NEW YORK COURT SAYS DEUTSCHE BANK MUST PAY $110 MILLION FOR BREACH OF DERIVATIVES CONTRACT

NEW YORK, NY – 3 Feb, 2017 – On January 24, 2017, New York’s Appellate Division, First Department, affirmed a $93.9 million trial verdict in favor of Good Hill Partners, a Connecticut-based hedge fund, against Deutsche Bank, in a case involving credit default swaps.

After a five-day bench trial in 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 Good Hill’s collateral,

• $3.75 million in attorneys’ fees, and

• $68 million in pre-judgment interest at the default rate, which continues to accrue during the appeal, bringing the current amount of the judgment to over $110 million.

This decision is a reminder that New York courts hold parties to the terms of their contracts.  The Appellate Division ruled that a party can negotiate for its own economic advantage, in compliance with the terms of its contract, without violating the duty of good faith. 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. Bank of America subsequently undertook action that resulted in a payout to Deutsche Bank under the swap agreement in an amount less than what Deutsche Bank expected.  

In so ruling, the Appellate Division held that the terms of the standard ISDA contract form used in the swap trade allowed Good Hill to trade in the underlying securities and did not alter the common law obligations of a party to act in good faith.

The crux of the ruling is that a party may negotiate with third parties at arm’s length for its own advantage without violating the duty of good faith and fair dealing, even if the transaction has an adverse effect on the counterparty to the swap contract.

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 per the parties’ agreement from the time the breach occurred in 2009. 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.

Good Hill was represented at trial and on the appeal by Alan Zuckerbrod, Stuart Riback and Eric LaMons of Wilk Auslander LLP.

CONTACT: 

For questions, please contact:

Alan Zuckerbrod
212-981-2314
azuckerbrod@wilkauslander.com

or, Stuart Riback
212-981-2326
sriback@wilkauslander.com

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