In the Matter of: American Home Mortgage Assets Trust 2007-5.

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A18-0768

In the Matter of:
American Home Mortgage Assets Trust 2007-5.

Filed April 1, 2019
Affirmed in part, reversed in part, and remanded
Cochran, Judge

Hennepin County District Court
File No. 27-TR-CV-15-354

Jeffrey E. Grell, Grell Feist PLC, Minneapolis, Minnesota; and

Talcott J. Franklin (pro hac vice), Talcott Franklin P.C., Dall as, Texas (for appellant
LibreMax Capital, LLC)

Michael M. Krauss, Peter J. Farrell, DLA Piper LLP (US), Minnea polis, Minnesota (for
respondent Wells Fargo Bank, N.A.)

Considered and decided by Hooten , Presiding Judge; Reyes, Judg e; and Cochran,
Judge.
U N P U B L I S H E D O P I N I O N
COCHRAN, Judge
Appellant, a beneficiary of an investment trust, challenges ord ers issued by the
district court in a trust-instr uction proceeding initiated by r espondent, the securities
administrator for the trust, to resolve a dispute regarding the calculation of distributions
made by the trust. Because we c onclude that the district court did not err in interpreting

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the trust documents, but did err by dismissing appellant’s counterclaims, we affirm in part,
reverse in part, and remand.
FACTS
This appeal centers on a dispute over the proper interpretation of documents
executed in connection with the 2007 creation of a residential mortgage-backed securities
trust. Appellant LibreMax Capital, LLC holds certificates issued by the trust that entitle it
to distributions based on interest paid on the mortgages held by the trust. Respondent Wells
Fargo Bank, N.A., as securities administrator for the trust, is charged with calculating and
making monthly distributions.
The trust is governed by a Pooling and Servicing Agreement (PSA ), which
incorporates a Servicing Agreement. Both the PSA and the Servicing Agreement include
choice-of-law clauses providing for the application of New York law.
The PSA established 17 different classes of certificates. Each certificate represents
an ownership interest in the trust, and each class of certifica tes has different rights to
distributions from the trust. Only two active classes remain: Class A and Class X-P.1
LibreMax bought 100% of the Class X-P certificates on the secon dary market,
approximately six years after they were issued. As holder of t he Class X-P certificates,
LibreMax possesses 1% of the voting rights within the trust.

1 Class X-P is divided into two co mponents: principal-only and i nterest-only. It is the
interest-only component that is at issue in this proceeding. The interest-only component is
further subdivided into two components: X-IO-A and X-IO-B.

3
Wells Fargo calculates the amount to be distributed to each cla ss of
certificateholders based on the instructions specified in section 4.01, or the waterfall clause,
of the PSA and distributes the available funds in accordance wi th the priority set forth in
that section. Under the waterfall clause, Wells Fargo first distributes “Accrued Certificate
Interest” to Class A and Class X-P.2 For Class A, the Accrued Certificate Interest is paid
directly to Class A certificateholders. But for Class X-P, the waterfall clause provides that
any Accrued Certificate Interest payable is deposited into a shortfall reserve fund and first
used to pay any carry-forward amou nts due to certain other clas ses (now effectively only
Class A). The remaining interest, if any, is then distributed to Class X-P certificateholders.
For both Class X-P and Class A, the Accrued Certificate Interes t is based on the
“then-applicable Pass-Through Rate.” The “Pass-Through Rate” for each class is specified
in the PSA. For LibreMax’s Class X-P certificates, the PSA defines the Pass-Through Rate
for the interest-only components as:
For any Distribution Date and the X-IO-A Component, the
excess, if any, of (i) the weighted average of the Net Mortgage
Rates for the Mortgage Loans as of the first day of the related
Due Period over (ii) the quotient of (a) the product of (I) 12
multiplied by (II) the aggregate amount of interest accrued on
the Class A Certificates for the related Accrual Period divided
by (b) the Notional Amount of the X-IO-A Component for
such Distribution Date.

