Morpheus Capital Advisors LLC, Respondent,v.UBS AG, Defendant, UBS Real Estate Securities, Inc., Appellant.BriefN.Y.May 6, 2014APL-2013-00235 New York County Clerk’s Index No. 650335/09 Court of Appeals STATE OF NEW YORK MORPHEUS CAPITAL ADVISORS LLC, Plaintiff-Respondent, against UBS AG, Defendant, and UBS REAL ESTATE SECURITIES, INC., Defendant-Appellant. >> >> REPLY BRIEF FOR DEFENDANT-APPELLANT UBS REAL ESTATE SECURITIES, INC. Kenneth A. Caruso Patrick M. Wilson WHITE & CASE LLP 1155 Avenue of the Americas New York, New York 10036 (T) 212-819-8200 (F) 212-354-8113 and Jeffrey I. Wasserman HERRICK, FEINSTEIN LLP 2 Park Avenue New York, New York 10016 (T) 212-592-1400 (F) 212-592-1500 Attorneys for Defendant-Appellant Date Completed: December 13, 2013 To Be Argued By: Kenneth A. Caruso Time Requested: 30 Minutes NEWYORK 9058928 v2 TABLE OF CONTENTS ARGUMENT ............................................................................................................. 1 POINT I -- THE AGREEMENT ESTABLISHED AN EXCLUSIVE AGENCY, NOT AN EXCLUSIVE RIGHT TO SELL ........................ 1 A. The Applicable Law .................................................................... 1 B. The Agreement Does Not Contain The Requisite Express and Unambiguous Statement ...................................................... 2 C. The Cases Cited By Morpheus Are Distinguishable .................. 5 D. Other Terms In The Agreement Do Not Help Morpheus ........... 7 1. The Morgan Stanley/NBF Sentences Do Not Help Morpheus .......................................................................... 7 a. Sentence Two ......................................................... 8 b. Sentence One .......................................................... 9 c. Morpheus Reads These Sentences Too Broadly ................................................................. 10 2. The Provision For Joint Marketing Does Not Help Morpheus ........................................................................ 11 E. Contracts For Investment Banking Services Are Governed By The Same Rules .................................................. 13 F. Morpheus Was A Broker (As Well As A Banker) ................... 15 POINT II -- PAROL EVIDENCE IS INADMISSIBLE AND DOES NOT HELP MORPHEUS ....................................................... 17 A. The Parol Evidence Is Inadmissible .......................................... 17 1. The Agreement Is Not Ambiguous ................................. 17 2. Parol Evidence Cannot Be Used To Show “Bad Faith” .............................................................................. 20 B. The Parol Evidence Does Not Support The Conclusion That Morpheus Had An Exclusive Right To Sell ..................... 21 POINT III -- THE AGREEMENT CREATED AN EXCLUSIVE AGENCY AND MORPHEUS HAS NO CAUSE OF ACTION FOR A SUCCESS FEE ....................................................... 24 NEWYORK 9058928 v2 ii A. The Appellate Division Erred When It Sustained The Complaint .................................................................................. 24 1. The Agreement Contained No Terms That Varied The Rights Of The Parties .............................................. 25 2. The First-In-Time Rule Applies ..................................... 26 3. All Causes Of Action Should Be, Or Have Been, Dismissed ........................................................................ 27 4. A Duty To Wait Would Complicate And Unsettle The Law .......................................................................... 29 5. A Duty To Wait Threatens To Impede Bank Regulation ....................................................................... 30 6. Considerations Of International Comity Support Reversal .......................................................................... 32 B. The Third-Party-Introduction Section Is Not At Issue Here ........................................................................................... 32 CONCLUSION ........................................................................................................ 34 NEWYORK 9058928 v2 iii TABLE OF AUTHORITIES CASES 407 E. 61st Garage, Inc. v. Savoy Fifth Ave. Corp, 23 N.Y.2d 275 (1968) ............. 27 Audrey Balog Realty Corp. v. East Coast Real Estate Developers, Inc., 202 A.D.2d 529 (2d Dep’t 1994) .................................................................. 3, 5, 11 Bagley v. Butler, 59 Misc. 2d 1029 (Cnty. Ct. Rensselaer Cnty. 1969)...................... 4 Ballard v. Tingue Mills, Inc., 128 F. Supp. 683 (D. Conn. 1954) ............................. 14 Barnet v. Cannizzaro, 3 A.D.2d 745 (2d Dep’t 1957) ................................................. 4 Bierer v. Glaze, Inc., 2006 WL 2882569 (E.D.N.Y. Oct. 6, 2006) ........................... 27 Blake Realty v. Gilligan, 155 A.D.2d 816 (3d Dep’t 1989) ........................................ 4 BREAA LLC v. Passarelli, 104 A.D.3d 542 (1st Dep’t 2013) .................................. 13 Bump v. Robbins, 24 Mass. App. 296 (1987) ........................................................... 14 Carnes Commc’ns, Inc. v. Russo, 305 A.D.2d 332 (1st Dep’t 2003) ................... 3, 13 Casandra Props., Inc. v. M.S.B. Dev. Co., 79 A.D.3d 1088 (2d Dep’t 2010) ............. 2 Century 21-Clifford Realty, Inc. v. Gibson, 152 A.D.2d 446 (4th Dep’t 1989) ......... 2 Chimart Assocs. v. Paul, 66 N.Y.2d 570 (1986) ....................................................... 23 Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co., 607 F. Supp. 2d 600 (S.D.N.Y. 2009) .................................................................. 23 Cruz v. TD Bank, N.A., 2013 N.Y. LEXIS 3188 (Nov. 21, 2013) ............................. 9 CV Holdings, LLC v. Artisan Advisors, LLC 9 A.D.3d 654 (3d Dep’t 2004) ...................................................................... 5, 6, 13 David R. Maltz & Co. v. Wachovia Bank, N.A., 2010 WL 1286308 (E.D.N.Y. Mar. 31, 2010) ..................................................................................... 13 NEWYORK 9058928 v2 iv Dubuc, Locke & Co. v. DiFlora, 1999 Ohio App. LEXIS 3736 (Ohio App. Aug. 4, 1999) ..................................................................................... 14 Far Realty Assoc. Inc. v. RKO Del. Corp., 34 A.D.3d 261 (1st Dep’t 2006) ............................................................................................. passim Gen. Elec. Co. v. Metals Res. Grp., Ltd., 293 A.D.2d 417 (1st Dep’t 2002) .................................................................................................... 27 George Backer Mgmt. Corp. v. Acme Quilting Co., Inc., 46 N.Y.2d 211 (1978) ........................................................................................... 23 Goodison v. Goodison, 66 A.D.2d 923 (3d Dep’t 1978) ........................................... 23 Gottesman Co. v. Metro Creative Graphics, 290 A.D.2d 391 (1st Dep’t 2002) .................................................................................................... 13 Greenfield v. Philles Records, Inc., 98 N.Y.2d 562 (2002) ..................... 17, 18, 19, 20 Hammond, Kennedy & Co. v. Servinational, Inc. 48 A.D.2d 394 (1st Dep’t 1975) ....................................................................... 4, 13 Hardy v. Reynolds and Reynolds Co., 2007 WL 2713736 (E.D. Mich. Sept. 17, 2007) .................................................................................. 14 IFA Inc. v. Ellco Leasing Corp., 1993 U.S. Dist. LEXIS 4376 (N.D. Ill. April 2, 1993) ........................................................................................ 14 Innophos, Inc. v. Rhodia, S.A., 10 N.Y.3d 25 (2008) ............................................... 19 Kass v. Kass, 91 N.Y.2d 554 (1998) ......................................................................... 