Barry Schwartz

DEPOSITION OF BARRY S.
SCHWARTZ
Page 1
1 IN THE DISTRICT COURT OF HARRIS COUNTY
2 IN AND FOR THE STATE OF TEXAS
3 ------------------------------x
4 WELLS FARGO BANK MINNESOTA, x
5 N.A., et al., x
6 Plaintiffs x Cause No.
7 v. x 2202-13057
8 MONDONA RAFIZADEH, et al., x
9 Defendants x
10 ------------------------------x
11 AND RELATED COUNTERCLAIM x
12 ------------------------------x
13
14 Videotaped Corporate Deposition of Wells Fargo
15 Bank Minnesota, N.A., by and through its
16 Corporate Designee,
17 BARRY S. SCHWARTZ
18 Columbia, Maryland
19 Monday, January 5, 2004
20 9:12 A.M.
21
22 Job No. 22-27801
23 Pages 1 - 176
24 Reported by: Sharon D. Livingston, CSR-RPR
25 Videotaped by: Larry Newman
LEGALINK-HOUSTON 713-426-0400
DEPOSITION OF BARRY S. SCHWARTZ
Page 2
1 Videotaped Corporate Deposition of Wells
2 Fargo Bank Minnesota, N.A., by and through its
3 Corporate Designee, BARRY S. SCHWARTZ, held at the
4 offices of:
5
6 WELLS FARGO BANK MINNESOTA, N.A.
7 9062 Old Annapolis Road
8 Columbia, Maryland 21045-1951
9 (410) 884-2000
10
11 Pursuant to Notice, Court Order and
12 Agreement, before Sharon D. Livingston, Registered
13 Professional Reporter and Notary Public in and for
14 the State of Maryland.
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1 A P P E A R A N C E S
2
3 ON BEHALF OF THE PLAINTIFFS AND
4 COUNTERDEFENDANTS:
5 PAUL SIMON, ESQUIRE
6 WINSTEAD, SECHREST & MINICK, P.C.
7 2400 Bank One Center
8 910 Travis Street
9 Houston, Texas 77002
10 (713) 650-2663
11
12 ON BEHALF OF THE DEFENDANTS AND
13 COUNTERPLAINTIFFS:
14 MATT E. RUBIN, ESQUIRE
15 WILLIAMS, BIRNBERG & ANDERSON, LLP
16 6671 Southwest Freeway, Suite 303
17 Houston, Texas 77074-2284
18 (713) 981-9595
19
20 Also Present: Schumann Rafizadeh
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1 C O N T E N T S
2 EXAMINATION OF BARRY S. SCHWARTZ PAGE
3 By Mr. Rubin 7
4
5 E X H I B I T S
6 (Attached to Deposition Transcript)
7 WELLS FARGO EXHIBITS PAGE
8 WF-1 Letter 4-8-03 from Simon to Rubin 15
9 WF-2 Consolidated Reports of Condition and 23
10 Income for a Bank with Domestic and
11 Foreign Offices FFIEC 031
12 WF-3 Consolidated Reports of Condition and 24
13 Income for a Bank with Domestic and
14 Foreign Offices FFIEC 031
15 WF-4 Wells Fargo & Company Policy CBKG 800 24
16 Problem Asset Management
17 WF-5 Wells Fargo & Company Annual Report 34
18 2002
19 WF-6 Downloaded pages from Wells Fargo 40
20 website
21 WF-7 Wells Fargo Bank Minnesota, N.A.'s 48
22 Objections and Answers to Defendant
23 Cyrus II Partnership's First
24 Interrogatories and Requests for
25 Production
Page 5
1 C O N T E N T S C O N T I N U E D
2 E X H I B I T S
3 (Attached to Deposition Transcript)
4 WELLS FARGO EXHIBITS PAGE
5 WF-8 Amended Notice to Take Videotaped 81
6 Oral Deposition
7 WF-9 Fitch Ratings Structured Finance 88
8 document
9 WF-10 Merrill Lynch Mortgage Pass-Through 102
10 Certificates Series 1999 C1
11 WF-11 Affidavit of Brian Smith 107
12 WF-12 CMBS Basic Overview 167
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1 P R O C E E D I N G S
2 THE VIDEOGRAPHER: Here begins tape number
3 1 in the deposition of Mr. Barry Schwartz, in the
4 matter of Wells Fargo, et al. versus Rafizadeh, et
5 al., in the District Court of Harris County, Texas,
6 Case Number 2002-13057. Today's date is Monday,
7 January 5th, 2004. The time is 9:12 A.M. The video
8 operator today is Larry Newman, contracted by
9 LegaLink Houston. This video deposition is taking
10 place at 9062 Old Annapolis Road, Columbia, Maryland
11 21045, and was noticed by Matt Rubin, counsel for the
12 defendants.
13 Would counsel please identify themselves
14 and state whom they represent.
15 MR. RUBIN: Yes. My name is Matt Rubin. I
16 represent the defendants, Cyrus II Partnership, Bahar
17 Development and Mondona Rafizadeh, defendants and
18 counterplaintiffs to be precise.
19 MR. SIMON: My name is Paul Simon. I
20 represent Wells Fargo and ORIX, plaintiffs and
21 counterdefendants.
22 THE VIDEOGRAPHER: Our court reporter today
23 is Sharon Livingston, contracted by LegaLink
24 Houston.
25 BARRY S. SCHWARTZ,
Page 7
1 having been duly sworn, testified as follows:
2 EXAMINATION BY COUNSEL FOR
3 DEFENDANTS AND COUNTERPLAINTIFFS
4 BY MR. RUBIN:
5 Q Will you please give us your full name.
6 A Barry Spencer Schwartz.
7 Q Good morning, Mr. Schwartz. My name is
8 Matt Rubin. You and I have just met for the first
9 time about 15 minutes ago here at the offices of
10 Wells Fargo in Columbia, Maryland, and I understand
11 that you are here today as the designated
12 representative to testify on behalf of the plaintiff
13 and counterdefendant, Wells Fargo Bank Minnesota,
14 N.A. Is that your understanding?
15 A Yes.
16 Q All right, sir. Let's go through a few
17 preliminaries before we actually get into the
18 substance of the questioning.
19 First, have you ever given a deposition
20 before?
21 A Yes.
22 Q On about how many occasions?
23 A Two different separate -- two different
24 occasions.
25 Q And was that for Wells Fargo?
Page 8
1 A Yes.
2 Q Can you tell me what kind of cases or
3 circumstances those were in which you gave prior
4 depositions?
5 A I'm not sure what you're asking.
6 Q Were you a corporate representative? Were
7 you involved in a particular loan? Why were you
8 being deposed in those two cases, in other words?
9 A I was in one matter being deposed, there
10 was some issue relating to an individual loan.
11 Another matter, it was litigation relating to some
12 hazard insurance matters on an individual loan.
13 Q Have you ever given testimony in the
14 capacity or the role, if you will, as a designated
15 corporate representative for Wells Fargo Bank?
16 A I honestly don't recall.
17 Q Fair enough. Having been through this a
18 couple of times then, I presume you have at least
19 some understanding of the nature of the deposition
20 proceeding, what it is we're doing here today?
21 A Yes.
22 Q You understand that the videographer is
23 videotaping your testimony, the court reporter is
24 transcribing it, and that this can be used in court
25 in accordance with the Texas rules as though you were
Page 9
1 testifying live?
2 A Yes.
3 Q Do you understand that the oath you have
4 given to the court reporter is exactly the same as
5 the one you would give in court; it carries with it
6 the same obligations of truthfulness and candor and
7 the same penalties of perjury if your testimony is
8 not truthful?
9 A Yes, I understand that.
10 Q I'm not suggesting that it won't be, just
11 that that's the way this proceeding progresses.
12 This is not meant to be an inquisition,
13 any kind of endurance contest. This is a fairly
14 informal setting, and I'll be happy to accommodate
15 any reasonable request you might have. If you need
16 to take a break, get some coffee, use the rest room,
17 whatever, just ask me, and I'm sure we can
18 accommodate. The only exception I would make to that
19 is if I have a question out there, I would like you
20 to answer it before we break. All right?
21 A I understand.
22 Q Good. You're doing very well so far in
23 answering your questions. The court reporter needs a
24 verbal answer; a yes, a no, an explanation, as
25 opposed to a nod or a shake or whatever, because they
Page 10
1 don't have a key that will record that. So if you
2 will make an effort to make your answers verbal, and
3 we'll have a cleaner record that way.
4 A I understand.
5 Q Good. And then finally, all that we're
6 trying to do here is ascertain what you know on
7 behalf of the Wells Fargo entity on certain matters
8 related to this lawsuit. I want this record to be as
9 accurate as possible. To do that, I want to be
10 comfortable that you have understood what it is that
11 I'm asking before you answer any question.
12 So will you agree with me that if there's
13 something you don't understand, you're not
14 comfortable with, you want clarification, you will
15 stop me and ask me to rephrase it?
16 A Yes.
17 Q Can we assume then that any question that
18 you answer today you're comfortable, you understand,
19 and that you're prepared to answer?
20 A Yes.
21 Q Great. All right. Let's go ahead then and
22 get some basic information established.
23 First, do you understand how it is that you
24 came to be selected as the corporate representative
25 to speak on behalf of Wells Fargo Bank today?
Page 11
1 A Yes.
2 Q Please tell me about that.
3 A Well, it has to do with my role in the
4 organization relative to the matter at hand.
5 Q All right. Let's follow up on that then.
6 What is your role in the organization
7 relative to this particular lawsuit and this
8 particular dispute?
9 A I'm responsible for the coordination of the
10 services we provide as trustee for commercial
11 mortgage-backed securities.
12 Q Now, we see in a lot of the documents the
13 initials CMBS. I take it that's the commercial
14 mortgage-backed securities? Is that an acronym for
15 it?
16 A Yes, that's what that acronym stands for,
17 yeah.
18 Q Okay. And what is your actual position or
19 title, Mr. Schwartz?
20 A Vice president.
21 Q Of what?
22 A Well, vice president and client manager of
23 CMBS.
24 Q And for what entity do you actually work?
25 A Wells Fargo Bank Minnesota, N.A.
Page 12
1 Q All right. What is the nature as far as
2 you know it of the organization of Wells Fargo Bank
3 Minnesota, N.A.? What kind of entity is it?
4 A It's a national banking association.
5 Q And we have seen in a number of the
6 documents a reference to Norwest Bank of Minnesota as
7 somehow having been involved both with this loan and
8 with the pool of which this loan is a part.
9 Do you have any understanding of the nature
10 of the relationship if any between Wells Fargo Bank
11 Minnesota, N.A. and the Norwest Bank?
12 MR. SIMON: Objection, form.
13 A Yes.
14 Q What's the connection between the two?
15 A Norwest Bank Minnesota, N.A. changed its
16 name to Wells Fargo Bank Minnesota, N.A. We are in
17 fact the same entity.
18 Q Okay.
19 A We were formerly known as Norwest Bank
20 Minnesota, N.A.
21 Q Very good. That's what I thought, but I
22 wanted to make sure about that.
23 Now, let me ask you something about the
24 capacity or the function of Wells Fargo Bank
25 Minnesota.
Page 13
1 Is there a separate legal entity known as
2 Wells Fargo Bank Minnesota, N.A., trustee, as far as
3 you know?
4 A No.
5 Q Has there ever been a separate legal entity
6 known as Wells Fargo Bank Minnesota, N.A., trustee,
7 as far as you know?
8 A No.
9 Q Would it be fair to say that the trustee
10 designation in the caption of this case and on the
11 documents simply describes a capacity in which Wells
12 Fargo Bank is serving or performing certain
13 functions?
14 A Because I'm not a lawyer, I'm not really
15 sure.
16 Q Give me your best understanding.
18 A I'm not sure that I understand what you're
19 asking. We do provide the service as trustee, and I
20 understand that there's some legal connection in the
21 sense that when we say Wells Fargo Bank Minnesota,
22 N.A. as trustee, it means as trustee on behalf of
23 certain investors, and we're acting in the capacity
24 representing the trust.
25 Q Yes, sir. I understand. I'll object to
Page 14
1 that as nonresponsive.
2 Let's try and get to it this way.
3 You've said there has never been to your
4 knowledge any separate legal entity, Wells Fargo Bank
5 of Minnesota, N.A., trustee, correct?
6 A Yes.
7 Q All right. So we have an entity --
8 Well, does Wells Fargo Bank of Minnesota
9 engage in banking activities other than the type of
10 CMBS securitizations in which you're involved?
11 A Yes.
12 Q What else do they do?
13 A I don't have complete knowledge of
14 everything that Wells Fargo Bank Minnesota, N.A.
15 does.
16 Q Tell me what you do know.
17 A Well, I know that we're a nationally
18 chartered banking association. We provide, I know,
19 retail banking services, and we also provide banking
20 services to commercial customers, and we have a
21 number of fee-based businesses, service businesses,
22 in addition to that.
23 Q Where does the CMBS services, if you
24 will -- is it a division, department? What term
25 would you be comfortable with?
Page 15
1 A Are you referring to the set of my
2 responsibilities?
3 Q I'm trying to find out if there's a
4 separate division, department, organization within
5 Wells Fargo Bank of Minnesota, N.A. that is
6 responsible for or handles the CMBS transactions.
7 Just trying to get an organizational structure sense
8 at this point.
9 A Okay. There's a division known as
10 corporate trust services.
11 Q And is that the division with which you are
12 associated?
13 A That's correct.
14 Q Very good.
15 (Exhibit WF-1 was marked for identification
16 and attached to deposition transcript.)
17 BY MR. RUBIN:
18 Q Mr. Schwartz, let me show you what I've
19 marked as Exhibit WF-1, WF for Wells Fargo. It's an
20 April 8th, or to be precise, a copy of an April 8th,
21 2003 fax to me from Paul Simon.
22 I've got a copy for you, Paul.
23 And if you'll take a look at that, read
24 through it, and I'll have a couple of questions for
25 you.
Page 16
1 A Okay.
2 Q All right. I can tell you the background
3 of this.
4 Well, first, let me ask you have you ever
5 seen this before, this particular letter?
6 A I don't think so.
7 Q The background of it arose from some
8 discovery issues in this case about both parties
9 being ordered by the court to produce certain
10 documents, and in response to the court's order, I
11 received this letter from Mr. Simon purporting to
12 clarify certain issues about who the plaintiff was
13 and what documents the plaintiff had. Mr. Simon
14 says, first, we do not represent and have never
15 represented Wells Fargo Bank Minnesota, N.A. in
16 connection with this litigation.
17 Is that your understanding?
19 A I'm not sure where -- let me find where
20 you're talking about.
21 Q Yes, sir. It's the concluding sentence of
22 the first paragraph.
23 A And what is your question?
24 Q The direct question is does the Winstead
25 firm represent the national banking association of
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1 Wells Fargo Bank Minnesota, N.A. in this case?
2 A Yes.
3 Q So the statement that we do not represent
4 and have never represented Wells Fargo Bank
5 Minnesota, N.A. in connection with this litigation is
6 not accurate --
8 BY MR. RUBIN:
9 Q -- as you understand it?
10 MR. SIMON: Matt, hold on a second.
11 MR. RUBIN: Sure.
12 MR. SIMON: He's answered this question
13 about three different ways. He said the statement is
14 inaccurate. I don't know how much you want to beat
15 him up about this. There's a subsequent letter that
16 clarifies this point.
17 MR. RUBIN: Paul.
18 MR. SIMON: This is about the third
19 question you've asked him on this same subject.
20 MR. RUBIN: Let's make our objections
21 according to the rules. Okay? I understand, but
22 let's just do it the right way.
23 MR. SIMON: Okay. Objection, form. Don't
24 answer it.
25 MR. RUBIN: All right.
Page 18
1 MR. SIMON: I think you have your answer.
2 MR. RUBIN: I understand your point.
3 BY MR. RUBIN:
4 Q Continuing, the April 8th letter says,
5 quote, a representative of the trustee has now
6 advised that, number one, the trust and the bank are
7 separate legal entities, unquote.
8 Is that an accurate or an inaccurate
9 statement that the trust and the bank are separate
10 legal entities?
12 A Well, I'm not a lawyer, as I said before,
13 but Wells Fargo Bank Minnesota is a trustee -- I
14 mean -- I'm sorry -- Wells Fargo Bank Minnesota is a
15 bank, and we do provide trustee services and act as a
16 trustee.
17 Q Right. But the statement as far as you
18 know that the trust and the bank are separate legal
19 entities is simply not correct, is it?
21 A I do understand based upon a letter that I
22 saw, my counsel gave recently, that that's not
23 correct.
24 Q All right. It wasn't correct on April 8th
25 of 2003, was it?
Page 19
1 MR. SIMON: That's the sixth time you've
2 asked this question, Matt. Can we move along?
3 MR. RUBIN: If we want to make our plane,
4 Paul, it would be helpful if I just got the questions
5 and he answered them. I know it's not comfortable,
6 but --
7 MR. SIMON: I don't car.
8 MR. RUBIN: -- my clients have answered
9 plenty of uncomfortable questions too.
10 MR. SIMON: This letter's been clarified.
11 You've asked him about six times whether the trust
12 and the trustee are separate legal entities. He's
13 answered that question. He's not a lawyer. He
14 doesn't know the answer. He's given you the answer
15 that he's given you.
16 MR. RUBIN: But he's here to testify about
17 document production, and this includes the
18 completeness or complete -- the responsiveness of the
19 correct plaintiff to the document production order.
20 MR. SIMON: Fair enough, but the letter
21 that I just sent you last week clarifies this one in
22 sum and substance.
23 MR. RUBIN: Paul, this is not proper, and
24 you know it, on the record to do this.
25 MR. SIMON: Do you want to go off the
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1 record and do it?
2 MR. RUBIN: I know what your letter says,
3 and I'm trying to get an explanation for why for nine
4 months there was this confusion, and I'm entitled to
5 get into it. Okay?
6 MR. SIMON: Just move along.
7 MR. RUBIN: Because as you know, I have
8 taken the position all along that it's preposterous
9 for this entity to claim it's a separate entity, and
10 that apparently is true, and I want to find out how
11 it happened.
12 MR. SIMON: Let's go off the record.
13 MR. RUBIN: Okay.
14 THE VIDEOGRAPHER: The time is 9:29. We'll
15 go off the video record.
16 (Discussion off video and written records.)
17 THE VIDEOGRAPHER: The time is 9:30. We're
18 back on the video record.
19 BY MR. RUBIN:
20 Q Do you know if Wells Fargo Bank -- I'm
21 sorry -- if Norwest Bank of Minnesota ever made
22 commercial loans secured by real property?
23 A Can I clarify something, please?
24 Q Sure.
25 A There's no of in the name of the entity
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1 that I represent. So I just wanted to clarify it's
2 Wells Fargo Bank Minnesota.
3 Q Didn't I refer to Norwest? I'm sorry.
4 A Yeah, I believe you referred to Norwest
5 Bank of Minnesota.
6 Q Is it just Norwest Bank?
7 A It's Norwest Bank Minnesota.
8 Q Thank you for that clarification.
9 A Okay. What is your question? I'm sorry.
10 Q Do you know if Norwest Bank Minnesota ever
11 made commercial loans secured by real estate?
12 A I believe that they have.
13 Q Do you know if Norwest Bank Minnesota had
14 any policies or procedures in place governing the
15 servicing or the administration of such loans?
16 A Yes.
17 Q They did?
18 A Yes.
19 Q Have those been produced in this case?
20 A Yes.
21 Q The entirety of the Norwest policies and
22 procedures have been produced in this case?
23 A I guess I'm confused that you're referring
24 to Norwest. We're the same entity, so it's really
25 one and the same corporate entity. So I don't
Page 22
1 understand the distinction between Wells Fargo and
2 Norwest.
3 Q All right. Let me ask it this way.
4 Is Wells Fargo Bank Minnesota, N.A. subject
5 to the same policies, practices, procedures that are
6 promulgated by the Wells Fargo parent company for the
7 administration and operation of its banks?
8 A I don't know.
9 Q Are there any policies, practices or
10 procedures promulgated by Wells Fargo & Company
11 dealing with loan administration, loan servicing or
12 CMBS servicing?
13 A I don't know.
14 Q Who would know?
15 MR. SIMON: Matt, can you ask the question
16 again? Are you asking has Wells Fargo Bank
17 promulgated such policies?
18 MR. RUBIN: I'm talking about the parent
19 company.
20 MR. SIMON: Right. He's not here on behalf
21 of the parent company.
22 MR. RUBIN: He might know.
23 A Yeah, a representative. In answer to your
24 question, a representative of Wells Fargo Bank &
25 Company, the parent of Wells Fargo Bank Minnesota,
Page 23
1 N.A., would know that, or else people who are
2 involved with Wells Fargo Bank Minnesota, N.A. in the
3 actual administration of commercial mortgage loans
4 would know that.
