UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION

Transcription

1 Case :-ml-0-doc-rnb Document - #:0 Filed 0// Page of Page ID 0 MUNGER, TOLLES & OLSON, LLP Marc T. G. Dworsky (State Bar No. ) Marc.Dworsky@mto.com Lawrence C. Barth (State Bar No. 0) Lawrence.Barth@mto.com Michael E. Soloff (State Bar No. ) Mike.Soloff@mto.com South Grand Avenue, Thirty-Fifth Floor Los Angeles, CA 00-0 Telephone: () -0 Facsimile: () -0 Attorneys for Defendant WELLS FARGO BANK, N.A. GIBSON, DUNN & CRUTCHER LLP Joel A. Feuer (State Bar No. 0) JFeuer@gibsondunn.com 0 Century Park East, Suite 000 Los Angeles, CA 00 Telephone: () -00 Facsimile: () - Attorneys for Defendant THE BANK OF NEW YORK MELLON [Additional counsel listed on signature page.] In re: MEDICAL CAPITAL SECURITIES LITIGATION This document relates to: NO. SACV 0- DOC (RNB) STEVEN MASONEK, et al., v. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA Plaintiffs, WELLS FARGO BANK, N.A., et al., Defendants. SOUTHERN DIVISION CASE NO. SA -ML- DOC (RNB) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF JOINT MOTION FOR SUMMARY JUDGMENT BY WELLS FARGO BANK, N.A. AND THE BANK OF NEW YORK MELLON

2 Case :-ml-0-doc-rnb Document - #:0 Filed 0// Page of Page ID 0 TABLE OF CONTENTS Page I. PREFATORY NOTE REGARDING PARALLEL MOTIONS... II. INTRODUCTION... III. UNCONTROVERTED FACTS... A. The SPCs, the NISAs, and the SPCs Funds... B. The Appointment of the Receiver by this Court... C. The Court Expressly Authorized the Receiver To Pursue Claims on Behalf of the SPCs Against the Banks... D. The Receiver s Pursuit of Claims on Behalf of the SPCs Against the Banks for Breach of the NISAs and the Unauthorized Release of the SPCs Funds... E. Plaintiffs Sole Claim Alleges that the Banks Breached the NISAs by Permitting Unauthorized Releases of the SPCs Funds, Thereby Causing Direct Injury to the SPCs and Derivative Injury to Plaintiffs as Creditors of the SPCs... IV. THE BANKS ARE ENTITLED TO... A. An Equity Receiver Has Authority To Assert Claims on Behalf of the Corporation in Receivership... B. The Authority of an Equity Receiver To Assert Claims on Behalf of the Corporation in Receivership Is Exclusive... C. The Receiver s Authority To Assert Claims on Behalf of the SPCs Against the Banks Is Exclusive and Precludes Plaintiffs Claims.... The Receiver s Claims Fall Within his Exclusive Powers Because They Seek Redress for Direct Injuries to the SPCs.... Plaintiffs Claims Are Inconsistent with the Receiver s Exclusive Powers Because They Seek Redress for Injuries that Are Derivative of Those Allegedly Suffered by the SPCs... D. This Action Should be Dismissed With Prejudice... V. CONCLUSION... -i-

3 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 FEDERAL CASES TABLE OF AUTHORITIES - ii - Page Ahcom, Ltd. v. Smeding, F.d (th Cir. 0)...,, CarrAmerica Realty Corp. v. Nvidia Corp., 0 F. App x (th Cir. 00)...passim Celotex Corp. v. Catrett, U.S. ()... Donell v. Kowell, F.d (th Cir. 00)..., Estate of Thelma v. Spirtos, F.d (th Cir. 00)... Hern Family Ltd. Partnership v. Compass Bank, Civ. No. :-cv-000, 0 WL (S.D. Tex. Mar., 0)..., In re Am. Cartage, Inc., F.d (st Cir. 0)... In re Educators Grp. Health Trust, F.d (th Cir. )... In re Van Dresser Corp., F.d (th Cir. )...,,, Mosier v. Stonefield Josephson, Inc., No. CV PSG (Ex), 0 WL 0 (C.D. Cal. Oct., 0)..., Nat l Am. Ins. Co. v. Ruppert Landscaping Co., Inc., F.d (th Cir. )...,, S.E.C. v. Capital Consultants LLC, F.d (th Cir. 00)...