18 Kerber Straw Hat Corp. v. Lincoln, 239 A.D. 727 (1st Dep’t 1934) ........................ 19 Kraft v. Toxikon Corp., 1998 WL 1284187 (Mass. Super. April 17, 1998) ............. 14 Manhattan Fuel Co. v. New England Petro. Corp., 439 F. Supp. 959 (S.D.N.Y. 1977) .................................................................................................... 13 Mercer Capital, Ltd. v. U.S. Dry Cleaning Corp., 2009 WL 2163598 (S.D.N.Y. July 21, 2009) .................................................................................. 5, 15 Moses v. Bierling, 31 N.Y. 462 (1865) ..................................................................... 14 NEWYORK 9058928 v2 v Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42 (1956) ............................................... 9 Ne. Gen. Corp. v. Wellington Adv., Inc., 82 N.Y.2d 158 (1993) ............................. 16 Reichmann v. Neumann, 553 F. Supp. 2d 307 (S.D.N.Y. 2008) .............................. 21 Roberts Assoc., Inc. v. Blazer Int’l Corp., 741 F. Supp. 650 (E.D. Mich. 1990) ................................................................................................. 14 Rodolitz v. Neptune Paper Prods., Inc., 22 N.Y.2d 383 (1968) ................................ 18 Schwob v. Int’l Water Corp., 136 F. Supp. 310 (D. Del. 1955) ................................ 14 Siegel v. Rosenzweig, 129 A.D. 547 (2d Dep’t 1908) .............................................. 27 Solid Waste Inst., Inc. v. Sanitary Disposal, Inc. 120 A.D.2d 915 (3d Dep’t 1986) ................................................................... passim Two Guys From Harrison-N.Y., Inc. v. SFR Realty Assoc. 63 N.Y.2d 396 (1984) ............................................................................................. 8 W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157 (1990) ......................................... 18 Warner v. Kaplan, 71 A.D.3d 1 (1st Dep’t 2009) ...................................................... 27 Wood v. Hutchinson Coal Co., 85 F. Supp. 1010 (N.D. W. Va. 1949) .................... 14 Wylie v. Marine Nat’l Bank, 61 N.Y. 415 (1875) ..................................................... 26 MISCELLANEOUS Corbin on Contracts § 2.30 (1993) ............................................................................ 14 Williston on Contracts § 62.18 (4th ed. 2002) ........................................................... 14 Williston on Contracts § 62:20 (4th ed. 2002) ............................................................. 2 NEWYORK 9058928 v2 Defendant-Appellant, UBSRE, respectfully submits this Reply Brief in support of its appeal from the order of the Appellate Division, First Department.1 ARGUMENT POINT I THE AGREEMENT ESTABLISED AN EXCLUSIVE AGENCY, NOT AN EXCLUSIVE RIGHT TO SELL Morpheus contends that the Appellate Division erred when it held that the Agreement gave Morpheus an exclusive agency, rather than an exclusive right to sell. This contention is meritless. The Appellate Division correctly held that the Agreement gave Morpheus an exclusive agency, not an exclusive right to sell. Accordingly, UBSRE remained free to sell its own property, without the assistance of any broker, to the first buyer who offered an acceptable price. UBSRE therefore owes Morpheus nothing. A. The Applicable Law An owner has an inherent right to sell his or her own property. Solid Waste Inst., Inc. v. Sanitary Disposal, Inc., 120 A.D.2d 915, 916 (3d Dep’t 1986). Accordingly, as all four Departments of the Appellate Division agree, “[a] contract will not be construed to create an exclusive right to sell unless it expressly and unambiguously provides for a commission upon sale by the owner or excludes the 1 This Reply Brief uses the same defined terms as those used in UBSRE’s Opening Brief, dated October 11, 2013. NEWYORK 9058928 v2 2 owner from independently negotiating a sale.” Far Realty Assoc. Inc. v. RKO Del. Corp., 34 A.D.3d 261, 262 (1st Dep’t 2006) (citations omitted); see Solid Waste, 120 A.D.2d at 916 (“[A] contract giving a broker the exclusive right to sell . . . [must] clearly and expressly provide[] that a commission was due upon sale by the owner or exclude[] the owner from independently negotiating a sale . . . or [create a payment obligation] by necessary implication from its terms.”); Casandra Props., Inc. v. M.S.B. Dev. Co., 79 A.D.3d 1088, 1090 (2d Dep’t 2010) (broker had exclusive agency, not exclusive right to sell, where “the agreement did not unambiguously provide the plaintiff with an exclusive right to sell”); Century 21- Clifford Realty, Inc. v. Gibson, 152 A.D.2d 446, 447 (4th Dep’t 1989) (“The listing agreement is not ambiguous, [and] it gave plaintiff an exclusive right to sell . . . .”); 23 Richard A. Lord, Williston on Contracts § 62:20, at 393 (4th ed. 2002) (“An exclusive right to sell may be created only by clear and unambiguous language, since the owner of property should not lightly be held to have surrendered the right to sell his or her own property unless that right is expressly negated by the contact.”). B. The Agreement Does Not Contain The Requisite Express and Unambiguous Statement The Agreement here provides that Morpheus “shall have the exclusive right to solicit counterparties for any potential Transaction involving the Student Loan Assets during the term of this Agreement.” A60. This language does not provide NEWYORK 9058928 v2 3 the requisite express and unambiguous statement. This language does not address, much less waive, UBSRE’s inherent right to sell its own property. It does not say that UBSRE is prohibited from finding and selling to a buyer on its own. See Carnes Commc’ns, Inc. v. Russo, 305 A.D.2d 332, 332 (1st Dep’t 2003) (no exclusive right to sell where contract “did not expressly prohibit” defendants from placing advertisements on their own). It does not say that Morpheus “shall receive a Success Fee” even if UBSRE finds and sells to a buyer on its own. Here, as in Far Realty, 34 A.D.3d at 262, “[n]othing in the agreement expressly and unambiguously declared that [the broker] would be due a commission upon sale by the owner, or otherwise excluded the owner from independently arranging for a sale.” Case law provides examples of the express and unambiguous language necessary to construe a contract as an exclusive right to sell. In Audrey Balog Realty Corp. v. East Coast Real Estate Developers, Inc., 202 A.D.2d 529, 530 (2d Dep’t 1994), the Second Department held that the broker had an exclusive right to sell, and not merely an exclusive agency, where the contract “required the defendant [owner] ‘to refer all inquiries or offers . . . to the attention of [the plaintiff], as exclusive Broker, for negotiation on [the defendant’s] behalf, and commissions payable hereunder shall be due and payable to [the plaintiff], regardless of whether [the plaintiff] has actually procured the Purchase NEWYORK 9058928 v2 4 Agreement.’” See also Barnet v. Cannizzaro, 3 A.D.2d 745, 746 (2d Dep’t 1957) (commission due “in case the property is sold by me/us [broker] or by any other person or if by your office during the term of this agreement, or within six months of the expiration, to anyone with whom you have negotiated”); Hammond, Kennedy & Co. v. Servinational, Inc., 48 A.D.2d 394, 396 (1st Dep’t 1975) (“[Y]ou . . . will proceed only through us [broker] and will not directly or through others negotiate the sale . . . .”); Blake Realty v. Gilligan, 155 A.D.2d 816, 817 (3d Dep’t 1989) (commission payable “if defendant [owner] sold the property himself”); Bagley v. Butler, 59 Misc. 2d 1029, 1031 (Cnty. Ct. Rensselaer Cnty. 1969) (“[U]ndersigned hereby agrees to pay you [broker] commission . . . in case said property . . . is . . . sold . . . by you or any person during the term of this contract . . . .”). The Agreement here contains no such language. Accordingly, the Agreement “will at most be considered as creating an exclusive agency, not excluding the owner’s inherent right to sell his own property.” Solid Waste, 120 A.D.2d at 916.2 2 Morpheus states, “UBSRE’s silence on this issue [of exclusive right to sell] makes it impossible for Morpheus to respond to whatever arguments UBSRE makes” in this Reply Brief. Morpheus Brief in Opposition, dated November 26, 2013, at 16 n.8. UBSRE, however, as the appellant, had neither reason nor need to defend the portion of the Appellate Division Decision with which UBSRE agreed. UBSRE, furthermore, had no indication from Morpheus that Morpheus would contest the Appellate Division’s unanimous holding that the Agreement granted Morpheus an exclusive agency. Morpheus did not express disagreement with that NEWYORK 9058928 v2 5 C. The Cases Cited By Morpheus Are Distinguishable Morpheus relies on Mercer Capital, Ltd. v. U.S. Dry Cleaning Corp., 2009 WL 2163598, at *8 (S.D.N.Y. July 21, 2009), but that case actually helps UBSRE. In Mercer Capital, the contract required the owner “to refer all proposals for any such financing to [the broker];” and provided that “only personnel employed by [the broker] . . . will be involved in providing the services described herein.” (emphases in original). This is classic language for the creation of an exclusive right to sell. See Audrey Balog, 202 A.D.2d at 530 (exclusive right to sell where contract requires owner “to refer all inquiries or offers” to the broker for negotiation). The Agreement here, by contrast, contains no such language. Indeed, Morpheus concedes -- with no small amount of understatement -- that “the contract language in Mercer Capital does not precisely replicate that in the Agreement.” Morpheus Brief in Opposition, dated November 26, 2013, at 18 (“Morph. Br.”). In fact, the language of the Agreement here does not remotely approach the language that raised an ambiguity and a fact-question in Mercer. Morpheus also relies on CV Holdings, LLC v. Artisan Advisors, LLC, 9 A.D.3d 654 (3d Dep’t 2004). The question there was whether the broker was entitled to a fee for a “transaction” in which the broker “played no role.” Id. at holding in its opposition to UBSRE’s motion for leave to appeal. Nor did Morpheus seek to cross-appeal. NEWYORK 9058928 v2 6 655. The court found ambiguity within the four corners of the contract with respect to the meaning of the term “transaction.” The first contractual use of that term “arguably connote[d] some active participation” by the broker. Id. at 656. The second contractual use of term, however, stated that the owner “shall pay [the broker] for its services hereunder a cash fee . . . in the event a transaction is consummated.” Id. The court stated that this “can be reasonably read as requiring a fee even when defendant played no active role in the transaction.” Id. at 656. The court did not clearly state its reasoning but, presumably, the use of the passive voice -- fee payable if a transaction “is consummated” -- could be read to mean “if a transaction is consummated by the owner, even if the broker played no role.” The Agreement here contains no such ambiguity. The Agreement provides, “[Morpheus] shall receive a Success Fee payable upon the closing of the Transaction,” in an amount based on a contractual formula. The Agreement then defines “Transaction” as “the proposed sale of certain of its student loan warehouse loan facilities[.]” A60. There is no ambiguity introduced by passive- voice wording that suggests a transaction in which Morpheus played no role. In any event, CV Holdings was incorrectly decided because ambiguity is fatal to a claim of exclusive right to sell. “A contract will not be construed to create an exclusive right to sell unless it expressly and unambiguously provides for a commission upon sale by the owner or excludes the owner from independently NEWYORK 9058928 v2 7 negotiating a sale.” Far Realty, 34 A.D.3d at 262. The existence of ambiguity in the contract means that the “contract will not be construed to create an exclusive right to sell.” Id. D. Other Terms In The Agreement Do Not Help Morpheus Faced with an exclusivity provision that is plainly insufficient to create an exclusive right to sell, Morpheus turns to other provisions of the Agreement, and asks the Court to imply an exclusive right to sell from those terms. This effort also fails. 1. The Morgan Stanley/NBF Sentences Do Not Help Morpheus Morpheus relies heavily on two sentences of the Agreement that isolate “Morgan Stanley” and “NBF” for specific treatment. Thus, the Agreement provides, “Company [UBSRE] agrees that MCA [Morpheus] shall have the exclusive right to solicit counterparties for any potential Transaction involving the Student Loan Assets during the term of this Agreement.” A60-61. The Agreement continues: [Sentence One] Notwithstanding the foregoing, [Morpheus] acknowledges that if a credit default swap, any financing, derivative or Class B Note transaction is consummated by [UBSRE], and/or its affiliates, with Morgan Stanley & Co. or NBF International Holdings, Inc., or any of their affiliates, relating to the Student Loan Assets then [Morpheus] shall not be entitled to any Success Fee under this Agreement. [Sentence Two] However, if [UBSRE] enters into a Transaction to sell the Student Loan Assets to Morgan Stanley & Co. and/or NEWYORK 9058928 v2 8 NBF International Holdings, Inc., or any of their affiliates, and [Morpheus] performed substantially all the services set forth herein in Section 1, then the terms, conditions and fees set forth in this Agreement shall apply to such Transaction. Id. These two sentences do not help Morpheus. a. Sentence Two Sentence Two addresses a “Transaction to sell the Student Loan Assets . . . .” It identifies two prospective buyers as to which UBSRE waived its inherent right to sell the Student Loan Assets without liability to Morpheus. Sentence Two, however, does not expressly and unambiguously waive UBSRE’s inherent right to sell the Student Loan Assets to any other buyer. Sentence Two, moreover, actually demonstrates that the Agreement fails to create an exclusive right to sell. A basic canon of construction -- expressio unius est exclusio alterius (the inclusion of one thing is the exclusion of another) -- applies here. By specifying only two buyers as to which Morpheus would receive a Success Fee on a sale by the owner, that Sentence necessarily means that Morpheus would not receive a Success Fee if the owner, UBSRE, sold Student Loan Assets to the SNB (or to any buyer found by UBSRE without any broker, except Morgan Stanley and NBF). See, e.g., Two Guys From Harrison-N.Y., Inc. v. SFR Realty Assoc., 63 N.Y.2d 396, 403-04 (1984) (where lease authorized one NEWYORK 9058928 v2 9 type of alteration, lease “should be read as implicitly prohibiting other alterations”); Cruz v. TD Bank, N.A., 2013 N.Y. LEXIS 3188, at *15 (Nov. 21, 2013) (“[T]he expressio unius doctrine . . . is typically used to limit the expansion of a right . . . not as a basis for recognizing unexpressed rights by implication.”). Another basic canon of construction -- the rule against superfluity -- also applies here. See, e.g., Muzak Corp. v. Hotel Taft Corp., 1 N.Y.2d 42, 46 (1956) (“The rules of construction of contracts require us to adopt an interpretation which gives meaning to every provision of a contract or, in the negative, no provision of a contract should be left without force and effect.” (internal citations omitted)). If the Agreement had given Morpheus an exclusive right to sell, then it would have been unnecessary to specify that Morpheus would get a Success Fee on a sale by the owner, UBSRE, to Morgan Stanley or NBF. Indeed, if the Agreement had given Morpheus