Nomura Asset Capital Corporation, et al., Respondents-Appellantsv.Cadwalader, Wickersham & Taft LLP, Appellant-Respondent.BriefN.Y.Sep 8, 2015To be Argued by: DAVID R. MARRIOTT (Time Requested: 30 Minutes) APL-2014-00171 New York County Clerk’s Index No. 116147/06 Court of Appeals of the State of New York NOMURA ASSET CAPITAL CORPORATION and ASSET SECURITIZATION CORPORATION, Plaintiffs-Respondents-Cross-Appellants, – against – CADWALADER, WICKERSHAM & TAFT LLP, Defendant-Appellant-Cross-Respondent. RESPONDING BRIEF FOR DEFENDANT-APPELLANT- CROSS-RESPONDENT CRAVATH, SWAINE & MOORE LLP Attorneys for Defendant-Appellant- Cross-Respondent Worldwide Plaza 825 Eighth Avenue New York, New York 10019 Tel.: (212) 474-1000 Fax: (212) 474-3700 Date Completed: November 21, 2014 i TABLE OF CONTENTS TABLE OF AUTHORITIES .................................................................................... iv PRELIMINARY STATEMENT ............................................................................... 1 ARGUMENT ............................................................................................................. 9 I. THE APPELLATE DIVISION ERRED IN FINDING A TRIABLE ISSUE AS TO WHETHER CADWALADER CONDUCTED ADEQUATE DUE DILIGENCE ON THE DHL. .......................................... 9 A. The Appellate Division Erred in Finding that the Deal Highlights Document Raised a Question of Fact Concerning Whether Cadwalader Discharged Its Duty of Care. .............................. 9 1. Nothing in the record suggests the Deal Highlights document was a red flag. .......................................................... 10 2. Nomura identifies no feature of the document itself that could reasonably be construed as a red flag. ............................ 14 3. Nomura fails to rebut Cadwalader’s list of undisputed facts. .......................................................................................... 21 B. Cadwalader Fulfilled Any Due Diligence Obligation It Owed. ......... 28 1. Nomura and Cadwalader expressly agreed that responsibility for appraisal due diligence would be allocated to Nomura. ................................................................. 29 2. Nomura fails to demonstrate the existence of an issue of fact as to whether Cadwalader departed from the appropriate standard of care. ..................................................... 32 a. No question of fact exists as to whether the parties agreed to allocate appraisal due diligence to Nomura. .......................................................................... 33 b. Cadwalader reasonably relied on Nomura’s appraisal due diligence in light of Nomura’s experience with REMIC securitizations. ........................ 35 ii c. Whether all members of Nomura’s securitization group correctly understood the 80% Test is irrelevant. ........................................................................ 38 d. Cadwalader reasonably relied on Nomura’s origination procedures and REMIC due diligence. ........ 39 e. Cadwalader’s experts demonstrated that Cadwalader fulfilled its professional obligations as REMIC counsel, and the testimony of Nomura’s experts does not create an issue of material fact on this point. ........................................................................ 41 (1) Field ...................................................................... 43 (2) Biafore .................................................................. 45 II. THE APPELLATE DIVISION CORRECTLY REJECTED NOMURA’S ADVICE CLAIM. ................................................................... 46 A. Cadwalader Provided Competent and Unrebutted Testimony from Its Lawyers that Cadwalader Correctly Advised Nomura Concerning the 80% Test. ................................................................... 47 1. There is no issue of material fact as to whether Glick properly advised Nomura. ......................................................... 47 2. There is no issue of material fact as to whether Adelman properly advised Nomura. ......................................................... 52 B. The Testimony of Nomura’s Employees Likewise Demonstrates That Cadwalader’s Advice Was Sound. ...................... 58 1. Gershon’s testimony does not create an issue of material fact. ............................................................................................ 58 2. The testimony of other Nomura employees does not create an issue of material fact. ................................................. 61 iii III. CADWALADER IS ENTITLED TO SUMMARY JUDGMENT BECAUSE ITS ALLEGED MALPRACTICE DID NOT CAUSE NOMURA TO SUFFER ANY DAMAGES. ................................................ 66 A. Nomura Misstates the Applicable Legal Standard. ............................. 67 B. Cadwalader’s REMIC Opinion Was Correct. ..................................... 71 1. Cadwalader’s REMIC Opinion did not guarantee the REMIC-eligibility of each underlying loan. ............................. 72 2. The undisputed evidence shows that the DHL was REMIC-eligible. ........................................................................ 74 3. Allegedly inadequate due diligence by Cadwalader cannot have caused Nomura any harm if the REMIC Opinion was correct. ................................................................. 78 C. Nomura Would Have Had the DHL on Its Books Regardless of Any Alleged Malpractice. ................................................................... 79 D. Nomura’s Breach of Representation 24 Obligated It To Repurchase the DHL. .......................................................................... 82 CONCLUSION ........................................................................................................ 85 iv TABLE OF AUTHORITIES Page(s) Cases 180 E. 88th St. Apartment Corp. v. Law Office of Robert Jay Gumenick, P.C., Nos. 23252, 600039-09, 2010 N.Y. Slip Op. 33848(U) (N.Y. Sup. Dec. 21, 2010) .................................................................................. 70 39 College Point Corp. v. Transpac Capital Corp., 27 A.D.3d 454 (2d Dep’t 2006) .......................................................................... 83 815 Park Ave. Owners, Inc. v. Fireman’s Ins. Co., 225 A.D.2d 350 (1st Dep’t 1996) ....................................................................... 56 Acker v. Wilger, No. 12 Civ. 3620(JMF), 2014 WL 100013 (S.D.N.Y. Jan. 10, 2014) ............... 70 Adamski v. Lama, 56 A.D.3d 1071 (3d Dep’t 2008) ........................................................................ 70 Am. Motorists Ins. Co. v. Schindler Elevator Corp., 250 A.D.2d 791 (2d Dep’t 1998) ........................................................................ 44 AmBase Corp. v. Davis Polk & Wardwell, 8 N.Y.3d 428 (2007) ....................................................................................passim Aquino v. Kuczinski, Vila & Assocs., P.C., 39 A.D.3d 216 (1st Dep’t 2007) ......................................................................... 12 Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, LLC v. Comprehensive Mental Assessment & Med. Care, P.C., 26 Misc. 3d 1109, 896 N.Y.S.2d 805 (N.Y. Sup. 2010) .................................... 69 Barnett v. Schwartz, 47 A.D.3d 197 (2d Dep’t 2007) .................................................................... 69, 70 Briffel v. Cnty. of Nassau, 31 A.D.3d 79 (2d Dep’t 2006) ............................................................................ 18 Brooks v. Lewin, 21 A.D.3d 731 (1st Dep’t 2005) ................................................................... 71, 80 v Campcore, Inc. v. Mathews, 261 A.D.2d 870 (4th Dep’t 1999) ....................................................................... 71 Carmel v. Lunney, 70 N.Y.2d 169 (1987) ......................................................................................... 68 Carrasco v. Pena & Kahn, 48 A.D.3d 395 (2d Dep’t 2008) .................................................................... 67, 71 City of N.Y. v. N.Y. State Div. of Hous. & Cmty. Renewal, 97 N.Y.2d 216 (2001) ......................................................................................... 18 Claude v. Elgammal, 30 Misc. 3d 1210(A), 958 N.Y.S.2d 644 (N.Y. Sup. Jan. 14, 2011) ................. 69 Cummings v. Donovan, 36 A.D.3d 648 (2d Dep’t 2007) .......................................................................... 80 Cusano v. Gen. Elec. Co., 111 A.D.2d 557 (3d Dep’t 1985), aff’d, 66 N.Y.2d 844 (1985)......................... 60 Cusano v. Gen. Elec. Co., 66 N.Y.2d 844 (1985) ......................................................................................... 60 Danton v. Van Valkenburg, 13 A.D.3d 931 (3d Dep’t 2004) .......................................................................... 56 Darby & Darby P.C. v. VSI Int’l, Inc. 95 N.Y.2d 308 (2000) ......................................................................................... 78 Davis v. Klein, 88 N.Y.2d 1008 (1996) ................................................................................... 7, 68 Dempster v. Liotti, 86 A.D.3d 169 (2d Dep’t 2011) .......................................................................... 69 Duane Morris LLP v. Astor Holdings Inc., 61 A.D.3d 418 (1st Dep’t 2009) ......................................................................... 47 Edgewater Apts., Inc. v. Flynn, 216 A.D.2d 53 (1st Dep’t 1995) ......................................................................... 43 vi Festinger v. Edrich, 32 A.D.3d 412 (2d Dep’t 2006) .......................................................................... 77 First Int’l Bank of Israel, Ltd. v. L. Blankstein & Son, Inc., 59 N.Y.2d 436 (1983) ................................................................................... 49, 56 Foley v. Roche, 68 A.D.2d 558 (1st Dep’t 1979) ......................................................................... 49 Forest City Enters., Inc. v. Russo, 8 Misc. 3d 151, 2005 N.Y. Slip Op. 25084 (N.Y. Sup. 2005) ........................... 78 Franco v. Muro, 224 A.D.2d 579 (2d Dep’t 1996) ........................................................................ 43 Gilberg v. Barbieri, 53 N.Y.2d 285 (1981) ......................................................................................... 42 Global Business Inst. v. Rivkin Radler LLP, 101 A.D.3d 651 (1st Dep’t 2012) ................................................................. 66, 71 Goverski v. Miller, 282 A.D.2d 789 (3d Dep’t 2001) ........................................................................ 43 Guiles v. Simser, 35 A.D.3d 1054 (3d Dep’t 2006) ........................................................................ 71 Healy v. Finz & Finz, P.C., 82 A.D.3d 704 (2d Dep’t 2011) .......................................................................... 69 Heilmann v. Bronx River Assocs., 204 A.D.2d 393 (2d Dep’t 1994) ........................................................................ 57 Humbert v. Allen, 89 A.D.3d 804 (2d Dep’t 2011). ......................................................................... 81 In re Eighth Judicial Dist. Asbestos Litig., 190 A.D.2d 1008 (4th Dep’t 1993) ..................................................................... 35 In re Liquidation of Union Indem. Ins. Co. of New York, 89 N.Y.2d 94 (1996) ..................................................................................... 76, 77 vii Joseph DelGreco & Co. v. DLA Piper L.L.P., 899 F. Supp. 2d 268 (S.D.N.Y. 2012), aff’d, 535 Fed. App’x 31 (2d Cir. 2013) .......................................................................................... 68, 69, 70 Joseph DelGreco & Co. v. DLA Piper L.L.P., 535 Fed. App’x 31 (2d Cir. 2013) ...................................................................... 68 Kellahan v. C.I.R., 77 T.C.M. (CCH) 2329 (T.C. Memo. 1999) ...................................................... 18 Kirk v. Heppt, No. 05 Civ. 9977, 2009 WL 2870167 (S.D.N.Y. Sept. 3, 2009) .................. 68, 69 Kutner v. Catterson, 56 A.D.3d 437 (2d Dep’t 2008) .......................................................................... 69 LaSalle Bank Nat’l Ass’n v. Nomura Asset Capital Corp., No. 00 Civ. 8720(NRB), 2004 WL 2072501 (S.D.N.Y. Sept. 14, 2004), aff’d in part, rev’d in part, remanded, 424 F.3d 195 (2d Cir. 2005) ................. 77 LaSalle Bank Nat’l Ass’n v. Nomura Asset Capital Corp., 424 F.3d 195 (2d Cir. 2005) ............................................................................... 77 Lovino, Inc. v. Lavallee Law Offices, 96 A.D.3d 910 (2d Dep’t 2012) .......................................................................... 69 M & R Ginsburg, LLC v. Segal, Goldman, Mazzotta & Siegel, P.C., 90 A.D.3d 1208 (3d Dep’t 2011) ........................................................................ 69 Martino v. Miller, 97 A.D.3d 1009 (3d Dep’t 2012) ........................................................................ 57 McCoy v. Feinman, 99 N.Y.2d 295 (2002) ......................................................................................... 68 Mezger v. Wyndham Homes, Inc., 81 A.D.3d 795 (2d Dep’5 2011) ......................................................................... 47 Mitchell v. Gonzales, 819 P.2d 872 (Cal. 1991) .................................................................................... 67 Morgenthow & Latham v. Bank of New York Co., 305 A.D.2d 74 (1st Dep’t 2003) ................................................................... 76, 77 viii Nazario v. Fortunato & Fortunato, PLLC, 32 A.D.3d 692 (1st Dep’t 2006) ............................................................. 10, 12, 13 O’Boy v. Motor Coach Indus., Inc., 39 A.D.3d 512 (2d Dep’t 2007) .......................................................................... 43 OFSI Fund II, LLC v. Canadian Imperial Bank of Commerce, 82 A.D.3d 537 (1st Dep’t 2011) ......................................................................... 49 Oikonomos, Inc. v. Bahrenberg, 38 Misc. 3d 1207(A), 966 N.Y.S.2d 347 (N.Y. Sup. Jan. 5, 2013) ................... 69 Omansky v. Whitacre, 55 A.D.3d 373 (1st Dep’t 2008) ......................................................................... 56 Phoenix Erectors LLC v. Fogarty, No. 100701-10, 2013 WL 4479821 (N.Y. Sup. Aug. 14, 2013) .................. 69, 70 Polsinelli v. Town of Rotterdam, 167 A.D.2d 579 (3d Dep’t 1990) ........................................................................ 60 Pozefsky v. Aulisi, 79 A.D.3d 467 (1st Dep’t 2010) ......................................................................... 69 Rivera v. Dafna Const. Co., 27 A.D.3d 545 (2d Dep’t 2006) .......................................................................... 60 Rodriguez v. Lipsig, Shapey, Manus & Moverman, P.C., 81 A.D.3d 551 (1st Dep’t 2011) ......................................................................... 15 Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) ............................................................................... 66 Rosen v. Tanning Loft, 16 A.D.3d 480 (2d Dep’t 2005) .......................................................................... 43 Rosner v. Paley, 65 N.Y.2d 736 (1985) ......................................................................................... 72 Rudolf v. Shayne, Dachs, Stanisci, Corker & Sauer, 8 N.Y.3d 438 (2007) ....................................................................................... 7, 68 ix Russo v. Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, 301 A.D.2d 63 (1st Dep’t 2002) ......................................................................... 81 San-Dar Assoc. v. Toro, 213 A.D.2d 233 (1st Dep’t 1995) ....................................................................... 58 Sarasky v. Law Enforcement Training and Consulting Servs., 108 A.D.3d 401 (1st Dep’t 2013) ....................................................................... 43 Schechter v. 3320 Holding LLC, 64 A.D.3d 446 (1st Dep’t 2009) ......................................................................... 43 Silverman v. Clark, 35 A.D.3d 1 (1st Dep’t 2006) ............................................................................. 77 Steed Finance LDC v. Nomura Secs. Int’l, Inc., No. 00 Civ. 8058 (NRB), 2001 WL 1111508 (S.D.N.Y. Sept. 20, 2001) .................................................................................. 65 Stewardship Credit Arbitrage Fund LLC v. Charles Zucker Culture Pearl Corp., 31 Misc. 3d 1223(A), 2011 N.Y. Slip Op. 50805(U) (N.Y. Sup. 2011) ................................................................................................. 44 Sutherland v. Milstein, 266 A.D.2d 33 (1st Dep’t 1999) ......................................................................... 78 The New Kayak Pool Corp. v. Kavinoky Cook LLP, 74 A.D.3d 1852 (4th Dep’t 2010) ....................................................................... 70 Tinter v. Rapaport, 253 A.D.2d 588 (1st Dep’t 1998) ....................................................................... 72 Ulico Cas. Co. v. Wilson, Elser,Moskowitz, Edelman & Dicker, 56 A.D.3d 1 (1st Dep’t 2008) ............................................................................. 69 Valley Ventures, LLC v. Joseph J. Haspel, PLLC, 102 A.D.3d 955 (2d Dep’t 2013) ........................................................................ 69 Viner v. Sweet, 70 P.3d 1046 (2003) ............................................................................................ 70 Von Duerring v. Hession & Bekoff, 71 A.D.3d 760 (2d Dep’t 2010) .......................................................................... 71 x Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 10 A.D.3d 267 (1st Dep’t 2004) ......................................................................... 70 Weiss v. SEC, 468 F.3d 849 (D.C. Cir. 2006) ............................................................................ 44 Wisseman v. N.Y. State Bd. of Equalization and Assessment, 212 A.D.2d 196 (3d Dep’t 1995) ........................................................................ 18 Zuckerman v. City of New York, 49 N.Y.2d 557 (1980) ................................................................................... 35, 61 Statutes & Rules Securities Act of 1933 .............................................................................................. 65 Securities Exchange Act of 1934 ............................................................................. 65 Treas. Reg. § 20.2031-1(b) ...................................................................................... 19 Other Authorities Dobbs, et al., The Law of Torts § 189, Vol. 1(2d ed. West 2011) ........................... 67 Estates, Gifts and Trusts Portfolios: Valuation, Portfolio 830-3rd: Valuation: General and Real Estate, Detailed Analysis, G. Local Assessed Values (Bloomberg Law 2014) ........................................................... 19 John A. Bogdanski, Federal Tax Valuation (Thomson Reuters 2013) ................... 19 Prosser & Keeton, Torts § 41 (5th ed. West 1984) .................................................. 67 Restatement (Second) of Torts § 431 ...................................................................... 