American Home Mortgage Investment Corp. v. Lehman Bros. (In Re American Home Mortgage, Holdings, Inc.)

OPINION 1

INTRODUCTION

Before the Court is a motion to dismiss the bulk of the complaint filed by American Home Mortgage Investment Corp. against Lehman Brothers Inc. and Lehman Commercial Paper Inc. The complaint contains five counts, including five requests for declaratory judgment contained in the fifth count. The first three requests for declaratory judgment center on whether the “safe harbor” protections of section 559 and 555 of the Bankruptcy Code apply to the transaction in question. The Court finds that the transaction in question is a “repurchase agreement” under the statute and the safe harbor provisions of sections 559 and 555 of the Bankruptcy Code are applicable.

Consequently, the Court further finds that the relevant defendant did not violate the automatic stay imposed by section 362(a) of the Bankruptcy Code when it exercised its rights under an ipso facto clause. Furthermore, the Court finds that the relevant defendant was not constrained by Article 9 of the Uniform Commercial Code when it exercised its rights under the ipso facto clause. Thus, the Court will dismiss four of the five requests for declaratory judgment contained in the fifth count. 2

Finally, the Court will dismiss Counts I through IV of the complaint. For the reasons set forth below, each of these counts fails to state a claim upon which relief can be granted. 3

JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Venue of this proceeding is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (E), (G) and (0).

STATEMENT OF FACTS

I. Procedural Background

American Home Mortgage Investment Corp. (“AHMIC” or “Plaintiff’), a debtor in possession in the above-captioned chapter 11 cases, commenced this adversary proceeding by filing a complaint (“Com *75 plaint”) against Lehman Brothers Inc. and Lehman Commercial Paper Inc. (collectively “Lehman” or “Defendants”). 4 In the Complaint, AHMIC puts forward five counts: breach of contract, turnover of property of the estate, conversion, unjust enrichment, and declaratory judgment.

In response to the Complaint, the Defendants filed a motion to dismiss the bulk of the Complaint and a supporting brief (collectively, “Motion to Dismiss”). 5 The Defendants request that the Court dismiss the Plaintiffs claims for breach of contract, turnover of property of the estate, conversion, and unjust enrichment. The Defendants also,.request that the Court dismiss the first four claims for declaratory judgment contained in the fifth count.

The Plaintiff filed an answering brief in opposition to the Motion to Dismiss (“Plaintiffs Answer”). 6 The Defendants subsequently filed a response (“Defendants’ Response”). 7 The Court heard oral argument on March 13, 2008. This matter is now ripe for decision.

II. Facts 8

The facts relevant to this dispute center on a structured finance transaction involving AHMIC, Lehman Brothers Inc. (“Lehman Brothers”) and Lehman Commercial Paper Inc.

AHMIC was engaged in the business of originating residential mortgage loans. 9 To fund its business of originating loans, AHMIC sold mortgage loans to special-purpose entities (“SPE’s”). 10 The SPE’s issued commercial paper and subordinated debt to raise funds to purchase the mortgage loans from AHMIC. 11 One such SPE, Broadhollow Funding LLC (“Broad-hollow”), issued commercial paper in the form of secured liquidity notes and subordinated notes. 12 Both the commercial paper and the subordinated notes were secured by hens on the mortgage loans it purchased from AHMIC. 13 Relevant to this dispute are the subordinated notes known as Series 2004-A Notes and Series 2005-A Notes. 14 Standard & Poor’s rated the Subordinated Notes “BBB,” and Moody’s rated the Subordinated Notes “Baa2.” 15

In June, 2005, AHMIC purchased the Series 2005-A Notes from Lehman in the aggregate principal face amount of $53,125,000. In July, 2007, AHMIC purchased the Series 2004-A Notes in the aggregate principal face amount of $31,000,000. 16 Lehman agreed to finance both note purchases under the parties’ pre-existing master repurchase agreement (“MRA”). 17

*76 Later, in July, 2007, AHMIC and Lehman entered into a transaction under the MRA (the “Subordinated Notes Transaction”). Under the Subordinated Notes Transaction, AHMIC sold the Series 2004-A Notes and Series 2005-A Notes (collectively “Subordinated Notes” or “Notes”) to Lehman pursuant to the MRA. 18 Under the terms of the MRA, AHMIC was the “Seller” of the Subordinated Notes and one or more entities comprising or affiliated with Lehman was the “Buyer” of the Notes. 19