5 Q So there would be people who are employed
6 by the named plaintiff, Wells Fargo Bank Minnesota,
7 N.A., in commercial loan servicing?
8 MR. SIMON: Objection to form. He didn't
9 say that.
10 A I'd have to clarify that I used the word
11 administration of such loans. As far as I
12 understand, Wells Fargo Bank Minnesota, N.A. does not
13 service commercial mortgage loans.
14 Q Do you have any idea of the volume or face
15 amount of commercial loans that Wells Fargo Bank
16 Minnesota has in its portfolio?
17 A No.
20 BY MR. RUBIN:
21 Q Let me show you what I've marked as Exhibit
22 WF-2. It's a copy of the 12-31, 2002 consolidated
23 report of condition, the FFIEC 031 form.
24 I've got one for you, Paul.
25 MR. SIMON: Thank you.
Page 24
1 MR. RUBIN: Yeah, sure. You're welcome.
2 That's the income statement, and there's a balance
3 sheet.
4 (Exhibits WF-3 and WF-4 were marked for
5 identification and attached to deposition
6 transcript.)
7 BY MR. RUBIN:
8 Q And I'll show you as Wells Fargo 4 a
9 document with the production code in this case WFB
10 001133, something called Problem Asset Management,
11 and let me ask you some questions about those
12 documents.
13 First, do you recognize what WF-2 and WF-3
14 are?
15 A No.
16 Q All right.
17 A I don't believe I've ever seen anything
18 like these documents.
19 Q All right. Well, I'll tell you they came
20 from the SEC website --
21 MR. RUBIN: Was it SEC?
22 MR. RAFIZADEH: Uh-huh.
23 BY MR. RUBIN:
24 Q -- filed on behalf of the entity, Wells
25 Fargo Bank Minnesota, National Association, with FDI
Page 25
1 certificate numbers for the 12-31-02 close of
2 business. Wells Fargo 3, the balance sheet, reflects
3 21 billion, 79 million, 237 thousand dollars in loans
4 and leases held for sale.
5 Do you have any --
6 MR. SIMON: Where are you reading from,
7 Matt?
8 MR. RUBIN: It's Exhibit 3, Schedule RC,
9 line 4A.
10 BY MR. RUBIN:
11 Q Do you see that?
12 A I do see that, yeah.
13 Q Have any reason to doubt that that figure
14 is accurate?
15 MR. SIMON: Objection to form.
16 A I have no knowledge of what goes into that.
17 Q Isn't it part of Wells Fargo's policies to
18 accurately report financial data and information to
19 regulatory agencies?
21 A I don't know all of the bank's policies.
22 Q Let me ask you what you do know about the
23 bank's policies. Is there a --
25 BY MR. RUBIN:
Page 26
1 Q Well, is there some sort of master list of
2 policies or some master policies and procedures
3 manual that's available to Wells Fargo Bank
4 Minnesota, N.A.?
5 A There is a policy manual.
6 Q All right. And tell me what does it look
7 like? What's it called? How big is it?
8 A Couldn't tell you how big it is. I've only
9 ever accessed it electronically. And it's called the
10 policy manual as far as I know.
11 Q How would you access that electronically?
12 A Through internal bank, you know, computer
13 records. I don't know exactly how to say it. It's
14 on our internal network.
15 Q Is it just an icon or a file you click and
16 access into it, something like that?
17 A There's a way to access it in our secure
18 environment.
19 Q All right. Do you know if there's a hard
20 copy that exists any place?
21 A I don't know.
22 Q Do you know how it is categorized or
23 subdivided, different sections, different headings,
24 different topics?
25 A Not off the top of my head. I've looked at
Page 27
1 it briefly, but it's not something that's referred to
2 regularly in the course of my business dealings.
3 Q Is the entire policy manual accessible to
4 you?
5 A I believe so.
6 Q So it's not like you only can access
7 certain portions of it that may be germane to CMBS
8 activities?
9 A That's correct.
10 Q All you have to do is go into it, find the
11 right section, enter whatever security code you need
12 to enter, and you can access it. Would that be
13 correct?
14 A Yeah, that's pretty much it.
15 Q And does this set of policies, policy
16 manual, apply as far as you know to the operations
17 and conduct of the plaintiff, Wells Fargo Bank
18 Minnesota, N.A.?
19 A Yes.
20 MR. SIMON: Excuse me. Objection. Can you
21 clarify what you're asking there? You say does it
22 apply to them?
23 MR. RUBIN: Sure.
24 MR. SIMON: In their role as trustee or in
25 general?
Page 28
1 MR. RUBIN: You know, Paul, that I have a
2 problem with this role of trustee.
3 BY MR. RUBIN:
4 Q I think the witness has answered that this
5 policy manual applies to the -- generally to the
6 operations and activities of Wells Fargo Bank
7 Minnesota, N.A., does it not?
8 A Yes, the policy manual of Wells Fargo Bank
9 Minnesota, N.A. does relate to how we conduct our
10 business certainly. That's why it's there.
11 Q That makes perfect sense.
12 Is there a policy manual or policy set --
13 Let me ask it this way.
14 Is that the only set of policies that apply
15 as far as you know to the conduct and activities of
16 Wells Fargo Bank Minnesota, N.A.?
17 A No.
18 Q What else does?
19 A I believe that individual divisions of the
20 bank have their own policy manuals depending upon
21 their line of business.
22 Q Does your --
23 A We're a very large organization with many
24 lines of business. I'm certainly not familiar with
25 how each of them operate.
Page 29
1 Q Fair enough.
2 Does your corporate trust services division
3 that handles the CMBS transactions have any policies
4 or procedures in existence?
5 A Yes.
6 Q What are those called?
7 A Corporate trust policy manual.
8 Q And to what extent does that deal with CMBS
9 activities, if you can give me a general sense?
10 A Well, I believe it deals with the general
11 activities of a corporate trustee, but I don't
12 believe anything in that manual is specific to the
13 CMBS product.
14 Q Tell me what you know about the general
15 promulgation of policies by Wells Fargo & Company,
16 the parent. You recognize that's the parent entity,
17 right?
18 A Yes.
19 Q Do you know if Wells Fargo & Company has
20 policies that it regards as being applicable to the
21 operations of all subsidiaries?
22 A I don't know the answer to that.
23 Q Have you ever seen any policies that were
24 not specific to Wells Fargo Bank Minnesota, N.A. that
25 apply to that bank's operations?
Page 30
1 A I'm not sure I understand the question.
2 Q I'm trying to find out if there is some
3 sort of master set of policies that would have been
4 distributed or promulgated by the parent that apply
5 to the operations of subsidiaries, including
6 Wells Fargo Minnesota.
7 A I don't know the answer. I just don't know
8 that.
9 Q Who would know that?
10 A I -- somebody -- I don't know who would
11 know that. I'm sure that there are people in
12 Wells Fargo & Company, the parent company, that would
13 know how that's done.
14 Q But as the designated representative of
15 Wells Fargo Minnesota today, you can't say the extent
16 to which the parent's policies are supposed to apply
17 to this subsidiary; is that right?
19 A This subsidiary that you're referring to is
21 Q That's my understanding, sir.
22 A Okay. Yes. Okay. I just wanted to make
23 sure that I understood what we're talking about here.
24 Q Sure.
25 A I do not know at the level of policies that
Page 31
1 are promulgated by the parent company to what extent
2 they apply or don't apply to the individual Wells
3 Fargo Bank Minnesota entity.
4 Q Do you think that Wells Fargo & Company,
5 the parent, is a prudent and reasonable institution?
7 A Yes.
8 Q Do you think that its policies, practices
9 and procedures are prudent and reasonable to the
10 extent that you have any knowledge of what they are?
11 A I did not hear the end of your question.
12 Q Let me ask it again.
13 Would you expect that the commercial
14 lending and servicing practices of Wells Fargo &
15 Company would be reasonable and prudent and in
16 conformity with industry standards?
17 MR. SIMON: Matt?
18 MR. RUBIN: Yes.
19 MR. SIMON: Is this one of the topics on
20 your list here?
21 MR. RUBIN: I think it is, Paul. Let him
22 answer the question, and I'll tell you where it fits
23 in.
24 A I think you're asking me to conjecture, and
25 I'm not sure that that's appropriate in this forum.
Page 32
1 Q Well, sir, the question of the servicing
2 standard and how this loan was supposed to be
3 administered and how any master or special servicer
4 is supposed to administer loans is essential, it's
5 central to this case, in all candor, and I don't mind
6 telling you what I'm trying to find out.
7 Do you think that Wells Fargo, the parent,
8 in its administration of its mortgage servicing
9 portfolio engages in practices that are reasonable,
10 prudent and in conformity with prevailing industry
11 standards?
12 MR. SIMON: Okay. Hold on a second. You
13 said you would let him answer, and then you would
14 tell me how this fits in. I'm not sure where Wells
15 -- where he's here to testify about what Wells Fargo
16 does or whether they're reasonable fits in.
17 MR. RUBIN: It all goes -- it's all part of
18 number 9. It's all part of number 9, the standards
19 to be utilized, employed or complied within the
20 administration or servicing of loans included in the
21 trust.
22 MR. SIMON: Which has nothing to do with
23 whether or not he thinks that they're reasonable and
24 prudent in their administration of a loan.
25 MR. RUBIN: Paul, are you going to let him
Page 33
1 answer it, or are we going to have to go back on
2 this? I mean he can answer the question.
3 MR. SIMON: He's already answered it. He
4 said he doesn't know. Actually he said yes, he
5 thought that they were.
6 BY MR. RUBIN:
7 Q Is that your testimony? You think that
8 the parent company is going to be commercially
9 reasonable in the way it administers loans?
10 A The parent company? I don't know that the
11 parent company administers loans.
12 Q All right.
13 A I mean I believe that you had asked me
14 about whether I believed that the policies of
15 Wells Fargo & Company would be prudent.
16 Q Are you aware, sir, that according to the
17 most recent annual report, that the consolidated
18 Wells Fargo entities distributed, they've got more
19 than 600 billion dollars in mortgage servicing -- or
20 mortgage serviced loans?
21 A I do know that we have a large --
22 MR. SIMON: Are you asking about Wells
23 Fargo Bank again?
24 BY MR. RUBIN:
25 Q Here's the problem.
Page 34
1 Are you aware that the Wells Fargo Banks
2 submit or prepare a consolidated annual report and
3 financial statement?
4 A Yes.
5 Q Okay. We're trying to find out at this
6 stage of the deposition about servicing standards,
7 and we'll get into a lot more detail about that
8 later, I promise you, but to the extent that
9 according -- and I'll mark this as the next exhibit
10 -- according to the December 31, 2002 annual report
11 of the consolidated Wells Fargo companies -- and
12 Paul, I do not have an extra copy of this one.
15 BY MR. RUBIN:
16 Q Mr. Schwartz, I've handed you what's been
17 marked as Wells Fargo 5.
18 Do you recognize this as the 2002 report?
19 A Yes.
20 Q Okay. Fancy printing and all, this is the
21 real deal, right?
22 A I'm not sure what that means.
23 Q It's an authentic copy of the December 2002
24 report for the consolidated Wells Fargo entities?
25 A It appears to be.
Page 35
1 Q All right. Turn with me, if you will, to
2 page 96 of the annual report. It's entitled, Note
3 22: Mortgage Banking Activities.
4 A Okay.
5 Q If you will look with me at the first full
6 paragraph after that table in the left-hand column,
7 it says, quote, the managed mortgage servicing
8 portfolio totaled 613 billion at December 31, 2002,
9 525 billion at December 31, 2001, and 468 billion at
10 December 31, 2000 --
11 A Uh-huh.
12 Q -- and included loans subserviced for
13 others of 36 billion, 63 billion and 85 billion
14 respectively.
15 That's what it says, right?
16 A Yeah. I believe you read it accurately.
17 Q Okay. Thank you.
18 And you have no reason to question the
19 accuracy of those figures, do you?
20 A No.
21 Q All right. So we now see that the
22 consolidated Wells Fargo entities have a mortgage
23 servicing portfolio of more than 600 billion dollars
24 as of the most recent reporting and subservicing of
25 36 billion dollars for others.
Page 36
1 My question is are there any policies,
2 practices or procedures in place as far as you know
3 that govern the administration of that 600 billion
4 dollars in the mortgage servicing portfolio?
6 A I can only conjecture. I don't know of any
7 policies that would relate to servicing mortgage
8 loans.
9 Q Is it really your testimony, sir, that in
10 the entire Wells Fargo organization there's not a
11 single policy that governs, constrains or addresses
12 how 600 billion dollars worth of loans are going to
13 be serviced?
14 MR. SIMON: Don't answer that question.
15 He's not here to talk about the entire Wells Fargo
16 organization, and you know that. The question asked
17 and the argument that we had before Judge Halbach was
18 whether or not he knew the extent to which these
19 policies would apply, and I told you he wouldn't
20 know. Judge Halbach said then he can say that. He's
21 given you that answer. If you don't like it, go back
22 to Judge Halbach.
23 MR. RUBIN: Are you instructing him not to
24 answer?
25 MR. SIMON: He's given you his answer,
Page 37
1 Matt.
2 MR. RUBIN: Well, he didn't answer that
3 question I don't think, unless I missed it. Could we
4 read that back?
5 MR. SIMON: Why don't you read the three
6 questions back from before.
7 MR. RUBIN: Well, now, Paul, look. That's
8 exactly --
9 MR. SIMON: Let's go back off the record,
10 Matt. We're going to close this thing down. Let's
11 go off the record for a second.
12 THE VIDEOGRAPHER: Our time is 9:52. We'll
13 go off the video record.
17 BY MR. RUBIN:
18 Q Mr. Schwartz, we're talking about
19 Wells Fargo and the extent to which any Wells Fargo
20 entities have mortgage servicing rights, obligations,
21 activities.
22 Based upon your years of experience in the
23 banking industry, would you expect that if there's a
24 600 billion dollar portfolio of serviced mortgage
25 loans in Wells Fargo, somewhere in Wells Fargo &
Page 38
1 Company, including the subsidiaries, that somewhere
2 there are policies, practices and procedures
3 addressing the servicing and administration of those
4 loans?
6 A I believe you asked me if I would expect
7 something. That seems to call for conjecture.
8 Do you want me to do that?
9 Q I'm not going to argue with you, sir.
10 Wouldn't it be reasonable to expect that if
11 there's a 600 billion dollar mortgage servicing
12 portfolio, that there are policies, practices and
13 procedures in place that govern the administration of
14 that portfolio?
16 A I'm not in a position to determine what
17 would be reasonable or not. I can certainly tell you
18 what I factually understand.
19 Q Can you tell me it would be commercially
20 reasonable and prudent in your years of experience in
21 the banking industry to have a 600 billion dollar
22 portfolio that has absolutely no policies, practices
23 or procedures in place governing its administration?
25 A I'm not sure that I know how to answer that
Page 39
1 question other than to conjecture.
2 Are you asking me to use my judgment and
3 give you an opinion? Because that's what it sounds
4 like.
5 MR. SIMON: He's asking you for an expert
6 answer.
7 BY MR. RUBIN:
8 Q No, no. What I'm asking you to do is just
9 tell us if Wells Fargo & Company has got 600 billion
10 dollars in loans, that there's some sort of policy
11 manual out there some place that tells the
12 administrators what they're supposed to do to service
13 it.
14 MR. SIMON: And that's not on your list of
15 questions to answer.
16 A I don't have firsthand knowledge. I don't
17 know.
18 Q Do you have any opinion as to whether it's
19 likely that there is such a policy manual?
20 MR. SIMON: Objection, form. Don't answer
21 it. You're asking him for opinion testimony.
22 MR. RUBIN: No, Paul.
23 MR. SIMON: You're asking him for Wells
24 Fargo.
25 MR. RUBIN: I'm trying to find out why it
Page 40
1 is that Wells Fargo is so petrified to let me find
2 out what their loan administration servicing
3 standards are because they won't give them to me.
4 MR. SIMON: Take Wells Fargo's deposition,
5 but don't take Wells Fargo Bank Minnesota's
6 deposition and ask them what Wells Fargo Bank does or
7 doesn't do.
8 MR. RAFIZADEH: They're one and the same.
9 MR. RUBIN: Hold on, Schumann. All right.
10 Let me approach it this way.
11 BY MR. RUBIN:
12 Q On the database that you can access that
13 you've told us about, can you access the policies,
14 practices and procedures of any other Wells Fargo
15 entity?
16 A I never tried.
17 Q So you don't know?
18 A No, I don't know.
21 BY MR. RUBIN:
22 Q Let me show you, Mr. Schwartz, some pages
23 that I have downloaded from the Wells Fargo internet
24 site on January 3rd, 2004. I'll call this
25 Wells Fargo 6.
Page 41
1 Paul, here's a set for you.
2 And specifically this is from the website
3 WWW dot Wells Fargo dot com, the tab about, subtab
4 corporate, and then subtab code of ethics and
5 business conduct.
6 Have you ever had occasion to read the
7 Wells Fargo code of ethics and business conduct?
8 A Yes.
9 Q And we see on the first page of Exhibit
10 Wells Fargo 6, footnote number 1, the references to
11 Wells Fargo, it says, quote, Wells Fargo expects its
12 team members to adhere to the highest possible
13 standards of ethics and business conduct with
14 customers, team members, stockholders and the
15 communities it serves, and to comply with all
16 applicable laws, rules and regulations that govern
17 our businesses.
18 And the footnote we see at the bottom says,
19 quote, Wells Fargo or Wells Fargo companies as used
20 throughout this code means Wells Fargo & Company and
21 each of its subsidiaries and affiliates, doesn't it?
22 A That's what it says, yes.
23 Q Do you understand that to mean that Wells
24 Fargo Bank Minnesota, as a Wells Fargo & Company
25 subsidiary, is expected to comply with the provisions
Page 42
1 of this code of ethics and business conduct?
2 A Yes.
3 Q And is to adhere to the highest possible
4 standards of ethics and business conduct?
5 A Yes.
6 Q Would that include the highest possible
7 standards of servicing of commercial mortgage-backed
8 securitized loans?
9 A I don't know how to answer that question.
10 Wells Fargo Bank Minnesota does not service
11 commercial -- securitized commercial mortgage-backed
12 loans, so --
13 Q Would you expect the servicer of any loan
14 pool that Wells Fargo Bank is the trustee on to
15 adhere to the highest possible standards of ethics
16 and business conduct then?
17 A I have no reason to expect their actions in
18 that regard one way or the other. I think you're
19 referring to an entity outside of Wells Fargo?
20 Q Is it your testimony then, sir, that
21 Wells Fargo has no expectation -- and by that, I mean
22 Wells Fargo Bank Minnesota, N.A. -- has no
23 expectation at all as to how its master and special
24 servicer are supposed to conduct themselves?
25 A You used the phrase our master and special
Page 43
1 servicer, and I think that's probably an
2 inappropriate reference. The master and special
3 servicer of commercial mortgage-backed securities
4 transactions serve the investors -- the trust and the
5 investors that own the interests in that trust. They
6 do not serve Wells Fargo Bank Minnesota.
7 Q Objection, nonresponsive. If there was
8 any lack of clarity in the question, I apologize.
9 I'll try it again.
10 Does Wells Fargo Bank Minnesota, N.A. have
11 any expectation at all as to what standard the master
12 or special servicer is to comply with in performing
13 its services in a CMBS pool?
14 A Yes.
15 Q And what is that expectation?
16 A That they will comply with the provisions
17 of the pooling and servicing agreement.
18 Q All right. Take a look then, if you will,
19 with me at that stack of the ORIX exhibits in front
20 of you, that bound book.
21 A Yeah.
22 Q In there -- no, no, no, sir. That one.
23 A Yeah. I'm just moving the other papers
24 aside for a moment.
25 Q Gotcha. It does get kind of confusing,
Page 44
1 doesn't it.
2 A Well, not confusing, just a little messy.
3 Q I stand correct. Exhibit 2 is the one I'm
4 interested in, and that is in fact something that's
5 been identified with the OCM 007562 document stamp as
6 the pooling and servicing agreement for this
7 particular pool of loans of which my client's loan is
8 a constituent part.
9 Do you happen to recognize the Series 1991
10 reference as being this particular pool?
11 A Yeah, I believe that's the pool that this
12 loan is part of.
13 Q Let me ask you something.
14 Do you know anything at all about the
15 Arlington Apartments loans involved in this lawsuit?
16 A Yes.
17 Q Tell me what you know.
18 MR. SIMON: Wait a minute. Don't answer
19 that question to the extent it calls for the
20 communications that we've had.
21 MR. RUBIN: That's appropriate of course.
22 A Well, is it appropriate to discuss what
23 I've read in the -- I mean anything that I know I
24 read in documents that I read in preparation for this
25 deposition, documents that you would have copies of.
Page 45
1 So I could try to recite what I recall from those
2 documents if that's what you're asking.
3 Q Well, tell you what. Let's sidetrack here
4 for just a minute. I should have asked you this
5 before.