67 Restatement (Second) of Torts § 433B(3) ............................................................... 67 Restatement (Third) of Torts: Liability for Physical Harm § 28(b), comments g-h ...................................................................................................... 67 Defendant-Appellant-Cross-Respondent Cadwalader respectfully submits this brief (i) in further support of its request that the Order of the Appellate Division, First Department, dated February 13, 2014, be reversed insofar as it requires Cadwalader to stand trial on Nomura’s due diligence theory; and (ii) in opposition to Nomura’s request that the Order be reversed insofar as it entered summary judgment against Nomura on its advice theory. PRELIMINARY STATEMENT The First Department properly rejected Nomura’s advice theory and narrowed Nomura’s due diligence theory to a single question: whether the Deal Highlights document raised a red flag as to the REMIC-eligibility of the Doctors Hospital Loan (the “DHL”), one of 156 loans in a 1997 securitization (the “D5 Trust”). For the reasons stated in the dissenting opinion of Justice Friedman and in Cadwalader’s opening brief, Nomura’s due diligence theory should be rejected as a matter of law because it is based on the faulty proposition that Cadwalader was required to perform a task that its sophisticated client, Nomura, specifically told it not to perform. Unable to address the flaws identified in Justice Friedman’s dissent, Nomura relegates legal analysis of the Deal Highlights document to 13 pages (beginning on page 103 of its brief), focusing instead upon its cross-appeal from the First Department’s unanimous rejection of Nomura’s advice theory. But nothing in Nomura’s cross-appeal demonstrates that the First Department erred. 2 Central to Nomura’s due diligence theory is the contention that Cadwalader bore responsibility for reviewing appraisals concerning the loans slated for inclusion in the D5 Trust. It did not. Nomura never retained Cadwalader to ascertain the value of the real property securing the DHL, and there is no evidence that it did. Property valuation is not a legal function, and it was certainly not a function assigned to Cadwalader in connection with the D5 Trust. In connection with the D5 Trust, Nomura and Cadwalader agreed to the same allocation of responsibility to which they had agreed in numerous prior deals: Nomura was to determine the value of the real property securing the loans in the D5 Trust, including the DHL, and Cadwalader was to render its tax opinion on the basis of that determination. Pursuant to this agreement, Nomura obtained an appraisal valuing the property securing the DHL and advised Cadwalader that the appraised value met the REMIC threshold (i.e., that the real property securing the DHL was equal to at least $40 million). It then provided Cadwalader with officers’ certificates which represented that the “fair market value of [the] real property” securing each loan was “at least equal to 80% of the principal amount of the Mortgage Loan” (i.e., that each loan met the “80% Test”). (A-82-83.) In fact, by Nomura’s own concession, it reached the conclusion that the real property securing the DHL was equal to $50 million without any input from Cadwalader. By reserving review of 3 appraisals for itself and instructing Cadwalader not to replicate the due diligence performed by Nomura and its other advisers, Nomura allocated assignments according to expertise and controlled its legal expenses. Contrary to Nomura’s frequent assertions and insinuations, Cadwalader does not contend that it was free to “bury its head in the sand” or to “blindly” rely on Nomura. In any case, the undisputed evidence shows that Cadwalader did neither of those things. Cadwalader sought and obtained Nomura’s assurance (as well as its written representation) that Nomura possessed an appraisal “evidencing” that the real property securing the DHL was equal to at least $40 million. By the time of the D5 Trust, Cadwalader had represented Nomura in numerous deals and knew Nomura to be highly sophisticated in REMIC securitizations generally and real property valuations in particular. Between 1993 and 1998, Nomura made over $1.4 billion in profits from CMBS transactions, and in fiscal year 1997 alone, it made over $500 million. The only document that the First Department found to raise a potential red flag, and thus perhaps to require further inquiry by Cadwalader, was the Deal Highlights document. As Justice Friedman recognized in his dissent, however, the Deal Highlights document did not in fact raise a red flag concerning the REMIC- eligibility of the DHL. Nomura did not make an issue of the Deal Highlights document during more than 11 years of litigation concerning the D5 Trust. It was 4 the motion court that introduced the document into this case, even though Nomura created it and had possessed it since it was prepared in 1997. Nomura did not even include the Deal Highlights document among the more than 1,200 documents it submitted in opposition to Cadwalader’s motion for summary judgment, demonstrating that Nomura’s due diligence theory is impermissibly grounded in hindsight. While Nomura now seeks to elevate the significance of a document it ignored for more than a decade, it does not dispute that the document was prepared to describe the DHL to the rating agencies, not to permit assessment of its REMIC- eligibility. Nomura did not address the document to Nomura’s REMIC counsel at Cadwalader, Charles Adelman, or ask him to review it. More importantly, there was no inconsistency between the Deal Highlights document and Nomura’s representations concerning the value of the real property securing the DHL; in fact, the document corroborated Nomura’s representations and thus gave Cadwalader no reason to believe that the DHL was not REMIC-eligible. To suggest that there is a triable issue as to whether the Deal Highlights document raised a red flag is to vest the document with a significance it had neither when it was created nor when it was transmitted by a sophisticated client to counsel who had been instructed not to review appraisals. As the First Department dissent noted, to say that the Deal Highlights document raised a red flag is to say “that Cadwalader was obligated to 5 conduct due diligence concerning the REMIC-qualification of each of the 156 loans, notwithstanding Nomura’s decision not to retain the law firm for that purpose” (A-42.a)—an extreme position that not even the majority below purported to adopt. Even if the Deal Highlights document could be construed as a red flag, Cadwalader met the standard of care in dealing with it. As an initial matter, the burden was on Nomura, not Cadwalader, to demonstrate that Cadwalader failed to satisfy the standard of care after Cadwalader made its prima facie showing that it acted reasonably. Cadwalader offered evidence from four experts and multiple fact witnesses that it did what Nomura asked it to do and did it well, and Nomura failed to offer any competent evidence to the contrary. None of Nomura’s experts was qualified to opine on the standard of care applicable to tax attorneys issuing REMIC opinions, and none of those experts even considered the Deal Highlights document in connection with the standard of care. (See Section I below.) Nomura’s cross-appeal, which seeks to reverse the unanimous decision of the First Department rejecting Nomura’s advice theory, finds no support in the record or in New York law. As the First Department held, “[Glick] and Adelman had numerous discussions with Nomura’s securitization team about REMIC requirements” and “Cadwalader provided Nomura with ‘detailed advice’ as to how to satisfy the 80% test.” (A-15.a.) “Glick told Nomura to add together 6 the value of what was plainly REMIC real property, such as land and structural improvements. If that sum amounted to at least 80% of the loan amount, the 80% test would be met. If not, Glick advised Nomura that it should make further inquiries to determine whether the loan met the 80% test.” (A-15.a-16.a.) The First Department further found that “Cadwalader told [Perry Gershon], and he understood, that a REMIC loan needed to be secured by real property worth at least 80% of the loan, that real property includes land and buildings, but not personal property, and that the appraisals of the collateral securing the mortgage loans in the trust had to separately value real property.” (A-16.a.) As the First Department determined, the undisputed evidence shows that “the allegedly missing advice was in fact given to Nomura.” (A-16.a-17.a.) Faced with the dispositive fact that both the lawyers at Cadwalader and the Nomura representative who hired and instructed Cadwalader (Perry Gershon, the head of Nomura’s securitization business) offered sworn, uniform testimony rebutting Nomura’s advice claim, Nomura now claims that certain of this testimony should be ignored, purportedly because it is “inconsistent,” “conclusory,” “scripted,” “biased,” and/or “mistaken.” These assertions, while advanced to create the appearance of a fact question, are unsupported by the record. The mere say-so of Nomura’s lawyers is no substitute for evidence. Nor is Nomura’s claim that certain lower-level Nomura employees may not have 7 understood Cadwalader’s advice. How—or how well—Nomura communicated Cadwalader’s advice within its organization is not an issue for which Cadwalader can reasonably be made to face trial. Based on the uncontradicted evidence that Cadwalader properly advised Nomura on how to apply the 80% Test, Nomura’s advice theory must fail. (See Section II below.) Finally, even if there were a fact question as to the merits of Nomura’s due diligence and advice theories, they would fail to clear several causational hurdles. In New York, as in other states, legal malpractice claims face a particularly rigorous “but-for” causation requirement. The courts have firmly required malpractice plaintiffs to prove that, but for the lawyer’s alleged malpractice, the adverse legal result would have been avoided. See Rudolf v. Shayne, Dachs, Stanisci, Corker & Sauer, 8 N.Y.3d 438, 442 (2007); AmBase v. Davis Polk & Wardwell, 8 N.Y.3d 428, 435 (2007); Davis v. Klein, 88 N.Y.2d 1008, 1009-10 (1996). This case epitomizes a transaction for which the plaintiff cannot make that showing. At bottom, Nomura’s theory is that, but for Cadwalader’s alleged failure to raise a red flag regarding the DHL, Nomura would not have placed the DHL into the D5 Trust because it would have realized that the loan did not meet the 80% Test. But the evidence in this case shows the exact opposite—that as soon as Nomura belatedly learned of the alleged problem with the original appraisal, it 8 commissioned an Appraisal Supplement that clarified that the real property securing the loan was worth over $45 million, more than the $40 million securitization threshold. The existence of that Appraisal Supplement and its conclusion confirm two things that are dispositive of Nomura’s claims: first, that Cadwalader’s REMIC Opinion was correct because the DHL was REMIC-eligible; and second, that in the “but-for” world (i.e., absent Cadwalader’s alleged malpractice), Nomura would have acted no differently—the DHL would still have been part of the D5 Trust. Moreover, Nomura would have been obligated to repurchase the DHL on the basis of its breach of a separate representation, whether or not the loan was REMIC-eligible. That Nomura chose to abandon the strength of its position and the substance of the Appraisal Supplement it commissioned and pay a large settlement amount in the Trustee Action was Nomura’s prerogative. But Nomura cannot, under the guise of a malpractice action, make Cadwalader an insurer, in connection with that settlement, for losses Cadwalader did not cause. At bottom, Nomura’s brief rests on a premise that summary judgment is inappropriate in legal malpractice cases, especially in complex ones. But the mere fact that this case involves a claim of legal malpractice, and an underlying transaction that is complex, does not justify a different set of rules. Summary judgment is appropriate where there is no genuine issue of material fact. The First 9 Department unanimously found that Cadwalader properly advised Nomura as to the REMIC rules, and there is no basis for disturbing that decision. Unless lawyers are insurers of their clients’ transactions, or are required to undertake tasks they are specifically instructed not to undertake, Nomura’s due diligence theory should likewise be dismissed as a matter of law. ARGUMENT I. THE APPELLATE DIVISION ERRED IN FINDING A TRIABLE ISSUE AS TO WHETHER CADWALADER CONDUCTED ADEQUATE DUE DILIGENCE ON THE DHL. Nomura argues that an issue of material fact exists with respect to its due diligence theory because (i) the Deal Highlights document constituted a red flag that should have prompted Cadwalader to inquire further as to the REMIC- eligibility of the DHL; and (ii) notwithstanding the Deal Highlights document, Cadwalader failed to comply with the applicable standard of care in performing its due diligence responsibilities. Neither of Nomura’s arguments has merit. A. The Appellate Division Erred in Finding that the Deal Highlights Document Raised a Question of Fact Concerning Whether Cadwalader Discharged Its Duty of Care. Cadwalader showed in its opening brief that Nomura’s due diligence theory, as narrowed by the First Department, did not present any issue of material fact because the Deal Highlights document (RA858-96) raised no red flag concerning the loan’s REMIC-eligibility. (Cadwalader Br. 30-40.) None of 10 Nomura’s arguments demonstrates that a trial is warranted to determine whether Cadwalader failed to meet its professional standard of care. 1. Nothing in the record suggests the Deal Highlights document was a red flag. It was the motion court, not Nomura, that first developed the argument that the Deal Highlights document might be a red flag that potentially obligated Cadwalader to perform due diligence that it had not been asked to perform on any of the other 155 loans slated for inclusion in the D5 Trust. (A-32- 34.) Tellingly, Nomura made no issue of the Deal Highlights document in opposing Cadwalader’s motion for summary judgment. If the document were the red flag that the First Department (and now Nomura) suggests, it surely would have at least been among the over 1,200 exhibits submitted by Nomura in opposing Cadwalader’s motion. Because Nomura made no issue of the Deal Highlights document until discovery was closed, Cadwalader’s summary judgment motion had been briefed and argued, and the motion court raised the issue sua sponte, there is little record evidence concerning the document. The record in this case, which it was Nomura’s burden to develop, see Nazario v. Fortunato & Fortunato, PLLC, 32 A.D.3d 692, 695 (1st Dep’t 2006), reveals only that Steve Gerstung of Nomura faxed the 38-page document (RA858-96) (which was not the underlying appraisal of the Doctors Hospital (A-412-539)), to Lisa Post of Cadwalader (RA858). 11 Gerstung’s responsibilities included supplying information to rating agencies (A-1748), not assessing REMIC-eligibility. As for Post, she was a mid-level associate working in Cadwalader’s Capital Markets Group, not its Tax Department, and her responsibilities did not include assessment of the REMIC- eligibility of the D5 Trust. (RA1725.) There is no evidence suggesting that Nomura faxed the document to Post to obtain advice on whether the DHL was REMIC-eligible. A request for such advice, had it been sought, would have been directed to the Cadwalader tax lawyer working on the securitization, Charles Adelman. (RA1725, RA1735-36.) The Deal Highlights document itself was produced in this litigation from the files of Standard & Poors, indicating that the rating agency had at one time possessed it. (A-2174 (bearing S&P Bates stamp).) Although Nomura failed to adduce evidence of who sent the document to Standard & Poors or why, there is testimony from the Trustee Action that rating agencies were interested in property valuations for their own independent reasons. (RA1544.) The Deal Highlights document covers several subjects of interest to rating agencies other than property valuation—for example, a Statistical and Financial Information Summary for the Doctors Hospital (A-2202), and a Regulatory, Market and Competitive Overview (A-2208). 12 Nomura argues that the Deal Highlights document is a red flag because it was faxed to Post “as a stand-alone document” three weeks before the D5 securitization closed. (Nomura Br. 111-12.) This argument might have force if Nomura had adduced any evidence that, together with the stand-alone fax, Nomura had written or called Post or some other Cadwalader attorney requesting review of the document to confirm the loan’s REMIC-eligibility. But the record does not reflect any such request on Nomura’s part. In any transaction of any significance, including a securitization of 156 commercial loans, lawyers and clients exchange thousands of documents, including many on a “stand-alone basis” and for purposes as routine as inclusion in the deal reference library.1 If Nomura had in fact sent the document to Post because it wanted Cadwalader’s advice as to whether the DHL was REMIC-eligible, surely Nomura would have adduced evidence to that effect. By failing to do so, Nomura has failed to carry its burden of showing the existence of an issue of material fact warranting trial. See Aquino v. Kuczinski, Vila & Assocs., P.C., 39 A.D.3d 216, 218-19 (1st Dep’t 2007); Nazario, 32 A.D.3d at 695. 1 There is no evidence in the record that Nomura ever notified Cadwalader that it was having difficulty determining the value of the real property securing the DHL; that Nomura ever referred to the Deal Highlights document during discussions with Cadwalader or asked Cadwalader any specific questions about it; that Nomura looked to Cadwalader to conduct its REMIC analysis based on documents like the Deal Highlights document; that the Deal Highlights document was sent to Cadwalader for purposes of complete review or analysis; or that it was sent for any reason other than for Cadwalader to keep it on file for consultation in case questions arose during the securitization process (e.g., questions from the rating agency). 