After the initial sale of the Subordinated Notes, the MRA entitled Lehman to make margin calls when the market value of the Notes, as determined by a “generally recognized source,” fell below a certain amount. 20 If Lehman made a margin call, AHMIC was required to transfer to Lehman cash or additional securities, so that the value of the cash or additional securities or both combined with the aggregate value of the Subordinated Notes equaled or exceeded the aggregate Buyer’s Margin Amount. 21

Throughout July 2007, Lehman asserted that the market value of the Notes had dropped to 91 percent of their market value. 22 Then on July, 23, 2007, Lehman made a margin call. 23 While AHMIC disagreed with Lehman’s characterization of the Notes’ value, it satisfied this margin call. 24

On July 26, 2007, Lehman asserted that the value of the Subordinated Notes had fallen to 80 percent of their face value and that this drop entitled Lehman to make a second margin call. 25 AHMIC did not satisfy this margin call. 26

On August 1, 2007, Lehman sent notice (“Pre-Petition Default Notice”) to AHMIC stating that its failure to pay the latest margin constituted an event of default and that Lehman reserved all of its rights under the MRA. 27 AHMIC and its affiliated debtors and debtors in possession sought protection under chapter 11 on August 6, 2007. 28 Subsequently, on August 27, Lehman issued the PosL-Petition Foreclosure Notice in which it notified AHMIC that “it had terminated the MRA and that it either had foreclosed or intended to foreclose on *77 the [Subordinated Notes] in lieu of selling them to a third party.” 29 In addition, Lehman notified AHMIC that the market value of the Notes was 68.25 percent of face value. 30 After these events, “Lehman held itself out to third parties, including the Indenture Trustee with respect to the Subordinated Notes, as the owner of the [Notes.]” 31

LEGAL DISCUSSION

I. The Standard for Evaluating a Motion to Dismiss

A motion under Rule 12(b)(6) serves to test the sufficiency of the factual allegations in the plaintiffs complaint. 32 “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations ... [f]actual allegations must be enough to raise a right to relief above the speculative level.” 33 In deciding a motion to dismiss, the Court must “accept all factual allegations in the complaint as true.” 34 In addition, the Court will “construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” 35 Furthermore, “[t]he issue is not whether a plaintiff will ultimately prevail but whether he or she is entitled to offer evidence to support the claims.” 36

II. The Master Repurchase Agreement In This Case Is A “Repurchase Agreement” Under The Statute And The “Safe Harbor” Provisions Of Sections 559 And 555 Of The Bankruptcy Code Are Applicable.

a. Background

In Bevill, Bresler & Schulman Asset Mgmt. Corp. v. Spencer S & L Ass’n, the Third Circuit succinctly described the nature of the agreement before the Court:

A standard repurchase agreement, commonly called a “repo,” consists of a two-part transaction. The first part is the transfer of specified securities by one party, the dealer, to another party, the purchaser, in exchange for cash. The second part consists of a contemporaneous agreement by the dealer to repurchase the securities at the original price, plus an agreed upon additional amount on a specified future date. A “reverse repo” is the identical transaction viewed from the perspective of the dealer who purchases securities with an agreement to resell. 37

As this Court recently discussed in Ca-lyon N.Y. Branch v. Am. Home Mortg. Corp., the market for repurchase agreements is a critical component of, not only the U.S. financial market, but global finan- *78 eial markets as well. 38 To protect the liquidity of repurchase agreements, the Bankruptcy Code provides special protections to non-debtor counterparties. Without these special protections, or safe harbors as they are known, the bankruptcy of a counterparty to a repurchase agreement would impair the liquidity of the repurchase agreement and possibly lead to the bankruptcy of the non-debtor counterparties.

One such special protection applies to ipso facto clauses. Ipso facto clauses are found in many contracts and allow one party to terminate the contract because the other party files for bankruptcy. The Bankruptcy Code generally prohibits non-debtor counterparties from enforcing an ipso facto clause. 39 Section 559 of the Bankruptcy Code provides an exception to this general rule and allows a non-debtor counterparty to a “repurchase agreement” (as defined by section 101(47) of the Bankruptcy Code) to exercise its contractual right under an ipso facto clause to liquidate, terminate or accelerate the repurchase agreement. 40 Section 555 provides a similar protection for the non-debtor coun-terparty to a “securities contract” (as defined by section 741 of the Bankruptcy Code). 41 Thus, if the provisions of either section 559 or 555 are satisfied, enforcement of the non-debtor counterparty’s rights under an ipso facto clause is not prohibited by section 365(e) or section 362(a) of the Bankruptcy Code.

