Nomura Asset Capital Corporation, et al., Respondents-Appellantsv.Cadwalader, Wickersham & Taft LLP, Appellant-Respondent.BriefN.Y.September 8, 2015APL-2014-00171 New York County Clerk’s Index No. 116147/06 Court of Appeals 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. >> >> REPLY BRIEF FOR PLAINTIFFS-RESPONDENTS- CROSS-APPELLANTS CONSTANTINE CANNON LLP Attorneys for Plaintiffs-Respondents- Cross-Appellants 335 Madison Avenue, 9th Floor New York, New York 10017 212-350-2700 Of Counsel: James T. Potter Amianna Stovall Joel A. Chernov Date Completed: December 16, 2014 To Be Argued By: James T. Potter Time Requested: 30 Minutes 309563.1 TABLE OF CONTENTS PRELIMINARY STATEMENT ............................................................................... 1 POINT I NOMURA RAISED ISSUES OF FACT WITH RESPECT TO WHETHER CADWALADER GAVE NOMURA PROPER REMIC ADVICE ................................... 4 A. Questions Of Fact Exist With Respect To The REMIC-Related Advice Glick Gave To Nomura ................................. 6 1. There is no credible evidence to support the First Department’s holding that Glick advised Nomura to use a sticks and bricks rule of thumb ........................ 6 2. Nomura’s arguments are altogether proper .............................. 10 3. Glick advised Nomura to use a different REMIC rule of thumb ............................................................... 11 4. Glick did not advise Nomura about going concerns or acute care hospitals ..................................... 15 B. Questions Of Fact Exist With Respect To The REMIC-Related Advice That Adelman Provided Nomura ................................................................................................ 16 1. Adelman’s testimony is inconsistent ........................................ 18 2. Adelman’s testimony is conclusory and inadmissible .............. 22 C. Gershon’s Testimony Raises Issues Of Credibility That Cannot Be Resolved On A Motion For Summary Judgment ............. 25 D. The Testimony Of Nomura’s Former Employees Raises Issues Of Fact ........................................................ 30 ii 309563.1 1. Testimony from the Federal Action of Nomura’s former employees is properly considered ................................................................... 30 2. The understanding of Nomura’s former employees is relevant to the adequacy of Cadwalader’s REMIC advice ........................................................................................ 32 a. Nomura’s CEO, Penner .................................................. 33 b. Nomura’s General Counsel, Funt ................................... 35 c. Marincas, direct report to Gershon ................................. 36 d. Tokarski, direct report to Gershon .................................. 40 E. The Securitization Documents Fail To Establish That Cadwalader Advised Nomura Or That Nomura Was Aware Of Such Advice ............................................................... 41 F. The First Department Failed To Consider The Testimony Of Nomura’s REMIC Expert That Cadwalader’s Advice Was Insufficient .................................................................................. 44 POINT II CADWALADER’S FAILURE TO CONDUCT THE REQUISITE DUE DILIGENCE PRESENTS AN ISSUE OF FACT FOR THE JURY ............................................. 47 POINT III ISSUES OF FACT EXIST WITH RESPECT TO PROXIMATE CAUSE ............................................... 57 A. The Certificate Of Need ...................................................................... 61 B. Stabilized Value .................................................................................. 62 C. Fixtures ................................................................................................ 63 CONCLUSION ........................................................................................................ 66 ! iii 309563.1 TABLE OF AUTHORITIES ! Cases Adnon v. 302-304 Mott St. Assocs., 94 N.Y.2d 740 (2000) ................................................................................................................. 6 Arnav Indus., Inc. Retirement Trust v. Brown, Raysman, Millstein, Felder & Steiner, L.L.P., 96 N.Y.2d 300 (2001) ............................................................................................................... 42 Bishop v. Maurer, 9 N.Y.3d 910 (2007) ............................................................................................................ 41-42 Concord Village Owners, Inc. v. Keyspan Corp., 68 A.D.3d 677 (1st Dep't 2009) .................................................................................................. 5 DiGiantomasso v. City of New York, 55 A.D.3d 502 (1st Dep't 2008) .......................................................................................... 30, 31 Dufel v. Green, 84 N.Y.2d 795 (1995) ............................................................................................................... 52 Escape Airports (USA), Inc. v. Kent, Beatty & Gordon, LLP, 79 A.D.3d 437 (1st Dep't 2010) ................................................................................................ 42 Fed. Deposit Ins. Corp. v. O'Melveny & Myers, 969 F.2d 744 (9th Cir. 1992), aff'd in relevant part and remanded, 512 U.S. 79 (1994) ......................................................... 50 Food Pageant, Inc. v. Consol. Edison Co., Inc., 54 N.Y.2d 167 (1981) ............................................................................................................... 51 Forte v. Weiner, 200 A.D.2d 421 (1st Dep't 1994) .............................................................................................. 51 Global Bus. Inst. v. Rivkin Radler, LLP, 82 A.D.3d 553 (1st Dep't 2011) .................................................................................................. 5 Grossman & Schole LLP v. APF Grp., Inc., 26 Misc.3d 1029(A) (Sup. Ct. N.Y. Cnty. Nov. 17, 2009) ....................................................... 50 Hale v. Meadowood Farms of Cazenovia, LLC, 104 A.D.3d 1330 (4th Dep't 2013) ........................................................................................... 39 iv 309563.1 Harris v. Rochester Gas & Elec. Corp., 11 A.D.3d 1032 (4th Dep't 2004) ............................................................................................... 5 Hart v. Carro, Spanbock, Kaster & Cuiffo, 211 A.D.2d 617 (2d Dep't 1995) ............................................................................................... 42 Heilmann v. Bronx River Assocs., 204 A.D.2d 393 (2d Dep't 1994) ............................................................................................... 24 Hill v. Arnold, 226 A.D.2d 232 (1st Dep't 1966) .............................................................................................. 29 In re New York City Asbestos Litig., 7 A.D.3d 285 (1st Dep't 2004) ............................................................................................. 30-31 Jackson v. Montefiore Med. Ctr., 109 A.D.3d 762 (1st Dep't 2013) .............................................................................................. 23 Johnson v. Equitable Life Assur. Soc'y, 16 N.Y.2d 1067 (1965) ......................................................................................................... 6, 13 Kram Knarf, LLC v. Djonovic, 74 A.D.3d 628 (1st Dep't 2010) ................................................................................................ 42 LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 424 F.3d 195 (2d Cir. 2005)................................................................................................ 58, 61 Loetsch v. New York City Omnibus Corp., 291 N.Y. 308 (1943) ................................................................................................................. 32 Martino v. Miller, 97 A.D.3d 1009 (3d Dep't 2012) ............................................................................................... 24 McCaskey, Davies and Assocs., Inc. v. New York City Health & Hosps. Corp., 59 N.Y.2d 755 (1983) ................................................................................................................. 5 Melendez v. Dorville, 93 A.D.3d 528 (1st Dep't 2012) ................................................................................................ 51 OCG Ltd. P'ship v. Bd. of Assessment Review of the Town of Owego, 79 A.D.3d 1224 (3d Dep't 2010) ............................................................................................... 51 One Step Up, Ltd. v. Webster Bus. Credit Corp., 87 A.D.3d 1 (1st Dep't 2011) .................................................................................................... 32 v 309563.1 Ostrander v. Ostrander, 280 A.D.2d 793 (3d Dep't 2001) ............................................................................................... 23 Pappas v. New 19 West, LLC, No. 118980/06, 2009 WL 221932 (Sup. Ct. N.Y. Cnty. Jan. 22, 2009) ................................... 42 People v. Greenberg, 95 A.D.3d 474 (1st Dep't 2012) ................................................................................................ 30 Phillips v. Joseph Kantor & Co., 31 N.Y.2d 307 (1972) ......................................................................................................... 21, 30 Rupert v. Gates & Adams, P.C., 83 A.D.3d 1393 (4th Dep't 2011) ............................................................................................. 50 San-Dar Assocs. v. Toro, 213 A.D.2d 233 (1st Dep't 1995) ......................................................................................... 20-21 Schultz v. Third Ave. R.R., 89 N.Y. 242 (1882) ................................................................................................................... 29 Selkowitz v. County of Nassau, 45 N.Y.2d 97 (1978) ................................................................................................................. 52 Sumitomo Mitsui Banking Corp., v. Credit Suisse, 89 A.D.3d 561 (1st Dep't 2011) ................................................................................................ 30 Unger v. Horowitz, 8 A.D.3d 62 (1st Dep't 2004) .................................................................................................... 50 United States v. Southland Corp., 760 F.2d 1366 (2d Cir. 1985), cert. denied, 474 U.S. 825 (1985) ............................................................................................. 32 Weiss v. SEC, 468 F.3d 849 (D.C. Cir. 2006) .................................................................................................. 56 Wertheimer v. New York Prop. Ins. Underwriting Ass'n, 85 A.D.2d 540 (1st Dept. 1981) ................................................................................................ 14 Williams v. New York City Housing Auth., 99 A.D.3d 613 (1st Dep't 2012) ................................................................................................ 39 vi 309563.1 Statutes and Other Authorities Federal Rules of Evidence 611 ..................................................................................................... 23 CPLR 3025...................................................................................................................................... 5 CPLR 3113.................................................................................................................................... 23 5A N.Y. Prac., Evidence in New York State and Federal Courts § 8:4 (2013) ............................ 32 New York State Bar Ass’n Comm. On Prof’l Ethics Opinion No. 604 (Nov. 14, 1989) ............. 50 309564.1 Plaintiffs-Respondents-Cross-Appellants Nomura Asset Capital Corporation and Asset Securitization Corporation (collectively, “Nomura”)1 submit this Reply Brief in further support of Nomura’s request that this Court (i) reverse the order of the First Department dismissing Nomura’s Advice Claim; (ii) affirm the order denying Cadwalader’s motion for summary judgment on Nomura’s Due Diligence Claim; and (iii) clarify in its decision that issues of fact exist on the Due Diligence Claim concerning the standard of care applicable to the REMIC Opinion and whether Cadwalader deviated from that standard. PRELIMINARY STATEMENT The First Department improperly reversed the trial court, granting Cadwalader’s motion for summary judgment on Nomura’s Advice Claim. The First Department determined, as a matter of law, that Anna Glick, a Cadwalader corporate partner, provided Nomura with a REMIC “sticks and bricks” rule of thumb, even though she never claimed that she personally provided Nomura with such advice, and she failed to identify who provided that advice, to whom it was provided, when it was provided, or the manner in which it was provided. Whether Glick (and her REMIC tax partner, Charles Adelman) advised Nomura to use a sticks and bricks rule of thumb, or whether the testimony of Nomura’s former 1 To the extent that terms are not otherwise defined herein, Nomura respectfully refers the Court to the Brief for Plaintiffs-Respondents-Cross-Appellants, dated October 3, 2014 (cited as “Brief” or “Br.”). 