BDC Finance L.L.C. Respondent,v.Barclays Bank PLC, Appellant.BriefN.Y.January 6, 2015To be Argued by: ROBINSON B. LACY (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. REPLY BRIEF FOR DEFENDANT/COUNTERCLAIM-PLAINTIFF- APPELLANT BARCLAYS BANK PLC SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004 Tel.: (212) 558-3121 Fax: (212) 558-3588 Attorneys for Defendant/ Counterclaim-Plaintiff-Appellant Barclays Bank PLC Date Completed: May 27, 2014 DISCLOSURE STATEMENT Pursuant to Rule of Practice 500.1(f), Barclays Bank PLC states that it is a wholly owned subsidiary of Barclays PLC, a company whose shares are publicly held. Barclays Bank PLC’s subsidiaries and affiliates are too numerous to list, but its principal subsidiaries and affiliates are: Barclays Bank Trust Company Limited Barclays Capital Securities Limited Barclays Private Clients International Limited* Barclays Securities Japan Limited Barclays Bank of Kenya Limited* Absa Bank Limited* Barclays Bank S.A.U.* Barclays Capital Inc. Barclays Bank Delaware *Direct subsidiaries of Barclays Bank PLC. STATEMENT OF RELATED LITIGATION Pursuant to Rule of Practice 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 and Barclays Capital Inc., in the Superior Court of the State of Connecticut. The court has granted the parties’ joint motion for a stay of the action pending the appeal in this matter. -i- TABLE OF CONTENTS Page TABLE OF AUTHORITIES ................................................................................... iii REPLY STATEMENT .............................................................................................. 1 ARGUMENT ............................................................................................................. 7 I. BDC CANNOT JUSTIFY ITS TERMINATION ON A BASIS FOR WHICH IT NEVER GAVE BARCLAYS NOTICE AND AN OPPORTUNITY TO CURE ........................................................................... 7 A. The Agreement Did Not Permit BDC to Terminate Based on a Failure to Transfer Collateral Unless BDC Gave Barclays Notice and That Failure Continued for Two Business Days ................ 8 B. BDC Waived and Is Estopped From Asserting Its New Justifications for Terminating the Transactions .................................. 12 II. BDC WAS NOT ENTITLED TO TERMINATE BASED ON THE AMOUNT OR TIMING OF BARCLAYS’ PAYMENT OF THE UNDISPUTED AMOUNT ............................................................................ 14 A. Barclays’ Obligation to Pay the Undisputed Amount Was an Ordinary Promise That Could Be Satisfied by Substantial Performance ......................................................................................... 15 B. The CSA’s Notice Requirement and Two-Day Cure Period Applied to Barclays’ Payment of the Undisputed Amount ................ 22 III. THE COMMERCIAL DIVISION CORRECTLY REJECTED BDC’S “PAY FIRST, DISPUTE LATER” THEORY .............................................. 24 A. The Delivery of Collateral Provision Is Not Inconsistent With the Dispute Resolution Provision ........................................................ 24 B. BDC’s Interpretation of the Agreement Leads to Absurd Results ................................................................................................. 31 TABLE OF CONTENTS (continued) Page -ii- C. At a Minimum, the Evidence Precluded Summary Judgment in BDC’s Favor on Its New Interpretation of the Agreement ................. 34 IV. BARCLAYS NOTIFIED BDC OF A DISPUTE .......................................... 35 V. BARCLAYS WAS ENTITLED TO SUMMARY JUDGMENT ON ITS COUNTERCLAIM THAT IT PROPERLY TERMINATED THE TRANSACTIONS ......................................................................................... 39 CONCLUSION ........................................................................................................ 41 -iii- TABLE OF AUTHORITIES Page(s) Cases Albertina Realty Co. v Rosbro Realty Corp., 258 NY 472 [1932] ............................................................................................. 21 American Cas. Co. v Continisio, 819 F Supp 385 [D NJ 1999] .............................................................................. 38 Banco Espírito Santo, S.A. v Concessionária Do Rodoanel Oeste S.A., 100 AD3d 100 [1st Dept 2012] .......................................................................... 38 Bank of New York v First Millennium, Inc., 607 F3d 905 [2d Cir 2010] ................................................................................. 28 BBS Power Mod, Inc. v Prestolite Elec., Inc., 71 F Supp 2d 194 [WD NY 1999] ...................................................................... 38 Bombay Indus., Inc. v Bank of N.Y., 103064/95, 1997 WL 860671 [Sup Ct NY County May 21, 1997] ................... 38 Braten v Bankers Trust Co., 60 NY2d 155 [1983] ........................................................................................... 37 Breed v Insurance Co. of N. Am., 46 NY2d 351 [1978] ........................................................................................... 34 BWA Corp. v Alltrans Express U.S.A., 112 AD2d 850 [1st Dept 1985] .......................................................................... 29 Central Fed. Sav. v Laurels Sullivan County Estates Corp., 145 AD2d 1 [3d Dept 1989] ............................................................................... 13 Chase Manhattan Bank, N.A. v Natarelli, 93 Misc 2d 78, 93 [Sup Ct Monroe County 1977] ............................................ 37 Contemporary Mission, Inc. v Famous Music Corp., 557 F2d 918 [2d Cir 1977] ................................................................................. 12 Dyner v Collins, 41 NYS2d 88 [Sup Ct NY County 1943] ..................................................... 15-16 Page(s) -iv- El Reda v Love Taxi, 202 AD2d 275 [1st Dept 1994] .................................................................... 13-14 ESPN, Inc. v Office of the Commr. of Baseball, 76 F Supp 2d 383 [SD NY 1999] ....................................................................... 13 Fox Film Corp. v Hirschman, 202 NYS 854 [NY Sup Ct 1924] ........................................................................ 28 General Motors Acceptance Corp. v Clifton-Fine Cent. School Dist., 85 NY2d 232 [1995] ........................................................................................... 14 H. Fox & Co., Inc. v Blumenfeld, 24 AD3d 722 [2d Dept 2005] ............................................................................. 28 Jade Realty LLC v Citigroup Commercial Mtge. Trust 2005-EMG, 20 NY3d 881 [2012] ........................................................................................... 30 Kolmar Americas, Inc. v Koch Supply & Trading, LP, 10 Civ 7905, 2011 WL 6382566 [SD NY Dec. 15, 2011] ................................. 23 Leasing Serv. Corp. v Diamond Timber, Inc., 559 F Supp 972 [SD NY 1983] .......................................................................... 37 Leventhal v New Valley Corp., 91 Civ 4238, 1992 WL 15989 [SD NY Jan. 17, 1992] ...................................... 11 Madison Ave. Leasehold, LLC v Madison Bentley Assoc., LLC, 8 NY3d 59 [2006] ................................................................................................. 8 Merritt Hill Vineyard v Windy Heights Vineyard, 61 NY2d 106 [1984] ........................................................................................... 17 Matter of City Council of Watervliet v Town Bd. of Town of Colonie, 3 NY3d 508 [2004] ....................................................................................... 29-30 Matter of Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352 [2003] ......................................................................................... 27 Metropolitan Life Ins. Co. v Noble Lowndes Intl., Inc., 84 NY2d 430 [1994] ........................................................................................... 33 Page(s) -v- Moran v Erk, 11 NY3d 452 [2008] ........................................................................................... 17 Morse/Diesel, Inc. v Trinity Indus. Inc., 67 F3d 435 [2d Cir 1995] ................................................................................... 28 MRH Capital Partners LP v Presstek, Inc., 12 NY3d 640 [2009] ........................................................................................... 16 New Image Constr., Inc. v TDS Enters. Inc., 74 AD3d 680 [1st Dept 2010] .............................................................................. 8 Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685 [1995] ......................................................................... 15, 18-19, 21 Perlbinder v Board of Mgrs. of 411 E. 53rd St. Condominium, 65 AD3d 985 [1st Dept 2009] ............................................................................ 