The MRA contains such an ipso facto clause. Specifically, the MRA provides that upon an “Event of Default,” the non-defaulting party may:

[I]mmediately sell, in a recognized market (or otherwise in a commercially reasonable manner) at such price or prices as the nondefaulting party may reasonably deem satisfactory, any or all Purchased Securities subject to such Transactions and apply the proceeds thereof to the aggregate unpaid Repurchase Prices and any other amounts owing by the defaulting party hereunder, or ... elect ... to give the defaulting party credit for such Purchased Securities in an amount equal to the price therefor on such date, obtained from a generally recognized source ... against the aggregate unpaid Repurchase Prices and any other amounts owing by the defaulting party hereunder ... 42

Under the MRA an “Event of Default” includes an “Act of Insolvency,” which is defined by the MRA to include, “[t]he commencement by such party as debtor of any case or proceeding under any bankruptcy ... law ...” 43 Therefore, on August 6, 2007, when AHMIC filed for bankruptcy, an Event of Default occurred under the MRA. Simultaneously, the appropriate Lehman counterparty to the Subordinated Notes Transaction (“Lehman Counterparty”) became entitled to exercise it rights under the MRA’s ipso facto clause.

Turning to Defendants’ Motion to Dismiss, if the MRA is a “repurchase agreement,” the Court must dismiss the Plaintiffs request for a declaration that, “the MRA is not a ‘repurchase agreement’ as defined in section 101(47) .,.” 44 If the *79 Court finds that the MRA is a “securities contract,” the Court must dismiss the Plaintiffs request for a declaration that, “Lehman is not entitled to the ‘securities contract’ safe harbor of section 555...” 45 Finally, if the Court finds that the MRA is either a “securities contract” or a “repurchase agreement” or both, the Court must dismiss the Plaintiffs request for a declaration that, “Lehman violated the automatic stay imposed under section 362(a) of the Bankruptcy Code by terminating the MRA and foreclosing on and/or liquidating the AHMIC-Owned Notes ...” 46

b. Section 559 of the Bankruptcy Code Applies to the MRA

In the Complaint, the Plaintiff seeks a declaration that:

[T]he MRA is not a “repurchase agreement” as defined in section 101(47) of the Bankruptcy Code because the Subordinated Notes do not meet the definition of “mortgage related securities (as defined in section 3 of the Securities and Exchange Act of 1934)” when they were rated “BBB” by Standard & Poor’s and “Baa2” by Moody’s. 47

The Defendants argue that the Lehman Counterparty is entitled to the safe harbor protections of section 559 because the MRA is a “repurchase agreement.” 48 Accordingly, the Court must determine whether the MRA is a “repurchase agreement.”

Section 101(47) of the Bankruptcy Code, in relevant part, defines “repurchase agreement” as:

[A]n agreement, including related terms, which provides for the transfer of one or more ... mortgage related securities (as defined in section 3 of the Securities Exchange Act of 1934), mortgage loans, interests in mortgage related securities or mortgage loans ... against the transfer of funds by the transferee of such ... mortgage loans, or interests, with a simultaneous agreement by such transferee to transfer to the transferor thereof ... mortgage loans, or interests of the kind as described in this clause, at a date certain not later than 1 year after such transfer or on demand, against the transfer of funds ... 49

No other criteria are set forth in the statute for a contract to be considered a repurchase agreement under the Bankruptcy Code.

To determine whether the MRA is a “repurchase agreement” the Court must make a two-part inquiry. First, the Court must determine if the Subordinated Notes qualify as either mortgage related securities, mortgage loans, interests in mortgage related securities or interests in mortgage loans. Second, the Court must determine if the structure of the MRA follows the structure of a “repurchase agreement” as defined by the Bankruptcy Code.

i. The Subordinated Notes are Interests in Mortgage Loans

Having addressed the requirements of a “repurchase agreement” under the Bankruptcy Code, the Court turns to the first step in its inquiry, i.e., whether the Subordinated Notes qualify as mort *80 gage related securities, mortgage loans, interests in mortgage related securities or interests in mortgage loans.

