quinn emanuel urquhart & sullivan, llp quinn...

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Case No. 11-CV-10549-MRP (MANx)MEMORANDUM OF POINTS AND AUTHORITIES IN FURTHER OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

James R. Asperger (SBN 83188) [email protected] QUINN EMANUEL URQUHART & SULLIVAN, LLP 865 South Figueroa Street, 10th Floor Los Angeles, CA 90017 Tel: 213-443-3000 Fax: 213-443-3100 Michael B. Carlinsky [email protected] Maria Ginzburg [email protected] QUINN EMANUEL URQUHART & SULLIVAN, LLP 51 Madison Avenue, 22nd Floor New York, NY 10010 Tel: 212-849-7000 Fax: 212-849-7100 Attorneys for All Plaintiffs

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

In re COUNTRYWIDE FINANCIAL CORP. MORTGAGE-BACKED SECURITIES LITIGATION AMERICAN INTERNATIONAL GROUP, INC., et al.,

Plaintiffs,

v. BANK OF AMERICA CORPORATION, et al.,

Defendants.

Case No. 11-ML-02265-MRP (MANx) Case No. 11-CV-10549-MRP (MANx) MEMORANDUM OF POINTS AND AUTHORITIES IN FURTHER OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS Date: April 4, 2013 Time: 11:00 a.m. Courtroom: 12 Judge: Hon. Mariana R. Pfaelzer

Case 2:11-cv-10549-MRP-MAN Document 254 Filed 03/28/13 of 45 Page ID #:16545

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TABLE OF CONTENTS

Page

INTRODUCTION ........................................................................................................... 1

ARGUMENT ................................................................................................................... 7

I. THE LEGAL FRAMEWORK .............................................................................. 7

II. EXTRINSIC EVIDENCE DEMONSTRATES THAT THE APA DID NOT TRANSFER AIG’S TORT CLAIMS ........................................................ 11

A. Testimonial Evidence Demonstrates That The Parties Did Not Intend To Transfer Tort Claims ................................................................ 11

1. AIG Witnesses ................................................................................ 12

2. FRBNY Witnesses .......................................................................... 14

3. Testimony Concerning “Related Instruments” ............................... 17

B. Evidence Of The Parties’ Purpose Demonstrates That The APA Did Not Transfer AIG’s Tort Claims ............................................................... 19

C. Documentary Evidence Demonstrates That The Parties Did Not Intend to Transfer Tort Claims .................................................................. 21

1. Term Sheet And Board Authorizations .......................................... 21

2. Drafting History Of The APA ........................................................ 24

3. Valuation Of The RMBS ................................................................ 25

4. Disclosures To Regulators, Rating Agencies, And The Public ...... 26

5. U.C.C. Statements ........................................................................... 28

6. Press Releases ................................................................................. 29

7. The ML III Transaction .................................................................. 29

D. The Parties’ Post-Closing Conduct Confirms That The APA Did Not Assign Tort Claims ............................................................................ 31

1. AIG Preserved And Pursued The Tort Claims ............................... 32

2. ML II Did Not Object To AIG’s Assertion Of The Tort Claims ............................................................................................. 32

3. ML II Did Not Preserve Or Pursue The Tort Claims, And Instead Asserted Contract Claims ................................................... 34


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4. ML II Confirmed AIG’s Ownership Of The Tort Claims In March 2012 ..................................................................................... 37

5. ML II’s Purported Release Of The Tort Claims In July 2012 ........ 38

CONCLUSION .............................................................................................................. 40


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TABLE OF AUTHORITIES

Page

Cases

Banque Arabe et Internationale D’Investissement v. Maryland Nat’l Bank, 57 F.3d 146 (2d Cir. 1995) ............................................................................. 1, 11, 19

Brooklyn Life Ins. Co. v. Dutcher, 95 U.S. (5 Otto) 269 (1877) ...................................................................................... 31

CDR Creances S.A.S. v. Cohen, 2008 WL 2078673 (N.Y. Sup. Ct. N.Y. Cnty. May 9, 2008) .................................. 11

City of N.Y. v. N.Y.C. Railway Co., 193 N.Y. 543 (1908) ................................................................................................. 31

Compagnia Importazioni Esportazioni Rappresentanze v. L-3 Commc’ns Corp., 703 F. Supp. 2d 296 (S.D.N.Y. 2010) ...................................................................... 30

Con. Edison, Inc. v. N.E. Utilities, 332 F. Supp. 2d 639 (S.D.N.Y. 2004) ...................................................................... 25

Consedine v. Portville Central School District, 12 N.Y.3d 286 (2009) ............................................................................................... 10

Faulkner v. Nat’l Geographic Soc., 452 F. Supp. 2d 369 (S.D.N.Y. 2006) ........................................................................ 8

Fed. Ins. Co. v. Ams. Ins. Co., 258 A.D.2d 39 (1st Dep’t 1999) ............................................................................... 31

Fox v. Hirschfeld, 157 A.D. 364 (1st Dep’t 1913) ................................................................................. 11

The Fund of Funds, Ltd. v. King, 1976 WL 799 (S.D.N.Y. Jun. 29, 1976) ................................................................... 11

Hollywood Foreign Press Ass’n v. Red Zone Capital Partners II, 870 F. Supp. 2d 881 (C.D. Cal. 2012) ........................................................................ 8

IBJ Schroder Bank & Trust Co. v. Resolution Trust Corp., 26 F.3d 370 (2d Cir. 1994) ....................................................................................... 31

Matter of Johnson City Professionall Firefighters Local 921, 18 N.Y.3d 32 (2011) ................................................................................................. 10

Klos v. Lotnicze, 133 F.3d 164 (2d Cir. 1997) ................................................................................. 8, 17

In re Laminated Veneers Co., Inc., 471 F.2d 1124 (2d Cir. 1973) ................................................................................... 29


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In re Med. Capital Sec. Litig., 2011 WL 5067208 (C.D. Cal. Jul. 26, 2011) ..................................................... 31–32

Mobius Mgmt. Sys. Inc. v. Fourth Dimension, 880 F. Supp. 1005 (S.D.N.Y. 1994) ........................................................................... 8

NML Capital v. Republic of Argentina, 17 N.Y.3d 250, 260 (2011) ......................................................................................... 9

Nycal Corp. v. Inoco PLC, 988 F. Supp. 296 (S.D.N.Y. 1997) ............................................................................. 8

Pro Bono Invs., Inc. v. Gerry, 2008 WL 4755760 (S.D.N.Y. Oct. 29, 2008) ........................................................... 11

Royal Mortg. Corp. v. Fed. Deposit Ins. Corp., 20 F. Supp. 2d 664 (S.D.N.Y. 1998) ........................................................................ 11

Stetson v. Pfaltzgraff Co., Inc., 1991 WL 275648 (S.D.N.Y. Dec. 18, 1991) .............................................................. 8

Stewardship Credit Arbitrage Fund LLC v. Charles Zucker Culture Pearl Corp., 31 Misc. 3d 1223(A), (N.Y. Sup. Ct. N.Y. Cnty. May 4, 2011) .............................. 11

Tarantola v. Williams, 48 A.D.2d 552 (2d Dep’t 1975) ................................................................................ 25

Waverly Corp. v. City of New York, 48 A.D.3d 261 (1st Dep’t 2006) ............................................................................... 31

Websters Red Seal Publ’ns Inc. v. Gilberton World-wide Publ’ns Inc., 67 A.D.2d 339 (1st Dep’t 1979) ............................................................................... 31

Wilson Sullivan Co. v. Int’l Paper Makers Realty Corp., 307 N.Y. 20 (1954) ..................................................................................................... 9

Statutes

N.Y. U.C.C. § 9-108(e) .................................................................................................. 28


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-1- Case No. 11-CV-10549-MRP (MANx)MEMORANDUM OF POINTS AND AUTHORITIES IN FURTHER OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS

INTRODUCTION

In its order of January 30, 2013, the Court acknowledged that, under controlling

New York law, “an assignment does not transfer tort claims unless the assigning

contract does so explicitly.”1 The Court then found the sole provision of the Asset

Purchase Agreement (the “APA”) that Bank of America (“BoA”) claims to be an

assignment of AIG’s tort claims—the provision assigning to Maiden Lane II LLC

(“ML II”) all of AIG’s “right, title and interest in the Related Instruments”2—was

“ambiguous.” January 30 Order, at *2. The Court therefore concluded that it was

required to “refer to extrinsic evidence to determine the intent of the parties [to the

APA].” Id. (internal quotation marks omitted). It directed AIG and BoA to engage in

limited discovery of the extrinsic evidence, including evidence of the “‘circumstances

surrounding’ the execution of the [APA and] ‘the purpose of the parties in making the

contract.’”3 Id. (citations omitted). With that discovery now completed, the parties’

intent is crystal clear: They never agreed to transfer AIG’s tort claims to ML II, no

such assignment was intended in the APA, and that is not what the “Related

Instruments” definition was meant to achieve.

The discovery included depositions of the primary lawyer and businessperson

who negotiated the APA on behalf of AIG and the two primary business negotiators

for the Federal Reserve Bank of New York (the “FRBNY”), which created and has at

all times controlled ML II. As detailed below, the testimony of these witnesses 1 See Order Re: Discovery as to Standing, Am. Int’l Grp. v. Bank of Am., No. 11-cv-10549, ECF No. 208, at *1 (C.D. Cal. Jan. 30, 2013) (“January 30 Order”) (citing Banque Arabe et Internationale D’Investissement v. Maryland Nat’l Bank, 57 F.3d 146, 151–52 (2d Cir. 1995)). 2 See APA § 7.01 (Declaration of James R. Asperger (“Asperger Decl.”), Ex. A). Defendants concede that the general assignment language transferring “all rights, title and interest” in residential mortgage-backed securities (“RMBS”) does not transfer fraud claims. BoA’s Reply Br., Am. Int’l Grp. v. Bank of Am., No. 11-cv-10549, ECF No. 188, at 4 (C.D. Cal. Jan. 30, 2013) (if the APA provided that AIG was transferring to ML II “all right, title and interest in securities . . . [the] transfer would not have effected an assignment of the claims”). 3 For the avoidance of doubt, AIG reaffirms and incorporates its previously-stated objections to the Court’s denial of AIG’s motion to stay determination of the assignment issue and the Court-ordered limitations on discovery regarding whether an assignment of AIG’s tort claims was intended in the APA.


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unequivocally establishes that an assignment of AIG’s tort claims was never even

discussed by the parties, much less agreed upon.

Christopher Swift, AIG’s lead negotiator, testified: We did not negotiate it; we did not intend to transfer it. And we were working, you know, collaboratively with the Fed and we talked about everything that was significant, we had a transparent discussion, they had their interest, we had ours. But this [the transfer of tort claims] was never, ever discussed.

Q. Did AIG . . . intend to assign its fraud claims to ML II? A. No. Q. What did AIG believe it was selling and intend to sell to ML II? A. The underlying securities.4

Edward Holmes, AIG’s lead lawyer, testified: To the extent you are asking me . . . about rights associated with AIG’s losses at the time AIG owned the securities, and that were—arose as a result of communications relating to the securities in connection with AIG buying them, those claims . . . we never, ever discussed transferring those.

It was my understanding throughout the process that we were transferring title to the securities, and the other ancillary rights that went with the securities, which meant voting rights, the right to enforce documents, the right to receive principal and interest; the types of claims that an owner of the documents or an owner of the securities would have.5

On the other side, Steven Manzari, a Senior Vice President at the FRBNY who

led the team that negotiated the ML II transaction and acknowledged that he “certainly

understood what the terms of the transaction were,”6 testified that he did not recall

“any discussion leading up to the execution of the Maiden Lane II documents about

AIG somehow giving up its rights to try to seek any recovery from anyone for the loss

of the $17 billion” AIG sustained on the RMBS sold to ML II. Id. 99:15–20.

