Ongoing Litigation

Between 2005 and 2008, LBIE and AGFP entered into the 28 CDS at issue in this litigation, documented pursuant an ISDA Master Agreement. LBIE, as protection buyer, agreed to make fixed payments to AGFP, which as protection seller would make payments to LBIE in connection with the occurrence of payment defaults in the securities underlying the 28 CDS. Under the ISDA Master Agreement, LBIE’s entrance into administration in September 2008 provided AGFP with the right to terminate the CDS, which it did in July 2009. Termination under the ISDA Master Agreement was not treated as a breach of contract; the value of the terminated contract was to be paid on a no-fault basis to whichever of the parties it was more valuable at the point of termination.

The ISDA Master Agreement required AGFP, as the terminating party, to calculate a termination payment based on its “Loss,” defined to be the amount that a party reasonably determines in good faith to be its total losses or gains arising from the termination of transactions subject to the agreement. In October 2009, notwithstanding that the collapse in credit markets should have made the CDS “in the money” for LBIE, AGFP calculated that LBIE should make a termination payment to it of $20.6 million. AGFP’s novel methodology ignored standard market practice to calculate Loss on a market basis, which would have demonstrated that AGFP owed LBIE hundreds of million dollars, as the cost of obtaining credit protection provided by the terminated CDS would have been significantly more expensive in 2009 than it was when the CDS were entered into years earlier.

The key documents are attached below:

1. The Plaintiff Summons the Defendant (Complaint): Dkt.1 - 28 November 2011
2. Verified Answer to Plaintiff's Complaint and Defendant's Counterclaims (Answer/Counterclaim): Dkt.37 - 22 April 2013
3. Defendant's Memorandum in Support of its Motion to Dismiss the First and Third Causes of Action of the Complaint: Dkt.9 (Opening) - 3 February 2012
4. Plaintiff's Opposition to Defendant's Motion to Dismiss the First and Third Causes of Action of the Complaint: Dkt.11 (Opposition) - 9 March 2012
5. Defendant’s Reply in Further Support of its Motion to Dismiss the First and Third Causes of Action of the Complaint: Dkt.12 (Reply) - 3 April 2012
6. Motion to Dismiss - Hon. Marcy S. Friedman, JSC Decision/Order (Ruling): Dkt.31 - 15 March 2013
7. Defendant’s Memorandum in Support of its Motion for Summary Judgment: Dkt.137 - 22 February 2016
8. Plaintiff’s Memorandum in Opposition to Defendant’s Motion for Summary Judgment: Dkt.340 - 28 September 2018
9. Defendant’s Reply Memorandum in Further Support of its Motion for Summary Judgment: Dkt.268 - 28 September 2018
10. Hon. Marcy S. Friedman, JSC Decision/Order (SJ Ruling): Dkt.156 - 2 July 2018
11. Brief for Defendant-Appellant (Opening): Dkt.16 from the 2108 Interlocutory Appeal - 1 October 2018
12. Brief for Plaintiff-Respondent (Opposition): Dkt.22 from the 2108 Interlocutory Appeal - 31 October 2018
13. Reply Brief for Defendant-Appellant (Reply): Dkt.30 from the 2108 Interlocutory Appeal - 9 November 2018
14. Notice of Entry (Appeal Ruling Affirming SJ): Dkt. 354 - 17 January 2019
15. Defendant’s Pre-Trial Memorandum: Dkt.731 - 24 May 2021
16. Plaintiff's Pre-Trial Brief: Dkt.741 - 24 May 2021
17. Plaintiff's Post-Trial Brief: Dkt.777 - 22 April 2022
18. Defendant’s Post-Trial Brief: Dkt.779 - 22 April 2022
19. Plaintiff’s Post-Trial Response Brief: DKt. 782 – 21 June 2022
20. Defendant’s Post-Trial Response Brief: Dkt. 783 – 21 June 2022
21. Hon. Melissa A. Crane Justice Decision After Trial: Dkt.790 - 8 March 2023
22. Brief for Plaintiff-Appellant (Opening): Dkt.22 in respect of the Appeal of the Decision - 22 September 2023
23. Brief for Defendant-Respondent (Opposition): Dkt.26 in respect of the Appeal of the Decision - 15 December 2023
24. Reply Brief for Plaintiff-Appellant (Reply): Dkt.29 in respect of the Appeal of the Decision - 12 January 2024
25. New York Supreme Court, Appellate Division, First Judicial Department Decision After Trial: Dkt.30 - 14 March 2024
26. Plaintiff's motion and memorandum in support of its motion for leave to reargue, or in the alternative, leave to appeal to the New York State Court of Appeals: Dkt.31 - 15 April 2024
27. Defendant-Respondent (Opposition): Dkt.32 - opposing LBIE's motion for leave to reargue or leave to appeal to the New York State Court of Appeals - 29 April 2024
28. Plaintiff's reply memorandum: Dkt.33 - in further support of LBIE's leave to reargue or leave to appeal to the New York State Court of Appeals - 3 May 2024
29. New York Supreme Court, Appellate Division, First Judicial Department decision and Order dated July 18, 2024, denying the Plaintiff's motion to reargue or, in the alternative, for leave to appeal to the New York State Court of Appeals - 18 July 2024
30. Notice of Entry: Dkt.880 - 18 July 2024
31. Plaintiff -Appellant's memorandum in support of its motion for permission to appeal to the State of New York Court of Appeals: - 19 August 2024.
32. Defendant-Respondent's response in opposition to LBIE's motion for permission to appeal to the State of New York Court of Appeals: - 3 September 2024.
33. Motion for Leave to file brief for amicus curiae Clayton P. Gillette in support of Plaintiff-Appellant's motion for permission to appeal to the State of New York Court of Appeals: - 18 September 2024.
34. Motion for Leave to file brief for amicus curiae Deutsche Bank AG in support of Plaintiff-Appellant's motion for permission to appeal to the State of New York Court of Appeals: - 18 September 2024.
35. State of New York, Court of Appeals Decisions on pending motions, dated January 14, 2025, denying LBIE's motion for leave to appeal: Mo. No. 2024-634 - 14 January 2025.
    
