17-2469-cv HoldCo Asset Mgmt., L.P. v. Wells Fargo Bank, N.A.

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRON IC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated Term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York on the

6 th day of July, two thousand eighteen.

Present: ROSEMARY S. POOLER, REENA RAGGI, PETER W. HALL, Circuit Judges

.

_____________________________________________________

WELLS FARGO BANK, N. A., solely in its Capacity as Trustee for Soloso CDO 2005-1 Ltd.,

Plaintiff-Counter-Defendant-Appellee

,

v. 17-2469-cv

HOLDCO ASSET MANAGEMENT, L.P., HOLDCO OPPORTUNITIES FUND II, L.P., OPPORTUNITIES II LTD., Defendants-Counter-Cla imants-Appellants

.

_____________________________________________________

Appearing for Appellants: Jeffrey D. Ster nklar (Seth B. McCormick, Brown McCormick LLC, on the brief ), Boston, MA.2 Appearing for Appellee: Michael M. Kr auss, DLA Piper LLP (Peter J. Farrell, on the brief ), Minneapolis, MN.

Appeal from the United States Di strict Court for the Southern Di strict of New York (Forrest, J. ).

ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of said District Court be and it hereby is AFFIRMED

.

Appellants HoldCo Asset Management, L.P ., HoldCo Opportunities Fund II, L.P., and Opportunities II Ltd. (collectiv ely, “HoldCo”) appeal from th e July 12, 2017 judgment of the
District Court for the Southern District of New York (Forrest, J. ) granting summary judgment to Appellee Wells Fargo Bank, N.A., denying summar y judgment to HoldCo on Wells Fargo’s declaratory judgment action, and dismissing Holdco’s counterclai ms. We assume the parties’ familiarity with the underlying facts, procedural history, and specification of issues for review.

Wells Fargo is the trustee of Soloso CDO 2005-1 Ltd., a special-purpose entity that issued collateralized debt obligations (“CDOs ”) backed by investments in trust-preferred
securities. See Lansuppe Feeder, LLC v. Wells Fargo Bank , No. 15-cv-7034, 2016 WL 5477741, at *1 (S.D.N.Y. Sept. 29, 2016) appeal docketed , No. 16-4061 (2d Cir. Dec. 2, 2016). Complying with the terms of Soloso’s indenture and an order of the Southern District of New York, Wells Fargo announced on November 18, 2015 th at it would be selling off the collateral in
Soloso’s trust estate in a series of five auctions. See id. at *6 (the court order). Through intermediaries, HoldCo submitted the highest bids for four of the securities that Soloso held as
collateral at the fourth of these auctions. However, Wells Fargo, co mmunicating through its liquidation agent Dock Street Capi tal Management LLC, declined to sell three of these assets to HoldCo. Wells Fargo had instructed Dock Street not to sell any of the collateral for less than a predetermined reserve price that Wells Fargo se t for each asset, and HoldCo’s bids for these three securities fell below that price.

The primary issue we are called upon to de termine is whether the terms on which the auction was held allowed Wells Fargo to decl ine HoldCo’s offer or whether it was bound to accept it.

An auction is a type of sale, and, like any sa le, it is only complete when an offer has been accepted. In re NextWave Personal Communications, Inc. , 200 F.3d 43, 60 (2d Cir. 1999) (“As in contract law more generally, a sale by au ction is valid only upon offer and acceptance.”); N.Y.U.C.C. § 2-328; Restatement (Second) of Contracts § 28. New York follows the generally accepted practice of presuming that an auction is “with reserve,” meaning that an invitation to bid is an advertisement for prospective buyers to make offers to the seller, which the seller may freely accept or reject. See Drew v. John Deere Co. of Syracuse , 241 N.Y.S.2d 267, 269-70 (4th Dep’t 1963); NextWave , 200 F.3d at 60; see also 7 Am. Jur. 2d Auctions and Auctioneers § 34; N.Y.U.C.C. § 2-328(3); Uniform Land Transacti ons Act § 2-207(a); Restatement (Second) of Contracts § 28(1)(a). Unde r the “normal procedure,” then, “[t] here is no contract until the offer made by the bidder is accepted by the auctioneer’s ‘knocking down’ the property to him.” Drew

, 241 N.Y.S.2d at 269-70. A seller may, through “express statement,” modify the normal procedures. Id. at 270. If a seller clearly indicates th at an auction is “w ithout reserve” or3 “absolute,” the invitation to bid functions as an offer to sell to the highe st (qualified, bona-fide) bidder and bids are acceptances conditional on being the highest bid. Id. at 269; see also 7 Am. Jur. 2d Auctions and Auctioneers § 36. Conversel y, a seller may declare that an auction is “conditional,” reserving her righ t to reject offers even after the bidding has closed. See Stonehill Capital Mgmt., LLC v. Bank of the West , 28 N.Y.3d 439, 449 (2016); 7 Am. Jur. 2d Auctions and Auctioneers § 34.