6 Tell me, if you would, what you did to
7 prepare for this deposition. Now, don't relate any
8 conversations with counsel. That's none of my
9 business. But in terms of what you reviewed, what
10 you did, please walk me through that.
11 A Okay. I asked a member of my staff to
12 review the trust file for any documents that we had
13 that related to the loan in question. I gave him
14 examples of what would be appropriate documents, and
15 he provided me copies of any such documents we had in
16 our trust file.
17 Q What was that, your colleague's name, your
18 assistant's name?
19 A His name is Greg Drake.
20 Q Okay. Who is Brian Smith?
21 A Brian Smith is an employee of Wells Fargo
22 Bank Minnesota.
23 Q What's his position?
24 A Currently he works in a different
25 department than the CMBS department.
Page 46
1 Q Okay. Is he still employed up here in
2 Maryland?
3 A Yes.
4 Q What was his position with CMBS if you
5 know?
6 A Yes. He was a direct report of mine as a
7 title of supervisor or operations manager 3.
8 Q Okay. We'll go back to Mr. Smith in just a
9 minute, but continue, if you would. Tell me what you
10 did to prepare for the deposition.
11 A Okay. So I familiarized myself with the
12 documents that were presented to me by Greg Drake.
13 In addition, I sought to determine the nature and
14 extent of commercial mortgage lending that is done by
15 Wells Fargo Bank Minnesota, N.A., and I read the
16 petition, and I reviewed other documents that were
17 part of the actual litigation, Wells Fargo's
18 responses to various discovery items.
19 Q All right. Anything else?
20 A Not that I recall.
21 Q Can you tell me with any greater
22 specificity what discovery responses or what
23 documents you would have reviewed?
24 A Well, I don't remember the exact list.
25 There were a few documents that our legal firm had, I
Page 47
1 guess, presented in response to requests for
2 interrogatory answers and requests for production of
3 documents.
4 MR. SIMON: I can tell you, Matt, what
5 those are if you'd like. It has to do with this
6 letter. It's the request for productions that we
7 amended pursuant to the court order dated circa March
8 28, 2003 --
9 MR. RUBIN: Okay.
10 MR. SIMON: -- as well as the original
11 requests thereto.
12 BY MR. RUBIN:
13 Q All right. In that context, if you would,
14 please, take a look with me at this ORIX Exhibit 2,
15 which is the pooling and servicing agreement in that
16 file in front of you, or that binder, to be precise.
17 At page 53, article 3 is entitled, Administration and
18 Servicing of the Trust Fund.
19 Did you happen to read any parts of the
20 pooling and servicing agreement in preparing for your
21 deposition?
22 A No.
23 Q So as you sit here today, you really know
24 nothing about the applicable standard for the
25 servicing of this loan?
Page 48
2 A I don't think that's a correct statement.
3 Q All right. What do you know about the
4 standard that was to be applied in the servicing of
5 this loan?
6 A I know that there was -- I believe there
7 was an excerpt from the pooling and servicing
8 agreement that was in one of the -- I guess it was an
9 interrogatory that came from defendants that was an
10 excerpt that was, I believe, from this section
11 talking about the responsibilities of the servicer or
12 the standards of the servicer.
13 Q I think I know what you're talking about,
14 but let's go ahead and mark it just to make sure.
17 BY MR. RUBIN:
18 Q I'll show you Exhibit Wells Fargo Number
19 7 --
20 MR. RUBIN: Do you need this, Paul?
21 MR. SIMON: No.
22 BY MR. RUBIN:
23 Q -- which is a copy of the answers and
24 objections of Wells Fargo Bank Minnesota, N.A. to the
25 interrogatories and document requests of defendant
Page 49
1 Cyrus II Partnership. And there is a request for
2 production number 4 dealing with the servicing
3 standard.
4 Is that what you're talking about --
5 A Yeah.
6 Q -- at page 6?
7 A That's exactly the paragraph I was
8 referring to, yes.
9 Q All right. Now, looking either at that or
10 at the servicing -- the pooling and servicing
11 agreement itself, Section 3.01 A of the pooling and
12 servicing agreement --
13 And by the way, what's your understanding
14 of the function of the pooling and servicing
15 agreement as between the trustee and the servicer?
16 What's it supposed to do?
17 A It serves to govern the services that are
18 provided to or on behalf of the trust. It enumerates
19 certain duties that are the servicer's duties and
20 certain duties that are the trustee's duties. There
21 are certainly other parties that have obligations in
22 there as well.
23 Q Sure.
24 Would you agree with me that to the extent
25 there's a servicing standard set forth in the pooling
Page 50
1 and servicing agreement, that's the standard that
2 ORIX, as master and special servicer, is supposed to
3 meet?
5 A Generally, yes. Specifically I'm not
6 intimately familiar with every aspect of this pooling
7 and servicing agreement.
8 Q Did you even read it before the deposition
9 today?
10 A No. I already testified that I did not.
11 Q Okay. I just wasn't sure.
12 Does Wells Fargo as the -- and that's Wells
13 Fargo Bank Minnesota -- as the trustee for this
14 particular pool, which I believe is, in round
15 numbers, 530 million dollars worth of loans, ever
16 review or evaluate the actions or conduct of its --
17 of ORIX as its master or special servicer?
18 A Can you clarify the question? I believe
19 you said does Wells Fargo ever, and I'm not sure what
20 that means.
21 Q Okay. I'm just trying to find out if
22 Wells Fargo, as the trustee of this pool, this trust,
23 ever has occasion to review or evaluate the actions
24 or conduct of ORIX that are taken on its behalf as
25 the master or the special servicer.
Page 51
1 MR. SIMON: Are you asking did they or
2 could they?
3 BY MR. RUBIN:
4 Q I'm asking actually both. Could they is a
5 legal conclusion in the documents. I'm asking if you
6 ever actually did.
7 A Okay. No, no, we have not. Well, wait a
8 minute. There was part of your question that I think
9 was inaccurate, something referring to ORIX acting on
10 Wells Fargo's behalf. Wells Fargo acts on behalf of
11 the trust. I'm sorry. ORIX acts on behalf of the
12 trust. I misspoke when I just said Wells Fargo.
13 Although it's true, that's not what I meant to say.
14 Q So does Wells -- do I understand then that
15 Wells Fargo simply accepts whatever it is that ORIX
16 does and never questions, disagrees, reviews,
17 criticizes --
19 BY MR. RUBIN:
20 Q -- ever?
21 A Are you asking if we have ever reviewed
22 ORIX's actions relative to performing their services
23 under this trust?
24 Q Yes.
25 A And I can say no.
Page 52
1 Q Why not?
2 A Because it's not our duty to do so.
3 Q So whatever they do you just accept; is
4 that right?
6 A We have no duty to oversee them.
7 Q Does it make any difference to Wells Fargo
8 what they do on behalf of the trust in administering
9 these loans?
10 A Can you clarify that? What do you mean by
11 make a difference to Wells Fargo?
12 Q Well, let me ask it specifically.
13 Does Wells Fargo Bank Minnesota, N.A.
14 expect ORIX to comply with the servicing standards
15 set forth in Section 3.01 of the servicing and
16 pooling agreement?
17 A Yes.
18 Q All right. Let's look specifically at some
19 language in that section then, and that's
20 specifically subsection A where the master and
21 special servicer are required to use the same care,
22 skill, prudence and diligence with which the master
23 servicer or special servicer, as the case may be,
24 services and administers similar mortgage loans for
25 other third party portfolios giving due consideration
Page 53
1 to the customary and usual standards of practice of
2 prudent institutional, commercial, multifamily and
3 manufactured housing mortgage lenders servicing their
4 own mortgage loans. That's number 1. I'll ask you
5 about number 2 in a second.
6 Now, would you think that Wells Fargo &
7 Company is a prudent institutional, commercial,
8 multifamily or manufactured housing mortgage lender,
9 the Wells Fargo entities?
10 MR. SIMON: I'm sorry. Could you repeat
11 your question? I didn't hear your question, Matt.
12 A You said something at the end about
13 Wells Fargo entities?
14 Q I'll try it again. This is something I'd
15 asked you earlier, and I think I got kind of a
16 partial answer. I'll try to get a more specific
17 answer in the context of the servicing standard.
18 Do you believe that Wells Fargo & Company
19 is a prudent institutional, commercial, multifamily
20 and manufactured housing mortgage lender?
22 A You're asking about the parent company?
23 Q To the extent that as the code of ethics
24 and business conduct defines Wells Fargo to mean
25 Wells Fargo & Company and its subsidiaries or
Page 54
1 affiliates, do you think that they are commercial --
2 excuse me -- prudent commercial lenders, mortgage
3 lenders?
4 A I don't know what the code of ethics has to
5 do with our prudency or with my parent's prudency as
6 a commercial mortgage lender.
7 Q Do you think it's a prudent mortgage lender
8 or not, or do you have any opinion either way?
9 A What entity are you referring to?
10 Q Wells Fargo & Company.
11 A I don't have an opinion about Wells Fargo &
12 Company in that sense.
13 Q All right. Do you have any opinion as to
14 what the customary and usual standards of practice of
17 own mortgage loans would be as set forth here in
18 paragraph -- Section 3.01 A of the pooling and
19 servicing agreement?
20 MR. SIMON: Objection to form. Are you
21 really asking for what his opinion is, or do you want
22 him to testify as to what factual knowledge he has?
23 MR. RUBIN: I'm asking him to testify as
24 the designated representative of the plaintiff on
25 that specific subject, and that one is -- I'll mark
Page 55
1 this in just a minute, but that one is specifically
2 here.
3 MR. SIMON: You're asking him for his
4 opinion is my question. Your question said do you
5 have an opinion? And I don't think he's here to
6 offer any opinion testimony.
7 MR. RUBIN: Paul, come on. This is getting
8 silly. I think he understands what I want.
9 MR. SIMON: If you're asking for fact-based
10 answers, you can go ahead and answer it. Don't give
11 him your opinion.
12 A I can say that I believe that Wells Fargo
13 Bank Minnesota is prudent in all of its lending
14 activities.
15 Q Objection, nonresponsive. This is
16 something I couldn't get a straight answer from ORIX
17 either on this. I'm trying to find out what does
18 Wells Fargo Bank Minnesota, N.A. regard as the,
19 quote, customary and usual standards of practice of a
22 own mortgage loans? What is that?
23 MR. SIMON: Objection to the side bar at
24 the beginning of your question.
25 A Now I'm confused. Wells Fargo Bank
Page 56
1 Minnesota, N.A. does not service commercial mortgage
2 loans on behalf of third parties.
3 Q Objection, nonresponsive. I understand
4 that, but that's not what this says. Now, I'm trying
5 to find out -- let me ask it this way.
6 Would the trustee, Wells Fargo Bank
7 Minnesota, expect ORIX to comply with the same
8 standards that would be applicable to mortgage loans
9 that were made or serviced by any other Wells Fargo
10 entity?
11 A Not specifically.
12 Q Then, sir, what --
13 A Only to the extent that they are part of
14 the broad discussion in this sentence.
15 Q What is -- I'm going to keep asking this
16 till I get an answer. This servicing standard
17 requires the servicer to give due consideration to
18 the customary and usual standards of practice of
21 own mortgage loans, not third party servicing, but
22 their own.
23 No one from ORIX would tell me what the
24 customary and usual standards were, and I want to
25 find out if the plaintiff, Wells Fargo Bank
Page 57
1 Minnesota, has any idea as to what the customary and
2 usual standards of practice of prudent institutional,
3 commercial, multifamily and manufactured housing
4 mortgage lenders servicing their own mortgage loans
5 are. What is that standard?
6 MR. SIMON: I'll object to the side bar
7 portion, the argumentative portion of your question,
8 Matt. And you're not going to keep asking him this
9 question until you get the answer you want. You can
10 ask him until he gives you an answer.
11 MR. RUBIN: No. I will ask him till he
12 gives me a responsive answer, Paul. ORIX pulled the
13 same nonsense. They wouldn't give me an answer. And
14 he is here to testify on subject --
15 MR. SIMON: I know what subject it is.
16 MR. RUBIN: -- number 9 -- number 8 and
17 number 9. And I'm going to get an answer.
18 MR. SIMON: And Judge Halbach said a
19 perfectly acceptable answer would be I don't know.
20 MR. RUBIN: Not on this one. No, he
21 didn't.
22 MR. SIMON: Yes, he did. Because Wells
23 Fargo Bank Minnesota doesn't service this stuff. He
24 said they can give you that answer. If he knows it,
25 he can answer it, but you can't get blood from a
Page 58
1 turnip, Matt.
2 MR. RUBIN: No. I need to get someone
3 who's educated and can respond because someone is
4 going to tell me what this means. ORIX pulled a
5 bunch of nonsense and wouldn't do it. I'm going to
6 find out what Wells Fargo's position is.
7 BY MR. RUBIN:
8 Q Now, we've had our little argument on the
9 record. Do you even remember the question at this
10 point?
11 A No. Please ask it again.
12 MR. RUBIN: Would you read it back, please.
13 (Record read by reporter.)
14 A Yes, Wells Fargo Bank Minnesota has some
15 ideas, but that's kind of a broad question. I'm not
16 quite sure, when you say any idea, what that means.
17 Q Sir, what I'm trying to find out, there is
18 a reference in the pooling and servicing agreement to
19 which Wells Fargo Bank Minnesota, N.A. is a party --
20 A Yes.
21 Q -- that you have admitted or you've
22 acknowledged is to govern the standard by which
23 ORIX's conduct is to be measured, right, in the
24 servicing of the loans?
25 A I believe that that's what that section of
Page 59
1 the PSA is intended to do, yes.
2 Q Exactly. And it imposes upon ORIX, as the
3 master and special servicer, the obligation to give
4 due consideration to the customary and usual
5 standards of practice of prudent institutional,
7 mortgage lenders servicing their own mortgage loans.
8 I presume this language means something in
9 this pooling and servicing agreement, does it not?
10 A I can make the same presumption.
11 Q Good. We finally agree on something.
12 Let me ask, first, do you have any position
13 either way as to whether Wells Fargo & Company abides
14 by or complies with customary and usual standards of
15 practice of prudent institutional or commercial
16 housing -- I'm sorry -- mortgage lenders?
17 MR. SIMON: You're now asking about the
18 parent?
19 MR. RUBIN: I'm getting there indirectly,
20 yes.
21 A Yeah. I don't know about the parent.
22 Q What about any of the subsidiaries?
23 A I can only speak to what -- I mean I can
24 tell you what the corporate trust services division's
25 perspective on this might be.
Page 60
1 Q But not the entire bank, Wells Fargo Bank
2 Minnesota, N.A., correct, because you just don't
3 know?
5 BY MR. RUBIN:
6 Q Isn't that true, Mr. Schwartz? You just
7 don't know?
8 A I'm afraid I'm a little lost. I don't
9 really understand the exact question because there
10 are so many commas in the sentence that you keep
11 reading, that it gets a little confusing.
12 Could you narrow it down to a more direct
13 statement?
14 Q I'll get there eventually.
15 A I'm honestly trying to be responsive to
16 your questions --
17 Q Fine. Here's my question.
18 A -- but I just don't understand.
19 Q Here's my question.
20 What is the customary and usual standard of
21 practice of a prudent institutional, commercial,
22 multifamily or manufactured housing mortgage lender
23 servicing their own mortgage loans with which ORIX
24 was supposed to comply in administering this pool?
25 What is the standard?
Page 61
1 A I don't know.
2 MR. SIMON: Are you asking like -- can we
3 go off the record again?
4 MR. RUBIN: No.
5 MR. SIMON: Okay. Let me ask you a
6 question. Are you asking what is the term for the
7 standard? I mean you really want him to say what all
8 the policies and procedures? The standard is such --
9 MR. RUBIN: Yeah, I want the policies and
10 procedures that Wells Fargo won't give me. I've been
11 trying to get them for two years. That's what I want.
12 MR. SIMON: This is an industry policy,
13 Matt.
14 BY MR. RUBIN:
15 Q All right. So you don't know what those
16 standards are.
17 A If I could clarify something.
18 Q Sure. Try. Go right ahead.
19 A This clause 1 refers to servicing and
20 administration of similar mortgage loans for other
21 third party portfolios. Wells Fargo Bank Minnesota
22 does not service commercial mortgage loans for third
23 party portfolios.
24 Q Well, sir, I hate to argue with you, but
25 you're wrong. That's not what it says. It says that
Page 62
1 the master servicer or special servicer is governed
2 to that extent to which it administers similar
3 mortgage loans for other third party portfolios and
4 then continues, giving due consideration to the
5 customary and usual standards that prudent
6 institutional and commercial lenders employ servicing
7 their own mortgage loans. So as I read it, it
8 incorporates --
9 A Okay.
10 Q -- whatever they do internally into a third
11 party servicing standard.
12 A Okay.
13 Q Isn't that what it says?
14 A That makes sense to me.
15 Q Okay. And really, sir, I hate to argue
16 with you, but all I'm trying to find out is how does
17 Wells Fargo do it? How do the Wells Fargo Banks
18 administer their own mortgage loans?
19 A Okay. I can answer that question first. I
20 believe we gave a document that was responsive to
21 that, which was the policy document you presented
22 back to me.
23 THE WITNESS: Paul, can you help me? What
24 exhibit number?
25 MR. SIMON: Number 4 I believe.
Page 63
1 A Yes, Exhibit Number 4 in this deposition.
2 That document answers your question.
3 Q And this is what we have, this policy
4 entitled, Problem Asset Management?
5 A Right. That's the --
6 Q That's WFB 001133?
7 A That's the only policy that I'm aware of
8 that Wells Fargo Bank Minnesota uses in the
9 administration of commercial mortgage loans for our
10 own portfolio, and I can say to the best of my
11 knowledge that is the only policy that governs that
12 conduct.
13 Q Is that within Wells Fargo Bank Minnesota
14 or any of the other Wells Fargo entities that engage
15 in commercial lending? Because what you've said is
16 that Wells Fargo Bank Minnesota doesn't engage in
17 this kind of commercial lending.
18 A I did not say that actually. What I said
19 was we don't service commercial mortgage loans for
20 third party portfolios.
21 Q Does Wells Fargo Bank Minnesota engage in
22 commercial lending with real estate as security?
23 A Yes.
24 Q Are there other portions of the policy and
25 procedures manual that deal with the administration
Page 64
1 or the handling of those types of loans?
2 A Not directly. This I believe is the most
3 responsive document to your question. This is the
4 only corporate governance guidance, if you will, that
5 directs how Wells Fargo Bank Minnesota will
6 administer a commercial mortgage loan for its own
7 portfolio.
8 Q Well, sir, now I see at the bottom of
9 Exhibit 4 that it is promulgated by Wells Fargo &
10 Company, correct? That's what the little --
11 A It says Wells Fargo & Company at the
12 bottom.
13 Q Right. And this came from the corporate
14 level, didn't it? It was prepared by and
15 disseminated by Wells Fargo & Company to the
16 subsidiaries, was it not?
17 A This was directly taken from the
18 Wells Fargo Bank Minnesota policy manual.
19 Q Did you all write it, or did Wells Fargo &
20 Company write it?
21 A I'm sorry. What was your question?
22 Q Who authored it?
23 A Who authored it? I don't know.
24 Q And do you know whether Wells Fargo &
25 Company as we see here at the bottom of Exhibit 4 has
Page 65
1 any other policies, practices or procedures that deal
2 with the customary or usual standards of practice in
3 how it, the Wells Fargo companies, service their own
4 mortgage loans?
6 A I don't know.
7 Q Okay. That one I can live with.
8 Now, this one says policy effective 1-1,
9 2004, which is nice, but not the relevant time frame
10 for this particular litigation.
11 MR. SIMON: Objection.
12 BY MR. RUBIN:
13 Q Is there any way to access the earlier
14 versions of this particular policy?
15 A Not that I know of.
16 Q Did you make any effort to do so?
17 A No, but I do believe that this policy is
18 currently in effect notwithstanding the date at the
19 bottom of this document. I directly took it from the
20 policy manual that's our current corporate guidance.
21 Q Yes, I understand that.
22 A And I have reason to believe that there was
23 no predecessor policy that was more encompassing or
24 materially different than this.
25 Q Really. Do you remember what the prior
Page 66
1 policy said?
2 A No.
3 Q Because it does say policy replaces 11-24,
4 2003, right?
5 A I don't see where that reference is.
6 Q If you look at the initial column under
7 Problem Asset Management, it specifically says policy
8 replaces 11-24, 2003.
9 A Yeah, I see where it says that.
10 Q Okay. And you have no recollection I trust
11 of what the 11-24, 2003 policy manual said?
12 A I would say that I have no knowledge of
13 that. I only recently obtained this knowledge.
14 Q All right. Let me go back to where I was
15 before. Can you tell me what are the customary and
18 mortgage lenders servicing their own mortgage loans?