an exclusive right to sell, then Morpheus would have been entitled to a Success Fee for a sale to any buyer, including Morgan Stanley and NBF; there would have been no need to specify Morgan Stanley and NBF. b. Sentence One Sentence One is irrelevant to the legal issue presented here. Sentence One provides that Morpheus would have no Success Fee for a “credit default swap, any financing, derivative or Class B Note transaction[.]” Thus, Sentence One distinguishes a “credit default swap [etc.]” from a “Transaction to sell” the Student NEWYORK 9058928 v2 10 Loan Assets (referred to in Sentence Two), as to which UBSRE would have a Success Fee, in specified circumstances. UBSRE engaged Morpheus to “sell” the Student Loan Assets. Thus, Sentence One merely acknowledges that Morpheus would have no Success Fee for a “credit default swap, [etc.],” as distinct from a “sale.” Sentence One is therefore readily harmonized with Sentence Two, and does not affect the legal issue here. c. Morpheus Reads These Sentences Too Broadly Morpheus contends that Sentences One and Two “permitted UBSRE only to engage in a self-directed transaction with two named counterparties and then only for certain types of transactions.” Morph. Br. at 2 (emphases added). These Sentences, however, do not use the word “only.” They do not limit the buyers to whom UBSRE could sell. These two sentences merely acknowledge that (a) Morpheus would have a Success Fee, in certain circumstances, for a “Transaction to sell” to Morgan Stanley and/or NBF and (b) Morpheus would not have a Success Fee for a “credit default swap [etc.]” with Morgan Stanley and/or NBF. These Sentences do not say that UBSRE may sell “only” to Morgan Stanley or NBF. NEWYORK 9058928 v2 11 2. The Provision For Joint Marketing Does Not Help Morpheus Morpheus next contends that the contractual provision for joint marketing supports the conclusion that the Agreement created an exclusive right to sell. This contention is meritless. The Agreement provides, in pertinent part: Subject to the conditions and exclusions set forth herein, in the course of our engagement as your financial advisor, we [Morpheus] will work with the Company [UBSRE] to . . . Assist in the creation of marketing and due diligence materials, including joint marketing efforts with [UBSRE] with [Morpheus] taking the lead. All marketing and due diligence materials are subject to Company prior review and approval in all cases. As Morpheus correctly concedes, this section merely “permitted UBSRE to jointly market the assets with Morpheus ‘taking the lead.’” Morph. Br. at 17 (emphasis added). This section did not require joint marketing, or limit UBSRE to joint marketing. Nor does it say that UBSRE is prohibited from marketing the Student Loan Assets except jointly with Morpheus. Rather, it leaves intact UBSRE’s ability to market its own assets. Cf. Audrey Balog, 202 A.D.2d at 530 (exclusive right to sell where contract required owner “to refer all inquiries” to broker “for negotiation”). It therefore does not support the requisite inference that the Agreement “clearly and expressly provides that a commission was due upon sale by the owner or excludes the owner from independently negotiating a sale . . . NEWYORK 9058928 v2 12 or [creates a payment obligation] by necessary implication from its terms.” Solid Waste, 120 A.D. 2d at 916. Later in its Brief, Morpheus contends that the joint marketing provision imposed “marketing restrictions[,]” Morph. Br. at 21, or a “bar on UBSRE marketing its own assets except jointly with Morpheus ‘taking the lead.’” Morph. Br. at 20. Morpheus also contends that the parties “agreed that UBSRE would only jointly market those assets with Morpheus taking the lead. . . .” Id. at 28 (emphasis added); see also id. at 2, 37 (“limits UBSRE to joint marketing”). These contentions, however, go well beyond the actual language of the Agreement, quoted above. The Agreement does not say “including and limited to joint marketing efforts” or “only joint marketing efforts” or create a “bar” on other marketing efforts by UBSRE. Finally, in this regard, Morpheus contends that the joint marketing language “is not necessary if UBSRE had . . . an unfettered right to sell the Student Loan Assets without obligation to Morpheus.” Id. at 17. This, however, is a non sequitur. There is no inconsistency between an exclusive agency (which allows the owner to market and sell the assets at issue) and a contract provision that says that the broker “will work with the [owner] to assist in the creation of marketing materials . . . including joint marketing efforts . . . with [the broker] taking the lead[.]” A60. Obviously, the owner can engage in both unilateral marketing and NEWYORK 9058928 v2 13 joint marketing with respect to the same assets. The joint marketing language is therefore not superfluous. E. Contracts For Investment Banking Services Are Governed By The Same Rules Morpheus next contends that a contract for “investment banking services” may be subject to different rules, and that cases that “arise out of real estate disputes” have “limit[ed] . . . usefulness[.]” Morph. Br. at 19. Morpheus continues, “[T]he meaning of terms used in real estate brokerage agreements do [sic] not necessarily transfer to contracts in other fields.” Id. at 21. Many New York state and federal courts, however, have rejected this contention, either explicitly, David R. Maltz & Co. v. Wachovia Bank, N.A., 2010 WL 1286308, at *8-9 (E.D.N.Y. Mar. 31, 2010) (auctioneer selling mortgages), or implicitly, by applying the same legal test to contracts for a wide array of brokerage services outside the field of real estate, including investment banking services. See CV Holdings, 9 A.D.3d at 655 (investment banking services). See generally BREAA LLC v. Passarelli, 104 A.D.3d 542, 542 (1st Dep’t 2013) (sale of a comic book); Carnes, 305 A.D.2d 332 (placement of advertising); Gottesman Co. v. Metro Creative Graphics, 290 A.D.2d 391, 391-92 (1st Dep’t 2002) (sale or merger of company); Solid Waste, 120 A.D.2d at 915 (sale of a business); Hammond, 48 A.D.2d at 397 (sale of a corporation); Manhattan Fuel Co. v. New England Petro. Corp., 439 F. Supp. 959, 969-970 (S.D.N.Y. 1977) (sale of oil). Cf. NEWYORK 9058928 v2 14 Moses v. Bierling, 31 N.Y. 462, 464 (1865) (sale of muskets; owner liable to exclusive broker where owner sold through another broker). A leading national treatise states flatly, “The principle applied in land brokerage cases is equally applicable to all offers to pay compensation for specified services to be rendered.” 1 Corbin, Contracts, § 2.30 at 283 (1993). Sister-state and federal courts around the country also apply these rules outside the field of real estate.3 The reason for this is clear. The rules governing exclusive brokerage agreements -- and recognizing the distinction between exclusive agency and exclusive right to sell -- have general applicability because they arise from the law of agency and contract, not the law of real property. See 23 Lord, Williston on Contracts § 62.18, at 367-68 (principles of agency and contract law govern rights and duties of a broker-owner relationship); see also cases cited supra n.3 (discussing and applying concepts of agency law). Thus, the same rules regulate 3 See, e.g., Wood v. Hutchinson Coal Co., 85 F. Supp. 1010, 1015 (N.D. W. Va. 1949) (sale of coal), aff’d, 176 F.2d 682 (4th Cir. 1949); Ballard v. Tingue Mills, Inc., 128 F. Supp. 683, 689 (D. Conn. 1954) (contract to secure government contracts); Schwob v. Int’l Water Corp., 136 F. Supp. 310, 312-13 (D. Del. 1955) (contract for construction of ground-water wells); Bump v. Robbins, 24 Mass. App. 296 (1987) (sale of a business); Roberts Assoc., Inc. v. Blazer Int’l Corp., 741 F. Supp. 650, 652 (E.D. Mich. 1990) (sale of auto