DECISION/ORDERThis action arises out of a series of credit default swap transactions (CDS) under which plaintiff Lehman Brothers International (Europe) (LBIE) purchased credit protection from defendant AG Financial Products Inc. (Assured) on various reference bonds or securities (the Underlying Securities). LBIE alleges that Assured breached the agreements governing the transactions and the implied covenant of good faith and fair dealing when it terminated 28 of the transactions in July 2009 (the Transactions). Assured now moves for summary judgment dismissing the two remaining causes of action in the complaint.BACKGROUNDThe allegations of the complaint are summarized at length in this court’s decision and order, dated March 12, 2013, determining Assured’s motion to dismiss. (See Lehman Bros. Intl. [Europe] v. AG Fin. Prods., Inc., 2013 WL 1092888, *1 [Sup Ct, NY County, Mar. 12, 2013, No. 653284/11] [the MTD Decision].) After discovery, the following facts are not in dispute:The 28 credit default swap Transactions remaining at issue in this lawsuit were entered into by the parties between 2005 and 2008.1 (Joint Statement,1.) Each Transaction is governed by three Agreements: a standard form Master Agreement between LBIE and Assured, dated April 7, 2000, which is based on a 1992 template promulgated by the International Swaps and Derivatives Association (ISDA Master Agreement or Master Agreement) (Aff. of Kimberly J. Brunelle [Counsel for Assured] [Brunelle Aff.], Exh. 7); a negotiated Schedule to the ISDA Master Agreement (id., Exh. 8); and a negotiated Confirmation for each Transaction. (Id., Exhs. 9-36.) These Agreements provided that LBIE, as protection buyer, would make premium payments to Assured (Fixed Payments), and that Assured, as protection seller, would make payments to LBIE upon the occurrence of credit events with respect to the Underlying Securities — namely, upon the failure of the obligors on the Underlying Securities to make timely payments of interest or principal (Floating Payments). (See e.g. Confirmation [ARKLE 2006-2X 3 A2], §§2-3 [Brunelle Aff., Exh. 11]; Def.’s Memo. In Supp., at 4; Pl.’s Memo. In Opp., at 4.)Section 6 (a) of the ISDA Master Agreement authorized either party (in such case, the Non-Defaulting Party) to terminate a Transaction upon the occurrence of an Event of Default with respect to the other party (the Defaulting Party). The term Event of Default, as defined in the Master Agreement, includes that “[the Defaulting Party] seeks or becomes subject to the appointment of an administrator…for all or substantially all of its assets.” (Master Agreement, §5 [a] [vii] [6].) LBIE entered into bankruptcy administration on September 15, 2008. (Joint Statement,4.) On July 23, 2009, Assured notified LBIE that its entry into administration constituted an Event of Default under the ISDA Master Agreement, and designated July 23, 2009 as the Early Termination Date for the Transactions.2 (Id.,5.)As the termination of the Transactions was based upon an Event of Default, the ISDA Master Agreement authorized Assured, as the Non-Defaulting Party, to calculate a termination payment. (See Master Agreement, §6 [e] [i] [3].) Pursuant to Part 1 (f) of the Schedule, the parties had elected to use “Market Quotation and the Second Method” to calculate the payment. Under this methodology, depending on the circumstances, the termination payment may be owed by the Defaulting Party to the Non-Defaulting Party, or vice versa. (Master Agreement, §6 [e] [i] [3].)3The ISDA Market Quotation methodology required Assured to seek quotations from leading dealers in the relevant market, known as “Reference Market-makers.” These quotations were to represent“an amount, if any, that would be paid to [Assured] (expressed as a negative number) or by [Assured] (expressed as a positive number) in consideration of an agreement between such party…and the quoting Reference Market-maker to enter into a transaction (the ‘Replacement Transaction’) that would have the effect of preserving for [Assured] the economic equivalent of any payment or delivery…by the parties under Section 2 (a) (i) in respect of such Terminated Transaction or group of Terminated Transactions [i.e., under the applicable Confirmation(s)] that would, but for the occurrence of the relevant Early Termination Date, have been required after that date….”(Id., §14, “Market Quotation” Definition.) The Master Agreement states that, “[i]f fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined.” (Id.)The Master Agreement authorized Assured to use an alternative Loss method to calculate the termination payment in the event “a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result.” (Id., “Settlement Amount [b]” Definition.) Loss is defined, in pertinent part, as “ an amount [the Non-Defaulting Party] reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with…[the] group of Terminated Transactions…, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them).” (Id., “Loss” Definition.) The Loss method requires that a Non-Defaulting Party “determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable,” and expressly states that “[a] party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets.” (Id.)Following its notice to LBIE of an Event of Default, Assured engaged the assistance of Henderson Global Investors Ltd. (Henderson) to design and execute an auction of the Transactions “intended to satisfy the ISDA Market Quotation process.” (“Auction of a Portfolio of CDS Transactions on Behalf of AG Financial Products, Inc.” [Henderson Report], at 2 [Brunelle Aff., Exh. 38]; Joint Statement,6.) Henderson contacted eleven potential bidders in advance of the auction, which was conducted on September 16, 2009. (Joint Statement,
8-9.) None of the potential bidders submitted bids on the Transactions. (Id.,10.) Assured therefore took the position that it could not use the Market Quotation method and instead applied the Loss method.On October 16, 2009, Assured delivered a Statement pursuant to Section 6 (d) (i) of the ISDA Master Agreement (Statement) notifying LBIE that it owed Assured $24,799,972.85 plus interest under the Master Agreement in connection with the termination of the Transactions. (Id.,11; Statement, at 5 [Brunelle Aff., Exh. 40].) Assured assertedly “calculated its Loss for each Terminated Transaction by subtracting the expected aggregate Floating Payment amounts under such Transaction [collectively, $35,191,751.62] from the present value of Fixed Amounts which would have come due on such Transaction after the Early Termination Date [collectively, $23,441,145.00],” for an amount of $11,750,606.62. (Statement, at 4.) Assured then added this amount to “the Unpaid Amounts owed by LBIE” under the Agreements — i.e., “the aggregate Fixed Amounts that were due and unpaid as of the Early Termination Date plus interest” ($13,049,366.23) — to reach the total $24,799,972.85 figure. (Id., at 5.)LBIE filed this action on November 28, 2011. The remaining causes of action following this court’s decision on Assured’s motion to dismiss are the second, for breach of contract, and the third, for breach of the implied covenant of good faith and fair dealing, each of which is discussed in greater detail below. (See MTD Decision, 2013 WL 1092888, at * 7-8.)ANALYSISThe standards for summary judgment are well settled. The movant must tender evidence, by proof in admissible form, to establish the cause of action “sufficiently to warrant the court as a matter of law in directing judgment.” (CPLR 3212 [b]; Zuckerman v. City of New York, 49 NY2d 557, 562 [1980].) “Failure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers.” (Winegrad v. New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985].) Once such proof has been offered, to defeat summary judgment “the opposing party must ‘show facts sufficient to require a trial of any issue of fact’ (CPLR 3212, subd. [b]).” (Zuckerman, 49 NY2d at 562.) “[I]ssue-finding, rather than issue-determination, is key. Issues of credibility in particular are to be resolved at trial, not by summary judgment.” (Shapiro v. Boulevard Hous. Corp., 70 AD3d 474, 475 [1st Dept 2010], citing S.J. Capelin Assoc., Inc. v. Globe Mfg. Corp., 34 NY2d 338, 341 [1974] [other internal citations omitted].)MARKET QUOTATION PROCESS — THIRD CAUSE OF ACTIONThe third cause of action, for breach of the implied covenant of good faith and fair dealing, is based upon the allegation that Assured “acted to bypass the parties’ selection of Market Quotation to measure the termination payment by making the use of Market Quotation impossible.” (Compl.,52.) LBIE pleads that Assured unduly “delayed its request for quotations,” and insisted that Reference Market-makers agree to “burdensome bidding procedures, effectively discouraging them from submitting bids” for the Transactions at the Market Quotation auction. (Id.)As discussed at greater length in this court’s prior decision on the motion to dismiss, the implied covenant of good faith and fair dealing “embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the benefits of the contract.” (MTD Decision, 2013 WL 1092888, at * 2-3 [internal quotation marks and citation omitted].)Assured contends that summary judgment is warranted on the implied covenant claim because LBIE can produce no evidence that it conducted the Market Quotation process in bad faith. (Def.’s Memo. In Supp., at 10-12.) According to Assured, the evidence shows that it hired qualified and independent firms to design and conduct an auction intended to satisfy the ISDA Market Quotation process; that the uniform procedures it put in place for bidders were consistent with market practice; and that there were numerous reasons unrelated to the design of the auction and the bidding procedures for Reference Market-makers to choose not to submit bids, including market uncertainty and “an aversion to monoline credit risk generally or to facing Assured as a counterparty specifically” following the financial crisis.4 (Id., at 12-13.)LBIE, in opposition, identifies various purported flaws in Assured’s design and execution of the auction process, including Henderson’s “lack of relevant experience” in conducting an ISDA Market Quotation auction (Pl.’s Memo. In Opp., at 29); Assured’s reservation of discretion not to accept bids (id., at 30); and Assured’s insistence that potential bidders have an existing ISDA Master Agreement in place with Assured, which LBIE contends had the effect of excluding Nomura International plc (Nomura), the “most likely bidder.” (Id., at 29, 10.)The court finds that Assured makes a prima facie showing of entitlement to summary judgment on this cause of action, and that LBIE fails to identify an issue of fact requiring trial. Assured’s motion is supported by a November 16, 2009 report from Henderson concerning the auction. (Brunelle Aff., Exh. 38.) The Henderson Report recounts, among other things, Assured’s retention of Henderson “to design an auction…intended to satisfy the ISDA Market Quotation process” (id., at 2-3); the team’s selection of bidders (id., at 4);5 their development of a Bidding Procedures Letter setting forth the rules and timetable for the auction (id., at 7-8 & Appx. C); and the conduct and results of the auction (id., at 10-11). Jim Irvine, the Head of Structured Investments at Henderson, testified at his deposition that the “overall aim” in designing the Bidding Procedures Letter was “to ensure every chance of success of the auction,” and to “create a document that the participants were broadly familiar with.” (See Irvine Dep., at 95, Brunelle Aff., Exh. 49].) He further testified that the Letter was “based upon [bidding procedures letters] which Henderson had used in previous auctions it had conducted with a number of invited bidders.” (Id.; Def.’s Memo. In Supp., at 12.)Assured’s motion is further supported by a detailed expert report. Craig Pirrong, whose expert qualifications are unchallenged by LBIE, has written and taught extensively on the subjects of derivatives and financial markets and has previously provided expert testimony in matters in which application of the ISDA Market Quotation method was at issue. (Pirrong Report, at 2-3 [Brunelle Aff., Exh. 52].) Pirrong submits that Assured, in conjunction with its advisors, “reasonably and appropriately designed and diligently conducted an auction to facilitate obtaining market bids for the terminated transactions.”6 (Id., at 1.) According to Pirrong, “neither the design nor the implementation of the auction were a reason for the lack of bids, and [] designing and carrying out the auction differently would not have resulted in [Assured] receiving sufficient bids to determine a Market Quotation under the 1992 ISDA Master Agreement.” (Id.) Rather, Assured’s inability to obtain bids from counterparties willing to enter into replacement contracts “was a result of a lack of appetite in the market for these products, combined with market concerns regarding monoline credit risk.” (Id. at 1, 39-40.)These opinions from Pirrong are supported by detailed reasoning, and by communications between Reference Market-makers and Assured or its agents concerning the auction. With respect to monoline credit risk, Pirrong explains that monoline insurers historically “have held relatively little capital compared to the net par amount of securities they guaranteed.”7 (Id., at 10.) “This low capital to net par ratio meant that monolines were highly leveraged, and thus, they were relatively vulnerable to withstanding losses on the guarantees they had issued should they ever have to make such payments.” (Id., at 10, 40-42.) Moreover, although “monolines like Assured that underwrote CDS to a zero-loss model only wrote protection on the most senior and least risky of these securities,” such protection “was still vulnerable to ‘correlation risk,’ also known as ‘wrong-way risk.’” (Id., at 10-11, 42-43.) As explained by Pirrong:“By solely insuring high quality underlying reference obligations, a monoline would likely only be required to make payments on a particular CDS transaction under an extremely severe and nearly unprecedented widespread market downturn, which would similarly result in losses on the other highly rated reference obligations underlying its otherwise independent and unrelated CDS contracts, thus triggering its obligations to make payments on a portfolio-wide basis, and to such a degree that the monoline might be unable to pay all of them. Since all (or virtually all) of the securities guaranteed by monolines were exposed to the same risk of a severe economic downturn, all were vulnerable to loss at precisely the same time. Further, given the highly leveraged nature of monolines, such portfolio-wide losses could thus threaten the viability of a monoline, possibly preventing it from making any of its contractually obligated payments on its CDS transactions. In other words, a monoline would be least able to pay precisely when it was required to make a payment.”(Id., at 11-12.)According to Pirrong, market participants in 2008 and 2009 were aware of these monoline credit risks. “For example, market participants would have been aware of the failure and/or restructuring of seven of the nine key players in the monoline industry between 2007 and 2009.” (Id., at 12.) The credit ratings of most monolines were downgraded by ratings agencies during 2008 and 2009. (Id.) Also, “the credit spreads of the various monolines widened significantly during this time, reflecting doubts amongst market participants of the viability of the monoline business model.” (Id., at 12-13.) “The resulting costs for financial institutions to consider, account for, and risk manage counterparty credit risk in connection with their derivatives transactions, which they were required to do under various legal, regulatory, and corporate governance mandates, made entering into new CDS with monolines prohibitively expensive.” (Id., at 13.) As set forth in the Pirrong Report, six of the potential bidders for Assured’s auction in 2009 referenced counterparty credit risk as one of the reasons they chose not to bid. (See id., at 40-41.)As Pirrong also opines, “[t]wo elements within the contractual documentation — the absence of collateral posting and the back-ending of [Assured's] payment obligations — heightened the [credit and correlation] risks discussed above, providing another economic disincentive to potential counterparties.” (Id., at 43.) The Transactions at issue, unlike many CDS contracts, “did not require [Assured] to post collateral.” Accordingly, “potential counterparties would be left without any buffer in the event that [Assured] was unable to meet its contractual payment obligations.” (Id., at 43-44.) In addition, Assured’s payment obligations under the Transactions were “back-ended because [Assured] guaranteed only timely interest and principal at maturity (which in many cases could be as late as 2054), and consequently potential counterparties were exposed to the credit and correlation risks discussed above for longer periods of time.” (Id., at 44.) At least one potential bidder wrote to Henderson that the lack of collateral was a reason it was declining to participate in the auction. (Id.)Finally, Pirrong explains that “the illiquidity in the market for the underlying reference obligations at the time of the auction and throughout most of the financial crisis” suppressed demand for the Transactions. (Id., at 44.) The inability of the potential bidders to obtain the reference obligations prevented them from effecting a “negative-basis trade,” in which bidders “attempt[] to buy the assets from the market at a price, and buy protection of those assets from the monoline at a different price, and, therefore, lock[] in what they perceive[] to be a basis profit.” (Id., at 44-45 [internal quotation marks and citation omitted].)LBIE, in opposition, fails to counter this prima facie showing by Assured with evidence sufficient to raise a triable issue of fact regarding Assured’s purported bad faith in designing and conducting the auction. Significantly, LBIE fails to cite any expert opinion in the record challenging, in any material respect, Pirrong’s, opinion that the structure and design of the auction was reasonably calculated to increase the likelihood that the Market Quotation process would be successful.The court rejects LBIE’s contention that a triable issue of fact exists as to Assured’s good faith because Henderson “had never before conducted an auction to satisfy the Market Quotation requirements of the ISDA Master” and “neither [Assured] nor its counsel provided Henderson with any guidance on whether the auction it designed complied with the terms of the Market Quotation provision.” (See Pl.’s Memo. In Opp., at 29, citing Irvine Dep., at 32, 183-184 [Windels Aff., Exh. 27].) For the reasons detailed above, Assured makes a prima facie showing that Henderson was a qualified advisor and that the auction was designed to satisfy the Market Quotation requirements. LBIE merely speculates, without support in the record, that Henderson’s lack of prior experience specifically conducting an ISDA Market Quotation auction and Assured’s alleged decision not to “guid[e]” its retained advisor through the auction process, caused problems with the auction and are indicative of Assured’s bad faith. Such speculation does not suffice to create a genuine issue of material fact for trial. (See generally Dee Cee Assocs. LLC v. 44 Beehan Corp., 148 AD3d 636, 641 [1st Dept 2017]; Weinberg v. Sultan, 142 AD3d 767, 769 [1st Dept 2016].) LBIE also ignores the testimony of Henderson’s Jim Irvine that in the period from 2008 to 2010, Henderson conducted at least six auctions involving complex financial instruments for major financial services firms. (Irvine Dep., at 32-35 [Brunelle Aff., Exh. 93].)The court also rejects LBIE’s contention that Assured frustrated the Market Quotation process through its insistence that any potential bidder have an existing ISDA Master Agreement in place with Assured. (See Pl.’s Memo. In Opp., at 29.) LBIE does not cite any expert opinion addressing the possible effect of this condition on the auction process. Assured’s expert and Jim Irvine of Henderson, in contrast, submit that the condition “was reasonable because the existence of an ISDA Master Agreement indicated that the counterparty had previously demonstrated a willingness to transact with [Assured], whereas the absence of such an agreement suggested that the firm lacked a demand for products on which [Assured] wrote protections or was adverse to transacting with [Assured].” (Pirrong Report, at 25-26 [citing deposition testimony of Irvine].) Moreover, although this requirement of a pre-existing Master Agreement may have resulted in Nomura’s withdrawal from the bidding process, LBIE has not submitted evidence that raises a triable issue of fact as to whether that withdrawal, or the exclusion of any other bidders without existing Master Agreements in place, had any effect on the auction. To the contrary, the record reflects that a representative of Nomura declined an invitation by LBIE a few weeks prior to the auction to provide a firm bid for the Transactions, providing instead an “indicative…estimate” of what a potential “protection buyer might pay” for the Transactions. (See Email of Juan Quintas [of Nomura], dated July 28, 2009 at 9:50 AM [Brunelle Aff., Exh. 65].) Again, LBIE relies on speculation in contending that Assured’s requirement that bidders have an existing ISDA Master Agreement in place prevented not only Nomura, but two other Reference Market-makers, from bidding at the auction.LBIE’s remaining arguments in opposition to this branch of Assured’s motion are also unavailing. Even accepting LBIE’s contention that emails from two bidders reflect confusion on the bidders’ part concerning whether the prospective Replacement Transaction with Assured would be governed by the terms of LBIE’s or the successful bidder’s own pre-existing ISDA Master Agreement with Assured, the emails do not raise any inference that such confusion led any Reference Market-maker not to bid, let alone that Assured designed the auction in bad faith. (See Email from Jonathan McCormick [of Deutsche Bank], dated Sept. 10, 2009 at 7:02 AM [Windels Aff., Exh. 30]; Email from David Dehorn [of Barclays Capital], dated Sept. 14, 2009 at 7:39:05 PM [Windels Aff., Exh. 31].) LBIE also fails to support its contention that Assured’s retention of discretion to accept or reject bids was inconsistent with the Market Quotation process or undertaken in bad faith. This contention is based principally upon a hypothetical statement made by LBIE’s expert, Peter Niculescu, during his deposition.8 LBIE does not submit any evidence showing that Assured’s reservation of rights in this regard played any role whatsoever in any of the actual Reference Market-makers’ decisions not to bid on the Transactions. (See Pl.’s Memo. In Opp., at 30; see also Transcript of Oral Arg., at 16 [argument by Assured's counsel that "[o]ne of the options” open to a Non-Defaulting Party as part of the Market Quotation process “is to decide to buy it yourself”].)As LBIE fails to raise a triable issue of fact as to Assured’s good faith in the design and execution of the Market Quotation auction, the third cause of action will be dismissed. The second cause of action, for breach of contract, will also be dismissed to the extent that it duplicates the allegations and theories underlying the third cause of action.9LOSS METHODOLOGY AND CALCULATION — SECOND CAUSE OF ACTIONThe second cause of action for breach of contract — to the extent not duplicative of the third cause of action for breach of the implied covenant — is based upon the allegation that Assured breached the Agreements by “improperly calculat[ing] Loss without reference to any market information and in a manner that was commercially unreasonable.” (Compl.,46.) Assured did not seek dismissal of the second cause of action on its prior motion to dismiss. The claim therefore was not addressed in a substantive manner in this court’s decision on that motion. (See MTD Decision, 2013 WL 1092888, at * 1.)Loss is defined in Section 14 of the ISDA Master Agreement (the Loss provision), in full, as follows:“‘Loss’ means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2) (A) applies.10 Loss does not include a party’s legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets.”Assured contends that it fully complied with the Loss provision when it “chose to determine its Loss based on its ‘loss of bargain’ by calculating the amount necessary to place Assured in the same economic position it would have occupied if [LBIE] had performed its obligations with respect to the Transactions.” (Def.’s Memo. In Supp., at 16.) “Specifically, Assured calculated the present value of the fixed premium payments that [LBIE] would have been required to pay to Assured over the remaining duration of the Transactions, and deducted the amounts Assured expected to pay [LBIE] based on expected future shortfalls in principal or interest payments on the securities underlying the Transactions, which yielded a net termination amount payable to Assured by [LBIE] of approximately $25 million.” (Id., at 1-2, 20.) Assured argues that the plain language of the Loss provision unambiguously confers upon it, “as the Non-defaulting Party, the exclusive right and discretion to choose among a variety of approaches for determining its Loss, including based on benefit-of-the-bargain damages” (id., at 16), and that the last sentence of the provision expressly permits it to select a methodology that does not reference market prices. (Id., at 17.) Assured further argues that evidence of industry custom or practice is not admissible to “subvert” this plain meaning. (Id.)LBIE contends that the plain language of the Loss provision required Assured to calculate Loss reasonably and in good faith, and that market practice is appropriately considered in determining whether conduct is objectively reasonable. (Pl.’s Memo. In Opp., at 14.) According to LBIE, widespread market practice with respect to the ISDA Master Agreement Loss method is to calculate Loss using a “replacement cost approach.” (Id., at 19 [capital letters omitted].) In other words, the Non-Defaulting Party calculates Loss “‘based either on a market price or a good faith and commercially reasonable approximation of a price at which the transaction could be replaced in the market.’” (Id., at 19 [quoting the Expert Report of Leslie Rahl [Rahl Report],
