BDC Finance L.L.C. Respondent,v.Barclays Bank PLC, Appellant.

Brief

N.Y.January 6, 2015

To 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. 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: March 24, 2014 PRINTED ON RECYCLED PAPER 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. -i- TABLE OF CONTENTS Page TABLE OF AUTHORITIES ................................................................................... iii JURISDICTION ......................................................................................................... 5 QUESTIONS PRESENTED ...................................................................................... 6 NATURE OF THE CASE AND FACTS NECESSARY TO DETERMINE THE QUESTIONS INVOLVED ................................................ 7 A. Nature of the Case ................................................................................. 7 B. The Facts ............................................................................................. 10 1. The Agreement .......................................................................... 10 2. The Collateral Disputes and Notice of the Disputes ................. 21 3. BDC’s Purported Termination of the Transactions .................. 24 4. Barclays’ Termination of the Transactions ............................... 32 C. The Decision of the Commercial Division .......................................... 32 D. The Decision of the Divided Appellate Division ................................ 34 STANDARD OF REVIEW ..................................................................................... 37 ARGUMENT ........................................................................................................... 38 I. BARCLAYS WAS ENTITLED TO SUMMARY JUDGMENT THAT BDC WAS NOT ENTITLED TO TERMINATE THE TRANSACTIONS. ........................................................................................ 40 A. Barclays Suspended Its Obligation to Transfer the Return Amount by Disputing BDC’s Request. ................................... 40 1. The Commercial Division Was Correct in Adopting Barclays’ Interpretation of the Agreement and Rejecting BDC’s Interpretation. ........................................ 40 2. Barclays Notified BDC That It Disputed BDC’s Request for the Return Amount. ............................................... 52 3. Barclays Did Not Lose Its Right to Suspend BDC’s Request for a Return Amount Because It Failed to Transfer $5,080,000 on October 7. ........................ 57 TABLE OF CONTENTS (continued) Page -ii- B. The Failure to Transfer Collateral Specified in BDC’s Notice Did Not Continue for Two Business Days After the Notice Was Given. ............................................................... 61 II. BARCLAYS WAS ENTITLED TO SUMMARY JUDGMENT THAT IT PROPERLY TERMINATED THE TRANSACTIONS. .............. 65 III. IN THE ALTERNATIVE, FACTUAL DISPUTES PRECLUDE SUMMARY JUDGMENT IN BDC’S FAVOR. .......................................... 66 A. Accepting BDC’s Interpretation of the Agreement Would Require an Improper Resolution of Factual Disputes. ........................ 67 B. Accepting BDC’s Interpretation of the October 8 Notice Would Require an Improper Resolution of Factual Disputes. ........................ 69 CONCLUSION ........................................................................................................ 71 -iii- TABLE OF AUTHORITIES Page(s) Cases AG Props. of Kingston, LLC v Besicorp-Empire Dev. Co., 14 AD3d 971 [3d Dept 2005] ............................................................................. 65 Alvarez v Prospect Hosp., 68 NY2d 320 [1986] ........................................................................................... 37 Amusement Business Underwriters v American International Group, 66 NY2d 878 [1985] ........................................................................................... 49 Bailey v Fish & Neave, 8 NY3d 523 [2007] ............................................................................................. 67 Capra v Lumbermens Mut. Cas. Co., 31 NY2d 760 [1972] ..................................................................................... 69-70 Carvel Corp. v Diversified Mgmt. Group, Inc., 930 F2d 228 [2d Cir 1991] ................................................................................. 54 Chimart Assocs. v Paul, 66 NY2d 570 [1986] ........................................................................................... 67 Continental Ins. Co. v 115-123 W. 29th Street Owners Corp., 275 AD2d 605 [1st Dept 2000] .......................................................................... 37 Deering Milliken, Inc. v Clark Estates, Inc., 43 NY2d 545 [1978] ..................................................................................... 50, 52 Destiny USA Holdings, LLC v CitigroupGlobal Mkts. Realty Corp., 2009 WL 2163483 [Sup Ct, Onondaga County July 17, 2009, No. 09-4157] , affd as modified on other grounds, 69 AD3d 212 [4th Dept 2009] ................... 64 Edgewater Constr. Co., v 81 & 3 of Watertown, Inc., 252 AD2d 951 [4th Dept 1998] .......................................................................... 58 El Reda v Love Taxi, Inc., 202 AD2d 275 [1st Dept 1994] .......................................................................... 64 -iv- ESPN, Inc. v Office of the Comm’r of Baseball, 76 F Supp 2d 383 [SD NY 1999] ....................................................................... 64 Evans v Famous Music Corp., 1 NY3d 452 [2004] ....................................................................................... 33, 67 Fed. Ins. Co. v Americas Ins. Co., 258 AD2d 39 [1st Dept 1999] ............................................................................ 51 Ferguson Elec. Co. v Kendal at Ithaca, Inc., 274 AD2d 890 [3d Dept 2000] ........................................................................... 47 Filmline (Cross-Country) Products, Inc. v United Artists Corp., 865 F2d 513 [2d Cir 1989] ................................................................................. 65 Gessin Elec. Contrs., Inc. v 95 Wall Assoc., LLC, 74 AD3d 516 [1st Dept 2010] ............................................................................ 46 Greenfield v Philles Records, Inc., 98 NY2d 562 [2002] ........................................................................................... 67 H. Fox & Co., Inc. v Blumenfeld, 24 AD3d 722 [2d Dept 2005] ............................................................................. 48 Hadden v Consol. Edison Co., 34 NY2d 88 [1974] ............................................................................................. 58 Hudson-Port Ewen Associates, L.P. v Chien Kuo, 78 NY2d 944 [1991] ........................................................................................... 40 Jade Realty LLC v Citigroup Commercial Mortgage Trust 2005-EMG, 83 AD3d 567 [1st Dept 2011] ............................................................................ 49 Kass v Kass, 91 NY2d 554 [1998] ........................................................................................... 41 Korea Life Ins. Co. v Morgan Guar. Trust Co. of N.Y., 269 F Supp 2d 424 [SD NY 2003] ..................................................................... 54 Leasing Serv. Corp. v Diamond Timber, Inc., 559 F Supp 972 [SD NY 1983] .......................................................................... 54 -v- Leventhal v New Valley Corp., 1992 WL 15989 [SD NY Jan. 17, 1992, No. 91-Civ-4238 (CSH)] ................... 64 Littlejohn v Shaw, 159 NY 188 [1899] ............................................................................................. 64 Lynn G. v Hugo, 96 NY2d 306 [2001] ........................................................................................... 37 Madison Ave. Leasehold, LLC v Madison Bentley Assocs., LLC, 8 NY3d 59 [2006] ............................................................................................... 61 Matter of Seitelman v Lavine, 36 NY2d 165 [1975] ............................................................................................. 6 Mereminsky v Mereminsky, 188 NYS2d 771 [2d Dept 1959] ......................................................................... 51 Metropolitan Life Ins. Co. v Noble Lowndes Intl., 84 NY2d 430 [1994] ............................................................................... 34, 45-46 Nationwide Gen. Ins. Co. v Investors Ins. Co., 37 NY2d 91 [1975] ............................................................................................. 47 Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685 [1995] ..................................................................................... 58-59 Matter of Riconda, 90 NY2d 733 [1997] ........................................................................................... 45 Matter of Seitelman v Lavine 36 NY2d 165 [1975] ........................................................................................... 45 Ronnen v Ajax Elec. Motor Corp., 88 NY2d 582 [1996] ............................................................................................. 6 Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191 [1st Dept 1995] .......................................................................... 46 Sarinsky’s Garage Inc. v Erie Ins. Co., 691 F Supp 2d 483 [SD NY 2010] ..................................................................... 51 -vi- State v Rashid, 16 NY3d 1 [2010] ................................................................................................. 6 St. Paul Fire & Marine Ins. Co. v Capri Const. Corp., 78 NY2d 1016 [1991] ................................................................................... 69-70 Tibbets Contr. Corp. v O&E Contr. Co., 15 NY2d 324 [1965] ........................................................................................... 47 Triax Capital Advisors, LLC v Rutter, 83 AD3d 490 [1st Dept 2011] ...................................................................... 35, 67 Union Carbide Corp. v Affiliated FM Ins. Co., 16 NY3d 419 [2011] ............................................................................... 40, 50, 52 VCG Special Opportunities Master Fund Ltd. v Citibank, N.A., 594 F Supp 2d 334 [SD NY 2008] ............................................................... 47-48 Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470 [2004]) ............................................................................................ 37 W.W.W. Assocs., Inc. v Giancontieri, 77 NY 157 [1990] ............................................................................................... 67 Waverly Corp. v City of New York, 48 AD3d 261 [1st Dept 2008] ............................................................................ 51 Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352 [2003] ................................................................................... 45-46 Winegrad v N.Y. Univ. Med. Ctr., 64 NY2d 851 [1985] ........................................................................................... 38 Zuckerman v City of New York, 49 NY2d 557 [1980] ........................................................................................... 38 Statutes and Rules CPLR 3212[b] .................................................................................................... 37, 69 CPLR 5602[b][1] ....................................................................................................... 5 -vii- CPLR 5713 ................................................................................................................. 5 7 USC § 1a[47][A] ................................................................................................... 11 15 USC § 78c[a][69] ................................................................................................ 11 Other Authorities CFTC, Policy Statement Concerning Swap Transactions, 54 Fed. Reg. 30694-701 [July 21, 1989] .................................................................................................... 11 N.Y. Prac., Contract Law [West 2013] .................................................................... 49 4A N.Y. Prac., Com. Litig. in New York State Courts [3d ed. West 2013]…………………………………………………………………………...49 Webster’s Third International Dictionary of the English Language Unabridged [2002] .................................................................................................................. 