DECISION AFTER NON-JURY TRIAL (LIABILITY) This is a breach of contract action. In 2008, Canadian Imperial Bank of Commerce (“CIBC”) was looking for ways to reduce what had become a substantial exposure to US residential mortgage-backed securities, credit default swaps, and similar assets. CIBC came up with a complex structured note transaction (the “A Note”) that persuaded private equity firm Cerberus Capital Management, L.P. (“Cerberus”) to make a $571 million limited recourse loan against CIBC’s troubled portfolio. The clincher for Cerberus, in addition to the 20 percent interest rate, was an exotic concoction of “synthetic” cash flows (Synthetic Principal, Interest, and LIBOR) that would be due from CIBC in repayment of the Note independent of cash flows from the underlying residential mortgages. The contract provisions defining those synthetic cash flows — drafted by CIBC — incorporated the equally (if not more) complex provisions of CIBC’s credit default swap agreements with various counterparties. Several years later, the parties agreed (at CIBC’s suggestion) to a second transaction (the “B Certificate”) in which Cerberus paid $80 million to acquire CIBC’s residual interest in the portfolio for the period, if any, after repayment of the A Note. The dispute arose in late 2014. Cerberus contended that CIBC had been underpaying Synthetic LIBOR and Synthetic Interest under the A Note since 2010, when CIBC’s Altius IV Credit Default Swaps defaulted and the counterparty (Goldman Sachs) chose to physically settle the swaps by delivering the underlying bonds to CIBC, thus freezing the notional amount of the swaps for the purpose of calculating synthetic payments under the A Note. Cerberus alleged that CIBC further breached the A Note (as well as the B Certificate) when it stopped making payments altogether with respect to the Altius IV Swaps after the swaps were terminated and the underlying bonds were liquidated. CIBC sharply disagreed with Cerberus’s reading of the agreements and pointed out that Cerberus had accepted CIBC’s purportedly inaccurate calculations of Synthetic LIBOR and Interest under the Altius IV Swaps for years without complaint. Cerberus sued for breach of contract in 2015. The core legal issues regarding the proper calculation and payment of Synthetic LIBOR and Synthetic Interest were resolved in Cerberus’s favor prior to trial. On Cerberus’s motion for partial summary judgment, the First Department held that CIBC’s interpretation of key provisions driving the calculation of synthetic payments under the Altius IV Swaps was “unmoored from the contractual language” (Securitized Asset Funding, Ltd. v. Can. Imperial Bank of Commerce, 167 AD3d 468, 469 [1st Dept 2018]). The court found, however, that CIBC’s affirmative defenses (including equitable estoppel and fraudulently induced unilateral mistake) and counterclaims (including rescission) raised questions of fact (id. at 469-70) that precluded granting summary judgment in Cerberus’s favor. After a 13-day trial, the Court finds that CIBC is bound by the unambiguous terms of the A Note and B Certificate. Cerberus established that CIBC breached both agreements by miscalculating Synthetic Interest and Synthetic LIBOR after physical settlement of the Altius IV Swaps and by terminating payments altogether upon liquidation of those swaps and their underlying bonds. CIBC did not prove its defenses of equitable estoppel or fraudulently induced unilateral mistake. Nor is CIBC entitled to the remedy of rescinding the B Certificate. CIBC also failed to establish that Cerberus breached the implied covenant of good faith and fair dealing. To be sure, Cerberus acted aggressively in its economic self-interest and made maximum use of its understanding of these exceedingly complex financial instruments. From the outset of the transaction, it perceived CIBC as seeking to re-trade the deal to undermine the value of the synthetic payment streams and shift more risk to Cerberus. And at times, it responded to what it perceived as misdirection from CIBC not with candor but with more of the same. It observed CIBC’s failure to “freeze” notional amounts after physical settlement of the Altius IV Swaps but decided not to point out the discrepancy (which was minimal at first) as part of an overarching strategy of minimizing communications with the bank. Cerberus viewed the A Note as a good investment and wanted to minimize the likelihood that CIBC would focus on and exercise its contractual right to call the Note. And later, when CIBC