4 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 TABLE OF AUTHORITIES (continued) Page S.E.C. v. Hardy, 0 F.d (th Cir. )... S.E.C. v. Sharp Capital, Inc., F.d (th Cir. 00)...,,, Scholes v. Lehmann, F.d 0 (th Cir. )...,, Smith v. Arthur Andersen LLP, F.d (th Cir. 00)...passim - iii -

5 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 I. PREFATORY NOTE REGARDING PARALLEL MOTIONS Defendants Wells Fargo Bank, N.A. ( Wells Fargo ) and The Bank of New York Mellon ( BNYM ) (collectively, the Banks ) respectfully submit the following points and authorities in support of their Motion for Summary Judgment in this action. Except for the identification of the Plaintiffs (see Section III. E), this Memorandum is identical to the ones filed in support of the concurrently noticed Summary Judgment Motions in two related mass actions: Abbate v. Wells Fargo, SA CV - DOC (RNB), and Bain v. Wells Fargo, SA CV -0 DOC (RNB). Bain is a constituent case, along with this action, in In re Medical Capital Securities Litigation. SA -ML- DOC (RNB). II. INTRODUCTION As a matter of law, Thomas Seaman the Court-appointed equity receiver (the Receiver ) over Medical Capital Holdings, Inc. and its affiliates ( MedCap ) has the exclusive power to assert claims against the Banks for breach of the Note Issuance and Security Agreements ( NISAs ). Under the uncontroverted facts presented, Plaintiffs have no such power and, accordingly, may not prosecute their action for breach of the NISAs. This action is thus ripe for summary adjudication in favor of the Banks. Four uncontestable facts support this Motion:. This Court appointed Thomas Seaman as the equity receiver of MedCap, including the special purpose corporations ( SPCs ) that entered into the NISAs with the Banks and then issued promissory notes (the Notes );. The Court expressly authorized the Receiver to pursue claims of the SPCs against the Banks for damages caused to the SPCs;. The Receiver has, in fact, pursued such claims against the Banks, including purported claims for breach of the NISAs, resulting in a proposed

6 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 settlement with the Banks in excess of $0 million ; and. Plaintiffs, certain holders of allegedly unpaid Notes, likewise have sued the Banks for breach of the NISAs, contending that the Banks alleged breaches injured the SPCs by dissipating their assets, and thereby rendered the SPCs unable to pay the Notes. Controlling law establishes that in the context of this case, where all of all of these uncontested facts are present Plaintiffs plainly lack the legal authority to pursue this action because this Court-appointed Receiver for the SPCs has exclusive authority to pursue and settle claims against third-parties to redress alleged injuries to the SPCs. Ahcom, Ltd. v. Smeding, F.d, (th Cir. 0); CarrAmerica Realty Corp. v. Nvidia Corp., 0 F. App x, - (th Cir. 00). Plaintiffs sole remaining claim in this action that the Banks alleged breaches of the NISAs caused direct financial injury to the SPCs, and thereby indirectly injured Plaintiffs as creditors of the SPCs under the Notes fits that description perfectly. The settled rule vesting a Receiver in circumstances such as these with exclusive authority to pursue and resolve claims on behalf of the SPCs against third parties and then to distribute the proceeds of those claims pursuant to a Courtapproved plan of distribution promotes the efficient and fair administration of receivership estates for the benefit of creditors. Permitting creditors instead to pursue their own actions (in competition with the Receiver) in order to try and collect the same assets from the same defendants for the same injury would result in unfairness, and would reward the most aggressive creditors at the expense of the rest of the receivership estate. Such a result would run counter to the wellestablished policy governing the administration of estates by a court-appointed The Receiver s Motion to Approve the Settlement with the Banks is pending and noticed for hearing on August, 0, the same date as this Motion. The Settlement is conditional upon, among other things, the granting of this Motion for Summary Judgment.

7 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 receiver or bankruptcy trustee. The Banks are therefore entitled to summary judgment dismissing this action with prejudice. The Receiver, not Plaintiffs, has the exclusive authority to assert claims for breach of the NISAs against the Banks. III. UNCONTROVERTED FACTS The following uncontroverted facts, described in the [Proposed] Statement of Uncontroverted Facts filed herewith, demonstrate that there is no genuine issue of material fact that Plaintiffs cannot establish that they have ownership of or standing, power and authority to pursue the claims they allege in this action. See Celotex Corp. v. Catrett, U.S., (). A. The SPCs, the NISAs, and the SPCs Funds Both the Receiver and Plaintiffs have asserted claims against the Banks for breach of the NISAs entered into by the Banks and the SPCs. Both the Receiver and Plaintiffs contend that the Banks breached the NISAs by wrongfully releasing funds owned by the SPCs. Prior motion practice has described the structure of the SPCs in detail. For purposes of this Motion, the critical uncontroverted facts are set forth below. Wells Fargo entered into NISAs with MP III and MP V, pursuant to which it agreed to serve as indenture trustee in connection with the Notes issued by those SPCs. (Uncontroverted Fact Numbers ( UF Nos. ).) BNYM entered into NISAs with MP II, MP IV, and MP VI, pursuant to which it agreed to serve as indenture trustee in connection with the Notes issued by those SPCs. (UF Nos. -.) Pursuant to each NISA, the proceeds from the SPC s sale of the associated series of Notes (as well as sums earned on assets acquired with those The relevant SPCs include Medical Provider Financial Corporation II ( MP II ), Medical Provider Financial Corporation III ( MP III ), Medical Provider Financial Corporation IV ( MP IV ), Medical Provider Funding Corporation V ( MP V ), and Medical Provider Funding Corporation VI ( MP VI ).