Similarly, James Mahoney, described by himself and Mr. Manzari as the “business

lead,” id. 106:12, for the FRBNY on the ML II transaction, was asked if he could

recall “discussing with AIG the idea of potentially assigning away fraud claims that 4 Deposition Testimony of Christopher J. Swift at 86:19–24, 127:14–21 (Mar. 21, 2013) (“Swift Dep.”) (Asperger Decl., Ex. B) (emphasis added). 5 Deposition Testimony of R. Edward Holmes, Jr. at 57:19–58:3, 59:16–24 (Mar. 19, 2013) (“Holmes Dep.”) (Asperger Decl., Ex. C). 6 Deposition Testimony of Steven Manzari 110:4–8 (Mar. 15, 2013) (“Manzari Dep.”) (Asperger Decl., Ex. D).


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AIG may have had in connection with its purchase of those RMBS securities.”7 His

answer: “No, I do not.” Id. 80:23. Nor could he identify anyone else from the

FRBNY who had done so. Id. 80:24–81:8.

Mr. Mahoney, who submitted a December 19, 2012 Declaration in support of

BoA’s Reply Brief, also retreated from his original position in that Declaration—so

much so that it should be disregarded. Specifically, in his Declaration, Mr. Mahoney

asserted that “[t]he FRBNY and ML II intended for ML II to receive all transferrable

and assignable benefits associated with the securities and Related Instruments,

including litigation claims associated with those securities or their acquisition by

AIG.”8 But in his March 18 deposition, he backpedaled, admitting that when the APA

was negotiated, he and the FRBNY were utterly “unaware of any actual [fraud or tort]

claims that may have existed,” Mahoney Dep. 65:10–19 (Asperger Decl., Ex. E), and

he was not “even thinking about the concept that AIG may have had tort claims,” id.

133:10–15. He never discussed with anyone at the FRBNY, ML II, or AIG the idea

that “AIG was somehow giving up its [tort] claims” by reference to “Related

Instruments,” id. 124:3–25, admitting that he never thought “wow, that’s got a lot of

value there and we want that transferred to us,” id. 134:5–8.

Mr. Mahoney also conceded that he did not even conceive that tort claims had

somehow transferred to ML II until an FRBNY attorney suggested that to him in a

draft declaration that the attorney prepared in 2012. Id. 84:10–20. He testified that

he had only a general objective in 2008 to secure all assignable benefits associated

with the RMBS AIG sold. Id. 82:4–10. Moreover, he conceded that he never

discussed that purported objective with his business counterparts at AIG during the

APA negotiations, nor could he identify any other means by which that purported

general intent was made known to AIG. Id. 80:18–23, 82:18–21, 85:7–13, 124:3–12,

7 Deposition Testimony of James M. Mahoney 61:2, 80:18–22 (March 18, 2013) (“Mahoney Dep.”) (Asperger Decl., Ex. E). 8 See Decl. of Richard St. John, Ex. 2, BoA Reply Br. No. 11-cv-10549, ECF No. 191 (C.D. Cal. Dec. 21, 2012) (“Mahoney Decl.”) (emphasis added).


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228:2–20. In fact, he never even discussed it with his colleagues at the FRBNY. Id.

80:24–81:8. His purported personal intent thus could not possibly have been the basis

of any agreement, much less an explicit agreement, as required by New York law, to

transfer tort claims.

Critically, and not surprisingly in light of his admissions, Mr. Mahoney made no

claim that his personal intent to acquire for ML II “benefits” beyond the RMBS

themselves was effectuated anywhere in the APA. Asked whether the “Related

Instruments” provision was meant to transfer AIG’s tort claims, Mr. Mahoney

answered: In 2008 . . . I certainly don’t recall, tying the language in this definition [of Related Instruments] with the transfer of those types of rights, litigation rights or tort rights . . . [W]hen I read this, the “Related Instruments” definition, I doubt very much at the time I was thinking, Oh, that’s where we’re going to get these nonstandard rights transferred to us.

Id. 160:5–161:1 (emphasis added). Asked whether he understood “any other

provision of the APA” to assign AIG’s tort claims to ML II, Mr. Mahoney answered

simply “No.” Id. 161:3–10. Asked to explain his understanding of the “Related

Instruments” definition, Mr. Mahoney testified that “[f]rom a business perspective

reading this [i.e., the Related Instruments definition], you would think that this would

include the legal documentation and the governance supporting that is being

transferred in the purchase of these assets over to Maiden Lane II.” Id. 159:7–12.

That testimony, of course, perfectly confirms AIG’s long-expressed position that

“Related Instruments” was intended merely to transfer the underlying documentation

and ancillary contractual rights.9 It confirms, in other words, that the transfer of

AIG’s interest in the “Related Instruments” was not, as BoA contends, a “something

more” transfer of AIG’s tort claims.

9 See AIG Opp. to Mot. to Dismiss at 14–15, Am. Int’l Grp. v. Bank of Am., 11-cv-10549, ECF No. 177 (C.D. Cal. Nov. 27, 2012) (“AIG Opp.”); see also Swift Dep. 80:2–81:10 (Asperger Decl., Ex. B) (“the word ‘fraud’ is not mentioned in this paragraph . . . I interpreted [‘Related Instruments’] to mean the activities, the documents, the stuff that goes with servicing mortgages.”).


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The witnesses most knowledgeable about the APA thus agree that the APA did

not transfer AIG’s tort claims, and none of the parties to the APA contend otherwise.

Just three weeks ago, in fact, the FRBNY issued a press release in which it expressly

stated that the assertion in Mr. Mahoney’s Declaration that the FRBNY intended for

ML II to obtain all transferable rights and benefits associated with the RMBS it

acquired from AIG “did not purport to settle the question of who actually owns [AIG’s

tort] claims, which is a matter for the courts.”10 Tellingly, the FRBNY did not

contend that it owns the tort claims at issue. BoA, a stranger to the APA, is thus left

alone in self-interestedly urging an interpretation of the APA that none of the parties to

the contract has endorsed.

The evidence regarding the surrounding circumstances and purpose for the ML

II transaction similarly provides no support for BoA’s lonely position. That evidence

makes clear that: (1) the ML II transaction was a direct response to the 2008 financial

crisis that imperiled AIG and numerous other financial institutions, threatening the

stability of the United States economy, and (2) its purpose was to be part of a package

of additional federal government assistance to provide AIG with a more viable capital

structure following the $85 billion credit facility provided to AIG in September 2008.

Neither the FRBNY nor ML II was seeking any profit. See Mahoney Dep. 120:24–25

(Asperger Decl., Ex. E) (“[W]e did not have a profit motive in entering into Maiden

Lane II.”). Moreover, at all times the FRBNY and its advisers concluded that the

RMBS alone was sufficient to assure that the FRBNY’s loan would be fully repaid,

even in a severe stress scenario. Thus, nothing about the circumstances or the purpose

behind the ML II transaction necessitated an assignment of AIG’s tort claims to ML II

or suggests that such an assignment took place. 10 Statement, FRBNY, Statement Regarding Recent Maiden Lane II Litigation Matters (March 1, 2013) (Asperger Decl., Ex. F). The assertion that the FRBNY commented on in this press release was the one contained in its settlement agreement with BoA, which, as the Court is aware from prior filings in this case, is substantively identical to the assertion in Mr. Mahoney’s Declaration. See Opp. to Ex Parte Application to Expedite Review of Mot. for Limited Stay, Exhibit 1 at 4, Am. Int’l Grp. v. Bank of Am., No. 11-cv-10549, ECF No. 235 (C.D. Cal. Feb. 28, 2013) (the July 2012 “Settlement Agreement”).


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The remainder of the evidence further confirms that the parties did not agree to

assign AIG’s tort claims to ML II. BoA’s memorandum will not identify a single

document that so much as references the possibility of such an assignment because no

such document exists among the tens of thousands of pages produced by AIG and the

FRBNY. From beginning to end, the documents are to the contrary. The term sheet

stating the material terms of the transaction makes no reference to tort claims or

“Related Instruments.” The memoranda upon which the parties’ respective boards

based their approval of those terms makes no reference to an assignment of tort claims.

The voluminous analyses by which the parties determined the price ML II paid for the

RMBS neither reference nor attempt to value AIG’s tort claims. The presentations the

parties prepared to explain the ML II transaction to rating agencies and regulators

make no mention of an assignment of tort claims. The press releases the FRBNY

issued before and after the closing of the ML II transaction make no reference to ML

II’s acquisition of tort claims. The closing documents for the ML II transaction do not

include any UCC-1 financing statement for AIG’s tort claims—an important fact

further evidencing that the FRBNY did not intend to acquire tort claims because it

would have been required to file such statements to perfect any security interest in

those claims. Because AIG’s tort claims implicate $18 billion of loss—an amount

roughly equal to the value of the RMBS that AIG sold to ML II—an assignment of

such claims to ML II would have been material to the transaction, and it is

inconceivable that it would not have been specifically discussed in any document

created during the negotiation and approval of the transaction if in fact either party

intended at the time that the claims be transferred.

Finally, the evidence of the parties’ behavior over the four years following the

execution of their contract—often regarded as the best extrinsic evidence of

contractual intent, see infra Section II.D—confirms beyond doubt that no assignment

of AIG’s tort claims was intended. AIG, following an intensive investigation of its

claims, authorized the filing of a highly-publicized lawsuit seeking $10 billion in


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damages, including billions with respect to RMBS sold to ML II. The FRBNY, on the

other hand, made no effort whatsoever to investigate or develop tort claims and, even

more tellingly, when AIG filed this widely-publicized lawsuit, the FRBNY lodged no

objection whatsoever. To the contrary, after reviewing AIG’s complaint, the

FRBNY’s General Counsel wrote to AIG demanding that AIG confirm that “consistent

with the plain meaning of the Asset Purchase Agreement,” AIG was not asserting “any

claim for breach of [] contract” against BoA. See infra Section II.D.2, pp. 32–34. In

the correspondence that ensued, AIG acknowledged that ML II owned any contract

claims relating to the RMBS but reminded the FRBNY that nothing in the APA

“precludes AIG from asserting tort or securities law claims arising from

misrepresentations or omissions made in connection with AIG’s purchase of any

RMBS certificates.” Id. The FRBNY took no issue with AIG’s position and, in the

many months that followed, the FRBNY maintained that stance: it actively pursued

various contract claims while allowing AIG to pursue its tort claims completely

unimpeded. It would have been illogical for the FRBNY to have allowed billions of

dollars in tort claims to go not merely unasserted but unexplored if the FRBNY

understood itself to own those claims. It plainly did not. Indeed, to this very day, the

FRBNY has never asserted ownership of AIG’s tort claims, as the above-referenced

press release makes clear.

In short, the extrinsic evidence definitively establishes that there was no

assignment of AIG’s tort claims. Accordingly, BoA’s Motion To Dismiss AIG’s tort

claims for lack of standing must be denied with prejudice.

ARGUMENT I. THE LEGAL FRAMEWORK

Three fundamental legal principles govern resolution of the sole issue before

this Court: whether the parties agreed to transfer AIG’s RMBS tort claims to ML II

through the assignment of “all right, title and interest in . . . Related Instruments.” See

APA § 7.01 (Asperger Decl., Ex. A). Under these principles, clearly they did not.


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First, in determining whether the parties intended to assign the tort claims, “it is

the objective intent of the parties that controls. The secret or subjective intent of the

parties is irrelevant.” Klos v. Lotnicze, 133 F.3d 164, 168 (2d Cir. 1997) (emphasis

added, internal citation omitted); see Faulkner v. Nat’l Geographic Soc., 452 F. Supp.

2d 369, 377–78 (S.D.N.Y. 2006) (“[O]nly objective manifestations of intent are

relevant under New York law . . . . [S]tatements of subjective intention

uncommunicated to the other contracting party are immaterial in construing the terms

of the contract.”) (emphasis added, internal citation omitted).11

This principle of blackletter law means that Mr. Mahoney’s Declaration and

testimony that the FRBNY intended to secure all “litigation claims,” including AIG’s

tort claims, for ML II are completely immaterial. As demonstrated below, Mr.

