FILED: NEW YORK COUNTY CLERK 02/06/ :25 PM INDEX NO /2014 NYSCEF DOC. NO. 265 RECEIVED NYSCEF: 02/06/2015

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1 FILED: NEW YORK COUNTY CLERK 0/0/ 0: PM INDEX NO. / NYSCEF DOC. NO. RECEIVED NYSCEF: 0/0/ 0 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY: CIVIL TERM: PART X In the matter of the application of THE BANK OF NEW YORK MELLON, (as Trustee under various Pooling and Servicing Agreements and Indenture Trustee under various Indentures), BackRock Financial Management Inc (intervenor), Kore Advisors LP (intervenor), Maiden Lane LLC (intervenor), Metropolitan Life Insurance Company (intervenor), Trust Company of the West and affiliated companies controlled by The TCW Group Inc (intervenor) Neuberger Berman Europe Limited (intervenor), Pacific Investment Management Company LLC (intervenor), Goldman Sachs Asset Management LP (intervenor), Teachers Insurance and Annuity Association of America (intervenor), Invesco Advisors Inc, (intervenor), Thrivent Financial for Lutherans (intervenor), Landesbank Baden-wuerttemberg (intervenor), LBBW Asset Management (Ireland)plc, Dublin (intervenor), ING Bank fsb (intervenor), ING Capital LLC (intervenor), ING Investment Management LLC (intervenor), Nationwide Mutual Insurance Company and its affiliated companies (intervenor), AEGON USA Investment Management LLC, authorized signatory for Transamerica Life Insurance company, AEGON Financial Assurance Ireland Limited, Transamerica Life International (Bermuda) Ltd, Monumental Life Insurance Company, Transamerica Advisors Life Insurance Company, AEGON Global Institutional Markets pic, LIICA Re II Inc, Pine Falls Re Inc, Transamerica Financial Life Insurance Company, stonebridge Life Insurance Company, and Western Reserve Life Assurance Co of Ohio (intervenor), Federal Home Loan Bank of Atlanta (intervenor), Bayerische Landesbank (intervenor), Prudential Investment Management Inc (intervenor) and Western Asset Management Company (intervenor), Petitioners, Index Number: - for an order, pursuant to CPLR 0, seeking judicial instructions and approval of a proposed settlement X

2 Supreme court 0 Centre Street New York, New York 000 April, BEFORE: 0 HONORABLE BARBARA KAPNICK, Justice of the Supreme Court ----_...._-_.._--_.._-

3 APPEARANCES: DECHERT Attorneys for the Petitioners 0 Avenue of the Americas New York, New York 00 BY: JAMES M. McGUIRE, ESQ. HECTOR GONZALEZ, ESQ. 0 MAYER BROWN LLP Attorneys for Bank of New York/Mellon Broadway New York, New York 00 BY: MATTHEW D. INGBER, ESQ. WARNER PARTNERS PC Attorneys for the Institutional Investors, Intervenor-Petitioners 0 New BY: Third Avenue York, New York 00 KENNETH E. WARNER, REILLY POZNER LLP Attorneys for AIG Entities 00 Sixteenth Street Denver, Colorado 0 BY: MICHAEL ROLLIN, ESQ. DAN REILLY, ESQ. ESQ. GIBBS & BRUNS LLP Attorneys for the Institutional Investors, Intervenor-Petitioners 00 Louisiana, Suite 00 Houston, Texas 00 BY: KATHY PATRICK, ESQ. ROBERT J. MADDEN, ESQ. GRAIS & ELLSWORTH LLP Attorneys for Walnut Place and Federal Home Loan Bank of San Francisco Avenue of the Americas New York, New York 00 BY: OWEN L. CYRULNIK, ESQ.

4 KELLER ROHRBACK LLP Attorneys for Federal Home Loan Banks of Boston, Chicago and Indianapolis Third Avenue Seattle, Washington 0 BY: DAVID S. PREMINGER, ESQ. STATE OF NEW YORK OFFICE OF THE ATTORNEY GENERAL Broadway New York, New York 0 BY: THOMAS TEIGE CARROLL, ESQ. STEVEN C. WU, ESQ. STATE OF DELAWARE DEPARTMENT OF JUSTICE North French Street 0 Wilmington, Delaware 0 BY: GREGORY C. STRONG, ESQ., Official Court Reporter 0 Centre Street New York, New York 000..