29 Reddy v Ratnam, 95 AD3d 982 [2d Dept 2012] ............................................................................. 24 Ronnen v Ajax Elec. Motor Corp., 88 NY2d 582 [1996] ..................................................................................... 31-32 Sarinsky’s Garage Inc. v Erie Ins. Co., 691 F Supp 2d 483 [SD NY 2010] ..................................................................... 35 Sisler v Security Pac. Bus. Credit, 201 AD2d 216 [1st Dept 1994] .......................................................................... 13 Snug Harbor Sq. Venture v Never Home Laundry, 252 AD2d 520 [2d Dept 1998] ........................................................................... 31 Somer v Somer, 155 AD2d 591 [2d Dept 1989] ........................................................................... 28 W.W.W. Assoc. v Giancontieri, 77 NY2d 157 [1990] ........................................................................................... 38 Warberg Opportunistic Trading Fund, L.P. v GeoResources, Inc., 112 AD3d 78 [1st Dept 2013] ............................................................................ 28 Page(s) -vi- Waverly Corp. v City of New York, 48 AD3d 261 [1st Dept 2008] ............................................................................ 35 Statutes and Rules CPLR 3212[b] .......................................................................................................... 12 Gen. Mun. Law art. 17 ............................................................................................. 30 Gen. Mun. Law § 718(5) .......................................................................................... 30 REPLY STATEMENT In its opening brief (“Barclays Br.”),1 Barclays set out in detail the terms of the Agreement and the parties’ written and tape-recorded communications. In its brief (“BDC Br.”), BDC largely ignores or mischaracterizes this indisputable evidence. BDC’s approach is unsurprising because the documentary evidence directly contravenes its arguments. On October 6, 2008, Barclays and BDC exchanged competing collateral calls. Considering the preceding three weeks of disputes and the nearly $30 million difference in loan values between Barclays’ and BDC’s collateral calls (R1534-36, 1553-59), it was obvious that each party disagreed with the other’s call. Barclays immediately e-mailed BDC, “We do not agree with this call.” (R1568.) Two hours later, Barclays sent BDC another e-mail stating, “We show that BDC owes Barclays, not the other way around.” (R1617.) None of these facts appear in BDC’s “Chronology of Key Events” (BDC Br. 6-7). In its opening brief, Barclays showed that its e-mails of October 6 used language that had previously been employed by Barclays and BDC to give notice of disputes, quoting extensive testimony, examples of prior notices, and a 1 Unless otherwise noted, all abbreviations used herein are defined in Barclays’ opening brief. 2 telephone conversation in which BDC and Barclays discussed appropriate language for such notices. (Barclays Br. 22-24.) BDC does not purport to address this evidence, and it flatly contradicts BDC’s assertion that “the few communications that Barclays did provide were unlike any prior Paragraph 5 dispute” (BDC Br. 61). At 10:30 the next morning, October 7, BDC and Barclays discussed the disputed call in a recorded telephone call and, after taking account of two subsequent transfers by BDC, agreed that Barclays owed BDC $5,080,000. (R1627-28.) Thus, by the morning of October 7 Barclays had not only notified BDC that it disputed BDC’s $40 million collateral call in accordance with Paragraph 5 of the CSA, but it had also consulted BDC concerning the dispute and was entitled to conclude that the dispute was resolved. BDC’s “Chronology” (BDC Br. 6-7) and the rest of its brief simply ignore these critical facts. Nonetheless, at 3:55 p.m. on October 7, BDC sent Barclays an e-mail stating, “At present, we have not received payment, nor has Barclays exercised its dispute right.” (R1630.) In its brief, BDC makes the astonishing assertion that in response “Barclays supplied no indication that it was exercising its dispute right” (BDC Br. 15). Elsewhere it asserts that “Barclays made no attempt in its response to say that it was disputing.” (BDC Br. 61.) BDC criticizes Barclays for its supposed “silence – particularly in response to BDC’s 3:55 p.m. October 7, 2008 3 e-mail” and “Barclays’ failure to respond to BDC’s 3:55 p.m. e-mail.” (BDC Br. 62 n.17.) In fact, there was no “silence.” Barclays responded to BDC’s 3:55 p.m. e-mail at 4:05 p.m. with an e-mail reiterating the results of its consultation with BDC that morning: “Barclays agrees to return 5,080,000. This is for margin call made on 10/6 (COB 10/3).” (R1630.) As shown in Barclays’ opening brief (Barclays Br. 23-24), BDC itself, in a recorded telephone conversation with Barclays just two weeks earlier, had explained that the parties’ “regular” practice for giving notice of a dispute was to send “[a]n e-mail stating what we think that is owed to us or what we owe them.” (R1071.) Thus, even if Barclays had not previously notified BDC of a dispute (which it had in fact done), it did so in its 4:05 p.m. e-mail, using terminology that BDC had said was appropriate for this purpose. On October 8, BDC sent Barclays a notice of a Potential Event of Default stating that 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.” (R1639 (emphasis added).) After BDC purported to terminate the Transactions on October 14 and Barclays protested, BDC sent a letter to Barclays on October 16 reiterating that Barclays had failed to dispute BDC’s collateral call. (R1662.) The October 4 16 letter acknowledged that Barclays had paid a “refund to BDC [of] $5,080,000 in excess collateral” and argued that “[t]he return of $5,080,000, in no way, even implicitly, constituted an invocation of the Dispute Resolution process.” (Id.) BDC never suggested that Barclays’ transfer of the undisputed amount had been either late or too small. It cannot be any clearer that BDC purported to terminate the Transactions solely on the ground that Barclays failed to dispute the collateral call. In the Complaint it filed the next day, BDC asserted claims based exclusively on its allegation that Barclays breached the Agreement by failing to pay or “exercise its right to dispute BDC’s demand.” (R844.) During a preliminary conference in January 2009, BDC’s counsel explained to the Commercial Division that this litigation is “essentially a dispute as to whether or not there was a dispute. Barclay’s [sic] contends that it in fact did dispute the demand . . . . BDC does not believe that Barclay’s [sic] actually disputed . . . .” (R838.) The record evidence described above, and largely ignored in BDC’s brief, shows there can be no genuine issue that Barclays disputed BDC’s demand. Years into the litigation, BDC changed theories, arguing that the “pay first, dispute later” interpretation that had been developed by its expert required Barclays to pay the entire amount of BDC’s collateral call regardless of whether Barclays disputed. (See Barclays Br. 31-32.) On this appeal, BDC primarily urges 5 yet another new theory, arguing that Barclays lost the right to suspend BDC’s demand by disputing it because Barclays’ payment of the undisputed amount was allegedly one day late and $80,000 short (BDC Br. at 25-42).2 But this new theory, along with the “pay first, dispute later” theory, is not supported by either the terms of the Agreement or the documentary evidence. Most fundamentally, BDC’s new theories cannot justify its termination of the Transactions because they were not the basis of the Potential Event of Default of which BDC gave Barclays notice on October 8, 2008. This is not just an issue of a party improperly switching positions in litigation. Rather, it is well-established New York law that where, as here, a contract termination provision requires notice and a cure period, that notice must specify the ground for termination so that the allegedly breaching party can cure. Because BDC did not notify Barclays in October 2008 that Barclays could cure only by paying the entire collateral call—either (i) because Barclays lost the right to dispute due to a shortfall in its payment of the undisputed amount or (ii) based on BDC’s “pay first, 2 BDC’s accusation that Barclays “strategically manufactur[ed] its ‘dispute’ defense” (BDC Br. 35) is both wrong and ironic, given that BDC has continually switched theories and invented new contractual interpretations long after filing its Complaint (see Barclays Br. 31-32). Barclays, on the other hand, has consistently asserted that it suspended its obligation to pay the Return Amount by disputing it since its first letter outlining its legal contentions on October 14, 2008 (R1658-60). 6 dispute later” interpretation of the Agreement—BDC cannot retroactively justify its purported termination on that basis. Enforcing the CSA’s notice provision is particularly vital because if a terminating party is not required to give an unequivocal notice of the Potential Event of Default, then trillions of dollars in derivative transactions governed by ISDA contracts could be terminated based on a mere misunderstanding. On this ground alone, the Court should reverse the grant of summary judgment to BDC. (See Section I, infra.) As a separate and independent basis for reversal, BDC’s new theories are also inconsistent with the terms of the Agreement. The Agreement expressly provides that (1) both parties may dispute a collateral call and then pay only the undisputed amount and (2) every failure to transfer collateral, including an undisputed amount, is subject to the requirement of notice and two days’ opportunity to cure. Indeed, BDC and its counsel shared that same view until BDC’s expert developed its new “pay first, dispute later” theory. (See Sections II & III, infra.) At a minimum, the grant of summary judgment to BDC should be reversed for these reasons. Indeed, because Barclays clearly notified BDC that it disputed BDC’s October 6, 2008, collateral call, Barclays is entitled to summary judgment dismissing the complaint. Moreover, because BDC had no basis to terminate the Transactions, Barclays is entitled to summary judgment that it 7 properly terminated the Transactions based on BDC’s admitted failure to comply with Barclays’ subsequent collateral calls. (See Sections IV & V, infra.) ARGUMENT I. BDC CANNOT JUSTIFY ITS TERMINATION ON A BASIS FOR WHICH IT NEVER GAVE BARCLAYS NOTICE AND AN OPPORTUNITY TO CURE. In the very first paragraph of its Argument, BDC attempts to gloss over the most fundamental error of the Appellate Division. BDC incorrectly asserts, “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 [the] Return Amount” (BDC Br. 25). In fact, BDC was not entitled to terminate the Transactions unless Barclays failed to make a required transfer of collateral within two Business Days after BDC notified Barclays of that failure. (Barclays Br. 2, 20-21, 60.) The Agreement expressly provides that a party may not terminate Transactions based on a failure to transfer collateral unless that failure continues for Two Business Days after notice.3 In addition, BDC has 3 BDC displays a similar disregard for the terms of the Agreement when it asserts, in six different places, that Barclays breached the Agreement following BDC’s purported termination by failing to return BDC’s collateral (BDC Br. 2, 3, 17, 18, 22, 35-36). BDC does not dispute Barclays’ demonstration that under the Agreement, a party that terminates the Transactions may nonetheless be required to make a payment to the other party. Even if BDC were entitled to terminate, Barclays would be entitled to satisfy that payment obligation, the amount of which 8 waived and is estopped from asserting any new justification for terminating the Transactions. A. The Agreement Did Not Permit BDC to Terminate Based on a Failure to Transfer Collateral Unless BDC Gave Barclays Notice and That Failure Continued for Two Business Days. CSA Paragraph 7(i), on which BDC relied to terminate the Transactions (R1647), provides that a failure to transfer collateral cannot be an Event of Default unless it “continues for two Local Business Days after notice of that failure is given to that party” (R929). It is well established that contractual notice and cure provisions will be enforced as written (see e.g. Madison Ave. Leasehold, LLC v Madison Bentley Assoc., LLC, 8 NY3d 59, 69 [2006]; New Image Constr., Inc. v TDS Enters. Inc., 74 AD3d 680, 681 [1st Dept 2010]). BDC does not attempt to dispute this. Accordingly, no failure by Barclays to make a required transfer of collateral would permit BDC to terminate unless BDC notified Barclays of that failure, and that failure continued for two Business Days. The Appellate Division’s decision deprives Barclays of its contractual right to notice of and an opportunity to cure any alleged failure to transfer collateral. As the Commercial Division correctly recognized (and the two is in dispute, out of BDC’s collateral before returning any balance. (Barclays Br. 10 n.3.) 9 dissenting Justices of the Appellate Division agreed), BDC’s October 8 notice “stated that Barclays had to either pay BDC’s October 6th collateral call or exercise its dispute rights,” and it did not “require[] Barclays to pay the full amount of the collateral call before disputing the call.” (R27.) In short, BDC never provided Barclays with notice that Barclays could only cure by paying BDC’s entire collateral call. BDC argues that the “re” line of its October 8 notice “plainly identifies the default as ‘Failure to Transfer Return Amount’,” which it contends was “Barclays’ failure to transfer the [entire] $40 million Return Amount” (BDC Br. 54). Yet, BDC makes no effort to challenge Barclays’ showing that “re” means nothing more than “regarding” or “concerning” (Barclays Br. 63), and a notice informing Barclays that it could cure any failure to transfer the Return Amount by either paying it or disputing it and transferring the undisputed amount is a notice “regarding” or “concerning” the failure to transfer the Return Amount. The body of BDC’s notice explained that “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.” The notice continued by stating, “. . . BDC received neither payment nor notice of dispute. Therefore, a Potential Event of Default has occurred.” (R1639 (emphasis added).) Thus, the Potential Event of Default was 10 described unequivocally as the failure either to pay the Return Amount or to dispute it and make a payment with respect to the undisputed amount. The next paragraph made clear that Barclays could cure the Potential Event of Default by either paying the Return Amount or disputing it and making a payment with respect to the undisputed amount. It stated, “Please be advised that if this failure continues for two business days, an Event of Default will have occurred with respect to Barclays.” (Id. (emphasis added).) All these specific provisions of the notice were “concerning” or “regarding” a failure to transfer the Return Amount, but this does not support, or even suggest, the conclusion that the notice identified a Potential Event of Default that could only be cured by paying the entire Return Amount. If BDC wanted to notify Barclays that it needed to pay BDC’s entire $40 million collateral call, surely it would have said so. Instead, BDC said that Barclays had failed to do “either” of two things, (1) pay the Return Amount or (2) dispute it and pay the undisputed amount, and that it had two days to cure that failure. BDC continues to mischaracterize the documentary evidence when it asserts that it sent two e-mails on October 6 and 7, 2008, “warning Barclays that it had to transfer the Return Amount” (BDC Br. 54, citing R1617, 1630). The October 6 e-mail simply stated that BDC’s collateral call earlier that day “is a request for a return amount based on the close of business value on 10/3 and is 11 being made pursuant to Paragraph 3(b) of” the CSA (R1617), referring to the paragraph that is “subject to” the Dispute Resolution procedure in Paragraph 5 (R926). BDC’s October 7 e-mail affirmatively informed Barclays that it had the alternative of disputing the Return Amount: “We remind you that pursuant to Paragraph 4(b) and Paragraph 5 of the Credit Support Annex, by 5:00 p.m. today Barclays must either pay the amount set out in the request or exercise its dispute rights.” (R1630.) If there were any possible uncertainty concerning the meaning of BDC’s October 8 notice, it is eliminated by BDC’s letter of October 16, 2008. (R1661-63.) That letter did not state that BDC’s October 8 notice required Barclays to pay the entire Return Amount, or that Barclays had failed properly to pay the undisputed amount. Rather, BDC explicitly acknowledged Barclays’ “refund to BDC” of “$5,080,000 in excess collateral” without mentioning any delay or shortfall, and argued that BDC’s termination was proper because Barclays had failed “to invoke the Dispute Resolution process.” (R1662.) After BDC commenced this action, it told the Commercial Division that the litigation is “essentially a dispute as to whether or not there was a dispute” (R838), not that 12 Barclays had failed to pay BDC’s entire collateral call after receiving notice from BDC.4 BDC’s post hoc interpretation of its October 8 notice is contradicted by both the text of the notice and BDC’s repeated statements to Barclays and the Commercial Division that Barclays’ default was a failure to dispute BDC’s collateral call, not to pay the entire Return Amount. Thus, BDC cannot now recover for its termination on the basis that Barclays failed to pay the entire Return Amount. At a minimum, as explained in Barclays’ opening brief (Barclays Br. 67-70), the Appellate Division should not have granted summary judgment to BDC because adoption of BDC’s interpretation of its October 8 notice required the resolution of factual disputes that necessitate a trial. (See CPLR 3212[b].) B. BDC Waived and Is Estopped From Asserting Its New Justifications for Terminating the Transactions. As explained in Barclays’ opening brief (Barclays Br. 64 n.15), BDC 4 There is no merit to BDC’s assertion that “[i]f there were any confusion, Barclays had an affirmative duty to make further inquiry . . . [but] made no attempt to do so” (BDC Br. 55, citing Contemporary Mission, Inc. v Famous Music Corp., 557 F2d 918, 925 [2d Cir 1977]). The duty of inquiry discussed in that case had nothing to do with the meaning of the notice. The Second Circuit said that the recipient of the notice had a duty to ascertain whether its assignee was satisfying the recipient’s contractual obligations (557 F2d at 925). 