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Loreley vs Calyon Complaint (Constellation CDOs)

Loreley vs Calyon Complaint (Constellation CDOs)

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Loreley sues Calyon over Orion 2006-1, Pyxis 2006-1 and Millstone IV.
Loreley sues Calyon over Orion 2006-1, Pyxis 2006-1 and Millstone IV.

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STERN & KILCULLEN

,
COUNSELORS AT LAW
HERBERTJ.STERW KEVIN M. KILCULLEN+ JEFFREY SPEISER' JOEL M. SILVERSTEIN' MARK W. RUFOLO • ANDREW S. BOSIN STEPHEN M. PLOTNICK' LING LAU' 75 LIVINGSTON AVENUE ROSELAND, NEW JERSEY 07068 TEL: 973--535-1900 FAX; 973-535-9664

LLC
MICHAEL DINGER * BRIAN DEBOER' JOHN E. TRAVERS" JASON S. LUSTBADER ALEXANDER MAL YSHEV' SAMUEL A STERN + DEAN J. DONATELLI'
OF COUNSEL
+Admitted *AdmiUed i\Adm~1ed in New Jersey In New Jersey in New Jersey
!U1d

214 BRAZILIAN AVENUE SUITE 200 PALM BEACH, FLORIDA 33480

Florlda

end NBW Yorl-; and Pennsylvanla

February 17,2011

VIA ELECTRONIC FILING AND HAND DELIVERY

The Honorable Melvin L. Schweitzer New York State Supreme Court Commercial Division 26 Broadway, 10th Floor New York, NY 10004 Re: Loreley Financing (Jersey) No.7, Ltd., et al. v. Credit Agricole Investment Bank, et al. (Index No. 65067312010) Dear Justice Schweitzer: This firm represents plaintiffs Loreley Financing (Jersey) No.7, Limited, Loreley Financing (Jersey) No. 25, Limited, Loreley Financing (Jersey) No. 31, Limited, and Loreley Financing (Jersey) No. 32, Limited (collectively, the "Loreley Companies" or "Plaintiffs") in the abovereferenced matter. We write in opposition to the letters submitted by each of the defendants, dated February 11, 2011, requesting a pre-motion conference to address proposed motions to stay disclosure and for a protective order. The defendants' requests to stay disclosure are of course contrary to the standing rules of this Court, as codified in Rule 11(d) of the Commercial Division Rules and Rille S(c) of Your Honor's individual rules of practice. The defendants fail to demonstrate any good cause for deviating from those rules, and in arguing for a stay actually confirm precisely why discovery should proceed without further delay. I. Background By way of brief background, in this action, the Lore1ey Companies seek (among other relief) rescission and the return of the purchase prices paid to defendants Credit Agricole Corporate and Investment Bank and Credit Agricole Securities (USA) Inc. (together, "Calyon") for notes issued in connection with three collateralized debt obligations ("CDOs") known as Orion 2006-1, Ltd. ("Orion 2006-1 "), Pyxis ABS CDO 2006-1, Ltd. ("Pyxis 2006-1 "), and Millstone IV CDO, Ltd. ("Millstone IV"). The Loreley Companies were fraudulently induced by the defendants into Corporate and

The Honorable Melvin L. Schweitzer February 17,2011 Page 2

purchasing $70.5 million of notes issued in connection with those transactions utilizing two basic strategies. First, Calyon, together with defendants NIBC Credit Management, Inc. ("NIBC") and Putnam Advisory Company, LLC ("Putnam"), secretly allowed a hedge fund, Magnetar Capital LLC ("Magnetar"), to control collateral selection and other deal features for Orion 2006-1 and Pyxis 2006-1 so that Magnetar could take short positions on the deals and profit when they failed. Orion 2006-1 and Pyxis 2006-1 are two of the several (now) infamous "Constellation CDOs," which were created by Magnetar in collusion with CDO arrangers (such as Calyon) and managers (such as NIBC and Putnam) and contributed to billions of dollars in losses on Wall Street. Second, Calyon decided to exit the business of arranging CDOs comprised of assetbacked securities in February 2007, but failed to disclose that fact to Plaintiffs while at the same time dumping, among other ass ets, tens of millions of dollars of Constellation CDOs into Millstone IV that they knew, like Orion 2006-1 and Pyxis 2006-1, had been clandestinely designed to fail. Calyon was served with the First Amended Complaint in this action on October 29, 2010. NIBC and Putnam were served on December 6, 2010. All defendants requested and received from the Loreley Companies consent to lengthy extensions of time, until February 14,2011, to respond to the First Amended Complaint. No aspect of the parties' stipulation included an agreement to stay discovery, and the Loreley Companies promptly served notices to produce on all defendants on January 21, 2001. Responses to those notices to produce were due on February 11, 2011, but none have been provided by any defendant. II. Calyon's Forum Non Conveniens Arguments Relying upon the arguments set forth in aforum non conveniens motion they filed on February 11, Calyon contends that discovery should be stayed because of anticipated "impediments" to obtaining "necessary" discovery from a non-party, IKB Deutsche Industriebank AG ("IKB"), which served as the Loreley Companies' investment advisor in connection with the transactions at issue in this case. Calyon accuses the Loreley Companies of "bring[ing] this case in New York, where non-party IKB will claim it is immune from disclosure" in what Calyon characterizes as "a transparent attempt to unfairly shield Plaintiffs' side of the case from disclosure." Calyon's conspiracy theory is premised entirely upon arguments made by IKB in a separate 2008 litigation before Justice Cahn to which none of the Loreley Companies were parties, and which involved a transaction and agreements not at issue in this case. Preliminarily, Calyon's argument is premised upon nothing more than pure speculation as to how IKB might respond to attempts to obtain discovery of it in this case. Calyon has never even attempted to test its theory by actually pursuing the "necessary" discovery it seeks from IKB (or from the Loreley Companies). Until Caylon actually serves requests for discovery, which may include a subpoena to IKB, and demonstrates that it cannot obtain in this case what it seeks, their argument is entirely premature. Indeed, Calyon's speculation is contrary to the available evidence in this case.

The Honorable Melvin L. Schweitzer February 17, 2011 Page 3

For example, IKE is a party to an agreement known as the "Programme Master Definitions and Framework Deed" (the "Framework Deed") to which the Loreley Companies are also parties. In that document, IKE agreed to "irrevocably and unconditionally" submit to the jurisdiction "of the Supreme Court of the State of New York sitting in the Borough of Manhattan ... in any action or proceeding arising out of or relating to the performance of, or the legal relationships established by ... or otherwise arising in connection with ... " certain agreements. Those agreements include a "Tradable Securities Investment Advisory Agreement," pursuant to which IKB served as the Lore1ey Companies' investment advisor in connection with the transactions at issue in this case. Moreover, while Cal yon relies upon arguments about jurisdiction and alleged "European barriers to discovery" that were made by IKB in the action before Justice Cahn, Justice Cahn never ruled on those issues.' In contrast, the only case which has actually decided them found that there is general jurisdiction in New York over IKB pursuant to CPLR 301. See King County, Washington v. IKB Deutsche Industriebank AG, 712 F.Supp.2d 104, 112-13 (S.D.N.¥. 2010) (Scheindlin, 1.). And it would appear from a review of the electronic docket that discovery is now proceeding in that case notwithstanding any "European barriers to discovery." Indeed, it appears that any such issues were addressed through the entry of a Stipulated Protective Order. See Kings County, Case No. 09-cv-08387 (SAS) (S.D.N.¥.) (ECF Docket No. 163)_2 Thus, Calyon's conjecture and accusations of a conspiracy between the Loreley Companies and IKB is a complete non-issue. The Loreley Companies agree with Calyon that IKB is likely to possess discovery relevant to the issues in this case. But given the terms of the Framework Deed and Judge Scheindlin's decision in the King County case, Calyon's untested speculation that it cannot obtain discovery from IKE in this case is untenable. More importantly, and far from providing a reason to stay discovery, Calyon's theory demonstrates precisely why discovery should proceed without further delay. If Calyon or any of the other defendants wish to seek
1 The primary factor in Justice Cahn' s decision dismissing that case on the basis of forum non conveniens was the fact that the relevant transactions and agreements at issue were governed by English law and required the parties to submit to the jurisdiction of the Courts of England. See Fin. Guar. Ins. Co., et al. v. IKB Deutsche Industriebank AG, et al., Index No. 600704/08,2008 WL 5478808 (Sup. Ct., Dec. 29, 2008) (Cahn, 1.). In contrast, this case is governed by New York law and each of the defendants is either located in New York andlor has agreed to submit to the jurisdiction of the courts of the State of New York located in the Borough of Manhattan.

Notably, Calyon specifically argued in the case before Justice Cahn that the supposed "European barriers to discovery" were "not a factor" with respect forum non conveniens because "courts in New York have addressed and dispatched issues arising from the data protection laws of Germany and other countries, whether deciding that discovery could proceed in the ordinary fashion or that it would be moderated to accommodate the foreign provisions." A true and correct copy of the relevant portions of Calyon's memorandum of law in that case is annexed hereto as Exhibit A.
2

The Honorable Melvin L. Schweitzer February 17, 2011 Page 4

discovery from IKB, they should proceed to do so, and not cobble up the record with further speculative red-herrings and ad hominem attacks. III. Defendants' Motions to Dismiss Each defendant also seeks a stay of discovery on the basis of motions to dismiss they filed pursuant to CPLR 3211, which assert the usual array of arguments. Defendants' requests for a stay relies upon the familiar refrain that the Loreley Companies are engaging in a "fishing expedition," and generalized claims that responding to the Loreley Companies' notice to produce would be burdensome, time consuming, expensive, and potentially unnecessary.' Without debating in detail the merits of motions for which briefing has only just begun (the motions were filed less than one week ago and will not be fully briefed for several months), suffice it to say that even a cursory review of the First Amended Complaint belies the defendants' motions. Plaintiffs' allegations are spelled out in highly particularized detail over the course of 56 pages and 292 paragraphs, extensively detail defendants' fraudulent scheme, and rely upon multiple specific sources which clearly tie the defendants to the misconduct at issue. Defendants do not and cannot point to a single disclosure or disclaimer that excuses their fraud. And although much direct evidence of the misconduct is peculiarly within the knowledge and possession of defendants, the First Amended Complaint more than satisfies the applicable standard - even without the favorable inferences and liberal reading to which it is entitled. In truth, defendants' request to stay discovery is merely a pretext to delay for as long as possible production of direct evidence of their fraud, the reality of which is becoming clearer by the day. For example, on January 27, 2011, the United States Financial Crisis Inquiry Commission ("FCIC") released its Final Report on the Causes of the Financial and Economic Crisis in the United States. The report discusses litigation involving one of the many other Magnetarsponsored Constellation CDOs, known as Norma CDO I Ltd. The FCIC's report discusses and includes a document filed in that case confirming, exactly as Plaintiffs allege here, that Magnetar controlled the selection of the collateral for the deal, and that the titular manager of the transaction(NIR Capital Management, LLC) abdicated its asset selection duties to Magnetar with the knowledge of the CDO arranger (Merrill Lynch). In fact, according to that document, when one Merrill Lynch employee apparently learned that Magnetar had executed approximately $600 million in trades for the Norma CDO without NIR's apparent involvement or knowledge, she emailed colleagues, "Dumb question. Is Magnetar allowed to trade for NIR?" A true and

To be clear, the Loreley Companies' notice to produce to Calyon seeks 59 targeted categories of documents and each of their notices to produce to NIBC and Putnam seek 55 targeted categories of documents.
3

The Honorable Melvin L. Schweitzer February 17, 2011 Page 5

correct copy of the document included with the FCIC's report, a letter from Jonathan Pickhardt to Justice Fried dated May 11, 2010, is annexed hereto as Exhibit 13.4 In any event, the defendants' claims of burden and expense ring hollow. For example, conspicuously absent from Calyon's February 11 letter to the Court is any reference to the fact that Calyon recently (on February 4, 2011) commenced an action against the Loreley Companies in the Royal Court of Jersey, seeking a declaration that they are not liable to the Loreley Companies for the claims that are the subject of this action. A true and correct copy of the Affidavit of Mark Hedley Douglas Taylor, an Advocate of the Royal Court of Jersey, is annexed hereto as Exhibit C, and includes as Exhibit 1 a copy of the Order of Justice by which Calyon instituted those proceedings.' As Mr. Taylor explains, litigation in the Bailiwick of Jersey allows for broad document discovery under a standard that is quite similar to that applied in this Court. In other words, whether this case proceeds in New York or in Calyon's chosen forum, discovery is inevitable. The defendants fail to offer any reason discovery should be delayed when it will indisputably have to be provided in one forum or the other. Moreover, Calyon has argued in its papers that issues raised in this case overlap with issues raised in the litigation with IKB that has been pending for approximately two years in England (and which is apparently scheduled for trial in October of this year). Presumably, over the course of the past two years, and given that a trial is imminent, Calyon has engaged in an exchange of discovery with IKE in that case. Calyon can hardly claim that there would be any undue burden or expense in producing here responsive documents already produced in England. Similarly, Calyon has attached to its forum non conveniens motion an Order issued by the U.S. District Court for the District of Massachusetts directing Putnam to produce discovery in connection with those same English proceedings. See Affirm. of Gregory A. Litt in Support of Motion to Dismiss for Forum Non Conveniens at Ex. 0 (NYSCEF Doc. No. 30). Again, to the extent that discovery produced in response to that Order is responsive to Plaintiffs' document requests in this case, producing copies to the Plaintiffs here would not unduly burden Putnam.

See Cooperative Centrale Raiffeisen-Boerenleenbank; B.A. v. Merrill Lynch & Co., Index No. 601832/09 (Fried, 1). Notably, Justice Fried did not stay discovery in that case despite the filing of a motion to dismiss by Merrill Lynch (which was represented by the same counsel that represents Calyon) raising several arguments similar to those being made here. The motion to dismiss was never ruled upon by the Court because, as set forth in a Stipulation of Discontinuance filed with the Court on June 4, 2010, the case was apparently settled a mere three weeks after the plaintiffs' counsel's May 11, 2010, letter to the Court highlighting the direct evidence of the fraudulent scheme as revealed in Merrill Lynch's documents.
4

The Order of Justice indicates that those proceedings were "brought in Jersey on the basis that the New York court will decline jurisdiction," and the Royal Court of Jersey has thus adjourned the action pending a decision 011 Calyon's motion here to dismiss on the basis of forum non conveniens. Affidavit of Mark Hedley Douglas Taylor at ~~ 4 - 5.
5

The Honorable Melvin L. Schweitzer February 17,2011 Page 6

Finally, any objections defendants may have to the Loreley Companies' notices to produce are simply not a valid basis for a stay of discovery. Rather, pursuant to the CPLR and Court rilles, and as in any case in the Commercial Division, defendants must serve their responses and any specific objections to Plaintiffs' requests, meet and confer in good faith with Plaintiffs' counsel concerning any disputed objections, and seek the Court's intervention only with respect to those objections that the parties are unable to resolve among themselves. See CPLR 3122; Rule 14 of the Commercial Division Rules. IV. Conclusion Accordingly, discovery should proceed immediately and in the normal course as required by Commercial Division Rules and Your Honor's individual rules of Et

cc:

P. Jay Wilker, Esq. (via email) All counsel of record (via email and electronic filing)

EXHIBIT A
(Relevant Portions of Calyon' S Memorandum of Law in Fin. Guar. Ins. Co., et al. v. IKB Deutsche IndustriebankAG)

SUPREl'v1E COURT OF THE STATE COUNTY OF NE\,\/YORK

en: NE\V YORK

FINANCIAL GU/\RAN'!'Y

CO(\1PANY and

rotc

INSUR1\.NCE index No. 600704/2008

fJK IJ:tvUTED, P lainti lIs <mel
Counterclaim Defendants.'

Hon.HermanCahn lAS Part 49

VS.

