BDC Finance L.L.C. Respondent,v.Barclays Bank PLC, Appellant.BriefN.Y.January 6, 2015To be Argued by: CRAIG A. NEWMAN (Time Requested: 30 Minutes) APL-2014-00017 New York County Clerk’s Index No. 650375/08 Court of Appeals of the State of New York BDC FINANCE L.L.C., Plaintiff-Respondent, – against – BARCLAYS BANK PLC, Defendant-Appellant. ————————————————— BARCLAYS BANK PLC, Counterclaim-Plaintiff-Appellant, – against – BDC FINANCE L.L.C., Counterclaim-Defendant-Respondent. BRIEF FOR PLAINTIFF/COUNTERCLAIM-DEFENDANT- RESPONDENT RICHARDS KIBBE & ORBE LLP 200 Liberty Street New York, New York 10281 Tel.: (212) 530-1800 Fax: (212) 530-1801 – and – Portrait Building 701 8th Street, N.W. Washington, DC 20001 Tel.: (202) 261-2960 Fax: (202) 261-2999 Attorneys for Plaintiff/Counterclaim-Defendant- Respondent BDC Finance L.L.C. Date Completed: May 8, 2014 CORPORATE DISCLOSURE STATEMENT BDC Finance L.L.C. ("BDC") provides the following information pursuant to New York Court of Appeals Rule 500.1(t). BDC is a fund managed by Black Diamond Capital Management, L.L.C. ("BDCM") and BDCM Fund Adviser L.L.C. ("BDCM Fund Adviser"). Those two entities in turn manage a family of other funds, none of which have an economic interest in the outcome of this litigation. BDC's shareholders include BDCM Partners I, L.P., BDCM Offshore Fund, Ltd. and BDCM Offshore Fund II, Ltd. BDC has no parent or subsidiary entities. STATEMENT OF RELATED LITIGATION Pursuant to New York Court of Appeals Rule 500.13(a), on September 14, 2011, BDCM Fund Adviser and Black Diamond Capital Holdings, L.L.C. commenced a related lawsuit against Barclays Bank PLC ("Barclays") and Barclays Capital, Inc. in the Superior Court of the State of Connecticut. The action has been stayed pursuant to the stipulation of the parties pending the appeal in this matter. TABLE OF CONTENTS PAGE TABLE OF AUTHORITIES .................................................................................... iv PRELIMINARY STATEMENT ............................................................................... 1 COUNTERSTATEMENT OF QUESTIONS PRESENTED ................................... 4 CHRONOLOGY OF KEY EVENTS ........................................................................ 6 SUMMARY OF RECORD ....................................................................................... 8 A. Transaction Overview And Key Terminology ...................................... 8 B. BDC's October 6, 2008 Collateral Call And Barclays' Failure To Transfer The $40 Million Return Amount .................................... 12 C. Barclays' Default And BDC's Termination ........................................ 17 D. Barclays' Post-Termination Excuse For Its Failure To Transfer The $40 Million Return Amount.. ....................................................... 18 PROCEDURAL HISTORY .................................................................................... 19 STANDARD OF REVIEW ..................................................................................... 24 ARGUMENT ........................................................................................................... 25 I. THE APPELLATE DIVISION CORRECTLY DETERMINED THAT BARCLA YS BREACHED THE AGREEMENT BY REFUSING TO RETURN ALL OF BDC'S CASH COLLATERAL FOLLOWING TERMINATION FOR DEFAULT ............................................................... 25 A. Barclays Had No Right To Suspend The Transfer Of The $40 Million Return Amount Because It Failed To Meet The Contract's Strict Requirements ........................................................... 26 1. Time Was Of The Essence IfBarclays Wished To Suspend Transfer Of The $40 Million Return Amount.. .......... 26 2. Substantial Compliance With Paragraph 5 Was Insufficient To Suspend The Return Amount's Due Date ....... 31 3. There Is No Forfeiture Because Barclays Only Lost Its Right To Dispute ....................................................................... 34 4. There Is No Triable Issue Of Fact Regarding Barclays' Failure To Timely Transfer The Correct Undisputed Amount. ..................................................................................... 36 5. Contrary To Barclays' Brief, BDC Terminated The Agreement Based On Barclays' Continuing Failure To Transfer The Return Amount, Not The Undisputed Amount. ..................................................................................... 40 B. The Return Amount Was Also Due On October 7, 2008 Because Barclays Unconditionally Promised To Make Such Transfer By The Next Business Day "Notwithstanding Anything In The Credit Support Annex To The Contrary." ........................................... 42 1. Barclays' Proffered Interpretation Rewrites The Words The Parties Actually Used ......................................................... 46 2. The Delivery Of Collateral Clause Does Not Displace Barclays' Key Rights Under The Credit Support Annex ........ .48 3. Barclays Cannot Create An Ambiguity By Pointing To Unreliable Extrinsic Evidence That Post-Dates The Formation OfThe Contract. ...................................................... 50 4. A "Pay First, Dispute Later" Arrangement Merely Permits BDC To Hold Contested Collateral Pending A Dispute .......... 51 5. BDC Did Not Waive And Is Not Estopped From Asserting Its Rights Under The Delivery of Collateral Clause ........................................................................................ 52 -11- C. Barclays Had Notice Of Its Failure To Transfer The Return Amount And Could Only Have Cured By Transferring The $40 Million Return Amount- Not The Undisputed Amount- During The Cure Period .................................................................................. 54 1. BDC Complied With The Contract's Notice Requirements .... 54 2. The October 8, 2008 Notice Did Not Grant An Option To Cure By Paying Only The Undisputed Amount During The Cure Period ........................................................................ 55 3. Barclays Did Not Transfer The Undisputed Amount During The Cure Period Or Ever. ............................................. 58 II. BARCLA YS, IN ANY EVENT, IS NOT ENTITLED TO PARTIAL SUMMARY JUDGMENT THAT IT HAD THE RIGHT TO TERMINATE ................................................................................................ 59 CONCLUSION ........................................................................................................ 63 - 111- TABLE OF AUTHORITIES CASES PAGE(S) A.M. Knitwear Corp. v. All Am. Exp. -Imp. Corp., 41 N.Y.2d 14 (1976) .......................................................................................... 43 Albertina Realty Co. v. Rosbro Realty Corp., 258 N.Y. 472 (1932) .......................................................................................... 35 Alvarez v. Prospect Hosp., 68 N.Y.2d 320 (1986) ........................................................................................ 24 Bailey v. Fish &Neave, 8 N.Y.3d 523 (2007) .......................................................................................... 33 Bank of N.Y. v. First Millennium, Inc., 607 F.3d 905 (2d Cir. 2010) ............................................................................... 45 Beal Sav. Bank v. Sommer, 8 N.Y.3d 318 (2007) .......................................................................................... 47 Breed v. Ins. Co. of N. Am., 46 N.Y.2d 351 (1978) ........................................................................................ 45 Brualdi v. Iberia, 79 A.D.3d 959 (2d Dep't 2010) ......................................................................... 60 Cent. Fed. Sav. F.S.B. v. Laurels Sullivan Cnty. Estates Corp., 145 A.D.2d 1 (3d Dep't 1989) ........................................................................... 53 Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918 (2d Cir. 1977) ............................................................................... 55 Cooper-Rutter Assocs., Inc. v. Anchor Nat'l Life Ins. Co., 193 A.D.2d 944 (3d Dep't 1993) ................................................................. 29, 34 Feinberg v. Saks & Co., 56 N.Y.2d 206 (1982) ........................................................................................ 38 Fifty States Mgmt. Corp. v. Pioneer Auto Parks, Inc., 46 N.Y.2d 573 (1979) ........................................................................................ 36 -IV- Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966 (1988) ......................................................................................... 52 Greenfield v. Philles Records, Inc., 98 N.Y.2d 562 (2002) ......................................................................................... 43 Groeger v. Col-Les Orthopedic Assocs., P. C., 136 A.D.2d 952 (4th Dep't 1988) ....................................................................... 37 H Fox & Co., Inc. v. Blumenfeld, 24 A.D.3d 722 (2d Dep't 2005) ......................................................................... .44 Jade Realty LLC v. Citigroup Commercial Mortg. Trust 2005-EMG, 20 N.Y.3d 881 (2012) ......................................................................................... 52 Kalmar Americas, Inc. v. Koch Supply & Trading, LP, No. 10 Civ. 7905, 2011 WL 6382566 (S.D.N.Y. Dec. 15, 2011) ...................... 30 Kooleraire Serv. & Installation Corp. v. Bd. of Educ. of City of N. Y, 28 N.Y.2d 101 (1971) ......................................................................................... 62 Level Exp. Corp. v. Wolz, Aiken & Co., 305 N.Y. 82 (1953) ............................................................................................. 53 Matter of Riccardi, 45 A.D.2d 191 (1st Dep't 1974) ... , ..................................................................... 51 Merritt Hill Vineyards Inc. v. Windy Heights Vineyard, Inc., 61 N.Y.2d 106 (1984) ............................................................................. 27, 32, 33 MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640 (2009) ......................................................................................... 29 Moran v. Erk, 11 N.Y.3d 452 (2008) ................................................................................... 27, 32 Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435 (2d Cir. 1995) ..................................................................... 45, 49, 50 Namad v. Salomon Inc., 74 N.Y.2d 751 (1989) ......................................................................................... 24 - v- Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685 (1995) ....................................................................... 29, 31, 32, 34 Reddy v. Ratnam, 95 A.D.3d 982 (2d Dep't 2012) .............................................................. 29, 30, 34 RiversideS. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398 (2009) ......................................................................................... 49 Sisler v. Sec. Pac. Bus. Credit, Inc., 201 A.D.2d 216 (1st Dep't 1994) ....................................................................... 53 Somer v. Somer, 155 A.D.2d 591 (2d Dep't 1989) ........................................................................ 44 Towers Charter & Marine Corp. v. Cadillac Ins. Co., 894 F.2d 516 (2d Cir. 1990) ............................................................................... 30 Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470 (2004) ........................................................................................... 44 W W W Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157 (1990) ......................................................................................... 50 Warberg Opportunistic Trading Fund, L.P. v. GeoResources, Inc., 112 A.D.3d 78 (1st Dep't 2013) ........................................................................ .44 White v. Knickerbocker Ice Co., 254 N.Y. 152 (1930) ........................................................................................... 33 Zion v. Kurtz, 50 N.Y.2d 92 (1980) ........................................................................................... 43 Zuckerman v. City of New York, 49 N.Y.2d 557 (1980) ......................................................................................... 24 STATUTES C.P.L.R. 3212(b) ...................................................................................................... 24 -VI- OTHER AUTHORITIES Restatement (Second) of Contracts§ 2(1) ............................................................... 32 Restatement (Second) of Contracts § 224, cmt. b ................................................... 