Judge Gregory W. Carman of the United States Court of International Trade, sitting *

by designation.

09-3029-cv

E*TRADE Fin. Corp. v. Deutsche Bank AG

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 ELECTRONIC 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 Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of

New York, on the 30 day of March, two thousand ten. th

PRESENT: REENA RAGGI,

PETER W. HALL,

Circuit Judges,

GREGORY W. CARMAN,

Judge.

*

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E*TRADE FINANCIAL CORPORATION and

E*TRADE BANK, a Federally Chartered Savings 

Bank,

 Plaintiffs-Appellees,

v. No. 09-3029-cv

DEUTSCHE BANK AG,

 Defendant-Appellant.

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APPEARING FOR APPELLANT: SCOTT D. MUSOFF (Jeremy A. Berman, Jason

C. Vigna, Christos Ravanides, on the brief),

Skadden, Arps, Slate, Meagher & Flom LLP,

New York, New York.
2

APPEARING FOR APPELLEES: DOUGLAS P. LOBEL (David A. Vogel, Robert

T. Cahill, on the brief), Cooley Godward Kronish

LLP, Reston, Virginia.

Appeal from the United States District Court for the Southern District of New York

(Robert W. Sweet, Judge).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the corrected judgment entered on July 2, 2009, and the order entered on

February 5, 2010, are AFFIRMED.

Plaintiffs E*TRADE Financial Corporation and E*TRADE Bank (collectively,

“E*TRADE”) sued defendant Deutsche Bank AG for breach of a stock purchase agreement

(“SPA”), by which E*TRADE acquired the Deutsche Recreational Asset Funding

Corporation (“DRAFCO”). Deutsche Bank now appeals from a $17,490,924.85 judgment

entered in E*TRADE’s favor after a thirteen-day bench trial. We review the district court’s

factual findings for clear error and its conclusions of law, and mixed fact and law, de novo.

See Skoros v. City of New York, 437 F.3d 1, 12 (2d Cir. 2006). When, as in this case, the

relevant contract language is unambiguous, its meaning is a question of law for the court to

decide. See JA Apparel Corp. v. Abboud, 568 F.3d 390, 397 (2d Cir. 2009). We assume the

parties’ familiarity with the facts and record of prior proceedings, which we reference only

as necessary to explain our decision to affirm.
3

1. Deutsche Bank Breached its Covenant in § 2.06

The SPA contained a covenant that Deutsche Bank would prepare a closing balance

sheet “in accordance with U.S. GAAP [Generally Accepted Accounting Principles].” SPA

§ 2.06(a). Based on extensive factual findings, the district court concluded that Deutsche

Bank breached this covenant by (1) including (a) servicing fees and (b) liquidation expenses

in its calculation of residual interest and gain on sale at the time of securitization but failing

to deduct those expenses on DRAFCO’s tax returns when they were actually paid, and (2)

calculating the value of the deferred tax asset (“DTA”) using a blended tax rate accounting

for both federal and state taxes when it was not probable that DRAFCO would have state tax

liability, thereby (3) causing the DTA on the closing balance sheet to be overstated by more

than $11 million. As the district court found, Deutsche Bank’s own accountant effectively

acknowledged the inadequacy of these numbers by later referring to the DTA audit as

“garbage in, garbage out.” E*TRADE Fin. Corp. v. Deutsche Bank AG, 631 F. Supp. 2d

313, 364 (S.D.N.Y. 2009).

On appeal, Deutsche Bank does not challenge the district court’s finding that the DTA

was overstated. Rather, it submits that its failure properly to account for the DTA is

essentially a dispute regarding an “amount[] reflected on the Closing Balance Sheet,” which

may only be resolved through a post-closing purchase price adjustment process. SPA

§ 2.06(b)(ii). According to Deutsche Bank, the district court impermissibly disturbed the

“final, binding and conclusive” closing balance sheet, id., by concluding that E*TRADE’s
4

breach of contract claim was instead amenable to the indemnity provisions in SPA §§ 9.01

and 9.02. We are not persuaded.

As in Westmoreland Coal Co. v. Entech, Inc.,100 N.Y.2d 352, 358, 763 N.Y.S.2d

525, 528 (2003), E*TRADE’s “objections related to accounting conventions, estimates, [and]

assumptions . . . unambiguously fall within the Agreement’s indemnification provisions, not

its purchase price adjustment provisions.” Deutsche Bank’s efforts to distinguish

Westmoreland are unavailing. Like the contract in Westmoreland, the SPA provides that

“[t]he sole and exclusive remedy for any breach of any representation, warranty, covenant

or agreement shall be pursuant to Section 9.02,” the SPA’s indemnity provision. SPA § 9.01.