5 THE COURT, Good afternoon. As far as we can tell, there are five motions that we have on today. There are two people who have called very nervous about the fact that we have never seen your pro hac vice motions, and I thought I made it clear to -- this was the Attorney General from Delaware and Mr. Riley that every case that I have there is a lot 0 of pro hac vice motions and I don't usually have any opposition. The fact that they were filed by stipulation or motions that didn't get to us yet, if there has been no opposition, is there anybody that opposes these two people speaking on the record today? MR. INGBER: No, your Honor. motions, THE COURT: So then when I see those then I can decide them and I will grant them like I always do without opposition and those people certainly can speak today. So that -- I told you that was not going to be too much of a problem. MR. RILEY: Thank you, your Honor. THE COURT: It seems to me that we ought to start with the first motion. We ought to start with the one brought by the objectors to

6 convert the Article into a plenary action, which seems to lead into perhaps a discussion of the discovery motion, the scope of discovery and the motion to compel, which I am not sure we will really get to all of the issues of the motion to compel and then, of course, there are the two motions by the attorneys general, New York and 0 Delaware, to intervene in this action. So that is our story for this afternoon. You probably know that we do have to close courtrooms at :0, I don't have a choice about that, and also, it may be that the court reporter and I need a minute or two and if we do, certainly if the court reporter does, then we will take the minute or two, or three or four. So I think that you have to think about how we want to divide this. I would think maybe what we should is spend about minutes if we need it for everybody on that first motion, see if we can get a little bit into the scope of the discovery, and make sure that we have the last 0 minutes or so to take care of the motions to intervene. Now that it is :0, I can tell that you at :0, a fire alarm will go off. The building

7 is not going to be on fire, but there is, I learned on my way in to court this morning, surprise to all of us, an evacuation of the building at :0. I immediately called my supervising judge and said I thought that would be extremely inconvenient for me today and I know that they should not make their plans all around me, but is there anything that could be done and 0 fortunately, I got a dispensation from OCA and so we will, I am not supposed to tell anybody else, but since you're here, we will stay in the courtroom. Don't worry. There is no fire. It will be a little noisy for a few minutes, but they know that we are allowed to stay in. If you leave the building and try to get back in after :0, you won't for a while. So if you're here, you should stay here, because if you leave you won't be able to get back in. So at least I took care of that problem. Okay. So I imagine somebody on behalf of the objectors is going to start with that motion which I believe it is Motion Sequence, I think which is about converting this into a plenary action. So who will be the person speaking on

8 that? MR. CYRULNIK: Owen Cyrulnik, your Honor from Grais and Ellsworth for the Respondent on that. MR. INGBER: Matthew Ingber of Mayer 0 Brown for the Bank of New York. Before we start the arguments I wanted to ask about the motion that the trustee filed to establish the standard for review for the Article proceeding. I know your Honor mentioned discovery motions and -- after we THE COURT: I think we will get to that get to this one. MR. INGBER: Sure. Thank you, your Honor. THE COURT: So, Mr. Cyrulnik. MR. CYRULNIK: Thank you, your Honor. As the Court knows, we have filed a motion to convert this proceeding from an Article plenary action. to a I want to start -- before I talk briefly about the merits of the motion, I want to start with the question that Mr. Ingber raised in his brief, actually in response to our motion, which is, why does this matter? Why are we taking the

9 Court's time, making a request to convert this into a plenary action? Why not proceed under Article? THE COURT: I was going to ask the same question, so I am glad he did. MR. CYRULNIK: Thank you, your Honor. There are two reasons why we think it matters: The first is, we looked into the issue 0 and we think that the CPLR requires that it be converted, because we don't think that the CPLR contemplates that this action -- this proceeding can go forward as an Article proceeding and that is really for two reasons and I will get to those two reasons in a moment and the two reasons are, because it falls under an express exception and because it is beyond the scope of what Article was designed to do. But before I get to those two reasons why the CPLR requires it, practically speaking, I don't know that there is necessarily a difference between Article and a plenary action from the perspective of discovery and the final hearing, other side of the table that there is a difference. Repeatedly Mr. Ingber has referred but I keep hearing over and over again from the

10 0 to Article as requiring exigency and speed. The reason Mr. Ingber THE COURT: So much for that. I am not taking any responsibility for that, but that has not happened. MR. CYRULNIK: But every time we talk about discovery and we talk about the need for a 0 full and robust discovery and the need for full and fair hearing, we hear from Mr. Ingber and even more vociferously from Ms. Patrick that Article is an expedited proceeding, it as special proceeding has to move fast, we don't have time to waste with all of this discovery, so we even heard the Court the first time we were here the Court said it felt constrained by the confines of the proceeding that Mr. Ingber filed THE COURT: I have read that many times that you referred to last August. That is really a long time ago in the history of this case and whatever else. I have done a lot more research, you have given me a lot more research since then, and you can spend the whole day arguing about this, but I know that you know that Article says that any party to the proceeding,

11 meaning the Article proceeding, shall have the right to examine the trustee, which I believe has not been done according to the papers under oath, either before or after filing an answer or objection as to any matter relating to their administration of the trust in accordance with the provisions of Article which talks about discovery. 0 It seems to me, after reading the cases and we all know there are not a lot of cases under Article, I must have like the biggest Article cases in this Court, I had an Article last week that was -- that is supposed to be expedited. It is over three years and I am finally starting an evidentiary hearing so that is not your standard Article, and this is not your standard Article is a standard Article. to the extent that there I really think I have a lot of discretion here. I mean, I don't think that when Article came about in the 0's anybody would have anticipated this lawsuit and all of the things that are going on in this lawsuit, but I do think that a lot of the things that you want me to look into and the petitioners have asked me to make a lot of findings, of