13 In the same vein, the First Department and (only now) Nomura fault Cadwalader for “point[ing] to no evidence that Adelman, or anyone at Cadwalader, even read the document.” (A-26.a; Nomura Br. 105.) But again, it was Nomura’s burden, not Cadwalader’s, to show that Cadwalader was supposed to search a document prepared “for the rating agencies” for its implications, if any, on the 80% Test, when the document did not even purport to address that topic.2 (A-1492.) Nomura also faults Cadwalader for not explaining below why the Deal Highlights document was not brought to Adelman’s attention, whether he would have performed additional due diligence if it had been, and why he did not submit an affidavit addressing the document. (Nomura Br. 107-08.) In so doing, Nomura ignores the fact that the only reason the document was not more fully explained by Cadwalader below is that Nomura, whose burden it was to develop the record, see Nazario, 32 A.D.3d at 695, made nothing of the document until discovery had closed, summary judgment had been briefed and argued, and Cadwalader believed it was no longer able to submit new evidence. (NYSCEF Doc. Nos. 92, 97.) Nomura is wrong to draw any adverse inference (see Nomura 2 In the absence of such evidence, the First Department’s decision, if endorsed by this Court, would have the effect of creating a standard for malpractice liability under which the failure to read every document that crosses a lawyer’s path—in its entirety and for every conceivable purpose—creates a material issue of fact requiring trial, even where the scope of the lawyer’s engagement has been narrowly defined. 14 Br. 107) from Cadwalader’s failure to offer new evidence when the motion court instructed it only to “comment” on the document.3 Even if Nomura had asked Adelman to review the document or he had been required somehow to do so, it would have made no difference to Cadwalader’s REMIC Opinion, in view of its contents and the parties’ agreement concerning the scope of Cadwalader’s role. The lack of evidence that Nomura ever transmitted the Doctors Hospital appraisal to Adelman or that anyone at Cadwalader ever reviewed it, underscores the fact that appraisal due diligence was not Cadwalader’s responsibility unless Nomura sought such assistance, and that Nomura never did so. (A-2241, A-1492, A-1792.) 2. Nomura identifies no feature of the document itself that could reasonably be construed as a red flag. Notwithstanding the dearth of evidence in the record about the context in which the Deal Highlights document was transmitted, the document was not itself a red flag. Nomura accuses Cadwalader of “ignor[ing]” the findings of the trial court and the First Department concerning various factors that purportedly made the Deal Highlights document a red flag. (Nomura Br. 106-07.) However, as Cadwalader explained in its opening brief (Cadwalader Br. 30-33), none of the 3 After the First Department ruled on Cadwalader’s appeal and remanded the case to the motion court, but before leave to appeal to this Court was granted, Cadwalader again moved for summary judgment in the motion court, including on the theory that the Deal Highlights document was a red flag. In support of that motion, Cadwalader has submitted affidavits from Glick, Adelman, Gershon, and Post addressing why the document and the circumstances of its transmission have no bearing upon the adjudication of Nomura’s claims. Proceedings before the motion court have been stayed while this appeal is being heard. 15 information contained in the Deal Highlights document suggested that the 80% Test was not met. On its face, the Deal Highlights document indicates that the DHL met the 80% Test according to the appraisal Nomura had independently obtained. Nothing in the document suggests that Nomura had any doubts about the contents of its appraisal or any reservations about the value of the real property securing the DHL. To the contrary, the document indicates that the final appraised value of the property and its operations was $68 million, implying that the property would not meet the REMIC threshold only if the value of the non-real property exceeded $28 million. (RA-869.) That was a healthy excess, as Adelman opined at his deposition (A-2228), and his assessment was reasonable. “An attorney’s selection of one among several reasonable courses of action does not constitute malpractice.” Rodriguez v. Lipsey, Shapey, Manus & Moverman, P.C., 81 A.D.3d 551, 552 (1st Dep’t 2011) (internal quotation omitted). In Adelman’s general experience, “[i]t would have been highly unusual for [an aggregate valuation of $68 million] to have resulted in a real property value of less than $40 million for a going business in a particular building and location.” (A-2228.) Adelman’s experienced-based intuition is borne out by the Appraisal Supplement, a revised version of the original appraisal which Nomura obtained from Valuation Counselors and which allocated the $68 million in appraised value between real 16 property and non-real property components. (A-540-41.) In other words, that Appraisal Supplement appraised the value of the real property at $45,080,000 (A-541), more than $5 million above the REMIC threshold for a $50 million loan. And of course, as of the closing of the D5 Trust, Nomura expressly represented that the DHL borrower was not in breach of its representation that the real property securing the loan equaled at least $50 million. (A-578, A-1801 (Ex. 542), A-1468, A-1473-74, A-1935-39.) Nomura argues that the document’s indication that “the hospital was valued at only $40.6 million using the cost approach” was a red flag because this figure was close to the $40 million REMIC threshold. (Nomura Br. 106, 110-11.) Nomura argues that even though all the valuation figures in the Deal Highlights document exceeded the $40 million threshold, the $600,000 excess for the cost approach figure was too small to afford comfort that the REMIC threshold was met given that the cost approach valuation also included non-REMIC real property.4 (Nomura Br. 110-11.) However, this argument proceeds on the false premise that the cost approach figure was the ultimate measure of value for REMIC purposes, 4 As an initial matter, the notion that the Deal Highlights document could present a red flag simply because $600,000 might have been an insufficient excess for Cadwalader to forgo further scrutiny would present an entirely unworkable summary judgment standard, rife with line- drawing problems. What if the excess had been $600,001? Or $1.6 million? Would the Deal Highlights document raise a potential red flag sufficient to survive summary judgment in either of those cases? At what point is an (undisputed) excess sufficient such that a law firm—which was never hired to conduct valuations in the first place—is permitted to rely upon the (repeated) representation of its sophisticated client? 17 such that the relatively small excess signaled a need for further scrutiny. In fact, the cost approach was merely one of several valuation methods that served as inputs into the overall determination, and the most conservative method at that. (A-476 (“the value indications [the Cost, Sales Comparison, and Income Capitalization Approaches] are reconciled into a final value estimate that produces the most reliable indication for the subject property.”).) As the Appraisal Supplement made clear, the cost approach values real property (as well as improvements/fixtures/non-real property) as though the property were unoccupied or “dark.”5 (A-541.) But the proper measure of real property for REMIC purposes is one that “account[s] for the property’s ability to generate income” (A-1093) when occupied in accordance with its “highest and best use.”6 It is this “reconciled valuation” that, based upon consideration of several approaches—of which the “cost” is only one—determines “the most reliable indication” of real property value.7 (A-476.) Accordingly, a value generated by the cost approach is 5 Although the original appraisal valued land and improvement cost at only $30.96 million, at least $10 million of the additional value attributed to “intangibles and fixtures” in that appraisal qualified as “real property value.” (A-1093-94.) 6 At the time the original appraisal issued, the Appraisal Institute defined “highest and best use” as “the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value.” (A-473.) 7 As Justice Friedman noted in dissent, Mr. Gershon submitted “uncontradicted testimony” that “‘[i]t is the income approach as opposed to the cost approach that’s generally indicative of the value of an asset, particularly for REMIC purposes.’ Notably, Mr. Biafore, Nomura’s 18 conservative, and would be understood as such, since it does not include certain components of real property value that are appropriately considered for REMIC purposes. (A-1093-94 (“The REMIC rules allow for the value of real property to account for the property’s ability to generate income.”).) Notably, each of the three valuation methods reflected in the Deal Highlights document generated a real property value that satisfied the 80% Test. (RA869.) Nomura also argues that the discrepancy between the appraised value and the $2.1 million “assessed” value of the Doctors Hospital for real property tax purposes (A-2182) should have signaled that the $68 million figure was significantly overstated. (Nomura Br. 106.) But Nomura has adduced no evidence showing that an “assessed value” substantially below the appraised value is a red flag. Property tax-assessment is “not necessarily a reliable criterion to be used in estimating fair market value” because it is typically only a percent of the market value, and that percent varies greatly depending on the locality.8 Kellahan v. REMIC expert, quoted this testimony in his affidavit, and did not express any disagreement with it.” (A-52.a.) 8 See, e.g., Wisseman v. N.Y. State Bd. of Equalization and Assessment, 212 A.D.2d 196, 196 n.1 (3d Dep’t 1995) (noting that “each city, town and village throughout the State assesses its taxable property differently, usually at a fraction of market value”); Briffel v. Cnty. of Nassau, 31 A.D.3d 79, 83 (2d Dep’t 2006) (“[C]ase law also clearly distinguishes between an assessment or assessed value, on the one hand, and the full market value or full value of the property on the other.”), citing City of N.Y. v. N.Y. State Div. of Hous. & Cmty. Renewal, 97 N.Y.2d 216, 220 (2001) (noting the difference between assessed value and market value, and that “local governments, for their own reasons, assess real property at varying percentages of market value”). 19 C.I.R., 77 T.C.M. (CCH) 2329, at *7 (T.C. Memo. 1999). The very fact that the appraisal value of the Doctors Hospital real property was, in fact, $45,080,000 (A-541), more than 20 times the assessed value, is a testament to the utter lack of correlation between property tax assessments and measures of value for REMIC purposes.9 Nor should the “relatively older” condition of the “hospital’s physical plant” have been viewed as a red flag. (Nomura Br. 106.) The appraisal took the building’s age and condition into account, noting that the structure was “built in phases between 1916 and 1982,” that its improvements had a “remaining life of 30 years,” and that its “[g]eneral [c]ondition” was “average.” (A-468, A-470.) Nomura argues that the $68 million appraisal figure cited in the Deal Highlights document did not exclude operations, going concern value, or “structures” that would not have qualified as REMIC real property. (Nomura Br. 106.) However, Nomura cites no portion of the document that would have suggested, in view of all the facts and circumstances, that the value of the non- qualifying components exceeded $28 million and thus accounted for more than 9 See Treas. Reg. § 20.2031-1(b) (providing that the assessed value for local real estate tax purposes shall not be used as a measure of value unless the assessed value is regarded as the fair market value of the real property); Estates, Gifts and Trusts Portfolios: Valuation, Portfolio 830-3rd: Valuation: General and Real Estate, Detailed Analysis, G. Local Assessed Values (Bloomberg Law 2014) (“The assessed value of real property for local real estate tax purposes cannot, as a rule, be used as evidence of fair market value for income or estate tax purposes.”); John A. Bogdanski, Federal Tax Valuation ¶ 2.03[3][a], 2-216-17 (Thomson Reuters 2013) (“[C]ourts have not articulated a comprehensive or uniform view about the[] probative value [of state and local property tax assessments]. Moreover, varying valuation standards and appraisal practices in different localities may affect the rhetorical worth of such figures.”). 20 41 percent of the total appraised value. As Justice Friedman noted in his dissent from the First Department majority’s opinion (A-43.a-A-44.a), Adelman testified that: “I formed a judgment that a loan [sic] was valued at $68 million. Even in my experience and judgment, even if it consisted of a significant part of some personal property as well as real property, that . . . would not have been consistent with [my] experience that the real property portion was less than $40 million . . . . It would have been highly unusual for it to have resulted in a real property value of less than $40 million for a going business in a particular building and location.” (A-2228.) Nomura also contends that the fact that the Deal Highlights document concerned valuation of a hospital was itself a red flag, purportedly because “the legal concepts involved in identifying REMIC real property are difficult ones when dealing with a going concern such as the DHL.” (Nomura Br. 109.) This is in effect an argument that Cadwalader should have performed additional due diligence on all loans collateralized by “going concerns.” The parties’ course of prior dealings belies that argument. Nomura had an extensive track record of securitizing loans secured by going concerns, such as hotels and nursing homes, and the DHL was not the only such loan in the D5 Trust. (A-1887, A-2057, A-1619, A-2026.) Cadwalader had represented Nomura in many previous transactions and knew firsthand Nomura’s sophistication with valuation of 21 different types of properties for REMICs. (A-8.a-9.a, A-20.a, A-50.a, A-57.a, A-1619, A-1711, A-1790, A-579, A-2155, A-2424, RA438.) That Adelman, in a treatise chapter, advocated a cautious approach to valuing “going concerns” (Nomura Br. 109), such as nursing homes, hotels, and acute care hospitals, does not mean that acute care hospitals lay outside Nomura’s expertise or required heightened scrutiny by Cadwalader. As the IRS release cited by Nomura (Nomura Br. 109-10) attests, the principles relevant to application of the 80% Test for acute care hospital loans are the same as those applicable to loans secured by other forms of income-producing property: if the sum of “the value of the land securing the mortgage loan” and “the value of real property improvements securing the mortgage loan” equals or exceeds 80% of the loan value, the test is satisfied. (RA475.) That the property is an “acute care hospital” does not affect the application of the test. 3. Nomura fails to rebut Cadwalader’s list of undisputed facts. On Pages 112-14 of its brief, Nomura recites a list of ten supposedly “genuine issues of material fact” (Nomura Br. 112-14), purporting to address the list of undisputed facts in Cadwalader’s opening brief (Cadwalader Br. 47-49). None of these “facts,” however, is relevant to whether the Deal Highlights document constituted a red flag, the sole issue presented by that appeal; all relate more clearly to the various grounds of Nomura’s cross-appeal. But most 22 importantly, Nomura’s list does not create a genuine factual dispute about any of the issues raised by Cadwalader. Nomura Point 1/Cadwalader Point 1 (Nomura’s Purported Lack of Prior Securitization Experience) “While Nomura successfully securitized hundreds of loans, there is no proof in the record that it ‘successfully applied the 80% Test hundreds of times.’” (Nomura Br. 112 (quoting Cadwalader Br. 47).) There is ample evidence in the record that Nomura securitized hundreds of loans, and no evidence that any loan other than the DHL gave rise to a question of REMIC-eligibility. (A-1887, A-579, A-820, A-827, A-1619.) The record shows that Nomura successfully made similar REMIC representations in its previous securitizations. (See Howick Aff. Ex. 829 at 1, 8, 10; Howick Aff. Ex. 854 at 58- 61.)10 Accordingly, there is no genuine issue of material fact as to whether Nomura successfully applied the 80% Test hundreds of times.11 10 Citations to “Howick Aff. Ex. ___” are to the Exhibits to the Affidavit of Marie D. Howick, submitted in support of Cadwalader’s Motion for Summary Judgment on March 1, 2011. 11 Even if, contrary to fact, there were a factual dispute on this point, a trial would not be warranted. As the First Department unanimously and correctly held, Nomura—not Cadwalader—was responsible for loan valuation. (A-21.a-A-22.a.) There is no legitimate dispute that Nomura, a sophisticated entity that made over a billion dollars in profits from CMBS transactions between 1993 and 1998 alone, was competent to perform this function, or that it was reasonable for Cadwalader to agree to this allocation of responsibility. 