8 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 proceeds) were to be deposited into a trust account with the indenture trustee, and thereafter disbursed by the indenture trustee in accordance with the terms of the NISA. Pursuant to each NISA, the SPC was the owner of all sums deposited into the trust account (as well as the owner of all assets acquired with the Note proceeds and all other items that the NISA identifies as collateral for the repayment of the associated Notes), although the SPC granted a security interest therein to the indenture trustee. (UF Nos. -.) Each Note expressly incorporated the terms of the associated NISA. (UF No..) B. The Appointment of the Receiver by this Court Prior to the commencement of this action, the Court entered an Order (the Receivership Order ) in Securities & Exchange Commission v. Medical Capital Holdings, Inc., Case No. SA CV 0- DOC (RNBx) ( the SEC Action ), appointing Thomas A. Seaman as permanent receiver for MedCap including the several SPCs that issued the Notes. The Receivership Order expressly provided the Receiver with the full powers of an equity receiver, including but not limited to full power over all funds, assets and causes of action belonging to MedCap. The Receivership Order specifically authorized, empowered and directed the Receiver to employ attorneys, accountants and others to investigate and, where appropriate, institute, pursue and prosecute all claims and causes of action related to the activities of MedCap. (UF Nos. -.) C. The Court Expressly Authorized the Receiver To Pursue Claims on Behalf of the SPCs Against the Banks The Receiver first requested permission to hire special counsel in order to investigate claims against the Banks on March, 0. This Court granted the Receiver s request on May, 0. (UF No..) Then, on October, 0, the Receiver (with the support of the SEC) filed an ex parte application seeking this Court s approval to pursue claims against the Banks. The Receiver explained in his application: [T]he Receiver believes that it is in the best interests of the

9 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 Receivership Entities and their stakeholders for the Receiver to pursue claims against the Trustees because the Receiver is ideally-situated to effectively and cost efficiently pursue such claims, in that the Receiver has standing to pursue claims directly on behalf of the Receivership Entities, has in-house forensic accounting expertise and professional staff, has a discounted hourly fee arrangement with experienced litigation counsel, and any recovery on behalf of the plaintiff Receivership Entities would be available for all of their creditors. On October, 0, after conferring with the Receiver, his counsel, and counsel for the SEC, this Court granted the Receiver s application and approved the Receiver s plan to pursue the claims against the Banks. (UF Nos. -.) D. The Receiver s Pursuit of Claims on Behalf of the SPCs Against the Banks for Breach of the NISAs and the Unauthorized Release of the SPCs Funds As set forth in the Complaint filed in Seaman v. Wells Fargo Bank, N.A. et al. (filed June, 0), the Receiver alleges that Trustees breached their contractual duties under the NISAs, including by releasing funds from the trust accounts to pay administrative fees and to acquire receivable and non-receivable assets, when the documentation submitted by MedCap purportedly was deficient under the NISAs, or when that documentation purportedly demonstrated that the asset was worthless or could not be acquired consistent with the terms of the NISAs. The Receiver contends that the SPCs suffered injury from such alleged breaches because they reduced the assets available to the SPCs. (UF Nos. -.) The Receiver nevertheless did not immediately file a complaint against the Banks after obtaining this Court s authorization to do so. Instead he entered into tolling agreements with the Banks, and thereafter began settlement discussions. As a result, the Receiver now has entered into a conditional settlement with the Banks of any and all claims that the SPCs may have against them. Upon approval of that settlement, and the satisfaction of all other conditions to its effectiveness, the Receiver will dismiss with prejudice his action against the Banks. (UF Nos. 0-.)