CALYON, Defendant and Counterclaim Plaintiff

and
IKB DEUTSCI'IE INDUSTRIEBANK AG, IKB: CR_EDIT ASSE-rMANAGEtvIEN'l' GMBH, H/\VENROCK U LIMITED, Defendants,
_., ~. h ~ _ -

x

CALYON'S MEMOl{ANIlUM OF LAW TN OPPOSITION TO THE MOTIONS BY lKB DEUTSCHE INDUSTRfEBANKAG, IKE CREDIT ASSET MANAGEMENT GfvIBn, AND HAVEN ROCK n LIMITED TO DISMJSS THE COMPLAINT ON ~"ORtJl\1NON CONVENIENS·GROUNDS

George A_ Zimmerman Lea Haber Kuck Gregory i\. Lin

SKAlJDEN, ARPS, Sl_A.1'E, MEAUHER &
FLOMLLP

Four Times Square
New York, New York 10036 (212) 735-3000 Attorneys for Defendant and Plainti ff Cal von

Counterclaim

proceedings held in Europe, :~9SI:!crnl~~nj;iSpartindli, 176 /\.D.2d 1238, 1238,576 N,Y.S.2d 734, 734 (4th Dcp't 1991) (Tiefendents ... have visited plaintiff in ... New York, belying their

contention that they \viH be significantly inconvenienced by traveling to [New York] for the

869~~1O(Jd Dep't 1984) (finding that it.is

110

more inconvenient for defendant's representatives to to travel to Mississippi).

travel to New York than it would be for plaintiff's representatives

As admitted by Havenrock in the affidavit it submitted

on this motion, while it is

incorporated in Jersey, "Havenrock has no affiliates, offices-or employees ... anywhere." (HollywoodAff

,r~!12-13.)

Havenrock is a special purpose vehicle ~~a shell company -~ formed II transactions. (HR 13r. at 5.) Havenrocl: alleges that iT

solely to participate in theHavenrock

did not even exist when many oCthe events of the Complaint took place. and that "[n]o One from

Havenrock participated.

, , in any pre-closingmeetings,

discussions or negotiations at issue that (IJR 131'.at 8-9.) Havcnrock
AfI ,; 38), and

were associated with the Commitment Agreement or Transaction."

was brought into being solely for the purpose of this transaction (Hollywood

given that there arc likely to be few if any Havenroek witnesses relevant to the allegations that

have been made, its complaints that iI has to end ure a five-hour time difference to be in "constant
communication withcounsel," and the Iike(lIH. I3r. at 18), arc simplynot substantial hardships.'

IKB claims thatFGIC brought this action inNew York solely to gain discovery
that would be unavailable.in Germany or England. (IKB Hr. at 2-3.) Apparently, it is just the

llaveurock 11<1$ also indicated that, like lKB, it intends 10 challenge jurisdiction It is Calyon's view that jurisdiction IS proper over both IKB and Havenrock. However, following the Court's directive that we focus only on forum non 1:'0[1 veniens at this time, Calyon has not proceeded with jurisdictional discovery and has nor briefed the jurisdictional ]sSUGS (1llhi:s lime.

17

opposite.

lKB admits that one of its reasons for SCCkUlg dismissal is to avoid discovery that is

necessary for the prosecution ofthis action (IKB Br. at 3, 6-7), a goal that is not supported by NewYork 566,568-69 courts .. ~~.,::R912nbIicofLcbanOlu:,SQJheb)·'s, 167 A.D.2d 142, i45, 561 N.Y:S.2d

(Ist Dcp't 1990). In any event, as set forth below, all of the discovery-related

burdens raised by 1K.13 eitheralsoapplicable arc appropriately resol vable by this Court.

to proceedings in England or are easily and

[K8 claims that the German Federal Data Protection ACT("GFDPA") and German
banking secrecy "law" will impose substantial and complicated barriers to document discovery in this action. According to the testimony of Thomas C. Mahlich submitted by FGIC,howcveL

neither the GFDPA. nor.any German banking secrecy law will actually pose a substantial barrier
to document discovery. (Kuck AfC Ex. H.

~i':-2 J .}FUlthennore, 7

and unsurprisingly,

courts in

New York have addressed and dispatched issues arising from the data protection laws and discovery procedures of Germany and other countries, whether deciding that discovery could proceedin theordinaryfashion provisions. 2. Concerns About Overly Burdensome Discovery Can or thatit would be moderated to accommodate the foreign

B!:.lsilv Bsc[\~10resscQ_~y~rhisCOU119X a Speci?oLBsferee .. 1K13.also complains that PGle has already attempted to embark on "wide-ranging discovery," that would beallowable.in England only on a more Iimitedbasis, (LKB Be at 3.) To

the extent FGIC's discm:i.;ry requests are abusive or inappropriate, this Court is readily capable of dealing with them. There is no doubt that this Court is capable of limiting discovery to "Inaner material and necessary in the prosecution or defense of [this] action." N.Y. C.PJ.,R. § 310 l(a)

18

(Mckinney

20(4),

1K13itself has already requested that this Court appoint a special relerec,

which is a routine and efficient option if there are ongoing discovery issues.
To the extent IKB seeks dismissal in an attempt to gYQid producing matter that is

material and necessary in this action, that is a factor that should bcweighed

<lu.aiD.0_t dismissal.

RepllQ1i\;~~lLI",ebanon,167 A.D,2d al145, 561 N.'{,S.2d at 568 (holding that New York was a more convenient forum in pan because "New York permits more liberal discovery, which may

be essential" to uncover the facts-in this case); t\"QQuJdicl v. Gulfllyialion
179~180. 437 N.y'S,2d

Co.,l 08 Misc. 2e1 17:5,

219, 222 (Sup, Ct. NX. County 1980) (balding that New York was a

more convenient.forum and finding "New York practice more conducive [than !JK. practice] to
elicitation ofthe truth"), 3.

aft:~L86 AJJ.2d

564,448

nY.S.2d

427 (1 st Dep't 1982).

129og~lm?nts Wi1tIlf1\l.;loBe Translated Rcgnn;U~~s 1'tl1(;Jgri$.diction o IKB also argues that this forum is inconvenient because many of the documents

utilized in the litigation will need to be translated from German.

(1K8 Br. at 15.) The need to Sec c:'b.Ul.c.BankNpls:,. 45

translate documents, however, is not sufficient to require dismissal,

AD,3d at 339,845 N.Y.S.2cl at 267 (affirming denial of forum non conveniens motion despite
the need to translate some documents and testimony from Spanish); Y()shidaJ~I;jmi.gg, 213 AJ),2d275,624 N.Y.S.2d 128 (holdingthat the need to translate documents from Japanese did Additionally. where some documents arc in

not warrant a forum non conveniens dismissal).

English, this will weigh in favor of retaining the case in New York court. See AI1LJ~ankNoIc, 45 A.D. 3d at 340-41,845 N.Y.S.2d at268. produced over 100,000 pages of documents in English before

lIerc,FGIC-NY

discovery was put on hold. In light of riGTC~NY's central role in the transaction, there arc

undoubtedly numerous documents located in New York. The fact that many oflKB's documents
are likely to be in German does not warrant dismissal, particularly as lKB's documents would 19

also have to be translated if the proceedings were held in IKB's and Havenrock's preferred of England.

Venne

m,

TilE

NEED TO APPLY STRAJG.HTFOR\VARD MATTltRS OF FOREIGN LAW DOES NOT "VARRANT DlS1VllSSAL IKB and Havenrock.eontendthat thisCourt is an inconvenient forum because

some or allofthe

claims in this case are likely to be governed by foreign law. (IKB HT. at 11~12;

Havenrock Hr. at 15.)
Where, as here, there is a substantial nexus between the dispute and Nc\A' York, the courts of this state do not hesitate to retain j urisd iction and decide issues of foreign law \\'11e1'e necessary. As the First Department has explained, "the courts of New York arc frequently and, should the necessity arise, 'will be fully

called upon to apply the law offoreignjurisdictions capable of applying {foreign] law." Aw~gnoslOUV.

