National Credit Union Administration Board v. HSBC Bank US, National Association

USDC SDNY

DOCUMENT

UNITED STATES DISTRICT COURT ELECTRONICALLY FILED

SOUTHERN DISTRICT OF NEW YORK DOC #:

wanna nnn nnn nnn nnn nnn nnn DATE FILED: 1/8/2020

NATIONAL CREDIT UNION :

ADMINISTRATION BOARD, et al., :

Plaintiffs, : 15 Civ. 2144 (LGS)

-against- : ORDER AND ORDER

HSBC BANK US, NATIONAL ASSOCIATION, :

Defendant. :

LORNA G. SCHOFIELD, District Judge:

Plaintiffs, the National Credit Union Administration Board (‘“NCUAB”), as liquidating

agent for five corporate credit unions, sue HSBC Bank USA, National Association (“HSBC”) for

HSBC’s alleged breach of contractual and fiduciary duties and the covenant of good faith and for

violation of the Streit Act and the Trust Indenture Act of 1939. On September 12, 2018,

NCUAB moved for leave to file a supplemental First Amended Complaint and substitute

Graeme W. Bush (the “Separate Trustee’) as Plaintiff for certain claims. In an Opinion and

Order, filed May 22, 2019 (the “Order”), Magistrate Judge Sarah Netburn granted Plaintiffs’

motion. HSBC timely objected and moved to vacate the Order. For the following reasons, the

objection is overruled and the motion to vacate is denied.

I. BACKGROUND

Familiarity with the Order, the underlying facts and procedural history is assumed.

NCUAB brought this action on March 20, 2015, against HSBC, for damages arising

from five corporate credit unions’ purchase of residential mortgage-backed securities (“RMBS”)

certificates from thirty-seven trusts, for which HSBC was acting as trustee. NCUAB also

brought similar suits against other banks, including U.S. Bank and Wells Fargo.

As part of NCUAB’s liquidation of the credit unions, NCUAB liquidated the distressed

RMBS certificates held by the credit unions and re-securitized and transferred the certificates to

newly-created NCUA Guaranteed Notes Trusts (“NGN Trusts”). The NGN Trusts then issued

NCUA Guaranteed Notes (“NGN Notes”), under (i) an Indenture Agreement between the NGN

Trusts, as Issuers, and the Bank of New York Mellon (“BNYM”), as Indenture Trustee, and (ii)

guaranty agreements among NCUAB as Guarantor, the NGN Trusts and BNYM.

On April 27, 2015, HSBC moved to dismiss the Complaint, arguing in part that NCUAB

lacked standing to sue on behalf of the NGN Trusts. In July 2015, Judge Scheindlin, then

assigned to this case, denied the motion to dismiss, finding that while NCUAB did not have

direct standing, it may have derivative standing to bring the NGN Trust-related Claims. The

order directed NCUAB to amend the Complaint to assert the claims derivatively. See Nat’l

Credit Union Admin. Bd. v. HSBC Bank USA, Nat. Ass’n, 117 F. Supp. 3d 392 (S.D.N.Y. 2015)

(“HSBC I”). NCUAB filed a First Amended Verified Derivative Complaint (“FAC”), which

Defendant answered.

While the parties were briefing the first motion to dismiss in this case, Judge Forrest

granted a motion to dismiss in the suit between NCUAB and U.S. Bank, ruling that NCUAB

lacked derivative standing to bring claims on behalf of the NGN Trusts, but permitting the

plaintiff to replead. Nat’l Credit Union Admin. Bd. v. U.S. Bank Nat. Ass’n, No. 14 Civ. 9928,

2015 WL 2359295, at *3-6 (S.D.N.Y. May 18, 2015) (“U.S. Bank I”). Judge Forrest then

granted a second motion to dismiss an Amended Complaint against U.S. Bank, on grounds that

NCUAB was contractually foreclosed from asserting derivative claims, pursuant to the

Indenture Agreement, and that only BNYM had the right to bring claims on behalf of the