10 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 E. Plaintiffs Sole Claim Alleges that the Banks Breached the NISAs by Permitting Unauthorized Releases of the SPCs Funds, Thereby Causing Direct Injury to the SPCs and Derivative Injury to Plaintiffs as Creditors of the SPCs Plaintiffs bring this action on behalf of a class consisting of all persons who (i) purchased or otherwise acquired Notes issued by MP II, MP III, MP IV, MP V and MP VI, and (ii) did not receive some or all of their principal or interest payments. The Class Administrator received, requests for exclusion from the class, including requests on behalf of some or all of the named plaintiffs in the Abbate and Bain mass actions. (UF No..) Like the Receiver, Plaintiffs allege a single cause of action against the Banks for breach of the NISAs (purportedly as third-party beneficiaries of those contracts). (UF Nos. -.) And, like the Receiver, Plaintiffs allege that the Banks breached the NISAs by improperly disbursing funds from the trust accounts, including (i) for unauthorized administrative fees, (ii) for the acquisition of impermissible assets on which the SPCs lost money, (iii) for the acquisition of overvalued assets, (iv) for the acquisition of fake assets, and (v) after an Event of Default should have been declared. Plaintiffs allege that they suffered indirect injury due to those alleged breaches because the SPCs have failed to pay the principal and interest owed under the Notes and do not have the assets with which to do so. (See UF Nos. -.) IV. THE BANKS ARE ENTITLED TO The sole legal issue raised by this Motion is whether, based on the uncontested facts in this record, the Receiver has exclusive authority to assert and resolve claims on behalf of the SPCs against the Banks for breach of the NISAs. Settled case law involving bankruptcy and receivership estates compels an affirmative answer to that question. See LOCAL RULES, U.S. DIST. CT. C.D. CAL. - ( Except as otherwise ordered by the Court, a receiver shall administer the estate as nearly as possible in accordance with the practice of estates in bankruptcy. ).

11 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 A. An Equity Receiver Has Authority To Assert Claims on Behalf of the Corporation in Receivership When a corporation enters into receivership, the equity receiver like a trustee in bankruptcy has standing to assert any and all claims the receivership entity holds for the redress of injuries allegedly suffered by the corporation. See Mosier v. Stonefield Josephson, Inc., No. CV PSG (Ex), 0 WL 0, at * (C.D. Cal. Oct., 0) (receiver has capacity to bring only such actions as could have been brought by the entity or individual whose property is in a receivership, and thus may sue only to redress injuries to the entity in receivership ). The critical test of whether a receiver may bring a claim held by the entity in receivership against a third party is whether the claim at issue seek[s] to redress injuries to the debtor itself caused by the defendants alleged conduct, and [i]f the debtor suffered an injury, the trustee has standing to pursue a claim seeking to rectify such injury. Smith v. Arthur Andersen LLP, F.d, 0 (th Cir. 00) (emphasis added). By contrast, [w]hen a third party has injured not the bankrupt corporation itself but a creditor of that corporation, the trustee in bankruptcy cannot bring suit against the third party. Id. at 0 0 (emphasis added, internal quotation marks and citation omitted). Put differently, [i]f a cause of action alleges only indirect harm to a creditor (i.e., an injury that derives from harm to the debtor), and the debtor could have raised a claim for its direct injury under the applicable law, then the cause of action belongs to the estate.... Conversely, if the cause of action does not explicitly or implicitly allege harm to the debtor, then the cause of action could not have been asserted by the debtor as of the commencement of the case, and thus is not property of the estate. S.E.C. v. Sharp Capital, Inc., F.d, (th Cir. 00) (enjoining investor suits against third party bank after SEC receiver settled claims with bank on behalf of the debtor) (ellipsis in original and emphasis

12 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 added, quoting In re Educators Grp. Health Trust, F.d, (th Cir. )). This principle is, of course, logical because, although creditors necessarily will benefit from any recovery obtained by a receiver for a direct injury to the corporation in receivership, the receiver is not asserting the creditors claims, but rather those of the corporation itself. See Donell v. Kowell, F.d, (th Cir. 00) (holding that although investors will ultimately benefit from the asset recovery, the Receiver is in fact suing to redress injuries that [the corporation in receivership] suffered ); Smith, F.d at 0 (although any injury to an insolvent corporation is necessarily felt by its creditors, a bankruptcy trustee properly may sue for such corporate injury, [t]he existence of such indirect injury to creditors notwithstanding ). B. The Authority of an Equity Receiver To Assert Claims on Behalf of the Corporation in Receivership Is Exclusive The power of a receiver (or bankruptcy trustee) to bring claims on behalf of the corporation in receivership against third parties for the benefit of the creditors of the estate is exclusive and necessarily divests all creditors of standing to bring such claims in their own name. Ahcom, Ltd. v. Smeding, F.d, (th Cir. 0) ( When the trustee does have standing to assert a debtor s claim, that standing is exclusive and divests all creditors of the power to bring the claim. (emphasis added)); see CarrAmerica Realty Corp. v. Nvidia Corp., 0 F. App x, (th Cir. 00) (holding that the Trustee has exclusive standing to sue with respect to all claims asserted by Creditors based on an underlying injury to [a debtor], and a debtor s creditors cannot prosecute such claims belonging to the estate unless the trustee first abandons such claims (emphasis added)); Estate of Thelma v. Spirtos, F.d, (th Cir. 00) (collecting precedent from other circuits, which have consistently held that a bankruptcy trustee is vested with the exclusive power to raise legal claims on behalf of the estate, and adopting the same rule to bar creditor from asserting RICO claim for injuries to debtor (emphasis