63 -1- The subject of this appeal is the proper disposition of cross-motions for summary judgment by plaintiff-respondent BDC Finance L.L.C. (“BDC”) and defendant-appellant Barclays Bank PLC (“Barclays”). Each party sought a determination that it properly terminated certain derivative transactions, including a billion-dollar portfolio of “total return swaps,” based on the other party’s alleged failure to transfer collateral as required by the governing agreement (the “Agreement”). The Commercial Division adopted Barclays’ interpretation of the Agreement but a divided 3-2 panel of the Appellate Division, First Department, instead granted summary judgment to BDC. In doing so the Appellate Division adopted an interpretation of the Agreement that was inconsistent with the parties’ understanding at the time of the termination and was first suggested to BDC by its expert witness long after the litigation commenced; ignored a provision of the Agreement that unambiguously gave Barclays two days following notice to cure any failure to transfer collateral; and accepted an interpretation of BDC’s notice of a potential Event of Default that is contradicted by its plain language. Under the total return swaps, BDC was to receive the economic equivalent (the “total return”) of investing in a pool of leveraged loans, including bearing any loss in their value, without actually purchasing those loans. To secure its obligations (because the loans could—and in fact did—decrease substantially in value), BDC was required to post collateral to Barclays. The amount BDC was -2- required to post fluctuated based primarily on the value of the loans underlying the total return swaps. Barclays was entitled to ask BDC to transfer additional collateral to Barclays if Barclays was under-collateralized, and BDC was entitled to ask Barclays to transfer some of its collateral back (a “Return Amount”) if Barclays was over-collateralized. (See pages 13-16 below.) Paragraph 5 of the Agreement’s Credit Support Annex (“CSA”), a standard form establishing general terms concerning the collateral arrangements, provided that if either party disputed the other party’s request to transfer collateral it could notify the other party of the dispute and transfer only the amount that was not in dispute (the “undisputed amount”), following which the parties would follow a prescribed and mandatory dispute-resolution procedure. (Pages 16-18 below.) BDC contends that it properly terminated the transactions based on Barclays’ failure to transfer a $40 million Return Amount requested by BDC on October 6, 2008. Under the CSA and the Master Agreement, another standard form establishing general terms for the swaps, a party could only terminate the transactions based on a failure to transfer collateral if the transfer was required by the parties’ Agreement and it continued through a cure period of two days after the terminating party gave the defaulting party notice of “such failure.” Thus, to establish its right to terminate, BDC had to show that (1) Barclays failed to make a -3- transfer it was required to make, and (2) such failure continued for two days after BDC gave Barclays notice of such supposed failure. (Pages 20-21 below.) Barclays contends that it was not required to transfer the $40 million Return Amount to BDC because Barclays disputed BDC’s request and paid the undisputed amount, and the dispute was subsequently resolved by consultation between Barclays and BDC in accordance with Paragraph 5 of the CSA. (Pages 41-61 below.) In purporting to terminate the transactions, BDC contended that Barclays failed to dispute BDC’s request for a Return Amount. BDC did so notwithstanding various communications from Barclays expressly disputing BDC’s request as well as the fact that Barclays itself had made a competing collateral call to BDC the very same day. (Pages 21-24, 53-56 below.) In order to satisfy the notice requirement for a termination, BDC relies on an October 8, 2008 notice 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,” and that as of the end of October 7, 2008, “BDC received neither payment nor a notice of dispute.” (R1639.) In a 3-2 decision, the Appellate Division reversed the Commercial Division and adopted, as a matter of law, a construction of the Agreement first suggested to BDC by its expert witness long after it commenced this litigation. -4- (Pages 31, 34-37 below.) Relying on a single contractual provision in isolation, the Appellate Division concluded that Barclays’ right to suspend its obligation to pay the full Return Amount pending resolution of a dispute was eliminated by a part of the Master Confirmation called the Delivery of Collateral provision, which on its face has nothing to do with Barclays’ dispute rights and instead concerns how long after a request a transfer of collateral must be made. (Pages 31, 30-37 below.) The Appellate Division also held that there was no genuine dispute that perfect compliance with the obligation under Paragraph 5 of the CSA to transfer the undisputed amount was a condition precedent to Barclays’ right to suspend payment of the full Return Amount, and that Barclays’ transfer was a day late and $80,000 short. In order to grant summary judgment to BDC on either of these theories, the Appellate Division was also required to hold, and it did hold, that there was no genuine dispute that BDC’s October 8 notice, quoted above, notified Barclays of a breach of the Agreement consisting exclusively of the failure to transfer the full Return Amount, rather than giving Barclays the option either to pay the full Return Amount or to dispute and pay the undisputed amount. (Pages 34-35 below.) On this appeal, Barclays contends that the Appellate Division erred in reversing the Commercial Division’s grant of summary judgment to Barclays rejecting BDC’s newly minted interpretation of the Agreement. (Pages 41-52 -5- below.) The Appellate Division also erred in granting BDC summary judgment because, at a minimum, there are factual disputes concerning both the construction of the parties’ Agreement and the interpretation of BDC’s October 8 notice that precluded summary judgment in BDC’s favor. (Pages 67-71 below.) In fact, the record establishes as a matter of law that Barclays disputed BDC’s October 6 request for a Return Amount and that BDC lacked any basis to terminate the transactions. (Pages 53-65 below.) Barclays is therefore entitled to summary judgment that it properly terminated the transactions. JURISDICTION This Court has jurisdiction to hear this appeal based on an order of the Appellate Division granting permission to appeal pursuant to CPLR 5602(b)(1) and 5713, dated January 23, 2014. (R4362-63.) The Appellate Division certified the following question of law: “Was the order of this Court, which modified the order of Supreme Court, properly made?” and further certified that its determination was made as a matter of law and not in the exercise of discretion. (Id.) The questions presented have been preserved for review because the arguments raised in this appeal have been made to the courts -6- below (e.g., R814-16, 2157-74)1 and the Appellate Division addressed a number of them in its decision and order (R4364-75). QUESTIONS PRESENTED 1. Was the Commercial Division correct in granting summary judgment adopting Barclays’ interpretation of the parties’ Agreement, under which Barclays had the right to dispute a collateral request and to transfer only the undisputed amount pending resolution of the dispute, and rejecting BDC’s post-litigation interpretation under which only BDC had that right? The Appellate Division answered this question in the negative. 2. Is Barclays entitled to summary judgment determining that BDC did not properly terminate the derivative transactions governed by the Agreement because Barclays had suspended its obligation to transfer the collateral requested by BDC by notifying BDC that it disputed the request and transferring the undisputed amount? The Appellate Division answered this question in the negative. 3. Is Barclays entitled to summary judgment that BDC did not properly terminate the transactions because the potential default of which BDC gave 1 This Court may address questions raised before either the Commercial Division or the Appellate Division (see State v Rashid, 16 NY3d 1, 13 [2010]; Matter of Seitelman v Lavine, 36 NY2d 165, 170 n 2 [1975]; 4A West’s New York Practice, Commercial Litigation in New York State Courts § 56:5 [3d ed 2013]). -7- Barclays notice was cured within the contractual cure period and the grounds on which BDC now seeks summary judgment were not set forth in that notice of potential default? The Appellate Division answered this question in the negative. 4. Was Barclays entitled to summary judgment that it properly terminated the transactions because after BDC attempted to terminate, it did not purport to comply with Barclays’ requests to transfer collateral and it failed to cure this default after Barclays gave BDC notice of it? The Appellate Division answered this question in the negative. 5. Was there, at a minimum, a factual dispute concerning the interpretation of either the Agreement or BDC’s notice of a potential event of default that precluded summary judgment in BDC’s favor? The Appellate Division answered this question in the negative. NATURE OF THE CASE AND FACTS NECESSARY TO DETERMINE THE QUESTIONS INVOLVED A. Nature of the Case At the heart of this appeal lie two competing interpretations of the Agreement. The first interpretation, advanced by Barclays, reads the Agreement as a coherent whole, gives the parties equal rights concerning collateral disputes, and is the interpretation that the parties indisputably shared for more than three years after they entered into the Agreement, including at the time BDC purported to -8- terminate the transactions and commenced this litigation. The alternative interpretation, advanced by BDC, relies upon a single contractual provision in isolation, gives BDC unfair rights vis-à-vis Barclays, and was admittedly first suggested to BDC by its expert witness long after BDC commenced this litigation. The record shows that until BDC adopted its expert’s construction of the Agreement, BDC and Barclays shared the understanding that Barclays was entitled to dispute BDC’s requests to transfer collateral and to transfer only the undisputed amount pending resolution of the dispute. Indeed, BDC originally based its attempt to extricate itself from its money-losing investment precisely on the ground that Barclays allegedly failed to exercise this right to dispute. For example, BDC’s counsel informed the Commercial Division in a 2009 conference that Barclays “had an option to either return the excess amount or to dispute it,” and that the essence of BDC’s breach of contract claim was “a dispute as to whether or not there was a dispute.” (R838 (emphasis added).) Barclays respectfully requests that the Court follow the Commercial Division and the two dissenting judges of the Appellate Division and reject BDC’s incorrect and post hoc interpretation of the Agreement. Even if the Court does not adopt Barclays’ interpretation, however, Barclays is entitled to summary judgment because BDC’s notice of a potential Event of Default expressly gave Barclays the right to dispute BDC’s request for the Return Amount and pay the undisputed -9- amount within two business days, in accordance with the parties’ shared interpretation of the Agreement at the time, and Barclays did so. At a minimum, summary judgment should not have been granted to BDC because of the disputed issues of fact concerning BDC’s new interpretation of the Agreement and notice of a potential Event of Default. The principal questions presented by the case giving rise to this appeal are: First, whether the parties’ Agreement should be interpreted as BDC says it should, to deny Barclays’ right even to dispute BDC’s collateral request before transferring whatever amount BDC demands or whether, as both parties believed when the transactions were terminated, Barclays had the right to dispute BDC’s request and suspend its obligation to transfer collateral. Second, assuming that Barclays had the right to dispute collateral calls from BDC, whether Barclays notified BDC of its dispute. Third, whether Barclays failed to make a transfer required by the Agreement based on the circumstances surrounding its payment of the undisputed amount. Fourth, whether BDC gave Barclays notice of the alleged failure to transfer collateral that forms the asserted justification for BDC’s termination, and whether this alleged failure continued for two business days after the notice. -10- Finally, if BDC did not properly terminate the transactions, whether Barclays properly terminated them based on BDC’s failure to respond to Barclays’ requests to transfer collateral following BDC’s purported termination. After it is determined whether Barclays or BDC properly terminated the transactions it will be necessary to determine the aggregate net termination payment due as a result of the termination, which will depend, inter alia, on who terminated and when.2 Barclays is not raising any issue concerning the termination payment on this appeal. B. The Facts 1. The Agreement This case arises from a contract under which Barclays and BDC entered into a series of transactions (referred to in the contract (R896), and henceforth in this brief, as “Transactions”) governed by, and forming parts of, a single master agreement. The Transactions that Barclays and BDC entered into comprise (1) total return swaps on leveraged loans and (2) “credit derivative transactions” based on two published indices of credit default swaps. The credit 2 The Appellate Division’s assertion that Barclays would be required to return all of BDC’s collateral if BDC properly terminated the Transactions (R4371-73) is incorrect. Under the Agreement a terminating party may be required to make a payment to the party that defaulted (Agreement § 6(c)(i)(3) (R904-05), Schedule pt. 1(f) (R918)), and the defaulting party is entitled to satisfy obligations owed to it out of any collateral before returning the balance (CSA ¶ 8(c) (R930)). -11- derivative transactions were entered into pursuant to, and formed a part of, the same master agreement as the total return swaps (and were therefore terminated at the same time), but the parties’ dispute arose from the total return swaps. A swap is a contract under which the parties agree to make payments to each other, some of which depend on a market rate or price as applied to a notional, or hypothetical, asset or obligation (CFTC, Policy Statement Concerning Swap Transactions, 54 Fed. Reg. 30694-701, at 30695 [July 21, 1989]).3 In the parties’ total return swaps, the notional or hypothetical assets were leveraged loans. The Agreement provided that (1) Barclays would make payments to BDC equal to the interest payments and other distributions on the leveraged loans, (2) Barclays would pay BDC the amount by which the market value of the loans increased during the terms of the swaps, (3) BDC would pay Barclays the amount by which the market value of the loans declined during the terms of the swaps, and (4) BDC would make payments to Barclays equal to interest payments on what it would have cost to purchase the loans. (R943-46.) In economic terms, BDC received the results of owning loans for the terms of the swaps and Barclays received payments corresponding to interest for providing financing for BDC’s acquisition of the 3 The definition of “swap” in the Securities Exchange Act and Commodities Exchange Act also includes various option contracts (see 7 USC § 1a[47][A]; 15 USC § 78c[a][69]), but option contracts are not relevant to this case. -12- loans. Because BDC was receiving the “total return” on the loans it was designated as the “Total Return Receiver” (R943) while Barclays was the “Counterparty” or “Total Return Payer.” (R942-43.)4 The Transactions were all governed by a master agreement (the “Master Agreement”) consisting of a standardized form issued by the International Swap and Derivatives Association (“ISDA”) in 1992. (R896-913.) The Master Agreement called for, and the parties executed, a schedule (the “Schedule”) in which the parties made various elections under, and could vary the terms of, the Master Agreement. (R914-24.) The parties also entered into the CSA (R925-41), which states that it is part of the Master Agreement and Schedule. (R925.) The CSA is another standardized form issued by ISDA to govern the provision of collateral and other credit support for Transactions. (R940.) The CSA contains, and the parties completed, a Paragraph 13 (R935-41) in which they made various elections under or variances from the standard terms of the CSA, as set forth in Paragraphs 1-12. Finally, the parties entered into confirmations stating the specific economic terms of their Transactions. 4 Barclays was not required to own the loans under the total return swaps but nevertheless acquired them as a hedge of its exposure under the swaps. (R988.) Termination of the total return swaps by either party was disadvantageous to Barclays because it was left with a huge unhedged portfolio of leveraged loans at a time when the market prices of those loans were plummeting. (See R1073-1109, 1110-17.) -13- In addition to the contractual documents described above, the terms of the total return swaps were evidenced by a Total Return Swap Master Confirmation (R942-66) (as amended from time to time, the “Master Confirmation”) and daily “counterparty annexes” listing, among other things, the names and amounts of the loans subject to the swaps and their prices at the beginning of the terms of the respective swaps. (E.g., R1724-26.) The credit derivative transactions were evidenced by a series of separate confirmations. (R704-47.) The Master Agreement states that “this Master Agreement,” which as discussed above includes the Schedule and CSA, “and all Confirmations form a single agreement between the parties (collectively referred to as the ‘Agreement’),” and in this brief the term “Agreement” is used in the same way. Barclays’ Collateral and the Parties’ Ability to Make Collateral Requests The Master Confirmation provided that “Total Return Receiver [i.e., BDC] shall post Collateral to Total Return Payer [Barclays] pursuant to the terms of” the CSA. (R957.) Barclays was not required to provide collateral for its obligations to BDC. Under the CSA, Barclays was entitled to ask BDC to transfer a “Delivery Amount” of additional collateral to Barclays if Barclays was under- collateralized and BDC was entitled to ask Barclays to transfer a Return Amount of collateral if Barclays was over-collateralized. (R926.) -14- Barclays’ obligation to transfer Return Amounts is set forth in Paragraph 3(b): “(b) Return Amount. Subject to Paragraphs 4 and 5, upon a demand made by the Pledgor on or promptly following a Valuation Date, if the Return Amount for that Valuation Date equals or exceeds the Secured Party’s Minimum Transfer Amount, then the Secured Party will Transfer to the Pledgor Posted Credit Support specified by the Pledgor in that demand having a Value as of the date of Transfer as close as practicable to the applicable Return Amount (rounded pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the ‘Return Amount’ applicable to the Secured Party for any Valuation Date will equal the amount by which: “(i) the Value as of that Valuation Date of all Posted Credit Support held by the Secured Party exceeds “(ii) the Credit Support Amount.” (R926 (underscoring added).)5 The “Credit Support Amount” is defined in the final subparagraph of Paragraph 3, and is generally the sum of (1) the “Secured Party’s Exposure” and (2) the net aggregate amount of the parties’ “Independent Amounts.” Paragraph 13(b)(iv) of the CSA provides that there are no Independent Amounts applicable to 5 The definition of “Delivery Amount” is virtually the same except that the amount is the Credit Support Amount (defined below) minus the amount of Posted Credit Support instead of the amount of Posted Credit Support minus the Credit Support Amount. (See R926.) -15- Barclays (Party A) and that the Independent Amounts applicable to BDC (Party B) are amounts calculated by Barclays with respect to each Transaction. (R935-36 (Party A and Party B are identified at the top of R935).) The formula for calculating the Independent Amounts is in the Master Confirmation. (R957-58.) “Exposure” is, generally, the amount BDC would owe Barclays if all the Transactions were terminated: “‘Exposure’ means for any Valuation Date or other date for which Exposure is calculated and subject to Paragraph 5 in the case of a dispute, the amount, if any, that would be payable to a party that is the Secured Party by the other party (expressed as a positive number) or by a party that is the Secured Party to another party (expressed as a negative number) … as if all Transactions (or Swap Transactions) were being terminated as of the relevant Valuation Time.” (R932.) As shown in the provisions quoted above, the obligations to transfer Delivery Amounts and Return Amounts are “[s]ubject to Paragraphs 4 and 5.” Paragraph 4 is entitled “Conditions Precedent, Transfer Timing, Calculations and Substitutions.” Paragraph 4(a) says that the obligation to transfer collateral pursuant to Paragraph 3 is subject to conditions precedent including the absence of an Event of Default or Potential Event of Default affecting the party requesting the transfer. (R926.) Paragraph 4(b), entitled “Transfer Timing,” provides: -16- “Subject to Paragraphs 4(a) and 5 and unless otherwise specified, if a demand for the Transfer of Eligible Credit Support or Posted Credit Support is made by the Notification Time, then the relevant Transfer will be made not later than the close of business on the next Local Business Day; if a demand is made after the Notification Time, then the relevant Transfer will be made not later than the close of business on the second Local Business Day thereafter.” (R926.) “Notification Time” was defined as 1:00 p.m., New York time. (R936.) The Transfer Timing provision is applicable to requests for both Return Amounts and Delivery Amounts, and as discussed above the Delivery Amounts are based on Credit Support Amounts that include Independent Amounts. Disputes Over Requests for Collateral Paragraph 5, to which the provision requiring transfers of collateral is also expressly subject, is entitled “Dispute Resolution” (the “Dispute Resolution provision”). (R927.) It establishes mandatory procedures for resolving disputes concerning (1) requests for a Delivery Amount or Return Amount and (2) the value of collateral. The provisions concerning requests for a Delivery Amount or Return Amount6 begin as follows: 6 The procedures for resolving disputes concerning requests for a Delivery Amount or Return Amount are identified with the Roman numeral (I) and the procedures for resolving disputes concerning the value of collateral are identified with the Roman numeral (II). -17- “If a party (a ‘Disputing Party’) disputes (I) the Valuation Agent’s calculation of a Delivery Amount or a Return Amount . . . , then (1) the Disputing Party will notify the other party and the Valuation Agent (if the Valuation Agent is not the other party) not later than the close of business on the Local Business Day following (X) the date that the demand is made under Paragraph 3 in the case of (I) above . . . , [and] (2) subject to Paragraph 4(a), 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 (X) the date that the demand is made under Paragraph 3 in the case of (I) above . . . .” (Id.) The provision then goes on to prescribe the steps that the parties are to take to resolve the dispute. (Id.) Paragraph 13 of the CSA provides that “for purposes of Paragraph 3 and 5” the Valuation Agent is “the party making the demand under Paragraph 3.” (R936.) In other words, Barclays was the Valuation Agent for requests for Delivery Amounts, and BDC was the Valuation Agent for requests for Return Amounts. As shown in the above-quoted provision concerning a request for a Return Amount, and the similar language of the provision concerning a request for a Delivery Amount (R926), the obligation to comply with those requests was expressly “subject to” the Dispute Resolution provision in Paragraph 5 of the CSA. The Dispute Resolution provision is also built into the definition of “Exposure,” a component of the calculation of the Delivery Amounts and Return Amounts, as shown in the definitions quoted above. -18- Paragraph 13 of the CSA, the part of the CSA in which the parties memorialize their elections under and departures from the standard terms of the CSA, has a section for the parties to memorialize their changes to the Dispute Resolution provision. (R935-40.) Paragraph 13(f) is entitled “Dispute Resolution,” and clause 13(f)(iii) calls on the parties to state any “Alternative” to the CSA’s Dispute Resolution provision. In the parties’ Agreement, clause 13(f)(iii) states without qualification, “The provisions of Paragraph 5 will apply.” (R937.) The “Delivery of Collateral” Provision Finally, Section VI of the Master Confirmation contains a provision entitled “Delivery of Collateral” stating: “Notwithstanding anything in the Credit Support Annex to the contrary: “(a) Total Return Receiver shall Transfer the applicable Independent Amount in respect of any Transaction to Total Return Payer not later than the Business Day following the Trade Date of such Transaction. “(b) Total Return Payer shall Transfer any Return Amounts in respect of Transactions not later than the Business Day following the Business Day on which Counterparty requests the Transfer of such Return Amount.” (R958.) Barclays is the “Counterparty” (R942) and the “Total Return Payer” (R943). The “Total Return Receiver” is BDC. (Id.) Only BDC could request a -19- Return Amount because, as explained above, it was the only party required to post collateral to secure its obligations. Thus, clause (b) of the Delivery of Collateral provision is unintelligible—it requires Barclays to Transfer Return Amounts on the Business Day after Barclays requested “the Transfer of such Return Amount.” At BDC’s request, the Commercial Division reformed clause (b) to read: “(b) Total Return Payer shall Transfer any Return Amounts in respect of Transactions not later than the Business Day following the Business Day on which Total Return Receiver requests the Transfer of such Return Amount.” (R32-33.) Barclays contends that clause (b) of the Delivery of Collateral provision, like clause (a), simply modifies the Transfer Timing provision in Paragraph 4(b) of the CSA, quoted above, 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. Beginning about 18 months after it commenced this litigation, and only after discovery undermined its original theory based on the parties’ theretofore undisputed interpretation of the Agreement, BDC for the first time asserted that this poorly drafted provision abrogated all the provisions of the CSA that would excuse Barclays from transferring a Return Amount requested by BDC, including -20- the conditions precedent in Paragraph 4(b) and the Dispute Resolution provision in Paragraph 5. Termination of the Transactions The parties’ right to terminate the Transactions was prescribed and limited by Section 6 of the Master Agreement, entitled “Early Termination.” (R903.) It permitted a party to terminate based on an “Event of Default” or a “Termination Event.” In this case Barclays and BDC both relied on Events of Default under Section 5(a)(iii)(1) of the Master Agreement to terminate the Transactions. (R1639, 1676-78.) Section 5(a)(iii)(1) states that the following is an Event of Default: “Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed.” (R900.) The CSA states that it is a “Credit Support Document.” (R925.) BDC and Barclays each relied on an Event of Default under Paragraph 7(i) of the CSA (R1639, 1676-78), which provides that “an Event of Default will exist with respect to a party if”: “that party fails (or fails to cause its Custodian) to make, when due, any Transfer of Eligible Collateral, Posted Collateral or the Interest Amount, as applicable, required -21- to be made by it and that failure continues for two Local Business Days after notice of that failure is given to that party.” (R929.) Thus, both Barclays and BDC attempted to terminate based on an Event of Default that required a failure by the other party to make a transfer of collateral “when due” and the continuation of that failure “for two Local Business Days after notice of that failure is given to that party.” 2. The Collateral Disputes and Notice of the Disputes As noted above, the amount of collateral to which Barclays was entitled (the Credit Support Amount) included its “Exposure,” and Exposure was defined as the amount that would be due to Barclays if all the Transactions were terminated. Because BDC’s obligations under the total return swaps included an obligation to make a payment to Barclays upon termination equal to the decline in the market price of the loans, the amount BDC was required to post increased when the value of the loans that were the notional assets under the total return swaps declined. In fact, the loans declined dramatically in value, requiring BDC to post more than $100 million of additional collateral to Barclays by October 2008. (R774.) For over three-and-a-half years while the parties performed under the Agreement, Barclays issued collateral calls for BDC to transfer Delivery Amounts, and BDC issued collateral calls for Barclays to transfer Return Amounts to BDC, -22- for the most part using values supplied by LoanX, a third-party pricing source. (R1182-83.) When either party disputed a collateral call, it provided notice of its dispute to the other party and then paid any undisputed amount. (See, e.g., R992- 998; 1002.) The Agreement did not require a party to use any particular language to notify the other of a dispute. During their three-and-a-half year relationship, the parties provided notice of a dispute with a collateral call using a variety of language, such as:  January 14, 2008: Barclays sent a collateral call by e-mail to BDC. BDC responded by e-mail, saying “We do not agree to your call for today . . . . Please confirm that this call is canceled.” (R992 (emphasis added));  January 15, 2008: Barclays sent a collateral call by e-mail to BDC. BDC responded by e-mail, saying “We do not agree to your call today . . . . Please review and confirm that this call is canceled.” (R994 (emphasis added));  July 23, 2008: BDC sent a collateral call by e-mail to Barclays. Barclays’ second response to that call was an e-mail saying, “Correction to todays [sic] response. Partial Agree 620k [sic] . . . .” (R996 (emphasis added)); and  August 8, 2008: BDC sent a collateral call by e-mail to Barclays. Barclays responded “Dispute [Mark to Market valuation] = 86,131,725 . . . .” (R998 (emphasis added).) Neither Barclays nor BDC ever suggested that this language was insufficient to give notice of a dispute. (See R1002-04, 1011-12, 1014-15.) In fact, BDC -23- employee Nicole Brock7 and BDC’s expert testified that the parties used language like “do not agree,” “disagree,” “partial agree,” and “dispute” synonymously. (R1024, 1028, 1036, 1040.) Lehman Brothers’ bankruptcy on September 15, 2008, roiled the leveraged loan market (R1073-1109, 1110-17), and LoanX and other commercial pricing services’ prices began to lag behind the rapid decline in loan values. (See, e.g., R1135, 1142.) Barclays therefore began valuing the loans at slightly less than the LoanX prices when calculating collateral calls. (E.g., R1124-26.) This led to “a series of disputes” between the parties during the end of September 2008 and beginning of October over the loan values used to calculate collateral calls. (R1187.) In one of the recorded telephone calls in which Barclays and BDC discussed these disputes (R1046-72), Melinda Muller of BDC8 informed her supervisor Mounir Nahas, BDC’s Chief Operating Officer (R970-71), that the “regular” practice for providing notice of dispute of collateral calls was to provide “[a]n email stating what we think [] is owed to us or what we owe them.” (R1071.) 7 Brock was BDC’s assistant treasurer in fall 2008. She and Jennifer Guy were responsible for handling collateral calls on a daily basis and reported to Melinda Muller. (R1022, 1035.) 8 Muller was in charge of BDC’s collateral calls. (R970.) -24- At the end of the conversation, Nahas directed Muller to send Barclays “whatever you provide them on a regular basis when you dispute.” (Id.) Muller proceeded to send Barclays an e-mail stating, “In furtherance of our telephone conversation, we do not agree with the marks from the collateral call sent on 9/25/08.” (R2820.) Accordingly, BDC represented to Barclays, less than two weeks before Barclays gave notice that it disputed BDC’s $40 million call, that it was appropriate to give notice of a dispute under Paragraph 5 with “[a]n email stating what we think that is owed to us or what we owe them” (R1071) or an e-mail stating, “We do not agree with the marks from the collateral call” (R2820). 3. BDC’s Purported Termination of the Transactions On October 6, 2008, the parties exchanged competing requests to transfer collateral. Barclays demanded a Delivery Amount of $11,750,000 in additional collateral from BDC (R1534-36), and BDC responded by demanding that Barclays transfer to BDC a Return Amount of more than $40 million (R1553- 59). Given the parties’ ongoing three-week dispute over the value of the loans, and the competing collateral calls issued by the parties on October 6, it was obvious that the parties disagreed with one another’s requests. (See R1180, 1426.) As described above, BDC had told Barclays just two weeks earlier that the normal procedure for disputing a collateral call was to send “[a]n e-mail stating what we think [] is owed to us or what we owe them.” (R1071.) -25- Accordingly, BDC’s request for a Return Amount could also be construed as a notice that BDC disputed Barclays’ request for a Delivery Amount, and such a notice could require Barclays, as Valuation Agent for its own request, to recalculate the request. Barclays immediately sent BDC an e-mail, at 12:57 p.m., in which it notified BDC that it disputed BDC’s request and asked if BDC intended to dispute Barclays’ request: “We do not agree with this call. Please let us know if you want to invoke the dispute mechanism.” (R1568.) BDC responded, “We are not seeking to invoke the dispute mechanism.” Barclays replied at 2:59 p.m., confirming that it disputed BDC’s request: “We show that BDC owes Barclays, not the other way around.” (R1617.) In addition, employees from Barclays and BDC had a telephone call that same day to discuss, among other things, collateral transfers and BDC’s response to Barclays’ initial e-mail giving notice of its dispute of BDC’s demand. (R1619- 25.) At the time it received BDC’s request for a Return Amount, Barclays had just asked BDC for a Delivery Amount of additional collateral, and there was no “undisputed amount” that Barclays was required to transfer to BDC under Paragraph 5 of the CSA. On October 7, however, employees from Barclays and -26- BDC had another telephone call and agreed that, after accounting for two payments from BDC that Barclays received on October 6, Barclays owed BDC $5.08 million. (R1628.) Later that day, and notwithstanding these telephone calls and multiple e-mails from Barclays notifying BDC that Barclays disputed the request for a Return Amount, BDC sent Barclays an e-mail stating that “[BDC] ha[d] not received payment, nor ha[d] Barclays exercised its dispute right.” (R1630.) BDC’s e-mail also reminded Barclays that “Barclays must either pay the amount set out in the request or exercise its dispute rights.” (Id. (emphasis added).) Barclays immediately responded to BDC’s e-mail, memorializing the parties’ earlier consultation: “Barclays agrees to return 5,080,000 . . . for margin call made on 10/6 (COB 10/3).” (Id.) Processing issues at Barclays delayed the transfer of the undisputed amount until the morning of October 8, 2008. (R1631, 1634-35.) In addition, the amount Barclays transferred to BDC was $5 million, rather than $5.08 million. (Id.) However, Barclays satisfied its obligation to transfer the entire undisputed amount because it issued a new demand for $20.5 million in additional collateral to BDC on October 8. (R2311-13.) The demand would have been $80,000 greater if Barclays had returned another $80,000 to BDC (see id.), so BDC received the benefit of the $80,000 as a reduction of the amount it was required to transfer to -27- Barclays.9 BDC never disputed the new demand from Barclays. On October 9, Barclays revised the collateral call to reflect an additional transfer of $7.25 million by BDC on October 8. (R2314.) BDC paid the balance of $13.25 million on October 9. (R1645.) There was obviously no undisputed amount that Barclays was required to transfer to BDC by October 8 because by then Barclays was under- collateralized and was demanding additional collateral from BDC. Indeed, in a letter dated October 16, 2008, BDC acknowledged, twice, that Barclays had returned the full $5,080,000 to BDC. (R1662.) On October 8, BDC sent Barclays a letter with the subject line: “Re: Notice of Failure to Transfer Return Amount.” After referring to the October 6 demand for a $40 million Return Amount, the letter stated: “Pursuant to Paragraph 4(b) and Paragraph 5 of the CSA, by 5:00 p.m. NY time on Tuesday, October 7, 2008, 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. As of 5:00 p.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. 9 The Master Agreement provides that whenever amounts would otherwise be payable by each party to the other, in the same currency and with respect to the same Transaction, the two amounts shall be set off and only the net amount shall be payable. (R897.) -28- “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 5(a)(iii)(1) of the Master Agreement.” (R1639.) Upon receiving the notice, Barclays confirmed internally that it had transferred $5 million to BDC. (R984-85.) Paragraph 5 of the CSA provides that after a party notifies the other that it disputes a request to transfer collateral, “the parties will consult with each other in an attempt to resolve the dispute.” (R927.) “If they fail to resolve the dispute by the Resolution Time,” then “the Valuation Agent will recalculate the Exposure and the Value as of the Recalculation Date” in accordance with procedures specified in the Paragraph 5 (ii). (Id.)10 As discussed above, the parties did consult concerning BDC’s request for a $40 million Return Amount, and Barclays assumed that the dispute had been resolved. BDC was the Valuation Agent for its request (R936), so if the dispute was not resolved, BDC was required to “recalculate the Exposure” by obtaining quotations from “Reference Market- Makers” (R927). BDC in fact never conducted such a recalculation. 10 The Appellate Division’s decision states that the parties “must utilize the CSA’s formal dispute resolution process” if they do not resolve the dispute by consultation. (R4366.) In fact, nothing in the CSA suggests that there are distinct “formal” and “informal” dispute resolution procedures. Consultation and recalculation by the Valuation Agent are simply successive steps to be taken, if necessary, after one party notifies the other of a dispute. -29- BDC also acted as if there was no continuing Event of Default or Potential Event of Default by complying with Barclays’ subsequent requests for Delivery Amounts. Believing that the $5 million transfer resolved any Potential Event of Default, Barclays sent additional collateral calls to BDC as the value of the loans continued to decline. (E.g., R2314, 1664-65.) As noted above, Paragraph 4(a) of the CSA states that a party is not required to satisfy collateral calls if any “Event of Default, Potential Event of Default or Specified Condition has occurred and is continuing with respect to the other party.” (R926.) Yet, BDC actually transferred to Barclays more than $20 million in additional collateral on October 8 and 9 in response to Barclays’ post-October 6 collateral calls. (R1644- 45.) BDC’s contemporaneous actions were thus consistent with Barclays having satisfied all of its obligations under the Agreement, and completely inconsistent with the idea that Barclays was in default at that time. On October 14, Barclays received from BDC a “Notice of Designation of Early Termination Date,” dated October 13, which referred to, and was accompanied by a copy of, the October 8 notice. (R1646-56.) BDC advised Barclays that it would deliver “BDC’s calculation . . . of the amount due in respect of the Early Termination Date.” (R1647.) On October 17, it delivered a calculation asserting that Barclays was required to return substantially all the collateral posted by BDC, or about $297.8 million. (R773-809.) -30- Barclays responded that BDC was not entitled to terminate because no Event of Default had occurred. (R1657-60.) On October 16, BDC sent Barclays a letter acknowledging that Barclays had transferred the full undisputed amount of $5,080,000 in excess collateral to BDC. (R1662.) Moreover, it did not raise any objection to the timing of that transfer. However, BDC asserted that an Event of Default had occurred because Barclays failed to either “(i) provide BDC with the Return Amount, or (ii) invoke the Dispute Resolution process set forth in Paragraph 5 of the CSA.” (R1661-62.) Based on Barclays’ alleged failure to “invoke the Dispute Resolution process set forth in Paragraph 5 of the CSA” (id.), BDC asserted that it was entitled to terminate Transactions under which it was required to bear the losses on loans that had been declining in value for weeks, and claimed the right to calculate the amount due as a result of the termination. (R1662.)11 Thus, BDC attempted to extricate itself from a money-losing investment in leveraged loans based explicitly on Barclays’ alleged failure to dispute BDC’s demand for a Return Amount. On October 17, 2008, BDC commenced this litigation, alleging that Barclays failed to dispute BDC’s October 11 Four years later, in its summary judgment papers, BDC asserted, albeit incorrectly, that it is entitled to interest on the amount allegedly due pursuant to the Agreement at the rate of 15.6%. (R810, 4171.) -31- 6 collateral call. (R844.) During a January 13, 2009 conference, BDC’s counsel informed the Commercial Division: “the documents provide that Barclay’s [sic] had an option to either return the excess amount or to dispute it . . . . There’s 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 (emphasis added).) In May 2010—over 18 months after this litigation commenced—BDC amended its complaint to advance a new legal theory never before articulated to Barclays or the Commercial Division. (R288-310.) In its amended complaint, BDC alleged, for the first time, that the “Delivery of Collateral” provision of the Master Confirmation abrogated Barclays’ right to suspend its obligation to transfer a Return Amount by disputing BDC’s request. Under this new theory, BDC contended that it properly terminated the Transactions based on Barclays’ failure to transfer the full Return Amount regardless of whether Barclays provided notice of its dispute. (R296, 303, 307.) BDC’s expert witness testified that she developed this interpretation of the Agreement and shared it with BDC in 2009, long after BDC’s purported termination of the Transactions. (R1041-42.) Indeed, the