2 309564.1 employees who said that they never received such advice establishes that the advice was never given, is a question for a jury, as the trial court determined. Even if it could be established as a matter of law that Glick and Adelman gave REMIC advice to Nomura, a question of fact is also presented with respect to the sufficiency of that advice. Nomura has introduced the expert testimony of Thomas J. Biafore, a REMIC tax specialist, that Cadwalader’s advice was insufficient and a departure from the standard of care. Biafore opined that Cadwalader, among other things, was obligated to advise Nomura to seek the assistance of specialized tax counsel when originating a non-traditional loan such as the DHL. It is undisputed that Cadwalader provided Nomura with no such advice. With respect to Nomura’s Due Diligence Claim, Cadwalader contends that the parties agreed on an allocation of responsibility whereby Cadwalader would rely on Nomura to determine that each of the properties complied with the 80% Test so that Cadwalader could then sign off on the REMIC Opinion. Preliminarily, the existence of any such “allocation” is a question of fact. Nomura has introduced testimony establishing that there was no such allocation and that there was an entirely different procedure in place. Even if there were such an allocation of responsibilities, however, a jury still needs to determine whether Cadwalader deviated from the applicable standard of 3 309564.1 care by issuing its third-party REMIC Opinion that the D5 Securitization satisfied the 80% Test. That REMIC Opinion was incorporated in the First Opinion Letter, a third-party closing opinion including seven other legal opinions necessary to close the transaction. Because the REMIC Opinion was part and parcel of the First Opinion Letter, Nomura’s opinion practice expert, Arthur Norman Field, opined that it is governed by third-party closing opinion practice. Pursuant to that practice, Field opined that, at a bare minimum, before relying on Nomura’s REMIC Representations, customary practice required that Cadwalader ensure that the particular Nomura employee responsible for determining that each loan satisfied the 80% Test understood how to apply that test and had the relevant materials with which to apply that test. Field further opined that Cadwalader failed to comply with customary practice applicable to third-party closing opinions because Cadwalader conceded that it had no such knowledge. Nomura also introduced the expert testimony of Biafore establishing that when loans involve non-traditional properties such as the DHL, Cadwalader could not rely on Nomura’s REMIC Representations, but needed to do its own independent due diligence. In response, Cadwalader has offered expert testimony that customary practice was established by those few lawyers issuing REMIC opinions in 1997 and that the DHL was no different than any of the other loans in the D5 4 309564.1 Securitization. A jury should be allowed to hear Field’s opinion that third-party REMIC opinions do not have their own unique standards and Biafore’s opinion that the DHL is a loan at the very “margins,” requiring technical legal knowledge. At the very least, a jury should be allowed to determine the applicable standard of care and Cadwalader’s compliance with that standard, as this Court has ruled in similar situations. Even if the applicable standard is no more than that Cadwalader could uncritically rely on Nomura’s REMIC Representations unless a “red flag” was raised, both the First Department and the trial court determined that the DHL potentially raised such red flags. For the reasons stated in Nomura’s Brief, that decision should be affirmed. POINT I NOMURA RAISED ISSUES OF FACT WITH RESPECT TO WHETHER CADWALADER GAVE NOMURA PROPER REMIC ADVICE A triable issue of fact exists on the question of whether Cadwalader ever advised Nomura to use a “sticks and bricks” “rule of thumb” to determine REMIC- eligibility. A triable issue of fact also exits concerning the adequacy of the REMIC advice Cadwalader actually provided; i.e., did Cadwalader comply with customary practice when it told Nomura that the loans had to be secured by at least 80% real 5 309564.1 property but failed to advise how to apply that test – particularly when originating a specialty loan such as the DHL.2 See Br. at 37-61. Neither Glick nor Adelman nor any other Cadwalader employee testified that they personally advised Nomura to use a sticks and bricks rule of thumb, nor could they identify a specific individual who gave such advice. Nor is there any memorandum, email, or other document establishing that anyone from Cadwalader so advised anyone from Nomura. Notwithstanding, the First Department found 2 In particular, Cadwalader (i) advised Nomura that the REMIC 80% Test would “never be an issue,” because “of the way [Nomura] originated” its loans, (RA1262 (Funt 103:8-104:15)); (ii) failed to advise Nomura that an appraisal’s bottom-line number may not reflect REMIC real property; and (iii) failed to advise Nomura with respect to the particular REMIC issues raised by going concerns in general, and acute-care hospitals in specific. Cadwalader contends that the foregoing are new claims that Nomura only raised in its summary judgment papers. See Def. Resp. Br. at 46-47 n.14. This contention is baseless. In its Complaint, Nomura alleged that Cadwalader failed to advise Nomura that “appraisals of the collateral securing the mortgage loans included in the D5 Securitization had to separately value the real property as defined in the REMIC regulations.” RA13 (emphasis in original); see also RA 47(¶ 11); RA51-52 (¶¶ 27-28); RA53 (¶34). In opposing Cadwalader’s summary judgment motion, Nomura expanded on its allegation, setting forth specific facts developed during discovery and addressed in both Nomura’s and Cadwalader’s expert reports. See Concord Village Owners, Inc. v. Keyspan Corp., 68 A.D.3d 677, 677 (1st Dep’t 2009) (motion to reargue summary judgment motion was properly granted where defendant was on notice of “new theory” which had been the subject of “extensive deposition testimony”); Harris v. Rochester Gas & Elec. Corp., 11 A.D.3d 1032, 1032 (4th Dep’t 2004). In none of the cases Cadwalader cites, did the plaintiff simply expand on a theory previously alleged in the complaint, much less one that was explored by both parties during fact and expert discovery as is the case here. In denying Cadwalader’s motion for summary judgment, the trial court specifically recognized that these allegations were not new and determined that issues of fact exist as to whether Cadwalader properly advised Nomura with respect to REMIC compliance. See RA14-23. In the event the trial court deemed it necessary, it is undisputed that Nomura sought permission to amend its Complaint to conform to the evidence. See First Department Brief For Plaintiff-Respondents, dated December 28, 2012 (cited as “Nomura’s First Department Br.”), at 27 n.8; see also CPLR 3025(b) and (c); see also McCaskey, Davies and Assocs., Inc. v. New York City Health & Hosps. Corp., 59 N.Y.2d 755, 757 (1983); Global Bus. Inst. v. Rivkin Radler, LLP, 82 A.D.3d 553, 553 (1st Dep’t 2011). 6 309564.1 that Glick provided such advice and that Gershon confirmed he was given such advice. As Nomura demonstrated in its opening Brief and as more amply demonstrated below, material issues of fact exist with regard to (i) Glick’s testimony; (ii) Adelman’s testimony; (iii) Gershon’s testimony and credibility; (iv) the testimony of Nomura’s other employees, including Marincas; (v) the advice Cadwalader contends it provided in the D5 Securitization documents; and (vi) the testimony of Nomura’s REMIC expert, Biafore, that sticks and bricks advise by itself is insufficient. A. Questions Of Fact Exist With Respect To The REMIC-Related Advice Glick Gave To Nomura 1. There is no credible evidence to support the First Department’s holding that Glick advised Nomura to use a sticks and bricks rule of thumb. Cadwalader contends that Glick provided Nomura with a “sticks and bricks” rule of thumb, citing to the First Department decision and Glick deposition testimony that is not in the record on appeal.3 See Def. Res. Br. at 47-50. Neither 3 As a general matter, this Court will not consider evidence outside of the record such as that being proffered by Cadwalader in its responding brief. See, e.g., Adnon v. 302-304 Mott St. Assocs., 94 N.Y.2d 740, 746-47 (2000) (refusing to consider a compendium of scientific publications written by expert in an attempt to supplement his conclusion where the publications were not submitted to the trial court, nor did defendants’ move to enlarge the record on appeal to include them); Johnson v. Equitable Life Assur. Soc’y, 16 N.Y.2d 1067, 1068-69 (1965) (refusing to consider deposition transcripts submitted for the first time on appeal where “no first instance evaluation of the tendered proof had been made by a court possessed of fact-finding powers”). 7 309564.1 the First Department decision nor the cited deposition testimony, however, identifies who from Cadwalader advised Nomura to use a sticks and bricks rule of thumb, who received that advice, when that advice was given, or the manner in which the advice was given. Accordingly, there is no evidence in the record from which the Court can find that anyone from Cadwalader ever advised anyone from Nomura to use a sticks and bricks rule of thumb. In an effort to address the First Department’s error and this lack of proof, Cadwalader now contends that Glick “identified in sufficient detail who gave and who received the advice” and that she had “numerous conversations regarding the advice” with Gershon and Marincas. Id. at 49. As a preliminary matter, Cadwalader fails to acknowledge that Glick herself did not testify that she so advised Gershon or Marincas. Rather, her deposition testimony was as follows: “I think that both [Marincas] and [Gershon] understood real property means land and buildings.” RA1953 (Glick 199:11-12) (emphasis added). Glick did not testify that she discussed the subject with Marincas or Gershon, much less provide them with that advice. Nor did she then testify that she, or anyone else from Cadwalader, told Marincas and Gershon to use a rule of thumb for purposes of the 80% Test based on the value of land and buildings, or “sticks and bricks.” In light of these obvious deficiencies in her deposition testimony, Glick submitted an affidavit in support of Cadwalader’s motion for summary judgment. 8 309564.1 In this affidavit, Glick avers that “[p]rior to the D5’s closing, Cadwalader provided detailed advice to Nomura … [and] a rule of thumb [was] communicated [whereby] Nomura” was to determine the sticks and bricks value for each of the collateral properties. A-1619-20 (Glick ¶ 8). This claim cannot be the basis for granting Cadwalader summary judgment for three separate reasons. First, the Glick affidavit and testimony lacks probative value because she conceded that Adelman was the Cadwalader attorney providing substantive REMIC advice, not her. See RA1947 (Glick 47:12-18) (“primarily” Adelman advised Nomura “with respect to the tax-related or REMIC-related issues”); RA1953 (Glick 198:24-199:3) (“If someone came to me and said, Are other things other than land buildings, are they real property, I would boot the question to [Adelman]); A-2026 (Glick 179:9-13) (if anyone was going to discuss the need for an “appraisal to exclude personal property and the going-concern value of the operating business,” it would have been Adelman not her). Thus, while Adelman purportedly provided the substance, notably he never advised Nomura to use a sticks and bricks rule of thumb. See Br. at 42-51; see infra pp. 19-22. Second, in addition to failing to identify in her affidavit who gave the purported rule of thumb and sticks and bricks advice, Glick also failed to identify when, how, or to whom it was allegedly given. Glick failed to identify whether it was given a month or years before the closing, and the only timeframe to which 9 309564.1 Adelman testified with regard to providing REMIC advice was “in the early phases of our working with Nomura on developing their programs,” when he and Glick purportedly conveyed “the basic REMIC requirements,” not a rule of thumb. See RA1913 (Adelman 137:6-11). Glick also failed to identify whether the alleged advice was given by memorandum, email, telephone, or in person.4 Glick also never identified to whom this advice was given. Neither Gershon, Marincas, nor any other Nomura employee testified that they were advised to use such a rule of thumb. Finally, Adelman and Glick knew that Nomura typically did not obtain appraisals that separately valued real and personal property, but rather obtained appraisals for underwriting or “credit” purposes. Br. at 17-21. From those appraisals, Nomura prepared charts as annexes to the Prospectus Supplement that set forth the LTVs for the properties using the bottom-line numbers from those appraisals, which LTVs Adelman then reviewed for purposes of determining if the mortgage loans satisfied the 80% Test. See id. at 22-23. It simply is inconceivable that Adelman would not have requested to review the sticks and bricks values had he or Glick advised Gershon, Marincas, or some other Nomura employee to obtain 4 Glick and Adelman prepared a memorandum, dated May 14, 1997, that included REMIC- related materials prepared by Adelman. See RA1915-1918 (Adelman 145:23-155:8). But, Glick prohibited the memorandum from being distributed outside of Cadwalader and Adelman did not know whether the materials that he had prepared were ever given to Nomura. See id. 10 309564.1 them.5 Thus, one can search the citations to which Cadwalader now refers the Court in vain for any reference to the sticks and bricks rule of thumb Cadwalader contends some unidentified Cadwalader lawyer transmitted to some unidentified person from Nomura at some unidentified time, in some unidentified manner. There is no dispute that Cadwalader in general and Glick in specific advised Nomura about the REMIC rules and the 80% Test. There are, however, substantial issues of fact concerning the advice or lack of advice that Cadwalader gave to Nomura about how to apply the 80% Test. 2. Nomura’s arguments are altogether proper. Cadwalader contends that the Court should ignore Nomura’s arguments with respect to the stark inconsistency between the advice that the First Department determined that Glick provided Nomura (i.e., that it should use a sticks and bricks rule of thumb) and the rule of thumb Nomura’s employees uniformly testified that they were told to use, and, in fact, used with Cadwalader’s full knowledge and consent (i.e., that REMIC would not be an issue so long as they originated loans within Nomura’s underwriting guidelines). Cadwalader erroneously asserts that Nomura only raised this argument on its cross-motion in the First Department for leave to appeal. Def. Res. Br. at 49. 5 It also belies common sense to believe that if Glick had advised Nomura to use the sticks and bricks rule of thumb and knew that Nomura was ignoring that advice, she would never address that failure with Nomura. 11 309564.1 Nomura, however, raised this issue before Justice Schweitzer and again in the appeal briefing before the First Department. See Nomura’s First Department Br. at 21-22. Indeed, in his decision, Justice Schweitzer explicitly recounted Nomura’s allegation that Cadwalader had advised Nomura’s employees that “the REMIC regulations would not be a problem so long as Nomura originated loans in accordance with its own underwriting guidelines of requiring LTVs of 80% or less.” RA14. Furthermore, even assuming any portion of the argument is new, it still is proper. In apparent reliance on Glick’s affidavit, the First Department mistakenly concluded that Glick herself told Nomura to use the sticks and bricks rule of thumb (see A-15.a-16.a) – an argument Cadwalader had not made in its motion for summary judgment or in connection with its appeal. In such circumstances, it is entirely appropriate for Nomura to now seek a reversal of that holding. 