13 Case :-ml-0-doc-rnb Document - #:0 Filed 0// Page of Page ID 0 added)). This is so even if creditors outside of the receivership or bankruptcy context would have had standing to bring suit against third parties that caused both direct injury to the debtor corporation and indirect injury to the creditors. In re Van Dresser Corp., F.d, - (th Cir. ) (adopting defendants position that even if [the creditor] could validly assert a claim in state court absent the bankruptcy proceedings at issue here, the bankruptcy code changes this outcome. The code gives the trustee the exclusive right to prosecute any claim held by the bankrupt estate. Because the tortious conduct [the creditor] alleges also injured the debtors, only the debtors estates can recover from the defendants. (emphasis in original)); see CarrAmerica Realty Corp., 0 F. App x at (dismissing fraudulent conveyance and successor liability claims brought by contract-creditor of bankrupt corporation against third-party that allegedly paid inadequate consideration for debtor s assets); Parts II.C. & II.D below. Once a receivership (or bankruptcy) occurs, the debtor corporation s creditors must look solely to claims against the receivership (or bankruptcy) estate to recover their derivative losses. See In re Van Dresser Corp., F.d at. The established legal framework granting an equity receiver (or a bankruptcy trustee) exclusive authority to bring claims on behalf of the debtor s estate and thereby to divest the competing claims of creditors is efficient and fair. A receiver s authority to assert claims on behalf of the receivership estate is, of course, directly related to the receiver s role in marshaling the assets of the estate. A receiver wields the authority to bring the corporation s claims with a singular purpose: to maximize the value of the corporation[] for the benefit of [its] investors and any creditors. Scholes v. Lehmann, F.d 0, (th Cir. ). The exclusive power of a receiver to seek redress from third parties for any injury to the debtor serves the goals of efficiency and equity by avoiding any

14 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 risk of a disorganized scramble among investors or other creditors, whose injuries are merely derivative of those suffered by the entity in receivership. See Nat l Am. Ins. Co. v. Ruppert Landscaping Co., Inc., F.d, (th Cir. ) ( As a general matter [t]he trustee s single effort eliminates the many wasteful and competitive suits of individual creditors. (internal quotation marks and citation omitted)); Scholes, F.d at (noting that there should be no practical objection to suit by receiver, considering that the alternatives, such as individual investor suits, would multiply litigation, and class actions are clumsy devices ). Appointment of an equity receiver or bankruptcy trustee thus gives the court control over all of the assets of the debtor including any causes of action against third parties so that those assets can be efficiently liquidated and the proceeds equitably distributed to creditors of the entity. See, e.g., S.E.C. v. Capital Consultants LLC, F.d, (th Cir. 00) (noting that distributing [the entity s] assets equitably is one of the central purposes of the receivership ); S.E.C. v. Hardy, 0 F.d, (th Cir. ) ( [A] primary purpose of equity receiverships is to promote orderly and efficient administration of the estate by the district court for the benefit of creditors. ). At bottom, [r]eserving the action for the trustee maintains the integrity of the bankruptcy [or receivership] proceeding and ensures that individual creditors cannot hijack the bankruptcy [or receivership] process. If it were otherwise, there would be a multijurisdictional rush to judgment whose organizing principle could only be first-come-first-served. Nat l Am. Ins., F.d at (internal quotation marks and citation omitted). C. The Receiver s Authority To Assert Claims on Behalf of the SPCs Against the Banks Is Exclusive and Precludes Plaintiffs Claims The circumstances in this case provide a classic setting for application of the settled rule giving equity receivers exclusive authority to assert claims of the debtor. By its prior Orders appointing the Receiver and authorizing suit against the