20 A Beyond this policy document, no.
21 Q Have you personally ever been involved in
22 servicing mortgage loans?
23 A No.
24 Q So you really wouldn't know what the
25 standards were, would you?
Page 67
2 A What do you mean I wouldn't know? I
3 already testified that I don't know.
4 Q Okay. Does anyone on behalf of Wells Fargo
5 Bank Minnesota, N.A. know what the customary and
8 mortgage lenders servicing their own mortgage loans
9 would be?
10 A I don't think that any one person in any
11 one entity would know that. This is referring to a
12 collective industry standard that is not written down
13 anywhere. It's a general guideline that's used to
14 direct the servicer in terms of what standard they
15 need to follow.
16 Q All right. And are you prepared to testify
17 today as to what that standard is?
18 A No.
19 MR. SIMON: He's already answered that
20 question.
21 A I told you that neither I nor I believe
22 anybody else as an individual would know that entire
23 standard or could even recite it.
24 Q Then why is this language even in the
25 pooling and servicing agreement then?
Page 68
2 A I can't speak to why the lawyers that put
3 this document together felt that this was a necessary
4 component. I can only conjecture or guess as to
5 that.
6 Q Would you expect ORIX to deal with
7 borrowers on these mortgage loans in a manner
8 materially different from the way Wells Fargo
9 would -- any Wells Fargo entity that you know of that
10 makes these type of commercial loans -- would deal
11 with them in the same or similar circumstances?
13 A Can you repeat the question?
14 MR. RUBIN: Read that back, please.
16 A I don't know.
17 Q And why don't you know?
19 A Because I don't know the industry standard
20 as a whole concept. It's a theory.
21 Q Is it meaningless?
22 A I don't believe it's meaningless. I just
23 believe that I cannot individually define it.
24 Q Would you be comfortable with the notion
25 that if there is a set of policies that Wells Fargo &
Page 69
1 Company promulgates dealing with the servicing of its
2 mortgage loans, that that would be something that
3 would reflect or could reflect customary and usual
4 standards of practice?
6 A It could be part of that broad industry
7 knowledge --
8 Q Okay.
9 A -- that I referred to.
10 Q I mean Wells Fargo's a big bank, isn't it?
11 A It's a matter of perspective.
12 Q Isn't it like the number three in the
13 country, number three or number four? I mean the
14 parent company, Wells Fargo & Company. It's
15 certainly in the top ten, isn't it?
16 A Top ten of what? I mean are you asking me
17 a question? I'm just not sure what you're asking.
18 Q Okay. All right. It's part of the website
19 stuff. I'll talk to you about it later. Let me ask
20 it this way, Mr. Schwartz.
21 Do you have any reason to believe that in
22 any of its mortgage servicing activities, Wells Fargo
23 & Company departs from the customary and usual
24 standards of practice of prudent institutional or
25 commercial mortgage lenders servicing its own
Page 70
1 mortgage loans?
2 MR. SIMON: Which Wells Fargo entity?
3 MR. RUBIN: It says Wells Fargo & Company.
4 I'm talking about the entity that promulgated this
5 Wells Fargo Exhibit 4.
6 A And I believe I testified that
7 notwithstanding the note at the bottom of the page
8 that says Wells Fargo & Company, that this document
9 was taken from the Wells Fargo Bank Minnesota, N.A.'s
10 policy manual.
11 MR. RUBIN: That's not responsive.
12 Objection. Would you read the question back, please.
15 A I don't know. I don't know what all
16 Wells Fargo & Company does.
17 Q Well, let's take a look then back at
18 Exhibit 6, if you would, the web pages that I printed
19 off from the Wells Fargo site. The second page of
20 the exhibit, its section Roman Numeral II, Serve
21 Wells Fargo's Best Interests, talks about Wells Fargo
22 being committed to compliance with laws, rules,
23 regulations, states, localities, federal government,
24 and it says, quote, as a team member you're expected
25 to support this commitment by, colon, first, being
Page 71
1 knowledgeable about your job, second, conducting all
2 aspects of Wells Fargo's business in an honest,
3 ethical and legal manner, and in accordance with
4 federal laws, rules and regulations and the
5 applicable laws, rules and regulations of all
6 localities and states where Wells Fargo does
7 business, and third, complying with Wells Fargo's
8 policies and procedures, right?
9 A I believe you read that accurately.
10 Q Is that your understanding of what
11 Wells Fargo employees are supposed to do, comply with
12 all of Wells Fargo's policies and procedures as it
13 says in the code, Wells Fargo & Company and each of
14 its subsidiaries and affiliates?
15 A In reading the bullet that you read,
16 complying with Wells Fargo's policies and procedures,
17 it does not say all.
18 Q Does it say some?
19 A It doesn't say some.
20 Q Does it say the ones you choose to comply
21 with?
22 MR. SIMON: Objection to form. It says
23 what it says.
24 BY MR. RUBIN:
25 Q Exactly. It says Wells Fargo.
Page 72
1 And Wells Fargo is defined as, quote, means
2 Wells Fargo & Company and each of its subsidiaries
3 and affiliates, doesn't it?
4 A Are you saying that's what the document
5 says? Okay.
6 Q Sure. One thing I can do is read, so yeah,
7 it does. It says that.
8 Now, don't you understand that to mean that
9 everyone who works for Wells Fargo is supposed to
10 comply with policies that are promulgated by the
11 parent company, Wells Fargo & Company?
12 A I suppose that's a reasonable
13 interpretation.
14 Q Right. And have you ever made any effort
15 to ascertain whether Wells Fargo & Company has any
16 policies, practices or procedures that govern the
17 servicing of mortgage loans that any Wells Fargo &
18 Company entity may service?
19 A No. As I've testified before, I have made
20 an effort to find out about Wells Fargo Bank
21 Minnesota's policies --
22 Q Right.
23 A -- relating to such matters.
24 Q And all you were able to locate is this
25 Wells Fargo 4 document, right?
Page 73
1 MR. SIMON: That's not what he said, Matt.
2 BY MR. RUBIN:
3 Q Well, no. Isn't that correct that all you
4 were able to locate was this exhibit that we've
5 marked as Wells Fargo 4?
6 MR. SIMON: That was responsive to your
7 request is what he said.
8 A Yeah, I believe that's the only document
9 that I was able to locate that relates to that matter
10 that's responsive to your question.
11 Q Okay. Are there other policies or
12 procedures out there that you were able to locate
13 that aren't in writing?
14 MR. SIMON: Matt, there are other policies
15 and procedures that don't relate to your request.
16 Quit badgering the witness.
17 MR. RUBIN: Dealing with the servicing of
18 mortgage loans.
19 A I don't believe that there are any other
20 policies and procedures in Wells Fargo Bank Minnesota
21 that deal with servicing mortgage loans.
22 Q But you have no idea, just to be
23 accurate -- then we can move on to something else --
24 whether there are any other policies promulgated by
25 Wells Fargo & Company that would deal with the
Page 74
1 servicing of mortgage loans?
2 A I don't know.
3 Q Okay. And just to be perfectly clear, you
4 are not prepared to testify today as to what the
5 customary and usual standards of practice of prudent
6 institutional, commercial, multifamily and
8 own mortgage loans would be, correct?
9 MR. SIMON: Is that the last time you're
10 going to ask this question?
11 MR. RUBIN: Yeah.
12 A Yes. The answer is that is correct. I
13 don't know what that industry standard is.
14 Q All right.
15 A And I don't believe that part of Wells
16 Fargo Bank Minnesota knows what that industry
17 standard is.
18 Q Who does know that? If the trustee of this
19 half a billion dollars in loans has no idea what the
20 standard is, who does?
21 A I believe that that standard --
22 MR. SIMON: Objection, form. You're asking
23 him to speculate on who in the industry would know
24 what the --
25 MR. RUBIN: Hey, would you stop with the
Page 75
1 narrative objections? Objection, form, objection,
2 responsiveness, objection, privileged, or tell him
3 not to answer. Please, Paul.
4 MR. SIMON: Matt, you said that was the
5 last question you were going to ask him on it. Now
6 you're asking him --
7 MR. RUBIN: This is a different question.
8 MR. SIMON: -- if he knows it. It's not
9 one of your topics.
10 MR. RUBIN: You're conducting this old
11 style, Paul. Please stop it. You know what you're
12 doing is wrong. Would you please restrict yourself
13 to the objections allowed by the Texas rules, please.
14 MR. SIMON: Are you through?
15 MR. RUBIN: I want an answer to that
16 question. He was about to answer it, and you
17 interrupted him. You did what you're not supposed to
18 do. Now, you know you're not supposed to do that.
20 MR. RUBIN: With my statement?
21 MR. SIMON: Yes.
22 MR. RUBIN: Yes.
23 MR. SIMON: This is not one of your topics.
24 MR. RUBIN: You're not going to let him
25 answer it?
Page 76
1 MR. SIMON: Answer it if you know who in
2 the industry knows.
3 MR. RUBIN: To be fair, Mr. Schwartz, let
4 the reporter read it back. These arguments between
5 lawyers always distract the witness. I apologize for
6 that.
7 THE WITNESS: That's fine.
8 MR. RUBIN: And the predicate to the
9 question was when you said you didn't think anyone
10 within Wells Fargo would know that, my follow-up
11 question was --
13 A I believe that the collection of knowledge
14 of commercial mortgage loan servicers in the CMBS
15 industry know that.
16 Q Is there any sort of objectively
17 determinable or expressable expression, if you will,
18 of what those standards would be?
19 A Not to my knowledge.
20 Q Then in all candor, sir, how is someone
21 supposed to ever evaluate whether the actions or
22 conduct of ORIX as master or special servicer comply
23 with that standard?
24 A I would guess they would have to get an
25 industry -- an expert in that standard to testify.
Page 77
1 Q Are you familiar with a gentleman named
2 Jack Aini or Aini, A-i-n-i?
3 A Yes.
4 Q Who apparently signed, yes, signed this on
5 behalf of Norwest Bank Minnesota?
6 A What document are you referring to?
7 Q We're still on the pooling and servicing
8 agreement.
9 A Okay.
10 Q And this is actually like the second to the
11 last page. It's got an internal document number of
12 7753.
13 A Yes.
14 Q Help me out with his pronunciation. I
15 don't want to --
16 A Aini.
17 Q I don't want to man-handle that one.
18 What's his position?
19 Well, is he still with Wells Fargo
20 Minnesota?
21 A Yes.
22 Q Position would be what?
23 A Vice president.
24 Q Of any particular division?
25 A It's not -- that's not the way it works in
Page 78
1 the bank. His title is vice president.
2 Q Okay. Then let me ask is he assigned
3 responsibilities with a particular division or
4 department?
5 A Yes.
6 Q And that would be what?
7 A He works almost exclusively on commercial
8 mortgage-backed securities in the corporate trust
9 division.
10 Q So he would be a colleague of yours on
11 roughly the same report level?
12 A I don't know what you mean by roughly the
13 same report level.
14 Q You're both vice presidents in the same
15 division?
16 A Yes.
17 Q Okay. Does your work overlap with Mr.
18 Aini's?
19 A Can you clarify what you mean by overlap?
20 Q That's a terrible question. I don't really
21 need to know. Let me ask you this.
22 Do you think he as the person who signed
23 this pooling and servicing agreement on behalf of
24 Norwest Bank, now Wells Fargo Minnesota, that he
25 would have any knowledge or understanding of what
Page 79
1 those customary and usual standards of practice for
2 mortgage loan servicing would be?
3 A I believe he would have no more so of an
4 understanding than myself.
5 Q Do you know if he has ever been involved in
6 actual day-to-day mortgage servicing?
7 A I don't know.
8 Q Why do you think he wouldn't have any
9 greater knowledge than you do?
10 A Because of my understanding of his function
11 within our organization.
12 Q Which we won't belabor this, but generally
13 is what?
14 A Generally he's responsible for negotiating
15 the contracts from the perspective of Wells Fargo
16 Bank Minnesota as trustee and for working through the
17 minutia of closing the deal.
18 Q Okay. Let me ask you a little bit more
19 about this Section 3.01 A, and we're back to page 53
20 of the pooling and servicing agreement.
21 A I see it.
22 Q Okay. Great. We've talked about
23 subheading A 1. Subheading A 2 talks about the
24 manner in which the master or servicer services loans
25 that it owns as I read it, owned by the master
Page 80
1 servicer or special servicer as the case may be, and
2 then it says whichever standard is higher.
3 Do you have any understanding about what
4 that language means, whichever standard is higher?
5 A The document speaks for itself. I don't
6 have any specific interpretation that I know of
7 beyond that.
8 Q The reason I ask is we've had some
9 discussion about exactly what higher is supposed to
10 mean. Does that mean more favorable to the borrower,
11 more favorable to the lender, more favorable to the
12 trust, or does it have any discrete meaning that you
13 can tell at all?
14 A If you'll give me a moment to read the
15 section --
16 Q Take your time.
17 A -- I'll endeavor to answer your question.
18 Q Certainly. Thank you. I appreciate that.
19 MR. SIMON: Matt, are you near a stopping
20 point?
21 MR. RUBIN: Any time.
22 MR. SIMON: Okay. After he answers this
23 question.
24 MR. RUBIN: Sure.
25 A Oh, I see. The higher seems to be
Page 81
1 referring to 1 or 2, the higher of 1 or 2.
2 Q And I just don't know what that means. If
3 you don't have any clarification, that's fine. We
4 can just move on to the next thing after the break.
5 A I can't interpret the document.
6 MR. RUBIN: Okay. Let's go ahead and take
7 a break if you'd like, Paul.
8 THE VIDEOGRAPHER: The time is 10:47.
9 We'll go off the video record.
11 THE VIDEOGRAPHER: The time is 10:48. This
12 is the end of tape number 1. We're off the record.
16 THE VIDEOGRAPHER: This is the beginning of
17 tape number 2 in the matter of Wells Fargo, et al.
18 versus Rafizadeh, et al. Our deponent is Barry
19 Schwartz. The time is 11:01 A.M. We're back on the
20 video record.
21 BY MR. RUBIN:
22 Q Mr. Schwartz, continuing with our
23 discussion about this Section 3.01 A, the servicing
24 standard, we've talked about the two different
25 standards applicable, headings 1 or 2, and then it
Page 82
1 continues. With a view to the maximization of timely
2 recovery of principal and interest on a present basis
3 on the mortgage loans or specially serviced mortgage
4 loans as applicable and the best interests of the
5 trust and certificate holders notwithstanding five
6 specific exceptions there. I'm particularly
7 interested in the language, a view to the
8 maximization of timely recovery of principal and
9 interest on a present value basis.
10 What's your understanding of what that
11 language means?
12 A It speaks for itself. Maximization of
13 timely recovery of principal and interest on a
14 present value basis.
15 Q What I understand that to mean -- and tell
16 me if this is also your understanding -- is that the
17 cardinal principle, if you will, the overriding
18 consideration for the actions of a master or special
19 servicer in its conduct is to maximize the timely
20 recovery of principal and interest. That's their
21 most important obligation.
22 A I can't speak to that one way or another.
23 I'm not a master or special servicer.
24 Q Well, speaking on behalf of the plaintiff,
25 Wells Fargo Bank Minnesota, N.A., the trustee of this
Page 83
1 half a billion dollars in mortgages, is that what
2 Wells Fargo Bank expects its master and special
3 servicer to do, to take all actions with a primary
4 view toward maximizing the timely return or recovery
5 of principal and interest on a present value basis?
6 A I have to take exception to the fact that
7 you refer to the master or special servicer as
8 somehow belonging to Wells Fargo Bank Minnesota.
9 They serve the trust.
10 Q I didn't mean that. I'm talking about the
11 substance of it.
12 A Well, you referred to Wells Fargo Bank's
13 master or special servicer, so I wanted to clarify
14 that. We don't have a master or special servicer.
15 The trust does.
16 Q Okay. With that clarification, can you
17 answer the question?
18 A Can you please read it back?
19 Q I knew that was coming.
20 A I got myself confused.
21 Q I knew you were going to get into that.
22 A Sorry.
23 Q That's okay.
24 A I don't mean to be taking extra time.
25 Q That's all right. We'll finish on a timely
Page 84
1 basis I'm sure.
3 A No. We expect the servicer to comply with
4 the provisions that restrict their conduct in the
5 pooling and servicing agreement. I'm in no position
6 to interpret or summarize those provisions.
7 Q Well, I'll object as nonresponsive.
8 Clearly whatever's in the PSA, can we just call it
9 that, PSA for pooling and servicing agreement?
10 A Absolutely.
11 Q Whatever's in the PSA, it binds everyone
12 who signed it and governs their conduct as defined in
13 the agreement?
14 A Yes.
15 Q I mean I think we're clear on that?
16 A Yes.
17 Q But I'm interested in what your
18 understanding of this language is where the servicing
19 standard is qualified, whatever the standard may be,
20 quote, with a view to the maximization of timely
21 recovery of principal and interest on a present value
22 basis on the mortgage loans or specially serviced
23 mortgage loans. I read that to mean that that's
24 supposed to be the guiding principle, if you will,
25 the maximization of the recovery, that that's
Page 85
1 supposed to be the first consideration, the foremost
2 consideration. Is that right, or is that wrong, or
3 do you have no opinion?
4 A I don't have an opinion. I mean it says
5 with a view to. I can't speak to exactly what's
6 intended by that.
7 Q How would you interpret or assess the
8 actions or conduct of the master or special servicer
9 in light of that provision?
10 A It's not my job to assess the actions of
11 the master servicer.
12 Q Because the trustee just doesn't do that?
13 A That's not the trustee's responsibility.
14 Q So does this language have any meaning at
15 all in your -- in the position of Wells Fargo
16 Minnesota that the master or special servicer are to
17 act with a view to the maximization of timely
18 recovery of principal and interest?
20 A It has the meaning outlined in the
21 document.
22 Q Okay.
23 A You keep asking me to interpret the
24 document.
25 Q No. I'm asking for your understanding of
Page 86
1 what the trustee on whose behalf the master and
2 special servicer are working for the trust interprets
3 it to mean and understands it to mean, what it is
4 that you all expect. It's a difference.
5 A I'm not sure that I understand the
6 distinction.
7 Q That's fine. Would you agree that the
8 actions and conduct of the master or special servicer
9 are supposed to be governed by the principle that
10 those actions and conduct must be undertaken with a
11 view to the maximization of timely recovery of
12 principal and interest?
14 A It's the same question and the same
15 answer. I don't know. I mean I don't -- I can't
16 interpret the document as it relates to the standards
17 that the servicer is supposed to follow.
18 Q Okay. Are you familiar with a rating
19 service known as Fitch Ratings?
20 A Yes.
21 Q What's your understanding of what Fitch
22 Ratings is and what they do?
23 A They're a nationally recognized statistical
24 rating agency that provides information to the
25 general public about the creditworthiness of
Page 87
1 individual securities. In addition they provide
2 research reports relating to various topics. I guess
3 that's it.
4 Q In your profession, your years of
5 experience in the industry, have you had occasion to
6 use Fitch Ratings for any purpose?
7 A When you say use, can you clarify that?
8 Q Let me ask it this way.
9 Do you think they're accurate and
10 reliable?
12 A They're one of a few nationally recognized
13 statistical rating agencies, and I believe that they
14 are viewed by the investing public as accurate an
15 reliable.
16 Q And the other ones would be -- in that
17 category or that class would be who that you're --
18 A Moody's and Standard and Poor's.
19 Q Kind of the big three of these rating
20 agencies, would that be a fair shorthand --
21 A That's a reasonable summary.
22 Q Okay. The reason I ask is I've just found
23 in my client's hands a Fitch Ratings report on
24 structured finance from Wells Fargo Bank, N.A. dated
25 July 19, 2002, and I'm going to have to pass this one
Page 88
1 back and forth to you because I don't have a copy of
2 it, but I will mark it, and then Paul, if you don't
3 mind, we can substitute out a nonhighlighted version
4 for the highlighted one that Mr. Rafizadeh gave to
5 me.
6 MR. SIMON: That's fine. Did you say this
7 was Wells Fargo Minnesota?
8 MR. RUBIN: No. This is Wells Fargo Bank,
9 N.A.
12 BY MR. RUBIN:
13 Q And rather than come around behind you,
14 Mr. Schwartz, I don't want to do that, but it
15 describes for Wells Fargo Bank, N.A. primary
16 servicing, and this is on CMBS transactions, Wells
17 Fargo Bank, N.A.'s snapshot description, if you will,
18 of its CMBS servicing activities. It says Primary
19 Servicing. As of June 30, 2002, WFB was primary
20 servicer for 2,553 CMBS loans totaling 18.22 billion.
21 And I'll show you that, and then we can pass it back
22 and forth. And I apologize for this cumbersome
23 procedure.
24 A Okay. I see that reference in this report.
25 Q Okay. And then could you hand it back to
Page 89
1 me, please? And it continues with the next bullet
2 point, Master Servicing. As of June 30, 2002, WFB
3 was named master servicer for 36 CMBS transactions
4 totaling 23.68 billion with responsibility for
5 overseeing 30 primary servicers. And that's the
6 second highlighted section on that page.