3. Glick advised Nomura to use a different REMIC rule of thumb. There is ample evidence in the record demonstrating that an issue of fact exists regarding whether Cadwalader advised Nomura that the 80% Test would be met so long as Nomura followed its in-house underwriting guidelines. Nomura’s General Counsel testified that, when he joined Nomura, Glick explained the REMIC Regulations to him and advised him that the 80% Test would not be an issue provided Nomura originated loans within its own 12 309564.1 underwriting guidelines. See RA1261 (Funt 100:5-101:9); RA1262 (Funt 103:8- 104:15); RA1266 (Funt 119:8-25); RA1266 (Funt 121:5-12). He explained that, by reason of his discussions with Glick, he understood that the 80% Test would never be an issue: I think the best way to characterize them is what I described earlier; just generally what are the REMIC requirements sort of those three prongs that we had discussed, and again, knowing what our general underwriting practices were, concluding that – as a general rule, this would never be an issue, the way we originated. Basically, every loan that we would do would become REMIC eligible. RA1262 (Funt 104:5-15) (emphasis added). He further explained: Well, those three tests that I just gave you were pretty easy tests. Every loan would be REMIC eligible because we were required to have mortgages or deeds of trust on the property. We were required to – they were required to be a legal form of debt, and based on our typical underwriting practices, we never would have been within the range of not – failing the test that I just laid out, that 80 percent test, or the way I say it, the 125 percent test. Id. (Funt 102:5-19); see also RA1287 (Funt 202:11-204:5); RA1294 (Funt 294:3- 21). The testimony from Nomura’s other employees also established that they each understood that if Nomura met its internal underwriting guidelines, all of its loans would meet the 80% Test. See Br. at 14-17, 41, 57-60. Cadwalader contends that Nomura’s claim “is false,” “unsupported by anything other than the say-so of Nomura’s litigators,” and based on 13 309564.1 “inadmissible” testimony from Nomura’s General Counsel. Def. Res. Br. at 50-51. In support of its contention, Cadwalader argues that it “never advised Nomura concerning underwriting procedures,” citing to certain Glick testimony and an affidavit from Marincas.6 See Def. Res. Br. at 50-51 (emphasis in original). Whether Glick advised Nomura about underwriting procedures is irrelevant. As set forth above and in Nomura’s Brief, it cannot be disputed that Glick advised Nomura’s General Counsel that, in order to satisfy the 80% Test, the LTVs for the loans could not exceed 125%. See Br. at 14-17. Based on that advice, Nomura understood that the 80% Test would “never” be an issue because, as the General Counsel testified: “based on our typical underwriting practices, we never would have been within the range of not – failing the test that I just laid out, that 80% test, or the way I say, it the 125 percent test.” RA1262 (Funt 102:5-19). Not 6 Nomura’s motion to strike that affidavit and all references to it is pending before this Court. As Nomura explained in its motion, Marincas was not available to be deposed in this action. See Memorandum Of Law In Support Of Nomura’s Motion To Strike, dated October 3, 2014, and the accompanying Affirmation Of Amianna Stovall In Support Of Motion To Strike, sworn to October 3, 2014. Accordingly, after Cadwalader moved for summary judgment and so as to avoid having that deposition take place, Cadwalader entered into a stipulation, which Justice Schweitzer so ordered, that provided, in relevant part, as follows: “the parties agree that the pending motion for summary judgment can be decided without regard to the Marincas … affidavit[,] [and]… “the Court will endeavor to decide the pending motion for summary judgment without relying on” it. See RA605-06. Cadwalader agreed that Justice Schweitzer could decide the motion without considering the affidavit, which is exactly what he did. See RA12. Cadwalader should be held to the stipulation. Johnson, 16 N.Y.2d at 1068-69 (the court will not consider evidence where “no first instance evaluation of the tendered proof had been made by a court possessed of fact-finding powers”). Here, neither the trial court nor the First Department evaluated Marincas’s affidavit. This Court should, thus, similarly refrain from considering it and grant Nomura’s motion to strike. To the extent, however, the Court does consider the obvious variances between it and her 2003 deposition testimony, it simply underscores that issues of fact exist requiring resolution by a jury. 14 309564.1 surprisingly, Gershon had the same basic understanding of the applicable rule of thumb as evidenced by his testimony that all of the loans were originated to have LTVs “less than 100 and generally less than 80 percent which meant they had to be less than 125 percent loan to value.” RA1358 (Gershon 92:5-23). Equally unsurprising, Cadwalader makes no effort to address the basic question of how Nomura’s CEO, its General Counsel, Gershon, and Marincas all came to have the same understanding that the 80% Test would not be an issue so long as Nomura originated loans within its underwriting guidelines. See Br. at 57-60. In any event, any variances between the testimony of the witnesses establishes that issues of fact exist requiring resolution by the jury. Cadwalader also seeks to avoid the testimony of Nomura’s General Counsel, claiming that it is “inadmissible” because it is from the Federal Action. Cadwalader cites to no authority for the proposition that this testimony cannot be considered; nor does it make any effort to address the trial court’s decision holding that inadmissible testimony may be considered in opposition to a motion for summary judgment. See RA12; see also Wertheimer v. New York Prop. Ins. Underwriting Ass’n, 85 A.D.2d 540, 541 (1st Dept. 1981). In addition, the General Counsel was deposed in this action over the course of two days and was specifically questioned about the testimony to which Cadwalader now objects. See, e.g., RA1274 (Funt 24:7-21); RA1280 (Funt 126:3-22). Thus, Cadwalader 15 309564.1 had the opportunity to cross examine him and has no cause to complain. See RA12; infra pp. 30-32. Cadwalader also seeks to avoid the General Counsel’s testimony, contending that he was referring to a “general rule,” not that “there would never be exceptions.” Def. Res. Br. at 51. Cadwalader conveniently ignores that Nomura has alleged that Cadwalader never told them that there should be an exception to the general underwriting guidelines for going concern businesses like the acute care hospital involved in the DHL. Rather, as the General Counsel testified, Cadwalader led Nomura to believe “every loan that we would do would become REMIC eligible.” RA1262 (Funt 104:13-15) (emphasis added); see also infra p. 35. 4. Glick did not advise Nomura about going concerns or acute care hospitals. Finally, Cadwalader contends that it matters not whether “Cadwalader advised Nomura specifically concerning the application of the 80% Test to hospitals, as opposed to income-producing properties generally.” Def. Res. Br. at 52. Nomura’s REMIC expert, however, explained that hospitals in fact are different than going concerns that are typically found in securitizations, such as hotels, and that Cadwalader’s advice was, therefore, not in accordance with accepted standards of practice for REMIC tax attorneys. See RA1047 (an acute 16 309564.1 care hospital is a property type that raises “the sort of issues that only counsel would have reason to know”); RA1009-10 (Biafore ¶¶ 5, 7) (Biafore opining that “[a]dvising a client that only real property counts toward the 80% Test or to use a third-party appraisal to ensure that the 80% Test is satisfied, by itself, is insufficient,” because “when dealing with a loan such as the Doctors Hospital Loan, a CMBS issuer such as [Nomura] needs to consult with tax counsel in order to ensure compliance with the 80% Test”); RA1013 (Biafore ¶ 13) (Biafore opining that “[t]elling [Nomura] that only ‘real property’ counted for REMIC purposes was insufficient legal advice.”).7 At a minimum, therefore, there are questions of material fact with respect to the advice Cadwalader was obligated to provide Nomura that a jury should be allowed to decide. B. Questions Of Fact Exist With Respect To The REMIC-Related Advice That Adelman Provided Nomura Nomura demonstrated that there are irreconcilable inconsistencies between the advice the First Department found that Adelman provided to Nomura and Adelman’s deposition testimony. See Br. at 42-48. That deposition testimony 7 Cadwalader’s REMIC expert, James M. Peaslee, and Adelman both admitted that “at the margins” application of the 80% Test may require “technical knowledge” (RA1588-89 (Peaslee ¶ 153); RA1912-13 (Adelman (133:19-134:19)) and thus different advice with regard to the 80% Test. Whether a loan involving an acute-care hospital such as the DHL was “at the margins,” as Biafore testified, is again a question a jury should answer. See RA1041 (the DHL “represents the outside margin of the margins and oddest of the odd cases that Peaslee references in his report”). 17 309564.1 simply shows that, at some unidentified time between 1992 and 1997, Adelman advised unidentified Nomura employee(s) that the 80% Test “was based solely on the real property” and in order to determine the value of the real property Nomura should obtain “independent appraisals.” See RA1912-1915 (Adelman 133:19- 143:24). Adelman could not recall any specific conversation where he advised Nomura’s employees about the 80% Test, he did not reduce whatever purported advice he gave to writing, and he did not advise Nomura’s employees that: the appraisals themselves needed to distinguish between real and personal property; they should use a “sticks and bricks” test; they could not use the bottom-line numbers from the credit based appraisals that he knew Nomura obtained for purposes of the 80% Test; they should use the cost approach; hospitals pose particular REMIC issues that are different from the issues arising from more traditional going concerns (such as hotels); they should seek Adelman’s REMIC advise when making a hospital loan; and “at the margins” certain properties present particular REMIC issues and that Nomura should be alert to such situations. Neither Adelman nor anyone else from Cadwalader provided Nomura with such advice even though Adelman and Glick helped Nomura establish its 18 309564.1 securitization program; were intimately familiar with how Nomura went about its business having represented Nomura over the course of five years in numerous securitizations; and were well aware that Nomura obtained appraisals for purposes of evaluating the creditworthiness of the mortgage loans, not for REMIC purposes.8 Thus, even crediting all of Adelman’s testimony, it cannot possibly be a basis for an award of summary judgment, because it was not in accordance with customary practice for tax counsel providing REMIC-related advice. That testimony cannot, however, be blindly credited because Nomura also demonstrated that it is entirely conclusory and inadmissible. See Br. at 49-51. 1. Adelman’s testimony is inconsistent. Cadwalader contends that (i) Adelman “consistently testified that he provided in-depth REMIC-related advice to Nomura” (Def. Res. Br. at 52); (ii) “Adelman’s advice was correct” (id. at 53); (iii) there is no “inconsistency” between Adelman’s REMIC “understanding” and “Glick’s advice to apply the ‘rule of thumb’ using a ‘sticks and bricks’ approach” (id. at 54); (iv) Adelman did not advise Nomura “to use for REMIC purposes … appraisals obtained for underwriting purposes” (id. at 55); and (v) Nomura’s contention that, for purposes of the 80% Test, Adelman only advised Nomura “to get appraisals” is without 8 As a result, typically, those appraisals did not separately value the land and buildings, but rather relied on the income approach to valuation. See Br. at 17-18, 46-48; RA977 (Adelman 257:7-18); RA982 (Adelman 276:20-277:6). 19 309564.1 support in the record (id. at 55-56). While there is no basis for these contentions, at best, they demonstrate that issues of material fact exist requiring a trial. While Cadwalader claims that Adelman provided Nomura with “in-depth” advice concerning the 80% Test, the citations to which it refers the Court – including deposition testimony that is not in the Appendices – do not support its claim. The testimony on page A-1932 is the same testimony that Nomura cited in its Brief at pages 42 and 43, where Adelman conceded that the only advice he gave Nomura with regard to distinguishing between real and personal property was to get an independent, or MAI, appraisal. He testified: Q. And did you give them any advice as to how they were supposed to go about making that determination [distinguishing between the value of the REMIC real property and the value of the business itself]? A. Because they were real estate lenders, and they knew what facts they needed, I pretty much left [it] in their province how to determine how they would arrive at the answer, other than the fact that I gave them guidance that real property values, or any other elements of value, are best shown by an appraisal, an independent appraisal. Q. So other than telling them to get an MAI appraisal, you gave them no other guidance? Is that fair? A. Well, I myself did not know how to determine those values. I just knew that they were determinable.9 9 As set forth in Nomura’s Brief, while Adelman claimed not to know how to determine REMIC real property “values,” he testified to having expertise in both this action and in the Federal Action in determining if property is real or personal for REMIC purposes, which is exactly what Nomura understood he was doing in issuing the REMIC Opinion. See Br. at 43 n.14. 