15 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 Banks, this Court already has acknowledged that the Receiver has standing to bring claims against the Banks on behalf of the SPCs relating to the Banks performance of their contractual duties under the NISAs. (UF Nos. -.) And, as explained above, [w]hen the trustee does have standing to assert a debtor s claim, that standing is exclusive and divests all creditors of the power to bring the claim. Ahcom, F.d at (emphasis added). There may be situations in which a receiver chooses not to pursue claims that he has standing to pursue, but such circumstances are not present here. On the contrary, the Receiver has affirmatively pursued the SPCs claims relating to the Banks performance of their contractual duties under the NISAs; has filed a complaint alleging breaches of those duties; and has reached a significant settlement with the Banks. In such circumstances, the Receiver s claims against the Banks fall within the Receiver s exclusive authority. That conclusion is supported by a long line of clear precedent, discussed further below. That conclusion also is supported by the public policy behind receiverships. The Receiver contends that each of the Banks breached the NISAs between each Bank and the SPC with which the Bank contracted and that, as a result of those breaches, the SPCs were damaged because funds belonging to the SPCs were allegedly wrongfully released. The Receiver contends that, but for the Banks respective breaches, the SPCs would have had additional funds and assets with which to meet their obligations. The Banks vigorously deny such allegations. Plaintiffs in this action likewise contend that the Banks committed breaches by wrongfully permitting the release of funds belonging to the SPCs, which resulted in the SPCs not having sufficient funds to pay Plaintiffs the amounts allegedly owed on the Notes issued by the SPCs. Again, the Banks deny Plaintiffs allegations. The critical difference is that the Receiver seeks recovery from the Banks for the benefit of all the creditors of the receivership estate, to be distributed

16 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 only pursuant to a Court-approved plan of distribution. Plaintiffs seek to by-pass that plan of distribution by grabbing for themselves the assets in question the claims against the Banks for direct injuries to the SPCs without regard to either the other creditors (including those Noteholders who are pursuing the Banks in separate actions) or the judicial safeguards that otherwise assure a fair and equitable plan of distribution.. The Receiver s Claims Fall Within his Exclusive Powers Because They Seek Redress for Direct Injuries to the SPCs As noted, the Receiver seeks to recover from the Banks for alleged injuries to the SPCs which, the Receiver contends, were caused by the Banks alleged breaches of the NISAs. It has been recognized by a long line of cases both in the Ninth Circuit and elsewhere that claims seeking recovery for the improper disbursement of corporate funds which results in injury to the debtor corporation as well as claims for any other wrongful dissipation of corporate assets fall within the scope of a receiver s exclusive authority. See, e.g., Donell, F.d at (holding that SEC receiver has standing to bring this suit because... the Receiver is in fact suing to redress injuries that [the corporation] suffered when its managers caused [it] to commit waste and fraud in a Ponzi scheme); Scholes, F.d at (holding that SEC receiver had authority to bring fraudulent transfer claims because wrongful transfers were part of Ponzi scheme which removed assets from the corporations for an unauthorized purpose and by doing so injured the corporations ); Sharp Capital, F.d at (holding that equity receiver, and not plaintiff-investors, was entitled to seek recovery for any wrongful disbursement of investor funds deposited at third-party bank by corporation in receivership). Moreover, the scope of a receiver s exclusive authority encompasses claims against third parties who, like the Banks, are alleged to have owed, and violated, contractual duties to a corporation now in receivership, thus harming the

17 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 corporation. See, e.g., Smith, F.d at, 0 (holding that bankruptcy trustee had standing to bring breach of contract, malpractice, and breach of fiduciary duty claims against debtor s outside lawyers, auditors, and investment bankers who allegedly aided corporate director s wrongful conduct and as advisors to the firm and underwriters of its securities, provided the services and resources to make it happen ); Mosier, 0 WL 0, at * * (holding that SEC receiver could assert claims against corporation s auditor which owed, and breached, a contractual duty of care to [the corporation] to conduct and [sic] audit of the company s financial statements where it was alleged that, if the misuse of funds [in a Ponzi scheme] had been revealed earlier, additional losses would have not been incurred ).. Plaintiffs Claims Are Inconsistent with the Receiver s Exclusive Powers Because They Seek Redress for Injuries that Are Derivative of Those Allegedly Suffered by the SPCs In the first instance, it is beyond dispute that Plaintiffs claims are, at a minimum, similar in object and purpose to the Receiver s claims. Nat l Am. Ins., F.d at. Indeed, the funds that Plaintiffs allege were improperly disbursed by the Banks constituted property owned by the SPCs themselves. This alone is sufficient to preclude Plaintiffs claims. Id. Further, the Banks alleged breaches of the NISAs harmed the SPCs in the first instance, and any injury suffered by Plaintiffs as alleged third-party beneficiaries under the NISAs (i.e., the alleged failure of the SPCs to repay the Notes) is derivative of the injury to the SPCs now in receivership. Consequently, as a federal district court in Texas recently found, in granting summary judgment against a contractual third-party beneficiary asserting breach of contract claims that sought to redress the same injur[ies] and ma[d]e the same underlying allegations as those that could be asserted by the bankruptcy estate : Plaintiffs claims belong to the bankruptcy estate. Defendant allegedly breached its agreement with [the debtor]; therefore, the