StifeL 204 A.D.2d 61,62,611

N.Y.S.2d525,

526 (1 st Dep't 199i~,1 (reversing a forum non conveniens dismissal despite the presence of Q:r;ge.k law claims); ~~951L?Q Am. B~Ll.k.NQ1.~.,45 A.DJd at 340Al, 845 N,Y.S.2d at 268 (affirming

refusal to dismiss despite the presence eJ'ArRQntijl::' law claims); ~ntertecContrw::1ingjJS v. I1UJ}~L31cincrIDtl.,"~,.{}.:,6 AD.3d J, 6:.774 N.Y.S.2d 14, 18 (l.st Dep't 2004) (reversing a forum Yoshida

non conveniens dismissal despite the need to consider SdJ~gIlkm}law claims); 213 A.D.2d 275, 62A N. Y.S.2d 128 (affirming refusalto law-claims); Yf:!}1Devel1tQLY,~~'S SCFMgrnJ,Jtd.,

PdDlir12.

dismiss despite the presence of J<1panc~9.

No. 603151/03 (Trial Order) (Sup, Ct N. y,

County Sept. J4, 2005) (Calm, J,) (refusing to dismiss for (arum non conveniens even though English law would apply to the claims), f~frd, 37 A.DJd 280, 830N.YS2d 97 (J st Dcp't 2(07).

Particularly here, where the issues are questions of fraud and contract
interpretation of the Sort routinely addressed by this Court, and the law that may need to be

20

EXHIBITB
(Letter from Jonathan Pickhardt to Justice Fried dated May 11,2010, in Cooperative Centrale Raiffeisen-Boerenleenbank, B.A. v. Merrill Lynch & Co., Index No. 601832/09 (Fried, J.))

WRITER.S DIRECT DIAL No.

(212) 849 7115
w

WRlTER'S INTERNET ADDRESS

May 11,2010

j onpickhardt@qllinnemanuel.com

The Honorable Bernard J. Fried Supreme Court of the State of New York 60 Centre Street New York, New York 10007 Re:
Cotiperatieve Centrale Raiffeisen-Boerenleenbank; B.A (t'Rabobank"} v. Merrill Lynch & Co., Inc. (,'Merrill'J, Index No. 60 1832/09JFried J.)6 __ ~ ~~ _
j

Dear Justice Fried: We represent plaintiff Rabobank in the above referenced action and write to request a pre-motion conference for a motion to compel third party Magnetar Capital LLC ("Magnetar") to comply with Rabobank's subpoena duces tecum dated August 12, 2009 (the "Subpoena," see Exhibit A). In this action, Rabobank seeks to recover the balance on its $58 million loan to Norma cno I Ltd ("Norma"), Merrill solicited Rabobank's loan based on numerous misrepresentations, including that Norma's portfolio had been rigorously selected by an independent collateral manager, NIR Capital Management, LLC ("NIR"). In fact - as discovery is demonstratingMerrill knew NIR had abdicated its asset selection duties to Magnetar, an important Merrill client that was also Norma's equity investor. As Merrill understood, Magnetar's real interest in Norma was not in its long equity investment, but rather in using Nanna to take a much more substantial short position in the very assets Magnetar was selecting for Nanna's portfolio. By falsely touting NIR's role, Merrill Lynch thus concealed from Rabobank and Norma's other investors that Norma's assets were actually being selected by a party that stood to profit when Nanna failed. For its part, understanding the impropriety of its having selected CDO assets, Magnetar has flatly denied any such involvement. See April 16, 20] 0 Letter from Pickhardt to Court; Ex. B at 4-5 (Magnetar Investor Letter; "Magnetar ... did not select or have control over the assets that went into a CDO."). However, as initial discovery from Merrill has revealed: • As early as August 2006, Magnetar assumed NIR's role in directing Merrill on what purchases to execute for Norma. See, e,g., Ex. C (ML01395145) (James Prusko of'Magnetar: "Here is the first batch of protection purchases I'm planning for NIR.").

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NORMAFC!C000105

The Honorable Bernard 1, Fried May 11,2010 • By November 2006, Magnetar had executed approximately $600 million in trades for Nanna without NIR's apparent involvement or knowledge. See, e.g., Ex. D (ML01396714) ("Apparently NIR allowed Magnetar to do some trading for their portfolio (in the area of 600MM). This accounted for a large chunk of trading that NIR originally didn't recognize.") This prompted a Merrill corporate risk manager to ask: "Dumb question. Is Magnetar allowed to trade for NIR?" Id. Even on trades that NIR did execute for Norma, Magnetar exercised veto rights over the selection of each asset. See, e.g., Ex. E (ML01396692) (Prusko to NIR: "I definitely want to approve any CDO's that go in the deal, don't recall seeing any, so I assume 'Approved' [in NIR spreadsheet] means only that NIR has internally approved the credit"); Ex. F (MLO1400671) (Prusko rejecting NIR request to include TABS 2006-6A cash bond in the portfolio: "Afraid so, tabs in particular I don't want the cash in there."). By January 2007 (when Merrill first approached Rabobank), Magnetar was already the short "counterparty" on $600 million of synthetic assets in Norma's portfolio, See, e.g., Ex. G (ML01486349). Merrill recognized that such short positions were more important to Magnetar than its long investments. See, e.g., Ex. H (MLOI488729) ("I think Jim [Prusko] is less worried about his deal pricings and more worried about where he can short paper in the aftermarket."). Indeed, Magnetar's equity investment in Norma totaled less than $50 million after receiving undisclosed discounts funded through the loan from Rabobank. See, e.g., Ex. I (ML01475982). This meant that Magnetar stood to make 10 times more from its $600 million short position if Norma failed than Magnetar had invested in Norma's equity.

..

Merrill recently contended that no fraudulent intent can be inferred from Magnetar's involvement in selecting assets in light of Merrill's own investment in Norma's Class A-I Notes. See April 19,2010 Letter from Musoffto Court. However, documents produced by Merrill show that it "bought protection" that resulted in it being «long short netted" on its Norma Class A-l Note exposure. See Ex. J (ML01378403) Thus, Merrill's own purported investment in Norma provides no basis for negating any inference that it intended to defraud Rabobank, Rabobank therefore seeks discovery from Magnetar regarding its involvement in Norma, its relationships with Merrill and NIR, and the creation of Norma as a shorting vehicle. Magnetar has refused to respond to Rabobank's subpoena, citing cost and other issues. Rabobank requests a Rule 24(c) pre-motion conference in order that it may move to compel Magnetar's response. Respectfully submitted,

\~-'~12~~ ~~ilian i\i~khardt
cc: Scott D. Musoff, Esq. (counsel for Merrill Lynch) (via electronic filing) Thomas L. Kirsch, Esq. (counsel for Magnetar) (via email)

2

NORMAFCIC000106

EXHIBIT C
(Affidavit of Mark Hedley Douglas Taylor, Advocate of the Royal Court of Jersey)

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK LORELEY FINANCING (JERSEy) NO.7, LIMITED; LORELEY FINANCING (JERSEY) NO. 25, LIMITED; LORELEY FINANCING (JERSEY) NO. 31, LIMITED; and LORELEY FINANCING (JERSEY) NO. 32, LIMITED, Plaintiffs,
-v-

Index No. 650673/2010

lAS Part 45

CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK; CREDIT AGRICOLE SECURITIES (USA) INC.; NlBC CREDIT MANAGEMENT, INC.; and PUTNAM ADVISORY COMPANY, LLC, Defendants.

Han. Melvin 1. Schweitzer

LORELEY FINANCING (JERSEY) NO.7, LIMITED; and LORELEY FINANCING (JERSEY) NO. 25, LIMITED, Plaintiffs,
-y-

CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK; CREDIT AGRICOLE SECURITIES (USA) INC., Defendants.

AFFIDA VlT OF MARK HEDLEY DOUGl,AS TAYLOR BAILIWICK OF JERSEY SAINT HELlER ) ) )

ss.:

MARK HEDLEY DOUGLAS TAYLOR, being of full age and duly sworn, hereby deposes and says as follows:

1.