20 309564.1 RA1915 (Adelman 143:5-24) (emphasis added). If Adelman, Glick, or anyone else from Cadwalader had advised Nomura to use Glick’s purported sticks and bricks rule of thumb, why did Adelman not testify concerning such advice in response to counsel’s direct question? A jury should be allowed to consider that question. In addition, there is no evidence in the record that Adelman or anyone else from Cadwalader ever advised Nomura that (i) the appraisal itself should separate the value of the real from the personal property, much less that it should do so in accordance with the REMIC Regulations; (ii) Nomura should not use the bottom- line appraisal number for purposes of the 80% Test; or (iii) Nomura needed to consult with tax counsel to ensure compliance with the 80% Test, because the collateral for the DHL was an acute care hospital. Cadwalader next cites to A-837 and the Adelman testimony at A-1941, but that testimony involved a series of leading questions put forth by Cadwalader’s counsel asking Adelman to confirm a list of bullet-points in Exhibit 1126 (see A- 837) which was prepared by counsel. Counsel for Nomura objected to this evidence and fully preserved its objection.10 See Br. at 41; A-1941 (Adelman 10 The sole authority that Cadwalader cites in support of its proposition that the objection was somehow not preserved fails to support its position. In San-Dar Assocs. v. Toro, 213 A.D.2d 233, 234 (1st Dep’t 1995), the court merely found that “Defendant’s assertion concerning ‘issue joinder’ was first raised upon … reargument … and is thus not preserved for this Court’s 21 309564.1 259:9-16). While inadmissible evidence can be used to defeat summary judgment, it cannot be used to support it. See, e.g., Phillips v. Joseph Kantor & Co., 31 N.Y.2d 307, 314 (1972); see also Br. at 49-51. Cadwalader next references Adelman deposition testimony that Cadwalader failed to include in the record on appeal, but which says no more than the following: “I advised Nomura on a number of occasions that since their representations with regard to REMIC qualified loans needed to be accurate, that this was best proved by an independent appraisal.” Adelman 2010 Tr. 64:19-23. As the foregoing citations amply demonstrate, Adelman’s limited advice was not “correct,” because it was not in accordance with customary practice for tax lawyers providing REMIC advice, particularly where, as here, Adelman and Glick knew that Nomura was obtaining appraisals that did not separately value real and personal property. See Br. at 46; see also RA977 (Adelman 257:7-9) (“The easiest example is an office building and an appraiser typically will present only an as-is value ….”) (emphasis added); RA982 (Adelman 276:20-277:6) (appraisals are done on an “as-is” basis and it is “rare” that it is “on any other basis than ‘as is’”).11 review.” The court did not address the question of whether a proper objection, in response to improper questioning, was preserved. 11 Not only was Adelman aware that Nomura was obtaining appraisals that typically did not break out real from personal property, but he also obtained from Nomura the appraisers’ bottom- 22 309564.1 Equally unavailing is Cadwalader’s effort to reconcile Adelman’s testimony “that real property valuation should be based on its value ‘as occupied’” with Glick’s alleged advice “to apply the ‘rule of thumb’ using a ‘sticks and bricks’ approach.” Def. Res. Br. at 54. Those two valuation methods are completely different and there is no dispute that Nomura used the approach recommended by Adelman. Indeed, Adelman was well aware that Nomura’s appraisals typically presented only an “as occupied” or income approach to value and did not break out the real and personal property. 2. Adelman’s testimony is conclusory and inadmissible. Nomura demonstrated that Adelman’s testimony that he “believed” some unnamed Cadwalader attorneys provided some unidentified Nomura employees with all of the advice on Cadwalader’s counsel’s 12 bullet-point list was inadmissible conclusory testimony and thus not a basis for an award of summary judgment. See Br. at 49-51. Cadwalader responds that (i) it is “not legally relevant” that Cadwalader’s counsel “solicited some affirmations,” because Adelman could have submitted an affidavit that is “generally drafted by counsel” (Def. Res. Br. at 57); (ii) “Nomura failed to preserve any objection that the questions posed to Adelman were leading” (id. at 58); and (iii) Cadwalader does line income numbers when he did his own REMIC review, and he reviewed Nomura’s appraisals when he had questions. See RA949-51 (Adelman 89:21-95:4); RA957 (Adelman 126:17-20); RA959 (Adelman 135:17-136:2; 137:2-15). 23 309564.1 not “bear the burden of demonstrating that it gave the allegedly missing advice” (id. at 57). Each of these contentions is meritless. CPLR 3113(c) provides that “[e]xamination and cross-examination of deponents shall proceed as permitted in the trial of actions in open court.” In American jurisprudence, it is well recognized that counsel may not ask his or her own witness leading questions on material issues. For example, Rule 611(c) of the Federal Rules of Evidence provides: “Leading questions should not be used on direct examination except as necessary to develop the witness’s testimony.” The rule in New York State’s courts is the same. See Jackson v. Montefiore Med. Ctr., 109 A.D.3d 762, 763, (1st Dep’t 2013) (trial court “did not commit reversible error in limiting plaintiff’s use of leading questions upon direct examination”); Ostrander v. Ostrander, 280 A.D.2d 793, 793 (3d Dep’t 2001) (leading questions are objectionable when used in direct examination). Adelman, a Cadwalader partner, was represented by Cadwalader’s counsel at his deposition. He was neither adverse nor hostile to Cadwalader. As a result, counsel for Cadwalader could not ask Adelman leading questions at trial, and, pursuant to CPLR 3113(c), Cadwalader’s counsel was similarly precluded from asking Adelman leading questions on material issues at his deposition. In fact, counsel for Cadwalader failed to make even the slightest effort to obtain the 24 309564.1 information through questions that were not leading. The testimony is thus inadmissible and cannot be a basis for summary judgment. That counsel for Cadwalader potentially could have drafted an affidavit containing the same scripted testimony is of no moment.12 For reasons that have never been explained, Adelman did not submit such an affidavit in support of Cadwalader’s motion. Equally baseless is Cadwalader’s contention that Nomura failed to preserve its objection to the question and answer to which Cadwalader refers the Court. Immediately after the question was asked and before Adelman responded, counsel for Nomura asserted an objection. See Br. at 49; A-1941 (Adelman 259:9-16). Finally, Cadwalader’s contention that it does not bear the burden of demonstrating that it gave the missing advice fails to recognize that the burden is indeed Cadwalader’s. In opposition to Cadwalader’s motion for summary judgment, Nomura came forward with admissible proof demonstrating that the advice Cadwalader provided to Nomura was not in accordance with accepted standards of practice for REMIC tax attorneys. See R1009-14 (Biafore ¶¶ 5-13). To obtain summary judgment, Cadwalader was obligated to come forward with 12 In support of its contention that its counsel’s questions were somehow appropriate, Cadwalader cites two cases that do not involve deposition testimony. In Martino v. Miller, 97 A.D.3d 1009, 1010-11 (3d Dep’t 2012) and Heilmann v. Bronx River Assocs., 204 A.D.2d 393, 394 (2d Dep’t 1994), the issue before the courts involved the sufficiency of the affidavits, not the admissibility of deposition testimony. 25 309564.1 admissible evidence demonstrating that no material issues of fact existed with respect to its REMIC-related advice. As demonstrated above, Cadwalader failed to do so. C. Gershon’s Testimony Raises Issues Of Credibility That Cannot Be Resolved On A Motion For Summary Judgment The First Department reversed the trial court, finding that “Gershon testified that Cadwalader provided the same advice Glick and Adelman testified that they did.” Def. Res. Br. at 58. Yet, Gershon testified that he had the same (mis)understanding (as did all of Nomura’s other employees) with regard to the REMIC rule of thumb. He testified: “100 percent of the loans were 100 percent LTV or less, which in and of itself meant they were all in compliance” with the 80% Test (RA1349-50 (Gershon 41:5-42:2)); “[W]e did the analysis similar to what I did earlier in this deposition where we said the 80 percent rule means that all loans are 125 percent loan to value or less. And we are comfortable making that representation. It was an easy conclusion to get to, yes, because we had recent appraisals and spoke of the value of the loans. And we believed they were all less than 100 and generally less than 80 percent which meant they had to be less than 125 percent loan to value” (RA1358 (Gershon 92:5-23) (emphasis added)); He did not “discuss the notion that the LTVs that you were looking at did not break out … real property from personal property” (id.); “It is my understanding the appraised values were the real property values” RA1358 (Gershon 92:17-93:12); 26 309564.1 The income approach as reflected in the appraisal’s bottom-line number was “indicative of the value of an asset, particularly for REMIC purposes” (RA1314 (Gershon 104:7-14) (emphasis added)); and “[T]he approach we relied on primarily was the income approach which generally would only look at the real property value” (RA1360 (Gershon 116:21-25)). The First Department erred in reversing the trial court because issues of fact concerning Gershon’s testimony plainly exist. See Br. at 52-52. If Gershon actually received the advice on the 12 bullet-point list (as he testified in response to counsel’s improper leading questions), he could not possibly have given the unscripted testimony bulleted above. The First Department’s reversal of the trial court’s conclusion that the jury should be permitted to evaluate Gershon’s potential bias is also contrary to fundamental principles of appellate review, i.e., credibility determinations are not made by appellate courts. See id. at 54-57. In response, Cadwalader contends (i) Gershon testified that “Cadwalader provided Nomura accurate and in-depth advice regarding REMIC requirements, including the 80% Test” (Def. Res. Br. at 58); (ii) “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” (id. at 59); (iii) the inconsistencies in Gershon’s testimony are of no moment because his deposition 27 309564.1 “took place more than 10 years after the advice was given” (id.); and (iv) “Nomura’s insinuations that Gershon testified as he did only because of personal and/or financial bias are mere speculation” (id. at 60). As an initial matter, the testimony concerning “accurate and in-depth” advice that Cadwalader provided was no more than Cadwalader’s counsel reading each bullet point from Exhibit 1126 and asking Gershon if “Nomura” understood the bullet points. See A-1467-1469. It is difficult to imagine more scripted, leading testimony. And, as Nomura demonstrated both above (see supra pp. 20- 21, 23-24) and in its Brief (see Br. at 52-54), counsel’s leading questions resulted in inadmissible testimony that should not have considered on a motion for summary judgment.13 Cadwalader’s rhetorical statement – “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” – misses the basic point. First, a sticks and bricks valuation method is 13 Cadwalader seeks to justify its counsel’s improper questioning, claiming that “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.” Def. Res. Br. at 61 n.19. The fact that Gershon was capable of testifying knowledgeably only highlights the impropriety of Cadwalader’s counsel’s questions. At no time was Gershon hostile or adverse to Cadwalader, was not evasive, and counsel for Cadwalader made no effort to obtain the information by means of non-leading questions. Thus, as set forth above and in Nomura’s Brief, the First Department should not have considered the testimony. 28 309564.1 wholly inconsistent with Adelman’s testimony that the income approach was proper and that sticks and bricks was improper. Second, the income approach does not value real and personal property separately. Third, as Cadwalader knew, Nomura did not obtain appraisals that separately valued the real property because, as Gershon testified in both 2003 and 2010, he mistakenly believed (as did all of Nomura’s other employees) that the income approach provided a real property value that Nomura could use for purposes of REMIC’s 80% Test. See A-1490 (Gershon 116:11-25) (“the approach we relied on primarily [when evaluating going concerns] was the income approach which generally would only look at real property value”); RA1314 (Gershon 104:7-14) (the income approach as reflected in the appraisal’s bottom-line number was “indicative of the value of an asset, particularly for REMIC purposes”) (emphasis added). Thus, as the trial court specifically found, Gershon’s testimony was “at odds with … Glick’s testimony that she directed Nomura to focus on the property’s ‘sticks and bricks’ to determine REMIC-eligibility.” RA17. Equally unavailing is Cadwalader’s contention that Gershon’s leading, scripted testimony was consistent with the testimony that he gave in 2003, even if his 2010 testimony had certain inconsistencies. See Def. Res. Br. at 59. Gershon’s statement that the income approach as reflected in the appraisal’s bottom-line number was “indicative of the value of an asset, particularly for REMIC purposes” 29 309564.1 was testimony that he gave in 2003, not 2010. See RA1314 (Gershon 104:7-14) (emphasis added). Finally, as noted above and in Nomura’s Brief, it is undisputed that Gershon is married to Cadwalader Special Counsel Lisa Post-Gershon, has a long-standing relationship with Cadwalader, has expressly stated his desire to see Cadwalader prevail in this action, has cooperated with Cadwalader’s counsel in providing them with an affidavit, and has refused to cooperate with Nomura. See Br. at 54-57. In addition, it is Gershon’s wife whose conduct is specifically at issue in this litigation. She received both the Deal Highlights document from Nomura and the notification from Dechert that it would not opine with respect to the REMIC- eligibility of the DHL, but failed to bring either document to the attention of Glick or Adelman. See Br. at 56-57.14 Not surprisingly, Cadwalader has wholly failed to address these facts. In such circumstances, a jury should be allowed to see and hear Gershon and determine whether he is credible or biased. 14 Cadwalader fails to address, much less distinguish, the authority Nomura cited that establishes that “[e]vidence tending to show a witness’s bias, hostility or motive to lie is not collateral but directly probative of credibility.” Hill v. Arnold, 226 A.D.2d 232, 233 (1st Dep’t 1966); Schultz v. Third Ave. R.R., 89 N.Y. 242, 250 (1882). 