18 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 initial injury in this case was a direct injury to [the debtor]. Plaintiffs bring claims for injuries due to Defendant s alleged breach of its contract with [the debtor]; as such, Plaintiffs were only injured in this case as an indirect result of the alleged breach of the agreement. As such, Plaintiffs injuries are secondary to the injuries sustained by [the debtor.] Hern Family Ltd. Partnership v. Compass Bank, Civ. No. :-cv-000, 0 WL, at * (S.D. Tex. Mar., 0) (emphasis in original, internal quotation marks and citation omitted); see also In re Am. Cartage, Inc., F.d, -, 0 (st Cir. 0) (holding bankruptcy trustee has exclusive power to prosecute and settle tort claims that a secured creditor had brought for alleged misappropriation of the debtor s assets because the alleged harm was directly adverse to the debtor s interests and diminished its estate, and, by contrast, the injury to the creditor derive[d] solely from an injury to the debtor : under these circumstances, the[] claims must be considered part of the debtor s estate ). Of course, the dissipation of assets limited [each SPC s] ability to repay its debts, including the debts allegedly owed to Plaintiffs, but acknowledgement of this fact is not, however, a concession that only the creditors, and not [the insolvent company] itself, have sustained any injury. Instead, it is a recognition of the economic reality that any injury to an insolvent firm is necessarily felt by its creditors. Smith, F.d at 0; see CarrAmerica Realty Corp., 0 F. App x at ( While the Creditors were harmed by the alleged diminution of [the bankruptcy] estate, depleting the assets available for the bankruptcy estate constitutes an injury to the bankrupt corporation itself, not an individual creditor of that corporation. ). [T]he Trustee has exclusive standing to sue with respect to all claims asserted by Creditors based on an underlying injury to [the insolvent corporation]. CarrAmerica Realty Corp., 0 F. App x at. The Sixth Circuit s reasoning in In re Van Dresser Corporation underscores the conclusion that the Receiver and not Plaintiffs is the only party

19 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 with authority to seek damages allegedly caused by violation of the Banks contracts with the SPCs. There, a shareholder who had guaranteed loans to a now bankrupt corporation s subsidiaries alleged that a corporate officer, with the assistance of a bank employee, stole $. million in corporate assets; that these actions breached duties owed directly to the shareholder; that, as a result, the corporation s subsidiaries could not repay their loans; and that the shareholder therefore had to pay $. million on his guaranty. F.d at. But the Sixth Circuit rejected the shareholder s suggestion that both he and the bankruptcy trustees could pursue claims against the defendants, and instead dismissed the shareholder s claims. It reached this conclusion because, logically, the defendants allegedly took a finite amount of money from [the debtors], and they cannot be required to repay the principal amount of $. million more than once. Id. at. And, while both the shareholder as guarantor and the corporation could validly state overlapping claims for relief outside the bankruptcy context, the Sixth Circuit agreed with the defendants that the bankruptcy code changes this outcome. The code gives the trustee the exclusive right to prosecute any claim held by the bankrupt estate. Id. at (emphasis in original). Therefore, because only one recovery could be had from the defendants for the loss of the corporate assets, the claims [of the shareholder and the bankruptcy trustees] are not truly independent, and by default the claims are exclusively property of the trustees in bankruptcy. Id. at - (emphasis added). The Fifth Circuit faced analogous circumstances in Sharp Capital. There, the SEC brought suit for securities fraud in federal district court against an investment advisory company and its principal, and obtained an order appointing a special master to serve as equity receiver. A group of investors thereafter brought The court adeptly summed up this proposition: If a thief steals a diamond necklace from a married couple, the husband cannot recover the value of the converted necklace from the thief after the wife has already recovered the necklace itself. Id.