12 them, I think, that go into a lot of detail and require some discovery. So it does really seem to me, and this is after days of my court attorneys and I reading every piece of paper that you got and every case that we could find and discussing this at all hours, that probably you could argue a long time, but you could probably accomplish within the 0 Article I what you need to accomplish. know the petitioners would like it to stay to be an Article, there would be almost no discovery and I should find everything okay. That is not going to happen. I know you would like me to turn this into a plenary action. I am not even sure what kind of plenary action you want me to turn it into and spend years doing discovery and that is not going to happen, but somewhere in between I think is what is going to happen, decide to call it. whatever you I do think that there is more discovery that you're entitled to that you ought to have be done relatively expeditiously. I mean, I never had a chance to attempt to do that, because than the petitioners want and I also think it can

13 as soon as you intervened, you immediately brought it across to my colleague Judge Pauley who let me know what happened in the history of that case. He tried to get things going and I don't know if too much got going there, now it seems like you're back here now and I don't know where else you could go now, so now we know we are together and we will move it along. 0 and we So I think we can move it expeditiously can get the discovery going and nobody is going to get everything they want and everybody will get part of what they want and that is what is going to happen. So I do want to hear what you're going to say briefly, we did read everything, but I do think that that is Ultimately what is going to happen. I don't know if the name of the proceeding is really what is going to make a difference. I do think that if the petitioners want me to make all of these findings and decide that this was a reasonable settlement and there were no conflicts and there were no special provisions or anything special given to the institutional investors with whom they did negotiate as opposed

14 to you with whom they did not directly negotiate, that there is going to have to be a little bit more discovery than just what did you rely on, this law professor and this other law professor and this financial expert and that is the end of that. So that is kind of my thinking, but I will let you -- you know, raise the important 0 points that you think I should understand as to why you still think it should not be an Article and what you think it should be and what you think it should be. MR. CYRULNIK: I will accept the Court's guidance. brief. I will keep my remarks very The first thing in reaction to what your Honor said, we are not asking the Court to convert this and have years of discovery at all. I think that our concept of how long discovery should take based on what your Honor just said probably is in the neighborhood of what the Court is thinking, which is several months, maybe a year. I don't think any of us are talking about several years of discovery. All of us think discovery can be conducted in a full and fair and

15 complete way to give the Court a record upon which to make the findings that the trustee is asking it to make without taking a time. very long And your Honor, I agree the name of this doesn't necessarily matter that much, as long as 0 the Court is going to provide the opportunity to take full discovery and the opportunity to have a full trial or hearing, evidentiary hearing at the end, but I do want to comment very briefly on Article, because we do think that the exception in Article that applies to trust and benefit of creditors quite plainly applies here and essentially means that Article can apply by its own terms. THE COURT: How is this a trust for the benefit of creditors? The other side talked about it as a term of art. I think it is used in bankruptcy proceedings, trust for the benefit of creditors. How is that what is going on here? The word creditors is not used here much; it is beneficiaries, note holders, certificate holders. What is the creditors about? MR. CYRULNIK: Well, your Honor, two responses to that:

16 First, the term of art I will get to in a minute, but in terms of the words of the statute, which is trust for the benefit of creditors, there are three words the Court has to consider: It is a trust, we agree, because we would not be here if this was not a trust. 0 Benefit. We agree these are beneficiaries or certificate holders, beneficiaries of the trust. Every trust has beneficiaries. Creditors is the only word that matters and because these are debt securities and by the way, there is no dispute that at least some of the securities here are debt securities, because even Mr. Ingber acknowledges, I believe, that the Delaware trusts that are part of the settlement are debt securities. If you have debt securities, the definition of a debt means there is a creditor and a debtor. So if the debt -- if the security is a debt security then the holder of the security, the certificate holder, the beneficiary is a creditor of the trust because it holds a debt security. So I think there is no dispute

17 that at least some of the securities here are debt securities and the holders of the debt securities are creditors. So I don't think there is any dispute. 0 The plain English words trust for the benefit of creditors are satisfied, at least for some of the trusts that are before the Court. think there is some dispute, although the petitioners are not asking the Court to resolve I this, but there is some dispute as to whether all of the securities here are debt securities, because I believe Bank of New York is of the view that the New York trusts that are before the Court are not debt securities, although the federal district court across the street just a week and a half ago held that they are all debt securities and we are prepared to argue that they are, but in any event, at least some of these are debt securities and if the security is a security, then the holder of it must be a creditor. debt So this is a trust, it is for the benefit of its beneficiaries, and the beneficiaries, by all unanimous agreement, least for some of these, are creditors. at

