Free Answering Brief in Opposition - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE ) ) ) Oakwood Homes Corporation, et al., ) ) Debtors. _________________________________________ ) ) OHC Liquidation Trust, ) ) Plaintiff, ) ) v. ) ) Credit Suisse (f/k/a Credit Suisse First Boston, a ) Swiss banking corporation), Credit Suisse ) Securities (USA), LLC (f/k/a Credit Suisse First Boston LLC), Credit Suisse Holdings (USA), Inc. ) (f/k/a Credit Suisse First Boston, Inc.), and Credit ) Suisse (USA), Inc. (f/k/a Credit Suisse First Boston ) ) (U.S.A.), Inc.), the subsidiaries and affiliates of ) each, and Does 1 through 100, ) ) Defendants. ) In re: Chapter 11 Case No. 02-13396 (PJW) Jointly Administered

Civil Action No. 07-0799 (JJF)

Re: Civil Docket Nos. 39-40, 50-53, 55-57, 59 & 80

ANSWERING BRIEF IN OPPOSITION TO DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT Tony Castañares (CA SBN 47564) Stephan M. Ray (CA SBN 89853) Scott H. Yun (CA SBN 185190) Whitman L. Holt (CA SBN 238198) STUTMAN, TREISTER & GLATT, P.C. 1901 Avenue of the Stars, 12th Floor Los Angeles, CA 90067 (310) 228-5600 -&Marla Rosoff Eskin (No. 2989) Kathleen Campbell Davis (No. 4229) Kathryn S. Keller (No. 4660) CAMPBELL & LEVINE, LLC 800 N. King Street, Suite 300 Wilmington, DE 19801 (302) 426-1900

Special Counsel for the OHC Liquidation Trust

Dated: May 12, 2008

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TABLE OF CONTENTS NATURE AND STAGE OF THE PROCEEDINGS ..........................................................................1 SUMMARY OF ARGUMENT ...........................................................................................................1 RELEVANT BACKGROUND FACTS..............................................................................................4 ARGUMENT .....................................................................................................................................13 A. B. Plaintiff's Unified Statement Of The Case.................................................................13 In Pari Delicto Simply Has No Application Here; Or, At The Very Most, It Raises Factual Inquiries That Must Be Resolved By The Jury At Trial...............................................................................................................19 1. Any "Wrongdoing" By Oakwood Was Separate And Distinct From The Inherently Personal Wrongdoing Of Credit Suisse. .................................................................................................19 Because Credit Suisse Was An Oakwood "Insider," Defendants Cannot Claim Shelter Under In Pari Delicto As A Matter Of Law............................................................................................21 At A Bare Minimum, The Jury Must Weigh The Relative Allocation Of Culpability As Between Oakwood And Credit Suisse. .................................................................................................26

2.

3.

C.

Neither Dr. Shapiro's Testimony Nor Plaintiff's Theory Of The Case Rests Upon Credit Suisse's Strawman Tale Of Exclusive Fiduciary Duties To "Bondholders."..........................................................................27 Because The Damages Suffered By Oakwood Would Not Have Happened "But For" Credit Suisse's Malfeasance And Were A Reasonably Foreseeable Outcome For Credit Suisse, Plaintiff Can Easily Prove "Proximate Cause" At Trial..................................................................30 1. The $50 Million In Damages Calculated By Dr. Tennenbaum Was Plainly Foreseeable To Credit Suisse And Directly Traceable To Their Misconduct...............................................32 The Proximate Cause Element Is Easily Satisfied With Respect To The Roughly $21 Million In Fees Received By Credit Suisse In 2001-2002............................................................................36 There Remains A Lower Standard Of Causation And Damages For Plaintiff's Breach Of Fiduciary Duty Claim, Which Is Easily Met.......................................................................................37

D.

2.

3.

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E.

There Is Ample Evidence That Credit Suisse Was Acting As A Financial Advisor To Oakwood Long Before August 19, 2002, Thus Creating An Implied Contract...........................................................................38 Defendants Simply Misunderstand Plaintiff's Theory Of Negligence, As To Which There Is Substantial Supporting Evidence.....................................................................................................................39

F.

CONCLUSION ..................................................................................................................................40

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TABLE OF AUTHORITIES CASES ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988 (2d Cir. 1983)................................................................................................. 37 In re Allegheny Int'l, Inc., 118 B.R. 282 (Bankr. W.D. Pa. 1990) ........................................................................... 23, 24 Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)............................................................................................................. 13 Balaber-Strauss v. N.Y. Tel. (In re Coin Phones, Inc.), 203 B.R. 184 (Bankr. S.D.N.Y. 1996)................................................................................. 39 Baltimore & Ohio R.R. Co. v. United States, 261 U.S. 592 (1923)............................................................................................................. 39 Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985)............................................................................................................. 26 Bear Stearns & Co. v. Daisy Sys. Corp. (In re Daisy Sys. Corp.), 97 F.3d 1171 (9th Cir. 1996) ............................................................................................... 36 Bellis v. Tokio Marine & Fire Ins. Co., No. 93-6549, 2002 U.S. Dist. LEXIS 1714 (S.D.N.Y. Feb. 5, 2002).................................. 31 In re Boice, 640 N.Y.S.2d 681 (N.Y. App. Div. 1996) ........................................................................... 39 BrandAid Mktg. Corp. v. Biss, 462 F.3d 216 (2d Cir. 2006)................................................................................................. 21 Butler v. Shaw, 72 F.3d 437 (4th Cir. 1996) ................................................................................................. 24 Chemical Bank v. Stahl, 655 N.Y.S.2d 24 (N.Y. App. Div. 1997) ............................................................................. 26 Colo. Capital v. Owens, 227 F.R.D. 181 (E.D.N.Y. 2005) ......................................................................................... 15 Comeau v. Rupp, 810 F. Supp. 1127 (D. Kan. 1992)....................................................................................... 36 Comeau v. Rupp, 810 F. Supp. 1172 (D. Kan. 1992)....................................................................................... 35 Cooper Indus., Inc. v. Agway, Inc., 987 F. Supp. 92 (N.D.N.Y. 1997)........................................................................................ 40