The Bankruptcy Code defines the term “mortgage related securities” by incorporating the definition of the term contained in section 3 of the Securities Exchange Act of 1934. 50 The Securities Exchange Act of 1934 defines “mortgage related securities,” in relevant part, as “a security that is rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization ...” 51

As discussed above, after Broadhollow issued the Subordinated Notes, the notes were rated by Standard and Poor’s as “BBB” and by Moody’s as “Baa2.” 52 Standard and Poor’s and Moody’s provide, among many other services, nationally recognized credit ratings for various debt instruments. Standard and Poor’s system of credit evaluation rates default risk on a scale of from AAA to D, with intermediate ratings of AA, A, BBB, BB, B, CCC, CC, and C. 53 Moody’s system of credit evaluation rates default risk on a scale of from Aaa to C, with intermediate ratings of Aa, A, Baa, Ba, B, Caa and Ca (Is, 2s or 3s are added within each category to indicate the high, middle or low end of the range). 54

Accordingly, the Subordinated Notes are not “mortgage related securities” because neither Standard and Poor’s nor Moody’s gave the Subordinated Notes one of their two highest ratings. Thus, in order to qualify as a “repurchase transaction,” the Subordinated Notes must qualify as mortgage loans, interests in mortgage related securities or interests in mortgage loans. 55 The Court’s analysis of these three terms is complicated by the fact that none are defined by the Bankruptcy Code.

To determine the meaning of each of these terms, the Court must begin by giving the language of each its ordinary meaning. 56 As the Supreme Court recently observed in Hartford Underwriters Ins. Co. v. Union Planters Bank, “when a statute’s language is plain, the sole function of the courts, at least where the disposition by the text is not absurd, is to enforce it according to its terms.” 57 With this principle in mind, the Court turns to the analysis of whether the Subordinated Notes qualify as mortgage loans, interests in mortgage related securities or interests in mortgage loans.

The Court will first examine the term “interests in mortgage related securi *81 ties.” While the Bankruptcy Code does not define “interests in mortgage related securities,” the Code does define the term “mortgage related securities.” From a plain reading of the statute, it is clear that “interests in mortgage related securities” must be some interest in “mortgage related securities.” The term “interest” in this context means “a financial share or stake in something: the relation of being one of the owners or beneficiaries of an asset, company, etc.” 58 Thus, the term “interests in mortgage related securities” means a financial share or stake in “mortgage related securities.”

The Subordinated Notes are not “mortgage related securities” because of the ratings they received from Standard and Poor’s and Moody’s. It follows that, since the Subordinated Notes are not “mortgage related securities,” they cannot constitute an “interest” in mortgage related securities. Therefore, the Defendants are left with two options: the Subordinated Notes must either be “mortgage loans” or “interests in mortgage loans.”

The Defendants argue that the Subordinated Notes are “interests in mortgage loans” because the Notes are secured by the mortgage loans Broadhollow purchased from one or more of the Debtors. 59 The Plaintiff, however, disagrees with this reading of the term “interests in mortgage loans.”

As discussed earlier, the 1934 Act requires that “mortgage related securities” receive one of the two highest credit ratings. The 1934 Act also has a second criteria, and one way securities can meet this criteria is if the securities are secured by mortgage loans. The Plaintiff argues that it was not Congress’ intent for notes which fail to meet the first element of the 1934 Act’s definition of “mortgage related securities,” but meet the second element, to nonetheless qualify as “interests in mortgage loans.” For the Plaintiff, such a reading “eviscerates the ‘mortgage related securities’ definition, and ... its reference to the 1934 Act.” 60 And, “[i]f Congress had intended this result, it could simply have eliminated the requirement that ‘mortgage related securities’ satisfy the 1934 Act.” 61

The Plaintiffs reading, however, leads to a different, but equally troubling, result. The Plaintiff argues essentially that the 1934 Act’s rating requirement must be read into the definition of “interests in mortgage loans.” If Congress intended such a result it easily could have required that “interests in mortgage loans” also achieve one of the two highest credit ratings. It did not. Congress specifically provided that the 1934 Act’s requirements would only apply to “mortgage related securities.”