23 Nomura Points 2, 8, 10/Cadwalader Points 2, 8, 10 (Nomura’s Purported Misunderstanding of the 80% Test) “Testimony of Nomura’s former employees reveals that they did not have an understanding of how to apply the 80% Test, particularly when dealing with a going concern. . . . Nomura provided Cadwalader with the [REMIC Representations/officers’ certificates] based on Nomura’s understanding that . . . by complying with its underwriting guidelines it was necessarily also satisfying the 80% Test.” (Nomura Br. 112, 114.) As discussed below (Section I.B.2.c), that some Nomura employees allegedly did not understand the 80% Test does not contradict the undisputed evidence that Cadwalader advised the Nomura representatives charged with overall responsibility for the D5 Trust concerning application of the Test. Whether, and (if so) how well, they communicated Cadwalader’s advice within Nomura’s ranks is not probative of whether Cadwalader performed in accordance with the standard of care in providing that advice in the first place. Critically, there is absolutely no evidence in the record that Cadwalader was the source of any Nomura employee’s misunderstanding of the 80% Test (particularly since the record is clear that Cadwalader never provided Nomura with any advice related to underwriting procedures (RA1946)) or that the officers who certified Nomura’s representations suffered from any such misunderstanding. (A-1939 (“We [Cadwalader] not only ha[d] [Nomura] sign the representations and warranties, we specifically asked them 24 to confirm [them], which indicated to me that they were incorporating all of the previous advice that I had given them, and that they had obtained the information they needed to make that representation and warranty accurate.”).) Nomura Points 3, 8, 9, 10/Cadwalader Points 3, 8, 9, 10 (Adelman’s Purported Responsibility for Appraisal Review) “Nomura [made/provided Cadwalader with] the [REMIC Representations][officers’ certificates] in reliance on its understanding that Adelman was reviewing the loans for REMIC purposes and would notify Nomura if any of them presented an issue [or he saw any problems]. . . . In issuing the REMIC Opinion, Adelman did not rely on Nomura’s representations but reviewed Annex A to the Prospectus Supplement; Adelman was aware that Annex A provided only an overall LTV for the loans, not a REMIC LTV and thus was deficient for REMIC purposes.” (Nomura Br. 113-15.) There is no genuine issue of material fact as to whether Adelman was responsible for reviewing the 156 loans included in the D5 Trust for compliance with the 80% Test. The record is clear that he was not. (A-1465-70, A-1473-74, A-1940-42, A-1814-15.) As Nomura’s brief acknowledges, Nomura prepared and provided to Adelman “asset summaries” or Prospectus Supplement annexes based on its own review of the underlying appraisals. (Nomura Br. 22-23.) That Nomura provided these asset summaries (A-2237-38) or annexes (RA522), rather than the appraisals themselves (RA186-87, RA274-286), confirms that review of the individual appraisals was not a task Nomura expected Cadwalader to perform. The 25 summaries and annexes Nomura prepared for Cadwalader did not contain data on the breakdown of real property and non-real property that would have permitted Adelman to perform or check Nomura’s application of the 80% Test (as they would have if Nomura had been seeking help from Cadwalader for this aspect of due diligence). (A-2237 (“Q. That $68 million aggregate value does not break down in any way the real property value versus the personal property value, correct? A. It does not. It merely establishes a relationship between the aggregate value and the principal amount from which other information can be inferred.”).) Nor did these summaries or annexes give any hint that the DHL or any of the other properties were not REMIC-eligible. (A-2238.) All showed overall Value-to- Loan ratios very well above 80% (i.e., Loan-to-Value ratios well below 125%), making it very unlikely that the 80% Test had not been met. (Id. (stating that the DHL LTV ratio indicated to Adelman that the appraised real property value was equal to at least 80% of the loan amount); A-2242 (showing that the DHL’s LTV ratio was 73%).) Furthermore, the fact that Adelman reviewed Annex A to the Prospectus Supplement does not mean that he did not rely on Nomura’s representations concerning the value of the real property securing the DHL. To the contrary, it is clear from the language of the REMIC Opinion and from Adelman’s testimony that Adelman did rely on those representations, as he was instructed to 26 do, rather than reviewing the appraisal itself. (A-583 (expressly stating that the Opinion was rendered subject to Nomura’s factual representations), A-1941 (the REMIC Opinion “states in so many words, and that a reader would conclude that . . . [,] as to facts that Cadwalader did not know, it relied on Nomura with respect to the facts”), A-1941-42 (“Nomura instructed Cadwalader that Nomura would be responsible for the factual portions of the transaction, and that in connection therewith Nomura would review appraisals, and that Cadwalader was not to duplicate Nomura’s work in that regard.”) (emphasis added).) Cadwalader Points 4, 5, 6/Nomura Points 4, 5, 6 (Nomura’s Purported Failure To Retain Additional Advisors on REMIC Compliance, Including at Loan Origination) “Nomura retained Cadwalader to advise it with respect to REMIC in connection with the DHL; Nomura did not retain any of the other advisors for purposes of REMIC . . . . None of the other advisors retained by Nomura provided any REMIC related services . . . “The only entity that Nomura retained to address REMIC was Cadwalader. “Nomura did not make REMIC determinations at the time it originated the loans that were to be included in the D5 Securitization. . . . And Dechert . . . specifically advised Cadwalader that Dechert was not providing any REMIC-related Representations or advice.” (Nomura Br. 113.) As explained below (Section I.B.1), there is no genuine issue of material fact that responsibility for review of the appraisals to ensure compliance with the 80% Test (in accordance with Cadwalader’s advice on how to apply that test) was allocated 27 solely to Nomura. Whether Nomura retained other advisors to help it review these appraisals is beside the point, and certainly cannot create an issue of fact warranting trial. Cadwalader had every reason to expect that a sophisticated entity like Nomura was capable of reviewing the appraisals as promised—with or without outside help. In any event, contrary to Nomura’s argument, Cadwalader was not the only entity that Nomura retained to address issues relevant to the REMIC determination. Nomura hired Cadwalader to render a REMIC Opinion and to serve as securitization counsel, but it also hired many other advisors to provide related services—e.g., Valuation Counselors, which was responsible for appraising the property securing the DHL and whose appraisal Nomura described to Cadwalader. (A-1465-66, A-1469.) Cadwalader Point 7/Nomura Point 7 (Adelman’s Purported Ignorance of the Borrower’s Representation of Value) “At the time of the D5 Securitization, Adelman had no knowledge of the representation made by the DHL borrower. . . . Even assuming that he was aware of the borrower’s representation, there is no proof that he or anyone else from Cadwalader communicated with the borrower to ascertain whether the representation could be relied upon.” (Nomura Br. 114; see also id. at 94- 95.) Nomura’s claim that Cadwalader had no knowledge of the borrower’s representation that the real property securing the DHL was equal to at least $50 million is unsupported by the record. In fact, the record is clear that 28 Cadwalader was alerted to the existence of the representation, since Nomura incorporated it into its standard representations in the MLPSA. (RA62-87, RA247, RA249.) That Cadwalader did not “communicate[] with the borrower to ascertain whether the representation could be relied upon” (Nomura Br. 114) is irrelevant because of Nomura’s responsibility for appraisal due diligence. (See Section I.B.1 below.) Moreover, even if Nomura were correct that Cadwalader had no knowledge of this representation, there would still be no genuine issue of material fact requiring trial. That Nomura would make the $50 million representation without seeking the advice of Cadwalader shows that it was Nomura—not Cadwalader—that had responsibility for determining the value of the real property securing its loans. B. Cadwalader Fulfilled Any Due Diligence Obligation It Owed. In its opening brief, Cadwalader showed that the parties had agreed that Nomura would be responsible for determining the appraised value of the real property underlying the D5 Trust, and for conducting appraisal-related due diligence, including compliance with the 80% Test. The First Department appreciated that there was no issue of material fact as to whether this basic allocation of responsibilities had been made. (A-19.a-A.21.a.) On the basis of that allocation, it reversed the motion court’s determination that Cadwalader should 29 face trial on Nomura’s claim that Cadwalader failed to fulfill a general obligation to review the underlying appraisals to ensure compliance with the 80% Test: “Gershon explained that Nomura did not ask or expect Cadwalader to review the appraisals, and he specifically told Cadwalader not to independently verify the accuracy of Nomura’s representations unless specifically requested. Barry Funt confirmed that understanding . . . . Moreover, in light of Nomura’s sophistication in the securitization field, and its knowledge of the REMIC rules, Cadwalader cannot be faulted for not undertaking a de novo review of all the appraisals to determine REMIC-eligibility. . . . [W]e conclude that Cadwalader had no generalized duty to review the underlying appraisals for all of the loans in the securitization.” (A-20.a-A.21.a.) In its cross-appeal, Nomura resurrects this argument, but none of the arguments it advances here indicate that the Appellate Division was mistaken. 1. Nomura and Cadwalader expressly agreed that responsibility for appraisal due diligence would be allocated to Nomura. Clients and lawyers are free to limit the scope of engagements, and a claim for malpractice will not lie for failure to perform legal services outside the lawyer’s allocated scope of responsibility. See AmBase, 8 N.Y.3d at 435. Here, in accordance with this principle, the parties agreed that Nomura would have responsibility for obtaining and reviewing the appraisals of the properties collateralizing the 156 loans to be included in the D5 Trust to ensure compliance with the 80% Test, and that Cadwalader would opine on the D5 Trust’s REMIC- 30 eligibility in light of Nomura’s review. (A-1467-68, A-1473, A-1814-15, A-1619- 20, A-1526, A-1930.) The parties acted in accordance with that mutual understanding. Nomura, not Cadwalader, obtained appraisals on the underlying properties. (A-82, A-1468, A-1473-74, A-1516.) Nomura, not Cadwalader, obtained a representation from the borrower that the real property securing the DHL was worth at least $50 million. (A-1807, A-1805.) Nomura, not Cadwalader, provided Cadwalader with a representation and officers’ certificates that the same real property was worth at least $40 million. (A-578, A-1801 (Ex. 542).) And Nomura, not Cadwalader, prepared asset summaries and annexes to a Prospectus Supplement that summarized the results of its review. (A-625-26, A-1752, A-1754, A-2236-38, RA803-05, RA1349.) Nomura’s shouldering of those responsibilities would not have made sense if it had thought that it was paying Cadwalader to perform them instead. Indeed, it is unclear how Nomura could have believed Cadwalader was reviewing an appraisal that Nomura never provided to Cadwalader until after the D5 securitization closed. The agreed-upon allocation here was not unusual; rather, it reflected Nomura’s general practice when working with outside securitization counsel. (A-1814-16.) Nomura was a leading REMIC issuer that had successfully applied the 80% Test hundreds of times to hundreds of mortgage loans. (A-579, A-820, 31 A-827, A-1619.) Nomura had an extensive track record of securitizing loans secured by going concerns, such as hotels and nursing homes, and the DHL was not the only such loan in the D5 Trust. (A-1887, A-1464, A-1619, A-2026, A-2057.) Cadwalader had represented Nomura in many previous transactions and understood Nomura’s expertise with REMICs. (A-1619, A-1397, A-579, A-820, A-824, A-827.) In those previous transactions, Nomura, not Cadwalader, had been responsible for appraisal due diligence. (A-1814-16, A-2244, A-1464, A-1475- 76.) Cadwalader offered expert testimony, unrebutted by admissible evidence, that the allocation to which it adhered when advising Nomura on securitizations was standard in the industry, and that securitization counsel’s role is not to guarantee facts related to property values, but rather to confirm with the client that the value of the real property securing the loan is at least 80% of the loan amount. (A-1145-46.) Cadwalader’s experts testified that Cadwalader met the applicable standard of care. (A-1008-10, A-1041-46, A-1066-75; A-962-78, A-993-1002; A-1077-78, A-1083-85, A-1127-28; A-1141, A-1144-48.) And the individuals at Nomura who retained and worked most directly with Cadwalader on the D5 Trust agreed. Gershon testified that “Cadwalader did what it was asked to do and did it well” in accord with the scope of its engagement. (A-1476, A-1522.) Nomura’s former general counsel, Barry Funt, testified that nothing led him to 32 conclude that Cadwalader had failed to provide the legal services Nomura had hired it to provide. (A-2424.) The allocation of responsibility for appraisal due diligence to Nomura not only was appropriate in light of Nomura’s experience, but also advanced Nomura’s interest in controlling its outside legal fees. (A-1473-74.) There were 156 loans in the D5 Trust; reviewing the appraisal for each would have been prohibitively expensive. (See A-50-54, A-1800-01, and summary judgment exhibits generally.) Nomura did not ask, expect, or want Cadwalader to replicate the due diligence undertaken by Nomura or its advisors.12 (A-1473, A-1474, A-1815.) 2. Nomura fails to demonstrate the existence of an issue of fact as to whether Cadwalader departed from the appropriate standard of care. Nomura argues that “[q]uestions of fact exist with regard to whether Nomura undertook to determine the value of the REMIC real property securing the DHL” (Nomura Br. 86-88), and cites a list of questions it claims Adelman should have answered before issuing the REMIC Opinion (Nomura Br. 68-72) to suggest that Adelman’s alleged ignorance on these points undermined the quality of the opinion he offered. These suggestions are spurious. 12 Indeed, a ruling in favor of Nomura would create a perverse incentive for clients to limit the scope of an attorney’s engagement (thus saving on costs), and then, when this decision proves unwise, to further reduce their costs by looking to the attorney for indemnification. 33 a. No question of fact exists as to whether the parties agreed to allocate appraisal due diligence to Nomura. There is no question that Nomura undertook to determine the value of the real property securing the DHL and to ascertain whether the 80% Test was satisfied for each loan. (See Section I.B.1 above.) That “Cadwalader has [allegedly] failed to identify who from Nomura made such a determination” (Nomura Br. at 87), and when and how he or she made it (id. at 70), does not change the fact that Nomura told Cadwalader, and Cadwalader understood, that Nomura was responsible for that determination. In any case, as described below in Section II.A.1, Glick clearly identified herself and Adelman as the ones who gave the advice to Nomura. Nomura further argues that it was unreasonable to rely on the original appraisal it had obtained, because that appraisal “was prepared for credit underwriting, not REMIC purposes.” (Nomura Br. 87-88.) While the appraisal might have been prepared for credit underwriting purposes, all that shows is that Nomura may not have performed its own appraisal due diligence responsibilities as well as it should have, not that Cadwalader did not do what it was hired to do. Cadwalader never saw the underlying appraisal; Nomura commissioned the appraisal and used it to determine the value of the real property securing the DHL. Nomura, not Cadwalader, was responsible for the accuracy of this determination, 34 and Cadwalader was, in the words of Perry Gershon, “entitled to rely” on it. (A-1516; see A-1476.) In any event, any error on Nomura’s part in procuring the appraisal was harmless, because when Nomura later obtained an Appraisal Supplement valuing the real property components of the Doctors Hospital separately and more plainly in accord with REMIC valuation principles, that Supplement showed that the 80% Test was met with ample room to spare. (A-540-41.) Nomura argues that “as a matter of customary third-party closing opinion practice,” Cadwalader was required to disclose in its REMIC Opinion that Cadwalader had done “no due diligence.” (Nomura Br. 80.) But, again, Nomura fully understood the allocation of responsibility for appraisal due diligence to itself. (A-1467-68, A-1814-15, A-1526, A-1930.) In light of that understanding, the disclosure Nomura contends Cadwalader should have included in its REMIC Opinion would have been superfluous, especially since the Opinion was addressed to Nomura, Cadwalader’s sole client in connection with the D5 Trust. Moreover, Cadwalader expressly listed in its Opinion Letter documents it relied upon in rendering the Opinion, including the PSA, MLPSA, Prospectus and Prospectus Supplements, Private Placement Memorandum, and officers’ certificates—all of which contained factual representations made or verified by Nomura. (A-583.) 35 b. Cadwalader reasonably relied on Nomura’s appraisal due diligence in light of Nomura’s experience with REMIC securitizations. Nomura contends that “[q]uestions of fact exist with regard to Cadwalader’s contention that it justifiably relied on Nomura’s Representations.” (Nomura Br. 84-86.) To substantiate this contention, Nomura cites the testimony of Nomura’s former General Counsel, Barry Funt, and a member of Nomura’s securitization group, Marlyn Marincas, from the Trustee Action. The cited testimony, which Cadwalader had no opportunity to question through cross- examination, is inadmissible hearsay in this case, see, e.g., In re Eighth Judicial Dist. Asbestos Litig., 190 A.D.2d 1008, 1009 (4th Dep’t 1993), for whose proffer Nomura has not offered any excuse, see Zuckerman v. City of New York, 49 N.Y.2d 557, 562 (1980). But even assuming its admissibility, this evidence would not support Nomura’s contention. Funt’s testimony about Cadwalader being the “final arbiter” of REMIC-eligibility (Nomura Br. 84-86) does not detract from the evidence that the parties agreed that Nomura would handle the underlying appraisal due diligence. (A-1468, A-1814-15.) If Nomura or Cadwalader identified questions about the eligibility of specific loans, Cadwalader would certainly arbitrate the question. (A-1526, A-1467, A-1930.) As it happens, no such question arose. Nomura included in the MLPSA and PSA a warranty that the loans included in the D5 Trust 36 met the 80% Test as “evidenced by an MAI appraisal.” (A-82.) If Nomura considered that representation worthy of reliance by purchasers of the D5 Trust, Cadwalader acted reasonably in assuming that Nomura was comfortable with the appraisal it had obtained and the review it had conducted. As for Marincas’s deposition testimony from the Trustee Action that Nomura did not have responsibility “for making sure the loans met REMIC standards,” Nomura distorts what she said: Nomura was indeed not responsible for opining on REMIC-eligibility (that was the legal function allocated to Cadwalader), but Nomura was responsible for the factual representations underlying the REMIC conclusion, as this very excerpt of Marincas’s testimony makes clear. (Nomura Br. 85 (citing RA1543).) Moreover, Nomura ignores her testimony elsewhere in the same deposition clarifying that it was Nomura’s responsibility alone to review appraisals to determine that the 80% Test was met. (RA-1542-43 (“[T]he banking group had responsibility for determining the LTV of the loan and they would report that to us and then we would report that to Cadwalader. Cadwalader would make sure that we were meeting REMIC requirements.”).) In her affidavit in this action, Marincas made it clear that although Cadwalader was retained to “render an opinion as to whether the D5 Trust was REMIC-qualified” (A-1814), 37 • Nomura was responsible for the accuracy of its valuation representations, and Cadwalader was not to replicate that due diligence; • Nomura was well-advised on the 80% Test; • Nomura understood that a loan’s overall LTV could not be used to satisfy the 80% Test; and • Cadwalader was not responsible for determining whether the DHL met the 80% Test. (A-1815-16.) Nomura argues that “[q]uestions of fact exist as to whether Cadwalader confirmed the truth of Nomura’s DHL representations.” (Nomura Br. 93-94.) Contrary to Nomura’s contention, Cadwalader did offer evidence that it met with Nomura to confirm its representations. (A-1815, A-1792, A-1796, A-1939.) Nomura implies (for the first time) that Cadwalader could not rely on Nomura’s officers’ certificates because they were based on faulty confirmation procedures: according to Nomura, Marincas only read the representations to Gershon and Tokarski and asked them to confirm there were no