Court Opinion

ID: 3149310
Source: CourtListenerOpinion
Date Created: 2015-10-23 23:05:32.705068+00
Date Added: 2024-06-11T12:07:30.942103
License: Public Domain

This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 122
Nomura Asset Capital Corporation,
et al.,
        Respondents-Appellants
        v.
Cadwalader, Wickersham & Taft
LLP,
        Appellant-Respondent.

          David R. Marriott, for appellant-respondent.
          James T. Potter, for respondents-appellants.

RIVERA, J.:
          On these cross appeals from an order granting partial
summary judgment in a legal malpractice action, we conclude that
no triable issues of fact exist with respect to the first cause
of action, which alleges that counsel failed to properly advise
and conduct requisite due diligence in a mortgage securitization

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matter.   Therefore, we modify the Appellate Division order, grant
summary judgment to dismiss the first cause of action in its
entirety, and otherwise affirm.

                                  I.
          At times relevant to this appeal, plaintiffs, Nomura
Asset Capital Corporation and Asset Securitization Corporation
(Nomura), and defendant, the law firm of Cadwalader, Wickersham &
Taft, LLP (Cadwalader), were working in the mortgage
securitization field.   In this industry, an investment bank
sources and funds mortgages on properties with the objective of
aggregating the mortgages into securitization pools.   The loans
are then sold to a trust, which issues securities in the form of
certificates to investors. The certificates entitle the holders
to a portion of the revenue stream produced by payments made by
the mortgage borrowers.1
          Nomura established a commercial mortgage-backed
securities business,2 and engaged Cadwalader to advise and confirm
that Nomura's securitized commercial mortgage loans qualified as

     1
       See Baxter Dunaway, Asset Securitization and Commercial
Mortgage-Backed Securities, 5 L. Distressed Real Est. § 56:1.
     2
      Commercial Mortgage-Backed Securities are "[s]ecurities
collateralized by a pool of mortgages on commercial real estate
in which all principal and interest from the mortgages flow to
certificate holders." The pools are secured by loans on
commercial properties. (Id.)

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real estate mortgage investment conduit (REMIC) trusts.3     Over
the course of several years, Cadwalader's work on Nomura REMIC
securitizations garnered immense profits for Nomura and
significant legal fees for Cadwalader.   However, the professional
relationship soured when a 1997 REMIC securitization, known as
the Series 1997-D5 securitization (D5 securitization), embroiled
Nomura in federal litigation and demands for a buy-back of a
defaulted loan.   In an attempt to recoup its losses associated
with the federal lawsuit, Nomura commenced the underlying legal
malpractice action against Cadwalader, alleging that Cadwalader
failed to provide appropriate legal advice and perform necessary
due diligence concerning the REMIC eligibility of the D5
securitization.
          Now, almost two decades since the events leading to the
original securitization, and almost ten years since Nomura filed
this action, the case has reached this Court, and we are
presented with the question whether Cadwalader is entitled to
summary judgment as to all or part of the first cause of action.
For the reasons set forth below, we conclude that Cadwalader has
established, as a matter of law, that summary judgment and
dismissal of the legal malpractice cause of action are merited in
this case.

     3
       REMIC qualification is advantageous because it allows the
trust to be treated as a pass-through entity and claim certain
tax exemptions (see 26 USC § 860A).