30 309564.1 D. The Testimony Of Nomura’s Former Employees Raises Issues Of Fact Nomura demonstrated its former employees uniformly understood that the 80% Test would always be satisfied if Nomura originated loans in accordance with its underwriting guidelines. The First Department simply dismissed this testimony, characterizing it as “isolated sections of deposition testimony” (A-18.a), and improperly resolved issues of fact. 1. Testimony from the Federal Action of Nomura’s former employees is properly considered. As an initial matter, Cadwalalder asserts that, because certain testimony Nomura has cited from its CEO, its General Counsel, Tokarski, and Marincas was taken in the Federal Action and, because Cadwalader was not a party in that action, their testimony is “inadmissible hearsay.” Def. Res. Br. at 61. Even if Cadwalader were correct, as the trial court recognized, “evidence otherwise excludable at trial may be considered in opposition to a motion for summary judgment as long as it does not become the sole basis for the court’s determination.” RA12 (citations omitted).15 Accordingly, the trial court properly 15 Accord Phillips, 31 N.Y.2d at 311-12 (“Rules of evidence should be guardedly and cautiously applied on application for summary judgment ….”) (citations omitted); People v. Greenberg, 95 A.D.3d 474, 484 (1st Dep’t 2012) (“[I]n opposition to [a] motion for summary judgment, a court can consider hearsay evidence.”); Sumitomo Mitsui Banking Corp., v. Credit Suisse, 89 A.D.3d 561, 564 (1st Dep’t 2011) (permitting consideration of correspondence that was hearsay “because it is not the only proof submitted”); DiGiantomasso v. City of New York, 55 A.D.3d 502, 503 (1st Dep’t 2008) (deposition testimony from another proceeding considered on summary judgment motion even if inadmissible hearsay for other purposes); In re New York City 31 309564.1 “consider[ed] and reli[ed]” on the testimony of witnesses from the Federal Action where it was “not the sole basis for the court’s determination of any of the discrete issues raised by this motion.” RA12. The trial court also properly considered and relied upon the testimony of Nomura’s CEO and General Counsel – as well as Gershon – because they each were deposed in the instant action and, therefore, Cadwalader had the opportunity to examine them with respect to their Federal Action testimony. As a result, their Federal Action testimony is not “inadmissible hearsay” as Cadwalader asserts. See DiGiantomasso, 55 A.D.3d at 503 (on summary judgment, allowing use of prior deposition testimony where defendants had an opportunity to cross-examine plaintiff about her prior testimony at her later deposition). Copies of their respective Federal Action deposition transcripts were introduced as exhibits during each of their depositions in the instant action and each testified that the testimony they gave in the Federal Action was truthful and accurate. See RA1667-68 (Penner 11:22-13:6); RA1274 (Funt 24:6-21); RA1280 (Funt 126:3-22); RA1354 (Gershon 67:12-68:22). Cadwalader had ample opportunity to question each of these witnesses with respect to that testimony.16 Asbestos Litig., 7 A.D.3d 285, 285 (1st Dep’t 2004) (allowing the consideration of deposition testimony from unrelated cases for purposes of summary judgment). 16 The Federal Action testimony of Nomura’s CEO, General Counsel, Marincas, and Tokarski is admissible for an independent reason. Evidence with respect to a person’s state of mind is 32 309564.1 Accordingly, the trial court properly considered the Federal Action testimony of Nomura’s CEO, its General Counsel, Marincas, and Tokarski in connection with Cadwalader’s motion for summary judgment. 2. The understanding of Nomura’s former employees is relevant to the adequacy of Cadwalader’s REMIC advice. While the First Department ruled that Cadwalader gave Nomura relevant REMIC advice – which Nomura disputes – it did not find that Nomura understood that advice or that Cadwalader was entitled to dispense with its due diligence responsibilities when issuing a third-party REMIC Opinion. See A-17.a. As noted above, Nomura’s former employees’ understanding of REMIC, and in particular how to apply the 80% Test, are critical to Cadwalader’s contention that it was entitled to rely on Nomura’s REMIC-related representations when issuing its REMIC Opinion (see Br. at 68-94). Nomura’s former employees testified that (i) admissible as a nonhearsay out-of-court statement. See 5A N.Y. Prac., Evidence In New York State And Federal Courts § 8:4 (2013). As explained in Nomura’s Brief and Field’s expert reports, at a bare minimum, in order for a lawyer issuing a third-party legal opinion to be able to rely on a client’s representation, the client has to understand the representation. See Br. at 68-76, 81-83; see also RA1235-37. Thus, for Cadwalader to have properly relied on Nomura’s 80% and QM Representations (assuming such reliance were even possible with the DHL), Nomura had to understand them. The testimony from the Federal Action, demonstrating that Nomura’s employees did not understand those representations and in particular did not understand the 80% Test, is, therefore, admissible as nonhearsay state of mind evidence. United States v. Southland Corp., 760 F.2d 1366, 1376 (2d Cir. 1985) (corporate defendant’s counsel’s notes regarding transaction were admissible nonhearsay showing defendants’ understanding of the transaction), cert. denied, 474 U.S. 825 (1985); Loetsch v. New York City Omnibus Corp., 291 N.Y. 308, 310- 11 (1943) (will executed within four months of death was admissible to prove decedent’s state of mind with respect to relationship with husband); One Step Up, Ltd. v. Webster Bus. Credit Corp., 87 A.D.3d 1, 12 (1st Dep’t 2011) (on issue of lender’s good faith in making advances to borrower, the latter’s “Borrowing Base Certificate,” containing list of borrower’s inventory, receivables and debt, submitted to lender prior to loan, was not hearsay). 33 309564.1 they understood that they could use an entirely different “rule of thumb” based on the total value of the property rather than Glick’s purported sticks and bricks rule of thumb, and (ii) they did not understand how to apply the 80% Test. At the very least, this testimony demonstrates that issues of fact exist with respect to Cadwalader’s REMIC-related advice. a. Nomura’s CEO, Penner. Cadwalader seeks to distance itself from the testimony of Nomura’s CEO, Penner, by asserting that he “never testified that any advice given by Cadwalader caused him to” understand that all of the loans Nomura originated complied with REMIC. Def. Res. Br. at 62 (emphasis in original). Cadwalader also asks that Penner’s testimony be disregarded because he was not responsible for determining whether any of the loans met the 80% Test and, at the time of the D5 Securitization, would not have been involved in discussion regarding REMIC issues.” Id. Cadwalader’s contentions, at best, go to the weight, not the admissibility, of Penner’s testimony, which is an issue for a jury. It is undisputed that in 1993, Nomura, led by Penner, retained Cadwalader (the purportedly preeminent securitization law firm) to help Nomura set up its CMBS program and advise it with respect to all of the legal aspects of securitization, including the REMIC requirements. Cadwalader contends that it advised Nomura with respect to 34 309564.1 REMIC at the beginning of the relationship and in connection with the many securitizations that preceded the D5 Securitization, rather than in 1997 at the time of the D5 Securitization. See, e.g., RA1912 (Adelman 133:8-18); RA1915 (Adelman 142:6-143:4); RA1923-24 (Adelman 185:22-187:12); RA1947-48 (Glick 47:19-50:2). Cadwalader should not be allowed to have it both ways. To the extent that it contends that the REMIC advice it provided Nomura in 1993 and 1994 was sufficient in terms of the D5 Securitization, the fact that Nomura’s CEO was not directly involved in any such communications at the time of the D5 Securitization is irrelevant. At the very least, the jury should be allowed to decide if the source of Penner’s understanding – be it from Cadwalader directly, or from Gershon, or others advised by Cadwalader – was ultimately Cadwalader. Further, Penner had the same misunderstanding with regard to the application of the 80% Test as did all of Nomura’s other employees. He too did not “know” that the “total value of the appraisal for a mortgage property” (i.e., the bottom-line number) “could not be used for REMIC purposes.” RA1617 (¶ 6). Penner also understood that compliance with the REMIC guidelines and with the 80% Representation in particular, was Cadwalader’s responsibility: “We paid our outside law firm [Cadwalader] a tremendous amount of money” to ensure that Nomura was “compliant with the REMIC guidelines on every one of our deals.” RA1645 (Penner 92:9-93:3); RA1650 (Penner 113:18-21). 35 309564.1 Cadwalader’s claims, as the trial court noted, “are relevant factors for weighing the importance of [Penner’s] testimony, but such an exercise is within the province of the jury, not a court determining a summary judgment motion.” RA21. b. Nomura’s General Counsel, Funt. Cadwalader asks the Court to ignore the General Counsel’s plain and unambiguous testimony that he understood, based on advice from Glick when he joined Nomura, that “every” loan would satisfy the 80% Test so long as Nomura originated loans with LTVs below 125%. See also RA1262 (Funt 103:8-104:15); RA1294 (Funt 294:3-21) (“[T]he 80 percent test is really a 125 percent loan to value. We never originated a loan, or certainly never intended to originate a loan anywhere near that number”) (emphasis added); RA1287 (Funt 202:11-204:5); RA1300-01 (Funt 367:5-369:12). The testimony to which Cadwalader cites – that General Counsel understood the 80% Test and the REMIC advice was only “general” advice (See Def. Res. Br. at 62-63) – must be weighed against his earlier testimony that “every” loan would be REMIC-eligible.17 At best, Cadwalader’s citations demonstrate inconsistencies requiring a determination by a jury. 17 Cadwalader cites to the following leading question and answer that its counsel elicited: Q. And, you 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, right? MR. CHERNOV: Objection. 36 309564.1 c. Marincas, direct report to Gershon. Cadwalader concedes that Marincas “believed” that compliance with Nomura’s internal origination guidelines “gave [Nomura] comfort” that “REMIC- eligibility would exist,” but argues that her belief is not “tantamount to an assertion that Cadwalader advised Nomura that compliance with those guidelines was synonymous with REMIC-eligibility.” Def. Res. Br. at 63 (emphasis in original). In so arguing, Cadwalader ignores Marincas’s actual deposition testimony. She testified that she understood that by complying with its internal origination guidelines, Nomura would always satisfy the 80% Test: “All of [the] loans were originated to have LTVs lower than 80 percent. So we were never up against the 125.” RA1542 (Marincas 46:24-47:22) (emphasis added). She too, just like Nomura’s other employees, did not know that “under the REMIC guidelines in the principally secured by real estate test that 80 percent of the appraised value need[ed] to be for real estate.” RA1546 (Marincas 63:24-64:4). Marincas also understood that Cadwalader, not Nomura, was responsible for A. Correct. A-1386-87 (Funt 249:21-250:2); see also Def. Res. Br. at 63. Cadwalader fails to cite, much less address, the testimony of Nomura’s General Counsel where he explained that he was unaware that (i) the appraised values of certain properties included components that did not constitute real property, and (ii) only real property could be considered in determining the 80% Test. See Br. at 20; RA1285 (Funt 188:25-189:13); RA1287 (Funt 204:6-15); RA1287 (Funt 205:6-13) (unaware that 80 percent of the appraised value needed to be for REMIC real property); RA1288 (Funt 206:12-208:2). 37 309564.1 seeing that the loans met the REMIC requirements and that Nomura made its REMIC-related representations based on that understanding, testifying that: “We would disclose to [Adelman] everything that was going into the REMIC trust to – he had to issue a REMIC opinion[] that the assets qualified. So, you know, whatever [Adelman] asked us for, we would get to him so he could give his opinion.” RA1541 (Marincas 44:17-21). Marincas further explained Nomura’s understanding of the division of responsibility between Nomura and Cadwalader testifying as follows: I think -- you’re sort of putting two concepts together. The banking team would be responsible for assessing the loan-to-value from a credit underwriting perspective. I don’t know if members of the banking team would have any idea what REMIC eligibility was. They weren’t -- you know, they probably knew that loans went into a REMIC, but I’m sure they never read the REMIC statute or anything like that. So to say that they had responsibility for making sure the loans met REMIC standards, no, they didn’t have responsibility for making sure the loans met REMIC standards. They had responsibility for making sure the loans met Nomura’s LTV requirements, which were property specific. You know, certain types of property could have LTVs of 80 percent, other types had to have 75 percent. If they were big loans, they needed to be lower LTVs because we were going to try to get investment-grade treatment for them. So the 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. RA1543 (Marincas 51:12-52:14) (emphasis added). 