For any Distribution Date, and the X-IO-B Component, the
excess, if any, of (i) the weighted average of the Net Mortgage
Rates for the Mortgage Loans as of the first day of the related
Due Period over (ii) the quotient of (a) the product of (I) 12
multiplied by (II) the aggregate amount of interest accrued on

2 The waterfall clause also provides that Class R has first prio rity to Accrued Certificate
Interest along with Class A and Class X-P but Class R is no longer an active class.

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the Class M and Class B Certificates for the related Accrual
Period divided by (b) the Notional Amount of the X-IO-B
Component for such Distribution Date.

(Emphasis added.) Because the P ass-Through Rate for Class X-P depends on the
“weighted average of the Net Mortgage Rates for the Mortgage Lo ans,” it is necessary to
determine the weighted average of the Net Mortgage Rates for the Mortgage Loans in order
to determine the Accrued Certificate Interest to be distributed to Class X-P.
3
The “Net Mortgage Rate” for a mortgage is defined in the PSA as the “per annum
rate of interest equal to the then-applicable Mortgage Rate on such Mortgage Loan less the
Servicing Fee Rate.” “Mortgage Rate” is the “annual rate at which interest accrues on such
Mortgage Loan, as adjusted fro m time to time in accordance with the provisions of the
Mortgage Note.” The “Mortgage Note” is “the note or other evidence of the indebtedness
of a Mortgagor under a Mortgage Loan.”
Since the inception of the trust, Wells Fargo has used the actu al, then-applicable
interest rates on the underlying mortgages to calculate the Net Mortgage Rates used in its
calculation of the Pass-Through Rates and Accrued Certificate Interest. In other words, if
the servicer lowered the interest rate on a Mortgage Loan throu gh a loan-modification
agreement with the borrower to avoid default, Wells Fargo used the modified rate provided
by the servicer to compute the Net Mortgage Rate. In its role as securities administrator,
Wells Fargo interpreted the phrase “then-applicable Mortgage Ra te” in the PSA to mean

3 The PSA defines the Pass-Through Rate for Class A differently than for Class X-P but
the Pass-Through Rate for Class A, like Class X-P, also depends on “the weighted average
of the Net Mortgage Rates on the Mortgages Loans.”

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interest rates as adjusted by the original mortgage note or by a loan-modification agreement
(also known as a “servicing modification”).
In February 2015, LibreMax cont acted Intex Solutions, Inc., a private company that
creates cash-flow models for resi dential mortgage-backed securi ties trusts. LibreMax
questioned Wells Fargo’s calculation of the Net Mortgage Rate. Wells Fargo and Intex
exchanged email communications, disputing how loan modification s a f f e c t t h e N e t
Mortgage Rate. In May and June 2015, LibreMax contacted Wells Fargo directly, asking
for any updates on the disputed calculations but did not identify itself as a certificateholder.
In July 2015, LibreMax contacted Wells Fargo again, identified itself as a Class X-P
certificateholder, and asked Wells Fargo to explain the calcula tions. LibreMax asserted
that, under the terms of the Servicing Agreement, servicing mod ifications should not
impact the calculation of interest distributions. Specifically , LibreMax relied on section
4.04 of the Servicing Agreement, which provides:
The mortgage rate and Net Mortgage Rate as to any mortgage
loan will be deemed not reduced by any servicing
modification, so that the calculation of accrued note interest (as
defined in the prospectus supplement
[4]) payable on the Offered
Certificates will not be affected by the servicing modification.

In December 2015, after several emails, and having reached no consensus on how
distributions should be calculated, Wells Fargo filed a trust-i nstruction proceeding (TIP),
asking the district court to: (1) approve and ratify Wells Fargo’s determination that “under

4 The Prospectus Supplement is a legal document that must be filed with the Securities and
Exchange Commission for potential investors to rely upon when m aking investment
decisions.

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the terms of the PSA, for purposes of calculating the Net Mortg age Rate, the Mortgage
Rate includes a change in the annual rate pursuant to a servicing modification;” (2) reform
the Servicing Agreement to confor m with this determination; and (3) declare that Wells
Fargo is not subject to any liability in making the distributions at issue. LibreMax filed an
objection, answer, and counterclaims alleging breach of contrac t, negligence, gross
negligence, servicing failures, failure to provide notice, and accounting. LibreMax also
moved for judgment on the pleadings.
The district court held a heari ng and dismissed LibreMax’s cou nterclaims,
determining that they were not p roperly brought under the PSA. The district court also
denied LibreMax’s motion for judgment on the pleadings, determi ning that there was
reasonable doubt as to the administration of the trust.
Following a bench trial, the district court issued an order gr anting Wells Fargo’s
petition and construing the PSA consistent with Wells Fargo’s position. The district court
applied New York contract law to determine that the PSA and Servicing Agreement must
be interpreted as a single contract because they “were both components of a larger design
to securitize the loans in the [trust] for sale to investors.” The district court also concluded
that there was an ambiguity when the documents are construed to gether and looked to
extrinsic evidence to interpret the PSA and Servicing Agreement. Based on the testimony
heard at trial, industry practice, and the specificity of the PSA’s waterfall clause, the district
court ruled in Wells Fargo’s fa vor and ordered construction of the PSA to require
distributions based on “the actual Mortgage Rates on the underl ying Loans as such
Mortgage Rates may be adjusted by the Servicer in connection wi th authorized

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modifications of the Mortgage Loans.” The district court also determined that Wells Fargo
was not subject to liability for its actions in making distribu tions and denied LibreMax’s
request for damages and attorney fees.
LibreMax appeals.
D E C I S I O N
LibreMax argues on appeal that the district court erred by (1) denying LibreMax’s
motion for judgment on the pleadings, (2) interpreting the PSA and Servicing Agreement
in Wells Fargo’s favor, and (3) dismissing LibreMax’s counterclaims. We address these
issues in turn below.5
I. The denial of LibreMax’s motion for judgment on the pleadings i s not
within the scope of this appeal.

LibreMax moved for judgment on the pleadings, arguing that Well s Fargo did not
adequately set forth a claim for reformation of the Servicing Agreement. The district court
denied LibreMax’s motion and held a bench trial. After the tri al, the district court
concluded that Wells Fargo had pr operly interpreted the trust d ocuments and determined
that it “need not address Wells Fargo’s alternative argument requesting reformation of the
Servicing Agreement.” LibreMax now seeks review of the distric t court’s denial of the
motion for judgment on the pleadings.

5 LibreMax also argues that, assuming the district court erred i n interpreting the trust
documents, it also erred by determining that Wells Fargo is not subject to liability to the
trust’s beneficiaries and that LibreMax is not entitled to dama ges including attorney fees
incurred. Because we conclude that the district court did not err in interpreting the trust
documents, we do not reach these issues.

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T h i s c o u r t “ h a s t h e a u t h o r i t y t o r e v i e w o r d e r s t h a t ‘ a f f e c t ’ t he judgment being
appealed.” Bahr v. Boise Cascade Corp., 766 N.W.2d 910, 918 (Minn. 2009) (citing Minn.
R. Civ. App. P. 103.04). Minnesota courts have repeatedly held that “the denial of a motion
for summary judgment is not with in an appellate court’s scope o f review after a trial has
been held and the parties have been given a full and fair opportunity to litigate their claims”
because summary-judgment orders no longer affect the judgment b eing appealed.
Sorchaga v. Ride Auto LLC , 893 N.W.2d 360, 367-68 (Minn. App. 2017) (quotation
omitted); see Bahr, 766 N.W.2d at 918. The same logic applies to preclude an app ellate
court’s review of a denial of judgment on the pleadings after a trial has been held. Because
the parties have been given a f ull opportunity to litigate the proper interpretation of the
PSA and Servicing Agreement at trial, the district court’s orde r denying LibreMax’s
motion for judgment on the pleadings is not reviewable by this court. See, e.g., Bennett v.
Pippin, 74 F.3d 578, 585 (5th Cir. 1996) (explaining that issues aris ing from denial of
motion to dismiss are mooted by trial because “[a]ny pleading d efect may be cured by a
motion under Fed. R. Civ. P. 15(b), and the sufficiency of the plaintiff’s evidence may be
tested by an appeal on that issue”); Bahr, 766 N.W.2d at 918 (finding persuasive similar
analysis of federal courts addressing postjudgment reviewabilit y of denial of summary
judgment).

