Plaintiff Springwell Navigation Corp. (Springwell) moves for an order, pursuant to CPLR 3212, granting it summary judgment, and for a monetary judgment against defendant SanLuis Corporation (SanLuis) in the amount of $443,750, with interest. SanLuis cross-moves, pursuant to CPLR 3212, for an order granting it summary judgment dismissing the complaint.

This is an action for interest payments concededly due under a note. Springwell alleges that in March 1998, it entered into an agreement to purchase a $5 million beneficial interest in an Unrestricted Global Note (the UGN) issued by SanLuis, a Mexican mining and manufacturing company (Heliotis affidavit ¶ 2; exhibits 1 and 2). The Note provided that:

Notes sold outside the United States in reliance on Regulation S under the Securities Act will be represented by the Unrestricted Global Note deposited with the custodian for, and registered in the name of, a nominee of DTC (Depository Trust Company) for the accounts of Euroclear and [*2]Cedel Bank. Notes sold in reliance on Rule 144A under the Securities Act will be represented by the Restricted Global Note deposited with a custodian for, and registered in the name of, a nominee of DTC. On or prior to the 40th day after the later of commencement of the offering and the Closing Date, beneficial interests in the Unrestricted Global Note may be held only through Euroclear or Cedel Bank. Notes represented by the Global Notes will trade in DTC's Same-Day Funds Settlement System, and secondary market trading in such Notes will therefore settle in immediately available funds. Beneficial interests in the Global Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct and indirect participants, including Euroclear and Cedel Bank

(Affidavit of Gustavo Zenizo, exhibit C, at 11).

The UGN was issued in United States dollar denominations and under United States law, and incorporates the Trust Indenture Act of 1939 (Zenivo affidavit ¶¶ 4-6, exhibit A; Heliotis affidavit, exhibit 1).

In September 2000, Springwell sold $4 million of its beneficial interest in the UGN, retaining a $1 million interest (Heliotis affidavit ¶ 2). Springwell's purchase of its beneficial interest in the UGN was initially financed by The Chase Manhattan Bank (Chase), London Branch, pursuant to a repurchase agreement and then a term loan agreement. On January 16, 2001, Springwell repaid its financing to Chase in full and directed Chase to transfer Springwell's remaining $1 million interest in the UGN to Standard Bank London Limited (SBLL). This transfer was accomplished in January 2001 (Heliotis affidavit ¶ 3; exhibits 3 and 4). Springwell alleges that, through SBLL, it has held a beneficial interest in $1 million of the UGN since January 2001 (Heliotis affidavit ¶ 4; exhibit 5; Chalmers affidavit ¶¶ 2-3, exhibits A and B). Springwell alleges that this period includes the period of time from September 18, 2001 through March 18, 2006, when SanLuis was obligated, but failed, to make semi-annual interest payments due under the terms of the UGN (Heliotis affidavit ¶ 4). Bank notices produced by Springwell reflect payment of interest to Springwell prior to SanLuis' default (Heliotis affidavit, exhibit 6 reflects an interest payment received for the March 18 2001 payment date and exhibit 7 reflects an interest payment for the March 18, 2001 payment date). Plaintiff alleges that the SBLL bank statements reflect Springwell's continued holding of its $1 million beneficial interest in the UGN, which it has had since January 18, 2001 (Heliotis affidavit, exhibit 8; Chalmers' affidavit ¶ 2). SanLuis concedes that it has not made these interest payments (Fay affidavit, exhibit 2, ¶ 9). Pursuant to the terms of the UGN, and the 8.875% interest due under that note on a semi-annual basis, Springwell alleges that SanLuis owes Springwell interest payments in the total sum of $443,750.

In his reply affidavit, Patrick Chalmers states that Springwell holds its beneficial interest in SanLuis Corporation in a custodial account at SBLL (Chalmers reply affidavit). Chalmers states:

Springwell has effectively held that interest at SB throughout the period from January 18, 2001 to the present day. The custody mechanism utilized with respect to this investment was that Springwell's beneficial interest in the UGN was initially held on SB's books as an open forward transaction, because SB did not provide custodial accounts to Springwell. At no time did Springwell sell its beneficial interest in the UGN to, or finance that interest through, SB. Springwell, not SB, was and is entitled to all interest due under its beneficial interest in the UGN. On May 18, 2006, Springwell's beneficial interest in the UGN was transferred to a custodial account at SB. A statement [*3]reflecting this custodial account was submitted as Exhibit 5 to the Affidavit of Ms. Katerina Heliotis

(Chalmers affidavit, ¶¶ 2-4).