38 309564.1 Yet, Cadwalader argues that it fully advised Nomura regarding REMIC, citing to the testimony of Marincas that: “We just had, you know, constant conversations with [Adelman] on a variety of structures [related to REMICS].” Def. Res. Br. at 63 (citing RA1541 (Marincas 44:6-7)). Significantly, that sentence, and the related testimony, makes no mention of the 80% Test. It only references bonds, “fast pays,” and restrictions on modifications of loans. Id. (Marincas 43:23-44:21). Nomura does not dispute that Adelman had many conversations with Nomura about the REMIC regulations. What is very much in dispute is whether those conversations involved the 80% Test and what was said with respect thereto. That is a question for the jury. Finally, Cadwalader cites to the affidavit of Marincas – which was executed in 2011, seven years after she gave her Federal Action testimony, over ten years after the D5 Securitization closed, and which Nomura has moved to strike. See supra p. 13 n.6. Marincas’s averments in that affidavit are wholly inconsistent with her 2003 testimony.18 Accordingly, even if the Court were to consider her 18 For example, in the affidavit, Marincas stated that she was aware that “a loan had to be principally secured by real property (i.e., meet the so-called 80% test) ….” Def. Res. Br. at 63. Yet, in her 2003 Federal Action deposition, Marincas testified that she was unaware that “80% of the appraised value need[ed] to be for real [property] ….” RA1546 (Marincas 63:23-64:4). Additionally, in her affidavit, Marincas avers that “Nomura, not Cadwalader was responsible for determining whether each loan to be included in a REMIC trust was secured by 80% real property.” A-1814 (Marincas ¶ 4); see also id. (Marincas ¶ 3) (“it was not Cadwalader’s job to identify whether any loans were not secured by 80% real property”). At her 2003 deposition, however, she testified as follows: 39 309564.1 affidavit, the inconsistencies between that and her 2003 Federal Action testimony create issues of fact that should be heard by a jury. See, e.g., Hale v. Meadowood Farms of Cazenovia, LLC, 104 A.D.3d 1330, 1332 (4th Dep’t 2013) (summary judgment in favor of defendants reversed because inconsistencies between defendants’ prior deposition testimony and their affidavits in support of summary judgment presented “credibility issues that must be resolved at trial”); Williams v. New York City Housing Auth., 99 A.D.3d 613, 555-56 (1st Dep’t 2012) (reversing summary judgment in favor of defendant where affidavit of defendant’s supervisor of caretakers was inconsistent with his testimony and, therefore, defendant failed to “tender sufficient evidence to eliminate any material issues of fact from the case”). Q. Who did the due diligence in underwriting to ensure that each of the loans was REMIC qualified: Nomura or Cadwalader? A. I would – I mean, REMIC qualified would be a legal – legal consideration. I don’t think anybody at Nomura thought they were qualified to give you know – we relied on Cadwalader to give a tax opinion that the assets were REMIC qualified. That’s why we had counsel to do that. Q. So the answer is Cadwalader? A. Yeah. RA1542 (Marincas 45:11-23); see also RA1543 (Marincas 52:13-14) (“Cadwalader would make sure that that we were meeting REMIC requirements.”); RA1542 (Marincas 47:12-16) (“All of those loans were originated to have LTVs lower than 80 percent. So we were never up against the 125. And the principally secured by real estate, that’s what we made: Loans on real estate.”). 40 309564.1 d. Tokarski, direct report to Gershon. Cadwalader similarly seeks to remove itself as the source of Tokarski’s understanding of the 80% Test, contending that “Cadwalader would not have had reason or occasion to advise Tokarski personally on the proper application of the 80% Test” because “he was not personally involved in REMIC determinations.” Def. Res. Br. at 64. As an initial matter, it is Nomura’s position that Cadwalader was responsible – not Nomura and not Tokarski – for making sure that the DHL satisfied the 80% Test. See Br. at 22-23, 84-86. Moreover, Cadwalader ignores the fact that Tokarski was part of the same securitization group as Gershon and Marincas (who Cadwalader contends it did advise) and had the same misunderstanding with regard to the 80% Test that they did. See Br. at 14-17. In light of Cadwalader’s claim that it both set up Nomura’s securitization practice and explained the 80% Test often, that Tokarski (a member of the securitization group) and others failed to understand that Test is evidence that Cadwalader’s explanations were not sufficient. Cadwalader also ignores that Tokarski was responsible for summarizing the information in the Asset Summaries and producing Annex A to the Prospectus Supplement, the very document Adelman claims that he reviewed for purposes of ensuring that each loan satisfied the 80% Test. RA812 (Tokarski 220:24-221:3); RA957-63 (Adelman 126:17-151:15). In connection with preparing that Annex, 41 309564.1 Tokarski testified that he was asked if the “80 percent number work[s] or not,” and he responded that it did, based on his understanding that it was appropriate to use the appraisals’ bottom-line numbers. See RA812 (219:8-221:3). Thus, to the extent Cadwalader was relying on Tokarski’s work product, there is a triable inference that Cadwalader knew what Tokarski was providing. E. The Securitization Documents Fail To Establish That Cadwalader Advised Nomura Or That Nomura Was Aware Of Such Advice Cadwalader attempts to substitute form documents for advice, asserting that certain securitization and loan origination documents “demonstrate that Nomura was advised and aware of the REMIC real property collateral rules ….” Def. Res. Br. at 64. Specifically, Cadwalader points to (i) the 80% Representation, (ii) the “Federal Income Tax Consequences” section from Nomura’s “D-Series” Prospectuses, and (iii) the DHL commitment letter. See id. at 64-66. As the trial court determined, “[n]one of this evidence, however, established, as a matter of law, that Cadwalader properly advised its client about the REMIC rules.” RA22. The language in these documents – drafted by Cadwalader – does not demonstrate Nomura’s grasp of the REMIC Regulations. The simple awareness that a test exists does not constitute advice of counsel with respect to how to apply it. See Bishop v. Maurer, 9 N.Y.3d 910, 911 (2007) (underlying agreement does not preclude a legal malpractice action “for negligently giving to a client an 42 309564.1 incorrect explanation of the contents of a legal document”); Arnav Indus., Inc. Trust v. Brown, Raysman, Millstein, Felder & Steiner, L.L.P., 96 N.Y.2d 300, 305 (2001); Kram Knarf, LLC v. Djonovic, 74 A.D.3d 628, 628 (1st Dep’t 2010) (motion to dismiss denied where “documents do not conclusively establish that defendants’ explanation was correct”); Pappas v. New 19 West, LLC, No. 118980/06, 2009 WL 221932, at *4 (Sup. Ct. N.Y. Cnty. Jan. 22, 2009). As explained in Escape Airports (USA), Inc. v. Kent, Beatty & Gordon, LLP, 79 A.D.3d 437, 439 (1st Dep’t 2010): The fact that plaintiff signed, and is thus bound by, the terms of this agreement does not preclude an action for malpractice against the attorney who assisted in drafting it. Plaintiff alleges that it retained defendant for the express purpose of providing advice with respect to standard terms and conditions …. It further alleges that defendant agreed to undertake this task, and did provide plaintiff with very specific comments regarding the standard terms and conditions, but failed to highlight or comment on the termination provision. It is axiomatic that counsel “may not shift to the client the legal responsibility it was specifically hired to undertake because of its superior knowledge” (Hart v. Carro, Spanbock, Kaster & Cuiffo, 211 A.D.2d 617, 619 … [1995]). Thus, a fact issue is presented as to whether defendant was negligent in the performance of duties within its area of expertise, and for which expertise it was retained. Here, the D-Series Prospectuses state that “[a] qualified mortgage is any obligation that is principally secured by an interest in real property” and that “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 43 309564.1 Mortgage Loan ….” RA145 (emphasis added). Nothing in that provision explains how to make REMIC determinations using the appraisals, what is to be excluded when determining what constitutes “real property security,” that the income approach to value might include more than “buildings and structural components,” or any of the issues posed when the collateral property is a going concern. The disclosure in these documents was nothing more than a recitation of the basic REMIC rules without explanation. Cadwalader also insists that the 80% Representation, which tracks the language of the REMIC Regulation, establishes that Cadwalader gave the requisite REMIC advice. See Def. Res. Br. at 64. This representation fails to establish that Cadwalader ever advised Nomura as to what constitutes REMIC-eligible real property, that Nomura could not simply rely on an appraisal’s bottom-line value number to determine REMIC eligibility, that Nomura could not rely on an appraisal’s income capitalization approach to value REMIC-eligible property, that Nomura should seek tax advice when dealing with a specialty property like an acute care hospital, and that Nomura could not use the total value of the mortgaged property rather than the REMIC-eligible real property. Far from providing such advice, the 80% Representation, as both Adelman and Gershon conceded, “create[d] confusion among industry participants accustomed to measuring loans 44 309564.1 by their LTVs.” RA449 (n.2); see also RA1310 (Gershon 87:7-16); RA1349-50 (Gershon 41:5-42:2). Cadwalader also points to the DHL commitment letter which provided that the DHL will not exceed the lesser of $50M or 125% of the REMIC value of the property. See Def. Res. Br. at 66 n.21. Again, this document does not even support the inference – much less establish as a matter of law – that Nomura understood how to apply the 80% Test. Rather, Nomura understood that where the appraised value was $68 million, it satisfied both the commitment letter and REMIC requirement, if the loan was less than $85 million. Accordingly, as the trial court concluded, none of this “documentary evidence [is] conclusive regarding how to read appraisals for REMIC eligibility and there is evidence that members of Nomura’s banking and securitization teams did not understand the meaning of the 80% [Representation], at least as it applied to a going concern such as a hospital.” RA22-23. F. The First Department Failed To Consider The Testimony Of Nomura’s REMIC Expert That Cadwalader’s Advice Was Insufficient The First Department failed to address the evidence offered by Nomura’s REMIC expert, Biafore, when it determined that there were no triable issues of fact. Biafore opined that, even assuming Cadwalader advised Nomura to use a “sticks and bricks” rule of thumb, such advice was insufficient when dealing with a 45 309564.1 non-traditional loan such as the DHL. See Br. at 60-61; RA1010 (Biafore ¶¶ 6-7). Biafore also opined that customary practice for REMIC tax lawyers required advising the client, when dealing with that type of loan, to request the assistance of tax counsel. See Br. at 60-61; RA1010 (Biafore ¶¶ 5). Cadwalader responds that Adelman was “highly qualified to advise Nomura on all REMIC-related tax issues,” as “a contributor to a treatise on CMBS to which Nomura has repeatedly cited.” Def. Resp. Br. at 45. Adelman’s credentials, however, are not at issue. What is at issue is the advice that Adelman provided Nomura and, particularly, why he did not give Nomura, inter alia, the advice in that treatise or the Cadwalader in-house memorandum he drafted that incorporated that advice. See Br. at 108-10; infra p. 9 n.4. Cadwalader argues that “Nomura has not identified any respect in which some other ‘specialized tax counsel’ would have given advice different from the advice Adelman gave.” Def. Resp. Br. at 45. Yet, that is exactly what Nomura has done. Nomura has offered the expert testimony of Biafore, a tax lawyer who specializes in advising clients with respect to REMIC-related issues, including the 80% Test. Drawing on that expertise, Biafore opined that: When dealing with a loan such as the DHL, “[t]elling [Nomura] that only ‘real property’ counted for REMIC purposes was insufficient legal advice” (RA1013 (Biafore ¶ 13)); 46 309564.1 When dealing with a loan such as the DHL, Adelman should have advised Nomura that he needed to “independently review[] the valuation of the components of the collateral in order to determine what portion of the value was attributable to ‘real property’ for purposes of the REMIC Rules, a task for which Mr. Adelman testified he has particular expertise” (id.); When dealing with a loan such as the DHL, “[a]dvising a client that only real property counts towards the 80% Test … is satisfied, by itself, is insufficient” (RA1010 (Biafore ¶ 7)); Cadwalader was required but failed to advise Nomura “that it could not simply accept the concluded value of the Doctors Hospital appraisal to determine the value of the real property [sic] for purposes of the REMIC Rules (RA1012-13 (Biafore ¶ 12)); and In “garden-variety” financings, a client may be able to determine if a property satisfied the 80% Test, “but not where the property has a value attributable to an operating business conducted on the real property and surely not here” (RA1041).19 Finally, Cadwalader contends that “Nomura has not identified any respect in which valuation of acute care hospitals is qualitatively different from valuation of properties such as nursing homes, with which Nomura undisputedly had experience.” Def. Res. Br. at 45-46. The fact that Nomura had limited experience originating loans involving nursing homes and/or was never sued with respect to such loans cannot be construed to mean, as a matter of law, that Cadwalader properly advised Nomura concerning those loans and the 80% Test. Rather, as 19 In addition, Cadwalader’s own expert, Rodgers, testified with regard to the different REMIC advice his counsel provided him when he was head of securitization for Merrill Lynch, i.e., use the cost approach as opposed to the income approach to valuation for purposes of the 80% Test. See Br. at 98. 47 309564.1 Nomura intends to demonstrate at trial, it only means that Nomura was fortuitous and that those loans never defaulted.20 Accordingly, the First Department erred in finding that Glick advised Nomura to use a sticks and bricks rule of thumb, in discounting the testimony of Nomura’s former employees that they were advised to use a different rule of thumb, ignoring the testimony of Nomura’s REMIC expert that Cadwalader’s REMIC advice was insufficient, and in resolving issues of credibility and bias that are the province of the jury. POINT II CADWALADER’S FAILURE TO CONDUCT THE REQUISITE DUE DILIGENCE PRESENTS AN ISSUE OF FACT FOR THE JURY The First Department refused to dismiss Nomura’s Due Diligence Claim, concluding that an issue of fact is presented as to whether so-called red flags existed requiring Cadwalader to have performed greater due diligence. In its initial brief, Nomura submitted arguments in response to Cadwalader’s arguments for dismissal of its Due Diligence Claim as framed by the First Department. See Br. at 103-115. In order to provide needed guidance to the trial court on remand, Nomura also requested that this Court clarify that Nomura’s Due Diligence Claim 20 In his expert reports and affidavit, Biafore explained at length why a loan such as the DHL was different from more traditional loans and, thus, required the attention of specialized tax counsel. See RA1009-1013; RA1022-1028; RA1040-1047. 