NGN Trusts.1 Nat’l Credit Union Admin. Bd. v. U.S. Bank Nat’l Ass’n, No. 14 Civ. 9928, 2016

WL 796850, at *9-10 (S.D.N.Y. Feb. 25, 2016) (“U.S. Bank II”). A year later, Judge Failla

similarly granted in part a motion to dismiss by Wells Fargo, finding that NCUAB lacked

derivative standing in that case due to the language in the Indenture Agreement. See BlackRock

Allocation Target Shares: Series S. Portfolio v. Wells Fargo Bank, Nat’l Ass’n, 247 F. Supp. 3d

377, 412-15 (S.D.N.Y. 2017) (“Wells Fargo I”).

Following Judge Forrest’s rulings, NCUAB asked BNYM to appoint a Separate Trustee

to pursue the claims. BNYM then appointed Graeme W. Bush as Separate Trustee, and NCUAB

moved to supplement its complaint and substitute the Separate Trustee as Plaintiff in the U.S.

Bank case. Judge Forrest denied the motion, and NCUAB appealed. While the appeal was

pending, Judge Failla granted NCUAB’s similar motion to supplement the complaint and

substitute the Separate Trustee as Plaintiff in the Wells Fargo case. See BlackRock Allocation

Target Shares: Series S Portfolio v. Wells Fargo Bank, Nat’l Ass’n, No. 14 Civ. 10067, 2017

WL 3610511, at *14-21 (S.D.N.Y. Aug. 21, 2017) (“Wells Fargo II”).

On August 2, 2018, the Second Circuit affirmed U.S. Bank II, finding that NCUAB

lacked derivative standing to sue on behalf of either the NGN Trusts or the Indenture Trustee

“under the clear and unambiguous language of the Trust and Indenture Agreements.” Nat’l

Credit Union Admin. Bd. v. U.S. Bank Nat’l Ass’n, 898 F.3d 243, 252 (2d Cir. 2018) (“U.S.

Bank III”). The Court of Appeals also found that Judge Forrest had not abused her discretion in

1 The full Indenture Agreements had not been fully submitted to the Court for the first motion to

dismiss in the U.S. Bank case. See U.S. Bank I, 2015 WL 2359295, at *4 n.2.

denying NCUAB’s motion to supplement its complaint and substitute the Separate Trustee as

Plaintiff. Id.

In the instant case, NCUAB moved for leave to file a supplemental First Amended

Complaint and to substitute the Separate Trustee as Plaintiff for the NGN Trust-related

Claims, on September 12, 2018. The Order granted Plaintiffs’ motion, finding that NCUAB

had not engaged in undue delay, bad faith, or dilatory tactics, and that the requested relief was

neither futile nor unduly prejudicial to HSBC. HSBC timely objected and moved to vacate.

II. STANDARD

A. Standard of Review

For objections to a magistrate judge’s ruling on nondispositive matters, district courts

must “modify or set aside any part of the order that is clearly erroneous or is contrary to law.”

Fed. R. Civ. P. 72(a); accord 28 U.S.C. § 636(b)(1)(A). The Order, which grants leave to

supplement the Complaint and substitute the Separate Trustee, is a nondispositive matter. See

Fielding v. Tollaksen, 510 F.3d 175, 178 (2d Cir. 2007) (“[A] district judge may refer

nondispositive motions, such as a motion to amend the complaint, to a magistrate judge for [a]

decision,” subject to review under the “clearly erroneous or contrary to law” standard); see also

Kilcullen v. New York State Dep't of Transp., 55 F. App'x 583, 584-85 (2d Cir. 2003) (summary

order) (characterizing a motion to amend a complaint and add a claim as a non-dispositive

motion).