problems. (Nomura Br. 93.) But whether Nomura adequately discharged its own internal due diligence responsibilities has no bearing upon whether Cadwalader performed the discrete task assigned to it by its client according to the duty of care. 38 c. Whether all members of Nomura’s securitization group correctly understood the 80% Test is irrelevant. Nomura argues that “[q]uestions of fact exist with regard to whether Nomura understood how to apply the REMIC rules.” (Nomura Br. 81-84.) If there are such questions of fact, they are not material, because there is no real dispute that Gershon, the head of Nomura’s securitization business and the person in charge of the D5 Trust, received Cadwalader’s advice. Gershon testified, and the First Department found, that “Cadwalader told him, and he understood, that a REMIC loan needed to be secured by real property worth at least 80% of the loan . . . .” (A-16.a (emphasis added); see A-1467).) Gershon further testified that the fact that only real property was relevant to this assessment was conveyed “at various points in time . . . to me personally and to people in my group.” (A-1466.) Gershon’s testimony was corroborated by Marincas’s statement in her affidavit that “I (and others at Nomura, including Mr. Gershon) conferred with Cadwalader about the REMIC regulations many times, and we knew before the D5 securitization that in order to be REMIC-qualified, a loan had to be principally secured by real property (i.e., meet the so-called 80% test) unless substantially all of the proceeds of the loan were used to improve real property.” (A-1815-16.) And Glick confirmed that she had given this same advice to Gershon: “we 39 discussed that real property [as opposed to equity or other types of value] needed to be at least 80 percent.” (RA1948.2.) Nomura contends that the testimony of its former employees (Funt, Marincas, Tokarski, and Gershon) showed that it was Nomura’s understanding that “the REMIC Regulations would always be satisfied if Nomura originated loans in accordance with its own underwriting guidelines.” (Nomura Br. 82-83.) But the testimony Nomura string-cites at page 82 of its brief does not support that proposition; it merely attests to Nomura’s general confidence that the loans it originated would be suitable for securitization. That was true as a general matter, but that does not mean that was the advice Cadwalader provided on the content and application of the 80% Test. Gershon and Marincas both understood the test correctly and testified that Cadwalader properly advised them in this regard. (A-1466-69, A-1816.) Cadwalader had no obligation to ensure that all of Nomura’s employees understood the 80% Test.13 d. Cadwalader reasonably relied on Nomura’s origination procedures and REMIC due diligence. Nomura argues that “[q]uestions of fact exist with regard to Nomura’s origination procedures and Cadwalader’s purported understanding thereof.” 13 Nomura argues that Cadwalader could not rely on Nomura’s representations “without ensuring that Nomura had the knowledge and ability to make those representations.” (Nomura Br. 68-76.) This is a mere repackaging of Nomura’s advice claim (i.e., that Cadwalader did not give Nomura adequate advice), which fails for the reasons discussed in Section II below. 40 (Nomura Br. 88-92.) But whether Cadwalader understood the details of how Nomura originated the loans it ultimately selected for inclusion in the D5 Trust does not determine whether Cadwalader properly performed the legal services Nomura hired it to perform regarding the REMIC securitization. If there is any issue of fact on this point, it is not material and does not bear upon whether summary judgment was proper. In any event, Cadwalader’s understanding of how and why Nomura originated loans in no way affected the quality of the legal representation Cadwalader provided to Nomura. Gershon and others testified that Nomura originated loans, including the DHL, with the expectation of securitization soon thereafter (A-1464, A-1704, A-1812), and Nomura has, in this Court, relied on this same fact to counter one of Cadwalader’s causation defenses. (See Nomura Br. 134-36.) Gershon further testified that he expected origination counsel (here, Dechert) to ensure REMIC-eligibility. (A-1465-66.) These circumstances made it even more reasonable for Cadwalader to rely on Nomura’s contractual representation that the real property securing the DHL was worth at least $40 million; the intention at the time of origination to securitize a loan thereafter would naturally make the lender sensitive to ensuring that the value of the loan did not exceed applicable thresholds. (See Cadwalader Br. 35-36.) But that was only one of several factors, and by no means the most significant, that made it 41 reasonable for Cadwalader to rely on Nomura’s due diligence to ensure that the 80% Test was met for all the 156 loans slated for securitization, as explained in Cadwalader’s opening brief. (See id.) e. Cadwalader’s experts demonstrated that Cadwalader fulfilled its professional obligations as REMIC counsel, and the testimony of Nomura’s experts does not create an issue of material fact on this point. Nomura argues that “Cadwalader’s four experts failed to establish as a matter of law that Cadwalader acted reasonably.” (Nomura Br. 95-99.) For the most part, Nomura focuses its attack not upon what Cadwalader’s experts actually said, but upon strawmen. Nomura is correct that “not one of [Cadwalader’s experts] testified that Cadwalader could ignore a red flag in issuing its opinion” (Nomura Br. 97), but that has never been Cadwalader’s position. Nor has it ever been Cadwalader’s position, as Nomura contends, that outside counsel may “blindly rely on client representations.” (Nomura Br. 95-96.) Cadwalader’s position, which the First Department endorsed, is that counsel may rely upon such representations when no red flag indicates that reliance would be unreasonable. (A-20.a-22.a.) Nomura also tries to drive a wedge between the standard of care that Cadwalader’s experts have opined applies to REMIC securitization counsel and the standard of care to which Cadwalader is subject in this case. Nomura’s argument is that Cadwalader’s experts were discussing securitizations in which the REMIC 42 Safe Harbor applied, whereas here, “the Second Circuit already determined that the REMIC Safe Harbor was carved out of the D5 Securitization.” (Nomura Br. 95- 96.) As an initial matter, Cadwalader was not a party to the Trustee Action and the findings of that case are not preclusive against Cadwalader in this one. See Gilberg v. Barbieri, 53 N.Y.2d 285, 291 (1981). But even assuming that the finding in the Trustee Action bound Cadwalader, the distinction Nomura attempts to draw is specious. Cadwalader’s experts opined about Cadwalader’s REMIC Opinion and the standard of care to which that Opinion was subject. (A-961- 1139.) Cadwalader’s experts testified that Cadwalader reasonably and appropriately relied upon the due diligence Nomura performed on the underlying loan appraisals in determining whether the D5 Trust was REMIC-eligible. (A-972- 78, A-1041-46, A1144-48.) The applicability of the REMIC Safe Harbor has no bearing on that central issue. In response, Nomura argues that the opinions of its experts, Thomas Biafore and Arthur Field, created fact questions as to whether Cadwalader violated the applicable standard of care. (Nomura Br. 62-65.) The First Department correctly held that Field’s testimony did not create a genuine issue of material fact and properly disregarded Biafore’s testimony altogether. (A-21.a.) 43 (1) Field Field’s testimony (that Cadwalader violated the standard of care by relying on legal representations and valuation representations without ensuring that Nomura had the ability to make them) was incompetent because, as the First Department determined, Field (unlike Cadwalader’s experts) has no REMIC experience. (A-21.a.) Nomura does not question this finding, instead arguing merely that Field’s lack of experience “is a matter for the jury to consider.” (Nomura Br. 64 n.23.) That is not an accurate statement of the law. See Goverski v. Miller, 282 A.D.2d 789, 790 (3d Dep’t 2001) (finding that admissibility of expert testimony lay within discretion of the trial court); Franco v. Muro, 224 A.D.2d 579, 579 (2d Dep’t 1996) (same); Edgewater Apts., Inc. v. Flynn, 216 A.D.2d 53, 54 (1st Dep’t 1995) (same). Courts routinely preclude experts from testifying at trial based on their lack of qualification in the relevant field. See Sarasky v. Law Enforcement Training and Consulting Servs., 108 A.D.3d 401, 402 (1st Dep’t 2013); Schechter v. 3320 Holding LLC, 64 A.D.3d 446, 450 (1st Dep’t 2009); O’Boy v. Motor Coach Indus., Inc., 39 A.D.3d 512, 513-14 (2d Dep’t 2007); Rosen v. Tanning Loft, 16 A.D.3d 480, 481 (2d Dep’t 2005). Field’s opinion was also irrelevant because it concerned opinion letters addressed not to clients, like Cadwalader’s REMIC Opinion Letter, but to third parties, with whom an attorney cannot contractually define the scope of its 44 representation. Whatever the limits on what may be disclaimed by an attorney delivering an opinion to a third party, those limits have no application to “first party” opinions addressed to clients, who can place reasonable limits on the scope of a legal representation. See AmBase, 8 N.Y.3d at 435. That Cadwalader separately authorized reliance by third parties upon its REMIC Opinion addressed to Nomura (RA1904) is immaterial; this is a suit brought by Cadwalader’s former client, not by third parties. Nomura also relies upon Field to argue that Cadwalader could not have reasonably relied on Nomura’s representation concerning the value of the real property underlying the DHL, because such representation was “tantamount to the REMIC Opinion.” (Nomura Br. 65-68.) While some of Nomura’s representations are framed in legal terms, its representation that it had an appraisal evidencing that the real property securing the DHL was equal to 80% of the amount of the loan (A-82) was factual in nature. Nomura cites to Weiss v. SEC, 468 F.3d 849, 856 (D.C. Cir. 2006), for the proposition that attorneys may not rely on “legal” representations of their clients; however, Weiss held that the issuer of municipal bonds could not rely on a certification because it was vague, not because it was legal rather than factual. Real estate valuation presents factual questions. See Am. Motorists Ins. Co. v. Schindler Elevator Corp., 250 A.D.2d 791, 791-92 (2d Dep’t 1998); Stewardship Credit Arbitrage Fund LLC v. Charles Zucker Culture Pearl 45 Corp., 31 Misc. 3d 1223(A), 2011 N.Y. Slip Op. 50805(U), at *5 (N.Y. Sup. 2011). That valuation for purposes of determining REMIC-eligibility may be a “nuanced” or technical concept (Nomura Br. 67), or may be informed by legal considerations, does not make its valuation component any less factual. (2) Biafore Nomura also points to the opinions of its second legal expert, Thomas Biafore, to argue that there is an issue of material fact as to whether Cadwalader should have advised Nomura to seek the assistance of specialized tax counsel when it originated a “non-traditional” loan. (Nomura Br. 60.) But this issue is also immaterial. Adelman, then a partner in Cadwalader’s tax department, was one of a handful of practicing “specialized” REMIC tax experts and a contributor to a treatise on CMBS to which Nomura has repeatedly cited in this litigation. (A-1925, RA450-51; Nomura Br. 109.) Adelman was highly qualified to advise Nomura on all REMIC-related tax issues. (RA937 (“I consider myself an expert on the information conveyed in an appraisal as it pertains to qualification of assets for a REMIC trust.”).) Nomura has not identified any respect in which some other “specialized tax counsel” would have given advice different from the advice Adelman gave, or that Adelman’s advice was defective because it failed to identify an aspect of REMIC valuation unique to commercial properties like acute care hospitals. Similarly, Nomura has not identified any respect in which valuation of 46 acute care hospitals is qualitatively different from valuation of properties such as nursing homes, with which Nomura undisputedly had experience. * * * For the reasons described above, Nomura has failed to identify a single issue of material fact—either with regard to the Deal Highlights document or Cadwalader’s work on the DHL in general—that would warrant denial of summary judgment on Nomura’s due diligence claim. The First Department’s holding should be reversed, and summary judgment should be entered in favor of Cadwalader. II. THE APPELLATE DIVISION CORRECTLY REJECTED NOMURA’S ADVICE CLAIM. In its cross-appeal, Nomura argues that the Appellate Division erred in determining that no genuine issue of material fact warranted trial on Nomura’s claim that Cadwalader failed to advise Nomura properly concerning application of the 80% Test. But as the Appellate Division correctly determined, the undisputed facts show that Cadwalader properly advised Nomura, and Nomura did not present admissible evidence showing that “Cadwalader specifically failed to advise Nomura that the appraisals for the D5 Securitization had to separately value the real property components of the asset in question.”14 (A-17.a.) 14 Nomura devotes much of its brief to allegations nowhere asserted in its complaint, namely that (i) Cadwalader improperly advised it that “all of its mortgage loans would satisfy the 80% 47 A. Cadwalader Provided Competent and Unrebutted Testimony from Its Lawyers that Cadwalader Correctly Advised Nomura Concerning the 80% Test. The First Department’s determination was correct because Nomura has not submitted any evidence that Cadwalader failed to properly advise Nomura. That certain Nomura employees who did not interact directly with Cadwalader may not have received the benefit of Cadwalader’s advice, or may have misunderstood whatever they heard first-, second-, or third-hand, does not create an issue of material fact. (A-18.a (“Merely because a Nomura employee may have failed to understand certain REMIC principles, does not, absent more, raise an issue of fact as to whether the advice was given in the first place.”).) 1. There is no issue of material fact as to whether Glick properly advised Nomura. Anna Glick, an experienced partner in Cadwalader’s Capital Markets Group and a specialist in loan securitization (A-1618, A-2023), testified that, prior Test . . . provided Nomura originated loans within its own underwriting guidelines” (Nomura Br. 14); (ii) “based on Cadwalader’s advice, Nomura understood (albeit incorrectly) that the appraiser’s conclusion as to property’s value, the ‘bottom-line’ number, covered real property only” (Nomura Br. 20); and (iii) Cadwalader failed to advise Nomura about the special issues posed by valuing going concerns for REMIC purposes (Nomura Br. 2-3, 9, 60-61, 81, 108-110). These allegations were raised for the first time in opposition to Cadwalader’s motion for summary judgment and are not a proper basis for denying summary judgment. See Mezger v. Wyndham Homes, Inc., 81 A.D.3d 795, 796 (2d Dep’t 2011); Duane Morris LLP v. Astor Holdings Inc., 61 A.D.3d 418, 419-20 (1st Dep’t 2009). None of Nomura’s unpled allegations can fairly be characterized as a mere elaboration of its claim that Cadwalader did not advise Nomura to obtain appraisals separately valuing real property. Nor was any of these allegations “thoroughly vetted in the course of discovery,” as Nomura has also incorrectly suggested. (See Br. for Plaintiffs-Respondents (Dec. 28, 2012) at 28.) 48 to the closing of the D5 Trust, Cadwalader provided detailed advice to Nomura regarding the 80% Test, including a “rule of thumb” that Nomura could use to conservatively determine whether the 80% Test had been met for a given loan. (A-1619-20.) As the First Department recognized, Cadwalader instructed Nomura to add together the values of what was plainly real property (land and structural improvements, or “sticks and bricks”), and then to determine whether the sum was at least 80% of the loan amount. (A-15.a.) If so, the 80% Test was satisfied. (Id.) If not, Cadwalader advised Nomura to make further inquiries to determine whether the 80% Test was met. (A-16.a.) Glick testified that she and Adelman “educated [Nomura] as to the REMIC requirements, discussing the existence of the 80 percent test, and what qualified for the 80 percent test, and how Nomura could satisfy itself that it met the 80 percent test[, including] by an appraisal” (Glick Dep. 138:7-16, Apr. 16, 2010), that she and Adelman had “numerous conversations” with various Nomura employees regarding the need to satisfy the 80% Test (A-2026), and that the REMIC requirements frequently arose in discussions with Nomura, sometimes as often as “every other week” (RA1948). Glick further testified that “we [Cadwalader] . . . advis[ed] them continuously over the entire ten-year period . . . discussing REMIC related and 80 percent issues, as well as what type of collateral would satisfy the 80 percent test.” (A-1948; see also 1948.2.) 