7 A Okay.
8 Q Based upon your experience with the Fitch
9 Ratings service, would you have any reason to
10 question the accuracy -- material accuracy of those
11 numbers?
12 A No.
13 Q Is that consistent with your knowledge or
14 understanding of the extent to which Wells Fargo
15 Bank, N.A. is involved as a servicer, master or
16 special, on CMBS transactions?
17 A In general scope, yes. In numerical value
18 or number of units or whatever, no. I'm not familiar
19 with how big their servicing portfolio or master
20 servicing portfolio was till you just told me from
21 this report.
22 Q And this is what, a year and a half old, so
23 I'm sure the numbers have changed since then.
24 Now, would you think that in light of the
25 Wells Fargo code of ethics applicable to the parent
Page 90
1 and all subsidiaries that requires all of
2 Wells Fargo's entities to adhere to the highest
3 possible standards of ethics and of business conduct,
4 that Wells Fargo Bank, N.A. in its CMBS servicing
5 activities would comply with customary and usual
7 commercial, multifamily or manufactured housing
8 mortgage lenders in their servicing?
9 MR. SIMON: Can I get a clarification of
10 that?
11 MR. RUBIN: Sure.
12 MR. SIMON: The entity again that you're
13 asking him about is Wells Fargo Bank, N.A.?
14 MR. RUBIN: That apparently is the one that
15 has the CMBS servicing portfolios, yes, as I read the
16 Fitch report.
17 A You're asking me to opine on how the code
18 of ethics relates to that entity?
19 Q No. In light of the fact that the code of
20 ethics applicable to the Wells Fargo parent and all
21 subsidiaries which we've seen requires adherence to
22 the highest standards of ethics and business conduct,
23 would you think that Wells Fargo Bank, N.A. in its
24 CMBS servicing would comply with customary and usual
Page 91
1 commercial, multifamily mortgage lenders?
2 A Yes.
3 Q Okay. And to that extent would you agree
4 that the policies, practices and procedures of Wells
5 Fargo Bank, N.A. could at least help inform us as to
6 what the customary and usual standards would be?
7 MR. SIMON: Objection, form. You're asking
8 for his opinion again?
9 MR. RUBIN: He can answer the question.
10 MR. SIMON: Are you asking for his opinion?
11 MR. RUBIN: I'm asking him to answer the
12 question.
13 A To the extent that --
14 MR. SIMON: Hold on a second. I'm entitled
15 to know if you're asking him for an opinion. If
16 you're asking him for an opinion, that's not what the
17 purpose of this deposition is. Here's my point.
18 MR. RUBIN: Paul, he was going to answer
19 the question, and you know what he was going to say.
20 Now let him answer the question.
21 MR. SIMON: No, Matt. Here's my point.
22 MR. RUBIN: Are you instructing him not to
23 answer? I've asked my question.
24 MR. SIMON: Do you want to have this
25 conversation on or off the record?
Page 92
1 MR. RUBIN: On. I've asked my question.
2 It's perfectly proper within the scope of deposition
3 subjects 8 and 9, particularly 9, which deals
4 specifically with Wells Fargo Bank, N.A. were to be
5 utilized, employed or complied within the
6 administration or servicing of loans included in the
7 trust. That's exactly what I've just asked him, and
8 if you won't let him answer, that's fine. We'll go
9 back down, and we'll come back here again another
10 time.
12 MR. RUBIN: Yes.
13 MR. SIMON: May I make my speech now?
14 MR. RUBIN: Sure.
15 MR. SIMON: You are very precise with your
16 words, Matt, and you have spent a lot of time going
17 over a letter that has a typo -- or not a
18 typographical, but a misprint in the letter. You
19 have spent a long time on what these words mean. You
20 are now asking him questions that say do you think,
21 what is your opinion, and that is not the purpose.
22 If you really want his thoughts or his opinion, that
23 is not the purpose of this deposition. If you're
24 misusing the word think or opinion to mean do you
25 have a factual understanding of this, then he can
Page 93
1 answer the question. That's what I'm asking you to
2 clarify. A 30 B 6 is not supposed to be an expert
3 deposition, Matt, and you know that.
4 MR. RUBIN: I would agree with that, Paul,
5 but it is supposed --
6 MR. SIMON: Asking him for his opinion is.
7 MR. RUBIN: I'm asking him to testify as
8 the designated representative of the plaintiff
9 entity. Now, I'm not going to characterize it as an
10 opinion, as a fact. It's a question. As the extent
11 to which the Wells Fargo Bank, N.A. CMBS standards
12 would inform this customary and usual standards of
13 practice, I think that's directly within number 9.
14 MR. SIMON: I think that question is. The
15 last question you used the word is it your opinion or
16 do you think?
17 MR. RUBIN: Okay. Why don't you just make
18 your objection if there's some lack of clarity. He
19 was prepared to answer. We could have had an answer
20 ten minutes ago. Now Mr. Schwartz probably doesn't
21 even remember the question. So our respective
22 positions I think are clear. If you would be so kind
23 as to find that question and try again.
25 A Yeah, to the extent that any servicer's
Page 94
1 policies and procedures would assist with that.
2 Q Okay. Thank you. And the evil word think
3 wasn't even in the question. So be it.
4 MR. SIMON: Objection to the side bar,
5 Matt.
6 MR. RUBIN: I know.
7 MR. SIMON: It was in your previous
8 question that you followed up with.
9 MR. RUBIN: Okay. Okay.
10 BY MR. RUBIN:
11 Q Let me change subjects, Mr. Schwartz. I
12 should have done this before. It's what we usually
13 do at the beginning of depositions. We're going to
14 take a sidetrack here, and you can tell me something
15 about your educational and professional background
16 and qualifications if you would, sir.
17 A Sure.
18 Q Why don't you start from your undergraduate
19 degree and take it forward.
20 A I have a bachelor's degree in accounting
21 from Towson State University now known as Towson
22 University.
23 Q I'm sorry. Us Texans don't know where that
24 is. Where would that be?
25 A That's in Maryland.
Page 95
1 Q Okay. Thanks.
2 A It's part of the University of Maryland
3 state school system.
4 Q Great. Got it. Thank you. I'll let you
5 do a narrative here. Just kind of walk me through.
6 A Sure. I'm also a CPA in the State of
7 Maryland, not practicing or active, but I have the
8 CPA designation. Do you want me to give you a
9 rundown of my resume and prior job experiences? Is
10 that what you're asking? I want to make sure I'm
11 giving you a responsive answer.
12 Q What I'd like to do, yeah, just help me,
13 help us understand how you got from undergraduate
14 school to your current position. Go ahead and walk
15 through your various positions if it's not a list as
16 long as your arm.
17 A No, no. I think I could probably do that.
18 Is that okay? Am I allowed to do that? Okay. Right
19 out of college I worked for what was then a big eight
20 accounting firm, Deloitte, Haskins & Sells, for two
21 years.
22 Q And I'm sorry. Your degree was awarded in
23 what year?
24 A In 1986.
25 Q Okay. Thanks.
Page 96
1 A And I started with Deloitte right after
2 graduation. I moved to Ryland in 1988, a subsidiary
3 of the Ryland Homes Company, through a mortgage
4 company that I think they used to have, and have not
5 changed entities directly since. I've been with a
6 combination of merger and consolidation type things
7 all along, so I've worked for the combined entity
8 since that time. In that tenure my positions
9 included responsibility for accounting for individual
10 trusts, doing tax accounting for individual trusts,
11 all of these trusts having issued mortgage-backed
12 securities, ultimately became fully responsible for
13 all aspects of the tax administration and reporting
14 functions for the entity, and I may not get the order
15 exactly right, but I was responsible for the cash
16 management department, as well as residential
17 mortgage-backed securities bond administration
18 function and the commercial mortgage-backed
19 securities bond administration and trust
20 administration functions, to my current position of
21 basically full responsibility for coordination of the
22 operations relative to commercial mortgage-backed
23 securities.
24 Q Now, you say that you're responsible for
25 the coordination of these operations.
Page 97
1 To what extent is the trustee -- and I
2 presume this is in a trustee capacity we're talking
3 about, or is that not correct?
4 A It's in a role as trustee, yes, all the
5 commercial. Well, we have various other roles on
6 different deals, but in this deal that's in question
7 we're named as trustee.
8 Q All right. Have you ever been involved in
9 any aspect of mortgage servicing?
10 A No.
11 Q Have you ever been involved in any aspect
12 of mortgage or loan underwriting?
13 A No.
14 Q The actual lending process?
15 A No.
16 Q To that extent do you have any personal
17 knowledge of how these types of mortgage loans are
18 supposed to be administered?
19 A That question is broad. Can you narrow it
20 down for me?
21 Q Okay. In interactions between the lender
22 or the servicer in this instance and the borrower, I
23 take it you've never been involved in any such direct
24 interaction?
Page 98
1 Q Have you ever been involved in trying to
2 administer or work out a loan where there has -- some
3 problem has arisen between the lender and the
4 borrowers?
5 A No.
6 Q Do you have any knowledge at all about
7 workout policies, practices, procedures?
8 A General. Nothing specific.
9 Q Does Wells Fargo Minnesota have any kind of
10 position at all vis-a-vis this particular trust about
11 whether, and if so, when, ORIX as the servicer is to
12 make an effort to work out any problem with a loan
13 prior to initiating acceleration and foreclosure?
14 A The question was long. I lost the
15 beginning of it.
16 Q I'm sorry. Let me try it again.
17 A Could you just ask it again?
18 Q Fair enough. I won't do that to the court
19 reporter. If it's too long to remember, it's not
20 going to be worth reading back anyway.
21 We're talking generally about workouts, and
22 my question was does Wells Fargo Minnesota have any
23 sort of position or expectation about what ORIX as
24 servicer should do to try and work out a problem, a
25 situation that has arisen between a borrower and
Page 99
1 lender on any particular mortgage loan?
2 A No, except for the scope of the pooling and
3 servicing agreement. Not to the extent beyond the
4 pooling and servicing agreement setting the standard
5 for ORIX's behavior.
6 Q And that relates us back to Section 3.01,
7 the servicing standard?
8 A I believe so.
9 Q Okay. Do you know what communications
10 Wells Fargo Minnesota has received from ORIX about
11 this particular loan? And by that, I mean the
12 Arlington Apartments loan that's involved in this
13 lawsuit.
14 A Yeah, I believe so.
15 Q Tell me what you've seen. Or I'm sorry.
16 Tell me what Wells Fargo Minnesota has received. Let
17 me put it that way.
18 A Start with the standard servicing reporting
19 that's part of the commercial mortgage-backed
20 securities industry normal reporting that occurs.
21 And I can't enumerate exactly each piece of the
22 report, but there's a large number, a few -- I don't
23 know quite how to get to it -- maybe six or seven
24 different reports that on a monthly basis a servicer
25 is responsible for creating and passing through the
Page 100
1 trustee for the use of the trustee's filing it and
2 for making it available to the investors. Those
3 reports -- please let me finish.
4 Q Sure.
5 A Those reports contain information about
6 every loan in the pool. They're not specific to the
7 loan in question in this matter.
8 Q Are there specific line item entries for
9 each visible constituent loan?
10 A Yes, I believe so.
11 Q Okay. And are these reporting -- periodic
12 reporting documents delivered in hard copy, or is it
13 just on line, or how do you get it?
14 A I honestly don't know for this exact
15 transaction how they're given to us by ORIX. They
16 can be in hard copy or in electronic format.
17 Electronic format can be transmitted either through
18 an attachment to an e-mail or by sending us a CD.
19 Q In terms of what's actually in the
20 Wells Fargo Minnesota file that was received from
21 ORIX, I mean do you know physically what is there,
22 what's been sent?
23 A I can tell you that I had a staff member
24 when you asked -- you'll recall you asked me about
25 preparation for the deposition. I had a staff member
Page 101
1 look through the trust file --
2 Q Right.
3 A -- and pull out any documents that he
4 thought were specifically related to the Arlington
5 loan.
6 Q And what did you find?
7 A I found a few different documents that all
8 of which came to us from ORIX or necessarily a subset
9 of everything that they had including -- I hope I can
10 remember all of it. Forgive me if I miss something.
11 Q Certainly.
12 A A letter telling us that the loan was being
13 placed into special servicing.
14 Q Yes, sir.
15 A Something telling us that they had
16 determined that any future advances on the property
17 would be nonrecoverable, a transmittal of an
18 appraisal.
19 Q Yes, sir.
20 A I'm just trying to recollect what was in
21 those. That's generally it. And I did not look at
22 each individual regular reporting that was for the
23 whole pool of loans that this loan was only one line
24 item on because I have a general understanding of
25 what's in those documents. They comprise part of the
Page 102
1 trust file.
2 Q Let's see. Of the 106 loans that comprise
3 this particular pool, the certificate Series 1999 C
4 1, does that sound right, 106 loans?
5 A I honestly don't know. I'm responsible for
6 approximately 250 similar transactions. This is only
7 one of them. And each one can contain hundreds of
8 loans.
9 Q I wouldn't expect you to have any command
10 of specific knowledge of that volume of material. I
11 just want to find out if -- let's see -- it says so
12 in the pooling and servicing agreement. Well, let me
13 show you.
14 MR. SIMON: Matt, do you have the MLPA?
15 That might have it.
16 THE WITNESS: The PSA typically has an
17 exhibit that lists the individual assets that are
18 being transferred to the trust.
19 MR. RUBIN: Yeah, I'm sure it's there
20 somewhere. Tell what you. I'll mark the prospectus
21 anyway because I'm going to have some questions about
22 that. We'll mark that as Wells Fargo 10.
23 (Exhibit WF-10 was marked for
25 transcript.)
Page 103
1 BY MR. RUBIN:
2 Q And this is -- yeah, this is actually the
3 October 29, '99 supplement to the overall October 15,
4 '99 prospectus. And I'm specifically only looking at
5 the first page where it says the trust fund will
6 consist of a pool of 106 conventional fixed rate
7 mortgage loans. See that up in the upper right-hand
8 corner under The Trust Fund?
9 A Yes, I see that.
10 Q Okay. Does that sound about right as far
11 as you know?
12 A Yeah, sounds reasonable.
13 Q Of that round number 100 loans, do you have
14 any idea how many are in special servicing as opposed
15 to master servicing?
16 A No, not at any one time.
17 Q Is there any way to find that out?
18 A There is.
19 Q Would that be something that's included on
20 these periodic reports that ORIX would make to the
21 trustee?
22 A Yes.
23 Q And how often do these periodic reports get
24 made?
25 A Monthly and quarterly depending upon the
Page 104
1 type of reporting it is.
2 Q If a document request had been sent asking
3 Wells Fargo Minnesota to produce its entire file or
4 all communications from ORIX that have been received,
5 would these monthly reports -- should they have been
6 included within the production?
7 A Yeah, that's information we received from
8 ORIX.
9 Q Okay. What about -- and let me go ahead
10 and refer you to one of these exhibits in the book
11 that's there in front of you. I believe it's number
12 17.
13 A Okay.
14 Q Is this the letter you said that you had --
15 excuse me -- Wells Fargo Minnesota had received
16 informing the trustee that this loan had been placed
17 in special servicing, or is this something else?
18 A This is something else.
19 Q Have you seen this one? This is the May
20 29, 2001 asset status report. I believe that's what
21 that's called.
22 A No, I don't believe I've seen this exact
23 document.
24 Q All right. Then why don't you put that
25 aside for right now. I'll ask you something about
Page 105
1 that later. But you saw a different letter from ORIX
2 informing that there had been a servicing -- what do
3 they call it? Help me out here. There's a term for
4 it where they change servicing from master to special.
5 MR. SIMON: Transfer?
6 A Servicing to transfer?
7 Q Yeah. You saw a servicing transfer letter?
8 A Yeah, something along those lines.
9 Q Okay. And what about when the decision to
10 initiate acceleration and foreclosure was made, was
11 there any letter that was sent from ORIX about those
12 issues?
13 A Not to my knowledge.
14 Q Isn't there supposed to be one?
15 A I don't know. I'm not intimately familiar
16 with all aspects of the 200 plus page PSA.
17 Q Shame on you. You really should.
18 A That's what I have staff for.
19 Q Look for me, if you will, at page 88 of the
20 PSA.
21 A Okay. Let's find that. Is that the
22 document at tab 2 here?
23 Q That's correct, sir.
24 A Okay. Page 88. Okay.
25 Q I'm interested in the Section 3.18 B --
Page 106
1 A Uh-huh.
2 Q -- which says in the event that any
3 mortgage loan becomes a defaulted mortgage loan and
4 the special servicer has determined in good faith
5 that such defaulted mortgage loan will become subject
6 to foreclosure proceedings, the special servicer
7 shall promptly so notify in writing the trustee and
8 the master servicer.
9 Did you see any such written notice from
10 ORIX about this Arlington Apartments property
11 becoming subject to foreclosure proceedings?
12 A Not personally, no.
13 Q Do you think it should be in the file if
14 it's called for by the PSA?
15 A I can tell you that if ORIX sent it to us,
16 it should be in the file, but I can also tell you
17 that we have no way of knowing when it would be
18 required. In other words, we wouldn't know that
19 they've taken that action until they've told us that
20 they've taken that action.
21 Q But surely at some point the trustee is
22 supposed to be informed of such action being taken,
23 isn't it?
24 A It appears that that is what this document,
25 the PSA, says.
Page 107
1 Q Okay. And you expect ORIX to comply with
2 its obligations under the PSA?
3 A Yes.
4 Q Let me bounce back to an exhibit we
5 haven't identified, Mr. Schwartz. We skipped over
6 it. It's the deposition notice, Exhibit 8.
7 A Okay. I see it on the table in front of
8 me.
9 Q Now, although that does say that it's a
10 deposition to be taken in December in my office, do
11 you understand that you are here to testify on behalf
12 of Wells Fargo Bank Minnesota, N.A. on all of these
13 subjects except numbers 7, 12 and 20 that were
14 limited by the court in response to some motions that
15 the parties had filed?
16 A That sounds right, although I don't have my
17 notes with me from my conversations with my attorney
18 about exactly which ones were excluded by the court.
19 Q Okay. And I'm sure if I transgress those
20 boundaries, Mr. Simon will let me know forthwith.
23 transcript.)
24 BY MR. RUBIN:
25 Q Let me also show you Wells Fargo Exhibit
Page 108
1 11, an Affidavit of Brian Smith that was submitted to
2 the court in connection with those hearings about the
3 Wells Fargo corporate representative deposition.
4 Do you need this, Paul?
5 MR. SIMON: Yeah.
6 BY MR. RUBIN:
7 Q Have you ever seen Mr. Smith's affidavit
8 before?
9 A Yes.
10 Q What was the occasion on which you saw it?
11 A It was in the file that I reviewed in
12 preparation for this deposition.
13 Q Okay. Had you met with him or talked to
14 him about the contents of the affidavit before it was
15 submitted to the court?
16 A No.
17 Q He says the trustee has no personal
18 knowledge of any subject identified in defendant's
19 deposition notice. First, the trustee has no
20 knowledge about some subjects, e.g., 2, 3 and 5,
21 because the question's implied assumption is
22 incorrect. For instance, the trustee did not
23 communicate with ORIX concerning any defendant, the
24 loan made the basis of this lawsuit, or the property
25 used to secure the loan, unquote. That's paragraph 5
Page 109
1 of Mr. Smith's affidavit.
2 Now, that's simply not accurate, is it?
4 BY MR. RUBIN:
5 Q The trustee did have communications with
6 ORIX about each one of those issues, did it not?
8 A Let me read it. ORIX did provide us with
9 certain documents related to those matters.
10 Q Yes.
11 A I don't know if you define that as
12 communications.
13 Q Actually it would within the meaning of the
14 deposition notice, so --
15 But there's no question that there was at
16 least written communication between ORIX and the
17 trust, the trustee, about the defendants, the loan or
18 the property?
19 A ORIX did provide written documents to us.
20 Q Okay.
21 A Clearly not the other way.
22 Q I'll object to the nonresponsive portion.
23 Mr. Smith's affidavit also claims that the
24 trustee has no knowledge of Wells Fargo Bank
25 Minnesota, N.A.'s involvement in commercial real
Page 110
1 estate lending because it does not engage, and it has
2 not engaged, in commercial real estate lending.
3 That's not accurate either, is it?
4 A No.
5 Q And he says similar subjects are 7, 10, 11,
6 13, 14, 15, 16, 17 and 18, which I guess you can look
7 at. 7 has been removed from consideration, but 8,
8 the servicing standard, 9, the extent to which --
9 MR. SIMON: 9 is not one of them.
10 MR. RUBIN: I'm sorry?
11 MR. SIMON: 9 isn't one of his list.
12 MR. RUBIN: You're right. I stand
13 corrected.