HSBC argues that, because granting the motion essentially precludes HSBC from

asserting a defense based on lack of standing, the motion should be treated as dispositive. In

support of this argument, HSBC cites cases holding that motions to strike affirmative defenses

are treated as dispositive. See, e.g., Royal Park Investments SA/NV v. U.S. Bank Nat'l Ass'n, 285

F.Supp. 3d 648, 653 (S.D.N.Y. 2018) (A “motion to strike an affirmative defense is clearly

dispositive of a defense of a party.”). Notwithstanding this general principle as to affirmative

defenses, the weight of case law -- on the narrower issue of whether to allow Plaintiff to amend a

complaint -- supports Plaintiffs’ position that the issue should be deemed non-dispositive. See

Xie v. JPMorgan Chase Short-Term Disability Plan, No. 15 Civ. 4546, 2018 WL 501605, at *1

(S.D.N.Y. Jan. 19, 2018) (collecting cases and overruling objections to denial of leave to amend

answer to add claims under a clearly erroneous standard); see also, e.g., Weider Health & Fitness

v.Austex Oil Ltd., No. 17 Civ. 2089, 2018 WL 5919521, at *2 (S.D.N.Y. Nov. 13, 2018); Lenjo

v.Lui, No. 17 Civ. 7431, 2018 WL 4954101, at *1 (S.D.N.Y. Oct. 12, 2018); MPI Tech A/S v.

Int’l Bus. Machs. Corp., No. 15 Civ. 4891, 2017 WL 481444, at *3 (S.D.N.Y. Feb. 6, 2017);

Tardif v. City of New York, No. 13 Civ. 4056, 2016 WL 2343861, at *2-3 (S.D.N.Y. May 3,

2016). In any event, even applying a de novo standard of review, this Court would reach the

same conclusion and allow repleading to substitute the Separate Trustee as a plaintiff.

“A finding is ‘clearly erroneous’ when, although there is evidence to support it, the

reviewing court on the entire evidence is left with the definite and firm conviction that a mistake

has been committed.” Wu Lin v. Lynch, 813 F.3d 122, 126 (2d Cir. 2016) (quoting United States

v.U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). A ruling is contrary to law if it “fails to apply

or misapplies relevant statutes, case law or rules of procedure.” Winfield v. City of New York,

No. 15 Civ. 5236, 2017 WL 5054727, at *2 (S.D.N.Y. Nov. 2, 2017) (internal citation omitted).

“It is well-settled that a magistrate judge’s resolution of a nondispositive matter should be

afforded substantial deference and may be overturned only if found to have been an abuse of

discretion.” Xie, 2018 WL 501605, at *1 (internal citation omitted).

B. Leave to Supplement a Pleading

Federal Rule of Civil Procedure 15 addresses supplementing a pleading, and states, “[o]n

motion and reasonable notice, the court may, on just terms, permit a party to serve a

supplemental pleading setting out any transaction, occurrence, or event that happened after the

date of the pleading to be supplemented. The court may permit supplementation even though the

original pleading is defective in stating a claim or defense.” FED. R. CIV. P. 15(d). “[A]bsent

undue delay, bad faith, dilatory tactics, undue prejudice to the party to be served with the

proposed pleading, or futility, a Rule 15(d) motion should be freely granted.” U.S. Bank III, at

256 (alterations omitted); see also Bornholdt v. Brady, 869 F.2d 57, 68 (2d Cir. 1989) (“An

application for leave to file a supplemental pleading is addressed to the discretion of the court,

and permission should be freely granted where such supplementation will promote the economic

and speedy disposition of the controversy between the parties, will not cause undue delay or trial

inconvenience, and will not prejudice the rights of any other party.”); Haskins v. New York, No.