13 is estopped from asserting its new theories to justify its purported termination even if they were not barred by the Agreement’s notice and cure provision (Leventhal v New Valley Corp., 91 Civ 4238, 1992 WL 15989, at *5 [SD NY Jan. 17, 1992]). BDC mischaracterizes the facts when it contends that it is not estopped because “as a matter of law [Barclays] could not have justifiably relied on any description of contract terms provided by BDC” (BDC Br. 53). Unlike the cases cited by BDC,5 Barclays did not rely blindly on BDC’s representations about the Agreement. Rather, both parties reviewed and performed under the Agreement for over three- and-a-half years based on their mutual understanding of the Dispute Resolution provision.6 Moreover, BDC waived any right to demand that Barclays pay the entire Return Amount by its repeated representations that Barclays was entitled to either pay or dispute (see ESPN, Inc. v Office of the Commr. of Baseball, 76 F Supp 2d 383, 389 [SD NY 1999]; El Reda v Love Taxi, 202 AD2d 275, 276 5 See BDC Br. 53, citing Sisler v Security Pac. Bus. Credit, 201 AD2d 216, 222 [1st Dept 1994]; Central Fed. Sav. v Laurels Sullivan County Estates Corp., 145 AD2d 1, 6 [3d Dept 1989]. 6 BDC’s assertion that it is not estopped because Barclays is “conclusively presumed to understand the contents of its own contract” (BDC Br. 53) is nonsensical in light of the fact that BDC itself shared Barclays’ understanding of the Agreement for this entire period. 14 [1st Dept 1994]). A party can waive a contractual right when it “fail[s] to act so as to evince an intent not to claim a purported advantage” (General Motors Acceptance Corp. v Clifton-Fine Cent. School Dist., 85 NY2d 232, 236 [1995]). At no point in the parties’ three-and-a-half year relationship did BDC demand payment of a collateral call prior to resolution of Barclays’ notice of a dispute. Nor did BDC inform Barclays that it needed to pay the entire collateral call when it sent Barclays its October 8 notice. Even assuming BDC could have demanded full payment of every collateral call, it waived that right when it failed to “evince an intent” to claim it (see id.). II. BDC WAS NOT ENTITLED TO TERMINATE BASED ON THE AMOUNT OR TIMING OF BARCLAYS’ PAYMENT OF THE UNDISPUTED AMOUNT. BDC does not dispute that Barclays’ payment of $5 million (98.4% of the undisputed amount) constituted substantial performance of its obligation to transfer the undisputed amount and that Barclays made the transfer before the expiration of two Business Days after BDC’s Notice of Potential Event of Default. (See BDC Br. 31-34.) Accordingly, BDC was not entitled to terminate based on the amount or timing of Barclays’ transfer. There is no merit to BDC’s contentions (1) that payment of the undisputed amount was an “express condition” to Barclays’ dispute right (BDC Br. 26-29, 31-33) or (2) that “time was of the essence” for payment of the undisputed amount and it was not subject to the Agreement’s two- 15 day cure period (BDC Br. 26, 29-30, 34).7 A. Barclays’ Obligation to Pay the Undisputed Amount Was an Ordinary Promise That Could Be Satisfied by Substantial Performance. There is no merit to BDC’s assertion that “the entirety of Paragraph 5 is written as an express condition” requiring “literal[] perform[ance]” (BDC Br. 28-29), and thus substantial performance “has no application to the defective transfer of the undisputed amount” (BDC Br. 31). As this Court explained in Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co. (86 NY2d 685, 691 [1995]), the words used to create a condition are words like “if, “unless,” and “until.” Although the word “if” appears in Paragraph 5, the provision concerning the transfer of the undisputed amount is part of the language following the word “then.” (R927.) In statements involving conditions, the word “then” is used to introduce what happens once the condition is satisfied; that word does not establish the condition itself (see e.g. Dyner v Collins, 41 NYS2d 88, 89-90 [Sup Ct NY 7 BDC’s criticism of the dissenting Appellate Division Justices for stating that there was a “fact question as to whether an undisputed amount was owed at all” (BDC Br. 38 n.8) is unjustified. As Barclays explained in its opening brief, there was no “undisputed amount” at the time Barclays received BDC’s request for a Return Amount on October 6 because Barclays had just asked BDC to transfer $11,750,000 in additional collateral. The next day, however, after accounting for two subsequent payments from BDC, Barclays determined that the undisputed amount was $5.08 million. (Barclays Br. 25-26.) 16 County 1943]). BDC misquotes MRH Capital Partners LP v Presstek, Inc. (12 NY3d 640, 645 [2009]), to argue that “if . . . then” creates an express condition (BDC Br. 28-29). In MHR Capital, this Court held that the words “if,” “unless,” and “until” create conditions, and said nothing about the word “then” (12 NY3d at 645). There is also no merit to BDC’s new argument that the words “subject to” at the beginning of Paragraph 3(b) rendered Barclays’ compliance with every provision of Paragraph 5 an express condition to its right to suspend its obligation to transfer the Return Amount (BDC Br. 27-28). “Subject to” can be used in a particular context to create a condition, but it is normally used for other purposes, such as modifying or further specifying an obligation. For example, Paragraph 4(b) of the CSA, which Paragraph 3(b) is “subject to,” clearly does not create a condition. That is the provision that normally states when a transfer of collateral must be made. (R926.) Similarly, the end result of the process described in Paragraph 5, in the context of a demand for a Return Amount, is a redetermination of the collateral call. That redetermination is a modification of the obligation created by Paragraph 3(b), not a condition precedent to that obligation. The obligation obviously can exist without a redetermination if no one disputes the collateral call. In contrast, Paragraph 4(a) of the CSA, which Paragraph 3(b) is also 17 “subject to,” does create a condition precedent. (R926.) However, the drafters did not rely on the words “subject to” to make it a condition precedent. The provision is entitled “Conditions Precedent,” and provides that certain obligations are “subject to the conditions precedent that” no Event of Default or other specified event has occurred. (Id.) Thus, the drafters of Paragraph 3(b) of the CSA clearly did not believe that their use of the words “subject to” created a condition. Neither of the cases cited by BDC (BDC Br. 27) suggests that the words “subject to” create a condition regardless of their context. In Merritt Hill Vineyard v Windy Heights Vineyard (61 NY2d 106 [1984]), the words “subject to” created an express condition because, in a section entitled “Conditions Precedent to Purchaser’s Obligation to Close,” the contract stated that the “plaintiff’s obligation to pay the purchase price and complete the purchase of the vineyard [was] ‘subject to’ fulfillment of those requirements” (id. at 112-113). In Moran v Erk (11 NY3d 452 [2008]), a real estate contract contained a rider with an “Attorney Approval Contingency” stating that the contract was “contingent upon” the approval of each party’s attorney (id. at 454). The contract did not use the words “subject to,” and the case had nothing to do with whether the words “subject to” created a condition. The Court observed in dictum that the words “contingent on” or “subject to” can be used to create conditions (id. at 455-56), but nothing in that decision holds that a provision using the words “subject to” is necessarily a condition, and the way in 18 which the words are used in the CSA shows that no such general rule is justified. Thus, the “subject to” language of CSA Paragraph 3(b) does not make every provision of Paragraph 5 a condition. Rather, it simply means that the Dispute Resolution process under Paragraph 5 modified the parties’ obligation to transfer the Return