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Crowley v. Chait, No. 85-2441, 2004 U.S. Dist. LEXIS 27238 (D.N.J. Aug. 25, 2004) ..................... 34, 35, 36 Crowley v. Chait, No. 85-2441, 2006 U.S. Dist. LEXIS 8894 (D.N.J. Mar. 7, 2006)................................ 35, 36 Dexia Credit Local v. Rogan, No. 02-8288, 2003 U.S. Dist. LEXIS 18368 (N.D. Ill. Oct. 10, 2003) ............................... 28 Floyd v. Hefner, No. 03-5693, 2008 U.S. Dist. LEXIS 25642 (S.D. Tex. Mar. 31, 2008)....................... 21, 26 Grant Thornton, LLP v. FDIC, 535 F. Supp. 2d 676 (S.D.W. Va. 2007).................................................................. 33, 34, 36 HA2003 Liquidating Trust v. Credit Suisse Sec. (USA) LLC, 517 F.3d 454 (7th Cir. 2008) ............................................................................................... 22 Hirsch v. Tarricone (In re A. Tarricone, Inc.), 286 B.R. 256 (Bankr. S.D.N.Y. 2002)................................................................................. 25 Hollinger v. Wagner Mining Equip. Co., 667 F.2d 402 (3d Cir. 1981)................................................................................................. 31 Indian Towing Co. v. United States, 350 U.S. 61 (1955)............................................................................................................... 40 Jemzura v. Jemzura, 36 N.Y.2d 496 (1975) .......................................................................................................... 39 Kittay v. Atl. Bank of N.Y. (In re Global Serv. Group LLC), 316 B.R. 451 (Bankr S.D.N.Y. 2004).................................................................................. 30 Koch v. Rogers (In re Broumas), 203 B.R. 385 (D. Md. 1996), aff'd in part rev'd in part, 135 F.3d 769 (4th Cir. 1998) ............................................................................................................................. 24 Laborers Local 17 Health & Benefit Fund v. Philip Morris, Inc., 191 F.3d 229 (2d Cir. 1999), cert. denied, 528 U.S. 1080 (2000)....................................... 33 LNC Invs., Inc. v. First Fid. Bank, N.A., 173 F.3d 454 (2d Cir. 1999)........................................................................................... 18, 37 In re Locke Mill Partners, 178 B.R. 697 (Bankr. M.D.N.C. 1995)................................................................................ 24 Lucent Techs., Inc. v. Shubert (In re Winstar Commc'ns, Inc.), No. 06-147, 2007 U.S. Dist. LEXIS 31137 (D. Del. Apr. 26, 2007)............................. 24, 25 Lumbermens Mut. Cas. Co. v. Franey Muha Alliant Ins. Servs., 388 F. Supp. 2d 292 (S.D.N.Y. 2005).................................................................................. 37 Maxwell v. KPMG LLP, 520 F.3d 713 (7th Cir. 2008) ............................................................................................... 33
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McAdam v. Dean Witter Reynolds, 896 F.2d 750 (3d Cir. 1990)..................................................................................... 19, 21, 26 Meinhard v. Salmon, 249 N.Y. 458 (1928) ............................................................................................................ 16 Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537 (2d Cir. 1994)................................................................................................... 37 Miller v. McCown De Leeuw & Co. (In re Brown Sch.), No. 06-50861, 2008 Bankr. LEXIS 1226 (Bankr. D. Del. Apr. 24, 2008).......................... 30 Mirchel v. RMJ Sec. Corp., 613 N.Y.S.2d 876 (N.Y. App. Div. 1994) ........................................................................... 39 Nat'l Endowment for the Arts v. Finley, 524 U.S. 569 (1998)............................................................................................................. 25 In re Oakwood Homes Corp., 449 F.3d 588 (3d Cir.), cert. denied, 127 S. Ct. 736 (2006) .................................................. 9 Official Comm. of Unsecured Creditors v. Tennenbaum Capital Partners, LLC (In re Radnor Holdings Corp.), 353 B.R. 820 (Bankr. D. Del. 2006) .................................................................................... 22 O'Halloran v. PricewaterhouseCoopers LLP, 969 So. 2d 1039 (Fla. Dist. Ct. App. 2007) ......................................................................... 21 OHC Liquidation Trust v. Credit Suisse First Boston (In re Oakwood Homes Corp.), 340 B.R. 510 (Bankr. D. Del. 2006) .............................................................................. 21, 24 OHC Liquidation Trust v. Credit Suisse (In re Oakwood Homes Corp.), 378 B.R. 59 (Bankr. D. Del. 2007) .................................................................................. 8, 39 In re Olympia Brewing Co. Sec. Litig., No. 77-1206, 1985 U.S. Dist. LEXIS 13796 (N.D. Ill. Nov. 18, 1985) .............................. 19 Palka v. ServiceMaster Mgt. Servs. Corp., 83 N.Y.2d 579 (1994) .......................................................................................................... 40 Pan Am Corp. v. Delta Air Lines, Inc., 175 B.R. 438 (S.D.N.Y. 1994)............................................................................................. 23 Parvi v. Kingston, 41 N.Y.2d 553 (1977) .......................................................................................................... 40 Pinter v. Dahl, 486 U.S. 622 (1988)............................................................................................................. 19 Pratt v. Liberty Mut. Ins. Co., 952 F.2d 667 (2d Cir. 1992)................................................................................................. 40

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Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133 (2000)............................................................................................................. 13 In re Rimell, 111 B.R. 250 (Bankr. E.D. Mo. 1990)................................................................................. 23 Rios v. Theodore, 624 N.Y.S.2d 949 (N.Y. App. Div. 1995) ........................................................................... 31 Ross v. Bolton, 904 F.2d 819 (2d Cir. 1990)................................................................................................. 26 RTC v. Fid. & Deposit Co., 205 F.3d 615 (3d Cir. 2000)................................................................................................. 31 Sea-Land Serv., Inc. v. Barry, 41 F.3d 903 (3d Cir. 1994)................................................................................................... 24 In re S. Beach Sec., Inc., 376 B.R. 881 (Bankr. N.D. Ill. 2007) .................................................................................. 25 Stagl v. Delta Airlines, Inc., 52 F.3d 463 (2d Cir. 1995)............................................................................................. 31, 40 Stanziale v. Pepper Hamilton LLP (In re Student Fin. Corp.), 335 B.R. 539 (D. Del. 2005)................................................................................................ 21 Three Flint Hill Ltd. P'ship v. Prudential Ins. Co. (In re Three Flint Hill Ltd. P'ship), 213 B.R. 292 (D. Md. 1997) .......................................................................................... 24, 25 Valhal Corp. v. Sullivan Assocs., 44 F.3d 195 (3d Cir. 1995)................................................................................................... 13 STATUTES AND RULES 11 U.S.C. § 101(31) ......................................................................................................................... 25 11 U.S.C. § 102(3) ........................................................................................................................... 25 FED. R. CIV. P. 56(c)........................................................................................................................ 13 OTHER AUTHORITIES S. Rep. No. 989, 95th Cong., 1st Sess. 25 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5810, 6269.................................................................................................................. 23 BLACK'S LAW DICTIONARY (7th ed. 1999)....................................................................................... 19 1 J. Story, EQUITY JURISPRUDENCE (13th ed. 1886) ........................................................................ 26 RESTATEMENT (SECOND) CONFLICT OF LAWS §§ 6 & 145 (1971)................................................... 14
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NATURE AND STAGE OF THE PROCEEDINGS Pursuant to the Court's April 29 Order [D.I. #80], Plaintiff submits this Answering Brief in opposition to the Motion for Partial Summary Judgment (the "MSJ" [D.I. #39]) filed by the defendants (collectively, "Defendants" or "Credit Suisse") and in response to their opening brief in support of the MSJ (the "Defendants' Brief" [D.I. #40]; cited herein as "Def. Br. at __"). SUMMARY OF ARGUMENT As set forth in the Counter-Statement Certifying That Genuine Issues of Material Fact Exist (the "Counter-Statement" [D.I. #50]),1 myriad genuine issues of material fact prevent summary disposition of this case as a matter of law. Our goal here is to amplify that CounterStatement in three ways: (1) clarify and state our actual theory of this case, so the Court may evaluate the MSJ against the backdrop of that case, not Defendants' "strawman" case; (2) provide the legal standards which govern the issues raised by the real case; and (3) further develop the case's factual background and apply the law to those facts. Upon completion of this process, it will be clear why all the arguments raised in the Defendants' Brief are fatally flawed and why the MSJ should be denied in its entirety. Among those flaws are the following overarching issues. First, the whole MSJ is tainted from the initial lines of the Defendants' Brief, at which they assert that "the proposition on which Plaintiff's claims rest" is that "Credit Suisse, one of Oakwood's banks, had a duty to force Oakwood into bankruptcy at a time when the Company
1