28 - Vll- PRELIMINARY STATEMENT Barclays' brief before this Court interjects needless complexity into what is a simple case that the Appellate Division properly decided under long-standing precedent and based on an uncontested record. BDC and Barclays were parties to a derivatives contract. BDC posted cash collateral under a portion of that contract called the Credit Support Annex. BDC had the right to demand the return of that collateral by sending a collateral call for what is known as a "Return Amount." When BDC did so, Barclays had to transfer the Return Amount to BDC by close of business the next business day. The Credit Support Annex contains a provision that would permit Barclays to suspend the transfer of the Return Amount if, among other things, it instead transfers to BDC any amount not in dispute also by close of business the next day. That acknowledged sum is known as the "undisputed amount." If Barclays did not transfer the correct undisputed amount on time, then it lost any right it had under the Credit Support Annex to refuse to transfer the full Return Amount. If Barclays still did not pay the Return Amount after notice and a two-day opportunity to cure, BDC had the right to terminate all derivative transactions for default and to require the return of all of its posted cash collateral. That is exactly what happened here. BDC demanded a $40 million Return Amount on October 6, 2008. By agreement, it was due for transfer by the close of business the next day. To suspend that due date under the terms of the Credit Support Annex, Barclays would have had to transfer $5,080,000- the sum it has judicially admitted was the undisputed amount- no later than close of business on October 7, 2008. It concedes that it did not do so. As such, it lost any right it may have had under the Credit Support Annex to suspend payment of the full $40 million Return Amount. BDC notified Barclays of its failure to transfer the Return Amount, but Barclays did not cure. BDC then terminated the transactions and demanded the return of its $302 million in cash collateral it had previously posted with Barclays. Barclays returned nothing and therefore breached the parties' agreement. The Appellate Division correctly concluded that this uncontested record warranted summary judgment in BDC's favor. But that was not the sole basis for its decision. The Appellate Division identified an independent ground for summary judgment by applying the unambiguous requirements of a customized and negotiated portion of the parties' contract known as the Delivery of Collateral clause. That clause states that Barclays had to return any Return Amount by the next business day "[n]otwithstanding anything in the Credit Support Annex to the contrary." (Emphasis added). This clause supplies a separate basis for summary judgment in BDC's favor because it eliminates Barclays' sole defense, namely that it purportedly disputed the collateral call under Paragraph 5 of the Credit Support Annex and thereby suspended its obligation to pay the Return Amount. The -2- Appellate Division correctly determined that, as a matter of law, Barclays' defense could not succeed because the plain and unambiguous words of the agreement required it to transfer any Return Amount by the next business day notwithstanding "anything" in the Credit Support Annex to the contrary, including that Paragraph 5 dispute mechanism. There are no factual or novel legal issues that need to be resolved in this case. There is, however, a significant injustice that this Court can remedy, just as the Appellate Division did: Barclays converted $302 million ofBDC's cash in October 2008 when it refused to return all collateral following termination. Barclays has wrongfully withheld that collateral for more than five-and-a-half years. That collateral ultimately belongs to the public and private employee pension funds and others who have invested with BDC. Barclays has had the benefit- and BDC'~ investors have been deprived of the opportunity- of utilizing those funds during a historic market rally. It is well past time for Barclays to return that collateral to its rightful owners in accordance with the agreement the parties made for themselves. The Court should affirm the Appellate Division's Order and remit to Supreme Court for entry of a final judgment. - 3- COUNTERSTATEMENT OF QUESTIONS PRESENTED 1. Whether the $40 million Return Amount demanded by BDC on October 6, 2008 was due for transfer on October 7, 2008 or whether Barclays had the right, as it belatedly claims, to suspend that transfer due date under Paragraph 5 of the Credit Support Annex. The Appellate Division: Correctly held on two separate grounds that the $40 million Return Amount was due by the close of business on October 7, 2008, that Barclays had no right to suspend such transfer and that Barclays failed to transfer that amount when due. First, Barclays did not meet an express condition of suspending transfer under the Credit Support Annex, namely that it transfer an undisputed amount of $5,080,000 by the close of business on October 7, 2008 in lieu of the $40 million Return Amount. Second, Barclays had no right to suspend transfer under Paragraph 5 of the Credit Support Annex because it separately agreed in the negotiated and superseding terms of the Delivery of Collateral clause of the Master Confirmation that it would transfer "any Return Amount" the business day following a collateral call "[ n ]otwithstanding anything in the .Credit Support Annex to the contrary." R:958 (emphasis added). -4- 2. Whether BDC notified Barclays of its failure to transfer the Return Amount by hand-delivering a notice to Barclays captioned "Notice of Failure to Transfer Return Amount." The Appellate Division: Correctly held that BDC properly notified Barclays of its failure to transfer the $40 million Return Amount by delivering the "Notice of Failure to Transfer Return Amount" (which Barclays admits it received) and that BDC terminated Barclays for that failure. 3. Whether Barclays had the right to cure its failure to transfer the $10 million Return Amount by transferring only $5 million prior to the end of the cure period. The Appellate Division: Correctly held that Barclays could not cure its failure to transfer the $40 million Return Amount by transferring only $5 million prior to the end of the cure period. - 5- CHRONOLOGY OF KEY EVENTS MONDAY, OCTOBER 6, 2008 (COLLATERAL CALL) 12:56 p.m. 2:57p.m. BDC issues a collateral call to Barclays demanding transfer of$40,140,405.78. R:1553-59. This is the Return Amount. BDC advises Barclays: "The notice sent to you earlier today is a request for [R]etum [A]mount ... and is being made pursuant to Paragraph 3(b) of the Credit Support Annex to the Master ISDA Agreement." R:1617. TUESDAY, OCTOBER 7, 2008 (COLLATERAL CALL DUE DATE) 3:55p.m. 4:05p.m. 5:00p.m. BDC warns Barclays: "with respect to the request for [R]etum [A]mount that we sent to you yesterday ... [a ]t present, we have not received payment, nor has Barclays exercised its dispute right. We remind you that pursuant to Paragraph 4(b) and Paragraph 5 of the Credit Support Annex, by 5:00p.m. today Barclays must either pay the amount set out in the request or exercise its dispute rights." R: 1630. Barclays e-mails BDC: "Barclays agrees to return 5,080,000. This is for margin call made on 10/6 .... " R: 1630. (Barclays has since judicially admitted that $5,080,000 is the undisputed amount. R:422 (RFA Response No. 38).) Barclays makes no payment whatsoever by the close of business deadline. A Potential Event of Default now exists for failure to transfer the $40 million Return Amount. - 6- WEDNESDAY, OCTOBER 8, 2008 (POTENTIAL EVENT OF DEFAULT & START OF CURE PERIOD) Between 12:00 p.m. and Barclays transfers only $5 million to BDC instead of the 1 p.m. $40 million Return Amount then due. R:422-23 (RF A Response Nos. 38-43). BDC hand-delivers a letter to Barclays captioned "Notice of Failure to Transfer Return Amount." R:608 (Deckoff Aff. ~ 11); R:1639. The two-day cure period for failure to transfer the $40 million Return Amount begins. THURSDAY, OCTOBER 9, 2008 (CURE PERIOD CONTINUES) Barclays makes no response to the Notice of Failure to Transfer Return Amount and makes no further transfer of collateral. R:423 (RF A Response No. 43). FRIDAY, OCTOBER 10, 2008 (LAST DAY OF CURE PERIOD) Barclays makes no response to the Notice of Failure to Transfer Return Amount and makes no further transfer of collateral. !d. MONDAY, OCTOBER 13,2008 Bank holiday (Columbus Day) TUESDAY, OCTOBER 14, 2008 (EVENT OF DEFAULT & TERMINATION) Because Barclays failed to transfer the $40 million Return Amount during the cure period, the Potential Event of Default ripens into an Event of Default. BDC designates an Early Termination Date of October 14, 2008 for failure to transfer the $40 million Return Amount. R:608-09 (Deckoff Aff. ~ 13); R:1647. Barclays is obligated to return all $302 million ofBDC's posted collateral. R:930 (CSA ~ 8(b)(iii)). It returns nothing and so breaches. R:425 (RF A Response No. 49). - 7- SUMMARY OF RECORD Barclays is a major global bank based in the United Kingdom. BDC is a Connecticut-based hedge fund consisting of the pooled investments of its investors, the majority of which include public employee and private employee pension funds. R:606 (Deckoff Aff. ~ 3). The cash collateral that BDC seeks to recover in this lawsuit ultimately belongs to those investors. !d. A. Transaction Overview And Key Terminology In May 2005, BDC and Barclays entered into a transaction known as a "total return swap." R:606 (Deckoff Aff. ~~ 4-5). A total return swap is a derivative that mimics, in certain respects, the economic effect of owning a particular asset in exchange for a financing payment. R: 1175. In this particular total return swap, BDC agreed to make payments based on a floating financing rate, while Barclays agreed to make payments based on the return of certain underlying referenced assets (principally corporate loans and high yield bonds), including income generated and any capital gains or losses with respect to those referenced assets. !d. In addition to the total return swap, the parties added to their agreement certain other transactions that required Barclays to make payments to BDC in the event of a bankruptcy filing, loan default, or similar credit event at any of a list of corporate borrowers named in an industry promulgated index. R:606-07 (Deckoff Aff. ~ 6); R: 117 6-77. The value of the latter transactions tended to move in the opposite - 8- direction of the total return swap and so were frequently referred to as the "hedges." R: 1162-63; R: 1176-78. The parties' agreement for these swaps was memorialized in a series of form documents, including a 1992 International Swaps and Derivatives Association ("ISDA") Master Agreement (the "Master Agreement"), a Schedule to the Master Agreement ("Schedule") and a 1994 ISDA Credit Support Annex to the Schedule to the Master Agreement ("Credit Support Annex" or "CSA"). R:896-941. The parties also included in their agreement a negotiated "Master Confirmation" that expressly modified and superseded certain provisions of the form documents. R:942-66. The parties agreed that "[i]n the event of any inconsistency ... this Master Confirmation will govern the Master Agreement .... " R:942. Because the Master Agreement incorporated the Schedule and the Credit Support Annex, the effect of this language was to make clear that the negotiated terms of the Master Confirmation superseded all of the other components of the agreement. R:896; R:925. The agreement contemplated that the parties would post and transfer collateral depending on potential payment obligations under the total return swap and hedges. Many, but not all, of the provisions relating to collateral were set forth in the Credit Support Annex. R:925-41. Under the Credit Support Annex, BDC was the "Pledgor" to the extent it posted cash collateral with Barclays. R:933. The - 9- cash collateral that BDC deposited was "Posted Collateral." Id. Because Barclays held BDC's Posted Collateral, it was the "Secured Party." !d. Because the payment obligations on the total return swap and hedges were bilateral, the contract gave each side the right to call collateral from the other. As the Secured Party, Barclays could issue collateral calls known as demands for a "Delivery Amount." R:926 (CSA ~ 3(a)). As Pledgor, BDC could issue collateral calls for excess collateral known as demands for a "Return Amount." Id. (CSA ~ 3(b )). During the course of the parties' relationship, BDC posted cash collateral (all of which was Posted Collateral) as requested by Barclays. R:607 (Deckoff Aff. ~ 7). Each side had the right to call collateral from the other based on, among other things, changes in the value of the derivative transactions. Importantly, both Barclays and BDC had the reciprocal right to value the transactions for purposes of calling collateral from each other. R:936 (CSA ~ 13(c)(i)). In the language of the contract, each party was a "Valuation Agent." ld. This was a highly unusual arrangement for Barclays. R:409 (Vore Dep. 289:3-23). Typically, only Barclays had Valuation Agent rights, not its customers. However, BDC negotiated for and secured that right as set forth in the agreement. Barclays was subject to strict contractual timing requirements when responding to BDC's collateral calls. For calls issued prior to 1 p.m., Barclays - 10- promised in Paragraphs 3(b) and 4(b) ofthe Credit Support Annex and in a negotiated provision in the Master Confirmation known as the "Delivery of Collateral Clause" to transfer "any Return Amount" not later than the business day following the date ofBDC's demand. R:926 (CSA ~ 4(b)); R:936 (CSA ~ 13(c)(iv)); R:958 (Master Confirmation). Any failure by Barclays to transfer a Return Amount when due immediately resulted in a "Potential Event of Default" that would, among other things, suspend Barclays' own right to make further demands on BDC for a Delivery Amount. R:926 (CSA ~ 4(a)). A Potential Event of Default was defined broadly to include "any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default." R:911 (Master Agreement § 14 at 16). The Credit Support Annex provided that an "Event of Default" would exist with respect to Barclays' Credit Support Obligations where it had failed "to make, when due, any Transfer of ... Posted Collateral ... required to be made by it and that failure continues for two Local Business Days after notice of that failure is given to that party." R:929 (CSA ~ 7(i)); see also R:900 (Master Agreement § S(a)(iii)(l)). Once an Event of Default occurred, BDC had the right to terminate all transactions. R:900, R:903 (Master Agreement§§ S(a)(iii)(l), 6(a)). Barclays was thereupon required to return all ofBDC's Posted Collateral. R:930 (CSA ~ 8(b )(iii)). - 11- B. BDC's October 6, 2008 Collateral Call And Barclays' Failure To Transfer The $40 Million Return Amount In the wake of the September 15, 2008 bankruptcy filing by Lehman Brothers, Barclays began to issue to BDC and its other customers a series of abusive and improper collateral calls. 