18 So the English words in the statute are satisfied; trust for the benefit of creditors. The only question is whether the so-called term of art that Bank of New York and Ms. Patrick 0 argue requires the Court to read those words and to mean something other than what they say and I think in a moment Mr. Ingber is likely to be up here, maybe he won't because I am saying this, but he is likely to be up here telling the Court to read Article literally, any matter relating to an express trust, but he is not going to tell the Court to read the words trust for the benefit of creditors literally, because if the Court reads them literally, it means that Article can apply. Instead, he will say read them the way you're supposed to read them in the Debtor-Creditor Law, which is a totally different body of law and all we know from those laws is that there is such a thing as assigning property to a trust for the benefit of creditors in the bankruptcy context. There is no law there that says in New York the words trust for the benefit of creditors means accounts. In fact, the words that they use in the Debtor-Creditor Law most

19 often are assignment for the benefit of creditors, and there is not even a place where it says what trust for the benefit of creditors means, even in a bankruptcy context. So how is this Court to know that it must read the plain English words trust for the benefit of creditors in Article to mean 0 something that it happens to mean in the context of the Debtor-Creditor Law? It doesn't seem like there is anything that tells this Court not to read the words trust for the benefit of creditors according to the plain English meaning and the striking thing is that I don't think anyone in this cross motion will get up and say there is not a trust that is not for the benefit of its beneficiaries and at least some of those beneficiaries are not creditors. So, without belaboring the point, your Honor, we think that the plain words of the statute mean that Article doesn't apply and I would turn the question the Court asked and Mr. context and say if it is true that the discovery that is provided will be the same, and if it is Ingber asked on its head a little bit in this

20 true that the hearing will essentially be the same and the relief that the -- the scope of what we are going to discuss at the hearing in 0 discovery is not going to matter, then why not err on the safe side and say it seems like this is a trust for the benefit of creditors? That is what it says. No court has ever used Article to adjudicate a dispute of this magnitude, so why not convert it to a plenary action, the only form of civil action that is not special that the CPLR recognizes. THE COURT: What kind of plenary action? What should he sue for? MR. CYRULNIK: Sounds like most of the relief he is seeking is declaratory. Some of relief the trustee is seeking may not be declaratory, but I think I would leave it up to Mr. Ingber to come up with what particular forms of relief he is asking the Court for, but I don't believe it would be that complicated to do and there is precedent, at least in the Maggi versus Maggi case and Mundell versus Gibbs case. Courts, without commenting on the precise nature of the plenary action, have simply

21 converted Article proceedings into plenary actions, they just said it, and then, the relief that Mr. Ingber is seeking is the relief that Mr. Ingber is seeking and I don't think he would argue he is not able to achieve that relief through a plenary action because the CPLR says it 0 is the only form of action, unless there is a particular specialized forum that needs to be sought. So we would argue that the exception applies. It applies on its face. The plain English words clearly apply. THE COURT: We really have time constraints here and there is a lot of people here, so I got that. What is your next point? MR. CYRULNIK: The other point, your Honor, is simply -- and I won't belabor this point at all, because I know the Court read the papers. We believe that the cases that have been decided under Article and later on into Article very clearly limited it to matters that are designed to be expedited and streamlined because they don't involve the adversarial process. It is attempting to allow trusts to

22 get rulings from courts that involve accounting and administration that don't need all of the tools and accoutrements of the adversarial process, don't want to get bogged down in that set of problems. Every case that was decided under Article that has discussed the standards 0 specifically, discussed specifically what could be under it and what can't, has essentially narrowed it in that way and we think that this case, if there is ever a case that needs the tools and accoutrements of the adversarial process, it is this entire proceeding and to say that there isn't judicial support for saying that this is not the kind of thing that Article contemplated, I think is stretching those cases to the breaking point. And for the rest, your Honor, unless the Court has questions, I will rest on the papers. THE COURT: Thank you. Mr. Ingber, you want to MR. INGBER: Very briefly, because the Court made the argument that we are going to be making and it is -- well three-fold, but your Honor made two points:

23 Number One, Number Two, why does it matter? what does the plenary action mean? Mr. Cyrulnik many months ago argued there should be something other than Article. He filed his notice of removal. He argued to Judge Pauley and to the Second Circuit that this 0 should be anything other than an Article. filed papers here making the same point, but I He have the same question today that I had ten months ago, which is, what does that mean? What is this plenary action going to look like, and are there going to be additional parties? Is Bank of New York and Countrywide going to be a party to this plenary action? THE COURT: Well, you will bring it, so I guess you would - MR. INGBER: We brought -- we brought our action. proceeding. We brought an Article Your Honor acknowledged many months ago that this was the decision that the trustee made and was entitled to make and there is nothing and we will get into it, but there is nothing improper about the proceeding that we filed and

24 so converting this into a plenary action - {Pause in proceedings.} So I don't want to belabor the point, your Honor, but it begs the question. After all of this time, what do the objectors have in mind? What does a plenary 0 litigation mean? Who should the parties be? What should the standard of review be? Are we going to be litigating the underlying claims? It is not clear what that means, and it doesn't matter, as your Honor acknowledged. And this is the second point: We are not saying that because we filed an Article proceeding there is no discovery. We are not saying that because we filed an Article proceeding your Honor should not consider the evidence and should just rubber stamp the trustee's decision. That is not what we are saying at all. There has been substantial discovery, there will be more discovery, no question about it, and under Article, entitled to discovery. they are is, what is the standard of review that is going to be governing discovery and governing this case But the real question, the real question