Plaintiff recognizes that the Court's review of the Counter-Statement and related papers led the Court to conclude that full briefing on the MSJ was necessary. Nevertheless, we submit that the Counter-Statement continues to be valuable and should be read in conjunction with this Answering Brief. Additionally, in order to avoid duplication, we have not reproduced the exhibits already submitted with the Counter-Statement, but will instead refer to exhibits attached to the Holt Declaration previously filed in support of the Counter-Statement (which are cited herein as "CS Ex. '__'"). Materials not previously submitted with the CounterStatement are attached to the accompanying declaration of Whitman L. Holt in support of this Answering Brief (which are cited herein as "Holt Decl. Ex. '__'").
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was intent upon trying to survive" (Def. Br. at 1). But that simply is not what this case is about. This case is about a financial institution that over time developed many mutually interdependent and reciprocally reinforcing relationships with Oakwood, including as a riskinsulated lender, underwriter, financial advisor, and powerful warrant holder ­ making it a fiduciary and insider with ready access to material, non-public information, not a mere "bank." While acting as Oakwood's trusted fiduciary, Credit Suisse embarked on a lucrative campaign (for Credit Suisse) of breaching duties by, inter alia, (1) failing to investigate the effects of the many value-destroying transactions it structured and executed; (2) failing to advise Oakwood about those effects or the problems Credit Suisse knew plagued Oakwood's "business-as-usual" path; and (3) ultimately failing to withdraw from what it knew to be a harmful, value-destroying relationship. While an alternative path may have led to an earlier bankruptcy, it is misleading at best to suggest Credit Suisse ever had to "force" Oakwood into bankruptcy. But the law did require Credit Suisse to exercise far greater care in the course of its dealings with Oakwood in 2001-2002, and the failure to exercise such care caused at least $50 million in damages. Indeed, the law also required Credit Suisse to act with utmost loyalty toward Oakwood, not to exacerbate a course of value destruction by extracting nearly $21 million in fees for itself. This formulation ­ one grounded in centuries of black letter law ­ is the case that Plaintiff will present to the jury and prove at trial, and it in no way resembles the crass strawman fabricated by defense counsel. Second, Defendants resort to another red herring to support their causation point, creating an absurd chain of causal hoops for Plaintiff to jump. Yet such leaps are not necessary, because the evidence demonstrates that Oakwood's losses were a direct consequence of Credit Suisse's conduct and were foreseeable (and actually foreseen) by Credit Suisse. Indeed, the huge fees received by Credit Suisse are a particularly direct and foreseeable damages component, as to

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which Plaintiff's breach of fiduciary duty claim allows for a lower standard of causation in any event. Consequently, the evidence justifies putting both damages theories to the jury at trial. Third, Defendants are not entitled to the defense of in pari delicto, for at least three separate reasons. First, any supposed "wrongdoing" by Oakwood was distinct from Credit Suisse's inherently personal wrongdoing. Blame for the fact that Credit Suisse failed to meet proper standards of diligence and advice, and continued to build value-destroying transactions, lies exclusively at Credit Suisse's own feet ­ Oakwood did not participate, and logically could not have participated, in that wrongdoing. Second, the record reveals an extremely close and multifaceted relationship between Oakwood and Credit Suisse, one from which the jury could reasonably find that Credit Suisse was an "insider" who cannot ever rely on in pari delicto. Third, in the unlikely event that the doctrine of in pari delicto applies here at all, there remains a hotly disputed factual question about the relative culpability of the parties to resolve at trial. Fourth, Defendants' repeated suggestion that Plaintiff's theory of liability turns on Credit Suisse owing a direct and exclusive duty to Oakwood's "former bondholders" is incorrect. Plaintiff is the successor to Oakwood, the corporate debtors, and also represents the interests of all beneficiaries of Oakwood's bankruptcy estates, including but not limited to "bondholders." Plaintiff submits that Credit Suisse's fiduciary relationship with Oakwood meant that Credit Suisse always owed fiduciary duties to Oakwood, the corporation, which duties expanded to require at least some consideration of the effects of a "business-as-usual" course on Oakwood's creditors (as residual stakeholders) once Oakwood was insolvent, or nearly so. This construct is the only one ever embraced by Plaintiff's expert, Dr. Shapiro (although even it is not necessary to his opinions), and is the same one recited in the Defendants' Brief. It easily survives the MSJ. Fifth, Defendants also offer the Court an excessively limited characterization of

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Plaintiff's negligence and breach of implied contract claims. Both claims stem from the clear record evidence that Credit Suisse voluntarily chose to engage in numerous activities outside the scope of any written contract with Oakwood, which actions not only had to be undertaken with due care but also established a course of conduct giving rise to an implied advisory contract. In the final analysis, whether considered individually or in the aggregate, all of the arguments Defendants offer in support of the MSJ fail to demonstrate that this is a case fit for disposition as a matter of law. To the contrary, the record contains ample evidence reflecting genuine factual disputes, with very immediate legal consequences, all of which warrant a trial. RELEVANT BACKGROUND FACTS Plaintiff represents the bankruptcy estates of Oakwood Homes Corporation and its affiliates (collectively, "Oakwood"). Oakwood was a publicly traded corporation that began producing and selling manufactured homes in the 1940s. In the mid-1990s, Oakwood greatly expanded a business that was ancillary to these two functions: providing financing to the buyers of its products, who often were low-income individuals with poor credit. The rapid and dramatic expansion of Oakwood's financing business was aided, in large part, by the access to capital obtained via "securitizations," most of which were structured and underwritten by Credit Suisse.2 The quantity and amount of mobile home loans repackaged by Credit Suisse is startling. For example, merely in the period between 2001-2002, Credit Suisse "securitized" over $1.3 billion in Oakwood loans, and charged Oakwood approximately $4,600,000 in fees for doing so.3