1 In doing so, Barclays ignored provisions of its agreement with BDC requiring it to call collateral using a different and more favorable (to BDC) valuation methodology than it could use with other customers. R: 1180-87. BDC protested these calls, but ultimately paid them with a complete reservation of rights. R:2399-409 (Nahas Aff. ~~ 7-43). As a result, by early October 6, 2008, Barclays held substantially more collateral than it was entitled to retain under the contract. By Monday, October 6, 2008, BDC determined that Barclays was overcollateralized by approximately $40 million. R:607 (Deckoff Aff. ~ 9). Because BDC was one of the handful ofBarclays' customers that had "Valuation Agent" rights, it did not have to rely on Barclays' calculations of the value of 1 The record is replete with evidence showing a powerful motive by Barclays to accumulate and retain customer cash in the weeks following the Lehman Brothers bankruptcy. The executive in charge ofBarclays' total return swap desk recounted, in an internally recorded phone conversation, that he had received daily instructions from a member of the investment bank's executive committee to "[s]uck in the cash as quick as you can because things are going down." R:3234. Barclays anticipated that its collateral calls would trigger customer defaults but that it could use its clients' cash to reap enormous profits when it later resold or resecuritized assets connected to their swaps. R:3215-16. Barclays expected that it could make as much as $2 billion through that scheme. R:3214. - 12- future payment obligations under the total return swap and hedges in order to determine whether collateral was owed. R:936 (CSA ~ 13(c)(i)). Rather, BDC could utilize its own calculations. Exercising its rights as Valuation Agent, BDC determined the value of the derivative transactions and sent Barclays a collateral call on October 6, 2008 at 12:56 p.m., demanding that it transfer $40,140,405.78 of collateral. R: 1553-59 (Oct. 6, 2008 Muller E-mail); see supra Chronology, at 6. That $40 million sum was a Return Amount under the contract. That amount, with no deduction or offset, was required to be transferred by Barclays to BDC at close of business on the next business day, October 7, 2008. R:926 (CSA ~ 4(b)); R:958 (Master Confirmation Delivery of Collateral Clause). Barclays, however, did not transfer that Return Amount on October 7, 2008 or ever. On October 6, 2008, the date of the collateral call, Barclays responded to two e-mails from BDC by stating that it did not agree with BDC's call, asserting that it showed that BDC owed Barclays, not the other way around, and asking BDC whether BDC wanted to exercise its dispute rights. R:1568; R:1617. BDC stated that it was not seeking to invoke the dispute mechanism, that it had or would be funding certain collateral calls made by Barclays during the preceding week, that it would be responding in due course to a further collateral call made by Barclays, but that its own collateral call "is a request for [R]eturn [A]mount ... - 13- made pursuant to Paragraph 3(b) of the Credit Support Annex" that is independent from any ofBarclays' calls. R:1617; see supra Chronology, at 6. The "dispute right" that these e-mails referenced is set forth in Paragraph 5 of the Credit Support Annex. R:927. Under the Credit Support Annex, a party may elect to dispute a call made by a Valuation Agent. Provided that the disputing party meets certain specific contractual provisions within a strict timetable, the Valuation Agent will verify its calculations and recalculate its call using actual dealer quotations of the value of the underlying derivative transaction and then, upon demand, refund any excess collateral. I d. If it elected to dispute, in order to suspend the transfer due date for the Return Amount under the form document Barclays had to transfer an "undisputed amount" by the end of the business day following the collateral call. Id. The undisputed amount is the amount that the disputing party acknowledges is owed in response to the call. R:1200. IfBarclays complied with the provisions of Paragraph 5, BDC as Valuation Agent had to recalculate shortly thereafter.2 2 The precise time-table of the Paragraph 5 dispute process imposed tight deadlines on both parties in the event that a party elects to dispute. The disputing party will notify the Valuation Agent no later than close of business the day following the collateral call. The parties will consult to resolve the dispute by the "Resolution Time" - which is defined as 1 p.m. on the business day following the date of notice. If the parties fail to resolve the dispute, the Valuation Agent will recalculate with dealer quotations and notify the other party by 1 p.m. the business day after the Resolution Time. From the initiation of a dispute to notification of - 14- Barclays made no transfer to BDC of any kind on October 6, 2008 or the following day in response to BDC's collateral call. R:422-23 (RF A Response Nos. 39-40). At 3:55 p.m. on October 7, 2008, BDC sent a follow-up e-mail captioned "Return Amount Request." The e-mail stated that it was sent "with respect to the request for [R]etum [A]mount that we sent to you yesterday." It reminded Barclays "that pursuant to Paragraph 4(b) and Paragraph 5 ofthe Credit Support Annex, by 5:00 p.m. today Barclays must pay the amount set out in the request or exercise its dispute right." R:1630. In response to BDC's 3:55p.m. October 7, 2008 e-mail, Barclays stated that it agreed to transfer $5,080,000, an amount it has judicially admitted was the undisputed amount, but Barclays supplied no indication that it was exercising its dispute right. R:1630; R:422 (RFA Response No. 38). Barclays made no transfer of collateral to BDC on that day. R:422-23 (RF A Response No. 40); see supra Chronology, at 6. As a result of its failure to transfer the $5,080,000 by the close of business on October 7, 2008, any right under the form Credit Support Annex to suspend the obligation to transfer the full Return Amount expired. The full $40 million Return Amount was thus due and owing. Because that $40 million amount was then due but had not been transferred, a Potential Event of Default occurred. recalculation, the process therefore lasts no more than three business days. R:927; R:937 (CSA ~~ 5, 13(t)). - 15- y R:911 (Master Agreement§ 14); R:929 (CSA ~ 7(i)). Upon notice of that failure to transfer, Barclays had two days to cure by transferring the full $40 million Return Amount. R:929 (CSA ~ 7(i)). BDC provided notice of the failure to transfer the Return Amount on October 8, 2008 by hand-delivering a letter addressed to Barclays' General Counsel. R:608 (Deckoff Aff. ~ 11 ). That letter bore the underlined heading "Notice of Failure to Transfer Return Amount" and specifically referenced the October 6, 2008 demand for a Return Amount. R:1639. Reflecting the form language of the Credit Support Annex that permitted Barclays to suspend the transfer due date of the Return Amount if it timely transferred the undisputed amount, the letter stated that "by 5:00p.m. NY time on Tuesday, October 7, 2008 [i.e., the day before the letter was sent], Barclays was required to either (i) pay the relevant Return Amount or (ii) notify BDC that Barclays disputes the calculation of the Return Amount and make a payment with respect to the undisputed amount." !d. The letter continued that BDC had not received either payment by 5 :00 p.m. on October 7, 2008 and, therefore, a Potential Event of Default existed. !d. Barclays concedes that it received the Notice of Failure to Transfer Return Amount. R:423-24 (RF A Response No. 45). Barclays made no response to the letter whatsoever. R:608-09 (Deckoff Aff. ~ 13). - 16- C. Barclays' Default And BDC's Termination After receiving the October 8, 2008 letter, Barclays did not transfer the $40 million Return Amount during the two-day period or otherwise. At some point between noon and 1 p.m. on October 8, 2008, Barclays transferred $5 million flat to BDC, but made no other transfers through the end of the cure period (or at any time thereafter). R:423 (RF A Response Nos. 42, 43); see supra Chronology, at 6. As a result, the Potential Event of Default ripened into an Event of Default. R:929 (CSA ~ 7(i)). On October 14, 2008, BDC hand-delivered a second letter to Barclays' General Counsel stating that an Event of Default had occurred under the Master Agreement "by virtue of Barclays' failure to transfer the Return Amount reflected in the Return Demand on or prior to the second business day after the date of the Notice of Failure." R:1647; see also R:608-09 (Deckoff Aff. ~ 13). As the Secured Party, Barclays was contractually required to return all the cash collateral following termination due to its default. R:930 (CSA ~ 8(b )(iii)). Barclays, however, returned nothing. R:425 (RF A Response No. 49). BDC accordingly commenced this lawsuit for breach of the parties' contract. To this date, more than five-and-a-half years later, Barclays has still not returned any ofBDC's collateral. - 17- D. Barclays' Post-Termination Excuse For Its Failure To Transfer The $40 Million Return Amount Late in the evening of October 14, 2008, after BDC terminated all transactions, Barclays e-mailed a letter, taking the position for the first time that it had suspended the due date to transfer the $40 million Return Amount because it had purportedly exercised its dispute rights under Paragraph 5 of the Credit Support Annex. R:1657-60. This claim was a panicked fabrication by Phil Nisbet (a Senior Managing Director in charge ofBarclays' total return swap desk) that was calculated to evade the consequences of the default. Mr. Nisbet had been responsible for responding to BDC's collateral call in the first instance and had ignored BDC's repeated warnings to Barclays that it was required to transfer the $40 million Return Amount. As discovery subsequently revealed, Mr. Nisbet evidently had no idea prior to termination that BDC was one ofBarclays' few customers with an independent contractual right as Valuation Agent to call collateral from Barclays based on its own calculations. In fact, Mr. Nisbet admitted on an October 15, 2008 recorded internal telephone conversation later produced in discovery that "one thing we learned" about BDC is that it was up to Barclays to dispute, "[i]t's like they're calling us." R:3542. Instead of responding forthrightly to BDC's termination and honoring its customer's right to insist upon the return of all posted collateral, Barclays elected to advance Mr. Nisbet's after-the-fact rationale as a defense in this lawsuit (which - 18- commenced on October 17, 2008). Further and notwithstanding BDC's termination, Barclays continued to issue additional collateral calls to BDC. R: 1664; R: 1666. BDC responded that any such calls were ineffective under the Agreement due to BDC's termination. R:3546, R:3557. Based on those collateral calls, Barclays purported to designate its own Early Termination Date. R:1676-78. Following its claimed termination, Barclays presented BDC with a close-out statement, baldly asserting that it had a right to seize all of the $302 million of cash collateral that BDC had posted under the transaction. In addition to keeping all of BDC's posted collateral, Barclays demanded that BDC immediately pay it the additional sum of$2,671,356.52, the amount constituting its counterclaim. R:1762-79. PROCEDURAL HISTORY After discovery, BDC moved for summary judgment on its contract claim and for summary judgment dismissing Barclays' counterclaims. Barclays cross- moved for summary judgment requesting the exact opposite relief. On August 15, 2012, Supreme Court largely denied both motions. The motion court considered whether Barclays could claim that it suspended its obligation to transfer the Return Amount given its admitted failure to transfer the undisputed amount by close of business on October 7, 2008 (or thereafter). It ultimately declined to reach that issue. R:22. Instead, the motion court was side-tracked by the fact-intensive - 19- question of whether Barclays had even notified BDC of its election to dispute under Paragraph 5. Reviewing the same communications that Barclays now puts before this Court in support of its counter-request for summary judgment, the motion court concluded that this inquiry involved material factual issues and could not be decided as a matter of law. In reaching that conclusion, the motion court highlighted the evidence thatBDC "sent Barclays multiple letters stating that Barclays had failed to exercise its dispute rights" and the telephone recording where Mr. Nisbet admitted he "learned" post-termination that it was up to Barclays to dispute BDC's collateral calls. R:20-21. Supreme Court further considered whether Barclays had the right to suspend the transfer of the Return Amount under Paragraph 5 of the form Credit Support Annex given that the parties had added negotiated language in the Delivery of Collateral clause stating that "any Return Amount" was due by the next business day "[n]otwithstanding anything in the Credit Support Annex to the contrary .... " R:958 (emphasis added). Although the plain meaning of these words required Barclays to transfer any Return Amount by the next business day (here, October 7, 2008) whether or not it followed the Credit Support Annex's Paragraph 5 dispute process, the motion court refused to apply the clause as written. R:27-29. Instead, it essentially rewrote the clause, holding that the Delivery of Collateral clause solely superseded the default timing requirements contained in Paragraph 4(b) of -20- the Credit Support Annex, instead of "anything" in the Credit Support Annex as the clause itself states. 