Amount in the precise manner spelled out by that paragraph. There is equally little merit to BDC’s contention that the doctrine of substantial performance is inapplicable here “because the provisions of Paragraph 5 are not promises at all,” but rather “are purely elective” because “Barclays is not required to dispute” (BDC Br. 32). Once Barclays elected to dispute under Paragraph 5, then Barclays was obligated to follow the steps spelled out following the words “then” for resolving the dispute, including transferring any undisputed amount. (R927.) BDC does not and cannot cite a single case saying that a contractual obligation is not subject to the doctrine of substantial performance because a party elected to undertake the obligation. Accordingly, the obligation to transfer the undisputed amount is an ordinary promise that, along with the other steps in the Dispute Resolution procedure, must be performed following satisfaction of the condition created by the words “If a party . . . disputes.” Even if this reading were not clear from the plain language of the Agreement, this Court stated in Oppenheimer that courts should construe doubtful language as creating a promise or constructive condition 19 rather than an express condition (86 NY2d at 691-92). Assuming that payment of the undisputed amount was subject to the doctrine of substantial performance, BDC does not deny that the payment of $5,000,000 or 98.4% of the nominal amount, in the context of daily adjustments of posted collateral that exceeded $273 million at the time (R1554), constituted substantial performance. Even if strict compliance was required, however, Barclays’ opening brief showed that Barclays satisfied its obligation by transferring $5 million because BDC received credit for the additional $80,000 in the form of a reduction of Barclays’ October 8 collateral call. (Barclays Br. 26- 27.) BDC’s contention that the $80,000 “credit” occurred after the initial deadline to transfer the undisputed amount, creating a Potential Event of Default that suspended BDC’s obligation to satisfy collateral calls (BDC Br. 38-39), ignores the fact that once Barclays credited BDC with the $80,000 there was no longer a Potential Event of Default because BDC had received the money. Any suggestion that a Potential Event of Default deprived Barclays of the right to request transfers of collateral (BDC Br. 39) is belied by the plain language of the Agreement. Paragraph 4(a) of the CSA says that a party’s obligation to transfer collateral in response to a request is subject to the condition precedent that the party making the request is not subject to, inter alia, a Potential Event of Default, but nothing precludes such a party from making a request and 20 there is no similar condition to the authorization for such requests in Paragraph 3. (R926.) Moreover, the condition precedent to the obligation to comply in Paragraph 4(a) would be unnecessary if such requests were not authorized. In any event, BDC transferred $20.5 million to Barclays on October 8-9. (R1644-45.) This was the full amount of Barclays’ collateral call on October 8, which was calculated on the basis of Barclays’ transfer of $5 million rather than $5,080,000. (R2312.) BDC received the benefit of the $80,000 reduction in Barclays’ call, in cash, when it made those transfers. There is likewise no merit to BDC’s new assertion that the netting provision in Section 2(c)(ii) of the Master Agreement was not applicable because it only applies to amounts payable with respect to the “same Transaction” (BDC Br. 39 n.9). Transfers of both Delivery Amounts and Return Amounts, and therefore undisputed amounts of either, are made with respect to all Transactions. Paragraph 3 of the CSA says that a party may request a transfer of a Delivery Amount or Return Amount generally equal to the difference between the value of “all Posted Credit Support” and the “Credit Support Amount.” (R926.) The “Credit Support Amount” is the sum of the net amount of “all Independent Amounts” and the Secured Party’s “Exposure” (id. (emphasis added)), and “Exposure” is the amount that would be payable “if all Transactions (or Swap Transactions) were being 21 terminated as of the relevant Valuation Time” (R932 (emphasis added)).8 Even if Barclays’ obligation to transfer the undisputed amount was an express condition (and it was not), Oppenheimer makes clear that a failure to satisfy a condition may be excused if enforcement of the condition would result in a forfeiture (86 NY2d at 691). That would clearly be the result here. (See Barclays Br. 59-60.) BDC cites Albertina Realty Co. v Rosbro Realty Corp. (258 NY 472, 475 [1932]), in support of the proposition that “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.” (BDC Br. 35.) In Albertina, the trial court found that the parties bargained for the specific acceleration clause at issue (id. at 476). There is no similar acceleration provision in the Agreement at issue in this case. To the contrary, the notice and cure period of CSA Paragraph 7(i) makes clear that Barclays and BDC intended to avoid termination for minor delays in transferring collateral. Finally, there is no merit to BDC’s argument that Barclays would not suffer a forfeiture because it would not lose any contractual rights if it were 8 Because Barclays was entitled to net, BDC’s assertion that only a wire transfer could satisfy the requirement to “transfer” the undisputed amount (BDC Br. 39) misses the point. In addition, Barclays was only required to transfer what it considered to be the undisputed amount, and the credit it gave BDC in the October 8 collateral call reduced the undisputed amount pro tanto. 22 deprived of its right to dispute BDC’s collateral call (BDC Br. 34-35). Under the Appellate Division’s decision, Barclays lost its rights under swap agreements referencing almost a billion dollars of high-yield loans, potentially allowing BDC to claim hundreds of millions of dollars as a termination payment while leaving Barclays with an unhedged portfolio of loans whose value was rapidly declining. Moreover, depriving a secured party of a contractual right to dispute and suspend a demand to return $40 million in collateral, at a time when it believed it was undersecured (as evidenced by Barclays’ own collateral call the same day), would itself be a forfeiture completely disproportionate to Barclays’ alleged default.9 B. The CSA’s Notice Requirement and Two-Day Cure Period Applied to Barclays’ Payment of the Undisputed Amount. BDC criticizes the two dissenting Appellate Division Justices for concluding that BDC’s October 8 notice gave Barclays an opportunity to “cure by either paying the Return Amount or the undisputed amount” (R4385) because, according to BDC, the notice and cure provisions of CSA Paragraph 7(i) do not apply to the transfer of the undisputed amount. (See BDC Br. 55-58.) The terms 9 BDC is mistaken in asserting that, after the Valuation Agent recalculates Exposure, it would then “refund any excess collateral” if the recalculation indicates that its call was too large. (BDC Br. 14, 48.) Paragraph 5 says nothing about a refund of excess collateral, and instead only provides for (1) a transfer of the undisputed amount and (2) a transfer of any additional collateral required by the recalculated collateral call. (R927.) 23 of the Agreement directly contradict this new theory. CSA Paragraph 7(i) states that any failure to “make, when due, any Transfer of Eligible Collateral, Posted Collateral, or the Interest Amount” is an Event of Default if it continues for two Business Days after notice. (R929 (emphasis added).) The undisputed amount was Posted Collateral under the CSA (R933), as BDC itself concedes (BDC Br. 33 n.7), and thus failure to transfer it was subject to the notice requirement and two-day cure period. Indeed, contrary to the position BDC now advances, BDC told the Commercial Division that the failure to transfer the undisputed amount would be an Event of Default subject to the notice and two-day cure provision of CSA Paragraph 7(i) (R548). Because the Agreement clearly permitted Barclays two Business Days to cure its failure to pay the undisputed amount, BDC’s reliance on “time is of the essence” cases (BDC Br. 29-30) is misplaced. The parties were free to agree that time was or was not of the essence (Kolmar Americas, Inc. v Koch Supply & Trading, LP, 10 Civ 7905, 2011 WL 6382566, *8 [SD NY Dec. 15, 2011], affd, 512 F. App’x 84 [2d Cir 2013]), and the Agreement makes clear that the parties agreed that time was not of the essence with respect to transfers of collateral.10 10 In any event, the cases cited by BDC make clear that timing is generally only “essential” to a contract where (1) the subject of a sale has a fluctuating value, (2) the object of the contract is a commercial enterprise, or (3) a delay in 24 III. THE COMMERCIAL DIVISION CORRECTLY REJECTED BDC’S “PAY