    Note: this document also sets out the decision in respect of Deutsche Bank AG's and Clayton P Gillette's motions for leave to appear amicus curiae on LBIE's motion for leave to appeal and accepted each of their briefs as filed: Mo. No. 2024-655 and Mo. No 2024-656, respectively - 14 January 2025.

On 14 January 2025, The State of New York, Court of Appeals handed down its Decisions on pending motions, including Mo. No. 2024-634, and denied LBIE's motion for leave to appeal. [Item 35].

This now concludes the litigation between LBIE, Plaintiff/Appellant and AG Financial Products, Inc. (“AGFP”), Defendant/Respondent.

On 18 September 2024, Professor Gillette and Deutsche Bank AG, through their respective counsels, filed Motions for Leave to file briefs as amici curiae in support of LBIE's motion for permission to appeal to the State of New York Court of Appeals, [Item 33 and Item 34, respectively].

On 10 September 2024, AGFP filed with the State of New York Court of Appeals its brief in opposition to LBIE's motion for leave to appeal to the State of New York Court of Appeals, [Item 32].

On 19 August 2024, LBIE filed a memorandum in support of its motion for permission to appeal to the State of New York Court of Appeals, from the decision of the Appellate Division, First Judicial Department, by its Order, July 18, 2024, [Item 31].

On 18 July 2024, the New York Supreme Court, Appellate Division, First Judicial Department denied LBIE's motion for reargument of, or, in the alternative, leave to appeal to the New York Court of Appeals from, its decision and order entered on March 14, 2024, by its Order, July 18, 2024, Dkt.34 [Item 29].

On 18 July 2024, AGFP filed with the Supreme Court of the State of New York, County of New York its Notice of Entry, Dkt.880 [Item 30] of the Appellate Division's July 18, 2024 Order.

LBIE has 30 days from July 18, 2024 Order to file a petition with the New
York State Court of Appeals requesting permission to appeal the Decision
and Order of the Appellate Division, First Department, dated March 14, 2024
which affirmed the March 8, 2023 Decision After Trial and the June 30, 2023
Judgment entered by Supreme Court for the County of New York, Commercial
Division in favor of the Defendant, AGFP.

On 3 May 2024, LBIE filed with the New York Supreme Court, Appellate Division, First Judicial Department its reply memorandum of law in further support of LBIE's motion for leave to reargue or leave to appeal to the New York State Court of Appeals, in response to AGFP's brief in opposition, Dkt.33 [Item 28].

On 29 April 2024, AGFP filed with the New York Supreme Court, Appellate Division, First Judicial Department its brief in opposition to LBIE's motion for leave to reargue or leave to appeal to the New York State Court of Appeals, Dkt.32 [Item 27].

On 15 April 2024, LBIE filed with the New York Supreme Court, Appellate Division, First Judicial Department its motion for leave to reargue, or in the alternative, leave to appeal to the New York State Court of Appeals from the Decision and Order of the Court dated 14 March 2024, Dkt.31 [Item 26].

• Reply Brief for Plaintiff-Appellant (Reply) Dkt.29 in respect of the Appeal of the Decision - 12 January 2024

Following the oral hearing on 21 February 2024, the New York Supreme Court, Appellate Division, First Judicial Department entered their decision and order on 14 March 2024 [item 25], affirming Justice Crane’s decision in full.