Mahoney admitted that he never communicated that purported desire to anyone at the

FRBNY, ML II, or, most damagingly for BoA, AIG; nor is there any other testimonial

or documentary evidence that the parties intended to, or discussed that they would,

assign AIG’s tort claims to ML II. Since Mr. Mahoney’s testimony reveals that his

Declaration was based on an uncommunicated intent—an inchoate desire to secure

“benefits” that resided purely in his head—his Declaration should be stricken and/or

disregarded altogether as only communicated intent may serve as extrinsic evidence to

aid in the interpretation of a contract. See Hollywood Foreign Press Ass’n v. Red

Zone Capital Partners II, 870 F. Supp. 2d 881, 917 (C.D. Cal. 2012) (statements

during negotiations and communicated intent admissible; undisclosed intent or

understanding not relevant); see also Nycal Corp. v. Inoco PLC, 988 F. Supp. 296,

301–02 (S.D.N.Y. 1997) (only “objective manifestations of the parties’ intent” can be

“germane testimonial evidence”).

11 See also Mobius Mgmt. Sys. Inc. v. Fourth Dimension, 880 F. Supp. 1005, 1018 (S.D.N.Y. 1994) (“[a] party’s actual or secret intent is immaterial to the formation of a contract”); Stetson v. Pfaltzgraff Co., Inc., 1991 WL 275648, at *9 (S.D.N.Y. Dec. 18, 1991) (defendant’s belief about meaning of agreement immaterial where the issue was never discussed, and thus plaintiff “would have no way of knowing” of defendant’s belief).


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Second, under the controlling law, this Court may not read into a contract or

imply the imposition of an obligation the parties never discussed or negotiated. See

NML Capital v. Republic of Argentina, 17 N.Y.3d 250, 260 (2011) (“It is the role of

the courts to enforce the agreement made by the parties—not to add, excise or distort

the meaning of the terms they chose to include, thereby creating a new contract under

the guise of interpretation.”); see infra Section II.A. As New York courts have

recognized, where “no such term expressly appears, it cannot be supplied by the courts

under the guise of construction or interpretation, their power being limited to giving

effect only to the parties’ expressed intent.” Wilson Sullivan Co. v. Int’l Paper

Makers Realty Corp., 307 N.Y. 20, 25 (1954) (emphasis in original). This principle is

especially critical where, as here, New York law demands explicit language assigning

tort claims yet the APA is admittedly silent. That means that the Court may not

interpret “Related Instruments” to assign AIG’s tort claims when the objective

evidence conclusively shows that the parties never contemplated, discussed, or

negotiated such an assignment, nor made any reference to such an assignment in any of

the documents related to, or securing, the ML II transaction. At the time of the APA,

Mr. Mahoney himself did not believe or understand the “Related Instruments”

provision as having anything to do with the assignment of AIG’s tort claims. See

Mahoney Dep. 159:17–160:9, 160:22–161:10 (Asperger Decl., Ex. E). And Mr.

Manzari had no such intent or understanding. See Manzari Dep. 232:6–10 (Asperger

Decl., Ex. D). Thus, neither of the FRBNY’s negotiators (nor the AIG witnesses)

understood or intended the “Related Instruments” provision to supply the “something

more” that BoA’s entire Motion rests upon.

Finally, although the extrinsic evidence establishes conclusively that the APA

does not transfer tort claims, even if there were any remaining “ambiguity” or doubt

(which there is not), New York law requires the Court to hold as a matter of law that

no transfer occurred. The requirement of an explicit transfer of legal rights under

New York law, see January 30 Order, at *2, is rooted in sound public policy. It


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ensures that victims of fraud and other torts will not be denied their ability to seek

redress without conclusive proof that they have unequivocally given up their right to

do so. See AIG Opp. at 10.

Given these principles of law and policy, the Court’s finding that the APA’s

contractual language is ambiguous should be dispositive. ”Ambiguity,” in other

words, necessarily means the APA is not sufficiently explicit to satisfy the law

requiring an explicit transfer of rights. That conclusion becomes even more

compelling if the Court concludes that the evidence does not resolve this ambiguity.

Two New York Court of Appeals cases illustrate these principles. In the first,

Matter of Johnson City Professional Firefighters Local 921, 18 N.Y.3d 32 (2011), the

court found no waiver of a municipality’s rights to terminate firefighters at will based

solely on ambiguity in the contractual language failing to conclusively establish the

express waiver of such discretion. In the second, Consedine v. Portville Central

School District, 12 N.Y.3d 286 (2009), the court reached the same result based on

ambiguity in both the contractual language and testimonial evidence, neither of which

explicitly conveyed the school district’s intent to abandon its discretion to terminate a

probationary employee at will. In both cases, the legal requirement of an explicit

waiver of rights, combined with the underlying public policy interest in preserving

legal rights that are not explicitly abandoned, required the conclusion that no waiver of

rights occurred.

The reasoning of these cases, which are based on principles similar to those

underlying the requirement of explicit waiver of tort claims, applies with equal force

here—either because the APA’s language is considered insufficiently explicit to

convey a transfer of rights under New York law, as in Matter of Johnson, or because

the contractual language and extrinsic evidence combined fail to convey the requisite

express intent, as in Consedine. In either circumstance, lingering “ambiguity” as to

the parties’ intent to effect a transfer of rights compels the conclusion that they have

not. To hold otherwise would run against the great weight of precedent denying


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assignments of rights in the absence of explicit intent. Moreover, AIG has not found a

single case in which a third-party stranger to a contract was able successfully to argue

that the contract effected an assignment of one of the parties’ claims when that party

contended otherwise. 12 Such a decision would be especially remarkable and

unjustified in these circumstances, where the party alleged to have assigned the claims

at issue denies doing so, and the party alleged to have received the assignment does not

contend otherwise.13

In short, separately or together, the legal principles governing the interpretation

of the APA mandate denial of BoA’s Motion. II. EXTRINSIC EVIDENCE DEMONSTRATES THAT THE APA DID NOT

TRANSFER AIG’S TORT CLAIMS

All of the extrinsic evidence—including witness testimony from those most

knowledgeable about the ML II transaction, documents relating to the transaction, and

the pre- and post-contractual conduct of AIG and the FRBNY confirms that the parties

never considered or discussed a transfer of tort claims. A. Testimonial Evidence Demonstrates That The Parties Did Not Intend

To Transfer Tort Claims

All four witnesses deposed in discovery confirmed that a transfer of tort claims

was never once discussed between or among the parties or their advisers during the

two-month period in which the ML II transaction was negotiated.14 The FRBNY

witnesses, moreover, confirmed AIG’s position that the APA did not include an 12 See, e.g., Banque Arabe, 57 F.3d at 151–53 (assignor and assignee agreed that the claims were assigned); Pro Bono Invs., Inc. v. Gerry, 2008 WL 4755760, at *18 (S.D.N.Y. Oct. 29, 2008) (same); Stewardship Credit Arbitrage Fund LLC v. Charles Zucker Culture Pearl Corp., 31 Misc. 3d 1223(A), at *2 (N.Y. Sup. Ct. N.Y. Cnty. May 4, 2011) (same); Fox v. Hirschfeld, 157 A.D. 364, 368 (1st Dep’t 1913) (assignor argued that he did not assign the claims and the court agreed); Royal Mortg. Corp. v. Fed. Deposit Ins. Corp., 20 F. Supp. 2d 664, 668–70 (S.D.N.Y. 1998) (same); CDR Creances S.A.S. v. Cohen, 2008 WL 2078673 (N.Y. Sup. Ct. N.Y. Cnty. May 9, 2008) (same); The Fund of Funds, Ltd. v. King, 1976 WL 799, at *2 (S.D.N.Y. Jun. 29, 1976) (same). 13 See the FRBNY’s March 1, 2013 Press Release, supra p. 5 n.10 (the Settlement Agreement between ML II and Countrywide “did not purport to settle the question of who actually owns the claims, which is a matter for the courts. . .”). 14 Internal FRBNY E-mail Regarding Updated Briefing Document on ML II (Oct. 2, 2008) (Asperger Decl., Ex. G) (reflecting early stage discussions on October 2, 2008); Asperger Decl., Ex. A (final APA dated December 12, 2008).


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assignment of the tort claims.15 1. AIG Witnesses

Christopher Swift: Mr. Swift was the CFO of AIG’s Life and Retirement

Services business unit and AIG’s principal businessperson in negotiating the ML II

transaction.16 Swift Dep. 10:3–5, 74:12–21, 35:19–21 (Asperger Decl., Ex. B) (“I

was, I would say, the principal business person quarterback to find the solution.”). He

testified unambiguously that neither he nor anyone else at AIG had any intent to

transfer tort claims, id. 86:15–21, and that such claims were “absolutely not”

transferred, id. 86:4–14, 127:4–10, nor was a transfer ever discussed: We did not negotiate it; we did not intend to transfer it. And we were working, you know, collaboratively with the Fed and we talked about everything that was significant, we had a transparent discussion, they had their interest, we had ours. But this [the transfer of tort claims] was never, ever discussed.

Id. 127:14–21 (emphasis added); see also id. 81:16–84:9 (Swift interacted with James

Mahoney daily, but “never talked to [Mahoney] about litigation claims” or “claims . . .

of any type[]”); id. 75:11–15, 84:10–19 (Swift interacted with Steven Manzari several

times a week but never discussed tort claims or the FRBNY’s intent to acquire them).

Certainly, the parties “did not negotiate a transfer price o[r] terms and conditions for

transferring fraud claims.” Id. 77:8–12. In short, nobody at the FRBNY or its

advisers ever indicated a desire to acquire the tort claims. Id. 84:20–85:4.

Mr. Swift made clear that had the transaction included a transfer of tort claims,

he would have expected that fact to have been disclosed not only within AIG and in

the APA, but also in presentations to AIG’s Board of Directors and insurance

regulators: • Mr. Swift would have disclosed a transfer of tort claims to the Finance

Committee of AIG’s Board of Directors (the Committee designated to 15 In addition to the testimony cited below, AIG has prepared appendices containing other probative testimony from the witnesses’ depositions. These are attached to this brief as Exhibits 1 (Swift), 2 (Holmes), 3 (Manzari), and 4 (Mahoney). 16 Mr. Swift now serves as Executive Vice President and Chief Financial Officer of The Hartford. See http://www.thehartford.com/management-team/biography/chris-swift (last visited March 28, 2013).


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address the ML II transaction, id. 104:7–12) because it would have been “a significant deal point and an item that people would have and should have known that we were giving up,” id. 106:20–23. But when presenting the ML II transaction, he never mentioned the transfer of tort claims because “it wasn’t a deal point.” Id. 106:12–13. Indeed, a memorandum Mr. Swift and then-AIG CFO David Herzog submitted to the Finance Committee detailing the terms of the ML II transaction stated explicitly that: “The RMBS will be the only assets of the [ML II] LLC.” See Executive Summary: Domestic Securities Lending RMBS Transaction—Maiden Lane II (Dec. 3, 2008), Finance Committee Materials, at 2323–24 (Asperger Decl., Ex. H).

• Mr. Swift was responsible for communications with AIG’s state insurance regulators, id. 99:13–18, and would have disclosed a transfer of tort claims to the regulators because “it would have just been a significant part of the overall transaction we would have talked about.” Id. 102:11–23. Yet, as discussed more fully below, infra at p. 27, there was no mention of such claims.

The omission of any reference to tort claims in these communications speaks volumes,

demonstrating that the parties never transferred AIG’s tort claims to ML II.

Edward Holmes: As the “lead internal counsel representing AIG” on the ML II

transaction, in which capacity he oversaw AIG’s internal and external counsel,

conferred with AIG business people, and interacted with the FRBNY and its advisers,

Mr. Holmes testified similarly. Holmes Dep. 27:18–28:8 (Asperger Decl., Ex. C).

He participated directly in reviewing drafts of the term sheet and the APA. He

testified unambiguously: “[m]y initial reaction and my reaction now are the same,

which is that those claims were never transferred.” Id. 149:6–150:3. Asked by

counsel for BoA to recall “any discussion with anyone about whether AIG would be

transferring legal claims that can be asserted in a lawsuit to Maiden Lane II as part of

the transaction,” Mr. Holmes answered: “To the extent you are asking me . . . about

rights associated with AIG’s losses at the time AIG owned the securities, and that . . .

arose as a result of communications relating to the securities in connection with AIG

buying them, those claims . . . we never, ever discussed transferring those.” Id.

58:23–59:24 (emphasis added).

Importantly, during the APA negotiations, Mr. Holmes “knew from work I [had]

done . . . that to transfer tort claims, they have to be specifically addressed. And there


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are types of form documents out there that specifically addressed transferring tort

claims. We had specific experiences where we [had] done that . . . .” Id. 71:9–72:11.

Thus, Mr. Holmes stated, “[i]f somebody had asked me . . . are the tort claims

transferring as part of this deal? I would have told them no.” Id. 74:18–75:6; see

also id. 143:15–24, 145:9.

In light of his prior experiences with transfers of tort claims, Mr. Holmes said he

would not have permitted AIG to sign the APA without specific discussion of the

nature of that transfer and AIG’s resulting obligations. See id. 71:9–72:11. In prior

transactions, the purchaser of AIG’s tort claims had later demanded productions of

documents and witnesses from AIG, in order to support the purchaser’s assertion of the

claims in litigation. Id. 71:15–72:11. Compliance with these demands was costly

and burdensome for AIG, which was “not getting any of the value” of the litigation but

was nonetheless powerless to “stop the other party from continuing to pursue [it].” Id.

144:7–145:2; id. 157:17–158:12. Consequently, had the FRBNY requested a transfer

of AIG’s tort claims in connection with the ML II transaction, Mr. Holmes would have

insisted on limitations to the scope of AIG’s ensuing obligations.17 He never did that

because an assignment of tort claims was never part of the deal. 2. FRBNY Witnesses

Far from contradicting any of the foregoing testimony, the FRBNY’s witnesses

confirmed, unambiguously, that they never discussed with anyone a transfer of AIG’s

tort claims and that, indeed, they did not believe the claims were transferred through

the APA’s reference to “Related Instruments.”

Steven Manzari: Mr. Manzari is a Senior Vice President at the FRBNY. He

was the “number two” on the FRBNY’s AIG relationship team starting in September

2008 and, in that role, was involved in creating the ML II transaction. Manzari Dep.

17 See id. 71:9–72:11 (“We would have needed to talk about price, enforcement, . . . [and] how we stop it whenever . . . it’s getting out of hand for us . . . .”); id. 149:6–150:3 (“[t]here were a number of things that needed to be thought through and dealt with in order to . . . transfer those claims in a meaningful way”).


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17:13–14, 146:20–147:7 (Asperger Decl., Ex. D). He testified that he “certainly

understood what the terms of the transactions were,” id. 110:4–8, and that the only

“assets that would be sold . . . was a pool of residential mortgage-backed securities,”

id. 98:3–10 (“Q. Anything else? A. I don’t think so.”). Critically, he recalls no

discussion, whether “within the New York Fed,” or “with anyone from AIG,”

addressing whether AIG was “giving up claims that it might have [against] the banks

that had sold it the RMBS.” Id. 100:18–101:2; see id. 117:23–118:12 (“Q. Have you

ever heard anyone, through today, within the [FRBNY], ever say that in connection

with the [ML II transaction] AIG somehow gave up . . . its claims . . . against the bank

counterparties that initially sold [the] RMBS? A. Oh, I really do not recall this topic

coming up.”).18

James Mahoney: Mr. Mahoney’s testimony confirms that a transfer of the tort

claims was never considered, discussed, or effectuated.

Notwithstanding the statement in his Declaration that the FRBNY intended to

acquire “litigation claims,” Mahoney Decl., ¶ 2, Mr. Mahoney admitted that the

FRBNY was actually “unaware of any actual [fraud or tort] claims that may have

existed,” Mahoney Dep. 65:12–19 (Asperger Decl., Ex. E), and was not “even thinking

about the concept that AIG may have had tort claims . . . .” Id. 133:10–17. Mr.

Mahoney was explicit: “I don’t believe the [FRBNY] business side had in its mind that

if there was a legitimate [tort] claim, that [AIG] couldn’t pursue it.” Id. 126:16–19.

He testified that to his knowledge the FRBNY never discussed or disclosed, internally

or externally, to AIG or to anyone else, an intent to acquire the tort claims. He “was

not involved in any conversations that talked about [the] tort claims,” either within the

FRBNY, with the FRBNY’s lawyers, with AIG, or otherwise. Id. 82:11–83:2. Mr.

Mahoney admitted that, no one “at the [FRBNY] or representing the [FRBNY] ever

told AIG in words or substance that the [FRBNY] expected to receive AIG’s tort

18 See also id. 121:9–14 (confirming that Mr. Mahoney has “never raised the issue with [him] at any point in time.”)


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claims or tort claims as part of the ML II transaction.” Id. 85:7–13. Mr. Mahoney

never even asked the FRBNY’s counsel at Davis Polk preparing the APA to address

such an assignment in the legal documentation. Id. 81:23–82:3 (“I had no specific

conversations with lawyers about any particular terminology—legal terminology, tort

claims, or litigation claims—related to [the assignment of claims].”).

The record now makes clear that the first time Mr. Mahoney ever considered the

possibility that ML II acquired “litigation claims” from AIG through the APA was in

December 2012, when, at the behest of BoA, he was given an already drafted

declaration which contained that phrase. Id. 84:10–20; 181:11–182:2. Mr. Mahoney

then spent less than ten minutes considering or discussing it. Id. 184:21–22. The

language in Mr. Mahoney’s Declaration asserting that the FRBNY intended to acquire

“litigation claims,” was taken verbatim from the July 2012 Settlement Agreement

between the FRBNY and BoA. Mr. Mahoney, however, was not told that and had no

prior knowledge of the BoA-FRBNY July 2012 Settlement Agreement. See id.

101:6–20.

Mr. Mahoney sought to reconcile his Declaration that the FRBNY intended to

acquire “litigation claims” with his testimony that the FRBNY neither knew about nor

considered such claims in 2008 by testifying that he had a more general objective for

ML II to acquire “benefits” to maximize the security available to collateralize the loan

the FRBNY was making to ML II to purchase the RMBS from AIG. Id. 61:6–20,

118:25–119:21. Critically, however, Mr. Mahoney admitted that he never discussed

even this purported general intent with his business counterparts at AIG. As he said,

“I don’t think I ever discussed with them that question. That would have been taking

us far, far, far from the standard conversations we were having about which securities

would be transferred, what date, all the business questions being asked. So our

conversations did not get into questions like that.” Id. at 245:12–19. Since Mr.

Mahoney (similar to Mr. Manzari) failed to identify any other FRBNY employee or

representative who discussed his purported general intent with AIG, the record is


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devoid of any evidence that this inchoate goal was raised with AIG in any fashion, and

it therefore could not have been the basis for any assignment of AIG’s tort claims. In

cases where a court must divine the intent of the parties to an ambiguous contract, “it is

the objective intent of the parties that controls. The secret or subjective intent of the

parties is irrelevant.” Klos, 133 F.3d at 168 (emphasis added, internal citation

omitted).

Because an assignment of tort claims, or even a more general assignment of

AIG’s rights in regard to the $18 billion in losses it was about to incur, was never

discussed between the parties, it is not surprising that Mr. Mahoney made no claim that

any such assignment is provided for in the APA. Indeed, more than that, Mr.

Mahoney affirmatively rebutted BoA’s claim that a transfer of tort claims was intended

by the “Related Instruments” provision. See supra at pp. 1, 3–4. 3. Testimony Concerning “Related Instruments”

The testimony of these four witnesses makes abundantly clear that there was no

intent to transfer AIG’s tort claims to ML II and that any attempt to read such an intent

into the “Related Instruments” provision would be misguided and erroneous. See

APA § 7.01. Mr. Holmes, for example, testified that the purpose of that language was

merely to “create[] additional clarity” that the assets transferred to ML II included the

“ancillary rights in the related instruments.” Holmes Dep. 107:13–19 (Asperger

Decl., Ex. C). He testified that the “Related Instruments” language was not discussed

between AIG and the FRBNY. Id. 85:10–86:13. Mr. Swift similarly testified that he

understood the language to make clear that the assigned assets included the “securities

and all the rights, stuff that back-up the mortgages that make up the RMBS security.”

Swift Dep. 64:5–7 (Asperger Decl., Ex. B).

From the FRBNY side, Mr. Manzari testified that he was “not familiar” with the

language assigning AIG’s interest in the “Related Instruments,” and Mr. Mahoney

testified that he did not consider it in 2008 and had no understanding at that time as to

what it meant. Manzari Dep. 232:8–10 (Asperger Decl., Ex. D); Mahoney Dep. 50:9–


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52:2 (Asperger Decl., Ex. E). Mr. Mahoney could not recall “the definition of

‘Related Instruments’ ever being the subject of any . . . discussion between AIG . . .

and the [FRBNY].” Id. 52:12–53:3. Nor does he recall “discussing what the phrase

. . . ‘Related Instruments’ . . . meant with anyone internally at the [FRBNY],” id.

50:22–51:3, with the FRBNY’s outside advisers, id. 51:4–8, or with AIG, id. 52:12–

53:3. Asked to explain his current understanding of the “Related Instruments”

definition, Mr. Mahoney testified that “[f]rom a business perspective reading this [i.e.,

the “Related Instruments” definition], you would think that this would include the legal

documentation and the governance supporting that is being transferred in the purchase

of these assets over to Maiden Lane II.” Mahoney Dep. 159:7–12 (Asperger Decl.,

Ex. E).

As indicated above, see supra at p. 4 & n.9, that testimony confirms AIG’s long-

expressed position that the “Related Instruments” language was included in the 32-

page APA to make clear that, although AIG would retain a one-sixth residual interest

in the proceeds of MLII, the FRBNY, as sole managing member, would have full

control over the management and disposition of the RMBS, including the contractual

rights appurtenant to the RMBS. See AIG Opp. 7 n.6, 14–15, 18; APA §§ 1.03, 7.01;

see also Holmes Dep. 62:5–14 (Asperger Decl., Ex. C).19 As AIG explained during

oral argument on January 29, 2013, the ML II transaction was a complex transaction

involving billions of dollars. It would have been highly unusual, to say the least, for

the APA to not have included a provision—i.e., the “Related Instruments” provision—

specifically stating that the documentation underlying the RMBS was also being

19 BoA has argued that construing the assignment of AIG’s interest in the “Related Instruments” merely to transfer rights appurtenant to the RMBS renders that language mere surplussage, as such rights would transfer ordinarily in an open market securities transaction. That, of course, overlooks the fact that the APA was not an open market transaction. Indeed, the primary reason for the transaction was that AIG needed to liquidate the securities lending program’s $20 billion of RMBS and could not do so on the open market. Id. 109:22–110:15. AIG and the FRBNY thus negotiated a private transaction and documented it in a contract that detailed all of its terms, including precisely what was being assigned to ML II. See generally id. 141:13–143:4 (explaining the need for the APA).


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assigned to ML II. It would be even more unusual—and highly implausible—that

given the complexity of the transaction, the sophistication of the parties and their

counsel, and the desire for clarity, the parties would have remained silent throughout

the negotiations and in the APA itself on the transfer of tort claims, while somehow

intending for those claims to have been transferred by implication in the definition of

“Related Instruments.” Thus, BoA’s position that the transfer of AIG’s interest in

“Related Instruments” was the “something more” that transferred AIG’s tort claims is

completely unsupported.

B. Evidence Of The Parties’ Purpose Demonstrates That The APA Did Not Transfer AIG’s Tort Claims

It is undisputed that the primary circumstance leading to the ML II transaction

was the federal government’s desire to provide a more viable capital structure for AIG

following the $85 billion credit facility extended in September 2008. Thus, in the

October–November 2008 time frame, the Government—through the FRBNY and the

Treasury—developed a package of assistance to further strengthen AIG financially and

to persuade the credit rating agencies not to lower AIG’s rating. See Mahoney Dep.

271:21–284:7 (Asperger Decl., Ex. E); Manzari Dep. 160:3–162:6 (Asperger Decl.,

Ex. D). At the same time the ML II transaction was approved, the U.S. Treasury

purchased $40 billion of preferred equity in AIG; and both the Treasury and the

FRBNY believed in November 2008 that the additional assistance was sufficient to

maintain AIG as a viable entity going forward. See Mahoney Dep. 282:21–283:6,

283:14–284:7 (Asperger Decl., Ex. E); Manzari Dep. 161:24–162:4 (Asperger Decl.,

Ex. D); Swift Dep. 72:10–73:3 (Asperger Decl., Ex. B); see also Press Release, Board

of Governors of the Federal Reserve, Federal Reserve Board and Treasury Department

Announce Restructuring of Financial Support to AIG (Nov. 10, 2008) (Asperger Decl.,

Ex. I). Nothing about the circumstances or the purpose of the transaction suggests

that AIG gave up its tort claims relating to the RMBS. Indeed, in contrast to cases

such as Banque Arabe, 57 F.3d at 151–52, in which a party’s intent to liquidate and


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cease operations made it logical to infer its intent to assign tort claims, the intent of the

parties in this case to preserve and strengthen AIG cuts strongly against any inference

that an assignment of valuable tort claims was intended.

There is also no question that the FRBNY believed it would get paid back, based

solely on the valuable RMBS that AIG was selling to ML II. Specifically, the FRBNY

“spen[t] a lot of resources to ensure” that its loan was fully secured, Mahoney Dep.

70:17–23 (Asperger Decl., Ex. E), including by “hir[ing] a set of outside advisers with

legal counsel as well as three different types of advisers externally,” id. 71:2–5; Swift

Dep. 82:7–16 (Asperger Decl., Ex. B) (“The Fed . . . was intent on having its loan

repaid, and it used BlackRock and us to give them comfort that, under various

economic conditions and scenarios, their loan would be repaid.”). None of these

advisers considered, assessed, or modeled the value of the tort claims at issue on this

Motion as part of their assessment of the FRBNY’s ability to get paid back. Mahoney

Dep. 78:22–80:2 (Asperger Decl., Ex. E); Manzari Dep. 67:10–20 (Asperger Decl., Ex.

D). Instead, each concluded that the FRBNY was secured, in spades, based solely on

the value of the RMBS themselves. Id. 238:18–239:24; Mahoney Dep. 71:6–14,

213:11–21 (Asperger Decl., Ex. E). Those RMBS, and nothing more, were sufficient

to convince the FRBNY, at all relevant times, that “even under the wors[t] stress case

scenario . . . the Fed’s loan would be repaid in full,” id. 72:2–10 (emphasis added),

and was “unlikely to take any losses . . . even in severe stress scenarios,” id. 71:6–14;

Swift Dep. 84:3–4 (Asperger Decl., Ex. B) (“The downside risk . . . was pro[vided]

with the collateral performance in ML II.”).20 This evidence rebuts any suggestion

that an assignment of AIG’s tort claims was necessary to secure the loan to ML II.

20 Documents corroborate this conclusion. For example, a BlackRock analysis dated October 8, 2008 concluded that there was a “very low likelihood of [default] even under extremely severe stress scenarios.” BlackRock Presentation to the FRBNY (Oct. 8, 2008) (Asperger Decl., Ex. J); Mahoney Dep. 194:24–195:18 (Asperger Decl., Ex. E). An FRBNY presentation dated October 25, 2008 reiterated that view. See RMBS Solution Discussion Document (Oct. 25, 2008) at 2 (Asperger Decl., Ex. K); Mahoney Dep. 213:11–21; see also Swift Dep. 116:22–119:3, 125:19–126:16 (Asperger Decl., Ex. B) (noting that the FRBNY had little risk of loss).


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C. Documentary Evidence Demonstrates That The Parties Did Not Intend to Transfer Tort Claims

The documentary evidence further demonstrates that the parties never intended

to assign AIG’s tort claims. The FRBNY effectively concedes as much, admitting the

absence of “any document . . . anywhere” evincing an intent to “obtain AIG’s rights”

in tort claims, Mahoney Dep. 200:4–19 (Asperger Decl., Ex. E); see also id. 248:18–

249:22. For this reason too, BoA’s Motion should be denied. 1. Term Sheet And Board Authorizations

Between November 5 and November 9, 2008, AIG and the FRBNY exchanged

term sheets intended to reflect “the material terms of the transaction” to which the

parties had agreed. See Drafts of Term Sheets Exchanged Between AIG and the

FRBNY (Asperger Decl., Ex. L). Mr. Swift, the principal negotiator for AIG,

explained that he would have expected the ML II term sheet to discuss a transfer of tort

claims if such a transfer had been agreed to, because: it would have been a significant . . . deal point that we would have . . . negotiated, discussed, tried to value and would have been . . . dealing with . . . . It would have been self evident that was the intent and we would have documented it and talked through the terms and conditions of how we would transfer it.

Swift Dep. 96:22–97:7 (Asperger Decl., Ex. A). Although the FRBNY concedes that

the “[t]erm sheet . . . was intended to reflect the material terms of the transaction,”

Mahoney Dep. 219:24–220:4 (Asperger Decl., Ex. E), significantly, no term sheet—

draft or final—anywhere mentions an assignment of tort claims; all term sheets refer

only to a transfer of RMBS, see Term Sheet for AIG Board of Directors Meeting at

2423–30 (Nov. 9, 2008) (Asperger Decl., Ex. M).

Mr. Holmes, AIG’s lead internal lawyer on the transaction, testified that he was

involved in negotiating the term sheet and reviewed it “thoroughly” and “in detail.”

Holmes Dep. 133:2, 133:21 (Asperger Decl., Ex. C). Examining the term sheet that

was presented to the AIG Board of Directors at the November 9, 2008 meeting, see

Asperger Decl., Ex. M, he testified “[W]hat’s being stated here is that the securities


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that would be listed on Schedule A is—is what’s transferring, less principal and

interest payments that accrue between October 31st and the Closing Date . . . .”

Holmes Dep. 134:14–19 (Asperger Decl., Ex. C).21 Mr. Holmes also confirmed that,

to his understanding, the scope of what was transferred through the transaction did not

change between the time the term sheet was agreed upon and the execution of the final

agreement. Holmes Dep. 135:9–16 (Asperger Decl., Ex. C).22

The term sheet’s omission of any reference to tort claims takes on added

importance because it was presented to both the AIG Board of Directors and the

Federal Reserve Board of Governors and was the basis for their respective

authorizations for the ML II transaction. See Board Minutes at 2389–2445 (Asperger

Decl., Ex. M) (reflecting Board deliberations); Swift Dep. 94:23–95:2 (Asperger Decl.,

Ex. B) (final term sheet presented to Board did not reflect transfer of tort claims); id.

109:9–15 (memorandum referred to “individual securities that were being sold” and

not tort claims); Manzari Dep. 116:13–21 (Asperger Decl., Ex. D) (Board of

Governors formally authorized ML II in early November); Memorandum to FRBNY

Board of Governors (Nov. 6, 2008) (Asperger Decl., Ex. N) (memorandum seeking

Board of Governors authorization for, among other things, ML II). Specifically, as

the lead ML II negotiator, Mr. Swift prepared the materials for the November 9, 2008

AIG Board of Directors meeting at which the terms of the ML II transaction were

presented. Swift Dep. 90:13–19 (Asperger Decl., Ex. B). He testified clearly that

these materials would have informed the Board that tort claims were transferring to

ML II if he had believed that to be the case since it would been a “significant . . . deal

point that we would have . . . negotiated, discussed, [and] tried to value.” Id. 96:17–

25. The Board materials did not mention tort claims because they were not 21 See AIG Board of Directors Meeting Minutes (Nov. 9, 2008) at 2423–2424 (Asperger Decl., Ex. M) (“Board Minutes”) (laying out terms of sale of “RMBS Assets” and defining “RMBS Assets” as “Collectively, the RMBS issues listed in Schedule A hereto for each Seller . . .”). 22 See also Swift Dep. 93:9–14 (Asperger Decl., Ex. B) (term sheet reference to “certain pool of RMBS” means “the RMBS assets that were backing the securities lending obligations”).


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transferred as part of the deal. Id. 94:15–17. Representatives of both the FRBNY,

and its counsel, Davis Polk & Wardwell LLP (“Davis Polk”), attended the AIG Board

meeting, and there is no record of them raising any objections or clarifications to the

presentation of the ML II term sheet. See id. 89:6–90:2; see also Board Minutes at

2389 (Asperger Decl., Ex. M).

At its November 9 meeting, the AIG Board delegated further action on the ML

II transaction to the Finance Committee of the AIG Board of Directors. Mr. Swift

personally presented the final terms of the ML II transaction to the Finance Committee

on December 9, 2008. See Minutes of the AIG Finance Committee Meeting (Dec. 9,

2008) at 2446 (Asperger Decl., Ex. H). When he did so, he again did not mention tort

claims because that was not part of the deal. See Swift Dep. 106:2–13 (Asperger

Decl., Ex. B). Nor did the FRBNY or Davis Polk, both of which sent representatives

to that meeting, raise tort claims as an issue. See AIG Finance Committee Minutes

(Dec. 9, 2008) at 2299 (Asperger Decl., Ex. H). Mr. Swift and Mr. Herzog, AIG’s

then-CFO, also prepared a memorandum for the Finance Committee, dated December

3, 2008, explaining the final deal terms for the ML II transaction. See Executive

Summary: Domestic Securities Lending RMBS Transaction—Maiden Lane II (Dec. 3,

2008) at 2323–24 (Asperger Decl., Ex. H). That memorandum stated expressly that

“[t]he RMBS will be the only assets of the [ML II] LLC.” Id. (emphasis added).

Again, had tort claims been included, Mr. Swift would have raised such a material

issue for consideration by the Finance Committee.

Similarly, Mr. Mahoney, who was “present . . . in the prep[arations]” for the

presentation to the Board of Governors for the Federal Reserve seeking approval of the

ML II transaction, Mahoney Dep. 83:11–20 (Asperger Decl., Ex. E), recalls no

discussion during those meetings “about seeking to obtain or receive from AIG its

right to pursue tort or fraud claims against the banks that sold [AIG] the RMBS


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securities,” id. 83:21–84:5.23 The fact that the Board of Governors, in approving the

ML II transaction, was not advised by the FRBNY that AIG would be assigning away

$18 billion in tort claims is telling. 2. Drafting History Of The APA

After the business executives reached a final agreement on deal terms, they

instructed their lawyers to draft the APA to reflect that agreement. Mahoney Dep.

138:23–139:2 (Asperger Decl., Ex. E). The APA, in other words, was not intended to

contain any material terms that the business negotiators had not agreed to; the lawyers

were simply scriveners. And, as scriveners, at no time were they told by Mr.

Mahoney to document or provide for the assignment of AIG’s tort claims. See id.

81:23–82:3; 137:7–10.

As with the term sheet, there is no draft of the APA that references or provides

for an assignment of AIG’s tort claims or a more general assignment of extra-

contractual rights relating to the RMBS, as Mr. Mahoney seems to have imagined.24

AIG received a first draft of the APA from the FRBNY’s counsel on December 6,

2008 and signed it six days later.25 Neither the assignment clause, nor the definitions

of “RMBS Issue” or “Related Instruments,” were ever substantively modified during

this period. Compare Asperger Decl., Ex. R; with Asperger Decl., Ex. A. That is no

23 Likewise, in congressional testimony, a Board of Governors representative described the ML II transaction as involving the “purchase[], at market prices, [of] RMBS,” with no mention of tort claims. S. COMM. ON BANKING, HOUS., AND URBAN AFFAIRS (March 5, 2009) (statement of Donald L. Kohn, Vice Chairman, Board of Governors, Federal Reserve) at 3 (Asperger Decl., Ex. O). FRBNY representatives testified identically. See The [FRBNY’s] Involvement with AIG (May 26, 2010) (Joint Written Testimony of Thomas C. Baxter and Sarah Dahlgren before the Congressional Oversight Panel) (Asperger Decl., Ex. P) (ML II “purchased, at market prices, RMBS with a par value of $39.3 billion”); see also Press Release, FRBNY, AIG RMBS LLC Facility: Terms and Conditions (Dec. 16, 2008) (Asperger Decl., Ex. Q) (“[ML II] LLC borrowed approximately $19.8 billion from the New York Fed and used the proceeds to purchase RMBS assets . . . with an estimated fair market value of $20.8 billion.”). 24 Twenty drafts of the APA were produced in discovery. AIG has not included them all in its submission to the Court but they are available for review upon request. AIG includes in the Asperger Declaration (Ex. R) the first draft of the APA it received from the FRBNY’s counsel on December 6, 2012. 25 See E-mail from Eli James Vonnegut (Dec. 6, 2008) (Asperger Decl., Ex. R); E-mail from Eli James Vonnegut (Dec. 12, 2008) (Asperger Decl., Ex. S).