17 Civ. 540, 2019 WL 1284076, at *6 (S.D.N.Y. Mar. 20, 2019) (same). In assessing prejudice,

courts generally consider whether a court’s decision would “(i) require the [opposing party] to

expend significant additional resources to conduct discovery and prepare for trial; (ii)

significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a

timely action in another jurisdiction.” Monahan v. New York City Dep't of Corr., 214 F.3d 275,

284 (2d Cir. 2000); accord Rodriguez v. Town of Ramapo, No. 18 Civ. 1878, -- F. Supp. 3d --,

2019 WL 4688609, at *12 (S.D.N.Y. Sept. 26, 2019).

“The history of the [Federal] Rules [of Civil Procedure] makes clear not only that Rule

15 was meant to be generally applicable to a proposed change of plaintiffs, but that in this regard

Rule 17(a) is implicated as well.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d

11, 19 (2d Cir. 1997) (citing the Fed. R. Civ. P. 15 Advisory Committee Notes (1966)); accord

In re Ace Sec. Corp. RMBS Litig., No. 13 Civ. 1869, 2015 WL 1408837, at *5 (S.D.N.Y. Mar.

26, 2015). Rule 17 addresses joining real parties in interest: “The court may not dismiss an

action for failure to prosecute in the name of the real party in interest until, after an objection, a

reasonable time has been allowed for the real party in interest to ratify, join, or be substituted

into the action. After ratification, joinder, or substitution, the action proceeds as if it had been

originally commenced by the real party in interest.” FED. R. CIV. P. 17(a)(3). “Although the

district court retains some discretion to dismiss an action where there was no semblance of any

reasonable basis for the naming of an incorrect party, there plainly should be no dismissal where

substitution of the real party in interest is necessary to avoid injustice.” Advanced Magnetics,

Inc., 106 F.3d at 20 (internal citation omitted). “A Rule 17(a) substitution of plaintiffs should be

liberally allowed when the change is merely formal and in no way alters the original complaint's

factual allegations as to the events or the participants.” Id.; accord In re Ace Sec. Corp. RMBS

Litig., 2015 WL 1408837, at *5 (“A ‘merely formal’ amendment that ‘in no way alters the

known facts and issues on which the action is based’ will generally be permitted, and relate back

to the original filing of the complaint.”). “A district court may deny a Rule 17(a) motion as

untimely if it is not filed within a reasonable time after a standing objection is raised.” Nat'l

Credit Union Admin. Bd., 898 F.3d at 256 (quotations omitted).

III. DISCUSSION

The Order granting NCUAB leave to file a supplemental First Amended Complaint and

substitute the Separate Trustee as Plaintiff for certain claims is affirmed.

A. Timeliness of Plaintiffs’ Motion

HSBC argues that NCUAB’s motion is untimely because NCUAB should have been on

notice that it lacks standing to bring the NGN Trust-related Claims due to the

rulings in U.S. Bank I, U.S. Bank II and Wells Fargo I. But, as the Order explains, “there is no

rule that requires a party to abandon a favorable decision [specifically, the HSBC I finding that

NCUAB has standing] whenever a non-precedential and contrary decision is issued by another

district court.” The Order further reasons that such a rule would run counter to the law of the

case doctrine, which discourages parties from moving for reconsideration in an immediate case,

on the basis of contrary outcomes in non-precedential cases, so as to preserve judicial resources

and prevent impediments to the efficient disposition of a case. This reasoning is not clearly

erroneous.

HSBC argues that the Order contravenes case law, but the cases that HSBC cites are

distinguishable on their facts. See Commonwealth of Pennsylvania Pub. Sch. Employees' Ret.

Sys. v. Morgan Stanley & Co., 814 F.3d 641, 643 (2d Cir. 2016) (per curiam) (holding that denial

of a Rule 17(a)(3) motion for ratification of a fraud claim by the real party in interest was not an

abuse of discretion where the motion was made eighteen months after the issue was raised in

pleadings); City of New York v. Grp. Health Inc., 649 F.3d 151, 154, 157 (2d Cir. 2011) (holding

that denial of a motion to amend the complaint was not an abuse of discretion where the district

court found that “substantial questions about the market definition analysis” existed in the

complaint three years prior to plaintiff’s motion to amend the complaint to add alternative market

definitions); De Jesus v. Sears, Roebuck & Co., 87 F.3d 65, 71-2 (2d Cir. 1996) (holding that

denial of a motion to amend the complaint was not an abuse of discretion where plaintiffs had

four prior opportunities to plead their claims and failed to do so); John Hancock Mut. Life Ins.