2

"Securitization" is a process whereby expected payment streams are pooled and structured into descending levels or "tranches" of securities, which are then sold. For a description of this process as to Oakwood, see, e.g., Muir Dep. Tr. at 42:17- 44:5 [Holt Decl. Ex. "C"]. This amount is solely for the securitizations and just the tip of the fees iceberg. While Credit Suisse hopes to limit this case to "securitization-related services," far more is at issue here.
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Oakwood's principal contact at Credit Suisse regarding the securitizations was Mr. Fiachra O'Driscoll. Although Mr. O'Driscoll initially focused his time on only those tasks that were directly related to the securitization services for which Oakwood had contracted,4 he soon began to greatly expand his role vis-à-vis Oakwood, as described in further detail below. Things turned for the worse for the manufactured housing industry in general, and for Oakwood in particular, in 1999 ­ a period that overlapped with the rapid rise of the nowfloundering "subprime" mortgage industry. In need of liquidity, Oakwood turned to its trusted advisor at Credit Suisse, Mr. O'Driscoll, for help. Mr. O'Driscoll in turn made a proposal to the New York branch of Credit Suisse's banking arm ("New York Branch") that Credit Suisse provide a committed "reverse repurchase" facility that would allow Oakwood to monetize lower rated tranches of securitizations which Oakwood had been holding on its own balance sheet. The proposed reverse repurchase facility was reviewed by New York Branch's "credit risk management" department ("CRM"), including James Xanthos and his supervisor, Thomas Irwin. In November 1999, Mr. Xanthos and Mr. O'Driscoll traveled to North Carolina to meet with Oakwood's management about the proposed facility. Shortly thereafter, Mr. Xanthos wrote a detailed memorandum stating his conclusions about Oakwood and strongly recommending that the proposed credit facility be denied (the "Xanthos Memo" [CS Ex. "N"]). The Xanthos Memo provides a blistering account of a corporation in rather deep trouble. Among other things, the Xanthos Memo states that Oakwood had "very real/immediate bankruptcy risk issues/concerns," a "Negative Cash Flow Position which does not appear will reverse anytime soon," a "management [that] does not have a strong understanding of its marketplace," and a glut of "securitized subordinated securities of which currently their [sic] is
4

For an account of those services, see O'Driscoll Dep. Tr. at 14:2-18:23 [Holt Decl. Ex. "D"].
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no strong investor demand." (See Xanthos Memo at CSFB-00250117.) Based upon such concerns, Mr. Xanthos concluded that Oakwood "is the weakest company in its industry's [sic]" and would "not meet their forecasted profitability levels but will rather be fortunate to at best break even." (See id. at CSFB-00250117 ­ CSFB-00250118.) Even worse, Mr. Xanthos found it "hard to believe that management will not continue to experience . . . losses on the sale of its loans due to the fact that the company must securitize quarterly . . . even if doing so results in large losses." (See id. at CSFB-00250118.) Accordingly, notwithstanding "Oakwood's relationship with [Credit Suisse's investment banking division,] a review of all the negative factors noted above strongly indicates that [Credit Suisse's] risks are large and that repayment of our line is unknown due to the company's other debt obligations and lack of cash flow capacity." (See id. at CSFB-00250117.) Neither the Xanthos Memo nor the multitude of negative information contained therein was ever shared with Oakwood by anyone at Credit Suisse.5 In addition to advocating the reverse repurchase facility for Oakwood, Mr. O'Driscoll stepped outside his "securitization" role on numerous other occasions during 19992000. For example, Mr. O'Driscoll sought to structure joint transactions between Oakwood and GreenPoint Financial, and provided advice about Oakwood's lending systems and modeling of subordinated REMIC securities. (See CS Exs. "L" & "M"; Holt Decl. Ex. "H.") In exchange for these and other non-securitization-related proposals, services, and advice, Mr. O'Driscoll was given information about material, non-public aspects of Oakwood's business "in the strictest
5

Defendants have suggested elsewhere that nothing in the Xanthos Memo was "a big secret" to Oakwood. (See D.I. #90 at p. 10.) Unsurprisingly, this idea is incorrect. As an example, Oakwood's board member, Clarence Walker, testified that in "2000 the issue of bankruptcy was not on the horizon at all" and that he had no "reason to believe that the securitizations engaged in by Oakwood were a harmful financing technique." (Walker Dep. Tr. at 16:4-5, 33:24-34:4 [Holt Decl. Ex. "G"].) These statements are in dramatic contrast to the Xanthos Memo and strongly suggest that no one at Oakwood was aware of Credit Suisse's concerns.
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confidence," which he then relayed to others at Credit Suisse. (See, e.g., CS Ex. "O.") Things turned even worse for Oakwood in 2000, and by the end of the year, Bank of America informed Oakwood that it would not renew the "warehouse" facility Oakwood used for short-term financing of new loans prior to their securitization. Once again, Oakwood turned to Mr. O'Driscoll for his advice. Following a series of discussions, Mr. O'Driscoll concluded that Credit Suisse could provide a new "warehouse," and he enlisted the help of New York Branch. With the background of the Xanthos Memo in mind, the main concern CRM had in early 2001 was Oakwood's underwriting process ­ Oakwood was lending money to people with very poor credit, which was in turn resulting in numerous "repos" (i.e., repossessions of defaulted homes, which then had to be remarketed, resold, and perhaps refinanced). Mr. Xanthos expressed the need "to gain control of Oakwood's underwriting process." (See Holt Decl. Ex. "I.") Similarly, Mr. Irwin worried that "Repo'd assets are going to be the major issue [Credit Suisse] face[s] going forward, clear the ability of [Oakwood] to survive hinges on this asset class remaining in 'control.'" (See CS Ex. "S"; see also, e.g., CS Exs. "P" & "Q.") As in 2000, Mr. Xanthos evaluated the proposed "warehouse" facility. (See CS Ex. "R.") Even though Oakwood had dropped from "B-" to "CCC" on CRM's internal credit scale, "CRM has approved this transaction as a result of its structure and the economic benefit that [Credit Suisse] can potentially realize." (See id. at CSFB-00513803.) Put differently, and more directly, (1) the "bankruptcy-remote" nature of the facility ensured that Credit Suisse had virtually no risk of loss if Oakwood filed for bankruptcy, and (2) Credit Suisse would be paid $2.5 million upfront and $15 million over time in exchange for providing the "warehouse."6

6

See Holt Decl. Ex. "J." Of this $17.5 million in anticipated fees, Credit Suisse actually got roughly $11,750,000 (i.e., the $2.5 million upfront and 21 monthly charges of $416,666.67).
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Plus, Credit Suisse would get a warrant to purchase nearly 20% of Oakwood's equity through 2009, which gave Credit Suisse the power to become Oakwood's largest shareholder by far. By the time Credit Suisse agreed to provide the "warehouse" facility, no other lender was willing to consider such a transaction with Oakwood; Credit Suisse "was the only game in town" for that type of facility. (See Muir Dep. Tr. at 52:6-16 [Holt Decl. Ex. "C"].) Consequently, Oakwood's weak bargaining position left it no choice but to agree to whatever terms and conditions Credit Suisse proposed, no matter how onerous. (See id. at 51:7-52:22.7) The initial February 2001 Credit Suisse "warehouse" facility contained a strict 17.5% limitation on the financing of "repo-refi" loans. However, as Oakwood's prospects turned even worse in 2001 and 2002, that limitation proved too tight. Oakwood attempted to divert the wave of "repos" via the Loan Assumption Program, which they discussed with Mr. O'Driscoll,8 but ultimately they asked Mr. O'Driscoll to see if CRM would loosen the limitation, thereby allowing Oakwood to finance even more bad loans. (See CS Ex. "AA"; Holt Decl. Ex. "L.") Although the eventual problems associated with the "repos" were foreseeable to Credit Suisse in 2000 and 2001, Credit Suisse made no effort to alert Oakwood, but rather let Oakwood suffer the predictably devastating harm. (See Counter-Statement at pp. 2-3 ¶ 2 and the associated exhibits.) As Oakwood continued to deteriorate it increasingly turned to Mr. O'Driscoll for short-term financing patches. Foremost among them were the so-called "LOTUS" transactions. These transactions, which Mr. O'Driscoll unilaterally designed and "negotiated" with Berkshire