20 Case :-ml-0-doc-rnb Document - #: Filed 0// Page 0 of Page ID 0 suit in state court against (among others) the bank where the investment advisory firm deposited investor funds into an account owned by the firm. Both the special master and the investors alleged that the assets held in the custodial account maintained by the bank thereafter were misappropriated by the investment advisory company. The special master later settled the investment advisory company s claims against the bank. The district court approved this settlement and permanently enjoined the investor group from pursuing their claims against the bank. The investors appealed. The Fifth Circuit found that the claims asserted by the investor group were derivative of the rights of the investment advisory company, which was now in receivership, and thus fell under the authority of the special master. F.d at -. Recognizing that the cause of action alleges only indirect harm to a creditor (i.e. an injury that derives from harm to the debtor), the court found that the special master properly had sought recovery of these investment dollars and had chosen to settle those claims and that, accordingly, duplicative claims by investors in state court were subject to restraint through an injunction. Id. The court reached this conclusion because any claims related to the Bank s role in the removal of investor funds from the accounts in violation of the Advisory and Custody Agreement are claims that [the investment advisory company] could have brought, and thus within the authority of the Special Master. Id. at. Here, as in Sharp Capital and Van Dresser, Plaintiffs seek to recover from the Banks the same damages that the SPCs, through the Receiver, seek to recover. And their allegations against the Banks that the Banks breached contracts with or duties owed to the SPCs assert precisely the type of allegedly wrongful expenditure of corporate assets [which] qualifies as an injury to the [insolvent company] for which the Receiver and only the Receiver may seek recovery. Smith, F.d at 0; accord CarrAmerica Realty Corp., 0 F. App x at. Accordingly, Plaintiffs claims are barred by the exclusive authority

21 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 of the Receiver to assert the claims on behalf of the SPCs against the Banks. Ultimately, if the Receiver did not have exclusive power to bring the claims for breach of the NISAs against the Banks, then the administration of the MedCap estate could be plagued by the very mischief that the law prophylactically seeks to avoid: competition between Noteholders and the Receiver (and among different groups of Noteholders) for recovery of the same assets, resulting in an unfair and inequitable distribution of assets to all the creditors that is not based upon a Court-approved plan of distribution. D. This Action Should be Dismissed With Prejudice As courts in this Circuit and elsewhere have recognized, dismissal of this action is required because Plaintiffs assert the same claim, and seek recovery for the same injury, as the Receiver. See, e.g., CarrAmerica Realty Corp., 0 F. App x at (affirming dismissal of claims by creditors for depletion of corporate assets because such harm constitutes an injury to the bankrupt corporation itself, not an individual creditor of that corporation ); Sharp Capital, F.d at, - (affirming injunction issued in SEC receivership action barring continued prosecution of investor suits against depository bank after SEC receiver settled with depository bank); Van Dresser, F.d at - (affirming dismissal of claims by shareholder-creditor for losses relating to its guarantee of bankrupt corporation s loans because plaintiff has cited no case for the proposition that a [bankrupt] corporation and its shareholder can both recover fully for a single tortious action, and we conclude that none exists ); Nat l Am. Ins., F.d at 0- (affirming dismissal of the tortious interference with contract and successor liability claims brought by sureties of debtor which shared th[e] same underlying focus as claims available to bankruptcy trustee); Hern Family Ltd. Partnership, 0 WL at * (granting summary judgment against breach of contract claim brought by alleged third-party beneficiary because the [bankruptcy] trustee could have brought the same claims as of the commencement of the bankruptcy estate, and

22 Case :-ml-0-doc-rnb Document - #: Filed 0// Page of Page ID 0 Plaintiffs complain about injuries that are derivative of [the debtor s] injuries ). V. CONCLUSION Plaintiffs will receive compensation for their claimed derivative injuries by virtue of Court-approved distributions from the receivership estate to all Noteholders. See generally Van Dresser, F.d at (shareholder-creditor, whose individual claim against third-parties for misappropriating bankrupt corporations assets was barred by actions commenced by bankruptcy trustees, must recoup whatever portion he can of [his loss] from the bankruptcy estates ). Such distributions will include any proceeds from the Receiver s claim against the Banks for alleged breaches of the NISAs (which will exceed $0 million if the pending conditional settlement is approved and becomes effective). What Plaintiffs may not do under settled law and the uncontroverted facts of this case is pursue their own claims for what are plainly derivative injuries resulting from alleged direct injuries to the SPCs themselves. Accordingly, the Banks are entitled to summary judgment in their favor in this action. See Receiver s Reply To Wells Fargo Bank, N.A. s Response To Receiver s Objections To The Noteholder Claims Submitted By Wells Fargo Bank, N.A. On Behalf Of Noteholders at ( The Receiver has included claims for all Noteholders with principal amounts due regardless of whether the Noteholder filed a Claim Form or not. ).

23 Case :-ml-0-doc-rnb Document - #:0 Filed 0// Page of Page ID 0 DATED: June, 0 GIBSON, DUNN & CRUTCHER LLP By: /s/ JOEL A. FEUER MARK A. KIRSCH* LADAN F. STEWART* *Admitted pro hac vice Attorneys for Defendant THE BANK OF NEW YORK MELLON MUNGER, TOLLES & OLSON LLP By: /s/ MICHAEL E. SOLOFF Attorneys for Defendant WELLS FARGO BANK, N.A.