49 Nomura argues that Glick’s testimony should not be credited because Glick did not identify who at Cadwalader gave the relevant advice regarding the 80% Test, to whom the advice was given, or the manner in which the advice was given. (Nomura Br. 40.) Nomura first raised this argument in its motion for reargument and/or leave to appeal. It is therefore waived, since Nomura’s failure to present it earlier “precluded [the movant] from including in its affidavits documentary evidence” addressing the argument. See First Int’l Bank of Israel, Ltd. v. L. Blankstein & Son, Inc., 59 N.Y.2d 436, 447 (1983) (precluding party opposing summary judgment from asserting argument for first time on appeal when argument could have been raised in opposition to motion for summary judgment); see also OFSI Fund II, LLC v. Canadian Imperial Bank of Commerce, 82 A.D.3d 537, 538-39 (1st Dep’t 2011); Foley v. Roche, 68 A.D.2d 558, 568 (1st Dep’t 1979). Even if the Court were to entertain this argument, it would fail because Glick in fact identified in sufficient detail who gave and who received the advice. Glick clearly stated during her deposition that she had numerous conversations regarding the advice with Perry Gershon, then-director of Nomura’s securitization group (A-622), and Marlyn Marincas, an employee in that group (A-1813), and both Gershon and Marincas confirmed that those conversations took place. (A-2026, RA1948, A-1467, A-1815-16.) Glick also made clear that, over 50 the course of Cadwalader’s representation by Nomura, both she and Adelman— sometimes individually, and sometimes jointly—gave advice to Gershon and Marincas concerning REMIC compliance and the 80% Test. (RA1947 (“Q. With respect to advising Nomura with respect to the tax-related or REMIC-related issues, is that advice that you gave, or is that advice that others at Cadwalader gave? A. Primarily it would be Charl[es] Adelman, but there were certain basic ground[] rules that I alerted them to.”); RA1948.2 (Glick describing how she would consult with Adelman on certain issues and either report back to Nomura or call Gershon together with Adelman).) And Gershon confirmed that Cadwalader provided Nomura complete and correct advice concerning the application of the 80% Test. (A-1467-69.) Nomura asserts that if Cadwalader communicated any “rule of thumb” to Nomura, it was that Nomura’s loans would be REMIC-eligible as long as they were originated in compliance with Nomura’s internal underwriting guidelines. (Nomura Br. 41.) This claim, which is nowhere in Nomura’s complaint, is false and unsupported by anything other than the say-so of Nomura’s litigators. In fact, Glick clearly testified that Cadwalader never advised Nomura concerning underwriting procedures. (RA1946 (“We didn’t advise, for example, as to underwriting criteria . . . . The Nomura people were professional real estate bankers, so we certainly didn’t advise as to that.”).) And Marincas confirmed that 51 “Cadwalader never advised Nomura that the REMIC regulations would be satisfied so long as Nomura only originated loans with an overall LTV of 125% or less.” (A-1816.) Nomura cites to excerpts of the deposition testimony of Barry Funt, but the excerpts do not support the proposition for which they are cited and are inadmissible against Cadwalader, as they come from the Trustee Action, to which Cadwalader was not a party. Funt testified that “[b]ecause of Nomura’s origination practices, [he was not] typically concerned that a particular loan would not satisfy the principally secure[d] test.” (RA1294.) But he was clearly referring to a “general rule.” (RA1262.) Funt offered no testimony suggesting that Cadwalader advised him—or that he was under the misapprehension—that there would never be exceptions to this general rule. Put differently, Funt nowhere testified that Cadwalader advised Nomura that compliance with Nomura’s underwriting guidelines15 was sufficient to ensure that the loans Nomura sought to securitize would be REMIC-compliant. Finally, Nomura contends that neither Glick nor any other Cadwalader lawyer provided Nomura advice specific to loans secured by acute care hospitals. 15 As opposed to compliance with the REMIC requirements themselves. (See RA1262 (“those three prongs that we had discussed”); RA1261 (summarizing his understanding that the “principally secured” requirement had three prongs, of which compliance with the 80% Test was the third).) 52 Whether Cadwalader advised Nomura specifically concerning the application of the 80% Test to hospitals, as opposed to income-producing properties generally (Nomura Br. 24-25), does not give rise to an issue of material fact. Adelman testified that he advised Nomura that, with respect to commercial properties, “a distinction [had] to be made between the real property value from [sic] being occupied by a going business as distinguished from the value of the business itself.” (A-1932.) Nomura fails to indicate any manner in which loans secured by acute care hospitals present special issues not adequately addressed by this advice. 2. There is no issue of material fact as to whether Adelman properly advised Nomura. Nomura’s assertion that fact questions exist with respect to the advice that Adelman provided Nomura also fails. (Nomura Br. 42-51.) Adelman consistently testified that he provided in-depth REMIC-related advice to Nomura. He testified that Cadwalader advised Nomura: (i) that REMIC loans must be secured by real property with a value of at least 80% of the loan amount; (ii) that real property includes only land and buildings, not personal property; and (iii) that the 80% requirement is best satisfied by an independent appraisal separately measuring real property. (A-837, A-1941, Adelman Dep. 64:19-23, May 10, 2010.) Further, as noted in the above paragraph, Adelman testified that he advised Nomura with respect to issues specific to the valuation of going concerns 53 (A-1932), and that he instructed Nomura to consult with REMIC counsel if it had any questions about a particular loan (A-837, A-1941). Nomura asserts that Adelman advised Nomura that appraisals prepared for underwriting purposes that use the “income approach” to valuation— an approach that assesses how much income real property generates for its owner—were appropriate for REMIC purposes. (Nomura Br. 44-48.) To support this proposition, Nomura selectively cites snippets of Adelman’s testimony, none of which is inconsistent with Adelman’s account of the advice he provided to Nomura. Adelman did testify that REMIC determinations should be based on appraisals showing what the property was worth “as occupied” rather than on the “dark” or unoccupied value. (RA-976.) Adelman’s advice was correct. It was precisely because the original 1997 appraisal valued the real property of the Doctors Hospital at $30,960,000 using a “dark” “Cost Approach” that that appraisal did not, on its face, clearly support the DHL’s REMIC-eligibility. (A-540.) When that appraisal was revisited in 2000 specifically to evaluate the loan’s REMIC-eligibility, the approach Adelman recommended as appropriate for REMIC purposes—one under which “the additional value that is created by a property’s stabilized occupancy operating in accordance with its Highest and Best 54 Use” (A-540)—generated a real property value of $45,080,000 (A-541), a value that exceeded the REMIC threshold.16 Nor was Adelman’s understanding that real property valuation should be based on its value “as occupied” inconsistent with Glick’s advice to apply the “rule of thumb” using a “sticks and bricks” approach. Adelman’s advice tracked the REMIC rules precisely, whereas Glick’s “rule of thumb” was designed to be conservative and thereby to identify loans (like the DHL) that needed further review in accordance with Adelman’s understanding. In a similar vein, Nomura contends that Cadwalader’s failure to request “sticks and bricks” values casts doubt on Glick’s testimony that she advised Nomura to employ “sticks and bricks” values in applying the “rule of thumb.” (Nomura Br. 59.) But, again, it was precisely because the “sticks and bricks” values were overly conservative that there was no need for Cadwalader to review them, especially because Nomura advised Cadwalader that it had an appraisal evidencing the required real property value. (A-1468, A-1473-74, A-1516, A-1936-39.) Nomura further contends that some of its employees understood that appraisals prepared for underwriting purposes offered dispositive valuations for REMIC purposes (Nomura Br. 44), implying that Cadwalader generally, and 16 The nearly $15 million discrepancy between the cost approach valuation and the REMIC- eligible real property value is further proof that the “cost approach” valuation figure found in the Deal Highlights document could not have been a “red flag” related to REMIC eligibility. 55 Adelman specifically, advised those employees to that effect. Such an inference is unreasonable, as the First Department appreciated: “Merely because a Nomura employee may have failed to understand certain REMIC principles, does not, absent more, raise an issue of fact as to whether the advice was given in the first place.” (A-18.a.) Indeed, none of the employees identified by Nomura testified that Cadwalader advised them to use for REMIC purposes any appraisals obtained for underwriting purposes. (See Section II.B.2 below.) Nomura’s other “inconsistency” argument—that the only advice Adelman gave to Nomura with respect to distinguishing between personal and real property for REMIC purposes was for Nomura “to get appraisals”—is without support in the record. (Nomura Br. 42-43.) Adelman clearly testified that he provided in-depth advice about how to assess the REMIC-eligibility of a loan. He testified that he advised Nomura that REMIC loans must be secured by real property with a value of at least 80% of the loan amount, that real property includes only land and buildings (not personal property) and that the rules are best satisfied by an independent appraisal separately measuring real property. (A-837, A-1941; Adelman Dep. 64:19-65:23, May 10, 2010.) None of the testimony Nomura selectively cites undermines Adelman’s testimony or suggests that Adelman advised Nomura that it need not obtain appraisals separately valuing real and non-real property. Nomura does not offer any persuasive argument as to why 56 this advice, coupled with Adelman’s advice on how the 80% Test was met, did not enable Nomura to evaluate the loans in the D5 Trust properly, as it apparently did for the other 155 loans in that securitization. Nomura also attacks the admissibility of Adelman’s testimony, contending that his assertion that he gave “generalized advice” concerning the proper valuation of acute care facilities is “conclusory hearsay” because he did not indicate the recipient and because there is no written record of the advice being given. (Nomura Br. 51.) Nomura raises this evidentiary argument for the first time in this Court, and it is therefore waived.17 But even if this Court were to entertain this argument, Adelman’s testimony is not hearsay. Adelman had firsthand knowledge of the advice he gave his former client, and therefore he could testify competently to the fact that he delivered it. (A-1931-32; see also A-837, A-1941.) Moreover, Glick’s testimony corroborates Adelman’s and identifies Gershon and Marincas as recipients of the advice. (A-2026.) Finally, Nomura’s argument that there is a material issue of fact as to whether the advice was given because it was not reduced to writing is unsupported by fact or law. There are a 17 See First Int’l Bank of Israel, Ltd., 59 N.Y.2d at 447; Omansky v. Whitacre, 55 A.D.3d 373, 374 (1st Dep’t 2008) (finding that arguments “were not raised on the summary judgment motion, and may not be raised for the first time on appeal”); 815 Park Ave. Owners, Inc. v. Fireman’s Ins. Co., 225 A.D.2d 350, 355 (1st Dep’t 1996); see also Danton v. Van Valkenburg, 13 A.D.3d 931, 932-33 (3d Dep’t 2004) (“To the extent that plaintiffs argue that defendant’s testimony constituted inadmissible ‘double hearsay’ and should not have been considered, we note that plaintiffs waived any challenge by failing to object before the Supreme Court on hearsay grounds.”) (citations omitted). 57 number of legitimate, commonplace reasons not to create a written record of legal advice given, none of which gives rise to any inference of malpractice. But more importantly, Cadwalader does not even bear the burden of demonstrating that it gave the allegedly missing advice, much less of providing such proof in a specific form mandated by Nomura. Nomura also incorrectly argues that Adelman’s testimony is inadmissible because (i) it was “scripted”; (ii) he testified via deposition rather than by affidavit; (iii) the questions posed to him were leading; and (iv) his recollection was inappropriately refreshed. (Nomura Br. 49-50 & n.16.) Adelman testified competently at his deposition, and Nomura had an opportunity to cross- examine him. Nomura’s characterization of Adelman’s testimony as “scripted” is not only unsupported by the record but is also not legally relevant. It is true that to elicit precise testimony on critical issues, the examining attorney solicited some affirmations, but these affirmations made the testimony no more “scripted” than testimony offered through an affidavit, which, though generally drafted by counsel, is clearly competent to establish a lack of material issue of fact in the summary judgment context. See Martino v. Miller, 97 A.D.3d 1009, 1010 (3d Dep’t 2012); Heilmann v. Bronx River Assocs., 204 A.D.2d 393, 394 (2d Dep’t 1994). Adelman is an attorney who understood the significance of the oath he took before testifying, and he is highly experienced in the field on which he was 58 examined. The deposition offered many instances in which Adelman gave lengthy answers to open-ended questions, or qualified or elaborated upon propositions the examiner asked him to affirm or deny. (See, e.g., A-1939 (discussing Nomura’s confirmation of the accuracy of its representations and warranties).) In any event, Nomura failed to preserve any objection that the questions posed to Adelman were leading. See San-Dar Assoc. v. Toro, 213 A.D.2d 233, 234 (1st Dep’t 1995). There is thus no basis for finding that Adelman’s testimony is inadmissible or that it creates questions of fact. B. The Testimony of Nomura’s Employees Likewise Demonstrates That Cadwalader’s Advice Was Sound. Confirming the testimony of Cadwalader’s attorneys, the head of Nomura’s securitization business and others at Nomura testified that Cadwalader appropriately and satisfactorily advised Nomura. 1. Gershon’s testimony does not create an issue of material fact. As the First Department correctly found, Gershon testified that Cadwalader provided the same advice Glick and Adelman testified that they did. (A-16.a.) Specifically, Gershon testified that, prior to and in connection with the D5 securitization, Cadwalader provided Nomura accurate and in-depth advice regarding REMIC requirements, including the 80% Test. (Id.; A-1467-69.) Nomura contends that Gershon’s testimony should be disregarded because it 59 misrepresents the proper approach to valuation for REMIC purposes. (Nomura Br. 53.) In support of this argument, Nomura cites parts of Gershon’s testimony in which he states that the income approach is proper for REMIC purposes. (Nomura Br. 47-48, 53-54.) However, there is no inconsistency between understanding that appraisals for REMIC purposes should separately value real and personal property and believing that the income approach is proper for REMIC purposes. (See Section II.A.2.a above.) As the First Department astutely observed, “Gershon’s alleged inability to succinctly articulate the REMIC rules during his deposition, which took place more than 10 years after the advice was given, does not refute his unrebutted testimony that Cadwalader advised him of the relevant rules at the time of the D5 Securitization.” (A-16.a-17.a.) Notably, Gershon testified consistently regarding his correct understanding of the 80% Test in the earlier Trustee Action. (A-1725 (Gershon testifying that “in order for [the DHL] to meet the 125 percent loan to value test,” the “real property comprising the property” would have to be worth $40 million, and that he understood that “certain properties sometimes have personal property that comprise[s] their appraised value, and sometimes they have real property,” and that “under the REMIC rules and regulations the property has to be principally secured by real property.”).) Nomura also attempts to generate an issue of material fact by contending that Gershon’s testimony was improperly affected by bias. (Nomura 60 Br. 55-57.) But as the First Department properly recognized, Gershon’s marriage to one of the Cadwalader attorneys who worked on the D5 Trust does not affect the competency of his testimony. (A-17.a.) Nomura’s insinuations that Gershon testified as he did only because of personal and/or financial bias are mere speculation and thus do not raise an issue of material fact.18 Nomura contends that Gershon’s bias is demonstrated by his provision to counsel for Cadwalader (but not to Nomura or its counsel) of an affidavit for use in this litigation, and by his continued retention of Cadwalader for years subsequent to the events at issue, after Gershon had left Nomura. (Nomura Br. 56 & n.19.) But there is absolutely nothing remarkable about Gershon submitting an affidavit in favor of and continuing a relationship with Cadwalader if, as Gershon testified, “Cadwalader did what it was asked to do and did it well.” (A-1476.) In any event, Gershon’s decision to cooperate with Cadwalader in this litigation and to continue a relationship with Cadwalader based on his genuine belief that the firm performed high-quality work is hardly an indicator of “bias” 18 See Rivera v. Dafna Const. Co., 27 A.D.3d 545, 545-46 (2d Dep’t 2006); see also Polsinelli v. Twn. of Rotterdam, 167 A.D.2d 579, 580-81 (3d Dep’t 1990) (holding that credibility issues regarding fact witness’s unrebutted testimony are insufficient to defeat summary judgment), citing Cusano v. Gen. Elec. Co., 111 A.D.2d 557, 558 (3d Dep’t 1985) (“Once defendants submitted proof in evidentiary form negating [an element of plaintiffs’ claim], plaintiffs were obligated to lay bare their proof establishing that element of their cause of action. Evidence merely casting doubt on the credibility of [a witness] did not suffice.”) (emphasis added), aff’d, 66 N.Y.2d 844, 846 (1985). 61 that should be held against Cadwalader.19 (See A-1522 (Gershon stating that he wanted to see Cadwalader prevail in this litigation because he genuinely believed Nomura’s claims were unwarranted).) 2. The testimony of other Nomura employees does not create an issue of material fact. Nomura cites the testimony of several of its other former officers and employees—Penner, Funt, Marincas and Tokarski—to support its advice claim (Nomura Br. 57-60), but that testimony does not further Nomura’s cause. As an initial matter, with the exception of Penner’s affidavit (RA1616), the testimony Nomura has cited was offered in connection with the Trustee Action, to which Cadwalader was not a party. In this case, it is thus inadmissible hearsay, for whose proffer Nomura has not offered any excuse, see Zuckerman, 49 N.Y.2d at 562. But even if the testimony were admissible, it would not raise any issue of material fact. As the First Department correctly observed, the fact that individual Nomura employees (with whom Cadwalader did not directly communicate) were unfamiliar with the REMIC rules has no bearing on whether Cadwalader’s advice (to the proper parties) was adequate. (A-18.a-19.a.) 19 Nomura also complains that Gershon’s testimony was “scripted” and a result of leading questions. (Nomura Br. 52.) But like Adelman, Gershon was capable of testifying knowledgeably about the subject matter at issue, and he qualified or elaborated on various points during his deposition as necessary. (See, e.g., A-1469 (discussing Cadwalader’s assistance in setting up Nomura's securitization program in the early 1990s), A-1466 (clarifying Nomura’s internal procedures for ensuring a loan’s compliance with the 80% Test).) 