7

See also OHC Liquidation Trust v. Credit Suisse (In re Oakwood Homes Corp.), 378 B.R. 59, 73 (Bankr. D. Del. 2007) (concluding that "there is a good argument that the two Oakwood Companies were at a severely disadvantaged bargaining [position]" in early 2001). See, e.g., Muir Dep. Tr. at 62:7-63:9 [CS Ex. "C"]; Standish Dep. Tr. at 26:23-27:20 [Holt Decl. Ex. "F"]; CS Ex. "CC."
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Hathaway,9 involved the "resecuritization" and guaranty of over $150 million of low-grade "B-2" tranches from past securitizations, which provided Oakwood with quick cash but came at horrifyingly high costs ­ in economic terms, Oakwood essentially sold these assets for 53 cents on the dollar, but guaranteed full payment of the entire 100 cents. (See, e.g., O'Driscoll Dep. Tr. at 61:2-63:17 [CS Ex. "D"].) Despite occupying the lead role in negotiating and structuring the transactions, Credit Suisse performed minimal due diligence of the expected liabilities Oakwood faced as a result of these B-2/LOTUS guarantees, and made absolutely no effort to consider Oakwood's long-term ability to satisfy the massive new liabilities, let alone the adverse effects on Oakwood's existing creditors. (See, e.g., id. at 115:21-116:7 & 574:20-575:8.) While Oakwood paid Credit Suisse over $3 million in fees in connection with the four "LOTUS" transactions, it subsequently had to pay an outside firm ­ Andrew Davidson & Co. ­ to remodel the liabilities properly. (See, e.g., O'Driscoll Dep. Tr. at 118:5-121:15 [Holt Decl. Ex. "D"].) Needless to say, Andrew Davidson's work (which really should have been done by Credit Suisse at inception) was challenging due to the nature of the securities,10 and it also yielded a far higher quantification of the new Oakwood exposure created by Mr. O'Driscoll's complicated structures. Another stop-gap transaction Mr. O'Driscoll engineered in 2001 was the "servicer advance facility," which allowed Oakwood to pledge receivables it expected to receive as reimbursement for servicing expenses. (See Muir Dep. Tr. at 39:10- 42:11 [Holt Decl. Ex. "C"].) While no contract obligated Mr. O'Driscoll to design this "facility" for Oakwood, he had no
9

See, e.g., Millard Dep. Tr. at 17:1-16 [CS Ex. "B"]; Standish Dep. Tr. at 112:8-113:18 [CS Ex. "F"]; CS Exs. "W" & "Y." In fact, the legal and factual issues associated with properly valuing the B-2 liabilities in Oakwood's bankruptcy produced a split Third Circuit decision. See In re Oakwood Homes Corp., 449 F.3d 588 (3d Cir.), cert. denied, 127 S. Ct. 736 (2006). For a general sense of the analytic difficulties relating to the "LOTUS" securities, see also, e.g., Holt Decl. Ex. "N."
9

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hesitation about suggesting the idea ­ after all, it too was accompanied by a healthy fee for Credit Suisse (another quarter million). Mr. O'Driscoll took additional steps in 2001 to seek out and structure transactions, ostensibly for Oakwood's benefit, including a sale-leaseback with Credit Suisse and a reinsurance transaction with Chubb Insurance. (See CS Exs. "V" & "BB.") Mr. O'Driscoll further attempted to spread the wealth of Oakwood fees around Credit Suisse, suggesting that his colleague, Jared Felt, "pitch" Oakwood on some costly bond buyback proposals. (See, e.g., Felt Dep. Tr. at 62:20-64:4 [CS Ex. "A"].) Toward that end, Mr. Felt made several presentations for Oakwood, in which Mr. Felt's team knowingly and expressly represented that Credit Suisse was an Oakwood "insider." (See, e.g., id. at 448:5-25; CS Ex. "Z," at CSFB-00052890.) When Mr. Felt asked Mr. O'Driscoll if a draft engagement contract should contain a "lockup" requiring that Oakwood contractually commit to using only Credit Suisse as an investment banker for various transactions, Mr. O'Driscoll found it prudent to correct Mr. Felt's misunderstanding of the nature of the Oakwood relationship, informing him in August 2001 that the mere "idea of [Oakwood] doing anything away from us is so unlikely that it's probably a little offensive to them" and that the multifaceted nature of Credit Suisse's roles vis-àvis Oakwood made Oakwood "feel very shackled to [Credit Suisse]." (See Holt Decl. Ex. "K.") The "shackle" that Credit Suisse had managed to get onto Oakwood only grew tighter into 2002. The great trust and confidence Oakwood placed in Credit Suisse is evident in correspondence sent in 2001-2002. On Oakwood's side, its CFO, Bob Smith, regularly sent Mr. O'Driscoll e-mails containing material, non-public information unrelated to any securitization, and seeking Mr. O'Driscoll's advice about general business problems Oakwood was facing. (See, e.g., CS Exs. "T," "U," "X," "DD," "GG" & "HH.") On Credit Suisse's side, Mr. O'Driscoll and Mr. Felt were given access to Oakwood's outside counsel, with whom they were permitted to

10

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discuss Oakwood's legal issues, sometimes without even copying anyone from Oakwood. (See, e.g., CS Exs. "EE" & "JJ.") As this relationship of trust and confidence grew, Oakwood's Mr. Muir increasingly turned to Credit Suisse for all sorts of advice (see Muir Dep. Tr. at 194:8195:5 [CS Ex. "C"]), and Oakwood's CEO Mr. Standish (an ex-attorney) now conceptualizes the parties' relationship in plain fiduciary terms (see Standish Dep. Tr. at 46:5-47:10 [CS Ex. "F"]). Ultimately, the increase in Oakwood's ability to refinance "repos," as well as every other trick Mr. O'Driscoll used to keep Oakwood afloat (and paying him fees), failed to address the basic problem: Oakwood was continuing to make, securitize, and guarantee bad loans. The resulting costs led Oakwood to discontinue its Loan Assumption Program in June 2002. Although no contract required him to do so, Mr. O'Driscoll chose to undertake to prepare a detailed presentation for Berkshire Hathaway explaining the effects of that discontinuation; he then traveled with Oakwood's management to Nebraska to deliver the Credit Suisse presentation to Warren Buffett. (See Standish Dep. Tr. at 122:24-127:25 [Holt Decl. Ex. "F"]; CS Ex. "II.") The huge and persistent liquidity drain caused by Credit Suisse's value-destroying transactions ultimately led Oakwood to file bankruptcy on November 15, 2002, but not before Oakwood had retained Mr. Felt under a formal contract to help prepare for that bankruptcy (in exchange for an additional bag of fees). Needless to say, Oakwood's decision to hire Mr. Felt's group was driven by the multifaceted and lengthy relationship of trust and confidence that had been carefully tailored by Mr. O'Driscoll; Credit Suisse's "unique position" and all the financial advice already given Oakwood entitled Credit Suisse to formalize that advisory role in exchange for several million more dollars.11 (See, e.g., Muir Dep. Tr. at 143:7-144:14 [CS Ex. "C"].)