Co. v. Amerford Int'l Corp., 22 F.3d 458, 462 (2d Cir. 1994) (holding that the court did not abuse

its discretion by denying a motion to amend the answer to add a counterclaim, four months after

deadline to do so, because the counterclaim itself was futile); Cerni v. J.P. Morgan Sec. LLC,

208 F. Supp. 3d 533, 543-44 (S.D.N.Y. 2016) (denying a motion to amend the complaint to add a

claim where plaintiff could have added the claim in two previously amended complaints and had

failed to do so). Because NCUAB moved to supplement the Complaint and substitute the

Plaintiff fewer than two months after the Second Circuit held NCUAB lacked derivative

standing, the motion is timely.

B. Bad Faith

HSBC argues that NCUAB’s delay in filing the motion to substitute and amend was in

bad faith, because NCUAB knew that the real party in interest is the Separate Trustee since the

outset of the lawsuit. NCUAB’s decision to attach only excerpts of the Indenture Agreement to

its opposition to HSBC’s motion to dismiss, HSBC argues, was a deliberate effort to hide

NCUAB’s lack of standing. The Order finds, however, that NCUAB’s legal theory of its

standing is not frivolous, based on Judge Scheindlin’s decision that NCUAB had standing in the

instant case, and Judge Failla’s finding in Wells Fargo II that NCUAB initially had not

“rectif[ied] the standing issue because it believed in good faith that it was the real party in

interest with regard to the derivative claims.” Wells Fargo II, 2017 WL 3610511, at *19

(emphasis added). The Order further finds that NCUAB’s failure to attach the full Indenture

Agreement to the opposition papers is not sufficient to support a finding of fraud on the court.

This reasoning is not clearly erroneous.

HSBC provides no evidence that NCUAB’s actions were made in bad faith. As to filing

only portions of the Indenture Agreement, Judge Scheindlin’s Individual Rules limited each

exhibit to fifteen pages and required that documents “be excerpted to include only relevant

material.” INDIVIDUAL RULES AND PROCEDURES, JUDGE SHIRA A. SCHEINDLIN (2013).

As to NCUAB’s purported knowledge that it lacked derivative standing, HSBC’s bad

faith argument is factually baseless, and the cases it relies on are distinguishable. See Reisner v.

Gen. Motors Corp., 511 F. Supp. 1167, 1172 (S.D.N.Y. 1981), aff'd, 671 F.2d 91 (2d Cir. 1982)

(denying a motion to amend the complaint to add a new theory of recovery and new inconsistent

factual allegations, after defendants had filed a motion for summary judgment, where plaintiffs

should have known the theory and facts when several earlier complaints were drafted); Lee v.

Regal Cruises, Ltd., 916 F. Supp. 300, 303-05 (S.D.N.Y. 1996), aff'd, 116 F.3d 465 (2d Cir.

1997) (denying a motion to amend the complaint to add additional factual allegations, ten

months after deadline to amend and two years after complaint was filed, where plaintiff should

have known the facts at the initial filing of the case, the request to amend was in bad faith, and in

any event the amendment would be futile). Before August 2018, with a split in the District

Courts and no ruling yet from the Second Circuit, NCUAB can hardly be criticized for not

guessing correctly how the law would evolve. Two other judges in this district also found that

NCUAB’s legal position that it had standing was taken in good faith. See Nat'l Credit Union

Admin. Bd. v. Deutsche Bank Nat'l Tr. Co., No. 14 Civ. 8919, -- F. Supp. 3d --, 2019 WL

5190889, at *6 n. 7 (S.D.N.Y. Oct. 15, 2019) (“Clearly, this standing issue led to differing

opinions at the district court level, and it is a fair inference that NCUA[B]'s assertion of

derivative standing in the FAC was made in good faith.”); Wells Fargo II, 2017 WL 3610511, at

*20 (finding that NCUAB had a “genuine belief in the face of unsettled law that it was the real

party in interest” where defendants made similar arguments as to NCUAB’s purported litigation

strategy).