proposed the B Certificate transaction, Cerberus carefully edited the language to track the terms of the A Note rather than accepting language that might have eliminated synthetic cash flows or re-set notional amounts of the swaps in CIBC’s favor. Again, Cerberus did not flag to CIBC that it believed the notional amount of the Altius IV Swaps should have been frozen since physical settlement in 2010. The evidence did not, however, show that CIBC was a hapless rube led astray. Far from it. CIBC had access to the same documents and information as Cerberus, and simply took a different view of what its obligations were under those agreements, which view it continued to advance — albeit unsuccessfully — during this litigation. If anything, CIBC had a greater familiarity than Cerberus with the complex credit default swap agreements upon which the A Note and B Certificate were in part premised. CIBC’s in-house deal counsel, who drafted the relevant terms of the A Note, well understood swap mechanics and the Altius IV Swaps in particular, including the implications of physical settlement. CIBC simply took a different (and ultimately incorrect) view of the contractual language. To the extent some CIBC employees later testified that they misunderstood the parties’ agreements (and the evidence on that is equivocal), that misunderstanding was not induced or caused by Cerberus. The mistakes, if any, were CIBC’s alone. Moreover, CIBC’s varying and shifting positions over time as to understanding of the disputed contractual provisions undermine its defenses and its counterclaim for rescission. Accordingly, the Court finds in Cerberus’s favor on its claims for breach of contract.1 The Court requests oral argument with respect to the question of Cerberus’s damages before making a final determination on that issue and entering a judgment. Although damages issues were addressed at trial and in post-trial briefing, the parties’ submissions on these complex issues were in many ways ships passing in the night. Among other things, the Court would like counsel to explain the incremental impact on the damages calculation of the Court’s acceptance or rejection of the parties’ specific contentions. No additional briefing is requested, but demonstrative slides (which should be submitted in advance) may be used at argument. PROCEDURAL HISTORY Cerberus filed suit in this Court on November 25, 2015 (NYSCEF 1). Counts I and II of the Complaint assert claims for breach of the A Note. Specifically, in Count I Cerberus alleges that CIBC failed to pay the full Amount Due in its monthly payment of July 25, 2015 because it improperly reduced the Relevant Notional Amount on the Altius IV Swaps to $0 in July 2015, and thus failed to pay the full amount of Synthetic LIBOR due under the A Note for that month. The claim further alleges that CIBC failed to pay the outstanding principal balance on the A Note ($8,410,952.36), plus interest, on the accelerated Final Maturity Date (August 7, 2015). Count II alleges that CIBC failed to pay the full amount of Synthetic LIBOR and Synthetic Interest under the A Note in each monthly payment after the physical settlement of the Altius IV Swaps in 2010. Count III asserts a claim for breach of the B Certificate. It alleges that events of default under the A Note constitute events of default under the B Certificate. In addition, it alleges that CIBC failed to pay the full amount of Synthetic LIBOR and Synthetic Interest in the monthly payment due on August 25, 2015, which triggered acceleration of the B Certificate, and then failed to pay the Early Termination Amount on the Early Termination Date (September 8, 2015). CIBC filed its answer and counterclaims on January 15, 2016 (NYSCEF 21). It broadly denied Cerberus’s allegations and asserted that its payments to Cerberus “reflected the intent of the Parties as set forth in the A1 Note and as reflected by the economic substance of the transaction, as Cerberus itself repeatedly confirmed by accepting these payments for more than four years before raising this issue” (id. 8). CIBC also asserted counterclaims for rescission, mutual mistake, unilateral mistake, unjust enrichment, and declaratory judgment, as well as various affirmative defenses including estoppel. As noted above, CIBC moved for partial summary judgment. On April 3, 2018, the Court (Scarpulla, J.) dismissed CIBC’s unjust enrichment counterclaim but otherwise denied Cerberus’s motion (NYSCEF 397). Along the way, however, the Court rejected several of CIBC’s pivotal contractual