25 going forward, governing the hearing? What is the standard of review that will provide this Court's consideration of the ultimate question? So the fallacy in the argument that this needs to be converted because we are trying to sneak something through Article, is I think very obvious. We are not trying to sneak anything through. 0 To us, when we filed this proceeding, your Honor, there was no alternative. This was not -- could not be a class action. There was no judicial discovery for a declaratory judgment action. Article was created for this very purpose. This was a trustee seeking a determination with respect to a matter relating to an express trust. That is why we filed an Article proceeding and that is why this is the only proceeding that makes sense. other alternative. There is no Now, the expression: A trust for the benefit of creditors. There is one Debtor-Creditor Law. It means that a debtor transfers assets to a person, a trustee, that understanding of that term. It is from the

26 forms a trust for the benefit of creditors and pays distributions to those creditors, okay? It is an alternative to filing a bankruptcy. There is only one context in which a trust for the benefit of creditors is used and that is in the Debtor-Creditor Law. Now, this is not like the case cited in the objectors' brief, the Tsukuda case where the term physical injury had several 0 different meanings, one meaning in the Penal Law, as well as other meanings, in understanding what a minimum period of imprisonment should be, a third meaning in Workers Compensation proceedings. That is -- the courts there said this has different meaning. I will not adopt a term of art in those other bodies of law. It is not like the case, the Lefkowitz case where a subdivision had a different meanings; it had one definition in the Real Property Law. It had another definition in public health law. There is one definition of a trust for the benefit of creditors. And that comes right from the Debtor-Creditor Law. Now, the legislature could have excluded mortgage securitization trusts if it wanted to. It knew how to exclude securitization-like trusts. There

27 0 is an exception in Article for a trust to carry out any plan of reorganization of real property acquired on foreclosure or otherwise the mortgage or mortgages against which participation certificates have been issued and guaranteed by a corporation to which the Superintendent of Insurance or the Superintendent of Banks has been or may hereafter be appointed rehabilitator or liquidator or conservator. So the legislature certainly knew how to exclude a securitization like a trust and also knew how to be very specific about what it wanted. It used the term trust for the benefit of creditors to mean the term of art that exists in only one context. It does not apply here. Article is the appropriate and we believe the only proceeding that is available to a under these circumstances. trustee The other point that this doesn't really involve trust administration, the cases involve single trusts, they involve much smaller matters than this, there is no exception for big cases. and a half billion dollar settlement. There are major servicing improvements that are in this Yes, this is a 0 trust settlement. It is an

28 settlement agreement. It is a big matter. But that is not an exception to Article. It is a more complicated case than traditional Article matters, but this has been used not just in New York by IBJ Schroder is just one example, there was a securitization trustee seeking approval of a settlement. There were hundreds of beneficiaries. They were brought in, they were 0 given notice, they had an opportunity to be heard and the Court approved that settlement. It has been used in dozens of other states, including California, Minnesota, Texas, for this very purpose, court when they have a for trustees to go in to major decision to make and to seek judicial instructions with respect to that decision. Here the trustee made a decision, a decision that it believed was in the bounds of its reasonable discretion and it is here asking for judicial approval. There is nothing unique about this, nothing unusual about this, it happens allover the country and it should happen here, your Honor. Thank you. MS. PATRICK: Your Honor, may I be

29 heard briefly? THE COURT: Briefly. MS. PATRICK: Kathy Patrick for the institutional investors. There is a glibness to Mr. Cyrulnik's suggestion that you sort of tiptoe through the tulips and look at the words, but there is a hundred years of case law interpreting what a 0 trust for the benefit of creditors is. There are clearly established elements that have been in the law of New York from the New York Court of Appeals down to Surrogate's Court for a hundred years and they require a pre-existing debtor-creditor relationship and they require an assignment of all of the debtor's property for the benefit of creditors. That is what a trust for the benefit of creditors is. There must be an assignment of all of the debtor's property and as the Court knows, because you, out of all of the judges in this court, have spent more time on these pooling and servicing agreements than perhaps anybody has, you know that what is effectuated here is a sale of mortgage loans in exchange for certificates which are later sold to investors. It is a sale. It is not an

30 0 assignment of all property. How do you know that? Because the depositor, after step one of the transaction, has certificates that are worth hundreds of millions or billions of dollars, which it holds for sale to investors. So you could yank the words out of the context of the statute, yank the words out of the context of a hundred years of New York 0 jurisprudence, but that doesn't make it right. This is not a trust for the benefit of creditors. This is an express trust in which a trustees has made an enormously beneficial settlement and the New York Legislature has said in that circumstance there is nothing improper about the Court hearing from the trustees a couple of very basic questions. Do I have the authority to enter into this settlement? As I enter into this settlement, have I complied with my obligations under the agreement? And the suggestion of the objectors that there is something untoward about that ignores the fact that that precise procedure has been in the re statement trust since there was a restatement and it ignores the fact that the trustee has asked for under the PSA, findings