Justice Crane delivered her decision after trial on 8 March 2023 [Item 21] finding in favour of AGFP.

LBIE gave timely notice of appeal. Briefs have been exchanged in support of the parties’ arguments in favour of and in opposition to the appeal [Items 22, 23, 24], and oral arguments will be heard on 21 February 2024.

• Brief for Plaintiff-Appellant (Opening) Dkt.22 in respect of the Appeal of the Decision- 22 September 2023
• Brief for Defendant-Respondent (Opposition) Dkt.26 in respect of the Appeal of the Decision - 15 December 2023
• Reply Brief for Plaintiff-Appellant (Reply) Dkt.29 in respect of the Appeal of the Decision - 12 January 2024

After the trial the parties exchanged sets of post-trial briefs addressing the evidence and arguments presented at trial [Items 17, 18, 19, 20] as set out below:

• Plaintiff's Opening Post-Trial Brief: Dkt.777 - 22 April 2022
• Defendant’s Opening Post-Trial Brief: Dkt.779 - 22 April 2022
• Plaintiff’s Post-Trial Response Brief: DKt. 782 – 21 June 2022
• Defendant’s Post-Trial Response Brief: Dkt. 783 – 21 June 2022

Trial was set by Justice Friedman for March 2020, but due to the developing pandemic, trial was postponed until procedures for hearings in the NY courts could be implemented. During the interim period, before hearings were able to be scheduled, Justice Friedman retired and the case needed to be reassigned. For a considerable time, no replacement judge was assigned, and LBIE sought to remove the case to the US Bankruptcy Court requesting the judge that had handled the Lehman bankruptcy cases to accept the case for trial. Ultimately, the US Bankruptcy Court declined to accept the removal of the case from the NY State courts. A replacement judge, Melissa Crane, was assigned the case on 29 March 2021, and on 20 April 2021 she set a target trial date of September 2021. Eventually, trial was held during October and November 2021. Before trial, LBIE and AGFP exchanged pre-trial briefs setting out their arguments in support of their valuation calculations. [Items 15 and 16].

In July 2018 the Trial Court delivered its Summary Judgment Decision dismissing LBIE’s third cause of action, but refusing to dismiss the second cause of action for breach of contract resulting from AGFP’s Loss calculation. [Item 10]

In October 2018 AGFP appealed the Summary Judgment Decision of the Trial Court [Item 11].

LBIE responded with its brief in opposition [Item 12].

And in November 2018, AGFP replied to LBIE’s brief in opposition [Item 13].

The First Department upheld the Trial Court judgment requiring a trial to determine the reasonableness of AGFP’s Loss calculation [Item 14].

After several years of extensive fact and expert discovery, in February 2016, AGFP filed a motion asking the Court to grant it summary judgment against the remaining second and third causes of action arguing that as the non-defaulting party, its determination of Loss is subject to deference and must be judged based on a subjective standard, not an objective standard [Item 7].

In 2016, LBIE filed a brief opposing AGFP’s motion for summary judgment [Item 8]

AGFP replied to LBIE’s opposing brief in May, 2016 [Item 9].

On 12 March 2013, the Court delivered its decision on AGFP’s motion to dismiss [Item 6.], granting AGFP’s request in respect of the first cause of action relating to the transactions terminated on the basis of the additional event of default in December 2008.

AGFP filed an answer to LBIE’s pleadings and made a counterclaim for the payment of the “Loss” amount it had determined and certified in respect of the transactions it terminated [Item 2].

In February 2012 AGFP filed a motion seeking to have LBIE’s first and third causes of action dismissed. [Item 3.] LBIE responded in March [Item 4.] and AGFP filed a reply in April 2012 [Item 5.]

In November 2011, asserting that AGFP breached its contractual obligations by improperly calculating Loss without reference to market information and in a commercially unreasonable manner, LBIE filed the original complaint, setting out three causes of action [Item1]:

• First, a claim for breach of an implied covenant of good faith and fair dealing in respect of 9 transactions that AGFP terminated in December 2008 on the basis of a contractual provision that entitled it to terminate those transactions in the event LBIE failed to deliver to it copies of trustee reports;
• Second, a breach of contract claim in respect of the “Loss” calculation AGFP certified in respect of the 28 transactions it terminated in July 2009 when it determined that its termination of those transactions in which it was the seller of credit default protection resulted in a loss to it that LBIE should pay rather than a gain to it which it should pay to LBIE; and
• Third, a claim for breach of an implied covenant of good faith and fair dealing in respect of the 28 transactions terminated in July 2009 based upon the design and implementation of the auction it held to determine the market value of the terminated transactions.

AGFP filed an answer to LBIE’s pleadings and made a counterclaim for the payment of the “Loss” amount it had determined and certified in respect of the transactions it terminated [Item 2].