That the parties in Westmoreland had not yet completed the purchase price adjustment

process does not alter our conclusion. If E*TRADE’s claims were not amenable to

resolution by an independent accountant within thirty days of closing, as Westmoreland

holds, then it follows that they are still not amenable to that process now.

Nor is Delta Holdings, Inc. v. National Distillers & Chemical Corp., 945 F.2d 1226

(2d Cir. 1991), to the contrary. There, the court suggested that plaintiffs could challenge the

accuracy of defendants’ accounting and their compliance with GAAP, but not underlying,

GAAP-compliant estimates that proved incorrect in the future. See id. at 1246-49. Here,

however, E*TRADE does not seek to shift the risk of future loss to Deutsche Bank, but

simply to enforce Deutsche Bank’s promise of “accounting accuracy and regularity.” Id. at

1248.
5

We recognize that some district courts in this circuit have suggested that disputes

regarding accounting methods should be resolved by purchase price adjustment procedures.

See Talegen Holdings, Inc. v. Fremont Gen. Corp., No. 98 Civ. 0366, 1998 WL 513066, at

*6 (S.D.N.Y. Aug. 19, 1998); Advanstar Commc’ns Inc. v. Beckley-Cardy, Inc., No. 93 Civ.

4230, 1994 WL 176981, at *3 (S.D.N.Y. May 6, 1994); Gestetner Holdings, PLC v. Nashua

Corp., 784 F. Supp. 78, 81 (S.D.N.Y. 1992). Like the district court, we conclude that these

cases are distinguishable. We “merely construe[] the agreement before [the court] and [do]

not prohibit sophisticated business parties from agreeing to varying means of resolving

disputes over adjustments to purchase price.” Violin Entm’t Acquisition Co. v. Virgin

Entm’t Holdings, Inc., 59 A.D.3d 171, 172, 871 N.Y.S.2d 613, 613-14 (1st Dep’t 2009)

(internal quotation marks omitted).

Finally, we need not addressthe parties’ argumentsregarding the breach of warranties

contained in §§ 3.06, 3.07, and 3.14. Because we conclude that E*TRADE may recover, via

§§ 9.01 and 9.02, the full amount by which it overpaid for DRAFCO under § 2.06, any error

made by the district court in construing these other provisions would, in any event, be

harmless.

2. E*TRADE Is Entitled to Damages for its Overpayment for DRAFCO

As a direct result of Deutsche Bank’s breach, E*TRADE Bank suffered damages of

$11,566,838, the amount by which the DTA was overstated. Although the subsequent sale

of DRAFCO to E*TRADE Financial may have compensated E*TRADE Bank, cf. Ostano
6

Commerzanstalt v. Telewide Sys., Inc., 794 F.2d 763, 766 (2d Cir. 1986) (noting that party

“suffered no out-of-pocket loss” when it sold purchase induced by fraud for more than it

paid), we cannot ignore, as Deutsche Bank urges, that E*TRADE Bank merely transferred

the loss to its affiliate, E*TRADE Financial. Contemplating circumstances where the

transaction causes damage to a related entity, the SPA plainly extends indemnity to “the

Purchaser and its Affiliates.” SPA § 9.02 (emphasis added). We therefore conclude that,

under the SPA, E*TRADE Financial has standing to recover losses directly caused by

Deutsche Bank’s breach of its obligation to comply with GAAP.

Nor are we persuaded by Deutsche Bank’s arguments as to the award. E*TRADE

Financial’s damages are not “merely speculative, possible or imaginary”; they are

“reasonably certain and directly traceable to the breach, not remote or the result of other

intervening causes.” Kenford Co. v. County of Erie, 67 N.Y.2d 257, 261, 502 N.Y.S.2d 131,

132 (1986) (citing Wakeman v. Wheeler & Wilson Mfg. Co., 101 N.Y. 205, 209 (1886)).

Nor is E*TRADE Financial’s loss offset either by tax refunds that it could seek for

DRAFCO’s overstatement of taxable income in past years (as the district court observed,

under §§ 7.01 and 7.02 of the SPA, those refunds would be due only to Deutsche Bank) or

by E*TRADE Financial’s write-down of the DTA and corresponding increase in goodwill.

Finally, because we conclude simply that E*TRADE Financial may recover the full

amount of overpayment for DRAFCO as an “Affiliate” under § 9.02, we need not address
LIBOR stands for the London inter-bank offered rate. Here, the parties defined 1

LIBOR in § 1.01 of the SPA. [A 1176-77]

7

Deutsche Bank’s argument that E*TRADE failed to prove any actual tax losses supporting

the district court’s damages award.