31 that are directly apposite to the administration of this trust and since the Court read the briefs, I know you noted that although the objectors continually asserted that this did not relate to the administration of trusts, they never signed the PSA. contract. They never quoted the And let me give you two examples if I 0 can, about why that matters: One finding that the trustee has asked for here is that in Paragraph F of the final order and judgment, it has asked for a finding that the trustee has the authority to settle these claims. Compare that with PSA Section.0(ii), which recites that reliance on experts to advise the trustee on a disputed matter shall be full and complete authorization of the trustee's judgment. That is the definition of how we all agreed the trustee would administer these trusts, and let me pause on that point your Honor, because you have emphasized in your writings something the Objectors here continually ignore, which is that all certificate holders, their clients and mine, agreed to be bound by the pooling and servicing agreement. We agreed to give the trustee

32 discretion to decide whether to litigate or whether to settle and in Paragraph F, the question the trustee asks for a finding on is, do I have the authority to settle this proceeding? That is squarely tied to Section of the PSA. In paragraph G, the Court is asked to make a finding that the decision to settle was 0 within the trustee's discretion; that it appropriately evaluated claims and considered alternatives to the settlement. That is paragraphs G, I and J of the final order and judgment, and in those paragraphs, you will compare those naturally to Section in which all certificate holders agreed that the trustee in its administration of the trust would not be liable if the actions it took were in good faith, save for negligence in ascertaining the facts or willful misconduct. So it is one thing to assert that the trustee is not asking for an instruction on matters of trust administration. It is another thing entirely to demonstrate that by walking through the final order and judgment and comparing it to the administrative provisions of the pooling and servicing agreements which this

33 Court has read many times. You have emphasized the broad discretion the trustee holds under these agreements and importantly, once the trustee has discretion, the restatement of trusts is clear. The standard of review is, did they abuse it? Did they abuse it? That is the 0 question before the Court. Everybody agrees the trustee owns these claims. Listen to see if you hear the objectors say the trustee doesn't. Everyone agrees the trustee decides whether to litigate or settle. IBJ Schroder. So held none of them disputes it. Your recent decision in Walnut confirms it. So, if everyone agrees that the claims belong to the trustee and if everyone agrees the trustee has the discretion to settle it, this is an Article proceeding, because the trustee is here asking the court to confirm its exercise of discretion was within the reasonable bounds of its discretion, ie, the familiar standard, did it abuse its discretion. Now, why does that matter? Well, it matters, your Honor, because there are thousands of certificate holders who invested in these

34 trusts on the express understanding that the trustee would decide what to do with litigation claims that belong to the trust. And there are provisions that prohibit self interested objectors from derailing the trustee's effort to act on behalf of all certificate holders, and that matters a lot here. It matters a lot because the trustee has achieved a settlement for 0 0 trusts, of which have no other remedy. There is no voting group. My clients don't hold percent of those trusts. Nobody else does, nobody has stepped forward to indemnify the trustee to pursue claims on behalf of these trusts which, as the Court knows, it is entitled to receive under Article and so, in that context vindicating the trustee's authority, vindicating the contract all certificate holders agreed to, respecting the trustee's decision, first to decide when and how it will seek authority, to seek to confirm its authority to consummate this settlement and then from there, respecting the standard of review that all of us also agreed to. That they don't like it doesn't mean they can change the contract. That they don't like the trustee's choice of forum doesn't

35 mean they can change, either. That is what these contracts do. We all agreed that the trustee would decide subject to the terms of the contract and that is what the trustee here is asking for. Thank you, your Honor. 0 THE COURT: Do you have any brief response to Ms. Patrick and Mr. Ingber? MR. CYRULNIK: Very briefly, your Honor. First, with respect to the exception, we are not here in a debtor-creditor proceeding, your Honor, so the hundred years of precedent that tells you in a debtor-creditor proceeding what a trust for the benefit of creditors or an assignment for the benefit of creditors is does not apply. These are plain English words. These are not arcane words that cry out for a definition where the Court should look to other bodies of law and finding out has this ever been why did anywhere else? Sure, in the debtor-creditor context, you can assign assets for the benefit of the creditor and the courts have developed a do the statutes. particular process for that, as Here these are plain English

36 words that are in the statute. The Court should read them as they are written and Mr. Ingber pointed to another exception in Article that he noted to the Court was incredibly specific and went into a very detailed recitation of what it meant. The Legislature knew in the exception they put into Article -- there was a very detailed exception that made sure we did not have 0 to go to other bodies of law, because that was particularly specific about what it meant. This is a very general statement, trust for the benefit of creditors, and it clearly applies here based on the plain English words. I want to make a brief comment about Ms. Patrick's comments on the pooling and servicing agreements. Ms. Patrick has a funny concept that the pooling and servicing agreements are binding not only on certificate holders, which they are, but also on the court. For example Ms. Patrick in her brief argues that the Court is somehow not empowered to convert this Article proceeding to a plenary action because Section 00 of the PSA is the no action clause that prohibited us from pointing out to the Court that the CPLR does not allow this to become an