I am an Advocate of the Royal Court of Jersey, and a partner with Bedell Cristin, law finn located in the Isle of Jersey, with additional offices in

a Channel Islands-based

Guernsey, London, Dublin, Geneva, Mauritius, and the British Virgin Islands. 2. I am familiar with the First Amended Complaint (the "Complaint") filed in this Limited, Loreley

action (the "New York Action'') by Loreley Financing (Jersey) No.7,

Financing (Jersey) No. 25, Limited, Loreley Financing (Jersey) No. 31, Limited, and Loreley Financing (Jersey) No. 32, Limited (the "Loreley Companies'') against Credit Agricole

Corporate and Investment Bank ("Cal yon CIB"), Credit Agricole Securities (USA) Inc. ("Calyon (USA)" and, together with Calyon ClB, "Calyon"), NIBC Credit Management, Inc. ("NIBC"), and Putnam Advisory Company, LLC ("Putnam"), 3.

r am

also familiar with proceedings that were commenced on or about 4 February

2011 in the Royal Court of Jersey (the "Jersey Action") by Credit Agricole Corporate and Investment Bank and Credit Agricole Securities (USA) Inc. (collectively, "Calyon") against, among other parties, the Loreley Companies, A true and correct copy of the Order of Justice

(without the exhibit thereto) which instituted the Jersey Action is annexed as Exhibit 1. The Jersey Action is predominantly a mirror image of the claims at issue in the New York Action in that it seeks declarations that Calyon is not liable to the Loreley Companies for the claims alleged in the New York Action. 4, proceedings jurisdiction." The Order of Justice issued by Calyon in the Jersey Action states that those were "brought in Jersey on the basis that the New York court will decline Exhibit 1 at p. 3 (17). Calyon also acknowledges in the Order of Justice that

England "is only available as a forum if the Defendants consent." Exhibit 1 at p, 4 (113), 5. The Royal Court of Jersey has recently adjourned the Jersey Action generally,

pending a decision in the New York Action on Calyon's application to dismiss on the basis of forum non conveniens. I make this affidavit for the purpose of describing generally the standard

that would apply to discovery of documents from the parties in the Jersey Action if it were to proceed.

2

6.

Jersey litigation permits broad document discovery of parties. The obligation to

provide discovery is contained primarily in the Royal Court Rule 6!l7, which authorizes the Court to order discovery of documents which are or have been in the "possession, custody or power" of a party "relating to any matter in question in the cause or matter." 7. The documents of which a party may be required to give discovery pursuant to

RCR 6/17 is broadly construed. It means anything from which information is retrievable, including all hardcopy written material whether typed or handwritten, including letters, notes, memoranda, faxes, diaries, books, telephone or meeting notes, photographs, microfilms, video and audio tape recordings, emails and computer databases or files. 8. A party is deemed to have a document in his (a) "possession" where he physically

holds the document, (b) "custody" where it is not the document of the party, but the party can get hold of it, and (c) "power" where it is a document he does not physically possess at present, but can call for its return or production from the party that does currently have physical possession or custody of it. It does not matter why a party has possession, custody or power of a document, but if he or she has a relevant document in his possession, custody or control he or she must give discovery of it irrespective of the capacity in which it is so in his or her possession, custody or power (Re Bastiaan Broere Trust 2003 JLR N33). 9. A document relates to matters in question if it may (not must) lead a party to

evidence which may help or hinder his case (Victor Hanby Associates Ltd -v- Oliver 1990 JLR 337). "Matters in question in the proceeding" are identified by reference to the pleadings (Victor Hanby Associates Ltd
-y-

Oliver 1990 JLR 337). Matters are "in question" if they are pleaded

by a party but are either not admitted or are denied. 10. A party cannot object to or avoid providing discovery of a document on the

ground that it is confidential, although the Court has a general discretion to allow a confidential document to be withheld if the interests of confidentiality outweigh private interests of the party seeking inspection of that document (Dixon -v- Jefferson Seal 1996 JLR Notes 2b). There is no rule by which confidentiality not amounting to public interest immunity precludes discovery of 3

particular necessary

documents. for disposing

It is for the Court to consider
fairly of the cause or matter

in each case whether (Deeney -v- Social

such discovery Committee

is

Services

2003 JLR 138).

Mark Hedle

Sworn by the said MARK HEDLEY

DOUGLAS TAYLOR

at 3""[. -lU I..c-ot../" ~_:::J this day of February in the year Two Thousand and Eleven

Ib

Before me

•••••••••••

2-" •• , ••• I ~ •• ~ ••

~ •••

~,

,

••••

Advocate

V'

s . r\{Lt-JE--fL %1:3Jt?LL ~ l f-. I rJ

of the Royal Court of Jersey

4

EXHIBIT 1 TO AFFIDAVIT OF MARK HEDLEY

DOUGLAS TAYLOR

"

Court File No IN THE ROYAL COURT OF JERSEY SAMEDI DIVISION BETWEEN:CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK; and CREDIT AGRICOLE SECURITIES (USA) INC.
Plaintiffs

- andLORELEY FINANCING (JERSEy) No.7 LlMITED; LORELEY FlNANCING (JERSEy) No. 25 LIMITED; LORELEY FINANCING (JERSEy) No. 31 LIMITED; LORELEY FINANCING (JERSEy) No. 32 LJMITED; IKB DEUTSCHE INDUSTRIEBANK AG; and

urn CREDIT ASSET MANAGEMENT GMBH
Defendants

ORDER OF JUSTICE

Part One: Description of parties

1.

Credit

Agricole

Corporate

and

Investment

Bank

("CA-CIB")

is a limited

company

incorporated under the laws of France with its principal place of business at 9 Quai du President Paul Doumer, 92920 Paris, La Defense Cedex, France. CA-CIB is a member of the Credit Agricole group and specialises in capital markets, corporate and investment banking. 2. Credit Agricole Securities (USA) Inc. ("CA-USA") is a corporation incorporated under the CA-USA is a wholly-owned subsidiary of CA-CIB. CA-CIB and

laws of the State of New York.

CA-USA are referred to collectively herein as "Calyon."

3.

IKB Deutsche Industriebank

Aktiengesellschaft

("IKB AG") is a public limited banking

company incorporated under the laws of the Federal Republic of Germany with its principal place of business at Wilhem-Botzkes-Stralle 1,40474 Diisseldorf, Germany.

4.

IKB Credit Asset Management

GmbH

("IKB CAM") was a limited liability company

incorporated under the laws of the Federal Republic of Germany with its principal place of business at Uerdinger Strasse 90, 40474 Dusseldorf, Germany. IKB AG created IKE CAM and in December

2006 transferred its asset management group and personnel into the newly created entity, IKB CAM. IKE CAM operated as a wholly-owned subsidiary ofIKB AG until about June 2008, when IKB CAM was reintegrated into IKE AG and IKB CAM's personnel and functions were transferred wholesale

back into IKB AG. IKB AG and IKB CAM are referred to collectively herein as "IKE."

5.

Loreley Financing (Jersey) No.7

Limited ("LFJ 7"), Loreley Financing

(Jersey) No. 25

Limited ("LFJ 25"), Loreley Financing (Jersey) No. 31 Limited ("LFJ 31 "), and Loreley Financing (Jersey) No. 32 Limited ("LFJ 32") (collectively, the "Loreley Companies") are special purpose

"purchasing entities" incorporated in Jersey and having their registered offices at 26 New Street, St Helier, JE2 3RA. The Loreley Companies were created by IKB as part of its commercial paper

conduit, the "Rhineland Programme."

Part Two: The US proceedings

6.

The Loreley Companies commenced proceedings against Calyon in New York in 2010 (the The Loreley Companies filed a first amended complaint on or about October 29, A copy of the US Complaint is annexed as a schedule to this Order of

"US Proceedings").

2010 (the "US Complaint"). Justice.

2

)

7.

Calyon intends to file a motion to dismiss the US Proceedings,

on or before 14 February Calyon considers

2011, on the basis that New York is not an appropriate forum for the proceedings.

the motion well founded, and that, unlike New York, Jersey is the most appropriate available forum for the proceedings to be heard. Proceedings have been brought in Jersey on the basis that the New

York court will decline jurisdiction.

Part Three: Background and relationship between the parties

8.

IKE launched the Rhineland Programme in 2002 to facilitate multi-billion dollar investments debt obligations ("CnOs"). CDO certificates ("notes"), similar to bonds, payout

in collateralized

principal and interest payments.