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                                II.
          We begin our analysis with a discussion of the relevant
legal requirements for REMIC qualification of the D5
securitization, and the events leading up to Cadwalader's opinion
as to the REMIC eligibility of the mortgage loan at the center of
the parties' dispute.   The D5 securitization consists of 156
loans, secured by first liens on 220 commercial and multi-family
properties.   For these mortgage loans to be pooled in a REMIC-
qualified trust they had to be in compliance with certain federal
Internal Revenue Code (Code) requirements, including that
substantially all of the assets be "qualified mortgages and
permitted investments" within the meaning of the Code (26 USC §
860D [a] [4]).
          Under the Code, a "qualified mortgage" is "principally
secured by an interest in real property" (26 USC § 860G [a] [3]
[A]), which in accordance with federal tax regulations, requires
that "the fair market value of the interest in real property
securing" the mortgage is "at least equal to 80 percent of the
adjusted issue price" of the loan, as of the loan origination
date or when the REMIC sponsor contributes the loan to the trust
(26 CFR 1.860G-2 [a] [1] [i], [a] [5]).   This is known as the
"80% test."
          Although pursuant to the federal regulations the 80%
test is based on a value-to-loan ratio (VTL) (see 26 CFR 1.860G-2
[a] [1] [i], [a] [5]), the parties agree that mortgage lenders,

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such as Nomura, typically utilize a loan-to-value ratio (LTV) for
underwriting purposes, and that Nomura understood that an 80% VTL
is equal to a 125% LTV.4   However, the LTV is based on the overall
value of property, whereas the regulations define REMIC real
property as "land or improvements thereon, such as buildings or
other inherently permanent structures . . ." (26 CFR 1.856-3
[d]).    It does not include personal property (id.).
            One of the mortgages included in the D5 trust was a $50
million loan secured by the Doctor's Hospital of Hyde Park
(hospital), an acute care facility located in Chicago.    In order
to be REMIC-qualified and in compliance with the warranties set
forth in the Pooling Service Agreement (PSA) and Mortgage Loan
Purchase and Sale Agreement (MLPSA), the real property value for
the hospital had to be appraised at a minimum of $40 million.5
Nomura's appraiser estimated the hospital property's market value
at $68 million, based on a valuation of $3 million for the land,
$27,960,000 for improvements, $9,640,000 for equipment, and
$27,400,000 for intangibles.    Although not set forth in the

     4
       Value-to-loan ratio is calculated by dividing the value of
the property by the amount of the loan. The inverse,
loan-to-value, is determined by dividing the loan amount by the
property's value. Based on the mathematical equations, a loan
with a low LTV percentage presents less risk to the lender
because the property securing the loan has a high value as
compared to the loan amount.
     5
       The Mortgage Loan Purchase and Sale Agreement (MLPSA) and
Pooling Service Agreement (PSA) are the agreements by which
Nomura sold, pooled, and transferred the loans to the trust.

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appraisal, a property valued at $68 million with a $50 million
mortgage has an LTV of 73%, and therefore appears to be REMIC-
qualified.
            The final appraisal was determined after a
reconciliation of three valuation approaches: "income
capitalization," "sales comparison," and "cost."    The "income
capitalization approach" resulted in an estimated valuation of
the hospital property at $68 million, based on a 21.5%
capitalization rate of the hospital's net operating income
($8,012,677), determined by gross annual income, minus operating
expenses.    The "sales comparison" resulted in an estimated value
of $64 million, based on the cost of acquiring an equally
desirable substitute property.    The "cost approach" estimated the
property at $40.6 million, based on the value of the land as
vacant ($3 million), replacement costs of buildings
($27,761,163), and depreciation of improvements and equipment
($180,000 and $9,640,000, respectively).
            The appraisal lacked a detailed breakdown of the
hospital equipment included in the property valuation, and
instead applied figures for similar acute care hospitals.
However, because not all types of equipment count for REMIC
purposes, the lack of detail arguably left unclear whether the
appraisal could provide a reasonable basis for determining REMIC
qualification.    Although the land, building, and improvements,
valued by the appraiser at $30,960,000, would count under the