C. Prejudice to HSBC

“In determining what constitutes ‘prejudice,’ [courts] generally consider whether the

assertion of the new claim or defense would ‘(i) require the opponent to expend significant

additional resources to conduct discovery and prepare for trial; (ii) significantly delay the

resolution of the dispute; or (iii) prevent the [adverse party] from bringing a timely action in

another jurisdiction.’” Monahan v. New York City Dep't of Corr., 214 F.3d 275, 284 (2d Cir.

2000) (quoting Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993)).

HSBC argues that permitting NCUAB’s amendment raises significant legal and factual

issues requiring a new round of discovery. The Order finds, to the contrary, that any discovery

necessary for HSBC’s new defenses would be “extremely limited,” and that the parties should be

able to complete that minimal discovery before the summary judgment briefs are due in June

2021. The Order further cites Judge Failla’s ruling in Wells Fargo II, which finds that a similar

substitution of the Separate Trustee would require “minimal additional discovery.” Wells Fargo

II, 2017 WL 3610511, at *20. This analysis is not clearly erroneous.

HSBC argues that it has already participated in extensive discovery on the assumption

that NCUAB is the Plaintiff, and that being subjected to expansive additional discovery would

be prejudicial. This argument is unpersuasive because the completed discovery will remain

relevant and likely will be supplemented only minimally. Judge Netburn, who wrote the Order,

controls the extent of future discovery in this case. She also oversaw discovery in NCUAB’s

related case against Wells Fargo, where substitution of the Separate Trustee resulted in only

minimal additional discovery. Where NCUAB is simply amending the Complaint to substitute a

party in interest, and an identical amendment in a similar action resulted in minimal discovery,

the Order’s holding that additional discovery will not prejudice Defendant is not clearly

erroneous.2

2 The parties make arguments regarding the timeliness of the NGN Trust-related Claims brought

by the Separate Trustee. As the Order does not rule on this issue, it is not addressed here.

D. Futility

The Order holds that the requested relief would not be futile because the underlying trust

documents grant the Separate Trustee the necessary powers to qualify as the real party in interest.

Specifically, the Order finds that (1) the Indenture Agreement provisions permitting the

Indenture Trustee (BNYM) to retain the right to recovery or to terminate the Separate Trustee for

cause or with consent do not preclude the Indenture Trustee from assigning its status as the real

party in interest to the Separate Trustee; and (2) the Indenture Agreement itself was not violated

by the appointment of the Separate Trustee.3 These findings are also not clearly erroneous.

The Order holds that the Indenture Agreement’s provision permitting the Indenture

Trustee to terminate the Separate Trustee for cause does not preclude assignment by rendering an

assignment incomplete. The Order relies on Navarro Sav. Ass’n v. Lee, 446 U.S. 458 (1980), in

which the Supreme Court held that a trustee was the real party in interest where it “possess[ed]

certain customary powers to hold, manage, and dispose of assets for the benefit of others” and the

trust beneficiaries could “neither control the disposition of [the] action nor intervene in the affairs

of the trust except in the most extraordinary situations.” Id. at 464-65. This rule remained true

even where beneficiaries had the power to remove the trustee, because “this form of ‘control’ [of

beneficiaries over trustees] does not strip the trustees of the powers that make them real parties to

3 Whether HSBC has standing to challenge the Separate Trustee’s assignment on the theory that

the assignment violates the terms of the Indenture Agreement need not be addressed here, since

HSBC’s arguments fail on the merits. See BlackRock Allocation Target Shares: Series S

Portfolio v. Wells Fargo Bank, Nat'l Ass'n, No. 14 Civ. 10067, 2017 WL 3610511, at *16

(S.D.N.Y. Aug. 21, 2017) (declining to hold on the issue of whether the defendant has standing

to challenge the validity of the Separate Trustee Agreement as a means of challenging the

Separate Trustee’s real-party-in-interest status because, the challenge fails on the merits).

the controversy . . . .” Id. at 465 n. 14. Under this rationale, the Order appropriately found the

language in the appointing clauses -- “transfer[ing] . . . all legal title, claims, powers, rights,

authorities, and duties of the Indenture Trustee . . . in connection with the [at-issue claims]” to

the Separate Trustee -- rendered the Separate Trustee the real party in interest. HSBC argues that

the Order’s reliance on Navarro is improper because Navarro addresses the relationship between

a trustee and trust beneficiaries, not between a trustee and a separate trustee. But this formalistic

reading of Navarro mischaracterizes its broader principle. The fact that the Separate Trustee can

be terminated for cause is insufficient to strip the Separate Trustee of its real-party-in-interest

status. Judge Failla reached the same conclusion based on the same contractual language in

Wells Fargo II. See Wells Fargo II, 2017 WL 3610511, at *15.

The Order similarly finds that the Indenture Agreement provisions, permitting the

Indenture Trustee to retain the right to recovery, did not preclude assignment by rendering an

assignment incomplete under Second Circuit case law. HSBC argues that, because the Indenture

Trustee retains the right to any recoveries obtained under the agreement, “prudential questions”

arise under Sprint Commc'ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 290 (2008) (the

“prudential standing doctrine embodies judicially self-imposed limits on the exercise of federal

jurisdiction.” (internal quotation marks omitted)). But under Sprint, although the Supreme Court

has “imposed [prudential limitations] in prior cases where a plaintiff has sought to assert the

legal claims of third parties,” id. at 289, such limitations are not appropriate where a party has

been “assigned . . . all rights, title and interest in claims,” id. at 290 (quotation marks omitted).

Here, the Separate Trustee is assigned “all legal title, claims, powers, rights, authorities, and

duties of the Indenture Trustee . . . in connection with” the at-issue claims, and therefore Sprint’s

limitation is inapplicable.

The Order also finds that the appointment of the Separate Trustee did not violate the

Indenture Agreement itself. HSBC argues that the Indenture Agreements restrict the Indenture

Trustee to appointing a Separate Trustee only for the purpose of meeting certain legal

requirements, which do not include assisting in bringing this lawsuit. The Order rejects this

argument, on the ground that the clause permitting the appointment of a Separate Trustee

(Section 5.13(A)) does not restrict the Indenture Trustee in this way, and even if the clause is

restrictive, the duties of the Indenture Trustee include appearing in suits to protect the interests

of the Noteholders and Guarantor (Section 5.01(a)(i)). Section 5.13(a) expressly states that

appointment of a Separate Trustee is permitted “for the purpose of meeting legal requirements

applicable to [the Indenture Trustee] in the performance of its duties hereunder . . . .” Section

5.01(a)(i), which identifies “[t]he rights, duties and liabilities of the Indenture Trustee,” further

states that “[t]he Indenture Trustee shall have the full power and authority to do all things not

inconsistent with the provisions of this Indenture that it may deem advisable in order to . . .

institute, appear in or defend any suit or other proceeding with respect hereto, or to protect the

interests of the Noteholders and the Guarantor.” Read together, these clauses expressly permit

appointment of a Separate Trustee to pursue this lawsuit. The language in the Granting Clause,

precluding the assignment of any interest in any asset constituting the Trust Estate,

“except as expressly provided herein,” does not change the interpretation. See also Wells Fargo

II, 2017 WL 3610511, at *16 (“Reading these sections together, and in the context of the

broader Indenture Agreement, the Court believes BNYM could claim the appointment of the

Separate Trustee was necessary to permit it to meet the legal requirements applicable to it in

the performance of its duties.”) This is particularly true at this stage in the litigation where the

Court must “resolve all ambiguities in the contract in Plaintiffs' favor.” Yazurlo v. Bd. of Educ.

of City of Yonkers, No. 17 Civ. 2017, 2018 WL 4572255, at *3 (S.D.N.Y. Sept. 24, 2018);

accord Eternity Glob. Master Fund Ltd. v. Morgan Guar. Tr. Co. of N.Y., 375 F.3d 168, 178 (2d

Cir. 2004) (“Unless for some reason an ambiguity must be construed against the plaintiff, a

claim predicated on a materially ambiguous contract term is not dismissible on the pleadings.”).

Finally, the Order holds that the Indenture Agreement permits the Indenture Trustee to

consent to the Separate Trustee pursuing this litigation under Section 5.13(b)(i), and cites in

support Wells Fargo II, which reached the same conclusion on NCUAB’s motion to supplement

its complaint against Wells Fargo. See generally Wells Fargo II, 2017 WL 3610511. HSBC

argues that the Order runs afoul of basic contract interpretation principles because the Indenture

Agreement does not permit the Indenture Trustee to relinquish all control over the litigation to

the Separate Trustee. The relevant clause (Section 5.13(b)(i)) states that “the rights, powers,

duties and obligations conferred or imposed upon such separate or co-trustee shall be conferred

or imposed upon and exercised or performed by the Indenture Trustee and such separate or co-

trustee jointly, as shall be provided in the appointing instrument.” The appointing instrument

here in turn provides that “the Separate Trustee shall assume any and all legal title, claims,

powers, rights, authorities, and duties of the Indenture Trustee . . . in connection with the”

claims in this action. As the Order found, interpreting this clause to bar the Indenture Trustee

and the Separate Trustee from acting separately, on the Indenture Trustee’s consent, would make

appointment of a Separate Trustee pointless. Such an interpretation would run afoul of basic

contract interpretation principles. See Marin v. Constitution Realty, LLC, 71 N.E.3d 530, 534

(2017) (“[A] contract should be read as a whole, ... and if possible it will be so interpreted as to

give effect to its general purpose.”) (internal citation omitted).* It is not clearly erroneous to

interpret the contract as permitting the Separate Trustee to pursue this litigation independently

from the Indenture Trustee upon the latter’s consent. See Wells Fargo II, 2017 WL 3610511, at

*16 (Finally, the Court agrees that the Trust Agreement’s joint-action requirement does not

preclude on its face an action taken by the Separate Trustee with the Indenture Trustee’ s

consent ... BNYM’s consent to the terms of the Separate Trustee Agreement evidences to the

Court BNYM’s belief that the terms outlined therein are ‘not inconsistent’ with the Indenture

Agreement’s provisions. At this stage, the Court credits that interpretation.”’).

IV. CONCLUSION

For the foregoing reasons, the Order granting leave to file a supplemental First Amended

Complaint and substitute Graeme W. Bush, the Separate Trustee, as Plaintiff for certain claims is

adopted. HSBC’s objection is OVERRULED, and the motion to vacate is DENIED. NCUAB’s

motion to submit a sur-reply is DENIED as moot.

The Clerk of Court is respectfully directed to close the motions at Docket Nos. 379 and

384.

Dated: January 8, 2020

New York, New York «

LORNA G. SCHOFIEL

UNITED STATES DISTRICT JUDGE

* The Indenture Agreement provides that it is governed by New York law. Federal courts sitting

in diversity generally apply the choice-of-law rules of the forum state, see Klaxon Co. v. Stentor

Electric Mfg. Co., 313 U.S. 487, 496 (1941); accord Christian v. TransPerfect Global, Inc., 17

Civ. 5554, 2018 WL 4571674, at *4 (S.D.N.Y. Sept. 24, 2018), and “New York law gives full

effect to the parties’ choice-of-law provisions.” Dins v. Nationstar Mortgage, LLC, No. 16 Civ.

2943, 2017 WL 570941, at *3 (S.D.N.Y. Feb. 13, 2017) (quoting Krock v. Lipsay, 97 F.3d 640,

645 (2d Cir. 1996)).

16