HoldCo claims that Wells Fa rgo’s invitation to bid expres sly announced that the auction at issue was absolute. We disagree. The invitati on to bid contains no lan guage amounting to the “express statement” required by New York law to i ndicate an intent for an auction to proceed
without reserve. Drew , 241 N.Y.S.2d at 270; see also Stonehill , 28 N.Y.3d at 451 (holding that a seller must send a “a forthright, reasonable signa l” that “remove[s] any doubt of the parties’
intent” to hold an auction th at does not function in the norma l manner) (internal quotation marks omitted). “[F]ormulaic language,” such as that to which HoldCo points, will not do. Id. When the
invitation to bid states that “[e]ach item of Collateral will be awarded only to the best bidder who is also a qualified bidder ,” App’x at 380, it only recites the pr actice common to all auctions that the sale, if made at all, will be made to the highest qualified bidder. In New York, it is long established that “[t]he statement that the sale [will] be made to the highest bidder is not the equivalent of an announcement that the auction [will] be ‘without reserve.’” Drew , 241 N.Y.S.2d
at 270. The mere fact that invita tion to bid describes how the “wi nning bids shall be determined” without mentioning any discretionary determin ations, App’x at 380, is not enough to make it clear that the standard practice of treating bids as offers will not apply. When the invitation to bid “specifically states...that ‘[u]nless otherwise specif ied, the Sale of each security will settle not later than on a T+3 basis (the ‘Settlement Date ’),’” Appellants’ Br. at 20 (quoting App’x at 382), it only articulates a default term that will apply to the sale if made.

As the district court obser ved, this invitation to bid c ontains language that can be interpreted to affirmatively indicate an intent for the auction to proceed with reserve: “[t]he Trustee shall not be obligated to make any Sale and reserves the ri ght to sell all or a part of the Collateral at a subsequent public or private Sale.” App’x at 380; see Wells Fargo Bank, N.A. v. HoldCo Asset Mgmt., L.P. , No. 16-cv-6356, 2017 WL 2963501, at *8-11 (S.D.N.Y. July 11, 2017). HoldCo urges a contrary interpretation of th at language, construing it to mean that Wells Fargo reserves its right to cancel is not the sale of any individual piece of collateral at the auction but the auction itself. We are not persuaded. At best, HoldCo identifies textual ambiguity, which, operating against the background presumption of Ne w York law, indicates that the auction was
with reserve.

HoldCo posits that a New Jersey case created a test whereby a seller manifests an intent to conduct an auction without reserve whenever it “( i) calls for sealed bids ; (ii) states that the item will sell to the highest bidder and (iii) stat es that it will be delivered on a date certain.” Appellants’ Br. at 17. Aside from the fact that we are applying New York and not New Jersey law, the New Jersey case HoldCo relies on, Golfinopoulous v. Padula , 218 N.J. Super. 38 (App. Div. 1987), does not actually announce that test. Golfinopoulous held only that an invitation to bid that stated that a “[c]ontract will definitely be awarded on [t he date of the auction] to the highest responsible bidder” committed a seller to sell to the highest bidder. Id. at 46. The4 decision said nothing about the impo rtance (or not) of sealed bids or the importance (or not) of the date of delivery.

HoldCo also urges us to consider evidence it offers for the proposition that the custom in the CDO liquidation business is to reverse the generally applicable presumption, such that auctions proceed without reserve unless express language indicates otherwise. But the evidence it offers—assuming arguendo its admi ssibility—is not even evidence of a trade usage or custom.
HoldCo’s evidence at best establishes that once CDO collateral is offered at auction, it nearly always sells. But there could be many reasons for this pattern that have nothing to do with industry customs. The evidence, as the district court rightly observed, “offers no way to mediate between an expectation that all collateral will trade because it usually does and an expectation
that all collateral will trade because it must” acco rding to the terms of the auction or the custom of the industry. Wells Fargo , 2017 WL 2963501, at *13.

We have considered the remainder of Hold Co’s arguments and find them to be without merit. Accordingly, the order of the district court hereby is AFFIRMED.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk