On January 24, 2017, New York’s Appellate Division, First Department, affirmed a $94 million trial verdict obtained by Wilk Auslander on behalf of two funds managed by Good Hill Partners, a Connecticut-based hedge fund, against Deutsche Bank, in a closely followed securities case involving credit default swaps dating back to the financial crisis.
After a five-day bench trial in December 2015, Justice O. Peter Sherwood of the New York County Supreme Court awarded Good Hill:
- $22.1 million in damages for Deutsche Bank’s breach of a swap contract as a result of its failure to return excess collateral posted by Good Hill,
- $3.75 million in attorneys’ fees, and
- $68 million in pre-judgment interest at the default rate, which continued to accrue during the appeal, bringing the current amount of the judgment to over $110 million.
The Appellate Division affirmed the lower court decision in its entirety, holding that Deutsche Bank had breached the swap agreement with Good Hill. Significantly, the appellate court ruled that a party is free to negotiate at arms length and transact for its own economic advantage with third parties, in compliance with the terms of its contract with another, without violating the duty of good faith and fair dealing under New York law. Like the trial court, the Appellate Division rejected Deutsche Bank’s argument that Good Hill had breached the swap agreement or violated its duty of good faith when it sold certain mortgage-backed securities to Bank of America that were the subject of the Good Hill-Deutsche Bank swap. Bank of America subsequently undertook a writedown of the principal on those securities that resulted in a payout to Deutsche Bank under the swap in an amount less than what Deutsche Bank expected. In so ruling, the Appellate Division held that the terms of the standard ISDA form contract used by the parties in the swap allowed Good Hill to trade in the underlying securities even if there was an adverse effect on Deutsche Bank.
The Appellate Court also affirmed the lower court’s ruling that both pre- and post-judgment interest accrued at the default rate of 21%, as defined in the parties’ swap agreement, from the time the breach occurred in 2009 through the present. The amount of pre-judgment interest awarded appears to have been one of the largest amounts, if not the largest, ever awarded by a New York court in a breach of contract action.