Springwell initially moved for summary judgment in lieu of complaint, pursuant to CPLR 3213. This court denied Springwell's motion in December 2005, finding that Springwell had failed to prove, as a matter of law, that it owned an interest in the SanLuis Notes. Discovery having been had, Springwell now moves for summary judgment, pursuant to CPLR 3212. In essence, Springwell argues that SanLuis issued the UGN, Springwell invested in notes represented by the UGN, SanLuis failed to make their equitable interest payments under the UGN, and Springwell has standing to sue for that unpaid interest.SanLuis cross-moves for summary judgment, pursuant to CPLR 3212, arguing that the additional discovery still does not demonstrate that Springwell is the beneficial owner of the notes. SanLuis admits that it issued the UGN, and that it has failed to make interest payments thereunder. Further, SanLuis does not contest Springwell's interest calculation. SanLuis' defense is that it is not obligated to make such payments directly to Springwell, but rather to the registered nominee holding the UGN. Springwell's riposte is that, regardless of the language of the UGN or the indenture agreement governing the UGN, Springwell, as a holder of "notes" represented by the UGN, is entitled to recover unpaid interest in this action.

CPLR 3212 provides that summary judgment should be granted where the evidence submitted is sufficient to "warrant the court as a matter of law in directing judgment" in favor of the movant. Once a summary judgment movant makes a prima facie showing in support of its motion, "the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action" (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986] [citing Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). In order to defeat a summary judgment motion, the opposing party is "required to present a material issue of evidentiary fact comprised of more than just mere speculation or conjecture" (Cillo v Resjefal Corp., 16 AD3d 339, 340 [1st Dept 2005] ).

In its original motion, Springwell presented as evidence: 1) a "Repurchase Transaction" receipt showing that Springwell acquired a beneficial interest of $5 million in the notes; 2) the affidavit of John Baxivanos, director of Springwell, stating that Springwell purchased a $5 million interest in the notes in 1998, sold $2 million of the interest on September 15, 2001, and sold another $2 million interest on September 19, 2001; 3) a "Statement of Open Forward Transactions" from Standard Bank of London showing that from January 18, 2001 to May 23, 2005, Springwell owned a $1 million interest in the notes; and 4) the affidavit of Patrick R. G. Chalmers, a Manager of Standard Bank of London, stating that Springwell has held a beneficial interest of $1 million at Standard Bank of London from January 18, 2001 to the present day.

In support of its present motion for summary judgment, plaintiff presents evidence including: 1) the affirmation of Michael M. Fay, sworn to on August 31, 2006; 2) the affidavit of Katerina Heliotis, sworn to on August 29, 2006; and 3) the affidavit of Patrick R.G. Chalmers, sworn to on October 6, 2006. The documents appended to these affidavits contain documentary evidence manifesting Springwell's beneficial interest in the UGN, including communications reflecting Springwell's receipt of interest payments from SanLuis prior to SanLuis' default, as well as bank [*4]statements from SBLL reflecting Springwell's continued interest in the note (Heliotis affidavit, exhibits 6, 7, and 8).

SanLuis's argument that, because Springwell's beneficial interest was previously held under the terms of a repurchase agreement, Springwell never really owned its own beneficial interest, is not persuasive. SanLuis maintains that the banks that Springwell used (Chase and SBLL), and not Springwell itself, were the true owners of the beneficial interest. The court finds that the evidence submitted compels an opposite conclusion. As of May 2006, Springwell held its beneficial interest in the UGN in a custodial account at SBLL (Heliotis affidavit, ¶ 4; exhibit 5; Chalmers reply affidavit, ¶¶ 2, 4). At this point in time, there is no longer a repurchase agreement or "opening forward transaction." Moreover, prior to May 2006, Springwell held its beneficial interest under a repurchase agreement with SBLL solely because SBLL did not, at that time, provide custodial accounts to customers like Springwell. Nevertheless, Springwell was always the party entitled to interest under the UGN and there is no evidence that Springwell sold its interest in the UGN to SBLL (Chalmers reply affidavit, ¶ 3).

