Filed 6/15/17 Deutsche Bank National Trust Co. v. Superior Court CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA



DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee, etc.,

Plaintiff,

v.

THE SUPERIOR COURT OF ORANGE COUNTY,

Defendant;

ASSURED GUARANTY CORP.,

Real Party in Interest and Appellant;

THIRD POINT QUALIFIED PARTNERS LP et al.,

Objectors and Respondents.
D070678



(Super. Ct. No.
30-2014-00763292-PR-TR-CJC)

ORDER MODIFYING OPINION
AND DENYING REHEARING

NO CHANGE IN JUDGMENT


THE COURT:
The petition for rehearing filed on June 1, 2017, by appellant Assured Guaranty Corp. is denied. It is ordered that the opinion filed herein on May 17, 2017, be modified as follows:
1. On page 20, at the end of the first paragraph, the following footnote, to be identified as footnote 10, is added and reads as follows:
"On June 1, 2017, Assured filed a petition for rehearing, which we denied on June 15, 2017. In its petition, Assured argued that we erred in interpreting the term 'class' as used in the phrase 'final distribution on the class to which such Underlying Certificate belongs' in the Indenture's definition of the term 'Loss,' quoted above. Instead of interpreting 'class' as we have in our opinion, Assured argued we should have interpreted it as a particular class of particular securities issued by a particular underlying trust pursuant to a particular pooling and servicing agreement (Underlying Agreement). However, the express language of the Indenture does not support Assured's proposed interpretation. Furthermore, its argument for its proposed interpretation of 'class' is dependent on language in the Underlying Agreements for the Underlying Certificates, but the Underlying Agreements were not part of the record below and are not part of the record on appeal. Rather, Assured's petition for rehearing primarily, if not exclusively, cites to language in the preliminary offering memorandum for the offering for sale of the Notes, which memorandum was an ancillary marketing document and not the operative document in this case and therefore does not persuade us to adopt Assured's proposed interpretation. Accordingly, Assured has not carried its burden on appeal to provide an adequate record supporting its argument or to otherwise persuade us that our interpretation of 'class' is incorrect. (Cf. Western Aggregate, Inc. v. County of Yuba (2002) 101 Cal.App.4th 278, 291; Maria P. v. Riles (1987) 43 Cal.3d 1281, 1295; Kendall v. Barker (1988) 197 Cal.App.3d 619, 625.)
"In any event, assuming arguendo the term 'class,' as used in the Indenture's definition of the term 'Loss,' should be interpreted as Assured proposes, we nevertheless would affirm the probate court's order. Even if the term 'class' relates to only a particular Underlying Certificate, the sale of the four liquidated Underlying Certificates would not have resulted in a 'Loss' under the Indenture. Specifically, Assured does not show that, at the time of the liquidation sale, there were final distributions on the classes to which the liquidated Underlying Certificates belong. As Third Point argues, there will continue to be distributions on the classes of those Underlying Certificates, albeit not to the Trust, after the liquidation sale. We reject Assured's argument that there can be no future distributions on those classes of Underlying Certificates because those particular securities would no longer be held as part of the Trust Estate and therefore no longer qualify as 'Underlying Certificates,' as defined in the Indenture (i.e., 'securities transferred to the Indenture Trustee . . . , as from time to time are held as part of the Trust Estate and as more fully described on Schedule I attached hereto'). If the Trust and Trustee had intended the Indenture to provide for a 'Loss' in the circumstances of a liquidation sale of Underlying Certificates such as in this case, we presume that, as sophisticated parties, they would have expressly so provided in the Indenture. Because they did not and the Indenture's provisions do not support Assured's position, we would affirm the order even if the term 'class' were interpreted as it proposes. (Quadrant, supra, 16 N.E.3d at p. 1172; Vermont Teddy Bear Co., Inc., supra, 807 N.E.2d at p. 879.)"

There is no change in the judgment.


McCONNELL, P. J.

Copies to: All parties


Filed 5/17/17 Deutsche Bank National Trust Co. v. Superior Court CA4/1 (unmodified version)
NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA



DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee, etc.,

Plaintiff,

v.