3 Neither of these determinations by the motion court raised a material factual issue; rather they involved errors of law and were corrected as such by the Appellate Division. First, the Appellate Division addressed Barclays' uncontested failure to transfer the undisputed amount on time or in the right amount and considered whether Barclays could claim that it suspended the due date for transferring the Return Amount in light of that admitted failure. The Appellate Division concluded that Barclays lost any right to suspend the transfer of the $40 million Return Amount when it failed to make a timely transfer of the correct undisputed amount: Barclays' payment of $5 million on October 8, 2008 was a day late. Accordingly, BDC notified Barclays that it had two business days to pay the Return Amount. Still, Barclays did not remit the $40 million, placing it in default. Barclays' default, in tum, entitled BDC to terminate the transactions and demand return of its collateral. Because Barclays did not return BDC's collateral, it breached the 3 Supreme Court, however, did grant BDC's motion for summary judgment to the extent it sought correction of a typographical error in the Delivery of Collateral clause of the Master Confirmation and found that the word "Counterparty" should have been "Total Return Receiver." R:24; R:32-33. Barclays agreed that the use of the word "counterparty" was a typographical error, did not contest the request to correct that error below and did not appeal the motion court's order in that respect. R:39. Barclays now suggests that the typographical error renders the clause incomprehensible. Barclays Br. 18-19. Obviously, it was not so incomprehensible as to prevent Barclays from assenting to reformation below. - 21- agreements, and summary judgment on liability should have been granted to BDC. R:4369-70. The Appellate Division further determined that the motion court's failure to apply the unambiguous words of the Delivery of Collateral clause as written was legal error and independently required reversal and a grant of summary judgment to BDC: The plain and unambiguous language ofthe Delivery of Collateral clause requires Barclays to transfer any Return Amount demanded by BDC no later than the business day following the demand. This obligation is unconditional and absolute and exists "[n]othwithstanding anything in the [CSA] to the contrary." Thus the Delivery of Collateral clause expressly supercedes the form language in the CSA which would have otherwise permitted Barclays to dispute before paying . . . . Although BDC may have been willing to allow Barclays to pay the undisputed amount if it did so by close of business on October 7, once that deadline passed, it was entitled to call an event of default based on the wording of the Master Confirmation. R:4371-72. The Appellate Division held that there are no material facts in dispute, that Barclays defaulted on the contract, that BDC had the right to terminate, that Barclays breached the contract when it failed to return all ofBDC's Posted Collateral following termination, and that Barclays had no right, as the defaulting party, to designate an Early Termination Date. R:4369-70. The Appellate Division therefore granted BDC's motion and denied Barclays' motion. R:4364. -22- Two justices dissented from the Appellate Division's decision. Like the majority and the motion court, the dissenting justices rejected Barclays' argument that it was entitled to summary judgment in its favor, noting that "the motion court correctly found issues of fact whether Barclays intended its communications with BDC following BDC's October 6th collateral call to be a notice of dispute under the CSA [and] whether they imparted sufficient notice to BDC." R:4380. The dissenters, however, sided with the motion court's decision to strike the word "anything" in the Delivery of Collateral clause and, in the guise of interpretation, limited its superseding effect to the contract's default timing provision only. R:4378. Further, unlike the majority and in the face ofBarclays' judicial admission to the contrary the dissenters believed that there was a triable issue of fact as to whether Barclays had timely transferred the correct undisputed amount. Propounding a theory that Barclays itself has never endorsed or espoused, the dissenters argued, among other things, that there was a triable issue of fact as to whether any undisputed amount existed at all. R:4381. And finally, conflating the Credit Support Annex's distinction between required transfers of a Return Amount and transfers of an undisputed amount that need only be made in order to suspend transfer of a Return Amount, the dissenters argued that Barclays had a right to cure merely by transferring the undisputed amount during the two-day cure period instead of the full $40 million Return Amount. R:4386. - 23- Barclays unsuccessfully sought reconsideration of the Appellate Division's decision. The Appellate Division, however, granted leave to·appeal its order to this Court. STANDARD OF REVIEW In summary judgment cases, this Court should affirm a grant of summary judgment where "upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party." C.P.L.R. 3212(b). BDC need only make a "prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." Alvarez v. Prospect Hasp., 68 N.Y.2d 320, 324 (1986). The burden then falls on Barclays to "produce evidentiary proof in admissible form sufficient to require a trial of material questions of fact ... or ... demonstrate acceptable excuse for [its] failure to meet the requirement." Zuckerman v. City of New York, 49 N.Y.2d 557, 562 (1980). Summary judgment is particularly appropriate where, as here, a "written agreement between sophisticated, counseled businessmen is unambiguous on its face" and a party, like Barclays, seeks to defeat summary judgment through conclusory assertions that the agreement does not require what it plainly states. Namad v. Salomon Inc., 74 N.Y.2d 751, 753 (1989). -24- ARGUMENT I. THE APPELLATE DIVISION CORRECTLY DETERMINED THAT BARCLAYS BREACHED THE AGREEMENT BY REFUSING TO RETURN ALL OF BDC'S CASH COLLATERAL FOLLOWING TERMINATION FOR DEFAULT. As the Appellate Division correctly analyzed and determined, Barclays breached the agreement because it failed, following termination on October 14, 2008, to return the approximately $302 million in cash collateral that belonged to BDC. BDC had the right to terminate the parties' agreement based on the uncontested record surrounding BDC's October 6, 2008 collateral call and Barclays' continuing failure to meet that call at the time of termination. BDC's entitlement to make that call is uncontested. Barclays' continuing failure to transfer the $40 million in response to that call is also uncontested. The only relevant question in dispute is whether, pursuant to the terms of the parties' agreement, Barclays had the right to suspend the October 7, 2008 transfer due date for that Return Amount. The Appellate Division said that Barclays did not as a matter of law and that decision was correct. For two separate and independent reasons, Barclays had no right to suspend transfer of the $40 million. - 25- A. Barclays Had No Right To Suspend The Transfer Of The $40 Million Return Amount Because It Failed To Meet The Contract's Strict Requirements. 1. Time Was Of The Essence IfBarclays Wished To Suspend Transfer Of The $40 Million Return Amount. As the first rationale for its decision, the Appellate Division applied the requirements - as plainly set forth in the Credit Support Annex - for the transfer of collateral to the uncontested record surrounding the amount and timing of Barclays' collateral transfers. The Appellate Division correctly recognized that BDC had the right to call a Return Amount from Barclays. IfBDC did so, then Barclays had to transfer the Return Amount by close of business the next business day.4 Under the terms of the form Credit Support Annex, ifBarclays wanted to dispute the call, it had to meet certain conditions, including transferring the undisputed amount by the same close of business deadline. If it did not make a transfer of the correct undisputed amount by close of business on the next day, then it lost any right to suspend transfer of the full Return Amount. That is what the agreement plainly says. 4 For collateral calls made before a 1 p.m. cut-off, Credit Support Annex Paragraph 4(b) provides that "the relevant Transfer will be made not later than the close of business on the next Local Business Day." R:926; R:936 (CSA ,-r,-r 4(b), 13(c)(iv)). That transfer deadline was repeated in the Master Confirmation's Delivery of Collateral clause. R:958. -26- The provisions that create these requirements are straightforward and unambiguous. In Paragraph 3(b) of the Credit Support Annex, the parties agreed that "[s]ubject to Paragraphs 4 and 5, upon a demand made by the Pledgor [BDC] ... the Secured Party [Barclays] will Transfer to the Pledgor Posted Credit Support specified by the Pledgor in that demand .... " R:926 (CSA, 3(b )) (emphasis added). The "subject to" language is clear. These are time-tested words that contract drafters may confidently use to create an express condition. Merritt Hill Vineyards Inc. v. Windy Heights Vineyard, Inc., 61 N.Y.2d 106, 112-13 (1984) (where obligation to pay purchase price of real estate sale contract was "subject to" obtaining title insurance policy and mortgage confirmation, those requirements were express conditions of the obligation to pay); Moran v. Erk, 11 N.Y.3d 452, 456 (2008) (noting that "subject to" language "means what it says"). 5 In Paragraph 5 of the form Credit Support Annex, the parties set forth a process, referred to as the dispute mechanism, by which a party could suspend the due date for a transfer under Paragraph 3(b). Among the steps included in the dispute mechanism, the disputing party must transfer to the calling party any portion of the collateral call that it acknowledges it owes. Paragraph 5 states in relevant part as follows: 5 By agreement, this contract is governed by New York law. R:908 (Master Agreement §13(a)); R:920 (Schedule, Part 4(h)). -27- !fa party (the "Disputing Party" [purportedly, Barclays]) disputes ... the Valuation Agent's [here, BDC's] calculation of a ... Return Amount ... then ... the Disputing Party will notify the ... Valuation Agent not later than the close of business on the Local Business Day following ... the date that the demand is made under Paragraph 3 ... [and] ... the appropriate party will Transfer the undisputed amount to the other party not later than the close of business on the Local Business Day following ... the date that the demand is made under Paragraph 3 .... R:927 (CSA ~ 5) (emphasis added). The drafters of the form Credit Support Annex expressly linked Paragraphs 3(b) and 5 by using the words "subject to" at the outset ofParagraph 3(b). The effect of those words is to render Barclays' compliance with Paragraph 5 an express condition to Barclays' right to suspend its obligation to transfer the Return Amount demanded by BDC under Paragraph 3(b ). In other words, under this document Barclays is required to transfer the Return Amount unless it complies with each of the provisions under Paragraph 5. This is a standard drafting arrangement given that "a duty may be conditioned upon the failure of something to happen rather than upon its happening, and in that case its failure to happen is the event that is the condition." Restatement (Second) of Contracts § 224, cmt. b. Further, the entirety of Paragraph 5 is written as an express condition. Paragraph 5 says that "if' a party disputes a Valuation Agent's call, "then" the disputing party will notify the other party and transfer the undisputed amount. And if they fail to resolve that dispute, then the Valuation Agent will recalculate using -28- dealer quotations. This "if ... then" construction also employs the "unmistakable language of condition," as this Court has previously held. MHR Capital Partners LP v. Presstek, Inc., 12 N.Y.3d 640, 645 (2009). Because the requirement to transfer the undisputed amount is expressly linked to Paragraph 3(b) by the "subject to" language, that express condition had to be "literally performed" if Barclays wanted to suspend the Return Amount's due date. Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685,690 ( 1995) (holding that oral notice was insufficient where express condition required that plaintiff provide landlord with written notice); MHR Capital Partners, 12 N.Y.3d at 646 (holding that express condition requiring bank to execute a specific consent form containing broad acceptance was not met where bank instead executed a fax providing a more limited acceptance). Literal and precise performance of this kind of express condition is customarily appropriate for a contract of this type given the risks involved in fast-moving markets. Indeed, even for promissory obligations, New York courts presumptively require that time be of the essence in commercial contracts between sophisticated parties. Reddy v. Ratnam, 95 A.D.3d 982, 983 (2d Dep't 2012) (holding that "time was of the essence" where "object of the contract is a commercial enterprise") (citation omitted); Cooper-Rutter Assocs., Inc. v. Anchor Nat 'l Life Ins. Co., 193 A.D.2d 944, 946 (3d Dep't 1993) (holding that "time was of the essence" where -29- both parties were "knowledgeable and sophisticated business entities entering a complicated commercial endeavor"). 6 That presumption applies with even greater force, as here, in the context of an agreement dealing with fast-moving markets. Reddy, 95 A.D.3d at 983 (holding further that "time was of the essence" where object of contract has "a fluctuating value" or where "delay in completion would involve serious financial loss to" one ofthe parties) (citation omitted); Kalmar Americas, Inc. v. Koch Supply & Trading, LP, No. 10 Civ. 7905, 2011 WL 6382566, at *9 (S.D.N.Y. Dec. 15, 2011) ("Contracts involving the sale of a commodity with a fluctuating price and a delivery window are customarily considered to be time of the essence contracts.") (citation and internal quotation marks omitted). Undeniably, Barclays did not meet the requirements of Credit Support Annex Paragraphs 3(b), 4(b) and 5. BDC issued its collateral call at 12:56 p.m. on October 6, 2008. R:1553. It was due for transfer by close of business on October 7, 2008 under Paragraph 4(b) and the Delivery of Collateral clause. As Barclays has judicially admitted, the relevant undisputed amount at that time was $5,080,000. R:422 (RF A Response No. 38). Barclays further admits that it did not 6 Although Courts may excuse failures to comply with contractual time requirements for equitable claims involving real estate contracts, Towers Charter & Marine Corp. v. Cadillac Ins. Co., 894 F.2d 516, 523 (2d Cir. 1990), obviously, there is no such claim here. - 30- transfer that amount (or any amount) on October 7, 2008, the day after the demand was made, as required by Paragraph 5. R:422-23 (RFA Response No. 40). Based on those admissions, the Appellate Division correctly concluded that "[h]aving failed to timely pay the undisputed amount by the deadline, Barclays lost any right it may have had to suspend payment of the full $40 million." R:4370. Barclays does not even address this dispositive issue until page 57 of its brief. The little that Barclays says about this rationale in the Appellate Division's ruling is without merit and entirely unpersuasive. 2. Substantial Compliance With Paragraph 5 Was Insufficient To Suspend The Return Amount's Due Date. Barclays' principal excuse is to claim that it need only have substantially complied with the requirements of Paragraph 5 in order to suspend transfer of the Return Amount under Paragraph 3(b) and that its late and insufficient transfer of the undisputed amount was in "substantial compliance" with Paragraph 5. Barclays Br. 57. A theory of substantial compliance obviously has no bearing on Barclays' failure to transfer the $40 million Return Amount. Moreover, it has no application to the defective transfer of the undisputed amount. First, substantial compliance may be pertinent in certain situations where a contract contains two separate and independent promises and where the law implies a condition between those promises. Oppenheimer, 86 N.Y.2d at 690-91. There is, however, no mitigating standard of substantial performance or materiality - 31 - where the parties use words to expressly link one contractual requirement with another. !d. at 692. If the words of an agreement link two provisions, the express condition that is thereby created "has the same sanctity as the promise itself' and must be enforced. Oppenheimer, 86 N.Y.2d at 691 (quoting 5 Williston on Contracts§ 669, at 154 (3d ed.)). The form Credit Support Annex explicitly links Paragraphs 3(b) and 5 by making the first provision "subject to" the second. Such words make the former provision expressly conditioned on the literal performance of the latter. Merritt Hill Vineyards Inc., 61 N.Y.2d at 112-13; Moran, 11 N.Y.3d at 456. Second, the provisions of Paragraph 5 cannot be separate and independent promises from Paragraph 3(b) because the provisions of Paragraph 5 are not promises at all. They are purely elective, and they entail no commitment to perform or ground for default because Barclays is not required to dispute. Restatement (Second) of Contracts§ 2(1) (a promise is a "manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made."). This is plain from the words of Paragraph 5: "If a party ... disputes ... then ... the Disputing Party will notify ... and the appropriate party will Transfer the undisputed amount." R:927 (CSA ~ 5) (emphasis added). Obviously the provision regarding notice cannot be promissory. Failure to provide notice could not trigger any default - 32- because, without notice, the non-disputing party could not even know when to start the cure period or declare a default. Because Paragraph 5 treats notice and the transfer of an undisputed amount in parallel fashion- in the same clause and with the same timing deadlines - the two provisions should be interpreted consistently. White v. Knickerbocker Ice Co., 254 N.Y. 152, 159 (1930), abrogated on other grounds by Knapp v. Hughes, 19 N.YJd 672, 677-78 (2012). Neither should be construed as promissory. Paragraph 5 is designed to provide a swift and certain process for resolving valuation differences underlying a collateral call. Viewing its provisions as promissory would upend that goal, would cause delay as parties debated whether failures to comply with Paragraph 5 would themselves constitute grounds for default, and would create needless uncertainty over which deficiency in failing to respond to a collateral call constitutes the proper ground for default. The Court should reject any interpretation of this provision that leads to such an anomalous result. Bailey v. Fish & Neave, 8 N.Y.3d 523, 529 (2007).7 7 Barclays argues that meeting the undisputed amount deadline is promissory because BDC could declare a default for failure to make that transfer under Paragraph 7(i) of the Credit Support Annex. That provision, however, on its face applies only to a transfer of Posted Collateral that is "required," not to a transfer that is purely elective such as the one here. R:929 (CSA ~ 7(i)). Barclays' theory is in any event legally irrelevant given that "[a] provision may be both a condition and a promise, if the parties additionally promise to perform a condition as part of their bargain." Merritt Hill Vineyards Inc., 61 N.Y.2d at 113 n.*. -33- Third, a theory of substantial performance has no place here because time is necessarily of the essence for commercial contracts between sophisticated parties. Reddy, 95 A.D.3d at 983; Cooper-Rutter Assocs., Inc., 193 A.D.2d at 946. The substantial performance cases that Barclays relies upon do not involve the enforcement of contractual deadlines in such a context and so have no relevance to this case. Barclays Br. 58-59. The Court's longstanding practice is to respect, enforce and apply the carefully calibrated terms of the contract as written by the parties themselves. It should do so here. 3. There Is No Forfeiture Because Barclays Only Lost Its Right To Dispute. In the alternative, Barclays asks the Court to equitably excuse its failure to satisfy the express condition ofParagraph 3(b) on the grounds that adherence to the contract would result in a "forfeiture." There is no forfeiture here, and there is no lack of equity. By failing to transfer the undisputed amount by the contractual deadline, Barclays lost only its-right to dispute a single collateral call by BDC. A forfeiture, by contrast, is "the denial of compensation that results when the obligee loses [its] right to the agreed exchange after [it] has relied substantially, as by preparation or performance on the expectation of that exchange." Oppenheimer, 86 N.Y.2d at 692 n.2 (internal quotation marks omitted). Here, the contract continued to be in effect and all of Barclays' rights, including its rights to payment - 34- under the derivatives and its right to continue issuing its own collateral calls, would have been preserved if it had cured the Potential Event of Default during the two-day cure period. There was therefore no denial of compensation, loss of the agreed exchange, or substantial reliance, as a result ofBarclays' failure to timely transfer the undisputed amount. To the contrary, the law is long settled that there is no forfeiture where a contract provides for acceleration of a larger payment as the result of even a minor payment deficiency. Albertina Realty Co. v. Rosbro Realty Corp., 258 N.Y. 472, 475 (1932) (clause permitting acceleration of mortgage for failure to pay $166.66 in principal six days after due date "does not constitute a forfeiture or a penalty"). After it received BDC's "Notice of Failure to Transfer Return Amount" on October 8, 2008, Barclays could have cured the Potential Event of Default by paying the Return Amount at any time during the two-day cure period. If it had done so, the agreement would have remained in effect and Barclays could have easily corrected any perceived imbalance in collateral either through subsequent collateral calls of its own or through disputes of calls made by BDC. Instead, Barclays chose to ignore the notice and to make no further collateral payments. After receiving BDC's termination notice, Barclays strategically manufactured its "dispute" defense as an excuse to continue holding BDC's cash collateral. There is no inequity here by holding Barclays to its contractual obligation and requiring that - 35- it return BDC's collateral. On the contrary, it would be inequitable to allow Barclays to dishonor its obligations and keep BDC's cash collateral. Fifty States Mgmt. Corp. v. Pioneer Auto Parks, Inc., 46 N.Y.2d 573, 579 (1979) (where defendant made no attempt to cure its default after being notified of failure to make rent payment, "[i]t would be a perversion of equitable principles to relieve a party of the impact of its intentional default."). Barclays may now bemoan the exactness of the deadlines of the industry standard form contract terms that the parties agreed to use. But there is no equitable basis in a case such as this to relieve a sophisticated party- one who elected to ignore a "Notice of Failure to Transfer Return Amount" for two business and five calendar days - from the plain requirements of the agreement. 