arguments justifying the amounts it paid to Cerberus under the A Note. First, it held that the A Note definition of “Synthetic Assets” refers to the Altius IV Swaps (as Cerberus contended), rather than the underlying Altius IV Bonds (as CIBC had contended) (id. at 8-10). Second, it held that neither liquidation of the Altius IV Bonds nor liquidation of the Altius IV Swaps relieved CIBC of its obligations to pay Synthetic Interest or Synthetic LIBOR (id. at 5-12, 16-19). The Court found, however, that the terms “Relevant Notional Amount” and “Scheduled Payments,’ which were key to computing Synthetic LIBOR and Synthetic Interest, were ambiguous, and thus it was unclear whether CIBC’s practice of continuing to reduce the notional amount of the Altius IV Swaps after physical settlement was permissible under the agreements (id. at 14). Finally, the Court declined to dismiss CIBC’s counterclaims for mutual mistake, unilateral mistake, and declaratory judgment (id. at 16-20). The First Department affirmed the Court’s decision, albeit with an important revision. The court agreed “that the relevant Synthetic Assets under the A Note and B Certificate are the Altius IV swaps, not the Altius IV notes” (Securitized Asset Funding, 167 AD3d at 469). It also agreed that “the termination of the Altius IV notes does not affect Cerberus’s right to payment under the A Note and B Certificate” and that “Cerberus was entitled to Synthetic LIBOR even after the Altius IV swaps were terminated” (id.). However, the court disagreed that the terms “Relevant Notional Amount” and “Scheduled Payments” are ambiguous. It held, instead, that “Cerberus’s interpretation of the terms, which is based on the plain language of the contract, is reasonable,” whereas “CIBC’s interpretation — that Scheduled Payments include payments of Synthetic Principal and proceeds from the liquidation of the Altius IV notes — is unmoored from the contractual language” (id.). Despite the latter ruling, which essentially cleared the path for judgment in Cerberus’s favor based on the unambiguous language of the agreements, the court “[n]evertheless” affirmed denial of Cerberus’s motion for partial summary judgment because CIBC’s defenses and counterclaims raise triable issues of fact, including as to estoppel, fraudulently induced unilateral mistake, and rescission (id. at 469-70). After completion of discovery and filing of Note of Issue, the Court conducted a non-jury trial via Microsoft Teams from March 7 through 23, 2022 (NYSCEF 1172-1184) (trial transcripts with stipulated errata). FINDINGS OF FACT The Court makes the following findings of fact based on its review of the evidence admitted at trial, including the parties’ joint statement of stipulated facts and procedural history (NYSCEF 1115 [Statement of Joint Stipulated Facts and Procedural History ("JSOF")]), and its evaluation of the credibility of the witnesses who testified during the proceedings. I. The Parties 1. Defendant/Counterclaim-Plaintiff Canadian Imperial Bank of Commerce (“CIBC”) is a Canadian bank constituted under the Bank Act, S.C. 1991, c. 46 (Can.), with a principal place of business in Toronto, Ontario (JSOF 1). 2. Plaintiff/Counterclaim-Defendant Securitized Asset Funding 2011-2, Ltd. is a special purpose investment vehicle affiliated with Cerberus Capital Management, L.P. (“Cerberus”), incorporated in the Cayman Islands with a principal place of business in New York (JSOF 2). 3. Additional Counterclaim-Defendant Securitized Asset Funding 2009-1, Ltd., is a special purpose acquisition company managed by Cerberus, incorporated in the Cayman Islands (JSOF 3). 4. Additional Counterclaim-Defendant Promontoria Europe Investments XXIII LDC is a special purpose acquisition company managed by Cerberus Capital Management, L.P., incorporated in the Cayman Islands (JSOF 4). 5. Additional Counterclaim-Defendant CSMC 2012-8R, Ltd., is a company affiliated with Cerberus, incorporated in the Cayman Islands (JSOF 5). II. Factual Background A. CIBC’s Exposure to U.S. Residential Mortgage Assets 6. By 2008, CIBC’s structured credit group had accumulated substantial U.S. residential mortgage exposure through cash assets (RMBS and CDOs) and synthetic assets (CDS and VFNs) (Transcript of trial proceedings (“Tr.”) at 453:18-25; DX5000
10, 22, 33). One source of exposure was intermediation trades in which CIBC simultaneously sold CDS protection on the performance of an underlying CDO and bought CDS protection on the same transaction from a monoline insurer (Tr. 714:12-20; DX5000