expert testified that BDC’s October 2008 notice informing Barclays of its right to dispute and pay the undisputed amount was “ignorant of” and “inconsistent with” her new “pay first, dispute later” interpretation of the Agreement. (R1042.) Separately, in -32- its motion for summary judgment BDC argued that it was entitled to terminate because Barclays did not transfer the undisputed amount that it agreed should be transferred until the morning of the second day after the request and the transfer was allegedly about 1.6% less than it should have been. 4. Barclays’ Termination of the Transactions Barclays continued performing under the Agreement and sent BDC requests to transfer additional Delivery Amounts on October 10 and 14. (R1664, 1666.) BDC failed to satisfy either request because it claimed “an Event of Default has occurred” and therefore “no further margin calls are applicable.” (R1646.) Barclays sent BDC a letter on October 16 notifying BDC that it had failed to make the transfers requested by Barclays and that if such failure continued for two business days an Event of Default would exist with respect to BDC. (R1668-75.) When BDC failed to cure its breach within two days, Barclays sent BDC a designation of Early Termination Date on October 23, 2008. (R1676-78.) C. The Decision of the Commercial Division The Commercial Division agreed with Barclays’ interpretation of the Agreement.12 (R26-29.) Explaining that “[t]he court’s ‘role in interpreting a contract is to ascertain the intention of the parties at the time they entered into the 12 The Commercial Division granted summary judgment to BDC solely with respect to its claim for reformation and that decision was not appealed. (R32-33.) -33- contract’” (R23, quoting Evans v Famous Music Corp., 1 NY3d 452, 458 [2004]), the Commercial Division rejected BDC’s “pay first, dispute later” theory for multiple reasons. (R24-29.) First, the Commercial Division recognized that BDC’s interpretation of the Agreement was contrary to all the evidence concerning the parties’ understanding of the Agreement while they were performing under it and long after BDC purported to terminate the Transactions, including BDC’s many October 2008 communications that contradicted its “pay first, dispute later” theory and BDC’s counsel’s representation to the Commercial Division. (R27.) Second, the Commercial Division explained that “BDC’s interpretation of the Agreement asks the court to read several important provisions out of the Agreement.” (R28; see also R25.) On the other hand, the Commercial Division reasoned that Barclays’ reading of the Delivery of Collateral provision— that it only modified the CSA’s Transfer Timing provision—“leaves all provisions of the Agreement intact.” (R28; see also R26.) Third, the Commercial Division rejected BDC’s interpretation because it “only forces Barclays, not BDC, to pay first, then dispute.” (R29.) The Commercial Division relied on the principle announced by this Court that “[t]he ‘court will endeavor to give the contract [the] construction most equitable to both parties instead of the construction which will give one of them an unfair and unreasonable advantage over the other.’” (Id., -34- quoting Metropolitan Life Ins. Co. v Noble Lowndes Intl., 84 NY2d 430, 438 [1994].) The Commercial Division declined to grant summary judgment on the question of whether Barclays disputed BDC’s October 6 collateral call, holding that there was an issue of material fact concerning whether Barclays’ e-mails were notices of a dispute under the CSA and whether those e-mails “provided sufficient notice to impart actual knowledge of the dispute to BDC.” (R21.)13 D. The Decision of the Divided Appellate Division Both sides appealed the Commercial Division’s decision. In a 3-2 decision, the Appellate Division reversed the Commercial Division’s order in substantial part and granted BDC summary judgment that it had properly terminated the Transactions. (R4364.) The Appellate Division majority did not disturb the Commercial Division’s holding that there was a factual dispute that could not be resolved in the context of a summary judgment motion concerning “whether Barclays’ communications with BDC constituted timely notice of a dispute under the CSA.” (R4374.) However, the Appellate Division reversed the Commercial Division and 13 The Commercial Division also held that BDC was not entitled to terminate the Transactions based on Barclays’ alleged improper calculation of its collateral calls. (R30-31.) The Appellate Division affirmed this part of the Commercial Division’s decision. (R4386.) -35- adopted, as a matter of law, BDC’s construction of the Agreement under which Barclays’ right to suspend its obligation to pay the full Return Amount pending resolution of a dispute was abrogated by the Delivery of Collateral provision. (R4371-72.) The court recognized that BDC repeatedly told Barclays that it was in fact entitled to invoke the Dispute Resolution provision, but concluded: “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 (see e.g. Triax Capital Advisors, LLC v Rutter, 83 AD3d 490 [1st Dept 2011], appeal dismissed, 17 NY3D 804 [2011] [emails between the parties cannot be used to create an ambiguity in an otherwise clear agreement]).” (R4372.) The Appellate Division also held that BDC properly terminated the Transactions because Barclays’ transfer of the undisputed amount did not comply with the CSA’s Dispute Resolution provision: “The evidence in the record undeniably shows that Barclays failed to pay the undisputed amount by the deadline, and establishes as a matter of law that Barclays did not comply with the CSA’s dispute resolution procedures.” (R4374.) The Appellate Division determined as a matter of summary judgment that Barclays had not transferred the full undisputed amount of $5,080,000 (R4368) even though (1) BDC acknowledged receiving that full amount in its letter -36- of October 16, 2008 (R1662) and (2) there was no unpaid undisputed amount by the end of October 8 because by then Barclays had demanded additional collateral from BDC and BDC accepted and satisfied Barclays’ demand the next day (R1645, 2311-14). In order to grant summary judgment to BDC on either of these theories, the Appellate Division was required to hold, and it did hold, that there was no genuine dispute that BDC’s October 8 notice, quoted above, notified Barclays of a breach of the Agreement consisting exclusively of the failure to transfer the full Return Amount, rather than giving Barclays the option either to pay the full Return Amount or to dispute and pay the undisputed amount. (R4373.) The Appellate Division rejected the dissent’s, and Barclays’, argument that BDC’s notice of October 8, 2008, expressly gave Barclays two more days to pay the undisputed amount on the ground that: “it makes little sense, as the dissent suggests, for Barclays to have been given an additional two days to pay the undisputed amount. The dispute resolution procedures in the CSA set forth a very strict and tight deadline requiring Barclays, in the event of a dispute, to transfer the undisputed amount within one business day of the demand, i.e., by October 7, 2008.” (R4371.) In denying Barclays the right to pay the undisputed amount within two days after BDC’s notice, based on its view that such a right “makes little sense,” the Appellate Division disregarded both the express language of the notice and the -37- parties’ agreement, in Paragraph 7(i) of the CSA, that a failure to transfer collateral would not become an Event of Default unless it continued for two Business Days after notice of that failure. (R929.) STANDARD OF REVIEW The grant of summary judgment is a ruling of law subject to de novo review (see Alvarez v Prospect Hosp., 68 NY2d 320, 324-25 [1986]; see also Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475-76 [2004]). The Court may “search the record on appeal of a motion for summary judgment and grant relief where appropriate” (Continental Ins. Co. v 115-123 W. 29th Street Owners Corp., 275 AD2d 605, 606 [1st Dept 2000]). A motion for summary judgment “shall be granted if, 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. . . . the motion shall be denied if any party shall show facts sufficient to require a trial of any issue of fact” (CPLR 3212[b]). Accordingly, the standard for deciding a motion for summary judgment is “whether a triable issue of fact exists to defeat defendant’s motion” (Lynn G. v Hugo, 96 NY2d 306, 308 [2001]). “The proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to -38- eliminate any material issues of fact from the case” (Winegrad v N.Y. Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). “To obtain summary judgment it is necessary that the movant establish his cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in his favor, and he must do so by tender of evidentiary proof in admissible form” (Zuckerman v City of New York, 49 NY2d 557, 562 [1980] [internal quotation and citation omitted]). In order to defeat a motion for summary judgment, “where the moving party has demonstrated its entitlement to summary judgment, the party opposing the motion must demonstrate by admissible evidence the existence of a factual issue requiring a trial of the action or tender an acceptable excuse for his failure so to do” (id. at 560). ARGUMENT The Appellate Division majority erred as a matter of law and Barclays is entitled to summary judgment adopting its interpretation of the Agreement, as the Commercial Division and two of the five Appellate Division Justices correctly concluded. Barclays is also entitled to summary judgment that BDC was not entitled to terminate the Transactions because there is no genuine dispute that Barclays notified BDC that Barclays disputed BDC’s October 6 collateral call and made a payment with respect to the undisputed amount—exactly what BDC told Barclays it had to do to avoid an Event of Default under the parties’ shared -39- interpretation of the Agreement at the time, as confirmed by the parties’ historic course of conduct under the Agreement. Thus, even if the Court adopts BDC’s interpretation of the Agreement, BDC was not entitled to terminate because it did not give Barclays notice of a default that continued for two business days thereafter. Finally, if BDC was not entitled to terminate the Transactions, there can be no genuine dispute that Barclays properly terminated the Transactions based on BDC’s failure to satisfy Barclays’ subsequent collateral calls. In the alternative, if the Court concludes that Barclays is not entitled to summary judgment that BDC did not properly terminate the Transactions, it is at least clear that BDC is not entitled to summary judgment that it was entitled to terminate. There are, at a minimum, factual disputes that preclude summary judgment adopting BDC’s assertion that the Agreement means something completely different from what both parties, including BDC, believed and acknowledged that it meant all the time they were performing under the Agreement and when BDC commenced this action. Finally, even if BDC were entitled to summary judgment adopting its interpretation of the contract, it cannot possibly be entitled to summary judgment that it was entitled to terminate the Transactions because the only “failure” to transfer collateral of which BDC gave Barclays notice was a failure either to transfer the full Return Amount or to dispute BDC’s request -40- and make a transfer with respect to the undisputed amount, and the failure to do either of those things did not continue for two Business Days after the notice. I. BARCLAYS WAS ENTITLED TO SUMMARY JUDGMENT THAT BDC WAS NOT ENTITLED TO TERMINATE THE TRANSACTIONS. A. Barclays Suspended Its Obligation to Transfer the Return Amount by Disputing BDC’s Request. 1. The Commercial Division Was Correct in Adopting Barclays’ Interpretation of the Agreement and Rejecting BDC’s Interpretation. On a motion for summary judgment, the court should adopt an interpretation of the agreement as a matter of law if either the agreement is unambiguous, so that its meaning can be discerned from the face of the contract, or any ambiguity can be resolved by undisputed extrinsic evidence (see Union Carbide Corp. v Affiliated FM Ins. Co., 16 NY3d 419, 425 [2011] [granting UCC’s motion for summary judgment where “even assuming that there is an ambiguity, the extrinsic evidence—all of it submitted by UCC—overwhelmingly supports UCC’s position”]). In determining whether the contract is unambiguous, the court must apply established canons of contract interpretation. Under those canons, even if a specific provision might seem ambiguous when considered in isolation, there may be no ambiguity concerning its meaning when read in the context of the entire contract (Hudson-Port Ewen Associates, L.P. v Chien Kuo, 78 NY2d 944, 945 [1991] [“Where consideration of a contract as a whole resolves the ambiguity -41- created by one clause, there is no occasion to consider extrinsic evidence of the parties’ intent.”]; Kass v Kass, 91 NY2d 554, 566 [1998] [“And in deciding whether an agreement is ambiguous courts should examine the entire contract and consider the relation of the parties and the circumstances under which it was executed.”]). Barclays submits that the Agreement, read as a whole, is unambiguous, and in the alternative that any ambiguity is resolved by overwhelming extrinsic evidence, consisting of written communications from both parties and the explanation of the Agreement that BDC’s counsel gave to the Commercial Division. Paragraph 5 of the CSA, on its face, gives both Barclays and BDC the right to suspend their respective obligations to transfer collateral in response to a request by disputing the request. BDC’s assertion that Barclays did not have this right under the Agreement is based on a single, clumsily drafted provision of the Master Confirmation, clause (b) of the Delivery of Collateral provision. As reformed by the Commercial Division, that provision reads: “Notwithstanding anything in the Credit