Here, the collateral for the bonds was typically based on payment A CDO is

streams from mortgages or other contracts that call for principal and interest payments.

divided into pieces, known as "tranches", each with a level of risk, which are prioritized in terms of receiving payments.

9.

The Rhineland

Programme

comprised the Loreley Companies,

various bankruptcy-remote,

special-purpose

vehicles with registered offices in Jersey, and a "web" of other virtually identical

companies, also located in Jersey, to purchase and hold CDOs. These purchases were funded through the sale of commercial paper by another IKB-created entity, Rhineland Funding Capital Corporation ("RFCC"). IKB received "advisory fees" and "success fees" which were based on the profits gained

from the difference between the interest generated from the CDOs and the interest RFCC had to pay the commercial paper investors. In the US Proceedings, the Loreley Companies have acknowledged

that IKB conducted all of the negotiations and due diligence relating to their purchases of CDOs, and that the Loreley Companies did not purchase any CDOs except upon IKB's recommendation.

10. Calyon

In the US Proceedings, the Loreley Companies allege that LFJ 7 and LFJ 25 purchased from US$20.5 million of notes issued in connection with two cnos arranged by Calyon,

commonly known as Orion 2006-1, Ltd. ("Orion 2006-1") and Pyxis ABS CDO 2006-1, Ltd. ("Pyxis 2006-1 "), and that LFJ 31 and LFJ 32 purchased from Calyon US$50 million of notes issued in connection with another CDO arranged by Calyon, commonly known as Millstone IV CDO, Ltd.

("Millstone N").

11.

NIBC Credit Management, Inc. ("NmC")

and Putnam Advisory Company, LLC ("Putnam") tasked with managing the

served as the collateral managers for Orion-l

and Pyxis-I, respectively,

collateral underlying the CDOs. Magnetar Capital, LLC ("Magnetar") is a hedge fund that purchased some or all of the equity tranches of Orion-I and Pyxis-I, 3

12.

In the US Proceedings, the Loreley Companies have alleged that they were fraudulently

induced by Calyon and NIBC to purchase notes in Orion-I, by Calyon and Putnam to purchase notes in Pyxis-I, and by Calyon to purchase notes in Millstone IV. The allegations are based, in part, on the Loreley Companies' claim that Calyon, NIBC and Putnam colluded with Magnetar and secretly

allowed Magnetar to include "weak" collateral in the CDOs. Cat yon denies these allegations.

Part Four: Jurisdiction and venue

13.

There are three fora alleged by the parties to be appropriate

for the hearing of these

proceedings:

New York. England, and Jersey. As averred in paragraph 7 above New York is not an

appropriate forum. England is the most appropriate forum for these proceedings, but is only available as a forum if the Defendants consent. As to Jersey, the Loreley Companies, which are the only

plaintiffs in the US Proceedings and were the purchasers of the CDO notes underlying the disputes, are all Jersey registered companies. Companies There is no allegation in the US Proceedings that the Loreley Rather, the

had any interaction with Calyon or any other party in the United States.

Loreley Companies allege that IKB acted as their investment advisor, and if JKB determined that an investment was appropriate, it would present the investment to the Loreley Companies for their final decision. Accordingly, in the absence of consent by the Defendants to London as a forum, Jersey is

the most appropriate forum for these proceedings involving the Loreley Companies to be heard.

14.

The third-party

claims against IKE are inextricably linked to the main claims against the IKE is the central actor on

Lore1ey Companies,

arising from the same transactions and occurrences.

the Loreley Companies' side ofthis dispute, mentioned approximately 90 times in the US Complaint

15.

The Loreley Companies ha'_'e admitted in the US Complaint that IKB conducted all of the on their behalf with Cat yon, and that IKB conducted the due diligence that led to the

negotiations

Loreley Companies' purchase of the CDO notes at issue. They also admit that their allegations in the US Complaint are based, in part, on information provided to them by IKB. The declarations of nODliability, and in the alternative the third party claims, sought against IKB and IKE CAM flow directly from the main dispute. Accordingly, Jersey is the most appropriate forum for the declarations of nonliability, and in the alternative the third-party claims, against IKB and IKB CAM to be heard.

Part Five: Declarations sought in relation to the Causes of Action alleged in the US Complaint

16.

The US Complaint contains 10 causes of action, 9 of which are allegations, solely or jointly

and severally with the other defendants in the proceedings, by the Loreley Companies against Calyon. 4

"

Declarations

in relation to the Loreley Companies'

alleged First Cause of Action

17.

The Loreley Companies' First Cause of Action in the US Complaint is for rescission based

upon alleged fraudulent inducement by Calyon in relation to LFJ 7's and LFJ 25's purchase of $20.5 million of Orion 2006-1 and Pyxis 2006-1 notes. The Loreley Companies' allegations in relation to their alleged First Cause of Action are set out at paragraphs 201 to 212 of the US Complaint, elsewhere in the preceding paragraphs of that pleading. and

18.

Calyon denies that it is guilty of any fraudulent misconduct, or that it has any liability to LFJ

7 or LFJ 25, in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes. It further states that insofar as the Loreley Companies in the US Complaint allege that Cat yon has acted fraudulently, these allegations are embarrassing, are not adequately particularised, and lack the precision and

specificity necessary for Calyon to respond to them in detail.

19.

In relation to the Loreley Companies'

alleged First Cause of Action in the US Complaint,

Calyon seeks:

19.1

A declaration

that Cat yon has no liability, whether for fraudulent

misrepresentation,

or

otherwise in tort, contract, restitution, or otherwise, to LFJ 7 and LFJ 25 or any other of the Loreley Companies in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes.

19.2

A declaration that, in making the decision to purchase the Orion 2006-1 and Pyxis 2006-1 notes, LFJ 7 and LFJ 25 relied on the due diligence of their investment adviser, IKB, and the judgement of the Investment Committee (that term is used in this Order of Justice with the

same meaning as in the US Complaint).

19.3

A declaration that LFJ 7 and LFJ 25 are not entitled to rescission of the purchase contracts for the Orion 2006-1 and Pyxis 2006-1 notes.

19.4

A declaration that Calyon is not liable to indemnify, or make contribution to any liability of, IKB in respect of any of the matters pleaded by the LoreJey Companies in the First Cause of Action.

19.5

In the alternative to the previous sub-paragraph, if Calyon is liable to the Loreley Companies for any of the matters pleaded in the First Cause of Action (which is denied), judgment
5

against IKB for indemnity or contribution just.

in such sum or proportion as the Court considers

Declarations

in relation to the Loreley Companies' alleged Second Cause of Action

20.

The Loreley Companies' Second Canse of Action in the US Complaint is for rescission based

upon alleged fraudulent inducement in relation to LFJ 31 's and LFJ 32's purchase of $50 million of Millstone IV notes. The Loreley Companies' allegations in relation to their alleged Second Cause of Action are set out at paragraphs 213 to 223 of the US Complaint, and elsewhere in the preceding paragraphs of that pleading.

21.

Calyon denies that it is guilty of any fraudulent misconduct, or that it has any liability to LFJ

31 and LFJ 32 or any other of the Loreley Companies, in relation to the purchase of the Millstone IV notes. It further states that, insofar as the Loreley Companies in the US Complaint allege that Calyon has acted fraudulently, these allegations are embarrassing, are not adequately particularised., and lack the precision and specificity necessary for Calyon to respond to them in detail.

22.

In relation to the Loreley Companies' alleged Second Cause of Action in the US Complaint,

Calyon seeks:

22. I

A declaration

that Calyon has no liability, whether for fraudulent

misrepresentation,

or

otherwise in tort, contract, restitution, or otherwise, to LFJ 31 and LFJ 32 purchase of the Millstone IV notes.

in relation to the

22.2

A declaration that, in making the decision to purchase the Millstone IV notes, LFJ 31 and LFJ 32 relied on the due diligence of their investment adviser, IKB, and the judgement Investment Committee. of the

22.3

A declaration that LFJ 31 and LFJ 32 are not entitled to rescission of the purchase contracts for the Millstone N notes.

22.4

A declaration that Calyon is not liable to indemnify, or make contribution to any liability of; IKE in respect of any of the matters pleaded by the Loreley Companies in the Second Cause of Action.

6

22.5

In the alternative to the previous sub-paragraph, if Calyon is liable to the Loreley Companies for any of the matters pleaded in the Second Cause of Action (which is denied), judgment against IKE for indemnity or contribution in such sum or proportion as the Court considers just.

Declarations in relation to the LDreley Companies' alleged Third Cause of Action

23.

The Loreley Companies' Third Cause of Action in the US Complaint is for rescission based by Calyon in relation to LFJ Ts and LFJ 25's purchase of $20.5

upon alleged misrepresentations

million of Orion 2006-1 and Pyxis 2006-1 notes. The Loreley Companies' allegations in relation to their alleged Third Cause of Action are set out at paragraphs 224 to 235 of the US Complaint, and elsewhere in the preceding paragraphs of that pleading.

24.

Calyon denies that it is guilty of making any misrepresentations,

or that it has any liability to

LFJ 7 and LFJ 25 or any other of the Loreley Companies, in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes. It further states that, insofar as the Loreley Companies in the US Complaint allege that misrepresentations are not adequately particularised, were made by Calyon, these allegations are embarrassing;

and lack the precision and specificity necessary for Calyon to

respond to them in detail.

25.

In relation to the Loreley Companies' alleged Third Cause of Action in the US Complaint,

Calyon seeks:

25.1

A declaration that Calyon has no liability, whether for misrepresentation,

or otherwise in tort,

contract, restitution, or otherwise, to LFJ 7 and LFJ 25 in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes.

25.2

A declaration

that in making the decision to purchase the Orion 2006-1 and Pyxis 2006-1

notes, LFJ 7 and LFJ 25 relied on the due diligence of their investment adviser, IKB, and the judgement of the Investment Committee.

25.3

A declaration that LFJ 7 and LFJ 25 are not entitled to rescission of the purchase contracts for the Orion 2006-1 and Pyxis 2006-1 notes.

7

25.4

A declaration that Calyon is not liable to indemnify, or make contribution to any liability of, IKB in respect of any of the matters pleaded by the Loreley Companies in the Third Cause of Action.

25.5

In the alternative to the previous sub-paragraph, if Calyon is liable to the Loreley Companies for any of the matters pleaded in the Third Cause of Action (which is denied), judgment against IKB for indemnity or contribution just. in such sum or proportion as the Court considers

Declarations

in relation to the Loreley Companies' alleged Fourth Cause of Action

26.

The Loreley Companies' Fourth Cause of Action in the US Complaint is for rescission based in relation to LFJ 31 's and LFJ 32's purchase of $50 million of

upon alleged misrepresentations

Millstone IV notes. The Loreley Companies' allegations in relation to their alleged Fourth Cause of Action are set out at paragraphs 236 to 246 of the US Complaint, and elsewhere in the preceding paragraphs of that pleading.

27.

Calyon denies that it is guilty of making any misrepresentations,

or that it has any liability to

LFJ 31 and LFJ 32 or any other of the Loreley Companies, in relation to the purchase of the Millstone

N notes. It further states that, insofar as the Loreley Companies in the US Complaint allege that
misrepresentations particularised, were made by Calyon, these allegations are embarrassing, are not adequately and lack the precision and specificity necessary for Calyon to respond in detail to them.

28.

In relation to the Loreley Companies' alleged Second Cause of Action in the US Complaint,

Calyon seeks:

28.1

A declaration that Calyon has no liability, whether for misrepresentation,

or otherwise in tort,

contract, restitution, or otherwise, to LFJ 31 and LFJ 32 in relation to the purchase of the Millstone IV notes.

28.2

A declaration that making the decision to purchase the Millstone N notes, LFJ 31 and LFJ 32 relied on the due diligence of their investment Investment Committee. adviser, IKB, and the judgement of the

28.3

A declaration that LFJ 31 and LFJ 32 are not entitled to rescission of the purchase contracts for the Millstone IV notes. 8

28.4

A declaration that Calyon is not liable to indemnify, or make contribution to any liability of,

IKB in respect of any of the matters pleaded by the Loreley Companies in the Fourth Cause of
Action.

28.5

In the alternative to the previous sub-paragraph,

if Calyon is liable to the Loreley Companies

for any of the matters pleaded in the Fourth Cause of Action (which is denied), judgment against IKE for indemnity or contribution in such sum or proportion as the Court considers just.

Declarations

in relation to the Loreley Companies' alleged Fifth Cause of Action

29.

The Loreley Companies' Fifth Cause of Action in the US Complaint is for damages based or omissions by Calyon in relation to LFJ 7'5

upon alleged intentional or reckless misrepresentations

and LFJ 25's purchase of $20.5 million of Orion 2006-1 and Pyxis 2006-1 notes. The Loreley Companies' allegations in relation to their alleged Fifth Cause of Action are set out at paragraphs 247 to 258 of the US Complaint, and elsewhere in the preceding paragraphs of that pleading.

30.

Calyon denies that it is guilty of any intentional or reckless misrepresentations

or omissions,

or that it has any liability to LFJ 7 or LFJ 25, in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes. It further states that, insofar as the Loreley Companies in the US Complaint allege that Calyon has made intentional or reckless misrepresentations or omissions, these allegations are

embarrassing,

are not adequately particularised., and lack the precision and specificity necessary for

Calyon to respond in detail to them.

31.

In relation to the Loreley Companies' alleged First Cause of Action in the US Complaint,

Calyon seeks:

31.1

A declaration

that Calyon has no liability, whether fOT making intentional

or reckless

misrepresentations

or omissions, or otherwise in tort, contract, restitution, or otherwise, to

LFJ 7 and LFJ 25 or any other of the Loreley Companies in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes.

31.2

A declaration that in making the decision to purchase the Orion 2006-1 and Pyxis 2006-1 notes, LFJ 7 and LFJ 25 relied on the due diligence of their investment adviser, IKB, and the judgement of the Investment Committee.
9

31.3

A declaration that Calyon is not liable to indemnify, or make contribution to any liability of,

IKB in respect of any of the matters pleaded by the LoreIey Companies in the Fifth Cause of
Action.

31.4

In the alternative to the previous sub-paragraph,

if Calyon is liable to the Loreley Companies

for any of the matters pleaded in the Fifth Cause of Action (which is denied), judgment against IKB for indemnity or contribution in such sum just.
OT

proportion as the Court considers

Declarations

in relation to the Loreley Companies' alleged Sixth Cause of Action

32.

The Loreley Companies' Sixth Cause of Action in the US Complaint is for damages based or omissions in relation to LFJ 31 's and LFJ

upon alleged intentional or reckless misrepresentations 32' s purchase of $50 million of Millstone

rv notes.

The Loreley Companies' allegations in relation to

their alleged Sixth Cause of Action are set out at paragraphs 259 to 269 of the US Complaint, and elsewhere in the preceding paragraphs of that pleading.

32.1

Calyon denies that it is guilty of any intentional or reckless misrepresentations

or omissions, in

or that it has any liability to LFJ 31 and LFJ 32 or any other of the Loreley Companies,

relation to the purchase of the Millstone IV notes. It further states that, insofar as the Loreley Companies in the US Proceedings or omissions, allege that Calyon has made any intentional or reckless these allegations are embarrassing, are not adequately

misrepresentations particularised, in detail.

and lack the precision and specificity necessary for Calyon to respond to them

33.

In relation to the Loreley Companies'

alleged Sixth Cause of Action in the US Complaint,

Calyon seeks:

33.1

A declaration misrepresentations

that Calyon has no liability,

whether

for any intentional

or reckless

or omissions, or otherwise in tort, contract, restitution, or otherwise, to

LFJ 31 and LFJ 32 in relation to the purchase of the Millstone IV notes.

33.2

A declaration that making the decision to purchase the Millstone IV notes, LFJ 31 and LFJ 32 relied on the due diligence of their investment Investment Committee.
10

adviser, IKE, and the judgement

of the

33.3

A declaration that Calyon is not liable to indemnify, or make contribution to any liability of, IKE in respect of any of the matters pleaded by the Loreley Companies in the Sixth Cause of Action.