FIRST, DISPUTE LATER” THEORY. Wholly apart from BDC’s failure to give Barclays notice of a Potential Event of Default based on BDC’s “pay first, dispute later” interpretation of the Agreement, the Commercial Division and two dissenting Appellate Division Justices correctly rejected this new interpretation because it is inconsistent with the language of the Agreement and leads to absurd results. (R26-29, 4377-79.) At a minimum, the Appellate Division erred in granting summary judgment to BDC on this new theory. A. The Delivery of Collateral Provision Is Not Inconsistent With the Dispute Resolution Provision. BDC’s “pay first, dispute later” interpretation is based solely on its construction of clause (b) of the Master Agreement’s “Delivery of Collateral” provision (R958). As explained in Barclays’ opening brief, the purpose of the Delivery of Collateral provision, as indicated by the language of the provision completion would involve one of the parties in a serious loss (Reddy v Ratnam, 95 AD3d 982, 983 [2d Dept 2012]). BDC’s contention that “the presumption [that time is of the essence] applies with even greater force” here because “fast-moving markets” are involved (BDC Br. 30) misses the point. A presumption that “time is of the essence” simply has no application to a transfer of collateral consisting of cash and Treasury securities. Under Paragraph 13 of the CSA, only cash and Treasury securities qualify as Eligible Collateral. (R935.) The value of such collateral does not fluctuate rapidly, and a short delay in transferring such collateral is unlikely to cause serious loss. 25 itself, is simply to modify the deadline for delivering a Return Amount established by Paragraph 4(b) of the CSA. (Barclays Br. 42.) BDC’s brief confirms this interpretation. BDC asserts that clause (b) represents a concession that Barclays made in return for BDC’s concession in clause (a) of the Delivery of Collateral provision. (BDC Br. 50-51.) As BDC recognizes, BDC’s “concession” in clause (a) was simply a modification in a deadline for BDC’s transfers of collateral: “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” (BDC Br. 50). If, as BDC asserts, clause (b) of the Delivery of Collateral provision was what Barclays agreed to in response to BDC’s concession in clause (a), one would expect that it was also intended to modify a deadline for transferring collateral. BDC does not present a shred of evidence that the parties intended for Barclays to give up its right to dispute and suspend collateral calls under Paragraph 5 of the CSA (BDC Br. 50-51), and such an assertion is completely implausible in light of the limited nature of the “concession” that Barclays was supposedly receiving in return. It is also completely inconsistent with the parties’ interpretation of the Agreement from the time it was executed until well after this action was commenced. As explained in Barclays’ opening brief, the conclusion that the 26 Delivery of Collateral provision simply modifies the time for transferring collateral, and has no effect on the Dispute Resolution provision in Paragraph 5 of the CSA, is confirmed by its use of the defined term “Return Amount” to describe what Barclays was required to transfer (Barclays Br. 41-43). Paragraph 12 of the CSA says that “‘Return Amount’ has the meaning specified in Paragraph 3(b).” (R933.) Paragraph 3(b) is explicitly “[s]ubject to” CSA Paragraphs 4 and 5. (R926.) Together, these provisions required Barclays to transfer any Return Amount within the time prescribed by the Delivery of Collateral provision, but every other aspect of Barclays’ obligation to transfer a “Return Amount” was still governed by CSA Paragraphs 3-5, including the Dispute Resolution provision. There is no merit to BDC’s argument that the definition of “Return Amount” is not subject to Paragraphs 4 and 5 (BDC Br. 46), for two independent reasons. First, BDC is mistaken in asserting that only the second sentence of Paragraph 3(b) defines “Return Amount,” while the first sentence—containing the words “subject to” language—does not. (Id.) In fact, the “Definitions” section of the CSA states that “‘Return Amount’ has the meaning specified in Paragraph 3(b).” (R933 (second emphasis added).) Second, even if the “subject to” language in Paragraph 3(b) did not apply to the definition of “Return Amount,” there is no question that the definition of “Return Amount” incorporates the defined term “Credit Support Amount.” 27 (R926.) As Barclays explained in its opening brief (Barclays Br. 44), the Delivery of Collateral provision cannot be read to abrogate Barclays’ rights under the Dispute Resolution provision because (1) “Credit Support Amount” is defined in terms of “Exposure” (R926) and (2) the definition of “Exposure” is also “subject to Paragraph 5 in the case of a dispute” (R932). BDC’s response that the definition of Exposure is “irrelevant to the determination of the Return Amount” (BDC Br. 47-48) is flatly contradicted by the plain language of the Agreement. Its argument that 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” (BDC Br. 47) is unsupportable. The plain language of the Agreement incorporates all of Paragraph 5 into the definition of “Exposure” (R932), and therefore into the definition of “Return Amount.” (R926.) Because there is no inconsistency between the Delivery of Collateral provision and Barclays’ right to suspend a collateral call by disputing it under Paragraph 5, there is no merit to BDC’s argument that the Delivery of Collateral provision overrides Paragraph 5 because of the words “[n]otwithstanding anything in the Credit Support Annex to the contrary” (BDC Br. 43). The Delivery of Collateral provision and CSA Paragraphs 4 and 5 are not inconsistent, and thus should be read together in accordance with long-standing legal principles (see Matter of Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352, 358 [2003] [a 28 written contract “will be read as a whole, and every part will be interpreted with reference to the whole”]; Fox Film Corp. v Hirschman, 202 NYS 854, 856 [NY Sup Ct 1924], affd, 212 AD 837 [2d Dept 1925] [“It is, of course, the duty of the court, where there is an apparent repugnancy between two clauses of a contract, to reconcile them, if possible, so as to give effect to all the provisions of the contract.”]). Thus, all of the cases BDC cites concerning the word “notwithstanding” (BDC Br. 44-45) are irrelevant. In those cases, the clauses at issue conflicted with each other.11 However, “where two seemingly conflicting 11 See Warberg Opportunistic Trading Fund, L.P. v GeoResources, Inc., 112 AD3d 78, 84 [1st Dept 2013] [“plaintiffs’ contention that section 8 (h) [giving minimum price “notwithstanding” the provisions of section 8 (f)] can be read in a manner consistent with section 8 (f) is unavailing”]; H. Fox & Co., Inc. v Blumenfeld, 24 AD3d 722, 722-23 [2d Dept 2005] [fixed-price purchase option applied “notwithstanding anything to the contrary set forth in this lease (including, without limitation, the provisions of [the right of first refusal])”]; Somer v Somer, 155 AD2d 591, 595 [2d Dept 1989] [provision guaranteeing defendant a minimum payment “notwithstanding the distributive scheme set forth in” other provisions conflicted with provision of distributive scheme which would have resulted in a payment less than the guaranteed minimum]; Bank of New York v First Millennium, Inc., 607 F3d 905, 917 [2d Cir 2010] [“having rejected the FDIC’s arguments that the notwithstanding clause and the limited recourse provisions of the master indenture can be reconciled,” the court held that the notwithstanding clause overrode “conflicting contract terms”]; Morse/Diesel, Inc. v Trinity Indus., Inc., 67 F3d 435, 439 [2d Cir 1995] [provision allowing subcontractor to recover damages for delays caused by others “notwithstanding” any other contractual provision conflicted with “no-damages-for-delay” provisions]. 