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REMIC standards, they failed to meet the $40 million minimum
required under the 80% test.   Nevertheless, Nomura relied on this
appraisal, as written.
          It is undisputed that prior to the closing on the D5
securitization, Nomura did not provide, Cadwalader did not
request, and no one at Cadwalader ever reviewed or even saw the
actual appraisal for the hospital, or, for that matter, for any
other D5 securitization mortgage loan.    Nomura did fax to an
associate at Cadwalader, approximately 24 days before the D5
closing, a freestanding asset description report prepared by
Nomura's bankers for credit purposes, titled "Doctor's Hospital
of Hyde Park Deal Highlights" (highlights document).    The
highlights document stated that the $50 million loan was secured
by "the land, building, and operations of the property" and that
the collateral was the hospital's "land, building and property
management (operations)."   It set forth an LTV at 73.5%.     It also
listed the appraiser's reconciled valuation of $68 million, as
well as the three valuation approaches.
          In preparation for the closing, Cadwalader provided an
opinion letter to Nomura stating that the D5 Series was REMIC-
qualified. Cadwalader stated that its legal conclusion was based
on the information contained in the PSA, MLPSA, Prospectus, and
two supplements.   The letter also specifically stated that "as to
any facts material to such opinions not known to" Cadwalader, it
relied on "statements, certificates and representations" of

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Nomura officers and representatives.   There was no mention of the
highlights document.
           Cadwalader also drafted the D5 securitization's PSA and
MLPSA.   The PSA and the MLPSA stated specifically that Nomura
warranted that each mortgage loan is a "qualified mortgage"
within the meaning of the Code, and that the loans in the trust
were secured by mortgages on real property with a fair market
value of at least 80% of the principal amount of the loan, as
measured at the origination or closing date.   In other words,
that the mortgage loans in the D5 securitization complied with
the 80% test.
                               III.

           Approximately three years after the closing, the
hospital went bankrupt and defaulted on its loan.   Thereafter,
the D5 securitization trustee notified Nomura that the hospital
property was insolvent and that Nomura was in breach of the PSA
and MLPSA warranties because the hospital's property value was
below the 80% REMIC minimum.   Nomura refused to repurchase the
loans and submitted letters from Cadwalader and the appraiser
stating that the hospital had an overall REMIC-qualified market
value of $45,080,000.
           Unpersuaded by these representations, the trustee
commenced a federal action against Nomura in the District Court
for the Southern District of New York, for the alleged breach of
the PSA and MLPSA.   The District Court granted Nomura summary

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judgment, concluding that based on Cadwalader's opinion letter,
Nomura reasonably believed the property met the 80% REMIC test
(see LaSalle Bank N.A. v Nomura Asset Capital Corp., 2004 WL
2072501 [SD NY, Sept. 14, 2004]).   The Second Circuit Court of
Appeals reversed, finding that Nomura could be liable,
notwithstanding the opinion letter or other provisions in the PSA
and MLPSA, and remanded the matter to district court for a
factual determination of whether the fair market value of the
hospital was less than 80% of the loan (see LaSalle Bank Nat.
Ass'n v Nomura Asset Capital Corp., 424 F3d 195, 208 [2d Cir
2005]).6   Prior to trial, Nomura settled the federal action for
$67.5 million.
           Nomura then commenced the instant legal malpractice
action in state court to recoup the settlement costs. In its
complaint, Nomura asserted three causes of action, only the first
of which is at issue in this appeal.7   Nomura alleged that
Cadwalader committed malpractice because it failed to advise
Nomura that the D5 appraisals had to separately value real

     6
      The Second Circuit held that the Qualified Mortgage
Warranty in the MLPSA needed to be satisfied without regard to
what is known as a REMIC safe harbor provision. As set forth in
the REMIC regulations, under this "safe harbor," an obligation is
"deemed" to meet the 80% test if the REMIC "sponsor" "reasonably
believes" that to be so at the time it contributes the loan to
the REMIC trust (Treas. Reg. § 1.860G-2 [a] [3] [i]).
     7
      The second cause of action, involving the drafting of a
provision of the MLPSA, was dismissed on Cadwalader's pre-answer
motion to dismiss. Nomura withdrew the third cause action
alleging malpractice with respect to another D5 loan.

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property, as defined in the REMIC regulations, and, furthermore,
that Cadwalader failed to perform the necessary due diligence to
confirm that the D5 securitization was REMIC-qualified before
issuing its pre-closing opinion letter.
           Cadwalader moved for summary judgment, which Supreme
Court denied (35 Misc. 3d 1222 [A] [2012]).   The court concluded
that with respect to Nomura's "failure to advise" claim, triable
issues of fact existed because Cadwalader relied on deposition
testimony that raised credibility issues more appropriately
addressed through cross examination.   As to the due diligence
claim, the court concluded that Cadwalader's evidence, including
testimony from its own experts, was conflicting.   The court also
concluded that questions of fact existed as to whether
Cadwalader's alleged malpractice proximately caused Nomura's
damages.
           The Appellate Division, in a 3-1 decision, modified the
order of Supreme Court by dismissing the advice claim, and
otherwise affirmed, but limited the due diligence claim to a
factual issue related to the highlights document (115 AD3d 228
[2014]). The court concluded that Cadwalader had met its prima
facie burden on the advice claim, based on the testimony of two
Cadwalader partners and Nomura representatives, which
demonstrated that Cadwalader provided Nomura with the advice on
REMIC qualification, and that Nomura failed to establish a
triable issue of fact on this claim.   Regarding the due diligence

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claim, the court concluded that Cadwalader had no generalized
duty to review all of the appraisals in the D5 securitization,
but that triable issues of fact existed as to whether the
highlights document contained warning signs that the hospital
loan may not have been REMIC-qualified, requiring further inquiry
by Cadwalader.   The court also rejected Cadwalader's argument
that Nomura could not establish proximate cause.
          The dissent agreed with the court's analysis of the
advice claim, but would have held that the due diligence claim
was similarly without merit, and, therefore, Nomura's malpractice
cause of action should be dismissed in its entirety.   The dissent
would have found that the highlights document failed to
demonstrate that the hospital loan was "more likely to be
inappropriate . . . for inclusion in the securitization than any
of the other loans" (id. at 108) simply because the face of the
document revealed appraised values exceeding the REMIC threshold
(id. at 114-115).   The dissent reasoned that had Cadwalader been
required to further inquire based on the highlights document it
would have had to "conduct due diligence for which its highly
sophisticated investment-banking client had deliberately declined
to engage it" (id. at 117).
          The Appellate Division granted Cadwalader and Nomura's
respective motions for leave to appeal to this Court, and
certified the question whether the order, which modified the
order of Supreme Court, was properly made.   We now answer the

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certified question in the negative, and modify.

                               IV.
          On a motion for summary judgment, the moving party must
"make a prima facie showing of entitlement to judgment as a
matter of law, tendering sufficient evidence to demonstrate the
absence of any material issues of fact" (Alvarez v Prospect
Hosp., 68 NY2d 320, 324 [1986]).   If the moving party produces
the requisite evidence, the burden then shifts to the nonmoving
party " 'to establish the existence of material issues of fact
which require a trial of the action' " (Vega v Restani Const.
Corp., 18 NY3d 499, 503 [2012], quoting Alvarez, 68 NY2d at 324).
Viewing the evidence "in the light most favorable to the non
moving party," if the nonmoving party, nonetheless, fails to
establish a material triable issue of fact, summary judgment for
the movant is appropriate (Ortiz v Varsity Holdings, LLC, 18 NY3d
335, 339 [2011]; see Alvarez, 68 NY2d at 324).
          To sustain its cause of action for legal malpractice,
Nomura must "establish that [Cadwalader] failed to exercise the
ordinary reasonable skill and knowledge commonly possessed by a
member of the legal profession and that the attorney's breach of
this duty proximately caused plaintiff to sustain actual and
ascertainable damages" (Dombrowski v Bulson, 19 NY3d 347, 340
[2012] [internal citations and quotations omitted]).   An
attorney's conduct or inaction is the proximate cause of a

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plaintiff's damages if "but for" the attorney's negligence "the
plaintiff would have succeeded on the merits of the underlying
action" (AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434
[2007]), or would not have sustained "actual and ascertainable"
damages (Dombrowski, 19 NY3d at 340; Brooks v Lewin, 21 AD3d 731,
734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]).    Thus, in
order for Cadwalader to prevail on its summary judgment motion,
it must establish that it provided the advice, and conducted the
due diligence expected of counsel "exercis[ing] the ordinary
reasonable skill and knowledge commonly possessed by a member of
the legal profession" (Dombrowski, 19 NY3d at 340).    If
Cadwalader fell short of this professional standard, it must
demonstrate that its conduct was not the proximate cause of
Nomura's damages.

                                V.
          As discussed below, we conclude that Cadwalader
established that it provided the proper advice regarding REMIC
qualification, and that it conducted the due diligence required
in the context of its representation of Nomura.   Nomura has
failed, in response, to establish the existence of a material
triable issue of fact.   Therefore, the Appellate Division should
have granted Cadwalader summary judgment and dismissed Nomura's
legal malpractice cause of action.

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          A.    Failure to Advise
          Nomura admits that Cadwalader advised it that the REMIC
regulations required that mortgage loans be secured by real
property equal to 80% of the loan.      Yet, it contends that
Cadwalader failed to properly advise it on the mechanics of how
to apply the 80% test to the D5 securitization properties.
However, Cadwalader's summary judgment submissions sufficiently
belie this claim.
          Cadwalader submitted deposition testimony from Charles
Adelman and Anna Glick, two Cadwalader partners responsible for
the D5 securitization.    They testified that they advised Nomura
regarding how to satisfy the REMIC 80% test, and what constituted
real property for REMIC purposes.
          Adelman testified that in the years before and during
the D5 securitization, Cadwalader advised Nomura "as to each and
every one of the matters described in" Cadwalader's advice sheet,
which was included in Cadwalader's summary judgment papers.        The
advice sheet specifically sets forth 12 bullet points concerning
advice on REMIC qualification and Nomura's representations and
warranties.    Listed therein are the following advisements:
"Personal property does not count towards the REMIC test--only
real property counts"; "real property includes land and
improvements and other permanent structures"; the REMIC test is
"best proved by an independent third-party appraisal and should
measure real property separately"; "it was Nomura's

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responsibility to confirm the accuracy of Nomura's
representations and warranties in the MLPSA, including the 80%
warranty"; "Cadwalader would not independently verify the
accuracy of any of Nomura's representations and warranties unless
asked to do so by Nomura"; and the LTV ratios are "guidance on
whether a loan is REMIC eligible, but [are] not a substitute for
due diligence required to ensure that a loan is secured by real
property equal to 80% of the loan."
          Glick testified that Cadwalader repeatedly advised
Nomura about how to comply with the 80% test.   She stated that
"[o]ver the course of the ten years or so that I did work for
Nomura, we had numerous discussions about REMIC requirements, the
80 percent requirement, about what satisfied the 80%
requirement."   She noted that in working with Nomura "new
questions would come up, and so we would be advising [Nomura]
continuously over this entire ten-year period, we w[ould] be
discussing REMIC related and 80 percent issues, as well as what
type of collateral would satisfy the 80 percent."
          Cadwalader also submitted Glick's affidavit, wherein
she states that Cadwalader told Nomura prior to the D5
securitization closing that land and structural improvement
should be added to determine REMIC real property:
          "As part of that advice, a rule of thumb
          communicated by Cadwalader to Nomura was that
          the value of what was plainly real property
          (such as land and structural improvements, or
          'sticks and bricks'), should be added up by
          Nomura to see if it amounted to at least 80%

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          of the loan amount. If those items alone
          satisfied the 80% Test (and they usually
          did), then the 80% Test would be satisfied.
          If not, then Nomura needed to inquire further
          to determine whether the loan met the 80%
          Test."
          Cadwalader also submitted testimony from Nomura's
former Vice President and officer-in-charge of the D5
securitization, Perry Gershon.   Gershon's testimony wholly
confirmed Adelman and Glick's representations.   He testified that
Cadwalader fully informed Nomura about the REMIC requirements and
how to ensure compliance with the 80% test.   Like Adelman, he
testified that Cadwalader provided all the advice listed on the
Cadwalader advice sheet, and that Cadwalader advised Nomura that
if it had any questions regarding whether a property contained
sufficient real property in compliance with the REMIC
regulations, Nomura needed to consult with outside counsel prior
to making the loan.
          When asked specifically about Nomura's understanding
about the REMIC regulations and the 80% test, Gershon confirmed
that Cadwalader advised Nomura: 1. REMIC eligibility required the
mortgage loan to be principally secured by an interest in real
property, meaning that at least 80% of the mortgage is secured by
real property; 2. personal property does not count towards the
80% test; and 3. the 80% test is best proved by an independent
third-party appraisal, which measures real property separately.
According to Gershon, "Cadwalader definitely gave instructions to
Nomura that . . . among the purposes of getting these properties

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appraised was to show that they would, in essence, be
REMIC-e1igible assets."   The foregoing testimony was buttressed
by documents relating to the hospital mortgage loan originated by
Nomura that reflected Nomura's awareness of the applicable REMIC
regulations.
          This evidence sufficiently established that Cadwalader
adequately advised Nomura concerning REMIC qualification as
applicable to the D5 securitization.    The burden then shifted to
Nomura to set forth evidence to establish material issues of
triable fact (see Vega, 18 NY3d at 503).
          In an effort to meet its burden, Nomura argued that
credibility issues foreclosed summary judgment.   Specifically,
Nomura sought to discredit Gershon's testimony based on bias,
alleging that Gershon's spouse was a Cadwalader attorney who
worked on the Nomura matters, and that after Gershon left Nomura,
his spouse benefitted financially from securitization business
Gershon continued to send to Cadwalader.   We agree with the
Appellate Division that this alleged credibility issue is
speculative and unsupported by any evidence, and thus cannot be
the basis for denying summary judgment.
          Nomura also contends that a material issue of fact
exists as to whether Cadwalader's advice was adequate because
testimony from several Nomura employees reveals that they did not
know how to apply the REMIC 80% test.   As the Appellate Division
properly concluded, this amounts to a showing that some Nomura

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employees did not understand REMIC principles, not that
Cadwalader failed to provide appropriate legal advice, or that
Cadwalader refused to answer Nomura's questions about REMIC
qualification.    Thus, Nomura failed to present triable issues of
fact as to whether Cadwalader provided adequate advice and
"exercise[d] the reasonable skill and knowledge commonly
possessed by a member of the legal profession" (Dombrowski, 19
NY3d at 350).    Therefore, Cadwalader is entitled to summary
judgment with respect to Nomura's failure to advise claim.

           B.   Due Diligence
           Nomura's other claim in support of its legal
malpractice cause of action, is that Cadwalader failed to conduct
the requisite due diligence prior to issuing its pre-closing
REMIC opinion letter.    According to Nomura, in order to fulfill
its professional responsibilities, Cadwalader could not simply
rely on Nomura's representations, but instead had to review the
appraisals for all the mortgage loans in the D5 securitization to
ensure that each loan was REMIC-qualified.
           In support of its summary judgment motion on this
claim, Cadwalader argues that Nomura did not retain it to conduct
or review appraisals, generally, or in its role as securitization
counsel.   Cadwalader submitted testimony from Adelman and
Nomura's own representatives describing Cadwalader's role vis-a-
vis the D5 securitization.      Cadwalader also submitted testimony

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from experts regarding the accepted practice of attorneys dealing
with REMIC qualification and securitization, which further
supports the conclusion that a duty to review appraisals was
beyond the scope of Cadwalader's representation.
            For example, Adelman testified that it was Nomura's
responsibility to review the D5 securitization appraisals.
According to Adelman, Nomura told Cadwalader that it would review
appraisals and that Cadwalader "was not to duplicate Nomura's
work in that regard."    Adelman also stated that Nomura's
"direction was specific enough that we did not view it as our
normal process to have appraisals sent to us for review." (A
1942).   Instead, as the Cadwalader opinion letter made clear,
Cadwalader relied on Nomura for the fact that the property was
REMIC-qualified because it met the 80% test.
            Gershon acknowledged that Nomura did not request or
expect that Cadwalader review the appraisals for the D5
securitization.    He further acknowledged that Cadwalader advised
Nomura that it relied on Nomura's representations, and that
Nomura was responsible for the accuracy of those representations,
as well as the warranties in the MLPSA, specifically the 80%
warranty.    Most devastating was Gershon's acknowledgment that
Cadwalader advised Nomura that it would not independently verify
the accuracy of Nomura's representation and warranties unless
asked to do so, and that Nomura did not make any such request.
Gershon's understanding was confirmed by General Counsel for

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Nomura Asset Capital Corporation, Barry Funt, who testified that
he "would not have requested or even thought it proper for
Cadwalader to review every single appraisal."
          The experts confirmed that this representation was in
line with legal practice in the securitization field.    James
Peaslee, an expert for Cadwalader, opined that it was not
standard practice for securitization counsel to review
appraisals, absent a specific request from the client. David
Rodgers, an expert on origination and securitization, stated
that, subject to a specific agreement, "the role of
securitization counsel relating to the determination of REMIC
value does not include calculating or even recalculating real
property value-to-loan ratios for loans."
          This testimony, along with Cadwalader's clear
statements in its opinion letter that it relied on Nomura's
representations for its conclusions that the D5 securitization
was REMIC-qualified, are sufficient to establish a prima facie
showing in support of Cadwalader's motion for summary judgment.
The burden then shifted to Nomura.
          In response, Nomura disputes that this was the parties'
understanding of Cadwalader's professional obligations, and
relies on alleged discrepancies in the testimony, to show
otherwise.   However, Nomura mischaracterizes the record, which,
as we have described, makes abundantly clear that the parties
understood that Nomura, pursuant to its own directives, was

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responsible for: securing the appraisals; reviewing whether,
based on those appraisals, the loans complied with the 80% test;
and confirming the veracity and accuracy of Nomura's warranties
as set forth in the MLPSA.
          Nomura also relies on expert testimony from Thomas J.
Biafore and Arthur N. Field, that Cadwalader could not rely on
Nomura's representations to establish the properties' value
because that factual determination was tantamount to the legal
representation required of Cadwalader.   This testimony, however,
focuses on general principles, and does not create a triable
issue of fact concerning the parties' actual understanding of
Cadwalader's responsibilities.   As Gershon acknowledged, Nomura
understood that Cadwalader would not request the appraisals in
the course of its review of the D5 securitization documents, and
Cadwalader would rely on Nomura's representations that the 80%
test had been met unless Nomura asked it to look further.
          Essentially Nomura seeks to have us ignore the fact
that it assumed the responsibility for ensuring that the loans
complied with the 80% test based on independent appraisals that
Cadwalader did not conduct or review.    However, we cannot ignore
that Nomura chose to run its business in this way, and that
Cadwalader acted upon and relied on that business model in its
representation of Nomura.
          Nomura argues, alternatively, that even if Cadwalader
did not have a general duty to confirm Nomura's representations

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                              - 22 -                          No. 122

for all the D5 mortgage loans, it had such a duty in the case of
the hospital loan.   In support, Nomura relies on testimony from
Adelman and Cadwalader's experts that Cadwalader had a legal
responsibility to confirm REMIC qualification where a "red flag"
suggested that the appraisal valuation of the real property was
inconsistent with Nomura's representations.   Cadwalader concedes
this point, but argues that there was nothing in the D5
securitization to require that it confirm Nomura's
representations of REMIC qualification.
          Nomura contends that the highlights document was a red
flag because it contained statements that the loan was "secured
by the land, building, and operations," and that the collateral
for the loan is the "land, building and property management
(operations)."   Nomura argues that this alerted Cadwalader to the
possibility that the appraisal was based on the hospital's
operations, and not land and buildings, as required for REMIC
qualification.   As a consequence, Cadwalader should have taken
steps to confirm that the property satisfied the 80% test.
          Despite Nomura's arguments to the contrary, the fact
that the operational part of the hospital business may have
factored in some way into the appraisal did not mean that
Cadwalader should have considered Nomura's representations
unreliable.   After all, the D5 securitization consisted of
numerous commercial mortgages, all of which Nomura assessed in
accordance with Cadwalader's advice about how to determine REMIC

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                              - 23 -                       No. 122

qualification based on the 80%.   Therefore, the hospital mortgage
loan was no different from the others.
          Moreover, what Nomura now identifies as a red flag--
that a commercial property may be valued, in part, based on its
business operations--had already been raised by Cadwalader with
Nomura as something to monitor in the valuation process.   Adelman
testified that he communicated to Nomura representatives that
REMIC real estate did not include what he called the "business
element of the overall [property] value," explaining that where
the "income was from the operation of a business rather than
rent, it required a distinction between the real property value
from being occupied by a going business as distinguished from the
value of the business itself."
          Nomura also argues that Cadwalader should not have
ignored the fact that the highlights document includes a cost
approach valuation of the hospital that is dangerously close to
the 80% REMIC minimum.   While it is true that the cost approach
valued the hospital property at $40,600,000, that number is still
above the $40 million required to meet REMIC qualification.    In
any case, and more to the point is the fact that the highlights
document placed the hospital's reconciled appraised value at $68
million, $28 million in excess of the $40 million required under
the 80% test.   That final appraisal was established only after
the reconciliation of the three valuation approaches, two of
which (the "income" and "sales" approaches) valued the property

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                               - 24 -                         No. 122

at over $60 million.    Given such a large differential, Cadwalader
did not have a basis to doubt Nomura's representation that the
hospital loan complied with the 80% test.   Indeed, Adelman
testified that in his experience, even if a property valued at
$68 million included a significant amount of personal property,
its real property valuation would not fall below $40 million
dollars.   Gershon similarly testified that in his experience in
real estate, a $68 million appraisal based on the income approach
(which was the case here) means the real estate value likely
exceeded $40 million.   Rather than establish that triable issues
of fact exist, the evidence instead shows that these parties--
sophisticated business entities in the securitization field--held
similar views that a $68 million appraisal provided sufficient
confidence that the property was REMIC-qualified.
           Cadwalader, thus, met its burden to establish that it
conducted the requisite due diligence, and that it "exercise[d]
the ordinary and reasonable skill and knowledge commonly
possessed by a member of the legal profession" when it relied on
Nomura's representations in issuing an opinion that the D5
securitization was REMIC-qualified (see Dombrowski, 19 NY3d at
340).   In contrast, Nomura failed to meet its burden to establish
the existence of a triable issue of fact.

                                 VI.
           For the foregoing reasons, the Appellate Division's

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                                - 25 -                           No. 122

order should be modified, with costs to Cadwalader, by granting
Cadwalader's motion for summary judgment dismissing the first
cause of action in its entirety and, as so modified, affirmed and
the certified question answered in the negative.
*   *   *   *   *   *   *   *     *      *   *   *   *   *   *     *   *
Order modified, with costs to defendant, by granting defendant's
motion for summary judgment dismissing the first cause of action
in its entirety and, as so modified, affirmed and certified
question answered in the negative. Opinion by Judge Rivera.
Chief Judge Lippman and Judges Pigott, Abdus-Salaam, Stein and
Fahey concur.

Decided October 22, 2015

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