37 Article proceeding. Now, she is arguing that because the PSA protects the trustee from liability if certain criteria are met, the Court is now allowed to decide this under Article because those 0 specific requests for relief the trustee is pointing to correspond with provisions in the PSA. The PSA is not binding on the Court. The PSA does not change the CPLR. If the trustee is asking this Court for relief that goes beyond what Article permits, then the fact that it happens to be found in the PSA doesn't make any difference at all and also I note to the Court that Ms. Patrick left out the findings that the trustee is asking for that are nowhere in the PSAs; for example, that the settlement is approved in all respects and that the conduct of the trustee, the "arm's length" negotiations and conduct of the trustee in entering into the settlement is approved in all respects, and I think what I want to close on your Honor is that the petitioners here, Bank of New York and Ms. patrick by extension, are asking this Court to make dramatic, sweeping findings of the Court's own opinion about the fairness of the

38 settlement and the propriety of Bank of New York's conduct in entering into it, not just that the Bank of New York has discretion to settle, not just that the Bank of New York can settle if the settlement is fair, but they are asking the Court to say this is a fair deal. They are asking the Court to say I agree with everything Bank of New York did and that is fine. They are 0 asking the Court's opinion and the Court is more than able to give it, but the Court would want to do that with a full and robust record, and with a full and robust hearing, so when the Court puts its stamp on the settlement, when it chooses to do so, it has done that with as much information as it possibly can, just like our clients want as much information as they possibly can to decide whether or not they want to object to the settlement and we would argue that what you are hearing today is what you have been hearing for many months, which is that in the perspective of the petitioners, Article will limit our ability and the Court's ability to get a full record, and we respectfully submit the CPLR requires the Court to convert the proceeding. Thank you, your Honor.

39 THE COURT: Do you want to talk now maybe about the standard of review? MR. INGBER: It is really relevant to the point Mr. Cyrulnik just made. THE COURT: It is the perfect next step. MR. INGBER: And Ms. Patrick alluded to the standard of review here and the threshold 0 question -- we have been suggesting that to the Court for many months -- and it is a threshold question that will guide discovery, will guide the parties in determining what they need to prove and it is relevant to the Court's consideration of the ultimate question, and has nothing to do with what label you give this proceeding. The standard of review comes from the cases, it comes from the restatement of trusts and it comes from the contract and the standard is very clear. Your Honor, may I hand this up? THE COURT: What is it? MR. INGBER: It is a very short slide deck that has some provisions from the restatement -- from the case, some quotes from

40 0 the relevant case and also the contract provisions. THE COURT: Have you shown it to the other side? (Document handed to counsel.) THE COURT: Sort of like a slide show, but on paper. (Document handed to the Court.) 0 MR. INGBER: So the standard of review your Honor, this is from In re Stillman and Restatement (Second) of Trusts. "If discretion is conferred upon the trustee in the exercise of a power, the court will not interfere unless the trustee in exercising or failing to exercise the power acts dishonestly, or with an improper even though not dishonest motive, or fails to use his judgment or acts beyond the bounds of reasonable judgment." That is from In re Stillman, also from the Restatement (Second) of Trusts. The restatement goes on to say -- this is the Restatement (Second) of Trusts and First from. "Where discretion is conferred upon the trustee with respect to the exercise of a power, its exercise is not subject to control by the

41 Court, except to prevent and abuse by the trustee of his discretion." Page of the slide. In the context of settlements by trustee, Page, your Honor, from the First and Second Restatement trusts, "If it is reasonably prudent to compromise such claims or submit them to arbitration, the trustee can properly do so. The trustee has discretion whether to sue or to 0 compromise claims or submit them to arbitration, if he acts within the bounds of a judgment." reasonable So, your Honor, we are not making up the standard. This is from the Restatement, from the case law. This standard has applied to trustees' discretionary decisions for about a hundred years. So that is what the Restatement says. That is what the cases say. What about the contract? THE COURT: Isn't that a pretty broad standard, reasonableness? MR. INGBER: It is not reasonableness of the settlement, it is whether the trustee had discretion, that is the first question and then the second question is whether the trustee abused that discretion. That is the standard. And it

42 comes out of the Restatement, comes out of the cases, but it also comes out of the contracts. The trust instrument, as Ms. Patrick just said earlier, every investor knew when they purchased the certificates would govern the trustee's duties, rights and powers. trust instrument says. This is what that If you turn to Page, your Honor, of 0 the deck. Section.0, the Duties of Trustee..0(ii); "The Trustee shall not be liable for an error of judgment made in good faith by a Responsible Officer of the Trustee, unless it shall be finally proven that the Trustee was negligent in ascertaining the pertinent facts.".0. "The Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement." So what these contract provisions are saying is that if the trustee was sued for entering into the settlement, it would need to show two things to avoid liability: Number One, it believed that the decision it made was within its discretion, and