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accident: As noted above, the assignment provision and relevant definitions, like the

tort claims generally, were never discussed or negotiated at all. It is inconceivable

that sophisticated entities like the FRBNY, ML II, and AIG, and their respective

boards, attorneys, and advisers, would see fit to transfer tort claims arising from an $18

billion loss through a back-handed reference to “Related Instruments,” with absolutely

no indication that the term encompassed such claims—particularly when the parties

and their lawyers knew or should have known, that New York law requires an explicit

transfer of such claims, and every other material term in the transaction, including

price, number of RMBS tranches, and delivery date was exhaustively detailed. 3. Valuation Of The RMBS

A key aspect of the APA negotiation was the determination of the price at which

the RMBS would be sold. Here, too, the documents make clear that no transfer of

AIG’s tort claims was contemplated. They demonstrate that the parties and their

experts made no effort to value the claims and assigned them no value in settling on

the purchase price. See Con. Edison, Inc. v. N.E. Utilities, 332 F. Supp. 2d 639, 649

(S.D.N.Y. 2004) (“It is inconceivable that sophisticated parties informed by counsel

would bargain away such a claim [in the context of a release] without monetary

consideration, and the terms of the release cannot reasonably be read to require such a

result.”); id. at 650 (“Particularly in the context of a $1.1 billion claim, the failure of

the [settling] parties to discuss or even consider the impact of the release on this action

clearly demonstrates that they did not intend for the release to be as broad as Con Ed

now claims.”).26 In October and November 2008, BlackRock, acting as financial

adviser to the FRBNY, performed a valuation of the RMBS that were to be transferred

pursuant to the ML II transaction. Manzari Dep. 60:16–19 (Asperger Decl., Ex. D).

The “values . . . that BlackRock came up with . . . became the actual prices at which 26 See also Tarantola v. Williams, 48 A.D.2d 552, 554 (2d Dep’t 1975) (“[I]t is not reasonable to include within the terms of the general release [the right to implead for indemnity, contribution, or apportionment]” because “[n]o part of the consideration for the release was related to the extinguishment of this claim . . . . The [right to implead] was neither bargained for nor discussed.”).


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the RMBS were sold . . . into [ML II].” Mahoney Dep. 78:22–79:3 (Asperger Decl.,

Ex. E). The valuation reflected solely and “in the totality” the “underlying interest

and principal payments that flow through the [underlying] mortgage pools,” Manzari

Dep. 63:8–13, 67:17–20 (Asperger Decl., Ex. D), i.e., “the expected future cash flows

generated by the underlying mortgages with some discount factor being applied back,”

id. 67:10–16.27

BlackRock did not include the tort claims (or even consider them) in its

valuation—confirming that the FRBNY did not bargain for or purchase those claims

and that AIG did not receive any consideration for them had it transferred them. See

Swift Dep. 115:25–116:8 (Asperger Decl., Ex. B) (noting that the BlackRock valuation

was based upon the cash flow from the underlying mortgages in the RMBS). Indeed,

Mr. Mahoney, who “was involved with . . . the prices at which things would be

transferred,” Mahoney Dep. 139:3–14 (Asperger Decl., Ex. E), confirmed that “[t]here

was no particular price or value that was associated with the” tort claims, id. 79:4–11

(emphasis added); see also id. 79:19–80:17. Additionally, none of the documents

reflecting BlackRock’s pricing of assets suggest any consideration for the value of the

tort claims. See BlackRock Presentation to the FRBNY (Oct. 8, 2008) (Asperger

Decl., Ex. J); Mahoney Dep. 193:12–18 (Asperger Decl., Ex. E) (BlackRock

presentation concerning the FRBNY’s “objectives” and “structure,” with no discussion

of assignment of the tort claims).28 4. Disclosures To Regulators, Rating Agencies, And The Public

The AIG insurance subsidiaries that entered into the APA are highly-regulated

entities, subject to oversight by the insurance departments of various states. If they 27 See also Mahoney Dep. 79:11–14 (Asperger Decl., Ex. E) (“the price estimates were based solely on the cash flows generated by the securities . . . purchased into [ML II]”); id. 77:20–78:10 (The “valuations . . . by BlackRock were arrived at by projecting the future cash flows from the underlying mortgages in each of the [RMBS.]”). 28 The same is true of an analysis that Morgan Stanley conducted at the FRBNY’s request. See Morgan Stanley Capital Structure Discussion Materials (Oct. 26, 2008) (Asperger Decl., Ex. T); Mahoney Dep. 230:2–233:12 (Asperger Decl., Ex. E) (Morgan Stanley presentation reflecting “structure” of the transaction and referring only to a transfer of RMBS).


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had transferred billions of dollars in tort claims pursuant to the APA, they would have

been required to disclose in advance that transfer to their insurance regulators.

Holmes Dep. 137:22–138:5 (Asperger Decl., Ex. C). Yet AIG’s presentation of the

ML II transaction to insurance regulators, dated November 10, 2008, mentioned only a

sale of RMBS—not a sale of tort claims. See AIG Domestic Securities Lending

Proposed Permanent Solution for State Insurance Departments (Nov. 10, 2008)

(Asperger Decl., Ex. U); Holmes Dep. 139:17–140:25 (Asperger Decl., Ex. C) (no

reference in presentation to transfer of tort claims, which was something that “would

have needed to be in this document”). The FRBNY received a draft of this

presentation, see FRBNY Internal E-mail Regarding State Insurance Presentation

(Nov. 10, 2008) (Asperger Decl., Ex. V), but never objected to its omission of the

purported transfer of tort claims.

Similarly, in October 2008, AIG made presentations to the major rating agencies

regarding the ML II transaction and other assistance then being provided to AIG.

AIG sought to avoid a ratings downgrade, by assuring the rating agencies that it was

addressing its liquidity challenges with the support of the FRBNY. Yet the

presentations, which describe a transfer of RMBS, nowhere mention or discuss a

transfer of tort claims.29 The FRBNY received drafts of these presentations from AIG

and commented on both of them, but did not comment or object to the presentations’

failure to discuss a transfer of tort claims.30 The parties’ public statements similarly

did not mention a transfer of tort claims. For instance, in a November 10, 2008 press

release announcing the creation of ML II, the Federal Reserve Board of Governors

noted that its loan to ML II would be used to purchase “residential mortgage-backed

securities” and would be “secured by all of the assets of the LLC and [would] be

29 See AIG U.S. Securities Lending Rating Agency Update Presentation at 8–9 (Oct. 15, 2008) (Asperger Decl., Ex. W); AIG U.S. Securities Lending Rating Agency Update Presentation (Oct. 28, 2008) (Asperger Decl., Ex. X). 30 See E-Mail Exchange between AIG and the FRBNY (Oct. 14, 2008) (Asperger, Decl., Ex. Y); E-mail Exchange between AIG and the FRBNY (Oct. 28, 2008) (Asperger Decl., Ex. Z); E-mail from the FRBNY to AIG (Oct. 15, 2008) (Asperger Decl., Ex. AA).


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repaid from the cash flows produced by these assets as well as proceeds from any sales

of these assets.” Nov. 10, 2008 Press Release (Asperger Decl., Ex. I). The press

release did not indicate that ML II or the FRBNY were secured by, or would be able to

obtain repayment from, tort claims associated with the RMBS, as would be expected if

such claims had been transferred to ML II. Id. Indeed, on the same day, AIG

provided the FRBNY with a draft set of questions and answers for an upcoming AIG

earnings call, which also did not mention tort claims. See Federal Reserve Solution

for RMBS AIG Q & A (Nov. 10, 2008) (Asperger Decl., Ex. BB). Id. Once again,

the FRBNY did not object. 5. U.C.C. Statements

As part of the ML II transaction, the parties executed a security agreement

identifying the assets that had been designated as collateral for the FRBNY’s $19.5

billion loan to ML II. See Security Agreement between ML II, FRBNY, AIG, and The

Bank of New York Mellon (Dec. 12, 2008) (“Security Agreement”) (Asperger Decl.,

Ex. CC). Although the New York Uniform Commercial Code requires commercial

tort claims to be specifically identified in order to attach as secured collateral,31 the

ML II Security Agreement did not do so. See Security Agreement § 2(a)-(xi).

Particularly given Mr. Mahoney’s assertion that the reason ML II would have acquired

AIG’s tort claims would have been to provide security for the loan made by the

FRBNY, see Mahoney Dep. 129:8–14 (Asperger, Decl., Ex. E), only one reasonable

inference can be drawn from this omission: Neither the FRBNY (which was under a

statutory duty to make certain that its loan was fully secured), nor the FRBNY’s 31 See N.Y. U.C.C. § 9-108(e) (embodying U.C.C. § 9-108(e)) (“A description only by type of collateral defined in this chapter is an insufficient description of: (1) a commercial tort claim . . . ”); see also N.Y. U.C.C. Law § 9-108, cmt. 5 (“Subsection (e) requires greater specificity of description in order to prevent debtors from inadvertently encumbering certain property. Subsection (e) requires that a description by defined ‘type’ of collateral alone of a commercial tort claim . . . is not sufficient.”); Eldon H. Reiley, 1 Sec. Interests in Pers. Prop. § 10:14 (2012) (“For commercial tort claims, § 9-108 (rev) requires a specific description.”); N.Y. U.C.C. Law § 9-109 cmt. 15 (McKinney 2001) (noting that “a description of collateral in a security agreement as ‘all tort claims’ is insufficient to meet the requirement for attachment”) (citing N.Y. U.C.C. Law § 9-108(e)).


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sophisticated lawyers, believed that ML II owned the tort claims. See In re Laminated

Veneers Co., Inc., 471 F.2d 1124, 1125 (2d Cir. 1973) (“[T]he security agreement

embodies the intention of the parties” and is the document which creates the security

interest). 6. Press Releases

The FRBNY and AIG both issued press releases after ML II was signed. The

FRBNY’s press releases stated that it was “fund[ing] the purchase of [RMBS] from

. . . AIG.”32 Likewise, the AIG press release referred solely to “interests in a pool of

$39.3 billion face amount of [RMBS].”33 Neither press release mentioned the tort

claims or discussed their transfer. 7. The ML III Transaction

Contemporaneous with the parties’ efforts to alleviate the liquidity pressures in

the AIG securities lending program, AIG and the FRBNY were also addressing the

liquidity pressures at AIG Financial Products (“AIG-FP”), which had written credit

default swaps (“CDS”) to various third-party financial institutions protecting multi-

sector CDOs. As part of the coordinated package of assistance provided in the

October–November 2008 time frame, AIG and the FRBNY eventually created another

SPV called Maiden Lane III (“ML III”) that would resolve the liquidity strain imposed

by AIG-FP’s CDS. See Capital Structure Materials at 3, 7 (Asperger Decl., Ex.

T). ML III was funded by a loan from the FRBNY and an equity contribution from

AIG. Id. at 7. With that capital, it purchased effectively at par from the third-party

financial institutions the CDOs that were protected by AIG-FP’s CDS. Id. At the

same time, AIG-FP and the CDS counterparties executed agreements that terminated

the CDS (the “Termination Agreements”).

Davis Polk “orchestrat[ed] the legal documentation for both ML II and ML

III.” Mahoney Dep. 242:12–16. Under the ML III Termination Agreements, AIG 32 Dec. 16, 2008 Press Release (Asperger Decl., Ex. Q) (emphasis added). 33 See AIG Sells Residential Mortgage-Backed Securities Portfolio and Terminates U.S. Securities Lending Program, BUSINESS WIRE (Dec. 15, 2008) (Asperger Decl., Ex. DD).