Indeed, the purpose of a repurchase (repo) agreement is not to permanently "sell" a security to a bank, but rather, to obtain financing, often for the purchase of the security itself. As defined by Justice Tom:

Generally, repo transactions involve the sale and repurchase of securities for the purpose of obtaining short-term financing at a low rate of interest. The seller who wants to borrow money sells securities (collateral) to a buyer or investor and simultaneously the seller agrees to repurchase the collateral on some fixed future date which is know as the "off date" or "term date." The repurchase terms including the repurchase price are set at the time of the original transactions so that the investor earns a fixed rate of return on his investment ... . Repo transactions are a large part of the United States money market. From the repo trade, money is borrowed by the seller from the temporary sale of securities, and the lender earns a short term rate of interest on the money loaned with little or no credit risk involved

(Garvin GuyButler Corp. v Cowen & Co., 155 Misc 2d 39, 41 [Sup Ct, NY County 1992]).

"A reverse repurchase' agreement is, in essence, a loan transaction in which securities are sold under an agreement to repurchase them at the original purchase price, plus interest, on aspecified date. Thus the securities themselves serve as collateral for the loan" (Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574, 577 [1980]).

It defies common sense to propose that Springwell, which held its beneficial interest under the terms of a repurchase agreement, was holding an empty shell. It is conceded that Springwell, and not its banks, initially received interest from SanLuis at the point in time when SanLuis was paying interest (Heliotis affidavit, ¶ 6; exhibits 6 and 7). The court finds that Springwell has submitted sufficient and unrefuted evidence that: 1) through SBLL, it holds a $1 million beneficial interest in the UGN; and 2) the UGN provides for semi-annual payments of interest at an annual rate of 8.875%.

SanLuis also argues that Springwell cannot sue under the UGN because, under the terms of the note, interest payments can be made only to the DTC or its nominee, Euroclear or Cede & Co. Springwell argues that as a beneficial holder, it still has standing to sue where the obligation to pay [*5]interest arises from the note or bond itself. The First Department has held that the bond and the indenture are two distinct agreements, and furthermore, that "[r]estrictions against suit in an indenture are not effective unless the face of the bond gives adequate notice of the restriction" (Friedman v Airlift Intl., 44 AD2d 459, 460 [1st Dept 1974], citing Cunningham v Pressed Steel Car. Co., 238 App Div 624 [1st Dept 1933], affd 263 NY 671 [1934]). In Friedman, the plaintiff, "owner and holder" of bonds issued by the defendant, brought suit for payment of unpaid interest under the bond. Although the text of the bond contained numerous references to the indenture, including a statement that the interest payable is subject to certain exceptions provided in the indenture, and another reference to the indenture for a description of the rights, limitations of rights, obligations, duties and immunities of the trustee, the company and the holders of the debentures, the court found that neither of those clauses affected the obligation to pay any principal or interest on maturity. The Court held that mere references to the indenture were not adequate notice of restrictions from bringing suit under the bond. The Court stated that the bond is intended to be a negotiable instrument and that any limitation on the obligation to pay at maturity appearing on its face would render it non-negotiable. The Court held that: "As a matter of law the references in the bond to the indenture do not accomplish this" (Friedman v Airlift Intl., supra, at 461). The court found that it was of no significance that the bond was not registered in the name of the plaintiffs, and found that the plaintiffs, as beneficial interest holders, were entitled to interest payments under the bond.

Friedman's holding makes clear that the nominee is merely a mechanism though which interest payments are made. The DTC, Cede and/or Euroclear have no right to any payments under the UGN, but rather, serve the function of distributing interest payments to the beneficial holders of the UGN (Zenizo Affidavit, exhibit C, at 65). The UGN was issued for the express purpose of selling beneficial interests to investors. The DTC, Euroclear and Cede were not, and have never been, investors in SanLuis. In point of fact, they provide perfunctory services which facilitate investing by entities like Springwell. The use of two notes, including the UGN, was simply a mechanism for facilitating investment, and not, as defendant suggests, an effort to ensure that SanLuis had only two debt investors who could never sell their investment. On the contrary, the beneficial interests in the notes could be freely traded through the DTC system.

Finally, SanLuis contends that the provisions of the UGN indenture agreement preclude Springwell's action, as a beneficial owner, to recover unpaid interest. The court rejects this argument. In MacKay Shields v Sea Containers (300 AD2d 165 [1st Dept 2002]), which was decided in the context of a CPLR 3213 motion, the First Department held that beneficial holders of certain notes did not have standing to sue under the relevant indenture agreement. However, the MacKay court, in reliance on Caplan v Unimax Holdings Corp. (188 AD2d 325 [1st Dept 1992]), expressly distinguished the case before it from the action in Friedman, where the plaintiffs sued upon underlying negotiable instruments not upon indentures pursuant to which they were issued, as was the case in MacKay. Thus, in MacKay, the court implicitly recognized that Friedman, like the instant case, was an action for interest on underlying notes and, as such, not subject to any limitations that the indentures may impose upon a right to relief.