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II. The district court did not err in interpreting the PSA and Serv icing
Agreement.

The district court determined that the PSA and Servicing Agreement, read together,
6
were ambiguous, and resolved that ambiguity in favor of Wells F argo based on the
evidence presented at trial. LibreMax argues that the trust do cuments unambiguously
require the exclusion of servicing-modification interest-rate a djustments from the
calculation of distributions.
W h i l e M i n n e s o t a l a w g o v e r n s t h e p r o c e d u r a l a s p e c t s o f t h i s c o u rt’s review,
interpretation of the PSA and Servicing Agreement is governed b y New York law under
the choice-of-law provisions included in the trust documents. See Davis v. Furlong, 328
N.W.2d 150, 153 (Minn. 1983) (noting that Minnesota follows “th e almost universal rule
that matters of procedure and remedies [are] governed by the la w of the forum state”);
Miliken & Co. v. Eagle Packaging Co. , 295 N.W.2d 377, 380 n.1 (Minn. 1980) (stating
that Minnesota courts are “committed to the rule that parties m ay agree that the law of
another state shall govern their agreement and will interpret and apply the law of another
state where such an agreement is made” (quotation omitted)).
Whether a contract is ambiguous is a matter of law. Greenfield v. Philles Records,
Inc., 780 N.E.2d 166, 170 (N.Y. 2002); see also Denelsbeck v. Wells Fargo & Co. , 666
N.W.2d 339, 346-47 (Minn. 2003). When a contract is ambiguous, extrinsic evidence may
be considered to aid in interpretation. Greenfield, 780 N.E.2d at 170. A district court’s
determinations regarding the interpretation of an ambiguous contract will not be reversed

6 The district court read the PSA and Servicing Agreement together as a single contract.

10
unless clearly erroneous. Alpha Real Estate Co. of Roch ester v. Delta Dental Plan of
Minn., 671 N.W.2d 213, 221 (Minn. App. 2003), review denied (Minn. Jan. 20, 2004).
A. There is an ambiguity between the PSA and the Servicing Agreeme nt
regarding the interest rate to be used in calculating distributions.

We must first determine if there is an ambiguity between the la nguage of the PSA
and Servicing Agreement, which must be read together. See This is Me, Inc. v. Taylor, 157
F.3d 139, 143 (2d Cir. 1998) (“Under New York law, all writings forming part of a single
transaction are to be read together.”). “A contract is unambig uous if the language it uses
has a definite and precise meaning, unattended by danger of mis conception in the purport
of the agreement itself, and concerning which there is no reasonable basis for a difference
of opinion.” Greenfield, 780 N.E.2d at 170-71 (quotati on omitted). If a contract is
“reasonably susceptible” to only one meaning, then the contract is not ambiguous. Id. But,
“when the contract, read as a whole, fails to disclose its purpose and the parties’ intent, or
when specific language is suscep tible of two reasonable interpr etations,” the contract is
ambiguous. Ellington v. EMI Music, Inc. , 21 N.E.3d 1000, 1003 (N.Y. 2014) (quotation
and citations omitted).
The PSA’s waterfall clause states that Class A and Class X-P ce rtificateholders
receive Accrued Certificate Interest, which is based on the “th en-applicable Mortgage
Rate[s]” of the underlying loans. Wells Fargo maintains that t he “then-applicable”
language refers to the actual in terest rate and encompasses any servicing modifications
made to the interest rates paid on the underlying loans that would affect the calculation of
the Net Mortgage Rate. LibreMax counters that the “then-applic able” rate refers only to

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the interest rate as adjusted pursuant to the terms of the adju stable-rate-mortgage notes
included in the trust, but not pursuant to any servicing modifications that affect the interest
rate paid. LibreMax further points to section 4.04 of the Servicing Agreement which states
that “[t]he mortgage rate and Net Mortgage Rate as to any mortg age loan will be deemed
not reduced by any servicing modi fication, so that the calculat ion of accrued note
interest . . . payable on the Offered Certificates will not be affected by the servicing
modification.”
In support of its theory that the “then-applicable” rate refers only to the interest rate
as adjusted pursuant to the terms of the adjustable-rate-mortga ge notes and not servicing
modifications, LibreMax points to the definition of Mortgage Ra te. Mortgage Rate is
defined in the PSA as “the annual rate at which interest accrue s on such Mortgage Loan,
as adjusted from time to time in accordance with the prov isions of the Mortgage Note .”
(Emphasis added.) Thus, accordi ng to LibreMax, changes to the interest rate due to the
adjustable-rate provisions of the mortgage notes are included b ut changes in the interest
rate due to servicing modificati ons are not included. LibreMax points out that servicing
modifications are made by executing a loan-modification agreeme nt, which is a contract
separate from the mortgage note, and argues on that basis that any servicing modification
does not affect the calculation of the then-applicable Mortgage Rate. But LibreMax’s
interpretation fails to account for the definition of Mortgage N o t e . T h e P S A d e f i n e s
Mortgage Note more broadly than just the note itself. The term Mortgage Note is defined
as “[t]he note or other evidence of the indebtedness of a Mortg agor under a Mortgage
Loan.” And, when read with the term Mortgage Rate, the two terms together provide that

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the mortgage rate to be used is “the annual rate at which interest accrues on such Mortgage
Loan, as adjusted from time to time in accordance with the prov isions of ‘[t]he note or
other evidence of the indebtedness of a Mortgagor under a Mortg age Loan.’” (Emphasis
added.)
The phrase “other evidence of the indebtedness of a Mortgagor u nder a Mortgage
Loan” is broad enough to include a loan-modification agreement. The term “indebtedness”
is defined as the “condition of owing money.” Black’s Law Dictionary 885 (10th ed. 2014).
The record reflects that the loa n-modification agreement used b y the servicer lists the
principal amount of money still owed by the Mortgagor on the Mortgage Loan, the annual
i n t e r e s t r a t e , a n d a n y a n n u a l c h a n g e s t o t h e i n t e r e s t r a t e . T hus, a loan-modification
agreement is “other evidence of the indebtedness of a Mortgagor under a Mortgage Loan”
within the meaning of the definition of Mortgage Note. And the terms Mortgage Rate and
Mortgage Note are properly read together to provide that adjust ments to the interest rates
due to loan-modification agreements are to be included in the “ then-applicable Mortgage
Rate[s]” used to calculate the Accrued Certificate Interest.
In sum, the PSA informs Wells Fargo to consider adjustments in the interest rate
due to loan-modification agreements, also known as servicing mo difications, when
calculating interest, but the Servicing Agreement instructs Wells Fargo to not include those
same servicing modifications. There is not a harmonious soluti on to interpreting the
waterfall clause of the PSA and section 4.04 of the Servicing A greement. Instead, the
language of the two provisions conflicts, creating an ambiguity a n d a l l o w i n g t h e
consideration of extrinsic evidence when interpreting the PSA and Servicing Agreement.

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B. The district court’s interpretation of the PSA and Servicing Ag reement is
supported by the record.