parts); IFA Inc. v. Ellco Leasing Corp., 1993 U.S. Dist. LEXIS 4376, at *45-48, *54-55 (N.D. Ill. April 2, 1993) (equipment leases; explicitly rejecting contention that distinction between exclusive agency and exclusive right to sell “applies only in real estate cases”); Kraft v. Toxikon Corp., 1998 WL 1284187 (Mass. Super. April 17, 1998) (mortgage brokerage services); Dubuc, Locke & Co. v. DiFlora, 1999 Ohio App. LEXIS 3736, at *18-20 (Ohio App. Aug. 4, 1999) (investment banking services); Hardy v. Reynolds and Reynolds Co., 2007 WL 2713736, at *4 (E.D. Mich. Sept. 17, 2007) (sale of information technology and software). NEWYORK 9058928 v2 15 the relationship between -- including specifically, competition between -- principal (here, UBSRE) and agent (here, Morpheus), whether the property at issue is land or portfolios of loans. Morpheus cites Mercer Capital, 2009 WL 2163598, in support its contention that cases involving “real estate disputes” have limited “usefulness” as precedent here. Mercer Capital does question whether “terminology” used in real estate transactions “is uniformly used in the same manner in the securities area” -- faint support for Morpheus, particularly where the Agreement between Morpheus and UBSRE had nothing to do with the placement of securities. In any event, to the extent that Mercer Capital questions the general applicability of these concepts, Mercer Capital appears to stand alone. It certainly stands against the overwhelming weight of authority. This Court, of course, is not bound by Mercer Capital and should not follow it. F. Morpheus Was A Broker (As Well As A Banker) Morpheus next contends that it “was . . . not a ‘broker,’ but a banker retained . . . to provide investment banking services[.]” Morph. Br. at 33; see id. at 7 n.4. By its own admissions, however, Morpheus was both. The Complaint in this action admits that UBSRE “engaged” Morpheus “as its financial advisor and investment banker in the proposed sale of [the Student Loan Assets]. That Agreement gave Morpheus the exclusive right to broker a deal NEWYORK 9058928 v2 16 to sell or transfer these assets or transfer the risk of first loss.” A49 (emphasis added). Similarly, in the Appellate Division, Morpheus admitted that it “sued . . . for UBS’s breach of a contract for investment banking services. Under the contract, Morpheus had the exclusive right to broker a deal involving certain ‘toxic’ assets owned UBSRE.” App. Div. Brief at 1 (emphasis added). Plainly, brokerage services formed a sub-set of Morpheus’s investment banking services. Admissions aside, Morpheus meets the legal definition of a broker -- a person “who introduce[s] and bring[s] the parties together” and “brings the parties to an agreement[.]” Ne. Gen. Corp. v. Wellington Adv., Inc., 82 N.Y.2d 158, 163 (1993). Thus, under the Agreement, Morpheus’s duties included: • finding buyers (“solicit[ing] counterparties”), • fixing the price (“analysis of the appropriate valuation ranges”), • salesmanship (“Assist in the creation of marketing . . . materials”), • dealing with buyers (“coordinat[ing] communications with and information requests from potential investors”), and • negotiating the sale (“Assist[ing] in the . . . negotiation of the terms of any Transaction” A60. It may be that Morpheus had duties, in addition to those described above, particular or peculiar to investment bankers. See Morph. Br. at 34-35. It may be NEWYORK 9058928 v2 17 that Morpheus had duties in addition to, or different from, those that a real estate broker would have. It is clear, however, that an investment banker’s services can include brokerage services. Morpheus was a broker where, as here, the Agreement imposed on Morpheus duties that bring Morpheus within the definition of a broker, cited above. That is so even if Morpheus also had additional duties. POINT II PAROL EVIDENCE IS INADMISSIBLE AND DOES NOT HELP MORPHEUS Morpheus contends that the Agreement is ambiguous, so that the Court may consider parol evidence. This contention is meritless. The proffered parol evidence is not admissible. In any event, that parol evidence does not support the conclusion that Morpheus urges. A. The Parol Evidence Is Inadmissible 1. The Agreement Is Not Ambiguous “The best evidence of what parties to a written agreement intend is what they say in their writing . . . .” Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002) (quotation marks omitted). “Extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous.” Id. “Whether an agreement is ambiguous is a question of law for the courts . . . . Ambiguity is determined by looking within the four corners of the document, not NEWYORK 9058928 v2 18 to outside sources . . . .” Kass v. Kass, 91 N.Y.2d 554, 566 (1998); see W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 163 (1990) (“An analysis that begins with consideration of extrinsic evidence of what the parties meant, instead of looking first to what they said . . . unnecessarily denigrates the contract and unsettles the law.”); Rodolitz v. Neptune Paper Prods., Inc., 22 N.Y.2d 383, 387 (1968) (“[W]e concern ourselves with what the parties intended, but only to the extent that they evidenced what they intended by what they wrote.” (internal quotation marks omitted)). When determining whether a contract is ambiguous, a court will examine the language of the contract in light of well-established precedent governing the underlying substantive issue. For example, in Greenfield, 98 N.Y.2d 562, the contract at issue transferred an artist’s full ownership rights to the master recordings of certain musical performances. Id. at 566-67. The plaintiffs nevertheless contended that the contract did not “bestow the right to exploit these recordings in new markets or mediums since the document is silent on these topics.” Id. at 569. The plaintiffs offered extrinsic evidence of the parties’ intent but this Court rejected it, holding that the contract was not ambiguous. When analyzing whether the contract was ambiguous, the Court examined the contractual language in light of “well-established precedent on the issue of whether a grantor retains any rights NEWYORK 9058928 v2 19 to artistic property once it is unconditionally transferred.” Id. at 570. This precedent established that the unconditional transfer of ownership rights to a work of art includes the right to use the work in any manner, unless those rights are specifically limited by the terms of the contract. The Court agreed with these “prevalent rules,” id. at 572, and therefore held that the contract was susceptible to only one reasonable interpretation -- the one supported by well-established precedent. Id.; see also Innophos, Inc. v. Rhodia, S.A., 10 N.Y.3d 25, 30 (2008) (looking to provision in Constitution of Mexico, which showed that water is a state-owned natural resource, regulated by government in its sovereign capacity; accordingly, no ambiguity exists in parties’ contract, and fees at issue were “similar governmental charges,” as defined in contract); Kerber Straw Hat Corp. v. Lincoln, 239 A.D. 727, 729 (1st Dep’t 1934) (“Where the meaning of a term has been judicially determined its meaning when used in transactions had thereafter must be taken to be that of the judicial interpretation, and testimony tending to show a different meaning is incompetent.”), aff’d, 266 N.Y. 410 (1934). So, too, in this case, the Court should examine the Agreement in light of well-established precedent, which holds that an exclusive brokerage agreement “will not be construed to create an exclusive right to sell unless it expressly and unambiguously provides for a commission upon sale by the owner or excludes the owner from independently negotiating a sale.” Far Realty, 34 A.D.3d at 262. NEWYORK 9058928 v2 20 Here, the Agreement, within its four