29 contract provisions reasonably can be reconciled, a court is required to do so and to give both effect” (Perlbinder v Board of Mgrs. of 411 E. 53rd St. Condominium, 65 AD3d 985, 987 [1st Dept 2009]). In Perlbinder, a condominium declaration gave the sponsor the right to post “for rent” signs on the exterior of the building, while the bylaws gave this right to both the sponsor and its designees (id. at 987). “Noting that the bylaws provided that in the event of inconsistent provisions, the declaration would control,” the trial court held that only the sponsor could post signs (id. at 986). The Appellate Division reversed, and held that the designees could also post signs pursuant to the bylaws. It observed that the “declaration and the bylaws were executed as part of the same transaction and cross-reference[d] one another” (id. at 987-88)—like the CSA and the Master Confirmation in this case—and therefore “‘must be interpreted together’” (id. at 988, quoting BWA Corp. v Alltrans Express U.S.A., 112 AD2d 850, 852 [1st Dept 1985]). The court also pointed out that treating the declaration as reserving the right to post signs to the sponsor alone would “render meaningless” the provision of the bylaws extending that power to the sponsor’s designees (id.), just as the Appellate Division’s construction of the Delivery of Collateral provision would make the provisions of Paragraph 5 granting Barclays the right to suspend a demand for a Return Amount meaningless. Similarly, in Matter of City Council of Watervliet v Town Bd. of Town 30 of Colonie (3 NY3d 508 [2004]), this Court held that a “notwithstanding” provision of the General Municipal Law did not exempt a municipality from conducting a review pursuant to the State Environmental Quality Review Act (“SEQRA”) before approving an annexation. The Court rejected the contention that SEQRA was not applicable because it is not mentioned in Article 17 of the General Municipal Law, which establishes the procedure for annexations, and Section 718(5) of the General Municipal Law states that “‘[t]he provisions of [article 17] shall be controlling notwithstanding any inconsistent act of the legislature to the contrary’” (id. at 515). The Court unanimously concluded that the “notwithstanding” provision did not make SEQRA inapplicable because “SEQRA is neither inconsistent with nor contrary to the procedures delineated in the General Municipal Law” (id.). There is no merit whatsoever to BDC’s assertion that Jade Realty LLC v Citigroup Commercial Mtge. Trust 2005-EMG (20 NY3d 881 [2012]) is “controlling” and “dispositive of this issue” (BDC Br. 52). In Jade Realty, the trial court’s grant of summary judgment was reversed because it required the court to add terms to the contract (20 NY3d at 883-84). None of the parties asserted that the trial court’s decision was consistent with the actual language of the contract. In contrast, Barclays’ interpretation of the Agreement is based on the language of the Agreement itself and does not require adding or replacing any contractual terms. 31 Finally, BDC’s contention that “[u]nder Barclays’ own reasoning . . . the Delivery of Collateral clause would not supersede anything and would be rendered meaningless” (BDC Br. 47) is obviously incorrect. The Delivery of Collateral provision modifies the Transfer Timing provision in Paragraph 4(b) of the CSA (R926), which would otherwise permit a transfer in response to a request for a Delivery Amount or a Return Amount after the 1:00 p.m. “Notification Time” to be made on the second Business Day following the request. There is no merit to BDC’s suggestion that the clause “Subject to Paragraphs 4 and 5” in Paragraph 3(b) would, “on Barclays’ logic,” prevent any modification of the deadline established by Paragraph 4(b) (BDC Br. 46-47). The language of Paragraph 4(b), beginning with the words “Subject to Paragraphs 4(a) and 5 and unless otherwise specified” (R926 (emphasis added)), expressly permits modification of its deadline. Thus, Barclays’ interpretation maintains the force and effect of all the contractual provisions, consistent with well-established New York law (Ronnen v Ajax Elec. Motor Corp., 88 NY2d 582, 589 [1996]; Snug Harbor Sq. Venture v Never Home Laundry, 252 AD2d 520, 520 [2d Dept 1998]). B. BDC’s Interpretation of the Agreement Leads to Absurd Results. As noted in Barclays’ opening brief (Barclays Br. 45), BDC’s interpretation of the Agreement would lead to absurd results, including the effective elimination of Barclays’ dispute rights. BDC argues that Barclays’ 32 dispute rights are preserved because, under its interpretation, Barclays could dispute after paying BDC’s collateral call (BDC Br. 48), but BDC cannot cite to a single provision in the Agreement that explains how such a post-payment dispute would be handled. Even BDC’s own expert—who developed the “pay first, dispute later” theory—conceded that this presented a problem, and that Barclays’ only apparent recourse would be to issue its own collateral call immediately after paying whatever amount BDC demanded. (See R2211.) This would nullify Barclays’ dispute right under the Agreement—a violation of the principle that contracts should be read as a whole so that no provision is rendered “meaningless” (Ronnen, 88 NY2d at 589). BDC also acknowledges (BDC Br. 49) that, as the Commercial Division observed, “under BDC’s interpretation, the Master Confirmation would override the ‘Conditions Precedent’ to payment contained in the CSA” and render these provisions “meaningless as to Barclays” (R25). That would, as the Commercial Division pointed out, lead to the absurd result that Barclays would have “to pay all of BDC’s collateral calls even if BDC were to default.” (Id.) BDC’s only response is that “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.” (BDC Br. 49.) First, whether or not BDC 33 was in default is irrelevant: This irrational result demonstrates that BDC is misconstruing the Delivery of Collateral provision. Second, BDC overlooks the fact that Barclays could not terminate the swaps until it gave BDC notice and an opportunity to cure its default. For certain defaults not involving transfers of collateral, the Master Agreement only permits termination if the default continues for three Business Days (for payment defaults) or 30 days (for other “Breach[es] of Agreement”) after notice to the defaulting party. (R900.) Because Barclays was the Secured Party under the Agreement, it would make no sense to give BDC the unconditional right to take back collateral while it was in default. Finally, BDC does not dispute that its interpretation would result in a “harshly uneven allocation” of power between the parties that is disfavored under New York law (see Metropolitan Life Ins. Co. v Noble Lowndes Intl., 84 NY2d 430, 438 [1994]) (BDC Br. 51). Under BDC’s theory, Barclays could have been required to surrender all its collateral, and lose its rights as Secured Party, before obtaining a recalculation of BDC’s demands as provided in Paragraph 5. BDC relies on the report of its paid expert for the proposition that “pay first, dispute later” is not a “novel sort of arrangement” (BDC Br. 52, citing R1192), but its expert did not cite any other example of such an arrangement (R1192). 34 C. At a Minimum, the Evidence Precluded Summary Judgment in BDC’s Favor on Its New Interpretation of the Agreement. There is no merit to BDC’s contention that “Barclays attempts to create a nonexistent ambiguity” by citing “unreliable extrinsic evidence” (BDC Br. 50). As discussed above, Barclays’ interpretation of the Agreement is supported by the language of the Agreement itself. Indeed, Barclays’ interpretation is based on a detailed evaluation of the precise language of a number of related provisions of the Agreement, and follows the established canons of construction by reading the Agreement as a whole and preserving the effect of all of its provisions. In contrast, BDC’s interpretation ignores most of the relevant language of the Agreement and is based solely on the word “notwithstanding” in an isolated provision that, on its face, has nothing to do with Barclays’ rights under the Paragraph 5 Dispute Resolution provision. Thus, if Barclays’ interpretation is not correct as a matter of law, then the Agreement is, at a minimum, ambiguous.12 If a contract is ambiguous, a court cannot construe it in a motion for summary judgment unless “the extrinsic 12 BDC cites Breed v Insurance Co. of N. Am. (46 NY2d 351, 355 [1978]), for the proposition that a split among judges or courts cannot be the basis for finding a contract provision ambiguous. (BDC Br. 45 n.12.) Although that decision states that such a split does not mean that the “clause must perforce be ambiguous,” it does not suggest such a split should be excluded from consideration (id. [emphasis added]). 