED, and this case is dismissed. As a result, neither law nor equity nor policy favor Wells Fargo’s use of interpleader here. Additionally, the extension of interpleader into this fact pattern would set a precedent that essentially any question of trust governance is subject to interpleader determination so long as any specter of litigation risk regarding trust assets can be articulated by a weak-kneed trustee-undermining the principles of majority creditor control that underpin many indentures of this type. Further, pursuant to Waterfall’s competing theory for how the res should be distributed, Wells Fargo may have further obligations and/or liabilities which extend beyond distribution of the fund-indeed Wells Fargo’s failure to live up to its contractual obligations may have been one of the root causes of the current dispute. Rather, issues of trust governance predominate over issues of res distribution here. However, in this case Wells Fargo is not a disinterested party merely holding the res and seeking the Court’s assistance in determining its distribution. Case 1:18-cv-00295-GHW Document 69 Filed 03/13/19 of 21 On the surface, this case bears many of the hallmarks of interpleader. Wells Fargo and Waterfall opposed that motion, which is currently before the Court. BNYM moved to dismiss the complaint, arguing that interpleader was inappropriate in this context. To resolve these competing claims, Wells Fargo served an interpleader complaint pursuant to Federal Rule of Civil Procedure 22. On the other hand, Waterfall Asset Management, LLC (“Waterfall”) contends that BNYM is misinterpreting the Swap Agreement, that it will bring suit against Wells Fargo if Wells Fargo distributes the res to BNYM, and that BNYM is liable to the trust for alleged overpayments made to BNYM pursuant to the Swap Agreement. On one hand, the Bank of New York Mellon (“BNYM”), as party to an interest rate swap agreement (the “Swap Agreement”) between itself and the issuer of the CDO, claims that certain funds under Wells Fargo’s controls are owed to BNYM as payments owed pursuant to the Swap Agreement (the “res”). (“Wells Fargo”) seeks the Court’s assistance in determining how to distribute certain funds it controls in its role as trustee of a collateralized debt obligation (“CDO”). WOODS, United States District Judge: Interpleader Plaintiff Wells Fargo Bank, N.A. : -X USDC SDNY DOCUMENT ELECTRONICALLY FILED DOC #: _ DATE FILED: 1:18-cv-295-GHW MEMORANDUM OPINION AND ORDER GREGORY H. 69 Case 1:18-cv-00295-GHW Document 69 Filed 03/13/19 of 21 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -X WELLS FARGO BANK, N.A., as Trustee, : : Interpleader Plaintiff, : : : : -against: : WATERFALL ASSET MANAGEMENT, LLC, : THE BANK OF NEW YORK MELLON, and : CEDE & CO., : : Interpleader Defendants. Waterfall Asset Management LLC et al Doc.
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