11

In fact, Mr. Felt had long been a de facto advisor, regularly approaching Oakwood with his advice, presentations, and other "ideas." (See Muir Dep. Tr. at 64:20-65:3 [CS Ex. "C"].)
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Part of this preparation involved reviving the "warehouse" post-petition, because bankruptcy was an event of default thereunder. Mr. O'Driscoll repeatedly assured Oakwood that this would be done and the "warehouse" would make a seamless transition. (See, e.g., Standish Dep. Tr. at 201:1-203:19 [Holt Decl. Ex. "F"].) Although Oakwood relied on Mr. O'Driscoll's word, unbeknownst to Oakwood Mr. O'Driscoll procrastinated and waited until the day before Oakwood filed for bankruptcy even to approach Mr. Irwin about the matter.12 As a result, due diligence for the post-petition facility was delayed, which meant Oakwood started bankruptcy without any of the warehouse financing Mr. O'Driscoll had promised, and the warehouse was not partially reopened for weeks. The preparation of another CRM review memo was also delayed, but this one also underscored how "[o]ver the past three years CRM has consistently questioned [Oakwood] Management's competency and abilities." (See Holt Decl. Ex. "O," at CSFB00250105.) Once again, the CRM review memo paints a portrait of managers who simply do not understand basic aspects of their market, projections, complicated financing, and exit strategy. In retrospect, it is all too clear that the many problems Credit Suisse identified in 2000 and 2001 ­ real bankruptcy risk, continued losses on securitizations, rising defaults and "repos," Oakwood's lack of any choice but to continue with destructive transactions, and a management that just did not understand its declining market and complex financing structures ­ are the same problems that ultimately led to Oakwood's 2002 bankruptcy. In other words, as Defendants' own expert witness forthrightly admits,13 Mr. Xanthos was right. Unfortunately, no one from Credit Suisse ­ including Oakwood's trusted advisor Mr. O'Driscoll ­ ever shared Credit Suisse's many concerns (or, indeed, expressed any similar concern) with Oakwood.
12 13

See, e.g., Irwin Dep. Tr. at 143:12-148:6 [Holt Decl. Ex. "B"]; Holt Decl. Ex. "M." See, e.g., Boland Dep. Tr. at 174:13-177:20, 186:14-21, 190:3-16 [Holt Decl. Ex. "A"].
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ARGUMENT Credit Suisse advances five arguments in support of the MSJ: (1) in pari delicto; (2) the scope of Credit Suisse's fiduciary duties; (3) an alleged absence of evidence of financial advice prior to August 19, 2002; (4) a supposed lack of negligence; and (5) proximate cause.14 As demonstrated in turn below, each argument suffers from deep and profuse defects, and none presents a cognizable basis for summary judgment.15 Before discussing the details, though, it is crucial to ensure that the Court weighs the MSJ against the backdrop of Plaintiff's actual case, not the simple "strawmen" Defendants have created via mischaracterization of Plaintiff's theories and evidence. Thus our analysis begins with an abbreviated Unified Statement of that case.16 A. Plaintiff's Unified Statement Of The Case. a. Theories of liability.
14

Plaintiff asserts three common law causes of action

Although all five arguments are stated in the Defendants' Brief, Credit Suisse's reply to our Counter-Statement (the "CS Reply" [D.I. #59]) reveals that the Defendants really place their faith in only the first and fifth arguments (i.e., in pari delicto and proximate causation). Rule 56(c) provides that summary judgment should be granted only if the record shows "that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). A fact is "material" if it "might affect the outcome of the suit under the governing law," and a "genuine issue" exists whenever "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When reviewing that evidence, "inferences drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. The non-movant's allegations must be taken as true and, when these assertions conflict with those of the movant, the former must receive the benefit of the doubt." Valhal Corp. v. Sullivan Assocs., 44 F.3d 195, 200 (3d Cir. 1995) (citation and internal punctuation omitted). More broadly, "the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000). We previously set forth a similar and slightly more expansive Unified Statement in our Consolidated Answering Brief in Opposition to Defendants' Attempts to Exclude Certain Non-Expert Evidence (the "Relevance Brief" [D.I. #76]). Although the abbreviated statement in this Answering Brief should be sufficient, the Court may also find the statement in the Relevance Brief of use if the Court has yet to consider that specific evidentiary dispute.
13

15

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to try before the jury: negligence, breach of implied contract, and breach of fiduciary duty.17 These three claims have much in common, principally the duty of reasonable care. It is useful to analogize this case to one for professional malpractice, albeit malpractice committed by an insider and fiduciary of the victim. Plaintiff contends that Credit Suisse undertook to provide financial advice to Oakwood well before August 19, 2002. This embodies a main and unquestionably material factual dispute: Plaintiff claims that Defendants undertook this role, and Defendants deny it, claiming that they merely provided securitization services, much like a supplier of lumber or stationery. (See Counter-Statement at pp. 4-6 ¶ 5.) Plaintiff will offer considerable evidence that Defendants undertook a far broader role, particularly through Mr. O'Driscoll. All of this occurred even though the securitization documents did not require it. Accordingly, Credit Suisse affirmatively chose to undertake such tasks with due care, just as, for example, a lawyer whose formal retainer was confined to a single lawsuit could have a far greater role if he gives advice on other matters. This basic rule prevails whether a claim sounds in tort or contract. In tort, we say that one must use reasonable care; in contract, that one must deliver the services bargained for, namely competent ones. Analogizing again to a malpracticing lawyer, such as one who allows a statute of limitations to run, we would say that he is liable, either in negligence or for breach of his contract (whether express or merely implied from having undertaken the work) to perform according to professional standards. Of great significance is the congruity of how we assess the professional's performance: whether in tort or contract, there is a duty to render competent services, measured

17

While Defendants equivocate about the choice-of-law analysis (see Def. Br. at 15 n.4 & 25 n.10), the parties agree that New York state has the most significant relationship to this case and that its law should apply here. See RESTATEMENT (SECOND) CONFLICT OF LAWS §§ 6 & 145 (1971). Accordingly, we cite New York case law throughout this Answering Brief.
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by what reasonable practitioners of the same profession do ­ i.e., the standard of care. If a fiduciary relationship existed between Oakwood and Credit Suisse,18 it also gave rise to a standard of care (indeed, a heightened one). See, e.g., Colo. Capital v. Owens, 227 F.R.D. 181, 189 (E.D.N.Y. 2005). But the fiduciary relationship adds two important wrinkles: first, a claim for breach of fiduciary duty need not meet the usual requirements of causation and damages, a point discussed below; second, there is an added duty of utmost loyalty. As to the latter wrinkle, Plaintiff will offer considerable evidence that virtually all advice and transactions, express or implied, that Credit Suisse provided Oakwood had two characteristics: first, they were enormously remunerative to Credit Suisse; second, they greatly damaged Oakwood. b. Breach of duties of care and loyalty. The previous section explained the

theories under which a duty of care arose between Credit Suisse and Oakwood, and described why a standard of care applies to all three. That section also explained that Credit Suisse bore a duty of loyalty to Oakwood. What are these standards and how were they breached here? As in other professional liability cases, any duty owed by Credit Suisse required Credit Suisse to act reasonably under the circumstances. And, as is usual in such cases, Plaintiff has an expert witness to testify about the subject, Dr. Alan C. Shapiro. Although Dr. Shapiro's expert report does not use legal buzzwords, its substance is to analyze the economics of the various transactions Credit Suisse either engineered or participated in and their effects. After
18

Defendants deny such a relationship existed (but they are aware that it is a disputed issue of fact which should be resolved at trial, see Def. Br. at 20 n.9), so Plaintiff will prove it. There is considerable evidence of this, perhaps most glaringly the outright admission by Jared Felt: "We had a fiduciary duty to Oakwood." (Felt Dep. Tr. at 376:5 [CS Ex. "A"].) Mr. Felt was Credit Suisse's principal actor regarding the formal advisory contract that prevailed in the last 88 days before bankruptcy. That contract did not mention any fiduciary duty, but it did contain an integration clause. The necessary conclusion is that the duty Mr. Felt mentioned came from somewhere else ­ it came from Mr. Felt's understanding and belief, itself based upon his personal knowledge of the totality of Credit Suisse's relationship with Oakwood.
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doing so, Dr. Shapiro concludes that the transactions were value-destroying and unreasonable. (See, e.g., Shapiro Report at pp. 36-39 [CS Ex. "I"].) Dr. Shapiro also points to evidence among Defendants' own documents, including the Xanthos Memo, that Defendants knew this, knew that Oakwood faced immediate bankruptcy risk as early as January 2000, and knew that Oakwood's management did not fully understand the risks, the danger, and the expected losses associated with a business-as-usual course of transactions with Defendants. (See id. at pp. 22-27.) Dr. Shapiro opines that under these circumstances, Defendants had the obligation to investigate fully the effects of such transactions, to advise Oakwood that Defendants knew the transactions were not in Oakwood's best interest, and ultimately, if necessary, to refuse to partake further. (See id. at pp. 28-36.) The failure to do even one of these things was unreasonable.19 While Dr. Shapiro's conclusion as to the standard of care would hold fast absent any fiduciary duty for Credit Suisse, its weight is undoubtedly amplified by the fact that Credit Suisse was an Oakwood insider and fiduciary, obligated to act toward Oakwood with a degree of loyalty and care significantly beyond that normally required by the "morals of the market place" in which arm's length parties interact. See, e.g., Meinhard v. Salmon, 249 N.Y. 458, 464 (1928). Defendants are scornful of any notion that an alleged "bank" must ever refrain from a transaction, but Credit Suisse was no mere "bank," and banks get no exceptions to the ordinary rules of law in any event. Consider the case of a physician approached by a patient who says, "Hey Doc, give me some more of those addictive pain pills." Carried to this analogy, Defendants would have us say, "Well, the doctor filled out the prescription legibly, and that's what the patient wanted, judgment for defendant." But no one would deny that the physician's
19

Dr. Shapiro also points to additional evidence of the standard of care in Defendants' own manuals governing their relations (including fiduciary relationships), and finds that the conduct here fell short of the standards established by those manuals. (See id. at pp. 27-28.)
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duty of care ­ to act reasonably under the circumstances ­ required him to investigate the patient's actual needs and weigh them against the dangers of addiction; let alone the doctor's duty to tell the patient how the pills would damage more than help; or ultimately, if the patient replied, "I know that they will harm me, but I want them anyway," to refuse to participate in damaging a patient his duty compelled the doctor to help. And now suppose that doctor just happened to own the pharmacy downstairs. And then suppose further that the doctor also occupied a fiduciary status vis-à-vis the patient. c. Damages and causation. It is axiomatic to say that Oakwood's continuation of its business-as-usual path of value-destroying transactions caused it to lose value (and garnered massive fees for Credit Suisse, which were borne by Oakwood). But this succinct formula is Plaintiff's theory of damages here, and it must be contrasted with the absurd chain of causation posited in Defendants' strawman version of Plaintiff's case. (See Def. Br. at 27.) The loss of value ("fact of damages") and the amount of that loss are established by the expert testimony of Dr. Michael Tennenbaum.20 Using dates giving the best available data (the ends of Oakwood's fiscal years), he compares the fair market value ("FMV") of Oakwood's assets on September 30, 2001 with that same value on September 30, 2002 (mere weeks before the bankruptcy), and finds a diminution of $50 million. Dr. Tennenbaum does this
20

Dr. Tennenbaum, in addition to the fact and amount of damages, also opines on the issue of Oakwood's insolvency as of various dates. This testimony is of significance to some "bench" issues in the case, but it also is relevant to Dr. Shapiro's opinion regarding the standard of care. Plaintiff contends that a fiduciary of a company that is insolvent or in danger of insolvency must take into account the company's obligation to pay its just debts, which, after all, is an obligation fully imposed by the law. What may be reasonable advice regarding risk and loss to Exxon or Microsoft may not be reasonable to a company betting creditors' money against long odds. Defendants deride Dr. Shapiro for not phrasing this standard in the verbiage du jour, but it doesn't matter whether we say any third party owes a duty directly to creditors ­ what matters is that the corporation undeniably does. The real question is the reasonableness of financial advice to that corporation, taking that duty into account.
17

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by using the time-honored method of discounted cash-flow studies for each date.21 Defendants would like to conflate Dr. Tennenbaum's testimony with the legal theory of "deepening insolvency," to which they then apply adjectives such as "discredited," "moribund," and the like. Once again, Defendants are simply mischaracterizing Plaintiff's case to fit their arguments, because their attacks in no way pertain to Plaintiff's actual case. Dr. Tennenbaum's work includes a comparison of the FMV of assets on two dates, rather than a measure of "insolvency." This is pure economic damages,22 in the form of plain vanilla loss of asset value, and that measure of damages is available in addition to all the fees Credit Suisse was paid.23 See, e.g., LNC Invs., Inc. v. First Fid. Bank, N.A., 173 F.3d 454, 464-66 (2d Cir. 1999). "But no," say Defendants, "you can't prove that all of that loss was our fault." This is not an argument against the fact of damages, or against the amount of damages; instead, it is an argument about causation, which we address at length in Part D., infra.
21