The Court agrees with the Defendants that the Subordinated Notes are “interests in mortgage loans.” The Subordinated Notes were issued by Broadhollow and secured by mortgage loans owned by Broadhollow. 62 Clearly, the mortgage loans owned by Broadhollow would qualify as “mortgage loans” as the term is used in section 101(47)(A). The Subordinated Notes, however, are not “mortgage loans.” Rather, they are a payment obligation secured by Broadhollow’s mortgage loans. The Bankruptcy Code defines “security in *82 terest” to mean a “lien created by an agreement.” 63 Thus, a holder of the Subordinated Notes holds a lien on the mortgage loans owned by Broadhollow. “Lien” is defined by the Bankruptcy Code as a “charge against or interest in property to secure payment of a debt or performance of an obligation.” 64 Therefore, a holder of the Subordinated Notes holds an interest in the mortgage loans owned by Broadhol-low, or, more simply put, an interest in mortgage loans. Accordingly, the Subordinated Notes are “interests in mortgage loans” as the term is used in section 101(47)(A).

ii. The MRA is a Repurchase Agreement

Since the Subordinated Notes are interests in mortgage loans under the Bankruptcy Code, the MRA will qualify as a repurchase agreement if the MRA (i) provides for the transfer of one or more interests in mortgage loans; (ii) against the transfer of funds by the transferee of such interests in mortgage loans; (iii) with a simultaneous agreement by such transferee to transfer to the transferor thereof interests in mortgage loans; (iv) at a date certain not later than 1 year after such transfer or on demand; and (v) against the transfer of funds. 65

The terms of the MRA which are relevant to this analysis provide that:

From time to time the parties hereto may enter into transactions in which one party (“Seller”) agrees to transfer to the other (“Buyer”) securities or other assets (“Securities”) against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Securities at a date certain or on demand, against the transfer of funds by Seller. 66

The Court concludes that the terms of the MRA satisfy the elements of a “repurchase agreement.”

First, the MRA provides for the transfer of one or more interests in mortgage loans.

Second, the transfer of one or more interests in mortgage loans from the Seller to the Buyer is against the transfer of funds from the Buyer to the Seller.

Third, the MRA contains a simultaneous agreement by the Buyer to transfer the interest in mortgage loans to the Seller.

Fourth, the transfer of interests in mortgage loans from Buyer to the Sellers occurs at a date certain or on demand.

Fifth, the transfer of the interests in mortgage loans from the Buyer to the Seller is against the transfer of funds by the Seller to the Buyer.

The Court concludes that section 559 of the Bankruptcy Code is applicable, as the sale and repurchase of the Subordinated Notes under the MRA is a repurchase agreement. No further criteria must be met. 67 Accordingly, the Court will dismiss the Plaintiffs second request for declaratory judgment. 68

c. Section 555 of the Bankruptcy Code Applies to the MRA

In the Complaint, the Plaintiff seeks a declaration that:

*83 Lehman is not entitled to the “securities contract” safe harbor of section 555 of the Bankruptcy Code because the Lehman entity that was counterparty to the MRA and the relevant transactions relating to the Subordinated Notes is not a “stockbroker, financial institution, financial participant, or securities clearing agency ... 69

The Defendants argue that Lehman Brothers is entitled to the safe harbor protections of section 555 because the MRA is a “securities contract” and Lehman Brothers, the sole Lehman Counter-party to the Subordinated Notes Transaction, is a “stockbroker” as the terms are defined by the Bankruptcy Code. 70 Accordingly, the Court must determine whether Lehman Brothers is the sole Lehman Counterparty and, if so, whether the MRA is “securities contract” and Lehman Brothers is a “stockbroker.”

i. Lehman Brothers is the Sole Lehman Counterparty to the Subordinated Notes Transaction.

As discussed above, both Lehman Brothers and Lehman Commercial Paper were parties to the MRA with AHMIC. But, under the terms of the MRA, “[u]pon agreeing to enter into a Transaction hereunder, Buyer or Seller (or both), as shall be agreed, shall promptly deliver to the other party a written confirmation of each Transaction (‘a Confirmation’). The Confirmation shall ... identify Buyer and Seller ...” 71 Thus, the MRA anticipated that transactions occurring under it might involve Lehman Brothers and not Lehman Commercial Paper, and vice versa.