In Gryphon Dom. VI, LLC v APP Intl. Fin. Co. B.V. (18 AD3d 286 [1st Dept 2005]), the Court upheld a grant of summary judgment to purchasers of debt who, like Springwell, demonstrated their interests through "account statements":

Plaintiffs submitted sufficient evidence, including account statements from third parties and [*6]affidavits from third parties linking those account statements to the Depository Trust Company (DTC), that they owned Indah Kiat 02 Notes as of the date of the amended complaint. Absent any reason to doubt the third parties' credibility - and defendants have not proffered any - it was not necessary for plaintiffs to obtain documents from DTC and Euroclear [see e.g. Gonzalez v 1251 Americas Assoc., 262 AD2d 210, 211 [1999]. Because plaintiffs' proof included business records, the Indah Kiat 02 judgment was not based wholly on inadmissible hearsay

(18 AD3d at 286).

Here, Springwell has submitted sufficient and unrefuted evidence that, through SBLL, it holds a $1 million beneficial interest in the UGN; that the UGN provides for semi-annual payment of interest at an annual rate of 8.875%; that SanLuis stopped paying interest in September 2001; and that, as of the date of the motion, SanLuis has missed a total of 10 interest payments.

Notably, the UGN is governed by the Trust Indenture Act of 1939 (TIA), which sets forth mandatory statutory standards for investors like Springwell, that cannot be modified by contractual terms. The TIA was enacted because previous abuses by indenture trustees had affected the national public interest and the interest of investors in notes, bonds, and debentures, and Congress sought to address this problem in a uniform way (USC § 77bbb [a]). As courts have made clear, the TIA: 1) sets forth mandatory statutory protections that cannot be modified by contractual terms; and 2) is meant to protect investors, like Springwell (see Bluebird Partner, LP v First Fid. Bank, N.A., 85 F3d 970, 974 [2d Cir 1996] ["The [TIA] is designed to vindicate a federal policy of protecting investors' ... . The interpretation of the indenture provisions mandated by the [TIA] does not depend on ordinary contract principles - the intent of the parties - but depends on an interpretation of the legislation.'"] [citations omitted]; In re Board of Directors of Multicanal S.A., 307 BR 384, 389 [Bankr SD NY 2004] ["[T]he TIA gives rise to Federal statutory rights designed to protect investors"]; Upic & Co. v Kinder-Care Learning Ctrs., Inc., 793 F Supp 448, 452 [SD NY 1992] ["Section 316 (b) of the TIA ... proscribes certain ... majority action clauses' ... . [and] expressly prohibits use of an indenture that permits modification by majority securityholder vote of any core term of the indenture, i.e., one affecting a securityholder's right to receive payment of the principal of or interest on the indenture security ...").

The court in In re Multicanal S.A. (307 BR at 389) stated:

Multicanal also argues that ARC lacks standing to assert rights because the TIA affords protection only to registered holders of bonds issued under a qualified indenture, and ARC is not such a holder. Multicanal asserts, citing MacKay Shields LLC v Sea Containers, Ltd., 300 AD2d 165 [1st Dept 2002], that New York State courts have dismissed suits brought by beneficial holders rather than registered holders. As ARC contends, however, the applicable section of the TIA, § 316 (b), refers to "holders" without qualification, and the Federal courts have permitted beneficial holders to sue to vindicate TIA rights

(In re Multicanal, S.A., supra, 307 BR at 387 n 2).

Pursuant to 15 USC § 77ppp (b), two of the TIA's most important investor protections are the right to interest and principal payment, and to commence an action to recover unpaid interest and [*7]principal. Accordingly, regardless of the language of the UGN or the indenture agreement governing the UGN, Springwell, as a beneficial interest holder of the note represented by the UGN, is entitled to recover unpaid interest in this action.

For all of the foregoing reasons, the court grants summary judgment in plaintiff's favor.

Accordingly, it is hereby

ORDERED that the motion is granted and the Clerk of the Court is directed to enter judgment in favor of plaintiff and against defendant in the amount of $443,750, together with interest as prayed for allowable by law, until the date of entry of judgment, as calculated by the Clerk, and thereafter at the statutory rate, together with costs and disbursements to be taxed by the Clerk upon submission of an appropriate bill of costs; and it is further

ORDERED that defendant's cross motion for summary judgment is denied; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated:_________________________

ENTER:

_________________________

J.S.C.