THE SUPERIOR COURT OF ORANGE COUNTY,

Defendant;

ASSURED GUARANTY CORP.,

Real Party in Interest and Appellant;

THIRD POINT QUALIFIED PARTNERS LP et al.,

Objectors and Respondents.
D070678



(Super. Ct. No. 30-2014-00763292- PR-TR-CJC)


APPEAL from an order of the Superior Court of Orange County, Jamoa A. Moberly, Judge. Affirmed.

Mayer Brown and Donald M. Falk for Real Party in Interest and Appellant.
O'Melveny & Myers, Michael Yoder, Matthew W. Close, Matthew Kline and Brittany Rogers; Dontzin Nagy & Fleissig, Matthew S. Dontzin, Tibor L. Nagy, Jr. and Tracy O. Appleton for Objectors and Respondents.
This case arises out of the labyrinth of residential mortgage-backed securities and related financial instruments and arrangements that distributed the risk of default of subprime and other mortgages and were involved in the subprime mortgage crisis of a decade ago. Real party in interest and appellant Assured Guaranty Corp. (Assured) appeals an order instructing plaintiff Deutsche Bank National Trust Company, as indenture trustee (Trustee) for the note trust formed under the indenture dated as of August 22, 2007, related to the AAA Trust 2007-2 trust 2ecurities, Series 2007-2 (Indenture), to reject Assured's allocation instruction and follow the definition of the term "Loss" as set forth in the Indenture. Assured is the insurer of the Class A-1 and Class A-2 Notes issued by the AAA Trust 2007-2 (Trust), which holds in its estate various residential mortgage-backed securities (Underlying Certificates). After an event of default, Assured directed the Trustee to sell and liquidate four of the Underlying Certificates. Although the proceeds from the sale of those Underlying Certificates were less than their principal balances, the Indenture's provisions did not expressly provide for treatment of that loss as a "Loss" that would be allocated to, and reduce the principal balance of, the Class A-3 Notes, which are held by objectors and respondents Third Point Qualified Partners LP, Third Point Partners LP, Third Point Offshore Master Fund, Third Point Ultra Master Fund, and Third Point Reinsurance Co Ltd. (collectively, Third Point). As insurer of the Class A-1 and Class A-2 Notes, Assured then instructed the Trustee to consider the liquidation loss to be a "Realized Loss," a term it newly defined, which would be considered as a "Loss" under the Indenture, and allocate that loss to the Class A-3 Notes' principal balance, resulting in a reduction in their principal balance from $36,876,385 to $0.
The Trustee filed the instant petition seeking instructions from the probate court on whether it should allocate the loss from the sale of Underlying Certificates to the Class A-3 Notes in accordance with Assured's allocation instruction and, if not, how such losses should be allocated. After considering arguments of counsel and papers submitted by Third Point and Assured, the probate court issued an order instructing the Trustee to reject the allocation instruction and follow the definition of the term "Loss" as set forth in the Indenture.
On appeal, Assured contends that although the term "Loss," as defined in the Indenture, includes the principal balance remaining unpaid on an Underlying Certificate "following the final distribution on the class to which such Underlying Certificate belongs," the loss in principal balance on the liquidation sale of the four Underlying Certificates constitutes a "Loss" within that definition because there will be no further distributions to the Trust from those Underlying Certificates. Assured also contends the court erred by considering market realities and concluding that Assured's position would result in a breach of its implied covenant of good faith and fair dealing that it owed to the holders of the Class A-3 Notes. Based on our reasoning below, we affirm the order.
FACTUAL AND PROCEDURAL BACKGROUND
As of August 22, 2007, the Indenture was executed by the Trust and the Trustee for the benefit of the holders of the Class A-1, Class A-2, and Class A-3 Notes (Notes) and other notes issued by the Trust with aggregate principal balances of $608,917,972. The Trust's estate consisted of interests in 37 Underlying Certificates, consisting of residential mortgage-backed securities of varying classes, which interests were pledged as security for the Notes. Pursuant to the Indenture, the Trustee agreed to, inter alia, distribute to the holders of the Class A Notes funds available from the monthly principal and interest distributions it received from the Underlying Certificates. In general, those distributions are made concurrently to the holders of the Class A-1 and Class A-2 Notes and to the holders of the Class A-3 Notes on a pro rata basis based on the aggregate principal balance of such class of Notes until the principal balance of such class has been reduced to zero. The principal balance of each class of Notes decreases by the amount of each principal distribution that the holders thereof receive from the Trustee. In addition, the principal balance of the Class A-3 Notes (but not Class A-1 or Class A-2 Notes) also decreases by any "Loss," as defined in the Indenture. The Indenture defines a "Loss" as:
"With respect to any Underlying Certificate, a principal loss equal to the sum of (i) the amount by which the Underlying Certificate Principal Balance thereof is reduced as a result of realized losses on the related Underlying Mortgage Loans, in accordance with the related Underlying Agreement, and (ii) the Underlying Certificate Principal Balance of the related Underlying Certificate remaining unpaid following the final distribution on the class to which such Underlying Certificate belongs." (Italics added.)