corners, simply does not contain such an express and unambiguous provision. Therefore, it is susceptible of only one reasonable interpretation: It “will at most be considered as creating an exclusive agency, not excluding the owner’s inherent right to sell his own property.” Solid Waste, 120 A.D.2d at 916. Put differently, exclusive brokerage contracts are more usually read to create an exclusive agency; an exclusive right to sell is more exceptional or unusual. “If the contract is more reasonably read to convey one meaning, the party benefitted by that reading [here, UBSRE] should be able to rely on it; the party seeking exception or deviation from the meaning reasonably conveyed by the words of the contract [here, Morpheus] should bear the burden of negotiating for language that would express the limitation or deviation . . . .” Greenfield, 98 N.Y.2d at 571 (quoting Boosey & Hawkes Music Publishers, Ltd. v. Walt Disney Co., 145 F.3d 481, 487 (2d Cir. 1998)). Here, Morpheus simply did not successfully negotiate for language, within the four corners of the Agreement, that would express an exclusive right to sell. 2. Parol Evidence Cannot Be Used To Show “Bad Faith” Morpheus next contends that parol evidence -- the “drafting history” and the alleged industry custom -- “can be used to expose an argument made in bad faith.” Morph. Br. at 26. This contention fails for three reasons. NEWYORK 9058928 v2 21 First, Morpheus never raised this issue in Supreme Court or in the Appellate Division. It is therefore unpreserved and cannot be raised for the first time in this Court. Second, Morpheus cites no authority for the proposition that a party may use parol evidence to show that an adverse party has taken a position in bad faith. The sole case cited by Morpheus, Reichmann v. Neumann, 553 F. Supp. 2d 307, 326 (S.D.N.Y. 2008), does not so hold, and does not even address the parol evidence rule. Third, there is no allegation or evidence that UBSRE takes its position in bad faith. The Complaint alleges only that UBSRE refused to pay the Success Fee “[w]ithout justification[.]” A55 (¶ 28). It does not allege that UBSRE refused to pay “in bad faith.” UBSRE’s legal position, furthermore, is supported by ample case law, and was accepted by the entire Appellate Division panel (in part) and by the Appellate Division Dissent (in full). There is no “bad faith” here. B. The Parol Evidence Does Not Support The Conclusion That Morpheus Had An Exclusive Right To Sell In the alternative, even if the parol evidence were admissible, it does not support the conclusion that Morpheus urges. Morpheus’s witness, Mitchell Gordon, states (at RA11) that an “early draft of the contract” provided for a Success Fee “to be paid upon the closing of any transaction disposing of those [Student Loan] assets. Payment of our fee was not conditioned upon Morpheus NEWYORK 9058928 v2 22 introducing the counterparty to UBSRE. Rather, the obligation to pay the Success Fee would arise once UBSRE completed the transaction. . . . See Ex. A. at 1-2 [RA15-16].” The Court, however, will search the cited “early draft” in vain for such language. The early draft (RA15-16) says no such thing. Gordon then states that a list of potential buyers as to which Morpheus would not get a Success Fee was changed to a list of two buyers (Morgan Stanley and NBF) as to which Morpheus would, in certain circumstances, get a Success Fee. According to Gordon, “left intact was UBSRE’s obligation to pay Morpheus the Success Fee if UBSRE completed any transaction involving the Student Loan Assets with or without Morpheus’s assistance during the exclusive period.” RA13. Gordon, however, makes a leap from an infirm foundation. Nothing in this so-called “drafting history” shows that Morpheus “bargained for and received a period of time in which to find a counterparty” or would not be “open to the very competition that UBSRE now claims it was entitled to pursue[.]” Morph. Br. at 37. Indeed, the language conveying the “exclusive right to solicit counterparties” seems never to have changed at all; the same language appears in the revised draft (RA22) and the signed Agreement (A60) (“Company [UBSRE] agrees that MCA [Morpheus] shall have the exclusive right to solicit counterparties for any potential Transaction involving the Student Loan Assets during the term of this NEWYORK 9058928 v2 23 Agreement.”). Certainly, Gordon’s reference to what is “typical in the industry,” RA11, does not change the result. In sum, Morpheus fails to proffer evidence that the parties actually came to a meeting of the minds that Morpheus would have an exclusive right to sell. The “drafting history,” and the ultimate language of the Agreement, plainly demonstrate the contrary.4 4 Nor can Morpheus seek “reformation” of the Agreement, Morph. Br. at 23 n.10, which was negotiated and signed by sophisticated parties. Morpheus contends that the Agreement fails to set forth the parties real, but unstated, agreement (to establish an exclusive right to sell). But this “merely contends that the language that the parties mutually agreed to in the [contract] is at variance with the parties’ intent, belief and agreement. In other words, [Morpheus] claims that [it] misunderstood the legal effect of the [contract’s] language. In such circumstances, reformation is not available.” Compania Embotelladora Del Pacifico, S.A. v. Pepsi Cola Co., 607 F. Supp. 2d 600, 604 (S.D.N.Y. 2009) (internal quotations omitted). This does not amount to a mutual mistake of fact. See, e.g., Goodison v. Goodison, 66 A.D.2d 923, 924 (3d Dep’t 1978) (“Where two parties, with knowledge of the facts or without any inequitable conduct, have executed an agreement, that agreement should be upheld despite one of the parties being mistaken as to its legal consequence.”). “[T]o overcome the heavy presumption that a deliberately prepared and executed written instrument manifested the true intention of the parties, evidence of a very high order is required.” George Backer Mgmt. Corp. v. Acme Quilting Co., Inc., 46 N.Y.2d 211, 219 (1978); accord Chimart Assocs. v. Paul, 66 N.Y.2d 570, 574 (1986). The party seeking reformation has to “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.” Id. The evidence proffered by Morpheus does not carry that burden. Morpheus’s witness, Gordon, does not testify that the parties actually agreed to an exclusive right to sell. At most, Gordon seems to suggest that he thought the Agreement provided an exclusive right to sell. See RA11-13. NEWYORK 9058928 v2 24 POINT III THE AGREEMENT CREATED AN EXCLUSIVE AGENCY AND MORPHEUS HAS NO CAUSE OF ACTION FOR A SUCCESS FEE A. The Appellate Division Erred When It Sustained The Complaint Morpheus does not dispute the core of UBSRE’s position: Under an exclusive agency, the owner of the property may sell the property, without liability to the broker for a commission, as long as the owner does not use any broker when arranging the sale. The owner and the broker, furthermore, are in a competition, and the owner is free to sell to the first party who offers an acceptable price. The owner has no duty to wait, so as to give the broker a further opportunity to find a buyer. See UBSRE Opening Brief at 14-24.5 Morpheus, however, contends that the Agreement was no “garden variety exclusive agency[.]” Morph. Br. at 40. According to Morpheus, the Agreement contains “additional terms affecting the rights of the parties[,]” and gives Morpheus “more than just the rights solely afforded by an exclusive agency.” Id. at 29. Acknowledging that the Appellate Division imposed on UBSRE a duty to 5 Morpheus criticizes the Appellate Division for holding that the Agreement created an exclusive agency because the Appellate Division supposedly reached that conclusion “without explanation,” Morph. Br. at 13, and “offered no reason for its conclusion.” Id. at 20. This contention cannot withstand analysis. The Appellate Division Dissent explained, “Under an exclusive agency contract, no liability to pay a commission is incurred where the property is transferred to a purchaser located by the client [the owner], without the participation of either the contracting broker or any other[.]” A19. The Majority agreed with the Dissent. A9. No further explanation or reasoning is necessary. Here, UBSRE sold assets to the Stabilization Fund, a buyer located by UBS AG and UBSRE without the participation of any broker. Therefore, under the law of exclusive agency, UBSRE can have no liability to Morpheus. NEWYORK 9058928 v2 25 wait before selling, Morpheus says that a “duty to wait was an appropriately bargained-for right” in this case. Id. at 36 (capitalization changed). These contentions are meritless. 