14 BY MR. RUBIN:
15 Q 10, internal reviews within Wells Fargo,
16 11, the nature and extent of the trustee's
17 involvement, 13 is interest income, 14, fee
18 collection practices, 15, the pooling and servicing
19 agreement, 16, upside participation from resales, 17,
20 foreclosure triggers and 18, use of MAI approved
21 appraisers.
22 The trustee, Wells Fargo Bank Minnesota,
23 N.A., certainly had knowledge of some of those
24 subjects, didn't it?
Page 111
1 A We did have knowledge of some of those
2 subjects.
3 Q Okay. Paragraph 6 of Mr. Smith's affidavit
4 continues that the trustee has no special or peculiar
5 knowledge about other subjects and refers to 6 and 8
6 because the trustee's knowledge if any is secondhand,
7 for example, by reading the document identified
8 within the subject. For instance, the trustee's only
9 knowledge about the policies, practices, procedures
10 or standards that were to govern ORIX's conduct as
11 master servicer or special servicer necessarily comes
12 from reading the documents such as the pooling and
13 servicing agreement or maybe the loan documents and
14 is no broader than what could be gleaned by anyone
15 who read those documents.
16 Now, the trustee has an understanding, does
17 it not, of what -- I don't mean the trustee.
18 Wells Fargo Bank Minnesota has an
19 understanding, does it not, of what standards were to
20 govern ORIX's conduct?
21 A Yes.
23 BY MR. RUBIN:
24 Q All right. 9, 12. Okay.
25 Do you know why Mr. Smith was allowed to
Page 112
1 submit an affidavit that, at least on its face,
2 appears to be somewhat inaccurate?
4 A What do you mean by the word allowed?
5 Q Let me rephrase it if you're not
6 comfortable. Why he did it?
7 A You're asking me why he filed an affidavit
8 that we now realize was inaccurate?
9 Q Yes, sir.
11 BY MR. RUBIN:
12 Q If you know. If you don't know, it's
13 okay.
14 A I don't know.
15 Q All right. Fair enough. Let's go ahead
16 and go through this list of subjects that we see on
17 Wells Fargo Exhibit 8. Some of them I think we've
18 probably exhausted pretty well. Number 1 is document
19 production by Wells Fargo in response to defendant's
20 request for production.
21 Have you reviewed the entire document
22 production by Wells Fargo in the case?
23 A I only know that I reviewed the documents
24 that I discussed with my attorney. I can't speak to
25 whether or not that was a complete response that was
Page 113
1 made on behalf of Wells Fargo.
2 Q Okay. So you really can't say exactly what
3 was produced and probably haven't reviewed every
4 single numbered document at the bottom --
5 MR. SIMON: Objection.
6 BY MR. RUBIN:
7 Q -- that was given to us --
9 BY MR. RUBIN:
10 Q -- is that correct?
12 A Can you clarify the question?
13 Q Sure. The question is have you reviewed,
14 and can you testify to be more precise, about the
15 specific documents produced by Wells Fargo in
16 response to the request for production of documents?
17 And by that, I mean everything from page 001 to
18 whatever it is, page 1134.
19 A No.
20 Q Okay. Number 2. Communications between
21 ORIX and the trustee concerning the Arlington
22 Apartments loan. You've told us about the periodic
23 reports.
24 A Uh-huh.
25 Q Are there any other communications between
Page 114
1 ORIX and the trustee concerning the Arlington
2 Apartments loan?
3 A My review of the file resulted in the
4 documents that I described before that were all from
5 ORIX to the trustee concerning the loan.
6 Q All right. Has anyone ever picked up the
7 phone and talked to these guys about a call from --
8 and by these guys I mean ORIX.
9 Has there been any kind of verbal
10 discussion about either the loan, the mortgage or any
11 nonprivileged discussion about this lawsuit as far as
12 you know?
13 A To my knowledge, no.
14 Q And just so we'll be aware, is there any
15 kind of policy or procedure in place at Wells Fargo
16 Minnesota by which you all would record or make notes
17 of conversations, make memos to the file or something
18 like that, if such a conversation had occurred?
19 A No, unless it was a substantive
20 conversation.
21 Q All right. And I take it you didn't find
22 any such notes or consequence of any such verbal
23 communications?
25 Q Number 4. Policies, practices, procedures
Page 115
1 and standards applicable to Wells Fargo's
2 administration or conduct in connection with the
3 trust or the Arlington Apartments loan. Now, we
4 haven't really talked about Wells Fargo's role in how
5 this CMBS pool gets administered.
6 Are there any written policies or practices
7 or procedures governing what Wells Fargo Minnesota is
8 supposed to do?
9 A Relative to the trust or relative to the
10 loan? It was a two-part subject.
11 Q It's a dysjunctive sentence, so I guess
12 it's both, trust or the loan.
13 A Yes to the trust. No to the loan.
14 Q And beyond the PSA, what is their dealing
15 with the responsibilities or standards governing
16 Wells Fargo vis-a-vis the trust?
17 A That's a broad question. We have many
18 corporate trust policies that relate to being a
19 trustee for a trust.
20 Q Okay. Do you know if any of those have
21 been produced?
23 A You're asking about my personal knowledge?
24 Q Your knowledge as the designated
25 representative to talk about these 20 odd subjects.
Page 116
1 A I don't know.
2 Q And just so we're clear, do you understand
3 that you are here not as Mr. Schwartz, VP, but
4 rather, as the designated representative to speak
5 officially on behalf of the named plaintiff entity,
7 A Yes.
8 Q Okay. I thought so, but I wanted to be
9 sure. All right. Let's see. Number 5. The nature
10 and extent of Wells Fargo Bank Minnesota, N.A.'s
11 involvement in commercial real estate lending.
12 Can you talk about that to any significant
13 extent?
14 A To some extent. I endeavored to determine
15 what it was in preparation for this deposition so
16 that I could adequately represent the knowledge of
17 the organization.
18 Q Okay. And tell us what is the approximate
19 face value of Wells Fargo Bank Minnesota, N.A.'s
20 commercial real estate loans any time in the last two
21 years?
22 A I don't know that.
23 Q How many such loans are there?
24 A I don't know that.
25 Q Are there any policies, practices or
Page 117
1 procedures that govern or apply to Wells Fargo Bank
2 Minnesota's involvement in commercial real estate
3 lending?
4 A Yes.
5 Q More than just that one page or one
6 document that you gave us?
7 A Well, that document references something
8 more narrow than commercial real estate lending.
9 Q Right. By that document, we're talking
10 about Wells Fargo 4.
11 A Yes, I understood that.
12 Q I thought so, but the record --
13 A I understand.
14 Q -- we have to play this record game. All
15 right. So in terms of any other documents produced
16 concerning the nature and extent of Wells Fargo's
17 involvement in commercial real estate lending,
18 Wells Fargo 4 is all we have, right?
19 A I don't know because I've not reviewed all
20 of the documents that have been produced in response
21 to discovery requests.
22 Q Fair enough.
23 A I know that we did provide documents to
24 ORIX and counsel, and counsel determined what was
25 appropriate to produce.
Page 118
1 Q All right. Well, under number 5 it would
2 seem to me that included within the nature and extent
3 of Wells Fargo Minnesota's involvement in commercial
4 real estate lending, we go back to the servicing
5 standard of the PSA, the standards that prudent
6 institutional, commercial, et cetera, lenders employ
7 in servicing their own mortgage loans.
8 Can you add any clarification at all about
9 those standards or practices or policies applicable
10 to Wells Fargo Bank Minnesota, N.A.'s involvement in
11 commercial real estate lending?
12 A I can tell you that those policies are
13 meant to govern assets of the bank. A loan is an
14 asset of the bank, and the policy is broader than
15 commercial mortgage lending specifically. And I know
16 of no other guidance relating to that matter or that
17 topic I guess.
18 Q What is Wells Fargo Bank Minnesota, N.A.'s
19 policy regarding workouts of loans on which
20 difficulties or disputes have arisen?
21 A My understanding of the policy is that the
22 loan officer and/or banker that are responsible for
23 the relationship with the commercial customer will
24 endeavor to determine when a loan is in a problem
25 situation such as what you're referring to. If it's
Page 119
1 something that can't immediately be worked out
2 without risk of loss to Wells Fargo as the owner of
3 that asset, it will be forwarded to a workout group
4 or workout committee that has more expertise in
5 handling those situations.
6 Q And as far as you know, what is supposed to
7 happen in the workout committee? I mean is there
8 anything -- well, let me just ask the general
9 question. Then we'll have specifics.
10 A As far as I know, what's supposed to happen
11 in the workout committee is they're supposed to --
12 you know, they're supposed to determine what the best
13 way to maximize the return to Wells Fargo of the
14 particular asset is within the guidelines of the loan
15 documents and the legality.
16 Q Would Wells Fargo Minnesota as trustee
17 expect ORIX to comply with the same type of approach
18 or to utilize the same type of approach in dealing
19 with any borrowers that might have a troubled loan in
20 this pool?
22 A I can only tell you what we would do for
23 our own loans, and I can tell you that the guidance
24 for the way the servicer is supposed to act in this
25 particular pool is in the pooling and servicing
Page 120
1 agreement.
2 Q Okay. But you acknowledge that that's how
3 Wells Fargo Minnesota, N.A. would handle such a loan
4 on its own account that it was the owner of?
5 A Yes, that's generally what my testimony
6 was.
7 Q Right. Okay. And do you think that that
8 particular approach that you've testified to is
9 consistent with the customary and usual standards of
10 practice of a prudent institutional or commercial
11 mortgage lender servicing its own mortgage loan?
12 A I don't know.
13 Q Why not?
14 A Because I don't have intimate understanding
15 of that standard to be able to use my -- to use that
16 judgment.
17 Q But if you will, look at numbers 8 and 9 of
18 your -- I'm sorry -- of the corporate representative
19 deposition notice. That appears to me to be included
20 within those two categories of what the corporate
21 representative was supposed to testify to.
22 A Yes, and I already --
24 A I already have testified --
25 Q Okay.
Page 121
1 A -- to the extent that Section 3.01 I
2 believe does govern the standards of care of the
3 servicer.
4 Q But you can't say whether the standards or
5 the practices and policies followed by Wells Fargo
6 Bank Minnesota, N.A. for its own loans would be
7 within the standard -- servicing standard set forth
8 in Section 3.01?
9 MR. SIMON: Objection, form. Matt.
10 MR. RUBIN: No. This is a different
11 question, Paul.
12 MR. SIMON: You're still asking him what
13 the standards are, which he's told you repeatedly he
14 doesn't know what the industry standard is. And you
15 said a long time ago you were going to move on.
16 MR. RUBIN: That was before I got this next
17 bit of information about how they do it.
18 MR. SIMON: Didn't you know about this
19 before the deposition?
20 MR. RUBIN: What their standard was? No,
21 because I didn't get any documents that were
22 particularly helpful, and I've been told for eight
23 months that there was no such entity. In any
24 event --
25 MR. SIMON: In any event, he has told you
Page 122
1 repeatedly he doesn't know what the industry standard
2 is, and he's told you what he thought about Wells
3 Fargo Minnesota's policy.
4 BY MR. RUBIN:
5 Q Let's talk more specifically about default
6 acceleration and cure of issues in commercial real
7 estate loans.
8 What is Wells Fargo Minnesota's policy
9 about accelerating and initiating foreclosure upon
10 loans that are not in default in payment of principal
11 or interest?
12 A That would be handled on a case-by-case
13 basis depending upon all the factors relevant to that
14 particular asset of the bank, and the workout
15 committee would determine those factors and
16 appropriately work within legal constraints and the
17 constraints of the loan documents to determine what
18 was in the best interest of Wells Fargo as the owner
19 of that asset.
20 Q As the designated representative of Wells
21 Fargo Minnesota to testify about commercial real
22 estate lending practices, are you aware of any
23 instance in which a loan that was current on payment
24 of principal and interest secured by commercial real
25 estate was nevertheless accelerated and had
Page 123
1 foreclosure proceedings initiated?
2 A I'd have no way of knowing that.
3 Q Why not?
4 A Because I don't have knowledge of
5 everything that's been done to administer every
6 single asset of the bank.
7 Q Could you have found out if you tried?
9 A I don't know. I mean I just don't know
10 what I would have found out.
11 Q Did you make any effort to find out whether
12 there were any such acceleration and foreclosure
13 decisions by Wells Fargo Bank Minnesota, N.A. in
14 preparing for your testimony today?
15 MR. SIMON: You're going to tell me, Matt,
16 where this is one of the topics that you're talking
17 about?
18 MR. RUBIN: Sure. I think it's all
19 subsumed, Paul, within the nature and extent of its
20 involvement and also -- that's number 5, and also it
21 could be part of 17, foreclosure triggers.
22 MR. SIMON: I don't think so. 17 refers to
23 the prospectus, Matt. It doesn't refer to loans that
24 Wells Fargo Bank Minnesota holds for itself. 5
25 refers to a volume or quantity or size of the
Page 124
1 business that they do and not policies that affect
2 particular loans.
3 MR. RUBIN: Okay.
4 MR. SIMON: You told the judge, Matt --
5 MR. RUBIN: Paul.
6 MR. SIMON: -- and this is going to be on
7 the record. Stop it. You told the judge that this
8 deposition was going to be limited to questions
9 pertaining to this loan, and you're going into what
10 does Wells Fargo Bank Minnesota do on things that
11 have nothing to do with this lawsuit.
12 MR. RUBIN: No, no. And I will disagree
13 with that because I believe that I have consistently
14 maintained ever since I was told the lie back in
15 April of 2003 that there is a separate entity, the
16 trustee, and that's why I couldn't get a single
17 document from Wells Fargo Minnesota because there was
18 no such entity. Ever since then, I have maintained
19 that anything done by Wells Fargo Bank Minnesota in
20 handling its commercial loans is directly relevant to
21 the servicing standard. That's why I'm asking Mr.
22 Schwartz that question right now. If your
23 understanding was that I made some representation
24 that would only be dealing with this loan, I never
25 would have said that because I've consistently
Page 125
1 maintained that I have been getting the wool pulled
2 over my eyes deliberately by a refusal to -- by a
3 phony, a false and inaccurate claim that there is a
4 distinction between the trust and Wells Fargo Bank,
5 N.A. as the entity.
6 MR. SIMON: And we've clarified that it's a
7 distinction without a difference, and my objection
8 stands, Matt.
9 MR. RUBIN: Okay.
10 MR. SIMON: What Wells Fargo does on its
11 individual loans is not one of the topics that you've
12 identified for him to testify, and so your
13 insinuation that he hasn't done his homework by not
14 looking into what loans were accelerated or
15 foreclosure proceedings were begun where they were
16 current on P and I has nothing to do with this
17 deposition, at least insofar as you've been able to
18 tell me so far.
19 MR. RUBIN: I disagree with that.
20 MR. SIMON: Well, point to a topic, and
21 I'll let him testify about it, Matt.
22 MR. RUBIN: It could be part of number 4.
23 It could be part of number 5. It could be part of
24 number 6.
25 MR. SIMON: How Wells Fargo forecloses
Page 126
1 other loans is part of how ORIX was supposed to
2 service this loan?
3 MR. RUBIN: It all deals with policies,
4 practices and procedures and the extent to which
5 Section 3.01 of the pooling and servicing agreement
6 incorporates, essentially by reference, reasonable
7 commercial standards. Now, either Wells Fargo
8 Minnesota employs reasonable commercial standards or
9 it doesn't. If it does, then I'm entitled to get
10 into the frequency, the circumstances in which it, in
11 compliance with the standard and code of ethics of
12 Wells Fargo & Company, has conducted itself in the
13 same or similar fashion in the past. It all goes
14 directly to what is the standard of commercial
15 reasonableness and commercial standards unless
16 they're going to say they don't observe commercial
17 standards, which they're not going to say.
18 MR. SIMON: Matt.
19 MR. RUBIN: So it's all part of the same
20 issue, Paul. I'm entitled to get into the specifics
21 that make up the whole.
22 MR. SIMON: I understand that, Matt.
23 MR. RUBIN: Good.
24 MR. SIMON: But what you're not entitled to
25 do is just go on a fishing expedition. And even what
Page 127
1 you're saying is it might be part of this, it might
2 be part of that. I don't see where you've asked him
3 to identify what loans were accelerated when they
4 were current on principal and interest. You well
5 know that there are issues other than current
6 principal and interest --
7 MR. RUBIN: Wait a minute.
8 MR. SIMON: -- that can cause a loan to
9 accelerate.
10 MR. RUBIN: Now, listen. We're not going
11 to do this on the record anymore. If you have an
12 objection, Matt --
13 MR. SIMON: I asked you if you wanted to go
14 off. You said you wanted to do this on the record.
15 MR. RUBIN: If you have an objection to
16 make in accordance with the Texas rules, please do
17 so. We both know what those objections are;
18 objection, form, objection, responsiveness,
19 objection, privilege, or you may instruct the witness
20 not to answer under certain circumstances. I want
21 this to stop, these speaking objections, these old
22 style objections that are designed to coach the
23 witness as much as anything else. Now let's just
24 stop it. Okay?
25 MR. SIMON: I've asked you to identify a
Page 128
1 topic, and even you can't. All at best you can say
2 is it might fall into any one of these broad
3 categories. And Judge Halbach with regard -- with
4 regard to number 11, Judge Halbach struck any
5 constituent loan, and he said you're going to talk
6 about this loan. All of these other topics with one
7 exception contains or pertains to the Arlington
8 Apartments loans.
9 MR. RUBIN: No. All of those questions --
10 and 11 I agree with you because this is not -- could
11 not possibly be under number 11. I'll concur with
12 that. Any prior conduct, administration, practices,
13 policies, procedures of Wells Fargo Bank Minnesota in
14 administering commercial real estate loans is
15 directly related to the servicing standard under 3.01
16 in my view.
17 MR. SIMON: I agree with that.
18 MR. RUBIN: And I am entitled to explore,
19 now that we've gotten the general discussion
20 complete, I'm entitled to explore more specific
21 instances to see whether in circumstances similar to
22 those which we believe were present in this case
23 Wells Fargo has a practice, a policy or procedure, a
24 similar method of handling it that should have been
25 incorporated within 3.01. That's all I'm trying to
Page 129
1 do.
2 MR. SIMON: Well, you could have made your
3 questions clearer because even you can't point to one
4 that you think this clearly falls within.
5 MR. RUBIN: No, no. I'm telling you that I
6 think it is all included.
7 MR. SIMON: I'm done, Matt. Go with your
8 question.
9 MR. RUBIN: Oh, great.
10 MR. SIMON: He can answer it if he knows
11 it, but I'd like to move along.
12 MR. RUBIN: Well, I'm glad we got that
13 done. Can you even find the question? I'm glad I've
14 got a good court reporter here.
15 THE REPORTER: One moment, please.
16 MR. RUBIN: Thank you.
18 A No.
19 Q Thank you. All right. I think we talked
20 about number 8 in the list of subjects of examination
21 pretty extensively, and that's the servicing
22 standard. Let me just ask you a general question,
23 Mr. Schwartz.
24 Is there anything that you would add to
25 your prior testimony that would help us understand
Page 130
1 what was supposed to be the servicing standard, the
2 actual day-to-day administrative servicing approach
3 that was to be taken by ORIX in the servicing of this
4 loan or of this pool?
5 A No, I have nothing to add.
6 Q I thought that would be the answer.
7 Number 9. We didn't really talk
8 specifically about this, we kind of danced around it,
9 but this is the extent if any to which the policies,
10 procedures or standards for commercial lending
11 practices applicable to any Wells Fargo parent or
12 subsidiary company, including, without limitation,
13 Wells Fargo & Company and Wells Fargo Bank, N.A.,
14 were to be utilized, employed or complied with in the
15 administration of servicing of loans or servicing of
16 loans included in the trust.
17 And that loops me back I guess to the
18 questions I had begun to ask earlier, and that's
19 whether you think that these policies, practices or
20 procedures of either Wells Fargo Bank, as we've seen
21 that does CMBS loans, or the other Wells Fargo
22 companies, were intended to inform the servicing
23 standard. Do you understand my question?
24 A No. Sorry.
25 Q I was afraid of that. Let me just strike
Page 131
1 that.
2 Would Wells Fargo Bank Minnesota have
3 expected ORIX to comply with the same policies or
4 procedures or standards for commercial lending and
5 servicing that Wells Fargo Bank itself uses in its
6 administration of its own loan portfolio?
7 A No.
8 Q Why not?
9 A Because they're subject to the standards of
10 the pooling and servicing agreement, which are
11 necessarily different than those standards that are
12 used by the bank as a owner of assets as a lender
13 directly. Third party servicing is very different
14 from --
15 MR. SIMON: Let him finish his answer.
16 A -- from servicing for your own portfolio.
17 We have existing relationships with customers that
18 are commercial customers, and we do what we think is
19 right relative to those relationships and the lending
20 that we do with those. It has nothing to do with
21 lending that is done on a third party basis for a
22 pool of third party investors.
23 Q But with respect, sir, isn't that exactly
24 what Section 3.01 requires, that the loans be
25 administered or serviced in accordance by giving due
Page 132
1 consideration to the customary and usual standards of
2 practice of prudent institutional, commercial, et
3 cetera, mortgage lenders servicing their own mortgage
4 loans? Now, that's exactly what it says, isn't it?
5 A Uh-huh.
6 Q And that's a yes, right?
7 A That's exactly what it says, yes.
8 Q Okay. We can't do uh-huhs.
9 A Sorry.
10 Q That's okay. It's human.
11 So as I read it, the standards applicable
12 to lenders servicing their own mortgage loans are
13 supposed to be employed in evaluating the servicing
14 standard applicable to this particular third party
15 servicing agreement. Isn't that what it says?
16 A Notwithstanding your argument, there's no
17 responsibility that Wells Fargo has of interpreting
18 that standard in our role as trustee.
19 Q Objection, nonresponsive. I'm not asking
20 about whether Wells Fargo did anything to interpret
21 it. I'm asking about what -- again we're back to
22 where we were before -- what comprises this
23 standard. And here it's lenders servicing their own
24 mortgage loans. Let me ask it this way.
25 Is it your testimony that as far as the
Page 133
1 trustee is concerned, it would have been perfectly
2 acceptable for ORIX to engage in conduct that never
3 would have been deemed acceptable if committed or
4 undertaken by a Wells Fargo Bank, N.A. officer in
5 working out in dealing with a mortgage loan?
7 A I can't answer as to acceptable or not
8 acceptable. I'm unclear on what you're actually
9 question. What's the question?
10 Q Let me ask it this way. I'll come back to
11 that one in a second.
12 Is there any way under this servicing
13 standard as far as you know to evaluate whether the
14 actions and conduct of the master or special servicer
15 comply with the servicing standard?
16 A I don't know.
17 Q Okay. Would Wells Fargo Bank Minnesota
18 expect at a minimum that ORIX would comply with the
19 same CMBS servicing standards that Wells Fargo Bank,
20 N.A. employs in its CMBS servicing activities?
22 A I don't know what standards Wells Fargo
23 Bank, N.A. uses in their servicing activities, nor
24 can I speak to how that relates to ORIX's servicing
25 activities. The standards are laid out in the
Page 134
1 pooling and servicing agreement.
2 Q Well, sir, I mean you say they're laid out
3 in the pooling and servicing agreement, and I see
4 where that section is identified, but I'll be darned
5 if I can get a handle on what it is that this
6 language means in operation.
8 MR. RUBIN: That's not a question yet.
9 MR. SIMON: I'm objecting to the side bar,
10 Matt.
11 BY MR. RUBIN:
12 Q Okay. And I'm just trying to find out if
13 there is any clarification or guidance you can give
14 us as to what comprises the customary and usual
16 commercial mortgage lenders servicing their own
17 mortgage loans.
19 A Other than the sense that it is a general
20 industry standard followed by all servicers
21 performing this kind of function, no.
22 Q You're not changing your prior answer about
23 the extent to which Wells Fargo Bank, N.A.'s policies
24 or procedures might inform that customary standard,
25 are you?
Page 135
1 A No.
2 Q Okay.
3 A No.
4 Q Fine. Let's go on to the next one. I
5 think number 10 is easy. Internal reviews,
6 evaluations, assessments or communications within
7 Wells Fargo concerning the Arlington Apartments loan
8 or the actions or conduct of ORIX.
9 Are there any? Have there been any?
10 A None. No.
11 Q Number 11. Nature and extent of the
12 trustee's involvement in administration of trust or
13 decision-making on this constituent mortgage loan?
14 A None.
15 Q Do you have any understanding -- and this
16 is taken from both the prospectus and the PSA -- any
17 understanding about how fees are supposed to be
18 assessed to a borrower?
19 A I guess, first of all, I have to note that
20 the prospectus is not a document that Wells Fargo
21 Bank Minnesota is a party to.
22 Q Now, why do you say that, sir?
23 A Because it's a document that was prepared
24 by the underwriter that was selling these
25 securities. We didn't -- it's not a contract that we
Page 136
1 signed up to.
2 Q I would agree with that.
3 A So I can't speak to what it says. I mean
4 if you point to me a section, I can read it.
5 Q Sure. Excuse me. I'm sorry.
6 A But as it relates to -- I believe your
7 question related to fees that could be charged to the
8 borrower.
9 Q Yeah, that's right.
10 A Those are outlined in the loan documents,
11 not in either of the two documents that you, to my
12 understanding, that you listed.
13 Q All right. Do you have any understanding
14 about whether ORIX is supposed to comply with the
15 terms of the prospectus in its administration or
16 servicing of the loan, of any constituent loan?
17 A Yes, I have an understanding. And they're
18 supposed to comply with the terms of the pooling and
19 servicing agreement. I don't believe that the master
20 servicer or special servicer is a party to the
21 prospectus either. It's not a contractual document
22 that determines how they're supposed to act on behalf
23 of the trust or the investors. The pooling and
24 servicing agreement is the sole place where that's
25 determined.
Page 137
1 Q All right. So would it be accurate to
2 characterize your understanding and position as
3 basically the prospectus is issued by the issuer and
4 the depositor of the securities, and they're the only
5 ones who are responsible for the content?
6 A That's absolutely correct. Well, other
7 than the fact that you did not include the
8 underwriter.
9 Q I stand corrected of course.
10 A Using general terms you're correct, but
11 specific terms of art, underwriter would be included.
12 Q I appreciate that clarification, and I
13 would agree with you.
14 THE WITNESS: Can I ask that we take a
15 break?
16 MR. RUBIN: Of course. Don't forget to
17 unhook yourself.
18 THE WITNESS: Okay. Thanks.
19 MR. RUBIN: Sure.
24 We're back on the video record.
25 BY MR. RUBIN:
Page 138
1 Q Mr. Schwartz, continuing with our review of
2 the deposition notice, I think we're past number 12.
3 I'm going to skip a few of them. Going directly to
4 number 19, the default and workout standards and
5 fees.
6 The first question dealing with fees, do
7 you have any present understanding of the fee
8 structure to be paid to ORIX as, first, the master
9 servicer, and second, as special servicer?
10 A I have a general understanding.
11 Q I'm not sure where it is in the PSA, but I
12 can direct you to a couple of pages in the
13 prospectus, if you would turn there with me to, yeah,
14 Wells Fargo 10. And I believe this is the
15 supplement. At pages S 73 and 74 there's a
16 discussion of the fee structure.
17 A And apparently a rather lengthy one.
18 Q Yes. Well, the fees are important to
19 everyone I'm sure. And I won't ask you to have your
20 eyes glaze over by reading that whole thing, but
21 rather, just look with me, if you will, at the
22 specific numbers that are plugged in there.
23 In the first paragraph under Servicing and
24 Other Compensation and Payment of Expenses at S 73 it
25 says the primary compensation to be paid to the
Page 139
1 master servicer in respect of its servicing
2 activities will be the master servicing fee, and then
3 about halfway down that paragraph you see the
4 sentence about weighted average?
5 A Yes.
6 Q It says and the weighted average master
7 servicing fee rate as of the cutoff date will be
8 0.06199 percent. So what, just over six one-
9 hundredths of a percent. And then the special
10 servicing fee is described at the beginning at the
11 bottom of page S 73. The principal compensation of
12 the special servicer will be special servicing fee,
13 workout fee and liquidation fee. And we see at the
14 top of page S 74, quote, the special servicing fee
15 will accrue at a rate, the special servicing fee rate
16 equal to 0.25 percent per annum, and then it
17 continues by talking about how it's computed and
18 paid.
19 Looks to me like the special servicer earns
20 about, well, more than four times what the master
21 servicer earns as its fee.
22 Is that consistent with your understanding?
23 A Do you want to check your math?
24 Q Well, .06199 to .25 percent. A little bit
25 more than four times?
Page 140
1 A Okay. That sounds reasonable. Right.
2 Q In the view of the trustee, does that
3 create any incentive for the master servicer to send
4 a loan to special servicing to quadruple its fee?
5 MR. SIMON: Objection, form. That's a
6 prohibited topic, Matt.
7 MR. RUBIN: Huh?
8 MR. SIMON: It's a prohibited topic. It's
9 part of question 20. Does it create an incentive
10 goes directly to whether there was a conflict of
11 interest for the special servicer and the master
12 servicer.
13 MR. RUBIN: You won't let him answer?
14 MR. SIMON: The judge said he couldn't
15 answer it. I mean you're asking him to compare
16 default fees or special servicing fees and master
17 servicing fees and asking if there's an incentive for
18 it. It's clearly hinting towards whether there's a
19 conflict of interest.
20 MR. RUBIN: It doesn't matter. The
21 conflicts of interest are disclosed in the
22 prospectus, and they say there are going to be some,
23 so I'm not concerned about conflicts of interest.
24 I'm talking about administration of loans.
25 Specifically this deals with whether there may be an
Page 141
1 incentive if the trustee has any position. If they
2 don't, they don't. But it deals with administration
3 and good faith issues more than conflicts of
4 interest.
5 MR. SIMON: By the way, do you want to look
6 at the PSA for that? I found the section that deals
7 with it. It's on page 76.
8 MR. RUBIN: Does that have the .06?
9 MR. SIMON: It defines it in terms of a
10 spoken formula, but it doesn't define it in terms of
11 numbers.
12 MR. RUBIN: Right.
13 THE WITNESS: It's probably defined in the
14 definitions section.
15 MR. RUBIN: It's way in the back with the
16 table. This is actually a more convenient reference
17 I think.
18 BY MR. RUBIN:
19 Q And assuming these numbers are right, Mr.
20 Schwartz -- I think we can assume they're right --
21 I'll just ask you if -- and this can be a yes or
22 no -- if it's no, it's no -- from the trustee's
23 perspective the prospect of a special servicer
24 earning four times as much in fee income on a
25 specially serviced loan as opposed to a master
Page 142
1 service loan creates -- does it create any problems?
2 A Not from the perspective of performing the
3 duties that we're hired to perform, no.
4 Q All right. From the trustee's perspective,
5 does that create the possibility that the special
6 servicer will have an incentive or motivation to
7 transfer a loan from master to special servicing in
8 order to quadruple its fees?
10 A I wouldn't want to speak about the
11 possibility and the incentives of the various parties
12 that are not my entity.
13 Q Would you agree that whatever the
14 incentives or the intentions are, that when a loan is
15 transferred from master servicing to special
16 servicing, the special servicer earns considerably
17 higher compensation than it otherwise would have as
18 master servicer?
19 A Yeah, I think we proved that with the math
20 here.
21 Q And then there are also these other fees, a
22 workout fee and a liquidation fee, that may or may
23 not come into play depending on what happens, as
24 described in the prospectus, right?
25 A If that's what this prospectus says, yeah.
Page 143
1 I saw that it listed those fees.
2 Q Okay. Are you aware of whether there are
3 any -- or whether ORIX has ever engaged in any sort
4 of postforeclosure financing or participation
5 activities whereby it could earn additional
6 compensation on a foreclosed property?
7 MR. SIMON: Has ORIX ever done that? Is
8 that what your question is?
9 MR. RUBIN: As far as he knows, yeah. This
10 is number 16.
11 A I don't know if ORIX has ever done that.
12 Q This is specifically, this category number
13 16, upside participation from subsequent resales of
14 foreclosed properties financed by servicer.
15 Do you understand what that means?
16 A I think I know what you're getting at.
17 Q Tell me what you understand, and we'll see
18 if we're on the same page.
19 A What I think you're talking about is to the
20 extent the value of any real estate that's realized
21 in lieu of the payment of the loan exceeds the value
22 of the debt, that there's -- that's the upside that
23 you're referring to.
24 Q I'm glad we talked about that because that
25 is -- that's not exactly what I meant.
Page 144
1 Are you talking about the market value and
2 bidding in at below market value in that
3 circumstance? Maybe we are talking about the same
4 thing.
5 A I'm sorry. What I was referring to was the
6 ultimate net proceeds that could be realized upon the
7 disposition of the real estate.
8 Q Okay. And how from a trustee's perspective
9 could that benefit a servicer?
10 A From the trustee's perspective could that
11 benefit a servicer? I don't know.
12 Q Okay. Then what were you talking about
13 when you were describing your understanding of what
14 this subject was? I mean do you see a circumstance
15 in which there could be a benefit from this upside
16 participation?
17 A Yes.
18 Q Okay.
19 A But you asked me about the servicer
20 enjoying that benefit.
21 Q Right.
22 A And I don't know who would enjoy that
23 benefit.
24 Q Would that be something that's buried
25 somewhere here in the PSA or in the prospectus do you
Page 145
1 think?
2 A I'm not sure. The pooling and servicing
3 agreement should guide what the master servicer
4 should be doing or the special servicer should be
5 doing in terms of what they do with any cash they
6 realize upon the liquidation of real estate. I'm
7 confident that that would be a term that would not
8 have been left out or ignored by the counsel that
9 drafted these documents.
10 Q They're thorough. No question of that.
11 Have you ever experienced or seen a
12 situation where in one of these pool transactions a
13 loan is specially serviced, it goes into foreclosure,
14 and then the special servicer, through another
15 affiliate or division or entity, provides financing
16 to a buyer or obtains an equity participation in the
17 resale of the property after foreclosure?
18 A No.
19 Q Are you aware of any such arrangements ever
20 occurring?
21 A Isn't that what you just asked me?
22 Q I asked you if you've seen any or
23 participated in any.
24 A Okay. No. The answer to both is no.
25 Q Okay. There's a provision in the PSA that
Page 146
1 permits the servicer to purchase defaulted mortgage
2 loans. I'm wondering if the trustee has received any
3 notice from ORIX as master or special servicer that
4 it intends to buy or to acquire the note or the
5 Arlington Apartments property.
6 A I'm not aware of any such communication.
7 Q If there were any such communication, that
8 would be part of the file too, would it not?
9 A It should be.
10 Q Let's shift gears again and go back to
11 talking about servicing and workouts and loan
12 administration. I'm particularly interested in one
13 of those documents that's in front of you in the
14 exhibit binder.
15 A Okay.
16 Q It is, if memory serves --
17 MR. SIMON: What's the number?
18 MR. RUBIN: I'm trying to get the correct
19 number, Paul. I think it's 11, but let me
20 double-check. Okay. Hold on. No. Close. Number
21 12 is the one I'm interested in.
22 BY MR. RUBIN:
23 Q Now, Exhibit ORIX 12 is something that was
24 part of ORIX's document production.
25 Have you ever seen this before?
Page 147
1 A No. I'm confident I've not.
2 Q I didn't think you would have. Let me ask
3 you just to take a look at the first page of it. The
4 second and third pages with all -- and fourth with
5 all the detailed financial calculations I'm not going
6 to ask you about, but the first summary and comment
7 pages. I thought you might want to read the whole
8 thing.
9 A Do you want me to read the whole right side
10 of this page? I was just kind of waiting for a
11 question.
12 Q I'm sorry. We weren't communicating. Why
13 don't you go ahead and just read through that thing
14 on the ORIX modeling assumptions.
15 A Okay.
16 Q I do have some specific questions for you
17 further down the page.
18 A Okay. You'll just have to give me a few
19 minutes. This is detailed information.
20 MR. RUBIN: Yeah. Do you want to go off
21 the record while he reads it? There's no reason to
22 let him sit there.
23 MR. SIMON: That's fine.
24 MR. RUBIN: Let's go ahead and break off
25 the record while he reads.
Page 148
5 We're back on the video record.
6 BY MR. RUBIN:
7 Q Okay, Mr. Schwartz. Excuse me. I've taken
8 a moment off the record so you can read this January
9 16, 2001 final. It's an ORIX underwriting summary.
10 And I have some specific questions, not about the
11 detailed underwriting issues because that's not your
12 area of expertise, I know that, or your area of
13 testimony, but rather, this second to the last and
14 last section dealing with the projection of the
15 property's development or lack of development in the
16 future. And the ORIX report says with the poor
17 DSCR -- that's in all capital letters -- currently
18 estimated at .76 X, the property will need to have a
19 considerable financial commitment made to make it
20 able to service its debt. It is anticipated this
21 will not occur, and it will continue to be
22 insufficient property cash flow to service the debt
23 in the years 2001 forward, and thus, it appears the
24 borrower will have little equity motivation to remain
25 in the deal, and a foreclosure assumption is
Page 149
1 presumed.
2 Let me ask you about that. We had talked
3 earlier about troubled loans, if you will, or problem
4 loans and workout situations.
5 Based on what you've read here, would this
6 fit the description of a troubled or problem loan
7 potentially?
8 A I don't have expert knowledge to know that.
9 Q All right. Then let's just talk about the
10 workout aspect of it because workouts -- default on
11 workout standards and fees is part of category number
12 19 I believe.
13 Where ORIX is projecting in January of 2001
14 that the property will have to have a considerable
15 financial commitment made, but it's anticipated that
16 commitment will not occur, do you think ORIX should
17 have asked the borrower if it was prepared to make
18 that kind of commitment?
20 A I'm not in a position to think what ORIX
21 should have done or should not have done in servicing
22 the loan.
23 Q Well, in terms of workout standards or
24 ORIX's conduct as servicer, would or would not the
25 trustee have expected ORIX to make some effort to
Page 150
1 find out whether the borrower intended to continue
2 paying the loan or to make the necessary infusion or
3 financial commitment before projecting a foreclosure?
4 A You're asking me to give you specific
5 understanding of what ORIX should have done in their
6 servicing, and the only thing that I know relative to
7 the standards they need to service to is the sections
8 in the PSA that talk about it. I don't have any
9 detailed knowledge, nor does Wells Fargo Bank
10 Minnesota, N.A. as trustee have any detailed
11 knowledge of what those servicing standards should
12 be. And this would be a subset of that.
13 Q All right. Well, in compliance with the
14 usual and customary standards of reasonably prudent
15 commercial lenders in servicing their own mortgage
16 loans, do you think that at a minimum before
17 initiating acceleration and foreclosure proceedings,
18 a lender ought to find out from the borrower whether
19 they intend to make the financial commitment
20 necessary to the property?
22 A You're asking me to conjecture at how
23 somebody ought to go about servicing a loan. I've
24 already told you that I don't know about a serviced
25 loan, I'm not an expert on servicing loans, and
Page 151
1 Wells Fargo has no position on how to service a loan.
2 Q What about presuming foreclosures? Is this
3 the way that Wells Fargo Minnesota handles this kind
4 of situation for its own mortgage loans?
6 MR. RUBIN: I'm sorry, Paul. Go ahead.
7 MR. SIMON: I thought you were done.
8 Finish your question. Then I'll object.
9 BY MR. RUBIN:
10 Q Okay. Is this the way that Wells Fargo
11 Bank Minnesota deals with borrowers on commercial
12 real estate loans it handles for its own account?
14 A I don't know the details of how that's
15 done. It's negotiated on a case-by-case basis.
16 There's no one standard of how to go about doing
17 that. I would have to suppose or assume how the loan
18 officer or the workout committee would do that.
19 Q And there's nothing giving us any guidance
20 as to whether they should even make an effort to
21 contact the borrower before initiating a foreclosure
22 or an acceleration?
24 A Are you asking is there anything to give us
25 that kind of detailed guidance?
Page 152
1 Q I don't think I used the word detailed. I
2 said any guidance.
3 A I don't know of any guidance that Wells
4 Fargo Bank Minnesota uses in administering loans for
5 its own account other than that which we had talked
6 about before as the policy.
7 Q Do you know if Wells Fargo projects default
8 and acceleration and foreclosure on commercial loans
9 like this months before the projected default date?
10 MR. SIMON: Can I just get you to clarify?
11 We've been loose here with the term Wells Fargo. Are
12 we going back to Wells Fargo Minnesota, or are you
13 talking about --
14 MR. RUBIN: I'm talking about Minnesota.
15 MR. SIMON: Okay.
16 A Yeah. I don't remember the exact question
17 whether it's affirmative or negative.
18 Q Take a guess. What the heck. Let me try
19 it again.
20 Do you know whether Wells Fargo Minnesota
21 projects default and foreclosure on performing
22 loans -- by performing I mean current in principal
23 and interest -- six months to a year in advance?
24 A No, I don't know with what level of detail
25 and specificity how the workout group or bankers work
Page 153
1 with individual distressed assets.
2 Q All right. Wouldn't you think that it is a
3 minimum standard of customary and prudent lending
4 practice to have contact with the borrower to find
5 out what they intend to do with a particular
6 property?
8 A I'm in no position to know what's customary
9 and standard in terms of how or when the master
10 servicer or servicer would communicate with the
11 borrower.
12 Q And why is that, that you are not in a
13 position to testify to that?