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“forever release[d]” CDO Counterparties from “any and all Claims and Unknown

Claims of any nature whatsoever that AIG . . . ever had, now has or can, shall or may

have, by reason of any matter, cause or thing occurring at any time up to the

Termination Date that arises out of or in any way relates to obligations (whether

present or future, fixed or contingent or otherwise),” under the portion of the

transactions that were being terminated. See, e.g., ML III Termination Agreement

between ML III, AIG, and Barclays at § 1(b)(ii) (Asperger Decl., Ex. EE) (emphasis

added). The Agreement defined “Claims” as specifically including litigation claims

such as “fraud” and “security law” violations: “any action . . . of any nature

whatsoever, including but not limited to claims based on breach of fiduciary duty or

other legal duty, . . . negligence, negligent misrepresentation, . . . contract, fraud,

aiding and abetting fraud . . . , any securities law or any other theory.” Id. at 1(b)(vii)

(emphasis added). The parties’ inclusion of this language in ML III (and abject

failure to include comparable explicit language in the ML II APA) further confirms

that when AIG and FRBNY intended to address litigation claims, they knew how to do

so clearly and explicitly. See, e.g., Compagnia Importazioni Esportazioni

Rappresentanze v. L-3 Commc’ns Corp., 703 F. Supp. 2d 296, 311 (S.D.N.Y. 2010)

(defendant’s evidence of previous contracts was probative because the evidence

demonstrated that “when the parties wanted to include a one-year limitation . . . they

knew how to do so”). The notion that these same parties intended by their silence to

assign AIG’s tort claims as a “something more” through the APA’s definition of

“Related Instruments” is baseless, illogical and implausible.

* * *

In sum, the documentary evidence confirms—without a single exception—that

no one at AIG, the FRBNY, their Boards, or their advisers, ever discussed the

possibility of assigning AIG’s tort claims, or its intent or agreement to do so. This

evidence alone defeats BoA’s Motion.


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D. The Parties’ Post-Closing Conduct Confirms That The APA Did Not

Assign Tort Claims

It is well settled as a matter of New York law that “[t]he best evidence of the

intent of parties to a contract is their conduct after the contract is formed.” Waverly

Corp. v. City of New York, 48 A.D.3d 261, 265 (1st Dep’t 2006); see also Websters

Red Seal Publ’ns Inc. v. Gilberton World-wide Publ’ns Inc., 67 A.D.2d 339, 341 (1st

Dep’t 1979), aff’d 53 N.Y.2d 643 (1981) (the “most persuasive evidence of the agreed

intention of the parties in those circumstances is what the parties did when the

circumstances arose”); Fed. Ins. Co. v. Ams. Ins. Co., 258 A.D.2d 39, 44 (1st Dep’t

1999) (“[T]he parties’ course of performance under the contract is considered to be the

most persuasive evidence of the agreed intention of the parties.”) (internal quotation

marks omitted).34

The same is true in federal courts: “For over a century, courts have looked to

the conduct of the parties in resolving ambiguities in contractual language . . . . There

is no surer way to find out what parties meant, than to see what they have done.” IBJ

Schroder Bank & Trust Co. v. Resolution Trust Corp., 26 F.3d 370, 374 (2d Cir. 1994)

(quoting in part Brooklyn Life Ins. Co. v. Dutcher, 95 US (5 Otto) 269 (1877)); In re

Med. Capital Sec. Litig., 2011 WL 5067208, at *5 (C.D. Cal. Jul. 26, 2011) (collecting

cases for the proposition that the conduct of parties after executing of contract is the

most reliable evidence of their intent).

Here, the conduct of AIG and the FRBNY after the APA’s execution

overwhelmingly confirms their mutual understanding that the tort claims had not been

transferred to ML II.

34 See also City of N.Y. v. N.Y.C. Railway Co., 193 N.Y. 543, 548 (1908) (“When the parties to a contract of doubtful meaning, guided by self-interest, enforce it for a long time by a consistent and uniform course of conduct, so as to give it practical meaning, the courts will treat it as having that meaning.”).


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1. AIG Preserved And Pursued The Tort Claims

In August 2011, AIG filed this $10 billion suit against BoA. AIG did so with

the belief and understanding that it, and not ML II, owned the claims at issue. See

Holmes Dep. 148:2–17 (Asperger Decl., Ex. C) (testifying that he reviewed AIG’s

complaint against BoA before it was filed and had no objection to proceeding). 2. ML II Did Not Object To AIG’s Assertion Of The Tort Claims

The AIG v. BoA complaint was widely reported in the press, and was known to

the FRBNY. See, e.g., Louise Story and Gretchen Morgenson, A.I.G. Sues Bank of

America Over Mortgage Bonds, N.Y. TIMES (Aug. 8, 2011); BlackRock, Maiden Lane

II Q3 2011 Portfolio Review Meeting at 16 (Nov. 2, 2011) (Asperger Decl., Ex. FF).

Yet the FRBNY did not object to AIG’s prosecution of the tort claims, as would be

expected had the FRBNY believed it owned the claims. Far from it, the FRBNY—

through Thomas Baxter, the FRBNY’s General Counsel who was directly involved in

negotiating the ML II transaction in 2008, see Manzari Dep. 111:23–24 (Asperger

Decl., Ex. D)—instead engaged in extensive correspondence with AIG in the fall of

2011, in which it acceded to AIG’s explicit assertion of its right to pursue the tort

claims, and merely sought to clarify that AIG was not asserting contract claims

relating to the RMBS at issue. In Mr. Baxter’s initial September 26, 2011 letter to

AIG, he directly quotes the definitions of “RMBS Issue” and “Related Instruments”

from the APA, and then asserts that according to these provisions “ML II owns any

and all contract-based claims relating to the RMBS and the various offering

documents and related agreements.”35 Nowhere in this letter does Mr. Baxter object

to AIG’s assertion of tort claims as one would expect if the FRBNY believed such

claims belonged to ML II, and instead he simply asks AIG to confirm, “consistent with

the plain meaning of the Asset Purchase Agreement,” that AIG is not asserting “any

claim for breach of [] contract,” that it was not seeking rescission on the RMBS that

35 Letter from Thomas C. Baxter, Jr., FRBNY, to Michael Carlinsky, on behalf of AIG (Sept. 26, 2011) at 1–2 (Asperger Decl., Ex. GG) (emphasis added).


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had been sold to ML II, and to amend its complaint accordingly. Id. In fact, the

FRBNY overtly threatened that if AIG did not confirm that it did not “retain the right

to assert any claim for breach of a contract,” “ML II reserves the right to take any steps

necessary to protect its interests, including seeking prompt judicial action.” Id. at 2.

There was no discussion of any “steps” ML II would take in relation to tort claims.

Had the FRBNY truly believed it owned AIG’s tort claims, this letter would have been

dramatically different.

Subsequent correspondence further confirms that the FRBNY did not believe

that ML II acquired tort claims from AIG. • AIG responded to Mr. Baxter’s letter on October 3, 2011. Thomas A.

Russo, AIG’s Executive Vice President and General Counsel informed Mr. Baxter that “AIG has not asserted any contractual mortgage purchase claims for [RMBS] that it does not own” and that it “will not assert contractual mortgage repurchase claims for RMBS” it sold to ML II.36

• Mr Baxter’s October 11, 2011 letter again asks AIG to confirm that “AIG will not assert any claim for breach of a contract under which the RMBS were created, pooled, securitized, issued, sold, serviced, enhanced, insured or guaranteed.”37 As with his initial letter, Mr. Baxter refers to the definition of “Related Instruments” in asserting that ML II possesses the contract claims. Moreover, Mr. Baxter again fails to object to AIG’s assertion of tort claims and instead concedes that the FRBNY “agree[s] that AIG has the right to seek damages under Section 12(a)(2) of the Securities Act of 1933 for those RMBS that it sold to ML II.” Id. (emphasis added).

• AIG’s November 10, 2011 letter again confirms that “AIG will not assert any cause of action for breach of a provision of a Related Instrument (as defined in the Asset Purchase Agreement).”38 This letter also states that “AIG seeks rescission on its Section 12(a)(2) and common-law fraud claims with respect to only those RMBS that it continues to own and rescissory damages for RMBS that it has sold, including those RMBS sold to ML II.” Id. (emphasis added).

• A November 23, 2011 fax from Mr. Baxter which seeks to “eliminate any ambiguity or perceived ambiguity with respect to the assignment rights set forth in the Asset Purchase Agreement” asks AIG to agree that “[f]or those RMBS that AIG sold to Maiden Lane II, LLC, AIG will not assert any cause of action for breach of a provision of a Related Instrument (as defined in

36 Letter from Thomas A. Russo, AIG, to Thomas C. Baxter, Jr., FRBNY (Oct. 3, 2011) at 1 (Asperger Decl., Ex. HH). 37 Letter from Thomas C. Baxter, Jr., FRBNY, to Thomas A. Russo, AIG (Oct. 11, 2011) at 1 (Asperger Decl., Ex. II) (emphasis added). 38 Letter from Thomas A. Russo, AIG, to Thomas C. Baxter, Jr., FRBNY (Nov. 10, 2011) at 1 (Asperger Decl., Ex. JJ).


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the Asset Purchase Agreement . . . ).”39 Yet again, Mr. Baxter expresses concern only toward contractual rights and points to the definition of “Related Instruments” as having transferred such rights. Id.

• Lastly, on December 1, 2011, AIG agrees to Mr. Baxter’s proposed language, but also states “that nothing in this agreement or the Asset Purchase Agreement precludes AIG from asserting tort or securities law claims arising from misrepresentations or omissions made in connection with AIG’s purchase of any RMBS certificates.”40 Mr. Baxter and the FRBNY as a whole entirely failed to object to AIG’s clear reservation of the right to assert tort claims.

This correspondence between AIG and Mr. Baxter confirms (a) that the FRBNY

did not believe it obtained tort claims from AIG, and (b) that the FRBNY’S General

Counsel did not view “Related Instruments” as including such claims and instead

believed that this term only included contract rights.41

3. ML II Did Not Preserve Or Pursue The Tort Claims, And Instead Asserted Contract Claims

In contrast to AIG’s prompt investigation and prosecution of the tort claims, the

FRBNY did not investigate, preserve, or pursue those claims. Mr. Mahoney cannot

recall any discussion “with or among ML II’s advisers,” from 2008 or thereafter, about

“pursuing recoveries with respect to any AIG-assigned tort claims.” Mahoney Dep.

169:14–24 (Asperger Decl., Ex. E). Mr. Manzari testified that he was unaware of the

subject matter ever being raised within FRBNY at any time. Manzari Dep. 117:23–

118:12 (Asperger Decl., Ex. D) (“Q. Have you ever heard anyone, through today,

39 Facsimile from Thomas C. Baxter, Jr., FRBNY, to Thomas A. Russo, AIG (Nov. 23, 2011) at 2 (Asperger Decl., Ex. KK) (emphasis added). 40 Letter from Thomas A. Russo, AIG, to Thomas C. Baxter, Jr., FRBNY (Dec. 1, 2011) (Asperger Decl, Ex. LL) (emphasis added). 41 At the time these letters were exchanged, ML II had already intervened in In re Bank of New York Mellon, No. 651786/2011, ECF No 14 (N.Y. Sup. Ct. N.Y. Cnty. June 29, 2011) to support a proposed settlement which would resolve contractual repurchase claims in 530 different Countrywide RMBS including many of the RMBS that at issue in BoA’s motion. ML II—which was represented by Gibbs & Bruns LLP in its intervention—supported the settlement as a reasonable settlement of contractual repurchase claims, yet ML II never sought to assert or protect any tort claims and instead relied solely on its contractual rights. Having already sought to protect its contract rights in this proceeding, Mr. Baxter’s failure to object to AIG’s assertion and retention of tort claims is even more blatant. In fact, it appears that the purpose of Mr. Baxter’s initial letter on September 26, 2011 (Asperger Decl., Ex. GG) was to resolve any question concerning ML II’s ability to intervene in this settlement proceeding.


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within the New York Fed, ever say that in connection with the Maiden Lane II

transaction, AIG somehow gave up or gave away its claims to pursue against the bank

counterparties that initially sold it its RMBS? . . . . A. Oh, I really do not recall this

topic coming up.”). Likewise, an FRBNY representative stated in a declaration earlier

this year that “ML II . . . believes that applicable statutes of limitation have run against

any such tort claims unless they have been the subject of current tolling agreements

(which ML II does not have in place).”42

The FRBNY’s failure to investigate, preserve, or pursue the tort claims stands in

contrast not only to AIG’s actions, but also to the FRBNY’s own repeated prosecution

of certain contractual rights that all parties agree were transferred to ML II pursuant to

the APA’s “Related Instruments” provision. See Holmes Dep. 120:7–18 (Asperger

Decl., Ex. C).