1. The Agreement Contained No Terms That Varied The Rights Of The Parties In support of its position, Morpheus relies -- again -- on Sentences One and Two and the provision for joint marketing (all quoted above). But -- again -- these provisions do not help Morpheus. Morpheus contends that Sentence One and Sentence Two “limited [the] competition [between Morpheus and UBSRE] to certain deals with Morgan Stanley or NBF International[.]” Morph. Br. at 28. These Sentences, however, say and do no such thing. These Sentences provide that Morpheus would have, in certain circumstances, a Success Fee upon a sale by UBSRE to Morgan Stanley and/or NBF, but would have no Success Fee for a “credit default swap [etc.].” Those Sentences do not even purport to limit the competition between Morpheus and UBSRE to find any buyer other than Morgan Stanley or NBF. They certainly do not impose on UBSRE a duty to refrain from finding some other buyer, or a duty to wait to sell when it found a buyer, so as to give Morpheus a further opportunity to find a buyer. Morpheus next contends that UBSRE “agreed that UBSRE would only jointly market those [Student Loan Assets] with Morpheus taking the lead in any NEWYORK 9058928 v2 26 such marketing efforts.” Morph. Br. at 28 (emphasis added). The Agreement, however, does not use the word “only.” It uses the word “including.” A60. UBSRE therefore remained free to market the Student Loan Assets on its own, and thereby to compete with Morpheus to find a buyer (except as to Morgan Stanley and NBF). The Agreement, in short, contains no terms that vary the rights and duties that flow as a matter of law from a contract for an exclusive agency. 2. The First-In-Time Rule Applies Nor does the Agreement contain terms that remove this case from the generally applicable, first-in-time rule, under which the owner may sell to the first party who offers an acceptable price. The owner is under no duty to wait before selling, so that the broker may have a further opportunity to find a buyer. See Wylie v. Marine Nat’l Bank, 61 N.Y. 415, 419 (1875), and the other cases and authorities cited in UBSRE’s Opening Brief at 19-24. Morpheus contends that Wylie is distinguishable because it “turned on the non-exclusive nature of the contract[.]” Morph. Br. at 37. As explained in UBSRE’s Opening Brief, however, Wylie turned on the owner’s right to sell on his or her own, without using any broker. See Opening Brief at 20 n.5. The owner enjoys that right whether the agency is exclusive or non-exclusive. Thus, Wylie NEWYORK 9058928 v2 27 applies with full force where, as here, the owner, UBSRE, exercised its right to sell without using any broker. Morpheus next contends that UBSRE, “[h]aving agreed to give Morpheus [the] opportunity” to solicit counterparties, “could not unilaterally take it away just because a better deal came along.” Morph. Br. at 40. This, however, assumes the very matter to be established. The law of exclusive agency gave UBSRE the right to sell to the first buyer who offered an acceptable price -- whether or not it was a “better deal” than one that Morpheus might (or might not) bring along. Nothing in the Agreement abrogated that right. UBSRE was therefore free to sell at any time, “even though the broker has not been accorded what might be deemed a reasonable time in which to find a purchaser.” Siegel v. Rosenzweig, 129 A.D. 547, 549 (2d Dep’t 1908).6 3. All Causes Of Action Should Be, Or Have Been, Dismissed Morpheus contends that UBSRE does not “contest” the Appellate Division’s holding that the Agreement “mandated compensation for any transaction involving UBSRE’s toxic assets during the term of the [A]greement.” A13. This contention 6 The cases cited by Morpheus at page 40 of its Brief are not on point. They hold that a defendant has no defense of impossibility where performance is possible but circumstances have made performance financially disadvantageous or unexpectedly difficult. See 407 E. 61st Garage, Inc. v. Savoy Fifth Ave. Corp, 23 N.Y.2d 275, 281 (1968); Warner v. Kaplan, 71 A.D.3d 1, 5 (1st Dep’t 2009); Bierer v. Glaze, Inc., 2006 WL 2882569, at *7 (E.D.N.Y. Oct. 6, 2006); Gen. Elec. Co. v. Metals Res. Grp., Ltd., 293 A.D.2d 417, 418 (1st Dep’t 2002). UBSRE, however, is not defending on the ground of impossibility, and these cases do not even address the question of law at issue here -- in an exclusive agency, does the owner have a duty to wait before selling? NEWYORK 9058928 v2 28 is meritless. The Agreement gave Morpheus an exclusive agency, not an exclusive right to sell Student Loan Assets. Therefore, UBSRE can have no liability for a Success Fee for any transaction arranged by UBSRE without the use of any broker. Such a holding yields reversal and dismissal of both the first and the second causes of action. Morpheus cannot recover either (a) damages (a Success Fee, or damages in the amount of a Success Fee) for breach of the exclusivity provision (first cause of action) or (b) “compensation for any transaction involving UBSRE’s toxic assets during the term of the [A]greement.” A13 (the language on which Morpheus relies for its second cause of action). See Morph. Br. at 10-11 (describing its causes of action). There can be no liability for a sale “during the term” of the Agreement because UBSRE did not use any broker.7 7 As Morpheus concedes, “The third and fourth causes of action are not at issue on this appeal.” Morph. Br. at 11. The third cause of action alleges that UBSRE breached the obligation of good faith and fair dealing by manipulating the closing date of a post-termination transfer. That cause of action, however, requires a transaction with a party “introduced” to UBSRE. That cause of action therefore fell with the Appellate Division’s unanimous holding that the SNB did not introduce UBS AG to the Stabilization Fund. In any event, that cause of action would also fall upon reversal by this Court because UBSRE would owe Morpheus no Success Fee at all, thus rendering any alleged “manipulation” immaterial. The fourth cause of action seeks attorney’s fees if Morpheus is the “prevailing party,” which it, obviously, would not be if the Court reverses. Morpheus would now like to dispute whether UBSRE paid the contractual monthly fees to Morpheus, suggesting, “If this action is returned to the trial court, Morpheus intends to offer evidence that UBSRE breached [this] obligation[.]” Morph. Br. at 6 n.3. Suffice it to say that the Complaint makes no such allegation, Morpheus never filed an amended Complaint upon remand from the Appellate Division and Morpheus did not preserve this issue by raising it in either Supreme Court or the Appellate Division. NEWYORK 9058928 v2 29 4. A Duty To Wait Would Complicate And Unsettle The Law As shown in UBSRE’s Opening Brief at 25-27, the Appellate Division Decision in this case complicates and unsettles an area of law in which simple, bright-line rules have long