35 evidence is so one-sided that no reasonable person could decide the contrary” (Sarinsky’s Garage Inc. v Erie Ins. Co., 691 F Supp 2d 483, 486 [SD NY 2010] [internal quotation omitted]). There is no extrinsic evidence that would allow a court to resolve any ambiguity in the Agreement in BDC’s favor. To the contrary, BDC’s theory is inconsistent with the undisputed evidence concerning the parties’ course of performance for years (see Barclays Br. 50-51). New York courts have consistently noted that “[t]he best evidence of the intent of parties to a contract is their conduct after the contract is formed” (Waverly Corp. v City of New York, 48 AD3d 261, 265 [1st Dept 2008]). Accordingly, granting summary judgment to BDC, at a minimum, was error. IV. BARCLAYS NOTIFIED BDC OF A DISPUTE. As explained in Barclays’ opening brief (Barclays Br. 52), Paragraph 5 of the CSA only requires a party that disputes a collateral call to “notify the other party” (R927). No formal language is required, and the parties repeatedly used language like “[w]e do not agree to your call” or “[p]artial agree” to dispute each other’s calls (see Barclays Br. 22-23). Indeed, in a recorded telephone call, a senior BDC officer explained to her supervisor and Barclays that the “regular” practice for providing notice of dispute was to provide “[a]n email stating what we think that is owed to us or what we owe them” (R1071). After being told to “do 36 the regular thing. We’re disputing” (id.), she sent Barclays an e-mail stating that “we do not agree with the marks from the collateral call sent on 9/25/08” (R2820). Both a BDC employee and BDC’s expert testified that the parties used language like “do not agree,” “disagree,” “partial agree,” and “dispute” synonymously. (R1011, 1024, 1028, 1038, 1040; see Barclays Br. 22-23, 53.) Given this history, BDC cannot credibly argue that Barclays’ e-mails on October 6 and 7—which stated, (i) “We do not agree with this call” (R1568), (ii) “We show that BDC owes Barclays, not the other way around” (R1617) and, (iii) in response to an e-mail asking whether Barclays disputed BDC’s $40 million call, “Barclays agrees to return 5,080,000 . . . for” that call (R1630)—were not sufficient notice of a dispute. (See Barclays Br. 53-54.) Barclays clearly provided notice in language that the parties repeatedly confirmed to each other was sufficient. The adequacy of Barclays’ notice was confirmed by the BDC employee who dealt with collateral calls on a day-to-day basis, who testified that she understood Barclays’ first e-mail to dispute BDC’s collateral call. (R1034.) BDC cannot avoid that sworn testimony by arguing that the employee was not involved in BDC’s October 6 collateral call and “had no recollection of seeing any communications surrounding that call at the time” (BDC Br. 62 n.16). BDC does not dispute that “[a] person is deemed to have notice” of a fact “when he has actual 37 knowledge or when ‘from all the facts and circumstances known to him at the time in question, he has reason to know that it exists’” (Leasing Serv. Corp. v Diamond Timber, Inc., 559 F Supp 972, 978 [SD NY 1983], quoting Chase Manhattan Bank, N.A. v Natarelli, 93 Misc 2d 78, 93 [Sup Ct Monroe County 1977]). BDC’s employee’s testimony confirms that “all the facts and circumstances known to” BDC provided notice of Barclays’ dispute. Accordingly, BDC’s assertion that “no one at BDC understood Barclays to have provided notice of a Paragraph 5 dispute” (BDC Br. 61) is irrelevant.13 BDC’s primary argument is that Barclays’ notice was insufficient because one of Barclays’ employees did not appreciate BDC’s contractual rights as a Valuation Agent. (BDC Br. 18, 61-62.) This is not supported by the Agreement or New York law. Paragraph 5 of the CSA does not contain any requirement that a disputing party, much less any individual employee of a disputing party, understand every aspect of the Agreement. As both a BDC employee and BDC’s expert testified, “dispute” has the same meaning as “do not agree,” “disagree,” or 13 In any event, the self-serving affidavits from BDC’s officers on which BDC seeks to rely fail to raise a genuine issue of triable fact precluding summary judgment (see e.g. Braten v Bankers Trust Co., 60 NY2d 155, 163 n.2 [1983] [the “conclusory assertion in an affidavit that the Bank’s promise was nonetheless a promise to him individually does not raise an issue of fact as to defeat summary judgment”]). 38 “partial agree” (see Barclays Br. 22-23, 53). It does not require anyone to invoke a specific contractual provision. The sufficiency of the notice depends on what BDC reasonably should have understood from it. That does not depend on what was in the mind of anyone at Barclays. BDC does not cite any authority whatsoever suggesting that notice of a dispute depends on a particular employee’s understanding of the applicable contract, or that it depends on the sender’s subjective intent in any way.14 Just as subjective intent is irrelevant to the construction of unambiguous contractual provisions (W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162-63 [1990]; Banco Espírito Santo, S.A. v Concessionária Do Rodoanel Oeste S.A., 100 AD3d 100, 106 [1st Dept 2012]), it is irrelevant to the construction of a notice given pursuant to a contract. Finally, there is no basis for BDC’s contention that there was “no consultation” to resolve any Paragraph 5 dispute (BDC Br. 62). Employees from 14 In the Commercial Division, BDC relied on cases that merely held that the intention with which a party sends a notice is relevant when it is unclear whether the particular communication was sufficient to give actual notice. (R3942, citing Bombay Indus., Inc. v Bank of N.Y., 103064/95, 1997 WL 860671, at *2-*3 [Sup Ct NY County May 21, 1997]; American Cas. Co. v Continisio, 819 F Supp 385, 396-97 [D NJ 1999]; BBS Power Mod, Inc. v Prestolite Elec., Inc., 71 F Supp 2d 194, 199-200 [WD NY 1999]). Here, Barclays clearly provided notice to BDC using language that the parties agreed was sufficient to dispute collateral calls, and BDC has not relied on these cases either in this Court or in the Appellate Division. 39 BDC and Barclays spoke twice on the telephone, finally agreeing that Barclays owed BDC $5.08 million. (R1619-25, 1628.) These conversations clearly satisfied Barclays’ obligation to consult under Paragraph 5. Because Barclays unquestionably notified BDC of the dispute, BDC’s Amended Complaint should have been dismissed. This Court should reverse, and direct summary judgment dismissing BDC’s Amended Complaint. V. BARCLAYS WAS ENTITLED TO SUMMARY JUDGMENT ON ITS COUNTERCLAIM THAT IT PROPERLY TERMINATED THE TRANSACTIONS. It is uncontested that BDC did not pay Barclays’ October 10 and 14 collateral calls, claiming that “no further margin calls are applicable” because it had terminated. (See BDC Br. 60-63; Barclays Br. 65.) There is also no dispute that Barclays gave BDC notice and an opportunity to cure (R1668-75), and that BDC failed to do so (R1676-78). Thus, Barclays was entitled to terminate under Section 6 of the Master Agreement (R903) as a matter of law. (Barclays Br. 65- 66.) There is no merit to BDC’s assertions that there are “numerous contested issues of fact as to whether those collateral calls were properly made and whether BDC had any contractual obligation to respond to them at all” (BDC Br. 60). These arguments are primarily based on BDC’s contention that Barclays failed to notify BDC that it was disputing BDC’s October 6, 2008, collateral call, 40 and that contention is without merit for the reasons discussed in Section IV. The other purported “contested issues of fact” that BDC raises in a footnote (BDC Br. 60 n.15) are meritless. First, BDC’s argument that Barclays was in default because it failed to comply with “the ‘Two Affected Parties’ rule” (id.) was correctly rejected by both the Commercial Division (R30-31) and the Appellate Division (R4370 n.2) because Paragraph 5 of the CSA provided the exclusive mechanism for BDC to dispute Barclays’ collateral calls.15 Second, there is no merit to BDC’s argument that it suspended Barclays’ collateral calls by disputing them pursuant to Paragraph 5 of the CSA (BDC Br. 60 n.15). Paragraph 5, by its express terms, applies only “[i]f a party (a ‘Disputing Party’) disputes (I) the Valuation Agent’s calculation of a Delivery Amount or a Return Amount or (II) the Value of any Transfer” of collateral. (R927.) BDC’s notice stating that Barclays was not entitled to request collateral because the Transactions had been terminated (R1646) had nothing to do with the calculation of a Delivery Amount or Return Amount or the value of any collateral, and therefore did not trigger the Dispute Resolution procedure under Paragraph 5. 15 For the same reason, BDC’s meritless assertions concerning Barclays’ supposedly “abusive and improper collateral calls” and desire to “accumulate and retain customer cash in the weeks following the Lehman Brothers bankruptcy” (BDC Br. 12 & n.1) are entirely irrelevant. Accordingly, Barclays is entitled to summary judgment that it properly terminated the Transactions. CONCLUSION For the reasons stated above and in Barclays' opening brief, Barclays respectfully requests that this Court answer the question certified by the Appellate Division in the negative and direct entry of summary judgment (i) adopting Barclays' interpretation of the Agreement and rejecting BDC's interpretation, (ii) granting Barclays summary judgment dismissing BDC's Amended Complaint, and (iii) granting Barclays summary judgment that Barclays was entitled to tenninate the Transactions. Dated: New York, New York May 27,2014 41 Respectfully submitted, ,/?c_ /!4 Robinson B. Lacy Marc De Leeuw Jeffrey T. Scott SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004~2498 Tel: (212) 5584000 Fax: (212) 558~3588 Email: Lacyr@sullcrom.com Attorneys for Defendant/ Counterclaim~ Plaintiff~ Appellant Barclays Bank PLC