14 A Because as I've said before, Wells Fargo
15 Bank Minnesota only makes these kinds of loans to
16 accommodate commercial customers that we already
17 have. We don't service for third parties. There's
18 not a standard that exists on exactly how to do each
19 piece.
20 Q And you have no idea what the present face
21 value of the commercial loan portfolio is for Wells
22 Fargo Bank Minnesota --
23 A No.
24 Q -- right?
25 A I don't know.
Page 154
1 MR. SIMON: Let him finish his question.
2 A Sorry. I didn't let you finish your
3 question.
4 Q That's okay.
5 A It had been asked before.
6 Q I just wanted to make sure.
7 There was something in the PSA and the
8 prospectus called, I believe, a controlling
9 certificate holder -- I'm sorry -- controlling class
10 representative.
11 Does that have any meaning to you --
12 A Yes.
13 Q -- for a particular pool?
14 A In a general sense. I don't know what it
15 means specifically for this pool.
16 Q Do you know if there was a controlling
17 class representative for any of the certificate
18 classes for this pool?
19 A I don't know.
20 Q Where would we find something like that,
21 that information?
22 A To the extent that one had been named, it
23 would be in our trust files.
24 Q If you would turn back with me in the
25 exhibit binder before you to exhibit ORIX 17.
Page 155
1 A Okay.
2 Q This is one you said you hadn't seen. It
3 was the May 29, 2001 documents from -- excuse me --
4 Mark Contreras of ORIX, an asset status report.
5 A Uh-huh.
6 Q And I notice on page 2 under distribution,
7 it shows a copy to Wells Fargo Norwest Bank
8 Minnesota. That's not the right name now, is it,
9 Wells Fargo Norwest Bank Minnesota, N.A.? That's
10 somewhat confusing I think.
11 A Yes, that's not an entity that I'm familiar
12 with.
13 Q Okay. Do you know Marlene Olsen?
14 A I do not.
15 Q No idea what her connection would have been
16 with this particular, this pool, or why she would
17 have been getting a copy on behalf of the bank?
18 A I really don't.
19 Q Do you know what if anything was done with
20 this asset status report that was sent some time in
21 May of 2001 to the trustee, master servicer, rating
22 agencies -- excuse me -- and it says directing
23 certificate holder of controlling class?
24 A I don't know what any of these parties
25 would have done with that.
Page 156
1 Q Was there any sort of internal review or
2 assessment done at Wells Fargo when this particular
3 asset status report came out after it was transferred
4 to special servicing?
5 A It's highly unlikely that that would have
6 occurred because we don't review the details of these
7 asset status reports. They're given to us either for
8 filing to keep a comprehensive trust file or to
9 forward to other parties that may want to look at the
10 detail of it.
11 Q Okay. And I may have asked you this. If I
12 did, I apologize, but do you have any feel or
13 estimation of about how many of the loans in this
14 pool may have been transferred from master or regular
15 servicing to special servicing?
16 A I don't know.
17 Q I take it you have no opinion, assessment,
18 evaluation, or anything to add, about the substance
19 of what's in this ORIX Exhibit 17?
20 A No, I have nothing to add.
21 Q I think we're finished with that, Mr.
22 Schwartz --
23 A Okay.
24 Q -- unless there's something --
25 A I'm just trying to --
Page 157
1 Q -- that you find particularly fascinating
2 in there.
3 A I'm trying to determine what the notice
4 address was for Wells Fargo and why it was sent to
5 that other address, which isn't typically our notice
6 address. That's the only reason I'm looking.
7 Q I see.
8 A Sorry for the interruption.
9 Q That's fine.
10 MR. RUBIN: Why don't we go ahead and break
11 and see if that's lunch.
12 THE WITNESS: Yeah. Let's go off the
13 record.
19 BY MR. RUBIN:
20 Q Mr. Schwartz, let me ask you to take a look
21 back at the old PSA again, ORIX 2. And this time I'm
22 interested in something that's at the bottom of page
23 71.
24 A Okay.
25 Q And this is Section 3.09 that's entitled,
Page 158
1 Realization Upon Defaulted Mortgage Loans Required
2 Appraisals. And it's a very long paragraph, but I'm
3 interested particularly in the section dealing with
4 when under the PSA the special servicer is supposed
5 to initiate foreclosure proceedings or is permitted
6 to. And it states the special servicer subject to
7 subsections B through D of this Section 3.09 of
8 course may at any time consistent with the servicing
9 standard foreclose upon or otherwise comparably
10 convert, parens, which may include an REO
11 acquisition, closed parens, the ownership of property
12 securing such mortgage loans as come into and
13 continue in default as to which no satisfactory
14 arrangements can be made for collection of delinquent
15 payments and which are not released from the trust
16 fund pursuant to any other provision hereof. And
17 then it continues with language dealing with casualty
18 damage and the bidding process, advances and such
19 things, but I'm specifically interested in the
20 contingency under Section 3.09 A that says that the
21 special servicer can foreclose upon properties that
22 come into and continue in default as to which no
23 satisfactory arrangements can be made for collection
24 of delinquent payments.
25 Now, are you aware of any other contingency
Page 159
1 in the PSA pursuant to which the special servicer is
2 permitted to initiate foreclosure proceedings?
3 A No, I'm not familiar with every aspect of
4 the PSA.
5 Q If the only contingency that is stated in
6 the PSA and the only one identified as an event
7 following which the special servicer may initiate
8 foreclosure, if this is all that is stated, would you
9 expect this to be the only circumstance in which
10 foreclosure is supposed to be initiated?
12 A I can't expect all the ways that it might
13 happen and the ways that a servicer might exercise
14 their general duties to protect the interest of the
15 ownership of the loan.
16 Q Well, I'll object to that as
17 nonresponsive.
18 Is there any other section of the PSA
19 that -- as far as you know, that addresses whether or
20 not or when the special servicer may initiate
21 foreclosure or otherwise acquire the property?
22 A No, not to my knowledge.
24 BY MR. RUBIN:
25 Q And if the only contingency listed in
Page 160
1 Section 3.09 is payment default for which no
2 satisfactory arrangement can be made, well, then
3 that's what the servicer is limited to, isn't it --
5 BY MR. RUBIN:
6 Q -- as you understand?
7 A I can't speak to what the servicer is
8 limited to. My understanding is generally they have
9 broad powers to exercise judgment in performing their
10 duties subject to that standard that we've talked
11 about so much in this deposition.
12 Q Sure. And it does say consistent with the
13 servicing standard, but I'll object to the non
14 responsive portion.
15 Would you agree with me that if the only
16 circumstance in the PSA that expressly permits the
17 special servicer to foreclose is payment default for
18 which no satisfactory arrangements can be made for
19 collection of delinquent payments, then the special
20 servicer is bound by that limitation?
22 A I don't know what they'd be bound by or
23 not. I can't agree with -- even if I were to
24 stipulate to the assumption of if this was the only
25 section that you stated, I don't know how to
Page 161
1 interpret that section as a servicer.
2 Q Why not?
3 A Because I'm not a servicer, and my
4 organization doesn't service these loans in these
5 capacities.
6 Q And again you can't testify as to the
7 standard that should have been employed or applied to
8 ORIX in its conduct?
9 A I can't offer any additional information
10 than what we've discussed already.
11 Q The decision to proceed to foreclose
12 against a property that's involved in one of these
13 pools is not a decision taken lightly, is it?
15 A I don't know how subjectively ORIX or any
16 other servicer would take that decision.
17 Q Do you know about how many of the loans
18 comprising this pool have been put into foreclosure
19 of the 106 or so loans?
21 A No, I don't know.
22 Q Any sense at all? 1, 10, 50?
24 A I don't know.
25 Q Would you expect the PSA to define the
Page 162
1 circumstances in which the special servicer is
2 permitted to initiate foreclosure or otherwise to
3 acquire the property?
5 A In the general sense of promulgating
6 standards for the servicer, yes.
7 Q Or specific provisions, right, if there are
8 specific provisions?
9 A Subject --
11 BY MR. RUBIN:
12 Q Go ahead. Subject --
13 A Subject to the servicing standard.
14 Q Sure. Okay.
15 A My understanding is the servicing standard
16 is not intended to be a limiting or any other thing
17 to be a limiting factor in what the servicer can or
18 cannot do. It's intended to give them broad powers
19 to protect the interest of the investors in the
20 trust.
21 Q All right. Let's talk about protecting the
22 interest of the investors in the trust. I want you
23 to assume certain facts for me, and I'm going to ask
24 you a couple of questions about them. Assume that in
25 March of 2002 the Arlington Apartments loan was paid
Page 163
1 current for principal and interest, that there had
2 been no default in payment of principal and interest
3 since the inception of the loan, which was in July of
4 1999, so almost two years of unblemished payment
5 history, that the property was then seized by the
6 special servicer pursuant to Louisiana process, that
7 since March of 2002 -- I'm sorry -- it was two and a
8 half years -- March of 2002 the property has been in
9 the possession of the keeper appointed by the
10 Louisiana court at the request of the special
11 servicer, that since that time collections have
12 dropped, the condition of the property has
13 deteriorated, physical condition.
14 A Just for clarification, since what time?
15 Q Since the seizure in March of 2002. And if
16 I said 2001, I was wrong. It's 2002.
17 A Okay.
18 Q Rent collections have dropped. The
19 condition of the property has deteriorated. There
20 have been either none or virtually no payments of
21 principal and interest on the note, and the value of
22 the property has declined because of diminished
23 occupancy and increased deterioration, wear and
24 tear.
25 Assuming that all of those facts are
Page 164
1 correct, can you say that ORIX's actions in seizing
2 the property in March of 2002 with those outcomes
3 would have been done consistent with a view to
4 maximizing the timely recovery of principal and
5 interest on a present value basis?
6 MR. SIMON: Objection, form. Matt, I don't
7 think this is an appropriate area for you to be
8 asking him for an expert opinion to take a bunch of
9 incomplete hypotheticals and assume an answer.
10 You've been doing this all day. It's not an
11 appropriate 30 B 6.
12 MR. RUBIN: Are you going to tell him not
13 to answer? Let's just do it the right way. Either
14 tell him not to answer or let him answer. I have
15 nothing else to say.
16 MR. SIMON: Taper your answers down. This
17 is ridiculous.
18 MR. RUBIN: Are you going to let him answer
19 or not answer?
20 MR. SIMON: I'm going to let him answer
21 this question, Matt. I'm not going to keep him going
22 down this road.
23 MR. RUBIN: Okay. Let him answer then.
24 MR. SIMON: If you can.
25 A You've given me a number of assumptions.
Page 165
1 Can you state the actual question? I wrote down the
2 assumptions because I had a feeling a long list was
3 coming. Can you give me the question again?
4 Q Absolutely. I'll even give you a preview
5 of it. I'm trying to get the position of the trustee
6 as to whether what ORIX has done, and I'm asking you
7 to assume all those things have happened since March
8 of 2002, have occurred, in the face of a loan that
9 was performing completely, monthly payments of
10 principal and interest were being made and passed
11 through to all the certificate holders in accordance
12 with the appropriate provisions of the pool.
13 If in fact there was such a seizure in
14 March of 2002 when there had been no payment default,
15 if since then the property has deteriorated, the
16 collections have dropped --
17 A I got the assumptions.
18 Q All those assumptions.
19 Assuming all that's true, from the
20 trustee's perspective was that seizure and kicking my
21 clients out, off the property, was that consistent
22 with a view towards maximizing the timely recovery of
23 principal and interest on a present value basis on
24 this particular loan?
25 A I have no reason to believe that ORIX
Page 166
1 didn't take that view when they took that action. I
2 can't play Monday morning quarterback to know what's
3 happened since then or to second guess ORIX's
4 decisions. Those were their decisions. It was their
5 purview, and the trustee doesn't have any opinion at
6 all about whether those were good or bad decisions or
7 whether they were done in accordance with the
8 servicing standard or not.
9 Q Would you agree that the paramount interest
10 of the trustee is in obtaining payment of the
11 mortgage loans so that the -- on a timely basis of
12 principal and interest -- so that the proceeds of
13 those loans can be distributed to the certificate
14 holders in accordance with the terms of the
15 prospectus?
16 A I believe that you've described the
17 perspective that an investor would have, but the
18 trustee is limited to certain ministerial duties that
19 are outlined in the PSA.
20 Q All right. Does the trustee have any
21 interest at all in ensuring the timely payment of
22 principal and interest on the constituent mortgage
23 loans so that the proceeds can be passed through to
24 the various investors who bought into the securitized
25 pool?
Page 167
1 A In a general sense, yes.
2 Q And would you agree that that is the
3 paramount obligation that either the master and
4 special servicer have -- well, just leave it at that,
5 the master and special servicer would have getting
6 the loans paid so that the proceeds, the payments can
7 be passed through in accordance with the prospectus?
9 A I think that the perspective of those
10 entities is outlined in 3.01 where it defines the
11 servicing standard. You're asking me again to
12 summarize or give you an opinion about that servicing
13 standard. I'm not in a position to. It's not my
14 organization's responsibility under the documents to
15 have that perspective or opinion.
16 Q So we just revert to the language of 3.01
17 that talks about a view towards maximizing the
18 recovery?
19 A Yes.
20 Q Okay. Good enough. And we're just about
21 finished. Believe it or not, I think I'm finished.
22 Let me just ask you one final identification
23 question, give you one last exhibit.
Page 168
1 transcript.)
2 BY MR. RUBIN:
3 Q Are you familiar with an organization
4 called the Commercial Real Estate Secondary Market
5 and Securitization Association?
6 A Yes.
7 Q Let me show you a publication that we found
8 that that entity had prepared. It's called CMBS
9 Basic Overview an Industry Contribution from CSSA.
10 That's Wells Fargo Exhibit 12.
11 Have you ever by chance seen that overview
12 or summary of the CMBS process?
13 A Clarify. No. The answer to your question
14 is no, I don't believe I've seen this document.
15 Q Okay. Based upon your experience in the
16 industry and the CMBS segment of the industry, would
17 that association, shall we say, know what they're
18 talking about in preparing an overview of the CMBS
19 process?
21 A You're asking me to tell you whether I
22 would believe what they're telling me? I'm not quite
23 sure.
24 Q If you think that that is an -- if that
25 association has sufficient knowledge, experience and
Page 169
1 in depth, if you will, in the CMBS field to write an
2 overview of the CMBS process.
4 A The organization has since morphed into a
5 different organization known as the CMSA, and the
6 organization is made up of various industry
7 participants that perform various aspects related to
8 commercial mortgage-backed securities. There are
9 certainly people in the membership that have that
10 knowledge. The organization in and of itself isn't
11 an entity in a sense other than it's a membership
12 organization of those people in this line of
13 business.
14 Q What is the CSSA? Do you know what that
15 means?
16 A It's a predecessor organization to the CMS
17 -- the CMSA I believe.
18 Q Do you know what CSSA stands for? Because
19 I couldn't find it in there. I was just curious.
20 A I will use my best recollection, but I
21 can't promise you it's exactly right.
22 Q You can cross your fingers on this.
23 A Commercial Securitization Association --
24 Commercial -- I don't remember exactly. I honestly
25 don't. It's been years since they changed names to
Page 170
1 the CMSA, which is the Commercial Mortgage Securities
2 Association. Effectively the same entity. They just
3 thought the name was more reflective of what they
4 did.
5 Q As an industry trade association then
6 dealing with these particular types of securities,
7 would you think that they have at least a general
8 sense of what the CMBS process entails?
9 A I would say that the members do. The
10 organization of itself does not have employees with
11 that kind of wherewithal.
12 Q Do you know anything at all about how
13 either CSSA or CMSA prepares publicly available
14 information like this overview I've handed you as
15 Exhibit 12?
16 A Yes, I have a general understanding of how
17 that's done.
18 Q Okay. And briefly tell me what that is so
19 we can all get out of here.
20 A Yeah. I know we all have things to do.
21 It's -- the process is to have constituents members
22 write sections or whole documents and have other
23 members do sort of a peer review kind of concept to
24 ensure that they're reasonably accurate and
25 representative of factual statements.
Page 171
1 Q All right. And that process, assuming that
2 what I've handed you is an authentic and accurate
3 copy of a CSSA publication, that process would have
4 been followed in preparing this CMBS Overview as far
5 as you know?
6 A As far as I --
7 Q Okay.
8 A Likely, yes.
9 Q That's fine.
10 A You know, given that I don't really know
11 this document.
12 Q And I won't ask you to go through it unless
13 you're just dying to do some more reading today, but
14 I doubt that's likely to occur.
15 MR. RUBIN: So I think that that will just
16 about do it for me, Mr. Schwartz. I appreciate your
17 time and your courtesy.
18 THE VIDEOGRAPHER: The time is 1:39. This
19 is the end of the video deposition. Off the record.
20 Two tapes were used today.
21 (Discussion off video record, continuing on
22 written record only.)
23 THE REPORTER: For the written record, Mr.
24 Schwartz, will you be reading and signing or waiving?
25 THE WITNESS: I'll read and sign the
Page 172
1 transcript of the written record.
2 THE REPORTER: And Mr. Simon, where will we
3 send the read and sign?
4 MR. SIMON: If you want, you can send it
5 directly to Barry. Barry, do you mind receiving it
6 directly? It will save time.
7 THE WITNESS: That's fine. This is the
8 address, 9062 Old Annapolis Road.
9 THE REPORTER: And Mr. Simon, will you be
10 ordering a copy of the testimony today?
11 MR. SIMON: Yes.
12 THE REPORTER: And a copy of the exhibits
13 also?
14 MR. SIMON: Sure. Regular deposition and
15 an ascii disk is fine.
16 (Signature having not been waived, the
17 deposition of Barry S. Schwartz was concluded at 1:41
18 P.M.)
19
20
21
22
23
24
25
Page 173
1 CHANGES AND SIGNATURE
2 PAGE LINE CHANGE REASON
3 _____ _____ _________________________________
4 _____ _____ _________________________________
5 _____ _____ _________________________________
6 _____ _____ _________________________________
7 _____ _____ _________________________________
8 _____ _____ _________________________________
9 _____ _____ _________________________________
10 _____ _____ _________________________________
11 _____ _____ _________________________________
12 _____ _____ _________________________________
13 _____ _____ _________________________________
14 _____ _____ _________________________________
15 _____ _____ _________________________________
16 _____ _____ _________________________________
17 _____ _____ _________________________________
18 _____ _____ _________________________________
19 _____ _____ _________________________________
20 _____ _____ _________________________________
21 _____ _____ _________________________________
22 _____ _____ _________________________________
23 _____ _____ _________________________________
24 _____ _____ _________________________________
25 _____ _____ _________________________________
Page 174
1 I, Barry S. Schwartz, have read the
2 foregoing deposition and hereby affix my signature
3 that same is true and correct, except as noted above.
4
5
6 _________________________
7
8
9 STATE OF _____________________)
10 COUNTY OF ____________________)
11
12 BEFORE ME, ______________________, on this day
13 personally appeared ___________________, known to me
14 or proved to me under oath or through
15 ____________________ (description of identity card or
16 other document) to be the person whose name is
17 subscribed to the foregoing instrument and
18 acknowledge to me that they executed the same for the
19 purposes and consideration therein expressed.
20 Given under my hand and seal of office this
21 _______ day of ____________________, 2004.
22
23 __________________________
24 Notary Public in and for
25 the State of _____________
Page 175
1 Wells Fargo Bank Minnesota, N.A., et al. v.
2 Mondona Rafizadeh, et al.
3 I, Sharon D. Livingston, a Registered
4 Professional Reporter and Notary Public in and for
5 the State of Maryland, hereby certify to the
6 following:
7 That the witness, Barry S. Schwartz, was duly
8 sworn by the officer and that the transcript of the
9 oral deposition is a true record of the testimony
10 given by the witness;
11 That the deposition transcript was submitted on
12 ______________ to the witness or to the attorney for
13 the witness for examination, signature and return to
14 me by _________________, 2004;
15 That the amount of time used by each party at
16 the deposition is as follows:
17 Matt E. Rubin: Four hours, thirty minutes.
18 That pursuant to information given to the
19 deposition officer at the time said testimony was
20 taken, the following include all parties of
21 record:
22 Paul Simon, Esquire, on behalf of plaintiffs
23 and counterdefendants
24 Matt E. Rubin, Esquire, on behalf of defendants
25 and counterplaintiffs
Page 176
1 I further certify that I am neither counsel for,
2 related to, nor employed by any of the parties or
3 attorneys in the action in which this proceeding was
4 taken, and further, that I am not financially or
5 otherwise interested in the outcome of the action.
6 Further certification requirements pursuant to
7 Rule 203 of the TRCP will be certified to after they
8 have occurred.
9 Certified to by me this 12th day of January
10 2004.
11
12 __________________________________
13 Sharon D. Livingston
14
15
16
17 My commission expires:
18 July 1, 2005
19
20
21 ____________________________
22 Notary Public in and for the
23 State of Maryland
24
25

Barry Schwartz

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