See Tennenbaum Report at pp. 20-44 [CS Ex. "J"]. Dr. Tennenbaum also used the BlackScholes model to analyze the implied option value of Oakwood's equity. See id. at pp. 45-50. Defendants have proffered a Daubert motion laden with "pot shots" on Dr. Tennenbaum's work, which both we and Dr. Tennenbaum have answered elsewhere. (See D.I. ##81 & 83.) If Defendants had their way, the effect would be to deny an insolvent company the right to recover economic damages, ever. Consider a claim against an insurance broker who negligently fails to insure the factory against fire, causing an asset loss of $50 million to an insolvent company ­ no one would claim this is a "deepening insolvency" measure. Yet it is no different from an advisor who negligently advises a corporation to engage in financial transactions that result in a $50 million loss. This harm isn't actionable because of the diminished dividend to creditors; it is actionable because the negligence resulted in the loss. Plaintiff's claim on such fees is not limited to those paid between September 2001 and September 2002. In actuality, Plaintiff seeks damages in the form of all fees reaching back to an earlier date in 2001, when Oakwood's "warehouse" facility was initially approved. Here, any concept of causation and damages is easily satisfied: but for Defendants' participation in these wrongful transactions, they would not have received the fees, and their receipt was a direct and foreseeable consequence of Defendants' actions. The unquestionable sturdiness of Plaintiff's claim to these fees (a valid form of damages for all three jury claims) likely explains why Defendants take such pains to overlook the fees in all their recent briefing.
18

22

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Having clarified the basic contours of Plaintiff's case, we move to the arguments made in the Defendants' Brief and the CS Reply, explaining in turn why each one fails. B. In Pari Delicto Simply Has No Application Here; Or, At The Very Most, It Raises Factual Inquiries That Must Be Resolved By The Jury At Trial. In pari delicto is Latin for "in equal fault." BLACK'S LAW DICTIONARY 794 (7th ed. 1999). This common law defense is traditionally "limited to situations where the plaintiff bore at least substantially equal responsibility for his injury, and where the parties' culpability arose out of the same illegal act." Pinter v. Dahl, 486 U.S. 622, 632 (1988) (citations and quotation marks omitted). It also is the focus of over 40% of the "argument" portion of the Defendants' Brief. (See Def. Br. at 13-20.) There are three separate, yet equally forceful, reasons why summary judgment should not be granted based upon an in pari delicto defense: (1) all "wrongdoing" underlying this suit was inherently personal to Credit Suisse; (2) Credit Suisse was an "insider"; and (3) there is a disputed factual issue about the parties' relative culpability.24 1. Any "Wrongdoing" By Oakwood Was Separate And Distinct From The Inherently Personal Wrongdoing Of Credit Suisse. As explained by the Third Circuit, in order to bar recovery based upon in pari delicto, "the plaintiff must be an active, voluntary participant in the unlawful activity that is the subject of the suit." McAdam v. Dean Witter Reynolds, 896 F.2d 750, 757 (3d Cir. 1990). As such, it is necessary to focus on the precise nature of the wrongdoing underlying Plaintiff's suit. Defendants' entire presentation of in pari delicto is based on a deep and fundamental distortion of the wrong Plaintiff alleges. Specifically, Defendants aver that since Oakwood's management and board decided to engage in the value-destroying transactions that

24

In addition, contrary to Defendants' assertion, there are good reasons to question whether in pari delicto should be considered any defense to breach of contract. See, e.g., In re Olympia Brewing Co. Sec. Litig., No. 77-1206, 1985 U.S. Dist. LEXIS 13796, at *7 (N.D. Ill. 1985).
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were structured and executed by Credit Suisse, they participated in the same wrong for which Plaintiff now seeks redress from Defendants. (See, e.g., Def. Br. at 12-20; CS Reply at pp. 4-5.) This is intellectual sleight-of-hand. There are two wrongs alleged here. One is the adoption of a business plan that ultimately failed by Oakwood's board and management. No evidence suggests, and neither party claims, that they had any evil intent. Rather, it appears that they tried to do a good job. Plus, in discharging their duties, Oakwood's board and management relied and depended on Credit Suisse fulfilling all of its own duties, which it plainly failed to do. In contrast, Defendants knew all too well that Oakwood's management and board did not understand the implications of the transactions they engaged in with Defendants. Defendants knew that these transactions were value-destroying, and that they would result in future losses. Oakwood placed trust in Defendants' greater expertise and advice about the these highly complex transactions, but Defendants concealed their knowledge and true opinions from Oakwood, putting their stamp of approval on Oakwood's continuation of a disastrous course. (See, e.g., Counter-Statement at pp. 2-3 ¶ 2 & pp. 10-11 ¶ 2, as well as the associated exhibits.) This misconduct by Credit Suisse is an entirely separate wrong from the incorrect business judgment observed at Oakwood. It is a wrong wholly personal to Defendants, and there is no way one could meaningfully say that Oakwood had any involvement in it at all.25 As such,

25

Likewise, Defendants can take no solace in the continuation of the "warehouse" post-petition, which they inexplicably insist on emphasizing. (See Def. Br. at 10-12; CS Reply at p. 5 n.2.) First, Oakwood never engaged in another securitization post-petition, and it certainly did not (and could not) do one in the destructive style Credit Suisse designed pre-petition (with large "B-2" tranches, which were directly guaranteed by Oakwood, essentially amounting to the issuance of new unsecured debt). Second, the fact that continuation of the "warehouse" may have been necessary post-petition (in large part due to Credit Suisse's disastrous failure to search for and finalize alternative financing, despite undertaking the obligation to do so) says nothing about whether it was reasonable for that facility to be utilized earlier. Third and finally, no aspect of Oakwood's decision to continue a facility that had been value-destroying
20

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in pari delicto should not be any issue here.26 See, e.g., O'Halloran v. PricewaterhouseCoopers LLP, 969 So. 2d 1039, 1044-47 (Fla. Dist. Ct. App. 2007) (reversing dismissal on in pari delicto grounds where defendant's misconduct was intentionally giving the debtor bad financial advice about pursuing a merger and the debtor's distinct misconduct was following that bad advice).27 In sum, the blame for Credit Suisse's three-fold "wrongs," the breach of its duties to Oakwood, lies at the feet of only one party: Credit Suisse. Oakwood did not ­ and logically could not ­ participate in any of this distinct misconduct, because it was wholly personal to Credit Suisse. Consequently, there is absolutely no basis for in pari delicto to apply in this case. 2. Because Credit Suisse Was An Oakwood "Insider," Defendants Cannot Claim Shelter Under In Pari Delicto As A Matter Of Law. "In pari delicto will not operate to bar claims against insiders of the debtor corporation." Stanziale v. Pepper Hamilton LLP (In re Student Fin. Corp.), 335 B.R. 539, 547 (D. Del. 2005) (Farnan, J.).28 Thus, if there is a genuine question of fact about whether Credit

in the past excuses Credit Suisse's prior personal failures to fully investigate the effects of that facility and related transactions, or to properly advise Oakwood of its actual knowledge about the irreversible damage being done by the transactions facilitated via the "warehouse."
26

This difference may be shown by a simple example. A person jaywalks, is hit by a car, and is taken to the hospital, where it is determined that a leg must be amputated. The hospital then amputates the wrong leg. No one could deny that the victim, as a jaywalker, was in the "wrong" (in delicto). But the wrong of the victim was entirely different from the hospital's undeniable wrong. This analogy is directly ap