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Bank of New York Mellon, London Branch v. CART 1 Ltd.

Deutsche Bank Not Entitled to Default Protection Payment in Default Swap Transaction

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OPINION AND ORDER This interpleader action concerns whether Interpleader Defendant Deutsche Bank AG Frankfurt (together with its affiliates, “DB”) is entitled to receive any payment under a credit default swap transaction it entered into with CART 1 Ltd. (“CART 1″). Interpleader Plaintiff, the Bank of New York Mellon, London Branch (“BNYM”), as the trustee for this transaction, now holds approximately €28.7 million in disputed funds related to this transaction. (Dkt. No. 54.) DB claims that it is entitled to €24,400,601.41 from BNYM of these disputed funds. (Dkt. No. 28 (“DB Compl.”) 96.) On the other hand, CRC Credit Fund, Ltd. (“CRC”), which has invested in CART 1, claims that DB is not entitled to any default protection payment in light of DB’s breach of contract. (Dkt. No. 43 (“CRC Compl.”) at 27.) DB also asserts a tortious interference with contract claim against CRC. (DB Compl.

88-95.) DB and CRC have filed cross-motions to dismiss. (Dkt. Nos. 37, 44, 47.) For the reasons that follow, CRC’s motion is granted and DB’s motions are denied.¹ I. Background A. Factual Background The following factual allegations are drawn from the parties’ pleadings and are not subject to dispute unless otherwise noted.² 1. The Swap Transaction The transaction at issue concerns a structured note backed by a credit default swap, under which investors agreed to cover certain losses DB incurred on eligible loans it made to third parties. (CRC Compl. 1.) In brief, this transaction was structured as follows. In 2007, DB created a special-purpose vehicle, CART 1, to issue notes with a total face value of €263.5 million to investors (“Noteholders”). (CRC Compl.

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