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forward swap agreements (the "Forward Swaps") with highly rated financial institutions (the "Forward Swap Counterparties") to enhance the quality of the commercial paper they issued and to mitigate certain risks (unrelated to homeowner delinquencies). BofA was one of the Forward Swap Counterparties. Under the Forward Swaps, if the AHMSI was required to sell the mortgage loans due to a termination even under the MLPSAs and the sale resulted in less than par value, BofA had to pay either Broadhollow or Melville the shortfall and vice versa (the "Partial Termination Payments"). Third, the Forward Swap Counterparties - including BofA - entered into back swap agreements (the "Back Swaps") with a debtor entity under which a debtor entity was required to reimburse the Forward Swap Counterparty for any losses incurred under the Forward Swaps. A termination event under the MLPSA occurred and AHMSI sold, at auction, the mortgage loans held by the SPEs for less than par value. However, BofA refused to pay the SPEs the Partial Termination Payments under the Forward Swaps and the Plaintiffs therefore filed this adversary proceeding for the recovery of such payments.
Issues: (1) Whether the bankruptcy court has jurisdiction to hear this lawsuit. (2) Whether AHMSI, as a non-party to the Forward Swaps, lacks standing to bring this lawsuit under the Forward Swaps. (3) Whether the court should abstain from hearing the case.Holding: (1) The bankruptcy court has, at a minimum, related-to jurisdiction and thus may hear the lawsuit in the first instance.
(2) AHSMI lacks standing to bring this lawsuit under the Forward Swap agreements and is dismissed as a Plaintiff. (3) After examining the factors for abstention, the court declines to abstain from hearing the adversary proceeding.
Rules: (1) Under Pacor, "a proceeding is 'related-to' a bankruptcy case if 'the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy...' 'a key word in this test is 'conceivable.''" But, the "mere fact that there may be common issues of fact between a civil proceeding and a controversy involving a bankruptcy estate does not bring the matter within the scope of section [1334(b)]."
(2) New York law (the law that applies herein) "only gives the right to enforce a contract to the contracting parties and any intended third party beneficiaries of the contract." Moreover, also under New York law, "multiple contracts executed as parts of a single transaction 'may be considered in law as one agreement, but only if the parties so intended.'" All contracts that vaguely relate to the same deal should not be read together when explicit language exists to the contrary.
Reasoning: (1) If the Plaintiffs win this adversary proceeding, BofA will be liable to the SPEs for the Partial Termination Payments and, in turn, certain debtors will become contractually obligated (without the need for an additional lawsuit to determine liability) to BofA under the Back Swaps, which could conceivable affect the debtor's bankruptcy estate. If BofA has a claim against any of the debtors, it can file a proof of claim; it is certainly conceivable that such claim would be granted. The bankruptcy court specifically refused to find related-to jurisdiction on the sole basis that certain of the debtors owned equity interests in Broadhollow and Melville.
(2) Although AHMSI is a party to the Back Swaps and the MLPSAs, it is neither a party to the Forward Swaps nor a third party beneficiary. Additionally, the language of the multiple agreements - the MLPSAs, the Forward Swaps and the Back Swaps - under which only the Forward Swaps contain an integration clause, is strong evidence that the agreements were meant to be separate