43 Number Two, it acted in good faith. This is the standard that the investors acknowledged, accepted and opted into when they purchased their certificates. So in our view, your Honor, there is no way getting around the case law, the case law and the servicing agreement. If the trustee 0 exercised discretion, then the standard is abuse of discretion and that is exactly what happened here. The trustee had the right, not the duty, to enter into a settlement. It exercised its discretion in deciding to enter into the settlement. That is why the standard is deferential, that is why the standard is abuse of discretion and the analysis could end there, your Honor and should end there. Now, the objectors have tried to confuse the issue by focussing on the label that the Court should give to the trustee, so they have said well, Bank of New York/Mellon was an indentured trustee and there is no deference given to indentured trustees, there is only deference given to fiduciary trustees. And they have argued -- the fact that counsel argued to the Second Circuit is that the trustee was not a

44 fiduciary. This trustee, he said, is an indentured trustee, not a fiduciary trustee and the deference that a court would pay to an indentured trustee in our view at least is substantially different than the deference the Court would pay perhaps to an ordinary trustee. So they have argued at times that we are not a fiduciary trustee -- or an indentured 0 trustee, but then confused the issue in not arguing that we are a fiduciary trustee for the purposes of the fiduciary exception, and they have focused on the label. They have said it is relevant whether a prudent person matches the standard of review and I think it becomes they argue that it becomes less deferential if an event of default has occurred, and that has to be relevant to the Court's consideration. They are right about one thing, your Honor, and that is that Bank of New York was not a fiduciary trustee but everything else is wrong and it is not supported by the cases. What label you give the trustee, ordinary trustee, fiduciary trustee, indentured trustee, prudent person, is irrelevant. It is irrelevant whether an event of default was occurred or hasn't occurred.

45 The abuse of discretion standard applies if the decision by the trustee was discretionary. If the answer is yes, as it is here, this was a discretionary decision, then the standard is abuse of discretion. Again, your Honor, it is really that simple. It is from the cases, the Restatement 0 and the contracts. Now, the objectors make two other points I would like to address, I will try to address briefly and I response. think they really compel a The first is that the trustee didn't really exercise its discretion here, it delegated its discretion to the institutional investors because they actively participated in the settlement process. Your Honor, the trustee actively participated in the settlement negotiations. The trustee, not the institutional investors, retained and relied on experts in evaluating the decision of whether to settle. The trustee has its own counsel. The trustee, not the institutional investors, signed the settlement agreement. The trustee, not the

46 institutional investors, filed a verified petition explaining why it entered into the decision to settle, the ground upon which it relied in make the decision to settle, why they thought this was trust. in the best interest of the The trustee is here defending the decision to settle. Now, did the institutional 0 investors actively participate in the negotiating of the settlement? Absolutely. Was it relevant to the trustee that these sophisticated institutional investors who have holdings in these securities exceeding $0 billion thought that this was a fabulous settlement after studying the settlement and helping to negotiate the settlement? Was that relevant to the trustee's consideration? No question about it, but that is not a delegation of discretion to the institutional investors. We signed the settlement agreement and we are here to defend it. I don't know how it is even possible that we could have delegated that type of decision or any decision to the institutional investors. The final point, your Honor, that the

47 objectors have made is that there were conflicts of interest, the trustee was laboring under a conflict and therefore, the standard of review should not be deferential, but consider the cases. Start with the cases they rely on. The Milea vs Hugunin case from 0. On the face of the transaction, it was obvious that the trust was a trust beneficiary -- the 0 trustee, I am sorry, was a trust beneficiary. The City Bank Farmers Trust Company vs Cannon case. A court trustee had to make a decision about whether to buy or sell shares for the trust in the corporate trustee's business. That was a conflicted transaction on its face. In re Bruches, Second Department, the trustees, wife and son, stood to benefit directly from the distribution that the trustee was making. In Birnbaum vs Birnbaum, that is Fourth Department, the trustee made the trust beneficiaries use trust assets to pay back a loan to the trustee, a $0,000 loan and he made the the plaintiffs. On the face of those transactions, they trust beneficiary sign a release and discharged

48 were obviously self-dealing transactions. Now, contrast those cases, those very obviously self-dealing transactions and conflicted trustees with what has been alleged here: And I focus on alleged, because there is no basis in fact, there is no basis in reality for these allegations, Number One four of them. and there is 0 Number One, a securitization trustee having its pre existing contractual indemnity confirmed by the indemnitor in a side letter. That is a letter attached to the verified petition for anyone to see. A variation of the word confirm is used six times in this two-page letter, so it was the indemnitor confirming the contractual indemnity from the pooling and servicing agreement. It is in Section 0 of the PSA. That was not a financial benefit to the trustee, not a net positive to the trustee of having this indemnity confirmed. Number Two. A guarantee from Bank of argued seven times that this guarantee from Bank of New York was a significant financial benefit New York. The objectors, your Honor, have