4. There Is No Triable Issue Of Fact Regarding Barclays' Failure To Timely Transfer The Correct Undisputed Amount. Next, the Court should reject Barclays' claim that there is a contested issue of fact as to whether it complied with the undisputed amount provision. Barclays Br. 68. Barclays has judicially admitted that the undisputed amount was $5,080,000, that it did not transfer that amount on October 7, 2008, that it transferred $5 million on October 8, 2008 and that it made no further transfer. R:422-23 (RFA Response Nos. 38,42 and 43). These uncontested facts warrant - 36- affirmance of the Appellate Division order. Barclays' judicial admissions, as seen from its responses to BDC's notices to admit, here could not be plainer: REQUEST NO. 38: $5,080,000 ofBDC's October 6, 2008 collateral call was an undisputed amount, as that term is used in paragraph 5 of the Credit Support Annex. RESPONSE: Barclays denies Request No. 38, except admits that after receiving BDC wire transfers on October 6, 2008, Barclays concluded that $5,080,000 was the undisputed amount, as that term is used in the Credit Support Annex, ofBDC's October 6, 2008 collateral call. REQUEST NO. 40: Barclays did not transfer any collateral to BDC on October 7, 2008. RESPONSE: Barclays admits Request No. 40. REQUEST NO. 42: Barclays transferred $5,000,000 to BDC on October 8, 2008 between noon and 1 p.m. RESPONSE: Barclays admits Request No. 42. REQUEST NO. 43: Barclays did not transfer any collateral to BDC subsequent to the $5,000,000 transfer on October 8, 2008 RESPONSE: Barclays admits Request No. 43. R:422-23 (emphasis added). Based on those admissions, Barclays' failure to comply with the undisputed amount provision is conclusively established for purposes of this case. See, e.g., Groeger v. Col-Les Orthopedic Assocs., P.C., 136 A.D.2d 952, 952 (4th Dep't 1988) ("[A ]n admission in response to a notice to admit, unless amended or withdrawn by court order, is conclusive."). Now, at the eleventh hour, Barclays - 37- attempts to manufacture a triable issue of fact by pointing to a letter sent by BDC on October 16, 2008- after termination- stating that $5,080,000 had been transferred. Barclays Br. 68 (citing R: 1662). The letter in no way alters the uncontested fact that the only payment by Barclays was $5 million flat - a deficient amount- and that it was not paid until October 8, 2008, after the deadline for payment of the undisputed amount had passed. Barclays itself acknowledges in its brief that only $5 million was transferred on October 8, 2008, a transfer that was both late and short in light of its agreement on October 7, 2008 to transfer $5,080,000. Barclays Br. 26. It is far too late for Barclays to ask this Court to relieve it of its notice to admit responses now. Feinberg v. Saks & Co., 56 N.Y.2d 206, 210-11 (1982) (holding that the Court of Appeals lacks power to review matters of discretion where party did not raise objection in trial court).8 Similarly, Barclays cannot create a triable issue of fact by claiming that BDC received the benefit of a "credit" when it paid a collateral call it received from Barclays on October 8, 2008. The purported "credit," like the $5 million payment, occurred after the deadline to transfer the undisputed amount. Barclays could not have retroactively suspended the October 7, 2008 Return Amount due 8 The Appellate Division dissenters incorrectly stated that there was a fact question as to whether an undisputed amount was owed at all given that Barclays' internal calculations did not show such an amount as due until October 7, 2008. R:4381- 82. There is no contractual basis for that position, and Barclays does not endorse that erroneous predicate on this appeal. - 38- date with any such credit. Additionally, the contract does not permit Barclays to meet the undisputed amount provision by offering a credit at all. Paragraph 5 requires a "Transfer" of the undisputed amount. "Transfer" is defined as a "payment or delivery by wire transfer into one or more bank accounts specified by the recipient." R:927; R:933. Barclays has judicially admitted that it made no such wire transfer. R:423 (RFA Response Nos. 42 and 43). The contorted theory that a belated "credit" may be netted against a deficient undisputed amount transfer so as to retroactively suspend a Return Amount that was already past due was never raised by Barclays at the time of termination. It is instead an after-the-fact, litigation-driven excuse with no basis in the words of the agreement.9 Finally, once the Potential Event of Default arose, Barclays had no right to issue any collateral calls. R:926 (CSA ~ 4(a)). Barclays' only recourse to regain that right was to transfer the full $40 million Return Amount. As the Appellate Division pointed out, Barclays never did so. Accordingly, there could have been 9 The Appellate Division dissenters incorrectly stated that the contract provided for netting of collateral due for transfer. R:4383. The relevant provision of the agreement, however, permits netting only of amounts payable in "respect of the same Transaction." R:897 (Master Agreement§ 2(c)). The total return swap and hedges constituted multiple "Transactions" between the parties. R:704-47; R:896; R:942-66. The parties' collateral calls were attributable to all outstanding Transactions. See R:932 ("Exposure" definition). Transfer of the undisputed amount therefore falls outside of Section 2(c)(ii) and is not subject to netting. - 39- no "credit" because no amount would have been due for transfer to Barclays so long as the Potential Event of Default persisted. The Appellate Division therefore correctly concluded that Barclays' failure to timely transfer the correct undisputed amount meant that the $40 million Return Amount was due on October 7, 2008. See supra Chronology, at 6. A Potential Event of Default existed at that time. Barclays could cure only by paying the $40 million Return Amount, which it undeniably failed to do. 5. Contrary To Barclays' Brief, BDC Terminated The Agreement Based On Barclays' Continuing Failure To Transfer The Return Amount, Not The Undisputed Amount. The Court should also reject Barclays' attempts to divert analyzers of its brief from the actual grounds ofthe Appellate Division's decision. Barclays seeks to create the impression that the Appellate Division found Barclays to be in default merely as a result of its failure to transfer the undisputed amount. For example, Barclays asserts in its brief: The Appellate Division disregarded this controlling precedent when it held that BDC "was entitled to call an event of default" when Barclays did not "pay the [$5,080,000] undisputed amount" by "the close of business on October 7 ... deadline." Barclays Br. 59 (quoting R:4372). -40- This paraphrase alters and distorts the Appellate Division's actual reasoning beyond recognition.10 The Appellate Division precisely held that "[h]aving failed to timely pay the undisputed amount by the [Paragraph 5] deadline, Barclays lost any right it may have had to suspend payment of the full $40 million." R:4370 (emphasis added). The Appellate Division unequivocally held that Barclays defaulted for failing to transfer that $40 million amount during the cure period - not some lesser sum. R:4369. Barclays evidently desires to create the illusion that its default merely involved an $80,000 shortfall in a single day-late payment. Barclays' default and the resulting termination, however, were expressly based on the continuing failure to transfer the $40 million ofBDC's Posted Collateral. That payment default is plainly material to this contract. Even without regard to the Delivery of Collateral clause, Barclays had no right to suspend payment of the $40 million Return Amount given its admitted failure to transfer the undisputed amount on time and in 10 The relevant passage of the Appellate Division's decision actually reads as follows: Although BDC may have been willing to allow Barclays to pay the undisputed amount if it did so by the close of business on October 7, once that deadline passed, it was entitled to call an event of default based on the wording of the Master Confirmation [which required payment of the Return Amount]. R:4372 (language quoted by Barclays emphasized). - 41- the correct amount. The Appellate Division's determination as a matter of law that Barclays therefore defaulted was correct and should be affirmed. B. The Return Amount Was Also Due On October 7, 2008 Because Barclays Unconditionally Promised To Make Such Transfer By The Next Business Day "Notwithstanding Anything In The Credit Support Annex To The Contrary." The Court may reach this same conclusion through a different contractual route by adopting the Appellate Division's second and independent ground for the grant of summary judgment to BDC. Regardless of whether Barclays followed Paragraph 5 of the Credit Support Annex, the $40 million Return Amount was still due on October 7, 2008. That is because the Delivery of Collateral clause unconditionally required Barclays to transfer "any Return Amount" by the next business day: Notwithstanding anything in the Credit Support Annex to the contrary ... Total Return Payer [Barclays] shall Transfer any Return Amounts in respect of Transactions not later than the Business Day following the Business Day on which [Total Return Receiver, BDC] requests the Transfer of such Return Amount. R:958 (emphasis added); see supra note 3, at 21. That clause is part of the negotiated Master Confirmation, which explicitly superseded the form terms of the Credit Support Annex. 11 The key word in the 11 As discussed above, the Master Confirmation provides that "[i]n the event of any inconsistency ... this Master Confirmation will govern the Master Agreement .... " R:942. The Credit Support Annex was incorporated into and formed part of the -42- Delivery of Collateral clause is "anything." This was the word that the motion court effectively rewrote in denying BDC its request for summary judgment. It was plain legal error for the motion court to have done so. The Appellate Division dissenters made a similar legal error by refusing to give the word "anything" its plain and ordinary meaning, instead substituting their own subjective views for what they felt the parties must have intended. R:4378. "Anything" means what it says. It is all-encompassing, unqualified, and, in the context of the phrase "[ n ]otwithstanding anything in the Credit Support Annex to the contrary," acts to supersede each and every inconsistent term in the Credit Support Annex. Zion v. Kurtz, 50 N.Y.2d 92, 104 (1980) ("[T]he word 'any' means 'all' or 'every' and imports no limitation."). The word "anything" is unambiguous because it has a "definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion." Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002) (internal quotation marks omitted). As such, the word "anything" and the surrounding words of the clause should be applied as written by the parties. A.M Knitwear Corp. v. All Am. Exp.-Imp. Corp., 41 N.Y.2d 14, 21 (1976) ("[W]hen words have a well-understood meaning the Master Agreement and so was superseded by the Master Confirmation where inconsistent. R:896; R:925. - 43- courts are not permitted to search for the intent of the parties."); Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004) ("[C]ourts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.") (citation and internal quotation marks omitted). The Appellate Division therefore correctly reversed the motion court on this point, holding instead that the Delivery of Collateral clause was "plain and unambiguous" and that it "require[ d] Barclays to transfer any Return Amount demanded by BDC no later than the business day following the demand ... '[n]otwithstanding anything in the [CSA] to the contrary."' R:4371-72. The Appellate Division's interpretation of the "notwithstanding" language in the Delivery of Collateral clause as well as the superseding provision of the Master Confirmation is well-supported by an unbroken line of precedents and principles of contractual interpretation construing similar language. Warberg Opportunistic Trading Fund, L.P. v. GeoResources, Inc., 112 A.D.3d 78, 83 (1st Dep't 2013) (enforcing a "notwithstanding" clause even though it rendered another detailed and technical clause in the contract inoperative); H Fox & Co., Inc. v. Blumenfeld, 24 A.D.3d 722, 722-23 (2d Dep't 2005) (finding clause that applied "[n]otwithstanding anything to the contrary set forth in this lease" to be unambiguous and controlling over any other clause in the contract); Somer v. -44- Somer, 155 A.D.2d 591, 595 (2d Dep't 1989) (provision with "notwithstanding" language took precedence over other provision that would otherwise have imposed conflicting terms); Bank of NY. v. First Millennium, Inc., 607 F.3d 905, 917 (2d Cir. 2010) ("This Court has recognized many times that under New York law, clauses similar to the phrase '[n]otwithstanding any other provision' trump conflicting contract terms."); Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435, 439 (2d Cir. 1995) ("Whatever tension otherwise would exist among the ... contract provisions ... is relieved by the 'notwithstanding clause' .... ") (applying New York law). The law here is therefore well-settled, and the motion court and the Appellate Division dissenters erred in failing to apply it. Adopting the position that Barclays now urges here would require the Court to upend the expectations of parties to untold contracts drafted with reliance on the predictability of New York law. It would thus undermine the faith that commercial parties rightly place in the jurisprudence of this State that unambiguous terms of an agreement will be enforced as written.12 12 Barclays' assertion that the Delivery of Collateral provision must be ambiguous because the motion court and the two dissenting Appellate Division justices interpreted the provision as Barclays proposes finds no support in the law. Breed v. Ins. Co. ofN Am., 46 N.Y.2d 351, 355 (1978) ("split in Judges and in courts" was "rejected long ago" as the basis for finding a contract provision ambiguous). - 45- 1. Barclays' Proffered Interpretation Rewrites The Words The Parties Actually Used. Contrary to the agreement's plain words, Barclays maintains that the Delivery of Collateral clause merely modifies the default timing rules in Paragraph 4(b) of the Credit Support Annex but does not otherwise limit its ability to suspend transfer of a Return Amount pending a dispute. Barclays Br. 41-42. Barclays points to no language that so limits the scope of the Delivery of Collateral clause, and there is no such language to be found in the agreement. Instead, the arguments that it proffers in support of its interpretation simply misstate the contract. Barclays says that the definition of "Return Amount" incorporates Paragraph 5 of the Credit Support Annex and so the Delivery of Collateral clause remains "subject to" the dispute provision. Barclays Br. 43. That is not what the agreement actually says. The sentence defining "Return Amount" in Paragraph 3(b) ofthe Credit Support Annex is not "subject to" Paragraphs 4 and 5. R:926. The bold and italicized words "Return Amount' are set forth in quotation marks in the second sentence of Paragraph 3(b), not the first. !d. It is the second sentence of Paragraph 3(b) that defines the term, but only the first sentence contains the words "(s]ubject to Paragraphs 4 and 5." It would indeed be absurd to read the agreement as Barclays proposes. On Barclays' logic, Paragraph 4 as well as Paragraph 5 would have to be deemed unaffected by the Delivery of Collateral clause. Both provisions, after all, are -46- referenced in the phrase "[s]ubject to Paragraphs 4 and 5" that Barclays claims (incorrectly) is part of the definition ofRetum Amount. Paragraph 4(b), however, contains the very timing provision that Barclays insists was modified by the Delivery of Collateral clause. R:926 (CSA ~ 3(b)). Under Barclays' own reasoning, therefore, the Delivery of Collateral clause would not supersede anything and would be rendered meaningless. That reasoning should be rejected. Beal Sav. Bankv. Sommer, 8 N.Y.3d 318,328 (2007). Separately, Barclays makes a new argument on this appeal that the Delivery of Collateral provision leaves Paragraph 5 intact because Paragraph 3(b) mentions the term "Credit Support Amount," which in tum incorporates the concept of "Exposure," which in tum is defined to be "subject to Paragraph 5 in the case of a dispute." Barclays Br. 44. This argument makes no sense. Exposure reflects an estimate of potential payment obligations under the derivatives upon default. R:932 (CSA ~ 12). It changes from day to day based on the value of the total return swap and hedge transactions. BDC uses its estimate of Exposure as of the date when it makes its call. If there is a dispute and BDC recalculates, it recalculates Exposure using dealer quotations collected at a later date. R:927 (CSA ~ 5). The mention of Paragraph 5 in the definition of Exposure merely reflects the fact that there may be a subsequent recalculation in the event of a dispute. It does not change the Delivery of Collateral clause's deadline for -47- transferring in response to a call. Indeed, BDC would be under no obligation in the event of a Paragraph 5 dispute to recalculate Exposure with dealer quotes until after that transfer deadline, making the definition irrelevant to the determination of the Return Amount under the present circumstances. !d. 2. The Delivery Of Collateral Clause Does Not Displace Barclays' Key Rights Under The Credit Support Annex. Barclays next claims that the Delivery of Collateral clause contradicts the express election of the parties in Paragraph 13(f) of the Credit Support Annex, which states that Paragraph 5 applies. This is a red herring and is disposed of by the plain words of the agreement. The Delivery of Collateral clause does not change the fact that Paragraph 5 still applies and Barclays could still have disputed a collateral call. BDC has never suggested otherwise. The Delivery of Collateral clause merely supersedes Barclays' right to suspend the transfer due date while the dispute process is pending, which is why these arrangements are known in the industry as "pay first, dispute later." R:511 (Rahl Aff. ~ 4); R:1192. Ifthe parties are unable to resolve a dispute, Paragraph 5 requires BDC to recalculate the Return Amount based on dealer quotations and then upon demand to refund any excess collateral it holds if the recalculation indicates that its call was too large. This . process requires only a few days to complete. See supra note 2, at 14. Barclays' -48- claim that this clause "strips Barclays of its right to utilize the Dispute Resolution procedure" is thus a straw man. Barclays Br. 45. 13 Barclays also argues that the Delivery of Collateral clause reads out the contract rights provided for by the form document - specifically, the right in Paragraph 4( a) in the form Credit Support Annex of Barclays not to pay a BDC collateral call when BDC is in default. Barclays Br. 45. Importantly, while there is no allegation in this case that BDC was in default under the agreement. However, Barclays could have swiftly stopped BDC's ability to make any collateral calls had any such default occurred simply by terminating the derivative transactions. Again, Barclays' key rights are preserved. The broader point, however, is that there is no conflict between provisions where there is a trumping clause stating that the Delivery of Collateral clause controls "notwithstanding anything to the contrary" in the Credit Support Annex. Plainly, "[w]hatever tension otherwise would exist among the [inconsistent] provisions ... is relieved by the 'notwithstanding' clause .... " Morse/Diesel, 67 F.3d at 439; see also RiversideS. Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 406 (2009) (observing that sunset clause containing no limitation 13 Because BDC's interpretation leaves intact Barclays' right to invoke the Paragraph 5 dispute resolution process, there is no conflict with either New York's public policy favoring alternative dispute resolution provisions or the cases Barclays cites referencing that policy. Barclays Br. 47-48. -49- "unambiguously encompasses all of the obligations in the contract"). Indeed, Bare lays' contention that agreements must be read so as to give effect to all provisions does not lead to a different result. Given the trumping language, there is no conflict between these provisions. Morse/Diesel, 67 F.3d at 439. Instead, Barclays' interpretation would create one by impermissibly reading the trumping language out of the contract. 3. Barclays Cannot Create An Ambiguity By Pointing To Unreliable Extrinsic Evidence That Post-Dates The Formation Of The Contract. Barclays attempts to create a nonexistent ambiguity in this provision by referring to purported evidence of various persons' subjective beliefs about how these complex documents operated some three years after they were negotiated and signed. All such evidence is inadmissible to vary the terms of an unambiguous agreement and cannot be used to create an ambiguity where there is none. W. W. W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 163 (1990). The only probative evidence of the parties' agreement on this issue is the two-part structure of the Delivery of Collateral clause itself. In subparagraph (a), BDC gave Barclays a substantial concession by agreeing to transfer certain collateral related to new assets added to the total return swap earlier than the Credit Support Annex would otherwise require. In subparagraph (b), BDC secured a substantial concession from Barclays, namely its promise to transfer "any Return Amount" by the next -50- business day "[n]otwithstanding anything in the Credit Support Annex to the contrary." R:958. Such a structure on its face reflects the ordinary give-and-take of a negotiated compromise between these two commercial actors, and Barclays points to no evidence from the time the agreement was negotiated to suggest otherwise. The fact that each side has different contractual rights with respect to calling collateral is therefore unsurprising. Matter of Riccardi, 45 A.D.2d 191, 193 (1st Dep 't 197 4) ("Each right or power or privilege possessed by one party does not have to have its counterpart in the other.") (quoting lA Corbin on Contracts§ 161, at 68). 4. A "Pay First, Dispute Later" Arrangement Merely Permits BDC To Hold Contested Collateral Pending A Dispute. Barclays further argues that the Court should rewrite the Delivery of Collateral clause based on interpretive rules that read contracts to prevent a "harshly unequal allocation of economic power" or that would place one party "at the mercy" of the other. Barclays Br. 46-47. It is risible for Barclays- a bank with a balance sheet showing total assets in the trillions (including the hundreds of millions in BDC collateral improperly held here) -to claim that it was placed at the mercy ofBDC by agreeing to a fully-counseled, negotiated provision that merely permits the calling party to hold the disputed collateral pending resolution of a recalculation process lasting at most a few days. It would have been no hardship for Barclays to allow BDC to hold BDC's own collateral during that short -51 - period. Even if this were a truly novel sort of arrangement- which it is not (see R: 1192) - the law is well settled that this kind of unambiguous, negotiated language should, as the Appellate Division held, be enforced as written. Jade Realty LLC v. Citigroup Commercial Mortg. Trust 2005-EMG, 20 N.Y.3d 881, 884 (2012). This Court's recent decision in Jade Realty is controlling and disposes of Barclays' argument. 14 5. BDC Did Not Waive And Is Not Estopped From Asserting Its Rights Under The Delivery of Collateral Clause. Finally, Barclays makes a passing argument that BDC either waived its rights under the Delivery of Collateral clause or is estopped from asserting any such rights. Barclays Br. 64 n.15. Neither assertion has any legal merit. The contract requires that any waiver be in writing and signed by both parties. It is uncontested that there was no such written and executed waiver in this case. R:907 (Master Agreement§§ 9(b), 9(f)). That alone disposes ofthe issue. There is also no evidence in the record that BDC intentionally relinquished known rights under the Delivery of Collateral clause at the time of termination. R: 1109 (Rahl Dep. 179:9-24). That, too, is fatal to any belated waiver claim. Gilbert Frank Corp. v. Fed. Ins. Co., 70 N.Y.2d 966,968 (1988). 14 Like the defendant in Jade Realty, Barclays never asserted any claim for reformation below, and there is no basis for any such claim in the record. The facts here, moreover, involve none of the concerns identified by the dissent in that case. Id. at 884-86 (Smith, J., dissenting). -52- As for estoppel, Barclays claims that BDC changed its basis for termination after-the-fact and therefore should be estopped from relying on the unambiguous provisions of the contract. Barclays Br. 64 n.15. That is simply not true. As the Appellate Division correctly concluded, BDC terminated the agreement because Barclays failed to timely transfer $40 million ofBDC's collateral. R:4369-70. That basis for termination has never changed. The Delivery of Collateral clause is an additional reason the $40 million Return Amount was then due. Barclays provides no authority for the proposition that a party, after termination for a failure to make a payment when due, is estopped from pointing out alternative contractual or legal grounds as to why that payment was then in fact due. Barclays, an uncommonly sophisticated party, is conclusively presumed to understand the contents of its own contract, Level Exp. Corp. v. Wolz, Aiken & Co., 305 N.Y. 82, 87 (1953), and as a matter of law could not have justifiably relied on any description of contract terms provided by BDC. Sisler v. Sec. Pac. Bus. Credit, Inc., 201 A.D.2d 216, 222 (1st Dep't 1994); Cent. Fed. Sav. F.S.B. v. Laurels Sullivan Cnty. Estates Corp., 145 A.D.2d 1, 6 (3d Dep't 1989). The Delivery of Collateral clause therefore supplies an independent ground for concluding that the full $40 million Return Amount was due for transfer by close of business on October 7, 2008 and that Barclays defaulted for failing to -53- transfer that amount. R:929 (CSA ~ 7(i)); see supra Chronology, at 6. The Appellate Division may be affirmed on this separate basis. C. Barclays Had Notice Of Its Failure To Transfer The Return Amount And Could Only Have Cured By Transferring The $40 Million Return Amount- Not The Undisputed Amount- During The Cure Period. 