48 309564.1 is not limited to only whether Cadwalader ignored red flags. See Br. at 62-63. This reply point is submitted solely to address Cadwalader’s arguments about the Due Diligence Claim extending beyond the red flags issue.21 In its initial Brief, Nomura described the evidence offered by its experts, Field and Biafore, establishing that Cadwalader deviated from the applicable standard of care by (i) failing to perform independent due diligence when opining on the REMIC-eligibility of a specialty loan, such as the DHL; (ii) relying on Nomura’s REMIC Representations without ensuring that the person responsible for making the REMIC determinations understood the intricacies of the 80% Test; and (iii) relying on Nomura’s REMIC Representations, which were tantamount to the legal conclusion that was the subject of Cadwalader’s legal opinion. See Br. at 62- 76. Cadwalader has failed to establish that the jury should be precluded from 21 In affirming the denial of Cadwalader’s summary judgment motion with respect to Nomura’s Due Diligence Claim, the First Department first determined that Cadwalader did not need to review the appraisal for each loan. See A-19.a-A-20.a. It then focused on the question of whether Cadwalader ignored red flags, in particular the Deal Highlights document, which should have caused Cadwalader to undertake independent due diligence concerning the REMIC- qualification of the DHL. See A-22.a-A-29.a. Nomura maintains that its Due Diligence Claim is broader than that and has affirmatively asked this Court to clarify that issues of fact exist concerning the standard of care applicable to the REMIC Opinion and Cadwalader’s deviation from that standard as set forth in Nomura’s initial Brief. See Br. at 76-103. This clarification is important because it will provide the guidance the trial court will need in assessing the relevance of testimony and in framing factual questions for the jury to determine. Cadwalader did not address the applicable standard of care or its deviation therefrom in its opening brief. Accordingly, Nomura addresses Cadwalader’s arguments here. With respect to the questions Cadwalader affirmatively put before the Court concerning Nomura’s Due Diligence Claim (whether the Deal Highlights document was a red flag and whether Cadwalader dealt with it appropriately), Nomura respectfully refers the Court to its opening Brief. See Br. at 103-115. 49 309564.1 considering these failures. Instead, Cadwalader argues repeatedly that it should be excused from any duty concerning the DHL because it (i) properly advised Nomura of the REMIC Regulations and, therefore, could rely exclusively on Nomura’s REMIC Representations when it issued its REMIC Opinion; and (ii) was instructed by Nomura not to review the appraisals for the properties securing the loans in the D5 Securitization. For all the reasons covered in its initial brief before this Court, Nomura disputes both contentions. Regardless of whether Cadwalader’s REMIC advice was appropriate or not, Cadwalader could not rely on Nomura’s REMIC Representations without knowing how the particular person(s) responsible for ensuring that each loan satisfied the 80% Test went about making those determinations, particularly in light of Cadwalader’s knowledge that Nomura was obtaining credit appraisals. See Br. at 69-74. Insofar as Nomura’s purported instruction to Cadwalader not to review appraisals is concerned, Nomura disputes that it issued that instruction to Cadwalader. Moreover, there is no evidence in the record that Cadwalader ever advised Nomura that, by reason of such an instruction, Cadwalader was absolved of any responsibility to review the REMIC values, including that of the DHL.22 22 Even assuming such proof existed, Cadwalader has failed to come forward with any evidence that it advised Nomura of the risks inherent in limiting Cadwalader’s due diligence, as New 50 309564.1 See Br. at 77-80. However, even if this sharply disputed assertion were true, Cadwalader still breached its independent duty to ensure that the DHL was supported by adequate REMIC value for the reasons described by Field and Biafore. Cadwalader first argues that the Field opinion should be disregarded because Field is not a qualified expert in the REMIC area. Field indisputably is an expert in the area of third-party closing opinions. He will testify that Cadwalader’s First Opinion Letter, which incorporated the REMIC Opinion, is a third-party closing opinion subject to customary third-party closing opinion practices. See Br. at 27, 62, 64-65. In opposition, Cadwalader’s experts opine that the REMIC Opinion is not a third-party closing opinion and is, therefore, subject to a standard of care specific to the issuance of REMIC Opinions. Pursuant to that standard of care, York’s ethics rules require. See New York State Bar Ass’n Comm. On Prof’l Ethics, Opinion No. 604 (Nov. 14, 1989) (a lawyer may limit the scope of the services as long as the lawyer makes full disclosure of the effects of such limitation); see also Fed. Deposit Ins. Corp. v. O’Melveny & Myers, 969 F.2d 744, 749 (9th Cir. 1992) (“Part and parcel of effectively protecting a client, and thus discharging the attorney’s duty of care, is to protect the client from the liability which may flow from promulgating a false or misleading offering to investors .... The Firm had a duty to guide [plaintiff] as to its obligations and to protect it against liability. In its high specialty field, [plaintiff] owed a duty of due care not only to the investors, but also to its client”), aff’d in relevant part and remanded, 512 U.S. 79 (1994); Rupert v. Gates & Adams, P.C., 83 A.D.3d 1393, 1397 (4th Dep’t 2011) (“[a]n attorney has the responsibility to investigate and prepare every phase of his … client’s case.”) (internal citations omitted); Grossman & Schole LLP v. APF Grp., Inc., 26 Misc.3d 1029(A), 907 N.Y.S.2d 100, at *2 (Sup. Ct. N.Y. Cnty. Nov. 17, 2009) (denying summary judgment where limitation on firm’s engagement was unsupported by written evidence); Unger v. Horowitz, 8 A.D.3d 62, 63 (1st Dep’t 2004) (“To the extent that the … defendants assert their role was limited to that of consultant or ‘of counsel,’ it was incumbent upon them to ensure that plaintiff understood the limits of their representation.”). 51 309564.1 counsel need not perform any independent due diligence, unless red flags are present. It is well settled that the applicable standard of care creates an issue of fact for the jury to determine. See, e.g., Food Pageant, Inc. v. Consol. Edison Co., Inc., 54 N.Y.2d 167, 172 (1981); Melendez v. Dorville, 93 A.D.3d 528 (1st Dep’t 2012). Here, it is indisputable that Field is well qualified to opine on legal opinion letters, the REMIC Opinion was included as paragraph 5 of the First Opinion Letter, and the First Opinion Letter is a third-party closing opinion by reason of the Reliance Letter. See Br. at 27; see also RA1087; RA1097. A jury should be allowed to hear Field’s opinion with respect to the standards applicable to the REMIC Opinion contained in the First Opinion Letter and determine the weight to accord it. “[I]t is settled that a[n expert] need not be a specialist in a particular field if he otherwise possesses the requisite knowledge to make a determination on the issues presented …, and that the weight to be attached to an expert’s opinion is a matter for the jury.” Forte v. Weiner, 200 A.D.2d 421, 422 (1st Dep’t 1994) (internal citations omitted).23 23 See also, e.g., OCG Ltd. P’ship v. Bd. of Assessment Review of the Town of Owego, 79 A.D.3d 1224, 1226 (3d Dep’t 2010) (finding that accredited business accountant who appraised property was a qualified expert noting that “expert witnesses who are not real estate appraisers are not categorically excluded from offering their opinion on property valuations”). 52 309564.1 At the very least, the trial court should make the determination at trial about the admissibility of Field’s testimony. As this Court stated: “Whether or not expert testimony is admissible on a particular point is a mixed question of law and fact addressed primarily to the discretion of the trial court.” Selkowitz v. County of Nassau, 45 N.Y.2d 97, 101-02 (1978); see also Dufel v. Green, 84 N.Y.2d 795, 798 (1995) (trial court properly allowed expert testimony because “[t]he test is one of need as applied to the unique circumstances of each case”). Cadwalader next argues that Field’s conclusions should be disregarded because they apply to opinion letters addressed to third-parties, not to clients who have limited the scope of the representation. As Nomura discussed in its initial brief, it sharply disputes the contention that it issued instructions to Cadwalader that would absolve Cadwalader of the obligation to review the DHL value. See Br. at 77-80. Whether the claimed instructions were issued, and whether these instructions absolve Cadwalader of any culpability for clear errors in its opinion letter, present issues of fact for the jury to determine. In any event, it is undisputed that Nomura retained Cadwalader to issue the REMIC Opinion to third-parties by virtue of the Reliance Letter. See Br. at 27; see also RA272(¶ 5); RA1904. As a result it owed both Nomura and the third-parties a duty of competence which, Nomura contends, it failed to meet as was made plain when Nomura was sued by 53 309564.1 the D5 Trustee in the Federal Action. See RA1407-13; RA1448-50; see also RA33; A-29.a n.7. As Nomura’s expert, Bruce A. Green opined, a law firm owes a duty to its client to perform its work with competence. See RA1411-13 (Green ¶¶ 13-18). Accordingly, when a client asks a lawyer to provide a legal opinion to a party to a transaction in which the lawyer represents the client, the lawyer does not implicitly, and cannot explicitly, absolve himself of the ordinary duty to the client to perform his work competently. See RA1411 (Green ¶ 15); RA1413 (Green ¶ 18); RA1449 (Green ¶ 4) (“Whether as a matter of ethics or as a matter of tort, agency or contract law, Cadwalader assumed a duty to Nomura to perform all of its work competently – that is, using ordinary skill and care – and Nomura was entitled to rely on Cadwalader to do so.”). Similarly, Cadwalader’s legal opinion expert, Donald W. Glazer, states in his book that a lawyer owes a duty of competence, or diligent representation, to a client: Lawyers are not supposed to be independent of their clients but are expected to further their clients’ interests by providing diligent representation. Delivery of a closing opinion is part of that representation. See RA453; see also RA1391 (Glazer 97:23-98:10) (“a lawyer has a duty of competence as a general matter”). 54 309564.1 Cadwalader also fails to directly address Field’s opinion that before it could rely on Nomura’s REMIC Representations and issue its REMIC Opinion, it had to know who from Nomura was responsible for determining that each of the loans satisfied the 80% Test, when that person was making those determinations, and how that person was making those determinations with Nomura’s credit based appraisals. See Br. at 93-94; see also RA1237 (Field opining that “Cadwalader could still not rely on [Nomura’s representations] unless it took ordinary action required by customary practice to assure that Nomura understood the representations that Cadwalader had drafted for it to sign.”). Adelman, the Cadwalader partner responsible for issuing the REMIC Opinion, conceded that he could not answer any of the foregoing questions. See id. Thus, even if Cadwalader fully and properly advised Gershon and Marincas as it claims, Cadwalader still failed to comply with customary industry practice applicable to third-party closing opinions for the simple reason that there is no evidence that Gershon and/or Marincas were the individuals making REMIC determinations at Nomura. See id. Of course, the foregoing presumes that Cadwalader provided full and sufficient advice to Gershon and/or Marincas. As Nomura demonstrated in its initial Brief and above, the extent of the advice that Cadwalader gave to Nomura 55 309564.1 about the 80% Test is sharply in dispute, and presents a clear issue of fact. See Br. at 37-61; supra pp. 4-47. In addition, a jury should be allowed to consider Field’s opinion, which Cadwalader has not disputed, that a lawyer cannot rely on a factual statement of its client when that statement is legal in nature. See Br. at 65-68. As Cadwalader’s own opinion expert recognized in a treatise: “Lawyers are not entitled to rely on factual information (even if provided by an appropriate source) if the information is tantamount to the legal conclusion being expressed.” RA469; see also Br. at 65- 68. As Field explained, if “there is reliance on such a representation, the result is a legal opinion, the legal diligence for which was not provided by a lawyer.” RA1237; see also Br. at 68. Cadwalader asserts in opposition that its REMIC Representations were not legal in nature because “[r]eal estate valuation presents factual questions.” Def. Res. Br. at 44. However, as Biafore explained – and Adelman and Cadwalader’s expert, Peaslee, apparently conceded – the question of what constitutes REMIC-eligible “real property” for an acute care hospital is a complex legal question requiring legal expertise. See RA1022-27; RA1039-46; RA1588-89 (Peaslee ¶ 153) (“at the margins … determining whether the 80% Test has been met may require technical knowledge ....”); RA954 (Adelman 115:12-17) (“in my experience, tax counsel on securitization matters regularly relies upon the factual representation, in this case, 56 309564.1 the factual representation amounting to a legal representation that the loan is a qualified mortgage ….”) (emphasis added). If that were not the case, the government would not need to issue REMIC-related regulations and private letter rulings. See Br. at 67.24 Cadwalader’s efforts to marginalize the Biafore opinion that at attorney must take special care to ensure REMIC value when dealing with an acute care hospital are wholly unpersuasive. Cadwalader asserts that Adelman was a highly qualified specialized tax counsel and claims that Nomura has not identified how different tax counsel would have given different advice. See Def. Res. Br. at 45. Cadwalader also asserts that Nomura has not identified how acute care hospitals are different from nursing homes, with which Nomura purportedly had experience. See Def. Res. Br. at 45-46. Biafore, an undisputed REMIC expert, did just that. He testified that Adelman was obligated to advise Nomura to refer all loans such as the DHL to him for purposes of the 80% Test. See Br. at 66-68, 108-10, and 118-20. Even the most sophisticated clients simply do not have the experience and expertise, 24 Cadwalader’s efforts to distinguish Weiss v. SEC, 468 F.3d 849, 856 (D.C. Cir. 2006), fail. The Weiss court held that where a lawyer drafts the representations upon which he ultimately relies, the representations cannot be “wholly conclusory.” Id. Here, therefore, the REMIC Representations Cadwalader drafted should have articulated the facts necessary for Cadwalader to conclude that the mortgage loans in the D5 Securitization were REMIC-qualified