3. Prejudgment Interest

Deutsche Bank submits that the district court erred in computing prejudgment interest

at the New York statutory rate, see N.Y. C.P.L.R. § 5004, rather than at LIBOR. We 1

disagree. Under New York law, the district court was required to award prejudgment interest

at the statutory rate, see Action S.A. v. Marc Rich & Co., 951 F.2d 504, 508 (2d Cir. 1991),

unless the parties contracted for a different rate, see O’Brien v. Young, 95 N.Y. 428, 432-33

(1884); NYCTL 1998-2 Trust v. Wagner, 61 A.D.3d 728, 729, 876 N.Y.S.2d 522, 523 (2d

Dep’t 2009). Like the district court, we conclude that § 2.06(d) provides that only payments

made “pursuant to Section 2.06(c) shall bear interest . . . at the LIBOR Rate.” Section

2.06(c) mandates payments for the difference between tangible stockholder’s equity recorded

on the reference and closing balance sheets. The district court’s damages award was not such

a payment, but rather an indemnity under §§ 9.01 and 9.02 for Deutsche Bank’s breach of

its promise to comply with GAAP. That the amount of E*TRADE’s injured expectation was

also the amount by which it “overpaid” for DRAFCO does not transform this indemnity into

a post-closing purchase price adjustment mandated by § 2.06(c). Accordingly, the district

court correctly awarded prejudgment interest at the statutory rate, see O’Brien v. Young, 95
8

N.Y. at 432-33, accruing from the date of the sale of DRAFCO stock on October 20, 2003,

see Reno v. Bull, 226 N.Y. 546, 552-53 (1919).

4. Attorneys’ Fees

Deutsche Bank finally challengesthe district court’s award of attorneys’ fees. “Under

the American Rule, it is well established that attorneys’ fees are not ordinarily recoverable

in the absence of a statute or enforceable contract providing therefor.” United States Fid. &

Guar. Co. v. Braspetro Oil Servs. Co. (“Braspetro”), 369 F.3d 34, 74 (2d Cir. 2004) (internal

quotation marks and alterations omitted)). A “court should not infer a party’s intention to

waive the benefit of the rule unless the intention to do so is unmistakably clear from the

language of the promise.” Hooper Assocs., Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487,

492, 549 N.Y.S.2d 365, 367 (1989); accord Coastal Power Int’l, Ltd. v. Transcon. Capital

Corp., 182 F.3d 163, 165 (2d Cir. 1999). 

Applying these standards, we conclude that the parties’ intention to indemnify

attorneys’ fees is unmistakably clear from language stating that E*TRADE “shall be

indemnified and held harmless by the Seller from and against all liabilities, costs or expenses

(including, without limitation, reasonable attorneys’ fees).” SPA § 9.02 (emphasis added).

Deutsche Bank’s argument that this language applies only to third-party claims is unavailing

because the SPA makes § 9.02 the “sole and exclusive remedy for any breach of any

representation, warranty, covenant or agreement,” id. § 9.01, including disputes between the

parties. Further, the SPA has a separate indemnity provision for third-party claims.
9

The cases cited by Deutsche Bank are not to the contrary. For example, in Braspetro,

we concluded that a contract providing for “legal costs” was not “unmistakably clear.” 369

F.3d at 75-78; see also Dolphin Direct Equity Partners, LP v. Interactive Motorsports &

Entm’t Corp., No. 08 Civ. 1558, 2009 WL 577916, at *10 (S.D.N.Y. Mar. 2, 2009)

(concluding that contract “does not contain ‘unmistakably clear’ language of an intent to

indemnify attorneys’ fees” when it “does [not] mention attorneys’ fees” (internal quotation

marks omitted)). Here, however, the SPA plainly provides for “attorneys’ fees.”

Finally, to the extent Deutsche Bank challenges the amount of attorneys’ fees

awarded, “a district court has broad discretion in awarding attorneys’ fees, and an award of

such fees may be set aside only for abuse of discretion.” McGuire v. Russell Miller, Inc., 1

F.3d 1306, 1313 (2d Cir. 1993). We identify no abuse of discretion in the district court’s

thoughtful and comprehensive fees decision.

We have considered Deutsche Bank’s remaining arguments on appeal and conclude

that they are without merit. Accordingly, we AFFIRM the district court’s July 2, 2009

corrected judgment and February 5, 2010 order.

FOR THE COURT:

CATHERINE O’HAGAN WOLFE, Clerk of Court