With respect to the Subordinated Notes Transaction at the center of this dispute, the Plaintiff argues that it is not clear whether Lehman Commercial Paper or Lehman Brothers or both were the Lehman Counterparty to the Subordinated Notes Transaction. 72 Therefore, the Plaintiff argues, given the procedural posture of this proceeding, it would be inappropriate for the Court to decide what Lehman entity or entities were the Lehman Counter-party to the Subordinated Notes Transaction. Thus, the Plaintiff continues, its third request for a declaratory judgment should survive the Defendants’ Motion to Dismiss. The Defendants attempt to refute this argument by drawing the Court’s attention to two trading confirmations (“Trading Confirmations”).

The Defendants included the Trading Confirmations in an affidavit in support of their Response. Typically, courts deciding a motion to dismiss only consider allegations contained in the complaint and exhibits attached to the complaint. 73 Therefore, as an initial matter, the question arises as to whether the Court may consider the Trading Confirmations on a motion to dismiss.

In the Third Circuit, when evaluating a motion to dismiss courts may considered a document which is not part of the complaint if that document is “ ‘integral to or explicitly relied upon in the com *84 plaint.’ ” 74 According to the MRA, the terms of the MRA combined with trading confirmations make up the terms of each individual transaction under the MRA. 75 As the terms of the MRA and the Subordinated Notes Transaction are central to the Plaintiffs Complaint, therefore, so too are the Trading Confirmations. Thus, the Trading Confirmations meet the standard of “ ‘document integral to or explicitly relied upon in the complaint.’ ” 76 Accordingly, the Court will consider the Trading Confirmations in evaluating the Motion to Dismiss.

As discussed above, the trading confirmations, inter alia, identify the buyer and seller to each transaction under the MRA. The Trading Confirmations provided by the Defendants show that Lehman Brothers was the sole Lehman Counterparty to the Subordinated Notes Transaction. 77 Therefore, in evaluating the Plaintiffs third request for declaratory judgment, the Court need only determine whether Lehman Brothers qualifies for the safe harbor protections of section 555.

The safe harbor protections of section 555 of the Bankruptcy Code extend to a stockbroker, financial institution, financial participant, or securities clearing agency which seeks to exercise its contractual right to cause the liquidation, termination, or acceleration of a securities contract. 78 Therefore, Lehman Brothers will qualify for the safe harbor protections of section 555 if [1] the MRA is a “securities contract,” and [2] Lehman Brothers is either a “stockbroker,” “financial institution,” “financial participant,” or “securities clearing agency,” as the terms are defined by the Bankruptcy Code.

ii. The MRA is a Securities Contract

The term “securities contract” is defined in section 741 of the Bankruptcy Code as “a contract for the purchase, sale, or loan of a ... mortgage loan, [or] any interest in a mortgage loan ... and including any repurchase or reverse repurchase transaction on any such ... mortgage loan, [or] interest [in a mortgage loan] ... (whether or not such repurchase or reverse repurchase transaction is a ‘repurchase agreement’, as defined in section 101).” 79 As the Court has already determined that the MRA is a “repurchase agreement” and that the Subordinated Notes are “interests in mortgage loans,” the MRA therefore is a “securities contract.”

iii. Lehman Brothers is a Stockbroker

The term “stockbroker” is defined in section 101(53A) of the Bankruptcy Code *85 as a “person, with respect to which there is a customer, as defined in section 741 of this title; and that is engaged in the business of effecting transactions in securities for the account of others; or with members of the general public, from or for such person’s own account.” 80 Therefore, for the Court to find that Lehman Brothers is a stockbroker, it must find that, [1] Lehman Brothers is in the business of effecting securities transactions for itself, others or the general public; and that [2] Lehman Brothers has “customers,” as the term is defined in section 741 of the Bankruptcy Code. The Defendants attempt to support their argument that Lehman Brothers meets the first element by attaching to their Response the Form 10-Q for Lehman Brothers Holdings, Inc. 81

As discussed earlier, when evaluating a motion to dismiss courts may considered a document which is not part of the complaint if that document is “ ‘integral to or explicitly relied upon in the complaint.’ ” 82 As the Form 10-Q for Lehman Brothers Holdings is not part of the Complaint, the Court will, therefore, turn to whether the Form 10-Q for Lehman Brothers Holdings, Inc. meets this standard.

In the Complaint, the Plaintiff seeks a declaration that “Lehman [i.e., Lehman Brothers and Lehman Commercial Paper] is not entitled to the ‘securities contract’ safe harbor of section 555 of the Bankruptcy Code because the Lehman entity that was counterparty the relevant transactions relating to the Subordinated Notes is not a ‘stockbroker, financial institution, financial participant, or securities clearing agency ...’” Thus, the Plaintiffs argument depends on the Bankruptcy Code’s definition of these terms.