1. BDC Complied With The Contract's Notice Requirements. In an attempt to muddy the waters, Barclays argues that BDC provided notice of something other than a failure to transfer the $40 million Return Amount. The relevant communications, however, were clear and could not have created any misunderstanding as to the relevant failure that Barclays had to cure. BDC sent Barclays two e-mails on October 6 and 7, 2008 warning Barclays that it had to transfer the Return Amount. R:1617; R:1630. On October 8, 2008, BDC hand- delivered to Barclays a letter with a capitalized heading: "Notice of Failure to Transfer Return Amount." R: 1639 (emphasis added). As the Appellate Division found, the heading ofBDC's letter "plainly identifies the default as 'Failure to Transfer Return Amount."' R:4371. It was on the basis of"that failure"- i.e., Barclays' failure to transfer the $40 million Return Amount- that BDC declared a default. R:1639. The "Notice of Failure to Transfer Return Amount" plainly and specifically satisfies the two-day notice requirement in Paragraph 7(i), which provides that an Event of Default exists where there has been a failure "to make, when due, any Transfer of ... Posted -54- Collateral" and where "that failure continues for two Local Business Days after notice of that failure is given to that party." R:929 (CSA ~ 7(i)); see also Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918, 925 (2d Cir. 1977). There could have been no confusion here given the notice itself and the multiple e-mails stating that Barclays had to transfer a Return Amount. If there were any confusion, Barclays had an affirmative duty to make further inquiry. ld. It made no attempt to do so. It therefore has no basis on which to take issue with the sufficiency ofBDC's notice now. 2. The October 8, 2008 Notice Did Not Grant An Option To Cure By Paying Only The Undisputed Amount During The Cure Period. Next, Barclays claims that it had an option to cure by transferring only the undisputed amount during the cure period. Barclays Br. 62. It had no such option. As the Appellate Division correctly held, "to effect a cure, Barclays was required to transfer the full $40 million Return Amount, not simply the undisputed amount." R:43 70-71. The Appellate Division's reasoning is based firmly on the contract. Nothing in Paragraph 7(i) of the Credit Support Annex permits Barclays to cure a failure to transfer the Return Amount on October 7, 2008 by transferring anything less than the full Return Amount during the cure period. No new option could have been granted under the agreement without a writing signed by both parties. R:907 (Master Agreement§ 9(b)). There is no such writing here. -55- Finding no support in the words of the agreement itself, Barclays argues that BDC's October 8, 2008 letter awarded it an extra-contractual option it did not otherwise have to cure the failure to transfer the $40 million Return Amount merely by transferring the undisputed amount. That letter, however, did nothing of the sort. The complete text of the letter makes that fact plain: Re: Notice of Failure to Transfer Return Amount Reference is made to the demand for a Return Amount made by BDC to Barclays prior to 1 :00 p.m. (NY time) on Monday, October 6, 2008, pursuant to Paragraph 3(b) of the Credit Support Annex ("CSA") to the Schedule to the ISDA Master Agreement ("Master Agreement"), dated as of May 5, 2005, between Barclays and BDC. Pursuant to Paragraph 4(b) and Paragraph 5 ofthe CSA, by 5:00p.m. NY time on Tuesday, October 7, 2008, Barclays was required to either (i) pay the relevant amount Return Amount or (ii) notify BDC that Barclays disputes the calculation of the Return Amount and make a payment with respect to the undisputed amount. As of 5:00p.m. NY time on October 7, BDC received neither payment nor a notice of dispute. Therefore, a Potential Event of Default has occurred under the Master Agreement with respect to Barclays. This notice constitutes a "notice of failure" pursuant to Paragraph 7(i) of the CSA. Please be advised that if this failure continues for two business days, an Event of Default will have occurred with respect to Barclays under Section S(a)(iii)(l) of the Master Agreement. If you have any questions regarding the enclosed notice, please do not hesitate to contact the undersigned at 203-552-0888. R:1639. In an attempt to create the misimpression that the clear words of this letter granted Barclays a right to cure that it did not have, Barclays resorts to a -56- misleading paraphrase. It omits the letter's heading ("Notice of Failure to Transfer Return Amount'') and its first paragraph ("Reference is made to the demand for a Return Amount made by BDC to Barclays") (emphasis added). Instead, Barclays quotes the second paragraph of the letter and claims that it sets forth the relevant failure. Barclays Br. 61-62. It does not. As the Appellate Division noted, the second paragraph merely states that "in order to have properly disputed the collateral call, Barclays was required to have both notified BDC of the dispute and transferred the undisputed amount of$5,080,000 by October 7, 2008." R:4369. This was simply a contractual explanation for why the Return Amount was then due and owing. Contrary to the reasoning of the dissent, this language was not a unilateral grant to Barclays of some extra-contractual option to cure by transferring only the undisputed amount. R:4384-85. The notice identified the relevant failure to transfer Return Amount, directed Barclays to Paragraph 7(i) of the Credit Support Annex, and otherwise did not advise on, expand or modify what Barclays had to do to cure. R: 1639. Barclays' arguments regarding the notice again attempt to create a misimpression that it defaulted due to a day-late transfer of the correct undisputed amount. The Appellate Division dissenters were led astray by that misunderstanding and so it bears repeating: there is no such thing as a Potential Event of Default under Paragraph 7(i) of the Credit Support Annex for "failure to -57- either pay or dispute." Paragraph 7(i) addresses failures by a party "to make, when due, any Transfer of ... Posted Collateral ... required to be made by it." R:929 (CSA ~ 7(i)) (emphasis added). The provisions of Paragraph 5- including the transfer of an undisputed amount- are elective instead of required. Barclays defaulted because it failed to transfer a required $40 million Return Amount. BDC plainly and unambiguously provided Barclays with notice of failure under Paragraph 7(i) of the Credit Support Annex to make a required transfer of a Return Amount. The heading alone of the October 8, 2008letter made this failure clear: "Notice of Failure to Transfer Return Amount." R:1639 (emphasis added). As the Appellate Division aptly pointed out, "[t]he dissent gives no weight to the heading section of the notice, which plainly identifies the default as 'Failure to Transfer Return Amount.' The heading does not advise Barclays of its failure to remit the undisputed amount because by the time the notice was sent, that option was no longer available." R:4371 (emphasis added). 3. Barclays Did Not Transfer The Undisputed Amount During The Cure Period Or Ever. Finally, the Court may reject any argument that Barclays cured its payment default by transferring only the undisputed amount for the simple reason that Barclays did not even transfer the full undisputed amount, let alone the required $40 million Return Amount. Barclays judicially admitted that the undisputed amount was $5,080,000 but that it transferred $5 million flat- a deficient amount- -58- and no additional amounts during the two-day cure period or subsequently. R:422- 423 (RFA Response Nos. 38, 42 and 43). As the Appellate Division correctly pointed out: Nor did Barclays transfer the $5,080,000 undisputed amount. In fact, Barclays made no payment on October 7, 2008. The following day, October 8, 2008, Barclays sent BDC a flat $5 million payment, which was a day late and $80,000 less than the undisputed amount. R:4368 (emphasis added). There is no issue to try here even on Barclays' unsupportable theory as to what it needed to do to cure. Barclays' claim that BDC received the benefit of a "credit" for the shortfall from the undisputed amount after it missed the requisite deadline to make a wire transfer payment (i.e., to "Transfer") has no basis in the agreement. See supra at 36. Because Barclays failed to cure its failure to transfer the $40 million Return Amount and that failure was "continuing," BDC had every right to terminate. R:900 (Master Agreement§ S(a)(iii)(l)). II. BARCLAYS, IN ANY EVENT, IS NOT ENTITLED TO PARTIAL SUMMARY JUDGMENT THAT IT HAD THE RIGHT TO TERMINATE. Finally, this Court should reject- as have all six justices below, including the two dissenting justices in the Appellate Division- Barclays' request for partial summary judgment on its right to terminate the agreement. As the Appellate Division correctly held, Barclays had no right to declare an Early Termination Date because BDC had already terminated all transactions for default. R:4375. But -59- even were any serious consideration to be given to Barclays' request, there would be numerous contested factual questions that would have to be resolved in a plenary trial. Barclays has no basis for such relief on this record and in this procedural setting. Barclays asserts that it had the right to designate an Early Termination Date based on BDC's refusal to transfer collateral in response to Barclays' collateral calls of October 10 and October 14, 2008, which by their terms were payable following BDC's termination. It ignores, however, the numerous contested issues of fact as to whether those calls were properly made and whether BDC had any contractual obligation to respond to them at all. 15 These factual issues in and of themselves preclude summary judgment in Barclays' favor. Barclays focuses its brief on the events of October 6 and October 7, 2008 in an attempt to transform a contested, fact-intensive record into an argument that, as a matter of law, it met each of the requirements of Paragraph 5, including adequate 15 Barclays had agreed that it would call collateral from BDC under a contractual standard known as the "Two Affected Parties" rule. R:926 (CSA ~ 3); R:932 (Exposure definition); R:905 (Master Agreement§ 6(e)(ii)(2)(A)). Barclays did not follow that rule with respect to BDC. R: 1183-87. Barclays had no right to sue for breach of contract when it itself was in breach of the agreement. Brualdi v. Iberia, 79 A.D.3d 959, 960 (2d Dep't 2010). Further, Barclays' internal records state that "[t]he CP [counterparty, BDC] disputed today's margin call." R:3606. Barclays, of course, made no attempt to recalculate these calls pursuant to Paragraph 5 and so by the very logic it advances on this appeal - where any expression of disagreement in response to a collateral call purportedly triggers a Paragraph 5 dispute- it had no right to declare a default for any failure to transfer. -60- notice and consultation to resolve the dispute. The relevant facts, however, show the exact opposite. On October 6, 2008 at 12:56 p.m., BDC issued its collateral call to Barclays. R: 1553. Two minutes later, Mr. Nisbet responded that he did not agree with BDC's call and asked whether BDC wanted to invoke the dispute process. R:1568. This was in keeping with Mr. Nisbet's own internally stated instructions to employees under his supervision as to how to deal with customers in similar circumstances. R:3239. Before the October 7, 2008 dispute deadline expired, BDC warned Barclays at 3:55p.m. that "[a]t present, we have not received payment, nor has Bare lays exercised its dispute right." R: 1630 (emphasis added). Barclays made no attempt in its response to say that it was disputing. On October 8, 2008, BDC again told Barclays that it had not exercised its Paragraph 5 dispute rights. R: 1639. Barclays did not attempt to say that it had (until, of course, after termination). The record is uncontested that BDC was ready and willing to seek dealer quotations if Barclays had disputed under Paragraph 5, but did not do so given Barclays' failure to respond. R:2916 (Deckoff Aff. ~ 4). No one at BDC understood Barclays to have provided notice of a Paragraph 5 dispute, given its silence and given that the few communications that Barclays did provide were unlike any prior Paragraph 5 dispute. R:607-08 (Deckoff Aff. ~ 10); R:2399-2411 - 61- (Nahas Aff. ~~ 5-51); R:2920-23 (Giordano Aff. ~~ 5-13).16 Barclays similarly had no such understanding that a Paragraph 5 dispute was underway given that Mr. Nisbet, the person Barclays maintains initiated the purported dispute, admitted after BDC had terminated: "[t]he, uh, one thing we learned about [BDC] ... is that, if we ever owe them money, that ... it's not up to them to dispute, it's up to us to dispute. It's like they're calling us." R:3542 (October 15, 2008 internal Barclays phone call) (emphasis added). 17 Barclays' utter failure to communicate in response to clear and repeated warnings from BDC confirms that there was no notice and no consultation to resolve any Paragraph 5 dispute. There was, therefore, no failure by BDC to abide by the requirements of the agreement. BDC was ready and willing to follow the contract at all times and did in fact do so. There is instead only a self-interested refusal by a major financial institution- motivated by its desire to retain for itself 16 Barclays misleadingly states that one BDC employee understood Mr. Nisbet's e-mail to constitute a dispute. Barclays Br. 53. That employee in fact testified that she was not involved in BDC's October 6, 2008 collateral call and had no recollection of seeing any communications surrounding that call at the time. R:3452: 18-3454: 13; R:3462: 13-23; R:3476:5-3477:24; R:3481 :9-13. 17 Barclays' silence- particularly in response to BDC's 3:55p.m. October 7, 2008 e-mail- provides an additional basis to affirm. On Barclays' theory, BDC was required to recalculate by no later than 1 p.m. on October 8, 2008 as an express condition of enforcing its collateral call. Barclays' failure to respond to BDC's 3:55p.m. e-mail rendered compliance with that condition impossible. Barclays' own failure to act excuses any condition that might have otherwise suspended the due date for the entire $40 million Return Amount. Kooleraire Serv. & Installation Corp. v. Bd. ofEduc. ofCity ofNY., 28 N.Y.2d 101, 106-07 (1971). -62- $302 million in cash collateral- to honor the rights of its customer. The Court should not reward that refusal by granting Barclays the relief it seeks on this appeal. CONCLUSION For the reasons set forth above, the Order of the Appellate Division should be affirmed. Dated: New York, New York May 8, 2014 RIC By: BE&ORBELLP ~~~~--~-===~------ Craig . Newman Daniel L. Stein Matthew M. Riccardi Alex M. Solomon 200 Liberty Street New York, New York 10281 (212) 530-1800 David W.T. Daniels The Portrait Building 701 8th Street, N.W. Washington, D.C. 20001 (202) 261-2960 Attorneys for BDC Finance L.L. C. -63-