33.4

In the alternative to the previous sub-paragraph, if Calyon is liable to the Loreley Companies for any of the matters pleaded in the Sixth Cause of Action (which is denied), judgment against IKE for indemnity or contribution in such sum or proportion as the Court considers just.

Declarations

in relation to the Loreley Companies' alleged Seventh Cause of Action

34.

The Loreley Companies' Seventh Cause of Action in the

us Complaint

is for rescission based

upon alleged fraudulent common scheme with NIBC, Putnam, and Magnetar, to defraud LFJ 7 and LFJ 25 in relation to the purchase of $20.5 million of Orion 2006-1 and Pyxis 2006-1 notes. The Loreley Companies' paragraphs pleading. allegations in relation to their alleged Seventh Cause of Action are set out at in the preceding paragraphs of that

270 to 276 of the US Complaint, and elsewhere

35.

Calyon denies that it is guilty of participating in any fraudulent common scheme with NIBC,

Putnam, and Magnetar, or that Calyon has any liability to LFJ 7 or LFJ 25, in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes. It further states that, insofar as the Loreley Companies in the US Complaint allege that Calyon participated in a fraudulent common scheme with NIBC,

Putnam, and Magnetar, these allegations are embarrassing,

are not

adequately particularised, and lack

the precision and specificity necessary for Calyon to respond to them in detail.

36.

In relation to the Loreley Companies' alleged Seventh Cause of Action in the US Complaint,

Calyon seeks:

36.1

A declaration that Calyon has no liability, whether for participating in a fraudulent common scheme with NIBC, Putnam and Magnetar, or otherwise in tort, contract, restitution, ·or otherwise, to LFJ 7 and LFJ 25 or any other of the Loreley Companies in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes.

11

36.2

A declaration that in making the decision to purchase the Orion 2006-1 and Pyxis 2006-1 notes that LFJ 7 and LFJ 25 relied on the due diligence of their investment adviser, IKB, and the judgement of the Investment Committee.

36.3

A declaration that Calyon is not liable to indemnify, or make contribution to any liability of, IKB in respect of any of the matters pleaded by the Loreley Companies in the Seventh Cause of Action.

36.4

In the alternative to the previous sub-paragraph, if Calyon is liable to the Loreley Companies
for any of the matters pleaded in the Seventh Cause of Action (which is denied), judgment against IKB for indemnity or contribution just. in such sum or proportion as the Court considers

Declarations

in relation to the Loreley Companies' alleged Ninth Cause of Action

37.

TIle Loreley Companies' Ninth Cause of Action in the US Complaint is for unjust enrichment

based upon Cat yon alleged fraudulent conduct in relation to LFJ 7'8 and LFJ 25's purchase of $20.5 million of Orion 2006-1 and Pyxis 2006-1 notes, and seeks restitution of the arranger fees paid to, and allegedly wrongfully obtained profits earned by, Calyon from the transaction. The Loreley

Companies' allegations in relation to their alleged Ninth Cause of Action are set out at paragraphs 284 to 288 of the US Complaint, and elsewhere in the preceding paragraphs of that pleading.

38.

Calyon denies that it has been unjustly enriched, or that it has any liability to LFJ 7 and LFJ

25 or any other of the Loreley Companies, in relation to the fees paid to Calyon in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes or Calyon's profits from the transactions. It

further states that, insofar as the allegations made by the Loreley Companies in the US Proceedings are allegations misrepresentation, that Calyon has been unjustly enriched by LFJ 7 and LFJ 25 through fraud or these allegations are embarrassing, are not adequately particularised, and lack the

precision and specificity necessary for Calyon to respond to them in detail.

39.

In relation to the Loreley Companies' alleged Ninth Cause of Action in the US Complaint,

Calyon seeks:

39.1

A declaration

that Calyon has no liability,

in unjust enrichment,

or in tort, contract,

restitution, or otherwise, to make restitution of the arranger fees paid to Calyon by LFJ 7 and LFJ 25 in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes or any other profits earned by Calyon as a result of that transaction. 12

39.2

A declaration that in making the decision to purchase the Orion 2006-1 and Pyxis 2006-1 notes, LFJ 7 and LFJ 25 relied on the due diligence of their investment adviser, IKB, and the judgement ofthe Investment Committee.

39.3

A declaration that the arranger fees and any other profits earned by CaIyon in relation to the purchase of the Orion 2006-1 and Pyxis 2006-1 notes by LFJ 7 and LFJ 25 were earned lawfully.

39.4

A declaration that Catyon is not liable to indemnify, or make contribution to any liability of, IKB in respect of any of the matters pleaded by the Loreley Companies in the Ninth Cause of Action.

39.5

In the a1ternativeto the previous sub-paragraph, if Catyon is liable to the Loreley Companies

for any of the matters pleaded in the Ninth Cause of Action (which is denied), judgment against IKB for indenmity or contribution in such sum or proportion as the Court considers just. Declarations in relation to the Lore1eyCompanies' alleged Tenth Cause of Action 40. The Loreley Companies' Tenth Cause of Action in the US Complaint is for unjust enrichment

relation based upon Calyon's alleged fraudulent conduct in relation to LFJ 31's and LFJ 32's purchase of $50 million of Millstone N notes, and seeks restitution of the arranger fees paid to, and allegedly wrongfully obtained profits earned by, CaIyon from the transaction. The Loreley Companies' allegations in relation to their alleged Tenth Cause of Action are set out at paragraphs 289 to 292 of the US Complaint, and elsewhere in the preceding paragraphs of that pleading. 41. Calyon denies that it has been unjustly enriched, or that it has any liability to LFJ 31 and LFJ

32 or any other of the Loreley Companies, in relation to the fees paid to Calyon in relation to the purchase of the Millstone N notes or Calyon's profits from the transaction. It further states that, insofar as the allegations made by the Lareley Companies in the US Proceedings are allegations that Catyon has been unjustly enriched by LFJ 31 and LFJ 32 through fraud or misrepresentation, these allegations are embarrassing, are not adequately particularised, and Jack the precision and specificity necessary for Calyon to respond to them in detail.

13

42.

In relation to the Loreley Companies' alleged Tenth Cause of Action in the US Complaint,

Calyon seeks:

42.1

A declaration

that Calyon has no liability,

in unjust enrichment,

or in tort, contract,

restitution, or otherwise, to make restitution of the arranger fees paid to Calyon by LFJ 31 and LFJ 32 in relation to the purchase of the Millstone Calyon as a result of that transaction.

rv notes

or any other profits earned by

42.2

A declaration that in making the decision to purchase the Millstone IV notes, LFJ 31 and LFJ 32 relied on the due diligence of their investment adviser, IKB, and the judgement Investment Committee. of the

42.3

A declaration that the arranger fees and any other profits earned by Calyon in relation to the purchase of the Millstone IV notes by LFJ 31 and LFJ 32 were earned lawfully.

42.4

A declaration that Calyon is not liable to indemnity, or make contribution to any liability of, IKB in respect of any of the matters pleaded by the Loreley Companies in the Tenth Cause of Action.

42.5

In the alternative to the previous sub-paragraph, if Calyon is liable to the Loreley Companies for any of the matters pleaded in the Tenth Cause of Action (which is denied), judgment against IKB for indemnity or contribution in such sum or proportion as the Court considers just.

WHEREFORE

the Plaintiffs claim:

1. Declarations Complaint;

as set out in relation to each of the causes of action pleaded in the US

2.

In the event that Calyon is held liable to any of the Loreley Companies, judgment against against IKB for indemnity or contribution in such sum(s) or proportion as the Court considers just;

3.

Interest on any sum(s) awarded under 2. above at such a rate and for such period as the Court thinks just;

14

4.

Costs;

5.

Such further or other relief as the Court considers just.

Dated this 4th day of February 2011

Advocate for the Plaintiffs

The Plaintiffs' address for service is: Carey Olsen 47 Esplanade StHelier Jersey JElOBD

Ref: RMlAKlI040678.0007

COpy

TRUE

, VISCOUNT SUBSTITUTE
15

I

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