If one looks at the these definitions, it is clear that the Form 10-Q for Lehman Brothers Holdings, Inc. is one, if not the only, source for the information the Court requires in order to determine whether Lehman Brothers is a “stockbroker,” “financial institution,” “financial participant,” or “securities clearing agency.” 83 For ex *86 ample, the definition of “financial participant” requires that an entity have one or more various agreements or transactions with the debtor or any other entity (other than an affiliate) of a total gross dollar value of not less than $1 billion. The definition of “financial institution” requires a court to inquire into whether an entity is a “is a commercial or savings bank, industrial savings bank, savings and loan association, trust company, federally-insured credit union, or receiver, liquidating agent, or conservator for such entity ...” Finally, the definition of “securities clearing agency” requires a court to determine whether an entity is “registered as a clearing agency under section 17A of the Securities Exchange Act of 1934 ...”

Therefore, the Form 10-Q of Lehman Brothers Holdings, Inc., is certainly integral to the Plaintiffs request for a declaratory judgment that “the Lehman entity that was counterparty to the MRA and the relevant transactions relating to the Subordinated Notes is not a ‘stockbroker, financial institution, financial participant, or securities clearing agency ... ’ ” 84 Accordingly, in deciding the Motion to Dismiss, the Court will consider the 10-Q of Lehman Brothers Holdings, Inc. contained in the Affidavit attached to the Defendants’ Response.

Turning back to the analysis of whether Lehman Brothers is a “stockbroker,” the Court begins with whether Lehman Brothers meets the first requirement of the “stockbroker” definition, i.e., whether Lehman Brothers is in the business of effecting securities transactions. The 10-Q contained in the Defendants’ Affidavit demonstrates that Lehman Brothers is a U.S. registered broker-dealer. 85 The Securities and Exchange Act of 1934, which governs U.S. brokers and dealers, defines “broker” and “dealer.” As defined, a “broker” is “any person engaged in the business of effecting transactions in securities for the account of others;” and the term “dealer” is defined as “any person engaged in the business of buying and selling securities for such person’s own account, through a broker or otherwise.” 86 As a registered broker-dealer, Lehman Broth *87 ers in the ordinary course of its business engages in effectuating transactions in securities for the account of others, with the general public, and for its own account. Thus, Lehman Brothers meets the first element of a “stockbroker.”

In addition to being in the business of effecting securities transactions, in order for Lehman Brothers to qualify as a “stockbroker” it must have “customers,” as the term is defined in section 741. 87 Courts interpreting the definition of “customer” have held that, “[a]n investor qualifies as a customer when the investor deposits money or securities with the [stockbroker] with the expectation that the [stockbroker] purchase stock or trade securities.” 88 As a registered broker-dealer, by definition, Lehman Brothers has “customers.” Therefore, Lehman Brothers meets the second element of the definition of “stockbroker.”

As the Court concludes that the MRA is a securities contract and Lehman Brothers is a stockbroker, section 555 of the Bankruptcy Code applies to the MRA. Accordingly, the Court will dismiss the Plaintiffs third request for declaratory judgment. 89

d. As the Safe Harbor Protections of Section 559 and 555 Apply to the MRA, Lehman Brothers Did Not Violate the Automatic Stay Imposed By Section 362(a) of the Bankruptcy Code When It Exercised Its Rights Under the MRA

Under the Subordinated Notes Transaction, the MRA deemed AHMIC as the “Seller” and Lehman Brothers as the “Buyer.” The MRA further provided that if the “Seller” defaults, the “Buyer” may immediately sell the “Purchased Securities” (i.e., the Subordinated Notes) and apply the proceeds from that sale to any amounts which the “Seller” owes, or elect to credit the amount owing in an amount equal to the price of the “Purchased Securities.” 90 The MRA outlined the circumstances under which a party would be in default; the MRA defined these circumstances as “Events of Default.” 91 One such “Event of Default” was the commencement of a bankruptcy proceeding. Therefore, under the terms of the MRA, an “Event of Default” occurred when AHMIC filed its bankruptcy petition in August, 2007. Thus, Lehman Brothers, as the “Buyer” in the Subordinated Notes Transaction, became entitled to, and did *88 exercise its rights under the MRA’s ipso facto clause.