First, BlackRock, which was “under contract with the [FRBNY] . . . to manage

the assets held in [ML II],” see Mahoney Dep. 22:21–23:5 (Asperger Decl., Ex. E),

was “aggressively pursing [sic] a variety of ways of maximizing cash flows” from the

RMBS following the closing of the ML II transaction, id. 148:4–6. 43 Yet in

BlackRock’s multiple quarterly presentations to the FRBNY’s Investment

Committee—whose responsibility it was to manage ML II—BlackRock never once

suggested that ML II pursue RMBS tort claims, and instead solely focused on ML II’s

pursuit of contractual remedies. For example, the November 2010 BlackRock

quarterly presentation dedicates six full pages to a discussion and analysis of the

strengths, weaknesses, and value of ML II’s contractual repurchase rights, yet fails to

make a single mention of any tort claims.44 BlackRock, Maiden Lane II Q3 2010

42 Decl. of Stephanie Heller, Am. Int’l Grp. v. Bank of Am., 11-cv-10549, ECF No. 229, Ex. A (C.D. Cal. Feb. 19, 2013). 43 See also id. 165:6–9 (BlackRock was “aggressively pursuing a variety of different avenues to ensure we were getting all our expected rights, cash flows, title and interest”). 44 The absence of tort claims from this presentation is particularly notable given that BlackRock spends an entire page discussing the difficulties investors face in causing a trustee to assert repurchase claims, as tort claims would have been owned outright by ML


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Portfolio Review Meeting at 38–43 (Nov. 4, 2010) (Asperger Decl., Ex. MM).

Notably, even Mr. Mahoney conceded that “[t]o the extent that [BlackRock] believed

or came to understand that [ML II] had received an assignment of AIG’s tort claims,”

he would have expected BlackRock to “explor[e] ways to pursue those claims.”

Mahoney Dep. 168:3–13 (Asperger Decl., Ex. E). Mr. Mahoney confirmed that in

“the period post-closing of ML II,” he “[n]ever ha[d] a discussion with BlackRock . . .

where . . . BlackRock . . . discussed the issue of whether AIG had assigned or given up

its tort or fraud claims to ML II.” Id. 150:7–17.45

Second, following the closing of ML II, the FRBNY joined two “clearing

houses” focused on pursuing contractual repurchase claims in connection with the

RMBS that had been sold to ML II. See Asperger Decl., Ex. MM at 4, 42. These

clearing houses never pursued tort claims.

Third, ML II intervened in a New York State Court proceeding seeking approval

of a proposed settlement of contractual repurchase claims in 530 Countrywide RMBS

arising from misrepresentations of loan quality in those securities.46 In doing so, ML

II expressly avoided raising any tort claims, noting in its motions to intervene that

“[t]he claims covered by this Settlement are exclusively those arising under the

Governing Agreements and do not include individual investor claims arising under the

securities or anti-fraud laws of the United States or of any state.” Id. at 3 n.2.47

Fourth, ML II pursued and settled, apparently in 2010 and 2012, claims against II and would have presented an avenue for ML II to “maximiz[e] cash flows” that ML II could fully control. 45 Even if BlackRock’s failure to ever once mention tort claims as an avenue of recovery for ML II was not itself dispositive of BlackRock’s belief that ML II did not possess such claims, in BlackRock’s November 2, 2011 quarterly update it specifically mentioned that “AIG sued [Bank of America] to recover more than $10 [billion] of losses on $28 [billion] notional RMBS instrument on claims of misrepresentation,” see Asperger Decl., Ex. FF at 16, but failed to suggest any manner that such claims may belong to ML II. Surely, the adviser retained by the FRBNY to “aggressively” pursue cash flows for ML II would not have ignored such an obvious usurpation of rights. 46 See Pet. to Intervene, In re Bank of New York Mellon, No. 651786/2011, ECF No. 14 (N.Y. Sup. Ct. N.Y. Cnty. Jun. 29, 2011). 47 See also Settlement Agreement, supra at p. 5 n.10 (settling only contract claims); In re Bank of New York Mellon, No. 651786/2011, ECF No. 3 (N.Y. Sup. Ct. N.Y. Cnty. Jun. 29, 2011).


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BoA for problems in the contractual “waterfall” provisions in two RMBS sponsored by

IMPAC. Notably absent from that settlement was any discussion of tort claims. See

Mahoney Dep. 162:9–163:9 (Asperger Decl., Ex. E); Asperger Decl., Ex. MM at 4

(“BlackRock continues to pursue opportunities to maximize cash flows to the [ML II]

portfolio,” including by “[p]ursuing [contract] remedies against Impac and

underwriters,” a “verbal agreement with JPMorgan,” and “ongoing negotiations with

Bank of America.”); see generally Settlement Agreement, supra at p. 5 n.10.

Finally, the FRBNY obtained a recovery from a monoline insurer for insurance

payments associated with a JP Morgan transaction. BlackRock, Maiden Lane II Q1

2011 Portfolio Review Meeting at 26 (May 1, 2011) (Asperger Decl., Ex. NN).

BlackRock appears to have advised the FRBNY to pursue those claims—but, again,

failed to advise concerning potential recoveries on tort claims, as would be expected if

ML II owned those claims. 4. ML II Confirmed AIG’s Ownership Of The Tort Claims In

March 2012

In February 2012, ML II sold at auction all of the RMBS it had purchased from

AIG. Shortly thereafter, ML II sent a letter to AIG, signed by Mr. Mahoney, stating

that “all the RMBS Issues [had] been disposed of” in the auction. See Letter from

the FRBNY to AIG at 2 (Mar. 12, 2012) (Asperger Decl., Ex. OO) (emphasis added).

Because the FRBNY concedes that tort claims were not disposed of in the auction,48

this letter is conclusive proof that the FRBNY had always intended and understood the

term “RMBS Issue,” which, of course, also incorporates the “Related Instruments”

provision, to refer solely to the RMBS—not related tort claims. As Mr. Mahoney

acknowledged, the letter, which adopted the defined terms of the APA, stated only that

the “[RMBS] had been . . . sold.” See Mahoney Dep. 30:11–32:21 (Asperger Decl.,

Ex. E). Indeed, Mr. Mahoney, who was asked to sign the letter because of his

48 See Settlement Agreement at 4 (ML II conducted “customary secondary market sales for which . . . there were no accompanying contracts . . . providing for the assignment of litigation claims.”).


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“historical knowledge of [ML II] from the 2008 time frame,” id. 29:11–12,

“review[ed] it carefully” before signing, and “ma[d]e sure that any statements in it that

related to [his] historical knowledge were . . . accurate,” id. 29:16–30:5. 5. ML II’s Purported Release Of The Tort Claims In July 2012

In July 2012, as an incident to the settlement of an unrelated dispute between the

FRBNY and BoA concerning the contractual waterfall provisions in two IMPAC

RMBS, the FRBNY purported to release all of AIG’s tort claims. Settlement

Agreement at 2–3. The Settlement Agreement, which was signed nearly a year after

AIG had filed this lawsuit but just three weeks before BoA’s Motion To Dismiss,

undercuts BoA’s argument that “Related Instruments” should be read to imply that

AIG assigned its tort claims.

First, in the Settlement Agreement, which the FRBNY and BoA kept

undisclosed and confidential until last month, ML II purported to release all claims—

which includes the billions of dollars of tort claims that AIG has been asserting against

BoA—in exchange for a mere $43 million payment from BoA. Id. at 1. Taken at

face value, the Settlement Agreement released the tort claims for fractional pennies on

the dollar. Such a result is inconsistent with the FRBNY’s purported belief that it

owned the tort claims.

Second, the Settlement Agreement contains a representation and warranty by

Zachary Taylor, who signed the agreement on behalf of ML II that, in executing the

APA, ML II’s “intent was to receive all transferrable and assignable benefits

associated with the securities and related instruments” that ML II acquired, “including

litigation claims associated with those securities or their acquisition by AIG.” Id. at 4,

11. But Mr. Taylor had no personal knowledge of ML II’s contemporaneous intent.

See Manzari Dep. 235:21–236:12 (Asperger Decl., Ex. D). By contrast, neither Mr.

Manzari, who was the more senior FRBNY official, nor Mr. Mahoney, who was

supposedly “the person most knowledgeable about the [supposed] transfer,” Mahoney

Dep. 99:18–100:4 (Asperger Decl., Ex. E), was ever consulted, id. 105:14–25


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(“[n]ever . . . consulted by anyone at the [FRBNY]” concerning “what was or was not

intended at the time [ML II was] entered into”); Manzari Dep. 143:23–144:5, 234:3–13

(Asperger Decl., Ex. D). Indeed, after the transaction closed, Mr. Mahoney never

discussed the purported assignment of tort claims with anyone at the FRBNY or its

advisers; the topic “never came up,” Mahoney Dep. 136:22–137:14 (Asperger Decl.,

Ex. E), and the request in “late 2012” that he sign a declaration in this action was the

first time that he “ever ha[d] discussions . . . with anyone within the [FRBNY] about

seeking to obtain or receive from AIG its rights to pursue tort or fraud claims,” id.

84:10–20.

Third, the Settlement Agreement casts further doubt on the credibility of Mr.

Mahoney’s December 2012 Declaration, which states that the FRBNY intended to

retain all litigation claims relating to the RMBS at issue. Far from reflecting Mr.

Mahoney’s own words, that Declaration had been copied and pasted, verbatim, from

the above-cited representation and warranty in the Settlement Agreement—a

representation and warranty that BoA had demanded. Compare Settlement

Agreement at 4 with Mahoney Decl. ¶ 2. Indeed, Mr. Mahoney “did not draft” the

text of the Declaration, Mahoney Dep. 99:8–9 (Asperger Decl., Ex. E), “do[es] not”

know who drafted it, id. 101:21–24, and signed it with just “a single set of [changes],”

id. 102:10–21, following a conversation with in-house counsel that lasted “less than 10

minutes,” id. 184:21–22. He was not informed that the words he was signing had

been copied from the Settlement Agreement, see id. 184:21–22—a document that he

had “[n]ever seen” and with which he was “not familiar,” id. 100:20–101:16;

nonetheless, he was required by the FRBNY to provide “written declaration[s] and/or

oral testimony,” “[a]s needed [by BoA]” and “as requested [by BoA],” see Settlement

Agreement at 4–5.49

49 The FRBNY’s lack of belief that ML II owned the tort claims is also evident in the indemnity provisions of the Settlement Agreement. ML II agreed to indemnify BoA if AIG obtains a judgment on two IMPAC RMBS relevant to the Settlement Agreement. Id. at 5–6. It did not agree to indemnify ML II if AIG obtains a judgment on the billions


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CONCLUSION

Taken together, the testimonial and documentary evidence overwhelmingly

establishes that the APA did not effectuate a transfer of AIG’s tort claims through the

APA. Any “ambiguity” the Court found in the contractual language has been

conclusively resolved: The extrinsic evidence irrefutably establishes that the parties

never contemplated, discussed, negotiated, or quantified the assignment of AIG’s tort

claims. Not even the FRBNY disputes these material facts. Accordingly, under

fundamental interpretive principles, the Court may not read into the definition of

“Related Instruments” a meaning the parties never intended. For the foregoing

reasons, BoA’s Motion To Dismiss should be denied.

DATED: March 28, 2013 RESPECTFULLY SUBMITTED, By /s/ James R. Asperger James R. Asperger (SBN 83188)

[email protected] QUINN EMANUEL URQUHART & SULLIVAN, LLP 865 South Figueroa Street, 10th Floor Los Angeles, CA 90017 Tel: (213) 443-3000 Fax: (213) 443-3100 Michael B. Carlinsky [email protected] Maria Ginzburg [email protected] QUINN EMANUEL URQUHART & SULLIVAN, LLP 51 Madison Avenue, 22nd Floor New York, NY 10010 Tel: (212) 849-7000 Fax: (212) 849-7100 Attorneys for All Plaintiffs

in additional tort claims that AIG is pursuing in this litigation. Had the FRBNY truly believed that it owned those claims, and that they were worth a mere $43 million, it surely would not have limited its indemnity in this manner.