prevailed. For example, the Appellate Division’s new “duty to wait” before selling raises an obvious question: How long must the owner wait? The Court now has Morpheus’s answer to that question. According to Morpheus, the owner must wait the entire length of the contract. See Morph. Br. 36 (The Agreement “requires UBSRE to afford Morpheus the opportunity to solicit counterparties for the very period of time for which the parties bargained and agreed.”) Plainly, if this is correct, a broker would be entitled to a commission on a sale made by the owner at any time during the life of the contract. Such an arrangement would obliterate the historic difference between an exclusive agency and an exclusive right to sell. The Court, however, does not have Morpheus’s answer to this question: Why is it good law or sound policy to complicate the law of exclusive agency by engrafting upon it the law of rights of first refusal, as the Appellate Division did here? Morpheus simply ignores this question, see Morph. Br. at 36 n.16, but this Court should not. As the Appellate Division Dissent shows, no prior case has seen the need, or provided any reason, to complicate the law in this way. NEWYORK 9058928 v2 30 5. A Duty To Wait Threatens To Impede Bank Regulation In its Opening Brief at 30-34, UBSRE explained why and how the Appellate Division’s duty to wait threatens to impede bank regulation. In opposition, Morpheus contends that there is no “authority for the novel proposition that bank regulators can direct action that impairs the contractual requirements of private parties with impunity, let alone allow a regulated entity to do so.” Morph. Br. at 41-42; see also id. at 38. Morpheus, however, has missed the point. UBSRE does not contend that the regulatory activity in this case excuses a breach of contract. On the contrary, UBSRE did not breach the Agreement when it transferred the Student Loan Assets to the Stabilization Fund, the first buyer who offered an acceptable price. The Appellate Division’s duty to wait, however, if allowed to stand, would cause a bank to think twice before transferring “toxic” assets into a regulatory program, even when such transfer does not breach a contract. This is bad public policy because it threatens to impede bank regulation, especially at a time of crisis. Morpheus again misses the point when it contends that “there is no indication that the Student Loan Assets needed to be included in any bailout.” Morph. Br. at 42. Under the law of exclusive agency, a bank is free to decide for itself which assets to transfer to a regulator (and presumably, the bank would choose to transfer its most “toxic” assets). The Appellate Division’s duty to wait, NEWYORK 9058928 v2 31 however, if allowed to stand, would inhibit the bank’s choice, even when the transfer of assets would not breach a private brokerage contract. Morpheus next contends that “there is no record evidence that the SNB required, or even suggested, that the transferred assets include the Student Loan Assets.” Morph. Br. at 43. See also id. at 38 (arguing no record support that UBSRE was “complying with any regulatory directive”). But UBSRE is not running a defense of government compulsion. The defense, rather, is that UBSRE was free to transfer the Student Loan Assets into the regulatory program without breaching the Agreement, and was free to do so whether or not the regulator compelled or requested the transfer of specific assets. For similar reasons, it does not matter whether UBSRE’s “parent [company] sought governmental assistance[,]” Morph. Br. at 41; id. at 39 n. 18, or “caused the very problem requiring government intervention[.]” Id. at 42. Again, UBSRE does not seek “to disclaim contractual obligations based upon that intervention.” Id. at 42. UBSRE made a business decision to transfer the Student Loan Assets into the regulatory program. That decision, and that transfer, did not breach the Agreement. The Appellate Division’s duty to wait, however, if allowed to stand, would cause a bank to think twice, even when it has the option to transfer its most toxic assets, thereby impeding bank regulation. NEWYORK 9058928 v2 32 6. Considerations Of International Comity Support Reversal Morpheus contends, “Comity does not absolve UBSRE . . . from liability for its breach of a contract involving a commercial transaction with another private party.” Morph. Br. at 43. That, however, is not UBSRE’s position. As shown above, UBSRE did not breach the Agreement, yet the Appellate Division’s duty to wait threatens to impede bank regulation. The undeniable connection here to Switzerland merely provides one more consideration in this Court’s analysis. The SNB undeniably acted pursuant to its statutory mandate to stabilize the Swiss financial system. A119. UBSRE and UBS AG undeniably participated in the regulatory program. The Appellate Division Dissent cogently described the reality here -- Morpheus seeks to profit from the Swiss bailout of Swiss banks, by Swiss regulators, in Switzerland. This Court should adopt the Dissent’s analysis. B. The Third-Party-Introduction Section Is Not At Issue Here Morpheus contends that the Agreement “grants Morpheus the right to a Success Fee if a third party introduces UBSRE to a potential buyer and a transaction with that buyer takes place,” citing section 5 of the Agreement. Morph. Br. at 34. That section of the Agreement, however, is not at issue on this appeal. That section applies only to a transaction that occurs after December 31, 2008, the termination date of the Agreement. It provides that Morpheus could have a Success Fee, in certain circumstances, for a post-termination transaction with an NEWYORK 9058928 v2 33 “Investor” who was “introduced to [UBSRE] by another party other than [Morpheus], but [Morpheus] performed substantially[.]” A62. Here, by contrast, Morpheus contends -- and the Appellate Division sustained the cause of action for breach of contract on this basis -- that the transaction announced by the SNB and UBS AG on October 16, 2008 (during the life of the Agreement) constituted the breach. See A50 (Complaint ¶¶ 2-3) (“On October 16, 2008,” UBS “reached an agreement with” the SNB “whereby the student loan assets would be sold to the Stabilization Fund . . . . By entering into that agreement . . . UBSRE . . . breached the Agreement with Morpheus.”); Morph. Br. at 8-9. Section 5 is therefore not at issue, as Morpheus actually concedes elsewhere in its Brief. See Morph. Br. at 11 (third cause of action, which relied on section 5, “not at issue on this appeal”). 8 In any event, the Appellate Division rejected the contention that the Stabilization Fund was an “Investor” who was “introduced” to UBSRE by the SNB. The Dissent explicitly rejected this contention, A24-26, 29-30, and the Majority implicitly did so. A17 (“We have considered the parties’ remaining arguments and find them unavailing.”). Section 5 of the Agreement is simply not at issue here. 8 UBSRE does not “admit[ ] that a sale took place in October 2008[,]” Morph. Br. at 9, or make the concession that Morpheus claims there. Rather, UBSRE assumes for purposes of this appeal that a sale took place on October 16, 2008. CONCLUSION For the foregoing reasons, the order of the Appellate Division should be reversed, the Complaint should be dismissed and the certified question should be answered in the negative. Dated: December 13,2013 New York, New York Respectfully submitted, WHITE & CASE LLP By:J..:q..:::.~~=-=------=-_-=--_--::"'~~'VL~'t.A.../ I(j nneth A. Caruso 1155 Avenue of the Americas New York, NY 10036-2787 (212) 819-8200 Of Counsel: Kenneth A. Caruso Patrick M. Wilson HERRICK, FEINSTEIN LLP 2 Park Avenue New York, NY 10016 (212) 592-1400 Jeffrey I. Wasserman Attorneys for Defendant-Appellant UBSRE 34 NEWYORK 9058928 v2