Support Annex to the contrary: . . . . “(b) Total Return Payer shall Transfer any Return Amounts in respect of Transactions not later than the Business Day following the Business Day on which Total Return Receiver requests the Transfer of such Return Amount.” -42- (R33, 958.) On its face, this clause does not refer to the CSA’s Dispute Resolution provision or Barclays’ right to dispute a collateral demand from BDC. Its apparent purpose is to specify a time for making a transfer. Most of the words of the clause are devoted to specifying a time for making a transfer: “not later than the Business Day following the Business Day on which Total Return Receiver requests the Transfer of such Return Amount.” The logical reading is that the clause is intended to override a provision of the CSA that also specifies a time for making a transfer. That provision is Paragraph 4(b) of the CSA, which provides, in language echoed by the Delivery of Collateral provision: “Subject to Paragraphs 4(a) and 5 and unless otherwise specified, if a demand for the Transfer of Eligible Credit Support or Posted Credit Support is made by the Notification Time, then the relevant Transfer will be made not later than the close of business on the next Local Business Day; if a demand is made after the Notification Time, then the relevant Transfer will be made not later than the close of business on the second Local Business Day thereafter.” (R926.) BDC’s assertion that the Delivery of Collateral provision abrogates the Dispute Resolution provision is also belied by the fact that the Delivery of Collateral provision only provides for a transfer of a “Return Amount,” and the -43- Dispute Resolution provision is incorporated into the meaning of the term “Return Amount.” Paragraph 12 of the CSA contains definitions applicable to the CSA. It provides that “‘Return Amount’ has the meaning specified in Paragraph 3(b).” (R933.) Paragraph 3(b) provides: “(b) Return Amount. Subject to Paragraphs 4 and 5, upon a demand made by the Pledgor on or promptly following a Valuation Date, if the Return Amount for that Valuation Date equals or exceeds the Secured Party’s Minimum Transfer Amount, then the Secured Party will Transfer to the Pledgor Posted Credit Support specified by the Pledgor in that demand having a Value as of the date of Transfer as close as practicable to the applicable Return Amount (rounded pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the ‘Return Amount’ applicable to the Secured Party for any Valuation Date will equal the amount by which: “(i) the Value as of that Valuation Date of all Posted Credit Support held by the Secured Party exceeds “(ii) the Credit Support Amount.” (R926 (underscoring added).) Because the Delivery of Collateral provision uses the defined term “Return Amount” to describe what Barclays is required to transfer, Barclays’ obligation under the provision is explicitly “[s]ubject to” the Dispute Resolution provisions in Paragraph 5. -44- In addition, the definition of “Return Amount” incorporates the defined term “Credit Support Amount,” and “Credit Support Amount” is defined in terms of “Exposure.” The definition of “Exposure” is itself “subject to Paragraph 5 in the case of a dispute.” Accordingly, the Delivery of Collateral provision cannot be read to abrogate Barclays’ rights under the Dispute Resolution provision because those rights are built in to whatever obligations Barclays has under the Delivery of Collateral provision. The conclusion that the parties did not intend to abrogate Barclays’ rights under Paragraph 5 of the CSA is reinforced by Paragraph 13(f) of the CSA. Paragraph 13, entitled “Elections and Variable,” is the part of the CSA in which the parties memorialize their elections under and departures from standard terms of the CSA. (R935-40.) Paragraph 13(f) is entitled “Dispute Resolution,” and clause 13(f)(iii) calls on the parties to specify any “Alternative” to the CSA’s Dispute Resolution provision. In the parties’ Agreement, clause 13(f)(iii) states without qualification, “The provisions of Paragraph 5 will apply.” (R937.) The parties executed Paragraph 13 and explicitly selected the Paragraph 5 dispute mechanism to resolve disputes on the same day that they executed the Master Confirmation containing the Delivery of Collateral provision that BDC now relies on. (R925 (date of CSA: May 5, 2005), 942 (date of Master Confirmation: May 5, 2005).) BDC’s interpretation would have the parties selecting the Paragraph 5 Dispute -45- Resolution provision for both parties on the same day they executed a Delivery of Collateral provision that supposedly strips Barclays of its right to utilize the Dispute Resolution provision. As noted above, Return Amounts are also defined as “[s]ubject to” the “Conditions Precedent” provisions in CSA Paragraph 4, which, among other things, protects Barclays from having to transfer collateral to BDC if BDC has defaulted under the Agreement. (R926.) As the Commercial Division observed, and BDC concedes (see R2213), “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.) This would lead to the absurd conclusion that Barclays would have “to pay all of BDC’s collateral calls even if BDC were to default” (id.), a “highly unlikely result” given the “harshly uneven allocation of power” resulting from such an interpretation (R4378, quoting Metropolitan Life Ins. Co, 84 NY2d at 438). New York law disfavors the selective contractual reading advanced by BDC, which “merely cull[s] distinct provisions out of an entire agreement,” (Matter of Riconda, 90 NY2d 733, 738 [1997]), and yields “distorted” interpretations with “undue force . . . given to single words or phrases” (Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352, 358 [2003]; see also Ronnen v Ajax Elec. Motor Corp., 88 NY2d 582, 589 [1996] [constructions that -46- “render a contractual provision meaningless or without force or effect” must be avoided]). The law instead directs that a written contract “will be read as a whole, and every part will be interpreted with reference to the whole” (Westmoreland Coal Co., 100 NY2d at 358; see also Gessin Elec. Contrs., Inc. v 95 Wall Assoc., LLC, 74 AD3d 516, 519 [1st Dept 2010] [“no provision of a contract should be left without force and effect”]). In contrast to the selective reading evidenced by BDC’s interpretation, and as both the Commercial Division and the dissenting Appellate Division Justices noted, Barclays’ interpretation “leaves all provisions of the Agreement intact.” (R28; accord R4377-78.) The Commercial Division, along with both dissenting Justices, rightly endorsed Barclays’ interpretation as one “giv[ing] effect to all the terms of an agreement . . . [as opposed] to [BDC’s position, which] ignores terms or accords them an unreasonable interpretation.” (R27-28, 4378, both quoting Ruttenberg v Davidge Data Sys. Corp., 215 AD2d 191, 196 [1st Dept 1995].) The Appellate Division majority’s selective reading also contravenes the decisions of this Court discouraging contractual interpretations that create a “harshly uneven allocation of economic power” between parties (Metropolitan Life Ins. Co., 84 NY2d at 438). Under BDC’s interpretation, Barclays had no right to dispute a demand before it returned over $40 million in collateral—more than 14% -47- of the total amount of the collateral held by Barclays, during the Fall of 2008 when the value of the loans was declining rapidly, and BDC’s obligation under the total return swaps to compensate Barclays for that decline was increasing at a rapid rate. Moreover, according to BDC, Barclays would have been required to transfer the amount demanded by BDC even if BDC had incurred a Potential Event of Default under the Agreement. Barclays was the sole Secured Party under the total return swaps (R957), and BDC’s payments corresponding to the cost of financing were the only economic benefit Barclays bargained for under the Agreement. BDC’s interpretation, which gives BDC an unrestricted right to demand a return of collateral from Barclays, would put Barclays at the mercy of BDC. New York law disfavors such interpretations (see Tibbets Contr. Corp. v O&E Contr. Co., 15 NY2d 324, 337 [1965] [contract language “placing one party at the mercy of the other is not favored by the courts”]). Finally, the Appellate Division’s interpretation of the Agreement to deny Barclays access to the contractual dispute resolution provision is inconsistent with the public policy of this State which favors the use of such provisions. (See Nationwide Gen. Ins. Co. v Investors Ins. Co., 37 NY2d 91, 95 [1975]; Ferguson Elec. Co. v Kendal at Ithaca, Inc., 274 AD2d 890, 891 [3d Dept 2000]; VCG Special Opportunities Master Fund Ltd. v Citibank, N.A., 594 F Supp 2d 334, 343 -48- [SD NY 2008], affd mem., 2009 U.S. App. LEXIS 26621 [2d Cir Dec. 8, 2009] [referring specifically to CSA ¶ 5].) The Appellate Division relied in part on H. Fox & Co., Inc. v Blumenfeld (24 AD3d 722 [2d Dept 2005]). (R4372.) It asserted that the Delivery of Collateral provision’s “notwithstanding” language was similar to the “(n)otwithstanding anything to the contrary set forth in this lease” language in Blumenfeld that the Second Department had concluded clearly overrode other language in the lease. (Id.) Any reliance on Blumenfeld, though, is misplaced. In that case there was no question that the fixed-price purchase option conflicted with the right of first refusal, and the “notwithstanding” clause in the fixed-purchase price option expressly referred to and overrode the right of first refusal (24 AD3d at 722). In contrast, the Delivery of Collateral provision addresses the time when collateral must be transferred and does not conflict with the CSA’s Paragraph 5 Dispute Resolution provision. Not only does the Delivery of Collateral provision not contain any express statement that it overrides Paragraph 5, but it uses a defined term—“Return Amount”—that is explicitly “[s]ubject to” CSA Paragraph 5. (R926.) Moreover, “Return Amount” is defined in terms of “Exposure,” and the definition of “Exposure” provides that it is “subject to paragraph 5 in the case of a dispute.” (R932.) -49- The Appellate Division’s reliance (R4373) on Jade Realty LLC v Citigroup Commercial Mortgage Trust 2005-EMG (83 AD3d 567, 568 [1st Dept 2011], affd, 20 NY3d 881 [2012]) is likewise misplaced. In Jade Realty, the Appellate Division reversed the trial court’s grant of summary judgment to defendants because the trial court’s holding required the court to add terms to the contract. (83 AD3d at 567-68 [“The [trial] court added the words ‘prepayment or’ before the term ‘default’ in the note to encompass the situation created by plaintiff’s prepayment of the loan.”]). By contrast, as the Commercial Division (R28) and dissenting Appellate Division Justices (R4378) noted, Barclays’ construction of the Agreement does not require adding or replacing contractual terms, but rather “leaves all provisions of the Agreement intact.” Finally, while interpretation of an ambiguous contract is normally a question of fact to be resolved by the factfinder (see Amusement Business Underwriters v American International Group, 66 NY2d 878, 880-81 [1985]), a court may “resolve an ambiguity in contract language as a matter of law if there is no extrinsic evidence or if the extrinsic evidence is so one sided that no reasonable fact-finder could decide contrary to one party’s interpretation” (28 N.Y. Prac., Contract Law § 9:29 [West 2013]; accord 4A N.Y. Prac., Com. Litig. in New York State Courts § 67:14 [3d ed. West 2013]). On various occasions, this Court has relied on extrinsic evidence to interpret an ambiguous contract as a matter of law in -50- favor of a party when it overwhelmingly supported that interpretation (e.g., Union Carbide Corp., 16 NY3d at 425 [granting summary judgment motion because “even assuming that there is an ambiguity, the extrinsic evidence—all of it submitted by UCC—overwhelmingly supports UCC’s position”]; Deering Milliken, Inc. v Clark Estates, Inc., 43 NY2d 545, 549-550 [1978] [relying on extrinsic evidence bearing on the intention of the parties with respect to the timing of the completion of the sale by the executors in interpreting the instrument and granting summary judgment for defendants]). In this case, all of the extrinsic evidence, most importantly the parties’ course of performance throughout the life of the Agreement, supports Barclays’ interpretation. The record shows that Barclays regularly disputed BDC’s collateral calls and BDC never once claimed Barclays could not do so or needed to pay the entire call. (See, e.g., R996-97, 998.) When disputing, Barclays returned only the undisputed amount, and BDC employees could not recall informing Barclays that doing so breached the Agreement. (R1027, 1031, 1014, 1015-16.) BDC’s October 2008 communications, including BDC’s “October 7 e-mail, the [October 8] Notice of Failure, and [BDC’s] Termination Notice,” which the Commercial Division reviewed in detail (R12-14), as well as BDC’s October 16 letter, all informed Barclays that it had the right “to either pay BDC’s October 6 collateral call or exercise its dispute rights.” (R760, 762-63.) None of these communications -51- expressed an understanding that the Agreement required Barclays to pay the full amount of the collateral call before disputing the call.” (Id.) The importance of this course of performance extrinsic evidence cannot be overstated. When confronted with ambiguous contract provisions, “The 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]; accord Fed. Ins. Co. v Ams. Ins. Co., 258 AD2d 39, 44 [1st Dept 1999] [“Generally speaking, the practical interpretation of a contract by the parties to it for any considerable period of time before it comes to be the subject of controversy is deemed of great, if not controlling, influence.”]; Mereminsky v Mereminsky, 188 NYS2d 771, 779 [2d Dept 1959] [“If the meaning of a contract is in any way doubtful, the practical interpretation given it by the parties as evidenced by their conduct and acts tends strongly to show their intention and is given weight by the courts in the construction of the contract . . . .”]). To the extent that this Court finds the Agreement ambiguous, it should “resolve the ambiguity as a matter of law” in favor of Barclays given that “the extrinsic 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]). Whereas BDC has failed to point to a shred of extrinsic evidence supporting its interpretation, Barclays has introduced extrinsic -52- evidence that “overwhelmingly supports” its interpretation of any ambiguous provisions and is thus entitled to judgment in interpretation of the Agreement as a matter of law (see Deering, 43 NY2d at 549-50; Union Carbide Corp., 16 NY3d at 425). 