as a matter of law. They did not. 57 309564.1 including knowledge of the Treasury Department’s private letter rulings, to accurately determine what the IRS will deem to be “real property” in such complex situations. See id. Accordingly, when dealing with a loan such as the DHL, it is the lawyer’s obligation to do independent diligence to ascertain the real property values regardless of the REMIC advice the client may have been given or any limiting instructions the client may have placed on the engagement. See id. at 62- 76. It is respectfully submitted that the order of the Appellate Division, affirming the denial of Cadwalader’s motion to dismiss Nomura’s Due Diligence Claim, should be affirmed. It also is respectfully requested that this Court clarify in its opinion, for the benefit of the trial court on remand, that the Due Diligence Claim is broader than the question of whether Cadwalader deviated from the applicable standard of care by ignoring red flags associated with the DHL. Triable issues of fact also exist concerning the applicable standard of care identified by Field and Biafore and Cadwalader’s deviations from it. POINT III ISSUES OF FACT EXIST WITH RESPECT TO PROXIMATE CAUSE In its Brief, Nomura demonstrated that the record contains substantial evidence that Cadwalader’s negligence proximately caused Nomura’s damages. See Br. at 115-137. Nomura also demonstrated that (i) proximate cause presents a 58 309564.1 question for the jury, (ii) Cadwalader failed to demonstrate that its REMIC Opinion was correct, (iii) Cadwalader’s efforts to assert a breach of Representation 24 were properly rejected by the District Court, and (iv) Nomura would have disposed of the DHL by no later than March 1998. See id. Cadwalader now contends for the first time before this Court in its responding brief that its REMIC Opinion was correct, because the Appraisal Supplement, issued after the Trustee demanded that Nomura repurchase the DHL, shows adequate REMIC value. See Def. Res. Br. at 74-78. Even taking the Appraisal Supplement into account, each of the courts that has reviewed this matter has found that the REMIC-eligibility of the DHL presents issues of fact.25 The First Department rejected the argument Cadwalader here advances, stating: Cadwalader argues that Nomura cannot establish proximate cause because the Doctors Hospital Loan was in fact REMIC-qualified. Cadwalader contends that the loan was secured by the requisite 80% REMIC real property, and that Nomura made formal judicial admissions of that alleged fact in the federal action. These contentions lack merit. In the appraisal obtained before the securitization closed, the only readily apparent REMIC real property amounts to only $30,960,000, which is plainly less than the required $40,000,000. Although a subsequent appraisal obtained after the deal closed indicates that the loan was REMIC-qualified, that merely presents a question of fact for a jury. 25 The District Court “did not specifically determine whether the [DHL] was eighty percent secured. Instead, it found that [Nomura] ‘reasonably believed’ that the mortgage was so secured based on their own review of the loan and their ‘good faith reliance on the advice of [Cadwalader].’” LaSalle Bank Nat’l Ass’n v. v. Nomura Asset Capital Corp., 424 F.3d 195, 204 (2d Cir. 2005). That rational was rejected by the Second Circuit. See id. at 210. 59 309564.1 A-29.a-30.a. The trial court and the Second Circuit in the Federal Action likewise concluded that issues of fact existed with respect to whether the DHL was actually REMIC-qualified. See A-29.a-31.a; RA36, RA38. On this basis alone, Cadwalader’s motion should be rejected. Cadwalader contends that the Appraisal Supplement showed that the DHL contained $45 million in real property. See Def. Res. Br. at 75. As Biafore has opined, however, it was still incumbent upon Cadwalader, as REMIC counsel, to make a determination that the property valued in the Appraisal Supplement in fact constituted REMIC real property. See RA1042 (Biafore opining that “the Treasury Regulations provide at Section 1.860G-2(a)(1) that in order for a loan to be ‘principally secured [by] an interest in real property’ the loan must actually meet the 80% Test; not simply be ‘evidenced’ by an appraisal (particularly one done three years after origination) that the 80% Test is satisfied.”) (emphasis in original). The Appraisal Supplement fails to establish, as a matter of law, that the DHL was actually REMIC qualified.26 26 It is revealing that Cadwalader’s three REMIC experts, Peaslee, Thomas J. Lyden, and Michael Weinberger, all refused to opine on the REMIC eligibility of the DHL. See RA1614 (Peaslee 81:11-18); RA1528 (Lyden 28:20-24); RA1881 (Weinberger 11:19-12:8). Cadwalader’s only expert willing to venture into this territory was Rodgers, a banker. Notwithstanding the Appraisal Supplement, which Cadwalader now contends on its face makes plain that the DHL contained $45 million of REMIC real property, Rodgers could not identify the value of the REMIC real property, claiming only that it was more than $40 million. At the same time, however, he claimed that it was inconceivable that the DHL could have been sold for 60 309564.1 In the summer of 2000, Nomura obtained the Appraisal Supplement at Cadwalader’s suggestion.27 Cadwalader suggested that the appraiser allocate some portion of the $27,400,000 attributed to intangibles in the Appraisal into two categories: “Value increase in building due to Certificate of Need” and “Stabilized Real Estate Contribution.” See RA187; RA993-94 (Adelman 356:15-362:12). Cadwalader also requested that the appraiser determine whether some of the equipment was in fact “fixtures.” See RA187; RA516; RA986 (Adelman 303:9- 304:24). In accordance with those requests, the appraiser allocated $4,820,000 of the $27,400,000 to the Certificate of Need and $5,300,000 to the stabilized value. See RA187. He also allocated $4,000,000 of the $9,640,000 in “Equipment” to “Fixtures.” Id. He made these allocations with no additional site visit, no inventory of equipment, no review of documents, and no conversations with any person occupying the building. See RA1072 (Dost 89:13-23); RA1082-83 (Dost 177:14-179:3); RA1079 (Dost 124:2-23, 125:9-16); RA1084 (Dost 368:6-22); RA1084-85 (Dost 369:18-370:9). The net result was that the $30,960,000 in “real anywhere near $45 million. He never explained this inconsistency. See RA1821-22 (Rodgers 225:7-226:10). 27 See RA515; RA986 (Adelman 302:2-23, 303:9-304:24); RA993-94 (Adelman 356:15- 362:12); RA998 (Adelman 377:6-15); RA1255 (Findlay 333:11-25, 335:7-20); RA1934-35 (Findlay 68:12-18, 71:11-25). 61 309564.1 property” value reflected in the 1997 Appraisal increased by more than 45% to $45,080,000. RA187. Relying on these new allocations, Cadwalader issued its Second Opinion Letter confirming the REMIC-qualification of the DHL. See RA186-88. But, as the Second Circuit, First Department, and the trial court have all determined, issues of fact continue to exist as to whether the DHL met the 80% Test.28 And, as Biafore opines, the courts were correct because the allocations fail to pass muster under the REMIC Regulations. See RA1042-46. A. The Certificate Of Need The appraiser allocated $4.8 million in intangible value to the Certificate of Need. In order, however, for the Certificate of Need to qualify as REMIC real property, it must be “inextricably linked” to the real property of the Doctors 28 Cadwalader attempts to avoid the Second Circuit’s ruling with respect to the REMIC- qualification of the DHL suggesting that its ruling was limited to the District Court’s “misinterpretation” of the QM and 80% Representations. Def. Res. Br. at 77 n.33. Cadwalader’s suggestion is disingenuous at best. The Second Circuit remanded the case for further proceedings in light of its opinion that “it is unclear … whether, at the time the loan was issued or included in the D5 Trust, it was secured by ‘real property’ the ‘fair market value’ of which was equal to at least 80% of the loan’s value’ for REMIC purposes. LaSalle Bank Nat’l Ass’n, 424 F.3d at 210. The Second Circuit further stated: [W]e cannot determine at this stage of the proceedings whether the loan satisfied the test for being “principally secured by an interest in real property,” and was therefore “qualified.” As with the eighty percent warranty, we think the question likely raises a “genuine issue of material fact” that is appropriately reserved for trial. Id. 62 309564.1 Hospital. RA1022-27. The Certificate of Need fails this test. See RA37; RA1044- 45. As the trial court found: Adelman’s testimony in the Federal Action regarding the Certificate of Need is both inconsistent and unpersuasive. On the one hand, he admitted that “a certificate of need, to the extent it’s a license or something granted by the state, is itself an item of personal property,” while at the same time he insisted that “the real property was more valuable because the certificate of need was in existence.” RA37-38 (citing RA996 (Adelman 369:14-370:16). Not only is there no proof that the Certificate of Need was anything other than a license, there was no proof that it existed, much less that it could be transferred with a sale of the Doctors Hospital real property. Accordingly, as Biafore explains: [I]t is … impossible to conclude that the Certificate of need is “inextricably linked” to the real property. Absent some unknown facts to the contrary, the Certificate of Need should be assumed to be an item of intangible property that is not inextricably linked to the real property making up the Hospital and should not, therefore, be included in the value [of] “real property” simply because the Revised Appraisal so concluded. RA1044-45. B. Stabilized Value The appraiser allocated $5.3 million of intangible value to Stabilized Real Estate Contribution. RA187. Stabilized value, however, “is arguably a substitute for the value of the business occupying the property,” which cannot be counted for REMIC purposes. RA1043. As Biafore explains: 63 309564.1 Here, the “stabilized” value of the Hospital is potentially based entirely on the value of the business that occupies the facility. Where a property is leased under an operating lease to a single business, particularly one that is so closely associated with the owner such as the Hospital, the concept of “stabilized value” blurs the distinction between real property and the value of an operating business, which is not a component that can be included in the value of the real property. Id. Accordingly, Biafore opined, “it is not possible to conclude that the ‘stabilized’ component of value is attributable to real property rather than to business value.” RA1044; see also RA450-51. C. Fixtures Finally, the appraiser determined that $4 million of the purported $9 million in equipment constituted REMIC structural components. See RA187. But, the appraiser never inventoried the equipment; he assumed that some portion of it constituted fixtures, even though the definition of fixtures is not the same under REMIC and local law (see RA1022-23); he assumed the equipment was owned, even though he knew it was leased; and he assumed the costs for the equipment. See RA278; RA1072 (Dost 89:13-23); RA1079 (Dost 124:2-125:16); RA1082-83 (Dost 177:14-179:3); RA1084-85 (Dost 368:18-370:9); see also RA38 (trial court noting that the appraiser could only identify two examples of fixtures, “assumed” property was owned when it was leased, and included items of non-REMIC property in his valuation). Based on the foregoing, Biafore opined that “it is not 64 309564.1 possible to conclude that any portion of the $4,000,000 allocated to Fixtures can be included in the calculations by the 80% Test.” RA1046. In an effort to avoid the foregoing analysis, Cadwalader argues that Biafore “merely critiqued (without proper qualification) the Valuation Counselors Appraisal Supplement.” Def. Res. Br. at 76. Cadwalader could not be more mistaken. Biafore’s curriculum vitae demonstrates beyond doubt that Biafore is eminently qualified to render an opinion concerning the proper allocation of property types for REMIC purposes and as to whether that property may be considered real property for purposes of the 80% Test. RA1017; RA1029-30. Because the Certificate of Need, the stabilized value, and the fixtures cannot be categorized as REMIC real property, the values assigned to them by the appraiser cannot be added to the $30,960,000 of real property to meet the 80% Test.29 29 Cadwalader’s contention that the Court should ignore Biafore’s expert testimony because he is not an appraiser (see Def. Res. Br. at 76) is absurd. Biafore is a noted REMIC tax specialist. The fact that he has no expert knowledge with regard to whether the Doctors Hospital land and buildings were actually worth $3,000,000 and $27,960,000, or the actual value of the other appraised assets associated with the Doctors Hospital, is of no relevance whatsoever in determining their legal character. Further, Adelman – with the same professional background as Biafore – performed the same task of determining what components of value qualify as REMIC real property and asserted that he was an expert in doing so. See Br. at 43 n.14. 65 309564.1 Accordingly, as the trial court, the First Department, and the Second Circuit determined, neither the Appraisal nor the Appraisal Supplement establish, as a matter of law, that the DHL was secured by $40 million in REMIC real property.30 30 Cadwalader argues that Nomura’s representations “to investors, to the IRS, and to two federal courts” that the “D5 Trust was REMIC-eligible” are “admissible against Nomura” and that “Nomura has never offered evidence contradicting them.” Def. Res. Br. at 76-77. This argument, of course, ignores the testimony and expert reports of Biafore discussed at length above. Further, both the trial court and the First Department have concluded that “representations” are “at most” informal judicial admissions that are “‘merely evidence of the fact or facts admitted, the circumstances of which may be explained at trial.’” RA38-39 (citations omitted); see also A-30.a-31.a; Br. at 125-127. In fact, Nomura made those representations on advice of counsel – Cadwalader. As a result, the trial court and the First Department have concluded that Nomura should have the opportunity to explain those “representations” at trial. See id. The cases cited by Cadwalader do not support a different result. 67 309564.1 James T. Potter Hinman Straub P.C. 121 State Street Albany, New York 12207-1693 (518) 436-0751 Counsel for Plaintiffs-Respondents- Cross-Appellants Nomura Asset Capital Corporation and Asset Securitization Corporation