The automatic stay imposed by section 362(a) of the Bankruptcy Code generally prohibits a party from enforcing an ipso facto clause. Accordingly, in the Complaint, the Plaintiff seeks a declaration that, “Lehman violated the automatic stay imposed under section 362(a) of the Bankruptcy Code by terminating the MRA and foreclosing on and/or liquidating the AHM-IC-Owned Notes .. ,” 92 However, as discussed earlier, the Bankruptcy Code provides exceptions to this general rule. As the Court has decided that the Subordinated Notes Transaction under MRA is “repurchase agreement,” and that the MRA is a “securities contract” and Lehman Brothers is a “stockbroker,” the safe harbor protections of sections 559 and 555 apply. Thus, Lehman Brothers may enforce its rights under the MRA triggered by a condition of the kind specified in section 365(e)(1) of the Bankruptcy Code. As the MRA’s ipso facto clause is of a kind specified in section 365(e)(1), the Defendants did not violate the automatic stay by foreclosing on and/or liquidating the Subordinated Notes. Accordingly, the Court will dismiss the Plaintiffs first request for declaratory relief.

III. Applicability of Article 9 to the MRA

In the Plaintiffs fourth request for declaratory relief the Plaintiff seeks a declaration that:

(i) Lehman’s foreclosure and/or liquidation of the AHMIC-Owned Notes, is governed by Article 9 of the N.Y.U.C.C., § 901, et seq., and, at all times Lehman was required to act in a commercially reasonable manner and (ii) any damages AHMIC incurred as a consequence of Lehman’s failure to comply with those standards and Article 9 shall be determined in accordance with section 562 of the Bankruptcy Code ... 93

Article 9 of the Uniform Commercial Code has a definitive scope, and, in order for the Subordinated Notes Transaction to be governed by Article 9, it must fall somewhere within that scope. The Plaintiff represents that the MRA creates a security interest in the Subordinated Notes. 94 Alternatively, if the MRA is found to be a purchase and sale agreement, the Plaintiff argues that Article 9 applies, nonetheless, because the Subordinated Notes qualify as both “promissory notes” and “payment intangibles” and Article 9 applies to the sale of “promissory notes” or “payments intangibles.” 95

a. The Intent Of The Parties To The MRA Is Relevant To This Court’s Consideration Of Whether Article 9 of the Uniform Commercial Code Applies To The MRA

Article 9 applies to a transaction “regardless of its form, that creates a security interest in personal property or fixtures by contract ...” 96 The Plaintiff *89 argues that the Section 6 of the MRA creates a security interest in Purchased Securities, i.e., the Subordinated Notes. Section 6 of the MRA, entitled “Security Interest,” provides:

Although the parties intend that all Transactions hereunder be sales and purchases and not loans, in the event any such Transactions are deemed to be loans, Seller shall be deemed to have pledged to Buyer as security for the performance by Seller of its obligations under each such Transaction, and shall be deemed to have granted to Buyer a security interest in, all of the Purchased Securities with respect to all Transactions hereunder and all Income thereon and other proceeds thereof. 97

While it appears from an initial reading of this section that the parties to the MRA did not intend to create a security interest in the Subordinated Notes, the Plaintiff represents that this section creates a security interest in the Notes nonetheless.

The Plaintiff first argues, quite simply, that, under the MRA, AHMIC granted Lehman a security interest in Purchased Securities. 98 To support this, the Plaintiff emphasizes that Article 9 applies to a transaction, “regardless of its form, that creates a security interest in personal property or fixtures by contract.” 99 The Plaintiff reads the phrase “regardless of its form” to allow this Court to ignore the stated intent of the parties and focus on the portion of Section 6 of the MRA, which provides for a security interest.

To further support this argument, the Plaintiff contrasts Former Section 9-102(1) with its replacement, Revised Section 9-109(a)(1). As discussed above, Revised Section 9-109(a)(l) provides that Article 9 applies to “a transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract ...” Former Section 9-102(1) provided that Article 9 applies “to any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper or accounts ...” 100 The Plaintiff interprets the deletion of the phrase “which is intended to create a security interest” as evidence that intent is no longer relevant to a court’s consideration of whether a transaction creates a security interest. 101 Thus, the Plaintiff concludes, this Court may ignore the parties stated intent in Section 6 of the MRA.

The Plaintiff is correct that R