2. Barclays Notified BDC That It Disputed BDC’s Request for the Return Amount. CSA Paragraph 5 establishes a four-step resolution procedure for resolving disputes over collateral calls. First, if a party receiving the call “disputes [] the Valuation Agent’s calculation” of the collateral call, then the disputing party “will notify the other party” of the dispute. (R927.) Second, the disputing party must then “[t]ransfer the undisputed amount,” if any, to the other party. (Id.) Third, “the parties will consult with each other in an attempt to resolve the dispute.” (Id.) Fourth, if the parties fail to resolve the dispute, then the value of the collateral call will be recalculated by the Valuation Agent by, inter alia, seeking market quotations. (Id.) Barclays is entitled to summary judgment that it notified BDC that it disputed BDC’s request for the Return Amount. First, Barclays replied immediately to the e-mail transmitting BDC’s collateral call with the statement, “We do not agree with this call. Please let us know if you want to invoke the dispute mechanism.” (R1568.) As shown on pages 22-24 above, this language is -53- consistent with language that the parties had used previously to dispute collateral calls. (R992, 994, 996.) Indeed, both Nicole Brock, the BDC employee responsible for dealing with collateral calls on a day-to-day basis, and one of Barclays’ main contacts at BDC, 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.) Brock further testified that she understood that this e-mail disputed BDC’s collateral call. (R1034.) In addition, senior BDC management acknowledged that the words “we do not agree” constituted notice of a dispute during a previous disagreement over the valuation of BDC’s portfolio (R2403 (¶ 20), 2820-28), and that using such language was the “regular” practice for giving notice of a dispute of collateral calls (R2818). Though Barclays’ first e-mail response was sufficient to notify BDC of its dispute, Barclays replied to a second e-mail from BDC on the same day and in doing so plainly provided notice of its dispute: “We show that BDC owes Barclays, not the other way around.” (R1617-18.) This second e-mail from Barclays unequivocally gave notice of Barclays’ dispute. Barclays reiterated its position via e-mail on October 7. After receiving another e-mail from BDC, O’Connor responded that “Barclays agrees to return 5,080,000 . . . for margin call made on 10/6 (COB 10/3).” (R1630.) That is exactly what the BDC individual responsible for BDC’s collateral calls told BDC’s -54- Chief Operating Officer was the “regular” practice for providing notice of dispute of collateral calls—i.e., sending “[a]n email stating what we think [] is owed to us or what we owe them.” (R1071.) A party has notice “when he has actual 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] [internal quotation omitted] [followed in Korea Life Ins. Co. v Morgan Guar. Trust Co. of N.Y., 269 F Supp 2d 424, 443 [SD NY 2003]; see also Carvel Corp. v Diversified Mgmt. Group, Inc., 930 F2d 228, 233 [2d Cir 1991] [holding that a letter that “effectively complied” with the contractual notice provision gave the defaulting party “explicit notice”]). Accordingly, there can be no genuine dispute that BDC knew that Barclays disputed its collateral call. For almost three weeks leading up to the October 6 collateral call (starting with the September 17 collateral call), BDC regularly disputed Barclays’ collateral calls, and the parties engaged in almost daily discussions of loan valuations. (R2402-10, 2148.) The parties’ positions were clear: Barclays believed that LoanX bid prices overstated the actual bid prices and lagged market movements (e.g., R1135, 1054-56) and BDC argued that Barclays should nonetheless continue to use LoanX bid prices (e.g., R1127-28). Yet when BDC issued its October 6 collateral call to Barclays, it used LoanX mid prices. The -55- parties had never before used mid prices to make collateral calls and BDC knew that mid prices were higher than LoanX bid prices, making them even more objectionable to Barclays. Consequently, from the moment it sent its collateral call to Barclays, BDC knew that there was a dispute between the parties concerning valuations of the loans. Indeed, BDC’s own expert explained that “the parties’ valuations were fundamentally different” (R1180 (emphasis added)), and conceded that Barclays “expressed disagreement” with BDC’s October 6 collateral call (R1165, 1195). Given the weeks-long communications between the parties and BDC’s own internal analysis of Barclays’ collateral call, Barclays’ October 6 e-mails unquestionably gave BDC actual knowledge that Barclays disputed BDC’s collateral call. In addition to providing BDC with notice of its dispute of the October 6 collateral call, Barclays complied with the other Paragraph 5 requirements (see R927) incumbent on it as the recipient of the collateral call—i.e., it transferred the undisputed amount to BDC, and it consulted with BDC in an attempt to resolve the dispute. As explained in detail on page 27 above, Barclays paid the undisputed amount to BDC on the morning of October 8. Although the amount it transferred was only $5,000,000 (98.4% of the undisputed amount), BDC received the benefit of the remaining $80,000 on the same day as a reduction in a new request from -56- Barclays for additional collateral, which BDC did not dispute and in fact paid. In its letter of October 16, 2008, BDC acknowledged twice that Barclays had returned the full $5,080,000 to BDC. (R1662.) As detailed above on pages 25-26, the record also reflects that Barclays consulted with BDC about the dispute, including at least two telephone consultations on October 6 and 7 concerning the outstanding collateral calls. (E.g., R1619-25.) During the October 7 telephone consultation, BDC confirmed its agreement with Barclays’ calculation that Barclays owed BDC a $5,080,000 million undisputed amount, stating “That’s where I’m at too.” (R1628.) Barclays reiterated its position via e-mail on October 7: After receiving another e-mail from Muller at BDC, O’Connor responded that “Barclays agrees to return 5,080,000 . . . for margin call made on 10/6 (COB 10/3).” (R1630.) The fourth step prescribed by Paragraph 4—recalculation by the Valuation Agent—was BDC’s responsibility because BDC was the Valuation Agent for its request for a Return Amount. BDC never performed the recalculation, and Barclays was entitled to conclude that the dispute had been resolved at the consultation stage. Because Barclays disputed BDC’s October 6 collateral call, BDC’s purported termination of the Transactions was invalid. -57- 3. Barclays Did Not Lose Its Right to Suspend BDC’s Request for a Return Amount Because It Failed to Transfer $5,080,000 on October 7. BDC was not entitled to terminate the Transactions because Barclays’ transfer of the undisputed amount was a day late and transferred only $5,000,000, over 98.4% of what Barclays had agreed was the undisputed amount. The provision of the CSA requiring the transfer of the undisputed amount did not establish a condition to Barclays’ right to suspend BDC’s request for a Return Amount by disputing it, or any other condition. It was an ordinary covenant requiring a transfer of collateral. As such, it was subject to the CSA’s clear provision that a failure to transfer collateral is only an Event of Default if it continues for two days after notice, Paragraph 7(i). In addition, it was subject to this Court’s repeated holdings that a contractual covenant is satisfied by substantial compliance. The language in Paragraph 5 of the CSA concerning the transfer of the undisputed amount does not appear in a clause beginning with the word “if” or any other language indicating that it is a condition. (R927.) To the contrary, it appears in a clause beginning “then.” “If a party (a ‘Disputing Party’) disputes (I) the Valuation Agent’s calculation of a . . . Return Amount . . . , then (1) the Disputing Party will notify the other party and the Valuation Agent (if the Valuation Agent is not the other party) not later than the close of business on the Local Business Day following (X) the date that the demand is -58- made under Paragraph 3 in the case of (I) above . . . , [and] (2) subject to Paragraph 4(a), 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 (X) the date that the demand is made under Paragraph 3 in the case of (I) above . . . .” (Id. (emphasis added).) Thus, timely payment of the undisputed amount is an ordinary promise; the condition is that “a party . . . disputes.” This Court has held that: “In determining whether a particular agreement makes an event a condition[,] courts will interpret doubtful language as embodying a promise or constructive condition rather than an express condition. This interpretive preference is especially strong when a finding of express condition would increase the risk of forfeiture by the obligee” (Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 691 [1995]). There is no basis for saying the language of Paragraph 5 makes the transfer of the undisputed amount an express condition. This Court’s decision in Oppenheimer therefore prohibits treating the transfer of the undisputed amount as a condition. This Court has made clear that material or substantial compliance satisfies contractual provisions that are not express conditions (Oppenheimer, 86 NY2d at 691-92; Hadden v Consol. Edison Co., 34 NY2d 88, 96 [1974]; see also Edgewater Constr. Co. v 81 & 3 of Watertown, Inc., 252 AD2d 951, 952 [4th Dept 1998] [“substantial compliance” is sufficient in the absence of a condition -59- precedent for performance]). 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.” (R4372.) In addition, a transfer of an undisputed amount is subject to the same requirement of notice and two days opportunity to cure that applies to “any Transfer of Eligible Collateral, Posted Collateral, or the Interest Amount, as applicable” before an Event of Default may be declared under Paragraph 7(i) of the CSA. (R929.) The Appellate Division’s assertion that “[t]he dispute resolution procedures in the CSA set forth a very strict and tight deadline requiring Barclays, in the event of a dispute, to transfer the undisputed amount within one business day of the demand” (R4372) is contrary to both this Court’s established precedent concerning substantial compliance with covenants, and the express language of Section 7(i) of the CSA. Indeed, even if the transfer of an undisputed amount were an express condition, this Court has explained that compliance with an express condition may be excused if enforcement of the condition would result in a “disproportionate forfeiture . . . unless its occurrence was a material part of the agreed exchange” (Oppenheimer, 86 NY2d at 691, quoting Restatement [Second] of Contracts § 229). An $80,000 shortfall that was credited to BDC on October 8 in one of -60- countless collateral transfers between the parties hardly qualifies as a “material part of the agreed exchange” (id.). The Appellate Division’s holding that Barclays lost its rights under a Transaction involving roughly $1 billion in notional assets and incurred a liability for what BDC contends are hundreds of millions of dollars in damages because its transfer of the undisputed amount was one day late or 1.6% short ($80,000 out of $5,080,000) would clearly result in a “disproportionate forfeiture” even if payment of the undisputed amount was an express condition, which it is not (see id.). Finally, the Appellate Division misapprehended essential terms of the Agreement when it wrote that “it makes little sense, as the dissent suggests, for Barclays to have been given an additional two days to pay the undisputed amount.” (R4371.) An additional two days is exactly what the Agreement required. Paragraph 7(i) of the CSA makes clear that a failure to transfer collateral does not become an Event of Default until notice of that failure is given and it continues for another two Business Days. (R929.) Neither BDC nor anyone else has ever suggested that Barclays was not entitled to the protection of Paragraph 7(i), and in fact BDC’s notice of October 8 and the termination notice it delivered on October 14 both expressly rely on Paragraph 7(i). (R1639, 1647.) -61- B. The Failure to Transfer Collateral Specified in BDC’s Notice Did Not Continue for Two Business Days After the Notice Was Given. The CSA expressly states that no Event of Default can occur—and thus no termination is proper (R903-04)—based on a late transfer of collateral unless the failure to deliver “continues for two Local Business Days after notice of that failure is given to that party.” (R929 ¶ 7(i) (emphasis added).) New York law recognizes and enforces contractual “notice and cure” provisions such as this (see, e.g., Madison Ave. Leasehold, LLC v Madison Bentley Assocs., LLC, 8 NY3d 59, 69 [2006]). The Appellate Division, however, deprived Barclays of its contractual right to receive notice of its specific failure to comply with the Agreement. The Appellate Division majority misapprehended the contents of the notice when it stated: “BDC’s default notice stated 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.” (R4369.) In fact, BDC’s default notice says nothing about what Barclays was required to have done to dispute the collateral call, and it never mentions the sum of $5,080,000. It said: “Pursuant to Paragraph 4(b) and Paragraph 5 of the CSA, by 5:00 p.m. NY time on Tuesday, October 7, 2008, Barclays was required to either (i) pay the relevant -62- 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 5:00 p.