62 Ethan Penner: Nomura cites Penner’s testimony that it was his “understanding that all of the loans that we originated satisfied the requirements of the Internal Revenue Service.” (Nomura Br. 57-58 (citing RA1617).) However, Penner never testified that any advice given by Cadwalader caused him to have such an understanding. While Penner did testify generally that “REMIC compliance was the responsibility of . . . Cadwalader” (RA-1617), he did not testify specifically that Cadwalader undertook to advise Nomura on whether the DHL satisfied the 80% Test. Critically, Penner had “no role whatsoever regarding the D5 Securitization,” had “little or no personal interaction with Cadwalader” at that time, and didn’t “know what instructions Cadwalader was given by people like Perry Gershon, Marlyn Marincas, [and] Chris Tokarski.” (A-1595, A-1596.) He acknowledged that, at the time of the D5 Trust, he would not have been involved in discussions regarding REMIC issues. (A-1590, A-1595-96 (stating that he “wouldn’t have been in the room” when such discussions took place).) Barry Funt: Nomura’s former General Counsel testified that, as far as he knew, Cadwalader provided adequate advice on REMIC-eligibility requirements. (RA1293.) As explained above, Funt’s understanding that as a “general” matter, compliance with Nomura’s underwriting requirements and REMIC-eligibility would converge, did not mean that Cadwalader advised Nomura that those distinct sets of requirements were equivalent. In fact, Funt testified that 63 Cadwalader had “conversations” with Nomura “regarding the principally secure[d] test,” and that during his tenure at Nomura he “understood that for a loan to be principally secured by real property, the fair market value of the real property had to be at least 80 percent of the value of the loan.” (A-1387, A-1386.) Marlyn Marincas: Marincas’s cited testimony (Nomura Br. 58 (citing RA1542)) is similar to Funt’s. Marincas’s belief that compliance with Nomura’s internal origination guidelines gave it comfort that REMIC-eligibility would exist in most cases is not tantamount to an assertion that Cadwalader advised Nomura that compliance with those guidelines was synonymous with REMIC-eligibility. To the contrary, Marincas’s testimony is very clear that Cadwalader advised Nomura fully and competently: “We just had, you know, constant conversations with Charlie [Adelman] on a variety of structures [related to REMICs].” (RA1541.) Specifically, Marincas testified that Nomura was aware that the 80% Test and Nomura’s internal underwriting guidelines must be separately satisfied. (A-1815-16 (“I (and others at Nomura, including Mr. Gershon) conferred with Cadwalader about the REMIC regulations many times, and we knew before the D5 securitization that in order to be REMIC-qualified, a loan had to be principally secured by real property (i.e., meet the so-called 80% test) unless substantially all of the proceeds of the loan were used to improve real property.”).) 64 Chris Tokarski: Nomura cites testimony that a former Nomura securitization group employee understood that “the industry standard for what that 80 percent is referring to is the loan-to-value.” (Nomura Br. 58 (citing RA-1839).) But again, Nomura does not cite any testimony that Cadwalader was the source of any such understanding. Tokarski did not have any responsibility at Nomura for ensuring that appraisals “supported the loans as part of the due diligence process” (RA-815), so Cadwalader would not have had reason or occasion to advise Tokarski personally on the proper application of the 80% Test. (See id. (Tokarski stating that he was not personally involved in REMIC determinations); A-1487-88 (Gershon confirming that Tokarski was not involved in REMIC determinations).) Even if Nomura’s advice claim were not dependent on cherry-picked snippets from depositions in a case to which Cadwalader was not a party, Nomura’s own documents debunk its advice claim. The provisions of Nomura’s loan origination and securitization documents demonstrate that Nomura was advised and aware of the REMIC real property collateral rules at the time of the D5 Securitization. The MLPSA’s 80% Warranty, for example, in which Nomura warranted that each loan had real property collateral worth at least 80% of the loan amount, makes clear that Nomura understood the 80% Test. (A-82-83.) Nomura even certified the accuracy of this warranty, thereby demonstrating its understanding. (See A-578.) 65 Moreover, Nomura’s securities filings demonstrate its knowledge of the REMIC rules. The Prospectus Supplements for the Certificates in the D5 Trust and its predecessor, the D4 Trust, explained the “Federal Income Tax Consequences” related to the transactions, including the requirements under the REMIC regulations: Qualified mortgages include whole mortgage loans, . . . provided, in general, (i) the fair market value of the real property security (including buildings and structural components thereof) is at least 80% of the principal balance of the related Mortgage Loan or mortgage loan underlying the Mortgage Certificate either at origination or as of the Startup Day (an original loan-to-value ratio of not more than 125% with respect to the real property security) . . . . (A-389-90, 633 (emphases added).)20 These filings were subject to the Securities Act of 1933 (“’33 Act”) and the Securities Exchange Act of 1934 (“’34 Act”). See, e.g., Steed Finance LDC v. Nomura Secs. Int’l, Inc., No. 00 Civ. 8058 (NRB), 2001 WL 1111508, at *6, *9 (S.D.N.Y. Sept. 20, 2001) (denying in part a motion to dismiss ’33 Act and ’34 Act claims based on alleged misstatements in Nomura’s D5 Prospectus). Both the ’33 Act and the ’34 Act subject Nomura, as the issuer, to liability for misstatements in these filings, and the ’33 Act subjects Nomura to 20 The same statement appears in Nomura’s November 22, 1994, C3 Prospectus; February 13, 1995, S31 Preliminary Prospectus; March 15, 1995, S3 Preliminary Prospectus; March 16, 1995, MD III Prospectus; May 1, 1995, AMD1 Preliminary Prospectus; July 27, 1995, D1 Prospectus; October 16, 1995, MD IV Prospectus; December 7, 1995, AMD2 Preliminary Prospectus; February 16, 1996, D2 Prospectus; March 18, 1996, MD V Prospectus; October 7, 1996, D3 Prospectus; and December 10, 1996, MD VI Prospectus. (See A-1902.) 66 liability without regard to scienter. See Rombach v. Chang, 355 F.3d 164, 169 n.4 (2d Cir. 2004). Nomura cannot credibly claim that it was unaware of representations made in its own securities filings that, if incorrect, could subject it to extensive liability.21 * * * For the reasons set forth above, Nomura’s advice claim fails as a matter of law, and the First Department’s decision rejecting it should be affirmed. III. CADWALADER IS ENTITLED TO SUMMARY JUDGMENT BECAUSE ITS ALLEGED MALPRACTICE DID NOT CAUSE NOMURA TO SUFFER ANY DAMAGES. Nomura misstates this Court’s standard for causation in legal malpractice cases and identifies purported questions of fact that do not truly bear upon whether summary judgment is warranted. Because Nomura has failed to meet its burden of identifying an issue of material fact as to whether Cadwalader’s alleged malpractice caused its losses, Nomura’s claims fail. See Global Bus. Inst. 21 In a process that did not even involve Cadwalader (see A-1472), Nomura, when originating the DHL with Dechert’s assistance, took steps to ensure that the loan would satisfy the 80% Test, demonstrating once more its knowledge of the REMIC rules. Nomura’s bankers in charge of originating loans for later securitization drafted in-house a commitment letter setting forth the terms under which it would make the DHL. (A-860.) The letter provided that “in no event will the Loan Amount exceed . . . 125% of the REMIC value of the Property.” (A-592.) The letter also conditioned Nomura’s obligation to make the loan on “the completion by [Nomura] to [Nomura’s] sole satisfaction” of certain due diligence, including a review of an MAI appraisal of the property securing the loan. (A-600-01.) Origination of the DHL thus depended on Nomura’s satisfaction that the loan met the 80% Test. (A-1145.) 67 v. Rivkin Radler LLP, 101 A.D.3d 651, 652 (1st Dep’t 2012); Carrasco v. Pena & Kahn, 48 A.D.3d 395, 396 (2d Dep’t 2008). A. Nomura Misstates the Applicable Legal Standard. As an initial matter, Nomura misstates the law by arguing that it need only prove proximate causation and may dispense with proof of “but-for” causation. (Nomura Br. 116-17.) Although in most tort cases, proof of the former encompasses proof of the latter, that is not always so. For example, in cases in which two acts, each sufficient to cause the same injury, occur simultaneously, neither act is a “but-for” cause of the injury. See Restatement (Second) of Torts § 433B(3); Restatement (Third) of Torts: Liability for Physical Harm § 28(b), comments g-h. In such cases, a showing that each actor was a “substantial factor” in causing the injury can substitute for a showing of “but-for” causation.22 But “substantial factor” causation has never been adopted in New York in legal malpractice actions. This Court has repeatedly held that a showing of “but-for” causation is an essential element in legal malpractice cases even when 22 See Mitchell v. Gonzales, 819 P.2d 872, 878-79 (Cal. 1991) (noting that “the ‘substantial factor’ test subsumes the ‘but for’ test”. . . . [I]n the great majority of cases, it produces the same legal conclusion as the but-for test”) (emphasis omitted); see generally Prosser & Keeton, Torts § 41 (5th ed. West 1984); Restatement (Second) of Torts § 431; Dobbs, et al., The Law of Torts § 189, Vol. 1 (2d ed. West 2011) (noting that where multiple actors are not factual (or “but-for”) causes of a harm, but each actor is independently sufficient to have caused the harm, “but-for” test does not suffice, and courts turn to “substantial factor” test). 68 the claim might satisfy less strict tests of proximate causation.23 In the absence of strict application of a “but-for” causation standard in legal malpractice cases, clients could successfully seek indemnity for their own wrongdoing from their former attorneys. See Kirk v. Heppt, No. 05 Civ. 9977, 2009 WL 2870167, at *9 (S.D.N.Y. Sept. 3, 2009) (“attorneys are not guarantors of a favorable outcome in litigation, and their reasonable strategic decisions made in the course of representing a client do not amount to malpractice”) (internal quotation marks omitted); Joseph DelGreco & Co. v. DLA Piper L.L.P., 899 F. Supp. 2d 268, 281 (S.D.N.Y. 2012), aff’d, 535 Fed. App’x 31 (2d Cir. 2013) (noting that “[t]he causation requirement is a high bar to attorney malpractice liability and seeks to insure a tight causal relationship exists between the claimed injuries and the alleged malpractice, and demands a nexus between loss and injury”) (internal quotation marks omitted). 23 See Rudolf, 8 N.Y.3d at 442 (holding that in an action for legal malpractice, “[t]o establish causation, a plaintiff must show that he or she would have prevailed in the underlying action or would not have incurred any damages, but for the lawyer’s negligence” and that the attorney’s misconduct “proximately caused plaintiff to sustain actual and ascertainable damages”) (emphasis added), citing McCoy v. Feinman, 99 N.Y.2d 295, 301-02 (2002); AmBase, 8 N.Y.3d at 435 (same); Davis, 88 N.Y.2d at 1009-10 (“In order to establish a prima facie case of legal malpractice, a plaintiff must demonstrate that the plaintiff would have succeeded on the merits of the underlying action but for the attorney’s negligence”); Carmel v. Lunney, 70 N.Y.2d 169, 173 (1987) (“New York has traditionally applied a ‘but for’ approach to causation when evaluating legal malpractice claims. The test is whether a proper defense would have altered the result of the prior action.”) (citations omitted). 69 The lower courts and federal courts have overwhelmingly applied the “but-for” causation language to malpractice actions, regardless of whether the underlying representation arose in the context of transactional work or litigation.24 Even Barnett v. Schwartz, 47 A.D.3d 197, 203-05 (2d Dep’t 2011) (cited at Nomura Br. 116), though it holds that a defendant’s negligence need not be a sole “proximate cause” of the alleged harm, does not purport to read out of this Court’s case law a requirement that all proximate causes of malpractice be “but-for” causes as well. To the contrary, Barnett acknowledges the vitality of the “but-for” causation requirement in malpractice actions attacking allegedly faulty advice. Id. at 205 (“When applied in a case involving negligent legal advice . . . , it would appear that the ‘but for’ formulation is merely a recognition of the factual complexities that may attend proving proximate causation when the legal advice was merely one of a myriad of factors that contributed to the plaintiff-client’s 24 See, e.g., Valley Ventures, LLC v. Joseph J. Haspel, PLLC, 102 A.D.3d 955, 956 (2d Dep’t 2013); Lovino, Inc. v. Lavallee Law Offices, 96 A.D.3d 910, 912 (2d Dep’t 2012); Healy v. Finz & Finz, P.C., 82 A.D.3d 704, 706 (2d Dep’t 2011); Dempster v. Liotti, 86 A.D.3d 169, 176-77 (2d Dep’t 2011); M & R Ginsburg, LLC v. Segal, Goldman, Mazzotta & Siegel, P.C., 90 A.D.3d 1208, 1209 (3d Dep’t 2011); Pozefsky v. Aulisi, 79 A.D.3d 467, 467 (1st Dep’t 2010); Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 56 A.D.3d 1, 10-11 (1st Dep’t 2008); Kutner v. Catterson, 56 A.D.3d 437, 437 (2d Dep’t 2008); Phoenix Erectors LLC v. Fogarty, No. 100701-10, 2013 WL 4479821, at *1 (N.Y. Sup. Aug. 14, 2013); Oikonomos, Inc. v. Bahrenberg, 38 Misc. 3d 1207(A) at *13, 966 N.Y.S.2d 347 (N.Y. Sup. Jan. 5, 2013); Claude v. Elgammal, 30 Misc. 3d 1210(A) at *3, 958 N.Y.S.2d 644 (N.Y. Sup. Jan. 14, 2011); Baker, Sanders, Barshay, Grossman, Fass, Muhlstock & Neuwirth, LLC v. Comprehensive Mental Assessment & Med. Care, P.C., 26 Misc. 3d 1109, 1121, 896 N.Y.S.2d 805 (N.Y. Sup. 2010); Joseph DelGreco, 899 F. Supp. 2d at 277, 282; Kirk, 2009 WL 2870167, at *9. 70 ultimate decision or course of action.”).25 To the same effect, the California Supreme Court in Viner v. Sweet, 70 P.3d 1046 (2003), affirmed the need for a strict “but-for” causation requirement in cases of transactional legal malpractice, observing: “It is far too easy to make the legal advisor a scapegoat for a variety of business misjudgments unless the courts pay close attention to the cause in fact element, and deny recovery where the unfavorable outcome was likely to occur anyway, the client already knew the problems with the deal, or where the client’s own misconduct or misjudgment caused the problems.” Id. at 1052. To the extent other cases, such as those cited by Nomura, have appeared to dispense with a requirement of proof of “but-for” causation in malpractice actions,26 their holdings are inconsistent with this Court’s cases. This Court should reaffirm its unbroken line of cases requiring proof of “but-for” malpractice.27 25 See also Joseph DelGreco, 899 F. Supp. 2d at 282 (“Although courts commonly use the term ‘proximate cause’ to describe the requisite element of a legal malpractice claim, those same courts, applying that standard, go on to inquire whether the attorney’s negligence was a ‘but for’ cause of harm to the client.”); Fogarty, 2013 WL 4479821 (interpreting Barnett as holding that “the ‘but for’ formulation means that the attorney’s negligence need only be found to be ‘a’ proximate cause of the harm”). 26 E.g., The New Kayak Pool Corp. v. Kavinoky Cook LLP, 74 A.D.3d 1852, 1853 (4th Dep’t 2010); Adamski v. Lama, 56 A.D.3d 1071, 1072 (3d Dep’t 2008); Acker v. Wilger, No. 12 Civ. 3620(JMF), 2014 WL 100013, at *4 (S.D.N.Y. Jan. 10, 2014); see generally 180 E. 88th St. Apartment Corp. v. Law Office of Robert Jay Gumenick, P.C., Nos. 23252, 600039-09, 2010 WL 5799420 (N.Y. Sup. Dec. 21, 2010) (noting differing approaches among Appellate Division departments). 27 In cases of litigation malpractice, this requirement is traditionally referred to as the requirement of proof of a “case within a case.” See Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 10 A.D.3d 267, 272 (1st Dep’t 2004). 71 In addition to misstating the standard for causation, Nomura goes on to argue that “Nomura was sued in connection with the very issue upon which Cadwalader opined, which by itself raises a question of material fact with respect to proximate causation.” (Nomura Br. 117-118.) This argument proves too much. If Nomura’s proposition were correct, then proximate cause would be an issue of fact in every case, since all legal malpractice suits are—at least purportedly— directed to the “very issue” in connection with which the attorney was retained. When causation, including “but-for” causation, is clearly absent, New York courts routinely resolve claims of legal malpractice as a matter of law on motions for summary judgment,28 and the Court should do so here. B. Cadwalader’s REMIC Opinion Was Correct. Nomura’s “but-for” causation argument is premised on the theory that, but for Cadwalader’s alleged malpractice in failing to spot the need for further evaluation of the real property securing the DHL, Cadwalader would have issued a REMIC Opinion different from the one it issued. (See Nomura Br. 130-31.) Nomura has not made any such showing. In its opening brief, Cadwalader demonstrated that its REMIC Opinion was accurate and that the DHL was (and is) REMIC-eligible. (See Cadwalader Br. 52-54; A-412, A-540, A-1077.) Nomura 28 See Global Business Inst., 101 A.D.3d at 651-52; Von Duerring v. Hession & Bekoff, 71 A.D.3d 760, 760 (2d Dep’t 2010); Carrasco, 48 A.D.3d at 396; Guiles v. Simser, 35 A.D.3d 1054, 1055-56 (3d Dep’t 2006); Brooks v. Lewin, 21 A.D.3d 731, 734-35 (1st Dep’t 2005); Campcore, Inc. v. Mathews, 261 A.D.2d 870, 870 (4th Dep’t 1999). 72 has never shown otherwise. Accordingly, Cadwalader’s REMIC Opinion cannot have been the “but-for” cause of any alleged loss by Nomura: in the “but-for” world, in which Cadwalader performed the due diligence it was instructed not to perform, Cadwalader would have issued precisely the same REMIC Opinion. See Tinter v. Rapaport, 253 A.D.2d 588, 590 (1st Dep’t 1998) (holding that an attorney could not be held liable for rendering correct legal advice); Rosner v. Paley, 65 N.Y.2d 736, 738 (1985) (same). Nomura’s arguments in response are not persuasive. 1. Cadwalader’s REMIC Opinion did not guarantee the REMIC-eligibility of each underlying loan. Nomura has also failed to show that Cadwalader undertook to advise Nomura about the individual REMIC-eligibility of any particular securitized loan, as opposed to the REMIC-eligibility of the D5 Trust as a whole.29 The express language of the REMIC Opinion makes clear that Cadwalader was opining only 29 Nomura wrongly suggests that Cadwalader is making this argument only now. (Nomura Br. 121-23.) In fact, this has been Cadwalader’s position ever since the initial round of summary judgment briefing in the motion court, and this position, if accepted, disposes of the entire case. See Def. Cadwalader’s Mem. of Law in Supp. of Its Mot. for Summ. J. on Plfs.’ First Cause of Action 10, Mar. 2, 2011 (“Cadwalader issued its opinion that, subject to various predicates, the D5 Trust would qualify for treatment for federal income tax purposes”) (internal quotation marks omitted); Def. Cadwalader’s Reply Mem. of Law in Further Supp. of Its Mot. for Summ. J. 33, July 5, 2011 (“[Nomura] seeks to shift the target . . . by pretending that the REMIC Opinion was actually an opinion that the real property valuation of each trust property was equal to 80% of the loan value (found nowhere in the Opinion, and directly refuted by the understanding of even Nomura’s own witnesses)”); Br. for Def.-Appellant 17, Nov. 5, 2012 (“Cadwalader rendered an opinion . . . that, subject to specified assumptions and predicates, the D5 Trust would be eligible for treatment as a REMIC for federal income tax purposes”). 