Under New York law, if two provisions are in conflict with each other, a court
should enforce “the clause relatively more principal to the contract.” Israel v. Chabra, 906
N.E.2d 374, 380 n.3 (N.Y. 2009) (quotation omitted). Following trial, the district court
determined that the Servicing Ag reement did not contain a more specific provision
regarding distributions than th e PSA and instead, the waterfall p r o v i s i o n w a s c l e a r .
LibreMax contends that the district court erred, arguing that the more specific and principal
clause is section 4.04 of the Se rvicing Agreement. LibreMax ma intains that the “PSA’s
waterfall provision speaks of the general duties of the Securit ies Administrator in
calculating distribution payments, but does not address what ha ppens in the event of a
servicing modification.” Based on our review of the trust docu ments and the evidence
presented at trial, we disagree.
Importantly, the PSA is the document that creates the trust, and we have no trouble
concluding that the waterfall clause of the PSA is more princip al than section 4.04 of the
Servicing Agreement. The waterfa ll clause expressly governs th e calculation of
distributions from the trust, while section 4.04 of the Servici ng Agreement has to do with
advances, or what actions the Ser vicer may take when payments a re not made on the
underlying mortgage loans. The context of the waterfall clause versus section 4.04 of the

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Servicing Agreement supports the district court’s determination that the waterfall clause is
the more principal provision.7
The evidence presented at trial further supports the district c ourt’s determination.
The type of extrinsic evidence that a court may look to while i nterpreting an ambiguous
contract includes industry custom or practice, drafting history, and course of performance.
See Christiania Gen. Ins. Corp. of N.Y. v. Great Am. Ins. Co. , 979 F.2d 268, 274 (2d Cir.
1992) (including industry custom or practice); MBIA Ins. Corp. v. Patriarch Partners VIII,
LLC, 950 F. Supp. 2d. 568, 613-14 (S.D.N.Y. 2013) (including drafting history); Jobim v.
Songs of Universal, Inc., 732 F. Supp. 2d 407, 416 (S.D. N.Y. 2010) (including course of
performance as extrinsic evidence).
A Wells Fargo business-negotiations consultant testified that t h e P S A i s t h e
“primary governing document” and prescribed Wells Fargo’s “role s and responsibilities
including items such as waterfall payments . . . and reporting to investors.” An employee
at Wells Fargo who analyzes pay ment calculation also testified that “the PSA is the legal
governing document for the transaction that defines the waterfa ll and the payment of
priorities” to certificateholders . Wells Fargo also introduced evidence of various other
residential mortgage-backed securities transactions. In those transactions, the language of
the applicable PSAs specifically and expressly excluded loan mo difications from its

7 Although we agree with the district court that the conflict ca n be resolved by enforcing
the waterfall clause as the more p rincipal clause, we also note that, “in the case of total
repugnancy between two contract clauses, the first of such clau ses shall be received and
the subsequent one rejected.” Honigsbaum’s, Inc. v. Stuyvesant Plaza, Inc., 577 N.Y.S.2d
165, 166 (N.Y. App. Div. 1991).

15
distributions.8 In contrast, the PSA here indicates no intent to exclude loan modifications
from distributions. This evidence shows that when servicing modifications are intended to
be excluded, specific language is included in the PSA itself. That was not done here.
Based on the structure of the P SA and Servicing Agreement, the t e s t i m o n y o f
multiple witnesses, and industry practice, the district court d id not err in interpreting the
PSA and Servicing Agreement in Wells Fargo’s favor.
III. The district court erred in dismissing LibreMax’s counterclaims.
The district court dismissed Li breMax’s counterclaims under Mi nn. R. Civ.
P. 12.02(e), based on its interpretation of the PSA’s no-action clause. This court reviews
de novo the district court’s gran t of a motion to dismiss under Minn. R. Civ. P. 12.02(e).
Sipe v. STS Mfg., Inc., 834 N.W.2d 683, 686 (Minn. 2013). While Minnesota law governs
the procedural aspect of this court’s review, interpretation of the PSA’s no-action clause is
governed by New York law pursuant to the PSA’s choice-of-law pr ovision. See Miliken
& Co., 295 N.W.2d at 380 n.1.
The no-action clause in section 10.03 of the PSA provides in relevant part that “[n]o
Certificateholder shall have any right by virtue of any provisi on of this Agreement to
institute any suit, action or proceeding in equity or at law upon or under or with respect to
this Agreement” except where certain conditions are met. The n o-action clause further
specifies that a certificateholde r may institute a proceeding o nly if the holder provides

8 Those PSAs also provided that any risk due to a loan modification was to be borne by the
recipient of excess interest.

16
notice to the trustee, possesses at least 51% of the voting rig hts, and offers to indemnify
the trustee.
LibreMax brought counterclaims for breach of contract, neglige nce, gross
negligence, servicing failures, failure to provide notice, and accounting. The district court
determined that the filing of counterclaims by LibreMax constit uted “institution of a suit,
action or proceeding” under section 10.03 of the PSA. The dist rict court also determined
that LibreMax failed to meet the requirements for instituting a proceeding in accordance
with the no-action clause in section 10.03 because LibreMax possessed only 1% of voting
rights. Therefore, the district court dismissed LibreMax’s counterclaims.
LibreMax argues that bringing a counterclaim does not amount to instituting a suit,
action, or proceeding, and thus section 10.03 does not apply to the filing of counterclaims.
LibreMax cites to Local Union No. 38, Sheet Metal Wo rkers’ Int’l Ass’n, AFL-CIO v.
Pelella for the proposition that:
A party institutes an action when he commences a
judicial proceeding. . . .

An action is therefore instituted when a plaintiff files a
complaint as that constitutes the first step invoking the judicial
process. In sharp contrast, a defendant asserts a counterclaim
in response to a plaintiff’s institution of an action. A
counterclaim, by definition, is a claim for relief asserted
against an opposing party after a n original c l a i m h a s b e e n
made.

In other words, a defendant does not “institute” an
action when he asserts a counterclaim.

350 F.3d 73, 82 (2d Cir. 2003) (q uotation and citations omitted). New York state courts
have adopted this interpretation. See GLC Securityholder LLC v. Goldman, Sachs & Co.,

17
905 N.Y.S.2d 27, 28 (N.Y. App. Div. 2010) (“While defendants wo uld be barred by the
indenture’s ‘no action’ clause from commencing an action to recover payments due on the
notes, they are not barred from asserting counterclaims for such relief.”).
Wells Fargo cites to a Second Circuit case that barred counter claims as an “action
or proceeding against the debtor . . . notwithstanding the fact that the plaintiff initiated the
lawsuit.” Koolik v. Markowitz, 40 F.3d 567, 568 (2d Cir. 1 994) (quotation omitted). But
that case involved the interpret ation of the automatic-stay pro vision of the federal
bankruptcy code, which includes broader language than the no-action clause at issue here.
See id. Wells Fargo additionally argues that the no-action clause prohibits LibreMax from
instituting any proceeding, and “proceeding” is a comprehe nsive term that may include
counterclaims. But as LibreMax correctly points out, the real issue is whether asserting
counterclaims institutes a proceeding. Applying New Y ork law, we conclude that
LibreMax did not “institute” a proceeding, but instead responde d to Wells Fargo. See
Pelella, 350 F.2d at 82; GLC Securityholder, 905 N.Y.S.2d at 28. Because LibreMax did
not institute a proceeding, the no-action clause in section 10. 03 does not bar its
counterclaims.
The district court erred in dismissing LibreMax’s counterclaims . B e c a u s e t h e
district court did not consider the merits of LibreMax’s counte rclaims, we reverse the
dismissal of the counterclaims, and remand for further proceedi ngs not inconsistent with
this opinion.
Affirmed in part, reversed in part, and remanded.