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U.S. Bank Nat'l Ass'n v. Black Diamond CLO 2005-1 Adviser, L.L.C.

United States District Court for the Southern District of New York

December 30, 2011, Decided; December 30, 2011, Filed

11 Civ. 5675 (JSR)

Opinion

 [*640]  OPINION AND ORDER

JED S. RAKOFF, U.S.D.J.

This is an interpleader action commenced by interpleader plaintiff U.S. Bank National Association ("U.S. Bank"). The suit arises out of a collateralized loan obligation ("CLO") transaction called Black Diamond CLO 2005-1, which closed on April 7, 2005. MetLife's Rule 56.1 Statement of Undisputed Material Facts ("MetLife 56.1") ¶ 1; Black Diamond's Rule 56.1 Statement of Undisputed Material Facts ("Black Diamond 56.1") ¶ 1. U.S. Bank, the trustee under an Indenture dated April 7, 2005 (the "Indenture"), commenced this action to resolve a dispute among various parties regarding the distribution of certain proceeds (the "Interpleader Funds") generated by the Portfolio Collateral and held by U.S. Bank. The dispute is primarily between the Black Diamond Interpleader Defendants (the "Black Diamond Claimants")1 and the Met Life Interpleader Defendants (the "MetLife Claimants").2

The Collateral Manager, Black Diamond CLO 2005-1 Adviser, L.L.C., made commitments for certain reinvestment trades (the "Unsettled Commitments") during the permissible Reinvestment Period for the transaction, but did not receive the funds to pay for those trades until the Reinvestment Period had ended. The MetLife Claimants as Noteholders of notes issued pursuant to the Indenture, bring a motion for summary judgment asserting that the Unsettled Commitments cannot be finalized and that the Interpleader Funds must be distributed to the Noteholders.3 The Black Diamond Claimants oppose the motion for summary judgment and bring a motion for judgment on the pleadings; they claim that the Interpleader Funds should be used to settle the Unsettled Commitments.4 The parties acknowledged  [*641]  at oral argument that the motions can be considered together because the Court's decision on one motion will resolve most, if not all, of the issues raised by the other motion.5 See transcript of oral argument, 11/30/11 ("Tr.") at 2, 6. The Court finds that the MetLife Claimants' summary judgment motion must be granted because under the terms of the Indenture, the Interpleader Funds  [**4] were not eligible for reinvestment and should have been distributed to the Noteholders. For the above reason, the Black Diamond Claimants' motion for judgment on the pleadings must be denied.6

It is first necessary to provide some brief background. The Collateral Manager supervises and directs the investment and reinvestment of the Portfolio Collateral on behalf of the Issuer in  [**6] accordance with the Indenture in exchange for fees paid by the Issuer. MetLife 56.1 ¶¶ 10-11; Black Diamond 56.1 ¶¶ 10-11. The funds payable to the Collateral Manager are calculated as a percentage of the total Portfolio Collateral, see Indenture § 1.1; therefore, an increase in the amount of Portfolio Collateral results in an increase in the fees payable to the Collateral Manager. Defendant BDC Finance L.L.C. is the beneficial owner of Income Notes issued by the Issuer; these notes are junior to the Notes held by the MetLife Claimants and are not secured by the Payment Collateral. MetLife 56.1 ¶¶ 13-15; Black Diamond 56.1 ¶¶ 13-15.

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839 F. Supp. 2d 639 *; 2011 U.S. Dist. LEXIS 149858 **

U.S. BANK NATIONAL ASSOCIATION, as Trustee, Interpleader Plaintiff, -v- BLACK DIAMOND CLO 2005-1 ADVISER, L.L.C.; METROPOLITAN LIFE INSURANCE COMPANY; METLIFE REINSURANCE COMPANY OF SOUTH CAROLINA; PRUDENTIAL FIXED INCOME; BDC FINANCE L.L.C.; EMBASSY & CO., solely as Registered owner of record for the benefit of others of Notes under the Indenture; HARE & CO., solely as registered owner of record for the benefit of others of Notes under the Indenture; ENGINERIG & CO., solely as registered owner of record for the benefit of others of Notes under the Indenture; MORGAN STANLEY & CO. INCORPORATED, solely as registered owner of record for the benefit of others of Notes under the Indenture; HOWARD L. TERRY; THE DEPOSITORY TRUST COMPANY, in its own name or its nominee name CEDE & CO., solely as registered owner of record for the benefit of others of Notes under the Indenture in its role as Depositary; BNP PARIBAS SECURITIES SERVICES, LUXEMBOURG BRANCH, solely as registered owner of record for the benefit of others of Notes under the Indenture in its role as Common Depository; and DOES 1 through 100, owners of beneficial interests in Notes under the Indenture, Interpleader Defendants.

CORE TERMS

Reinvestment, Funds, Interpleader, Collateral, Proceeds, principal payment, transferred, parties, distributed, eligible

Civil Procedure, Summary Judgment, Entitlement as Matter of Law, Appropriateness, Judgments, Pretrial Judgments, Judgment on Pleadings, Securities Law, Trust Indentures, Contract Interpretation, Contracts Law, Contract Interpretation, General Overview