73 that “the Upper-Tier REMIC and Lower-Tier REMIC [i.e., the D5 Trust] will each qualify for treatment for federal income tax purposes as a real estate mortgage investment conduit, as defined in Section 860D of the Code” (A-585), not that each loan in the pool was REMIC-eligible. Even Nomura’s own witnesses confirm that this was the case. (A-1814 (“[Nomura] understood that the purpose of the opinion was to opine that the entire Trust was REMIC-qualified, and we understood that it was not a guarantee that each loan in the Trust was a REMIC-qualified mortgage.”).) Nomura seeks to move the goalposts by claiming that Cadwalader’s REMIC Opinion guaranteed the REMIC-eligibility of each loan in the D5 Trust and by distorting witness testimony to support this claim. (Nomura Br. 122-23.) However, the language of the Opinion is clear that it guaranteed no such thing. (A-585, A-1273, A-1814.) As explained, see Section I.B.1 above, Nomura, not Cadwalader, was responsible for the underlying factual representation that each loan was secured by sufficient real property to ensure REMIC-eligibility.30 (A-1467-68, A-1526, A-1814-15, A-1930.) Even if, as Nomura contends, the REMIC Opinion purported to address the REMIC-eligibility of each underlying 30 Nomura wrongly suggests that if Cadwalader was not opining on the REMIC-eligibility of the individual loans in the D5, then it must have been opining only on “the existence of the REMIC Safe Harbor.” (Nomura Br. 123 n.50.) This is not so. As previously stated, Cadwalader was opining that, on the basis of Nomura’s representations concerning the value of the real property securing the loans to be included in the D5, the D5 was REMIC-eligible. (See A-585, A-1467-68, A-1526, A-1814-15, A-1930.) 74 loan, Nomura has failed to submit any competent evidence showing that the DHL was not REMIC-eligible; Nomura cannot create a fact question as to the value of the real property securing the DHL merely by criticizing its own Appraisal Supplement. (See Section III.B.1 above.) 2. The undisputed evidence shows that the DHL was REMIC- eligible. To show that Cadwalader was the “but-for” cause of any alleged loss by Nomura, Nomura was required to prove that, in the absence of Cadwalader’s alleged malpractice, Nomura would have concluded that the DHL failed the 80% Test. But Nomura failed to sustain its burden, whereas Cadwalader adduced unrebutted evidence showing that the DHL did meet the 80% Test and was thus REMIC-eligible. It is true that the initial Valuation Counselor’s appraisal did not, on its face, indicate whether the 80% Test was met. (RA952.) But the Appraisal Supplement subsequently commissioned by Nomura indicated that the total real property collateral securing the DHL did in fact exceed $40 million by a comfortable $5 million margin. (A-1257-58.) The Appraisal Supplement reached this conclusion even though Valuation Counselors was instructed by Nomura to prepare the Supplement on as conservative a basis as possible. (A-1978.) Hence, in the “but-for” world in which (according to Nomura) Cadwalader would have warned it in 1997 that the Original Appraisal did not clearly show that the DHL was REMIC-eligible, Nomura would have done in 1997 what it in fact did in 2000: 75 obtain a supplement to the original appraisal showing that value of the real property securing the DHL was equal to 80% of the value of the loan. There is no reason to conclude that, armed with that Appraisal Supplement in the 1997 “but- for” world, Nomura would have kept the DHL out of the D5 Trust. Nomura also identifies a set of “facts” that purportedly “contradict Cadwalader’s argument” that the REMIC Opinion was correct. (Nomura Br. 119- 120.) The first two (Nomura Br. 119) are simply observations that the original 1997 appraisal did not, on its face, afford a clear basis upon which to assess the REMIC-eligibility of the DHL. (See RA952.) Be that as it may, the 2000 Appraisal Supplement showed that the total real property was worth $45 million. (A-1977, A-1257-58.) This was sufficient to give comfort to Nomura (and Cadwalader) that the 80% Test was met with room to spare. As just stated, Nomura has offered no competent evidence that, if it had been alerted to a potential red flag in its 1997 appraisal, it would have done something different than it did in 2000. The latter two purportedly contradictory facts—that the Appraisal Supplement was based on certain assumptions about the property’s “Certificate of Need” and fixture valuations—do not create a genuine issue of material fact. Though Nomura criticizes aspects of the Appraisal Supplement it procured to defend against the Trustee Action, it has never advanced an alternative appraisal 76 prepared for REMIC purposes showing that the real property underlying the DHL is worth less than $40 million. The sole support for Nomura’s criticism of the Appraisal Supplement is the expert report of Thomas Biafore. But by his own admission, Biafore, who is not an appraiser, did not value or purport to value the real property securing the DHL; he merely critiqued (without proper qualification) the Valuation Counselors Appraisal Supplement. (A-1264 (“I’m not an appraiser and . . . I don’t assign value to a certificate of need or to a building or to anything else . . . .”).) In this record, the only valuation of the real property that attempts to determine the stabilized value of the real property of the Doctors Hospital is Nomura’s own, and it shows that that value exceeds $40 million. That is, of course, exactly the position Nomura has taken in every case related to the D5 Trust other than this one. Nomura has consistently represented— to investors, to the IRS, and to two federal courts in the Trustee Action—that the D5 Trust was REMIC-eligible. (Cadwalader Br. 53.) Nomura should not be heard to complain now, after consistently defending the REMIC-eligibility of the DHL on the basis of its own appraisals, that those appraisal values were wrong.31 31 See In re Liquidation of Union Indem. Ins. Co. of New York, 89 N.Y.2d 94, 103-104 (1996) (finding that “it would be unseemly, to say the least, to permit [a party] to renege on its court-submitted evidence and, in effect, to use quasi-official assertions as both a sword and a shield by simultaneously documenting [the insurance company’s] fraud and failure to disclose its insolvency and yet later trying to deny the relevance and applicability of the same admissions and data in [a separate action]”); Morgenthow & Latham v. Bank of New York Co., 305 A.D.2d 74, 77-82 (1st Dep’t 2003) (finding that “plaintiffs’ claim of justifiable reliance is flatly 77 Nomura contends that its prior statements do not qualify as informal judicial admissions because those representations were legal rather than factual. (Nomura Br. 127 n.54.) But the statements that Nomura made in the Trustee Action are admissible against Nomura,32 and while Nomura attacks them now (Nomura Br. 119-120), it has never offered evidence contradicting them.33 Nomura’s own prior statements and the Appraisal Supplement it obtained in 2000 confirm that this action is not based on any real question as to whether the DHL was REMIC-eligible, but is simply an attempt by Nomura to shift to Cadwalader the cost of Nomura’s own decision to settle a suit that was filed several years after the purported malpractice occurred and that Nomura itself has called meritless. To hold Cadwalader liable under these circumstances would contradicted by their agent’s allegations in [a prior] federal action and that this contradiction requires dismissal of their fraud claim . . . .”). 32 See In re Liquidation of Union Indem. Ins. Co. of New York, 89 N.Y.2d at 103-104; Morgenthow & Latham, 305 A.D.2d at 79; Silverman v. Clark, 35 A.D.3d 1, 17 (1st Dep’t 2006); Festinger v. Edrich, 32 A.D.3d 412, 414 (2d Dep’t 2006). 33 Nomura also asserts that “no less [sic] than three courts have now concluded that whether the DHL was secured by $40 million in REMIC real property raises questions of fact,” implying that either the district court or the Second Circuit in the Trustee Action (or both) were among the three. (Nomura Br. 120.) But the district court’s decision in that action rested on an interpretation of the language of Nomura’s warranties in the PSA and the MLPSA for the D5, not on the factual question of whether the DHL was secured by sufficient real property. See LaSalle Bank Nat’l Ass’n v. Nomura Asset Capital Corp., No. 00 Civ. 8720(NRB), 2004 WL 2072501, at *8-9 (S.D.N.Y. Sept. 14, 2004), aff’d in part, rev’d in part, remanded, 424 F.3d 195 (2d Cir. 2005) (see A-368-86). And the Second Circuit decision simply remanded the case on the ground that the district court had misinterpreted these warranties; it did not make a finding concerning the value of the real property underlying the DHL, but merely noted that this was “likely” be a question of fact. (A-379-85.) 78 be to relieve Nomura of its burden of showing causation and to turn Cadwalader into an insurer of Nomura’s own strategic decisions, in violation of New York law.34 3. Allegedly inadequate due diligence by Cadwalader cannot have caused Nomura any harm if the REMIC Opinion was correct. As a final attempt to salvage its causation argument, Nomura contends that, even if the REMIC Opinion was correct, this “do[es] not release Cadwalader from its independent due diligence obligations” (Nomura Br. 128), and that Cadwalader can be held liable for Nomura’s alleged losses if it “failed to comply with customary third-party opinion practice” because “the fact that the opinion might be correct should not bar Nomura from pursuing its claim that Cadwalader ignored facts and law and knowingly gave an opinion without basis, thereby inflicting injury upon Nomura.” (Nomura Br. 131.) This is not an argument for causation. It is an argument that Cadwalader failed to perform adequate due diligence, which, for the reasons explained in Section I above, should be rejected. 34 See Darby & Darby, P.C. v. VSI Int’l, Inc., 95 N.Y.2d 308, 315 (2000) (finding that malpractice does not lie simply because a transaction does not turn out the way a client would have liked); Sutherland v. Milstein, 266 A.D.2d 33, 34 (1st Dep’t 1999) (finding that client could not hold his former attorney liable for legal malpractice in connection with a settlement of the underlying action where client negotiated and controlled the terms of the settlement); Forest City Enters., Inc. v. Russo, 8 Misc. 3d 151, 157, 2005 N.Y. Slip Op. 25084 (N.Y. Sup. 2005) (finding that because plaintiff reached a settlement in the underlying case not through defendant attorneys, but on plaintiff’s own volition and on the advice of third parties, “the timing and independent nature of [plaintiff’s] decision to settle prevents it from being able to demonstrate that it suffered any actual and ascertainable harm as a proximate result of [defendants’] alleged negligent representation”). 79 Nomura accuses Cadwalader of relying on its disclaimer in the Opinion Letter “to absolve[] it of its negligence” and to permit “blind reliance” on Nomura’s representations. (Nomura Br. 129, 130.) As previously stated, however, Cadwalader has never argued that it should be permitted to rely “blindly” on Nomura’s representations in the face of red flags; rather, Cadwalader contends that no such red flags were present. (See Section I.A above.) That Adelman conducted additional confirmatory due diligence that was not required of him (Nomura Br. 130; A-1147) in no way undermines the fact that Cadwalader was entitled to rely on Nomura’s representations and that Cadwalader’s REMIC Opinion did not purport to backstop those representations. C. Nomura Would Have Had the DHL on Its Books Regardless of Any Alleged Malpractice. Gershon acknowledged that if Nomura had not contributed the DHL to the D5 Trust, the loan would have remained on Nomura’s balance sheet, where its value (whatever it was), would not have been affected by any act or omission on Cadwalader’s part. (Cadwalader Br. 58-59.) This consideration too defeats a theory of causation. In response, Nomura argues that, but for Cadwalader’s alleged malpractice, Nomura would not have originated the DHL, and that even if it had, it would have (and could have) disposed of the DHL before its default. Neither of these arguments creates an issue of fact warranting a trial on Nomura’s claims. 80 Nomura contends that it would not have originated the DHL in the first place had Cadwalader advised it that the DHL was not REMIC-eligible. (Nomura Br. 134.) But Nomura originated the DHL before Cadwalader advised Nomura on the REMIC-eligibility of the D5 Trust and originated the loan with the assistance of its origination counsel, Dechert. (A-1392.) Cadwalader had no involvement in the origination of the DHL or of any other loans in the D5 Trust, nor was Cadwalader retained by Nomura to assist it in determining which loans it should originate. (A-1472-73.) Any advice that Cadwalader rendered (or failed to render) would have been given subsequent to—and entirely independent of—any decision on Nomura’s part to originate the DHL, and thus cannot have been a cause of any harm resulting from that decision to originate. See Brooks v. Lewin, 21 A.D.3d 731, 734 (1st Dep’t 2005) (finding no liability where alleged harm happened prior to retention of defendant attorneys and plaintiff “lost business . . . because of manufacturing and delivery problems unrelated to [defendant’s] alleged breach of [a] confidentiality agreement”); AmBase, 8 N.Y.3d at 435 (finding firm not liable for failure to advise client concerning issue that was outside scope of firm’s representation); Cummings v. Donovan, 36 A.D.3d 648, 648 (2d Dep’t 2007) (same). Nomura also argues that, even if it had originated the loan, it “would have disposed of the DHL well before it defaulted” because “Nomura was not a 81 ‘balance sheet lender.’” (Nomura Br. 134-35.) That argument rests on a far more speculative foundation than the record supports. The only reasonable inference about the “but-for” world is that if Cadwalader had alerted Nomura to the existence of some red flag in the initial appraisal (which Nomura did not show Cadwalader), Nomura would have acted in 1997 just as it did in 2000. Therefore, Cadwalader’s purported malfeasance could not have been the “but-for” cause of any harm sustained by Nomura; Nomura would have owned the DHL regardless, and it would have been worth exactly the same amount. Nomura’s assertion that it had “no less [sic] than three available exit strategies” to dispose of the DHL (Nomura Br. 135) is similarly unfounded, as it is supported only by generic statements about Nomura’s typical origination and securitization practices, and is thus too speculative to raise an issue of fact sufficient to defeat summary judgment. See AmBase, 8 N.Y.3d at 436; Russo v. Feder, Kaszovitz, Isaacson, Weber, Scala & Bass, 301 A.D.2d 63, 67 (1st Dep’t 2002). “Mere speculation about a loss resulting from an attorney’s [negligence] is insufficient to sustain a prima facie case of legal malpractice.” Humbert v. Allen, 89 A.D.3d 804, 806 (2d Dep’t 2011). In any event, regardless of what “exit strategies” were potentially “available” to Nomura based on its “typical” practices, and given Nomura’s actions in 2000 when this very valuation was called into question, the record supports only one plausible 82 inference: Nomura would have owned the DHL (at the exact same value) regardless of Cadwalader’s alleged malpractice. D. Nomura’s Breach of Representation 24 Obligated It To Repurchase the DHL. Cadwalader explained in its opening brief that Nomura also failed to show “but-for” or proximate causation because Nomura breached a separate representation it had made in the MLPSA for the D5 Trust—Representation 24— that required Nomura to repurchase the DHL independently of any purported malfeasance by Cadwalader. (Cadwalader Br. 54-55.) As a result, Cadwalader’s alleged malpractice was not a “but-for” cause of Nomura’s loss; the breach of Representation 24 would have required Nomura to repurchase the DHL anyway. (See Section III.A above (discussing requirement of showing “but-for” causation in legal malpractice actions).) Nomura counters by arguing that the breach never resulted in an obligation to repurchase the DHL because Nomura did not receive proper notice of the breach or a repurchase demand. (Nomura Br. 132-33.) Neither of these arguments has merit. First, neither the MLPSA nor the PSA requires any particular form of notice. The D5 Trustee duly notified Nomura of the breach of Representation 24 when it filed a letter brief in the Trustee Action seeking to amend its complaint to add a repurchase claim based on that breach. (See A-1656.) The D5 Trustee further notified Nomura of the breach when it followed up with a letter to the court 83 (copying Nomura) explaining the breach and requesting an order requiring Nomura to repurchase the DHL. (Id.) Second, neither the MLPSA nor the PSA contains a demand requirement. And even if they did, the Trustee’s motion to amend its complaint and its letter to the court constituted sufficient demand, since both requested relief from the court in the form of an order forcing Nomura to repurchase the DHL. That the district court denied the Trustee’s motion is of no consequence, since the contract with the Trustee only required notice to be given and demand to be made, whereupon Nomura would immediately incur the repurchase obligation. (A-90-91, A-180-181, A-1646.) Nomura further contends that its breach of Representation 24 did not require it to repurchase the DHL because even if the Trustee had been permitted to proceed with its claim, it would have been time-barred. (Nomura Br. 133.) However, if Nomura is correct that a six-year statute of limitations period applies (Nomura Br. 133), and if the statute started running when the MLPSA and PSA were signed on October 24, 1997, then the statute would not have run until October 24, 2003, and the motion to amend, which was filed on October 10, 2003, was timely. Moreover, the amended claim related back to the original complaint, which would have made it permissible even if it were not timely. (A-1656-57); see 39 Coll. Point Corp. v. Transpac Capital Corp., 27 A.D.3d 454, 455 (2d Dep’t 84 2006). Finally, although the district court stated it was inclined to dismiss the claim on statute of limitations grounds, the court never actually ruled on the issue of timeliness. (RA588.2 (“I think that . . . in the long run it is better to deal with it on the merits than deal with it on the question of timeliness”).) * * * Thus, Nomura has not demonstrated the existence of an issue of material fact concerning causation, and both its due diligence and advice theories must fail on this ground as well. CONCLUSION For the foregoing reasons, this Court should affirm the First Department's grant of summary judgment in favor ofCadwalader on Nomura's advice theory, and should reverse the First Department's ruling insofar as it requires Cadwalader to stand trial on Nomura's due diligence theory. November 21,2014 CRAVATH, SWAINE & MOORE LLP, ~mriott A member of the Firm Worldwide Plaza 825 Eighth A venue New York, NY 10019 (212) 474-1000 Attorneys for Defendant-Appellant- Cross-Respondent Cadwalader Wickersham & Taft LLP 85