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 5(a)(iii)(1) of the Master Agreement.” (R1639 (emphasis added).) As the Commercial Division recognized, this notice plainly “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 its notice, BDC did not suggest that there was one deadline for paying the undisputed amount and a different deadline for paying the full Return Amount. BDC also did not suggest that Barclays could cure by paying the full Return Amount in two days, but could not cure its default by disputing and “making a payment in respect of the undisputed amount” during the same period. To the contrary, the “failure” of which BDC gave notice was the failure to do either of these things, and BDC stated unequivocally that an Event of Default would occur if “this failure” to do either of these things continued for two more days. (R1639.) -63- The dissenting Justices in the Appellate Division, agreeing with the Commercial Division, correctly stated that the notice informed Barclays of its “failure [to] pay the Return Amount or notify BDC that it disputed the collateral [call] and pay the undisputed amount,” and gave Barclays an opportunity to “cure by either paying the Return Amount or the undisputed amount.” (R4385.)14 The Appellate Division erred in holding that BDC notified Barclays of a failure “to transfer the full $40 million Return Amount, not simply the undisputed amount” based on the subject line of the letter, which states “Re: Failure to Transfer Return Amount.” (R4370-71.) The language of the notice as a whole, however, cannot reasonably be interpreted in this way. The dissenting Justices of the Appellate Division properly criticized the majority’s limited “focus[] on the heading section of the notice,” stating that “the heading can[not] be used to override the express language used therein.” (R4385.) “Re” just means “regarding” or “concerning” (Webster’s Third International Dictionary of the English Language Unabridged 1888 [2002]). The fact that it was a notice “regarding” or “concerning” a failure to transfer the Return Amount (1) does not state that Barclays could not suspend the obligation to make the transfer by 14 At the point in time that this notice was sent, BDC’s expert had yet to advise BDC of its current interpretation of the Agreement. (R1041-42.) Thus BDC could not have provided notice of termination on “pay first, dispute later” grounds. -64- disputing it, (2) does not state why Barclays was supposedly in default for failing to make the transfer, and (3) does not state what Barclays had to do to cure the alleged Potential Event of Default. All those matters were dealt with in the text of the notice, which made clear that Barclays could cure its alleged failure to transfer collateral by disputing BDC’s request and paying the undisputed amount within two business days after the notice.15 15 BDC is also estopped from asserting its theory as a post hoc basis for termination. “[W]here a party to a contract terminates the contract and presents a specific reason for the termination, that party is estopped from raising a different reason upon the commencement of an action” (Leventhal v New Valley Corp., 1992 WL 15989, *5 [SD NY Jan. 17, 1992, No. 91-Civ-4238 (CSH)]). Because BDC’s purported default notice cited only Barclays’ alleged failure to either pay or dispute (R1639), BDC “may not subsequently defend the declaration of default on a different ground,” as it now attempts to do (see Destiny USA Holdings, LLC v Citigroup Global Mkts. Realty Corp., 2009 WL 2163483, at *15 [Sup Ct, Onondaga County July 17, 2009, No. 09-4157], affd as modified on other grounds, 69 AD3d 212 [4th Dept 2009]; accord Littlejohn v Shaw, 159 NY 188, 191 [1899] [“[I]f a particular objection is taken to the performance and the party is silent as to all others, they are deemed to be waived . . . especially so, when, as under the circumstances present in this case, the deliberateness with which the objections are stated leaves it to be implied that there has been a consideration of the matter.”]). In addition, BDC has waived any right to require Barclays to “pay first, dispute later” by its repeated representations that Barclays was entitled to pay or dispute (see ESPN, Inc. v Office of the Comm’r of Baseball, 76 F Supp 2d 383, 389 [SD NY 1999] [“[A] party may, by words or conduct, waive a provision in a contract . . . inserted for [its] benefit.”]; see also El Reda v Love Taxi, Inc., 202 AD2d 275, 276 [1st Dept 1994] [same]). -65- II. BARCLAYS WAS ENTITLED TO SUMMARY JUDGMENT THAT IT PROPERLY TERMINATED THE TRANSACTIONS. Because BDC was not entitled to terminate the Transactions, it remained obligated to post collateral to Barclays, and Barclays was entitled to terminate the Transactions based on BDC’s failure to pay or dispute Barclays’ October 10 and 14 collateral calls (see, e.g., Filmline (Cross-Country) Products, Inc. v United Artists Corp., 865 F2d 513, 519 [2d Cir 1989]; AG Props. of Kingston, LLC v Besicorp-Empire Dev. Co., 14 AD3d 971, 973 [3d Dept 2005]). Barclays sent BDC collateral calls on October 10 and October 14. (R1664-67.) BDC did not dispute or pay these collateral calls. On October 14, the day it delivered its Notice of Designation of Early Termination Date, BDC informed Barclays that “no further margin calls are applicable” because “all outstanding transactions have been terminated.” (R1646.) This statement obviously sought to invoke the conditions precedent to the obligation to transfer collateral under Paragraph 4(a)(ii) of the CSA (R926), and was not a notice of a dispute concerning the amount of the collateral calls pursuant to Paragraph 5 of the CSA. BDC’s failure to comply with the collateral calls continued for more than two days after Barclays delivered written notice of its default, resulting in an Event of Default under Paragraph 7(i) of the CSA. Accordingly, Barclays was -66- entitled to designate an Early Termination Date under Sections 5(a)(iii)(1) and 6(a) of the Master Agreement. III. IN THE ALTERNATIVE, FACTUAL DISPUTES PRECLUDE SUMMARY JUDGMENT IN BDC’S FAVOR. As detailed above in Section I, Barclays is entitled to summary judgment because when read as a whole the Agreement is unambiguous and in accord with Barclays’ interpretation and the parties’ historical course of conduct under the Agreement. If this Court nonetheless concludes that the Agreement does not unambiguously require Barclays’ interpretation, however, then it must treat the Agreement as ambiguous. Given that Barclays disagrees with BDC’s interpretation (and the parties’ course of conduct prior to this suit was consistent with Barclays’ interpretation) and that the Commercial Division as well as two of five Appellate Division Justices agreed with Barclays’ interpretation, there is no possibility that the Agreement unambiguously requires BDC’s interpretation. The Appellate Division’s grant of summary judgment adopting BDC’s interpretation was therefore, at a minimum, improper under the well-established standards governing summary judgment motions involving ambiguous contracts. This ambiguity would require the use of extrinsic evidence to guide interpretation of the Agreement. The extrinsic evidence overwhelmingly shows that Barclays’ interpretation is correct. The Appellate Division also improperly resolved a disputed issue of fact concerning the meaning of BDC’s October 8 notice. -67- A. Accepting BDC’s Interpretation of the Agreement Would Require an Improper Resolution of Factual Disputes. If the relevant provisions of a contract are reasonably or fairly susceptible of different interpretations or may have two or more different meanings, the agreement is ambiguous (Greenfield v Philles Records, Inc., 98 NY2d 562, 569 [2002]; Chimart Assocs. v Paul, 66 NY2d 570, 572-73 [1986]). “Whether a contract is ambiguous is a matter of law” (Bailey v Fish & Neave, 8 NY3d 523, 528 [2007]) and a court conducts this ambiguity inquiry by “read[ing] [the contract] as a whole to determine its purpose and intent” (W.W.W. Assocs., Inc. v Giancontieri, 77 NY2d 157, 162 [1990]). When faced with an ambiguous agreement “on its face . . . reasonably susceptible of more than one interpretation” (Chimart, 66 NY2d at 573), a court must “turn to extrinsic evidence [of the parties’ intention at the time they entered into the contract] for guidance as to which interpretation should prevail” (Evans, 1 NY3d at 459). There is no question that the Agreement on its face is “reasonably susceptible of” Barclays’ interpretation that it had the right to dispute BDC’s collateral demands.16 (See Section I.A.1, supra.) Barclays’ interpretation of the 16 For this reason, the Appellate Division’s reliance (R4372) on Triax Capital Advisors, LLC v Rutter (83 AD3d 490 [1st Dept 2011]), is misplaced. The court in Triax found extrinsic evidence irrelevant because the contractual term at issue was unambiguous (83 AD3d at 493-94). -68- Agreement was shared by BDC itself for the entire time the parties were performing under the Agreement and well into this litigation. During the preliminary conference on January 13, 2009, BDC’s counsel explained to the Commercial Division that “under the document that governs these transactions,” Barclays “had an option to either return the excess amount or to dispute it.” (R838-39.) Significantly, Barclays’ interpretation is also shared by the Commercial Division and two of the five Appellate Division Justices. As discussed above, there is no extrinsic evidence that would allow a court to resolve any ambiguity in the Agreement in BDC’s favor. All the extrinsic evidence supports Barclays’ interpretation. Even if the Court does not resolve any ambiguity in Barclays’ favor, it was error for the Appellate Division to have adopted BDC’s interpretation in the context of a motion for summary judgment. Finally, the Appellate Division attached importance to the fact that Barclays allegedly failed to pay $80,000. (R4368, 4371-72.) This was error for the additional reason that it improperly resolved a disputed issue of fact. (See R4383-84.) As discussed at page 27 above, BDC received credit for the additional $80,000 in the form of a reduction of Barclays’ October 8 collateral call. Thus, as of the time of Barclays’ October 8 collateral call for $20.5 million, there cannot have been an unpaid undisputed amount due to BDC. BDC acknowledged in its October 16, 2008, letter that Barclays had paid the entire $5,080,000. (R1662.) -69- There was no possible justification for determining that the $80,000 was not paid in the context of a summary judgment motion. B. Accepting BDC’s Interpretation of the October 8 Notice Would Require an Improper Resolution of Factual Disputes. It was also improper for the Appellate Division to grant summary judgment to BDC because it could not adopt BDC’s interpretation of its October 8 notice without resolving factual disputes that should have been reserved for trial. Barclays contends that the notice unambiguously specified that the “failure” which would become an Event of Default if it continued for two business days was the failure either to pay the full Return Amount or to dispute the request for the Return Amount and make a payment with respect to the undisputed amount. In order for BDC to be entitled to summary judgment that it was entitled to terminate the Transactions, however, it must establish as a matter of law that the notice meant something completely different, namely, that the only failure specified in the notice was the failure to transfer the entire Return Amount. If this interpretation is not precluded by the plain language of the notice as a matter of law, then the notice is ambiguous and there is a factual dispute concerning the meaning and sufficiency of BDC’s notice that precluded summary judgment in BDC’s favor (see CPLR 3212[b]; see also St. Paul Fire & Marine Ins. Co. v Capri Const. Corp., 78 NY2d 1016, 1018 [1991] [reversing Appellate Division’s grant of summary judgment on the grounds that issues of fact remained]; Capra v -70- Lumbermens Mut. Cas. Co., 31 NY2d 760, 762-63 [1972] [reversing Appellate Division’s grant of summary judgment because a “sharply controverted material issue of fact” existed]). The evidentiary record makes clear that neither party understood the notice at the time it was sent and received to convey the meaning that the Appellate Division majority assigned it. At the time this notice was sent, BDC’s expert had yet to suggest BDC’s current interpretation of the Agreement. (R1041-42.) Thus, BDC could not have provided notice of termination on “pay first, dispute later” grounds. In light of the material issue of fact regarding whether the evidentiary record supports the Appellate Division’s interpretation of BDC’s October 8 notice, it was inappropriate for that court to grant summary judgment to BDC (see St. Paul Fire & Marine Ins. Co., 78 NY2d at 1018). CONCLUSION For the reasons stated, Barclays respectfully requests that this Court reverse the decision of the Appellate Division and (i) vacate the Appellate Division's decision that BDC was entitled to terminate the Transactions, (ii) affirm the decision of the Commercial Division adopting Barclays' interpretation of the Agreement and rejecting BDC's interpretation, (iii) grant Barclays summary judgment that BDC was not entitled to terminate the Transactions, and (iv) grant Barclays summary judgment that Barclays was entitled to terminate the Transactions. Dated: New York, New York March 24, 2014 -71- Res,)'Jtfully submitted, L__U /S. ~ Robinson B. Lacy Marc De Leeuw Jeffrey T. Scott SULLIVAN & CROMWELL LLP 125 Broad Street New York, New York 10004-2498 Tel: (212) 558-4000 Fax: (212) 558-3588 Email: Lacyr@ sullcrom.com Attorneys for Defendant/ Counterclaim-Plaintiff-Appellant Barclays Bank PLC