As of November 30, 2014, the Class A-1, A-2, and A-3 Notes had principal balances of, respectively, $134,520,445.48, $103,126,174, and $36,876,385.16, thereby giving the holders of the Class A-3 Notes a 13.43 percent share in future distributions.
The Class A-1 and Class A-2 Notes are insured by an insurance policy issued by Assured. In 2011, Assured purchased the Class A-2 Notes. In 2012, Third Point purchased the Class A-3 Notes. In 2013 and 2014, Assured purchased most of the Class A-1 Notes.
Between October 2011 and May 2013, the Trustee sent Assured 18 demands for payment under its insurance policy in amounts ranging from $1,423.96 to $17,784.29. In August 2014, Assured sent the Trustee a notice of event of default, asserting that the Trustee had made several demands for payment under the insurance policy and that those demands constituted an event of default under the Indenture. Assured subsequently sent the Trustee a notice of acceleration, declaring the unpaid principal amount of the Notes, together with accrued and unpaid interest thereon and all reimbursement amounts, to be immediately due and payable. Assured also sent the Trustee a letter, pursuant to its rights under the Indenture, directing it to sell and liquidate at a public auction four specific Underlying Certificates. The Trustee sold and liquidated the four Underlying Certificates at a public auction and received aggregate proceeds of $27,066,043, which amount was less than the $70,380,471 in aggregate principal balances of those Underlying Certificates at the time of the sale, resulting in a principal balance loss of over $43 million.
On December 22, 2014, Assured sent the Trustee a letter (Allocation Instruction) instructing it to allocate the loss in principal balance from the sale of the four Underlying Certificates, referred to as the "Realized Loss," to the Class A-3 Notes, thereby reducing their principal balance. The Allocation Instruction defined the term "Realized Loss" as follows:
"[W]ith respect to any Liquidated Asset [i.e., the four Underlying Certificates sold at the liquidation auction], the amount, if any, by which (a) the Underlying Certificate Principal Balance of such Liquidated Asset exceeds (b) an amount equal to the Sales Proceeds with respect to such Liquidated Asset minus the Liquidation Fees and Expenses incurred in connection with such Liquidated Asset . . . ."

In particular, the Allocation Instruction instructed the Trustee to "account for such Realized Loss as a Loss [, as defined in the Indenture,] and allocate such Realized Loss (together with any other Loss) to the Class A-3 Notes in reduction of the Principal Balance thereof pursuant to Section 2.15 of the Indenture[,]" and to "[c]alculate all distributions on the Class A-3 Notes pursuant to Section 2.09(f)(iii) of the Indenture using the Principal Balance as determined in Section 2.1(c) hereof after allocation of Realized Losses for all Liquidated Assets." (Italics added.)
Rather than immediately complying with the Allocation Instruction's directions, the Trustee filed the instant petition seeking instructions from the probate court on whether or not it should allocate the losses in principal balance from the liquidation sale of the four Underlying Certificates, and from the future sale of Underlying Certificates, to the noteholders in accordance with the Allocation Instruction and, if not, how such losses should be allocated. Alternatively stated, the petition sought instructions from the court "regarding the proper method of allocating losses resulting from the sale of a portion of the Trust's assets where the Trust's governing documents [e.g., the Indenture] do not expressly provide for the allocation of such losses." The petition cited the Indenture's definition of the term "Loss," as quoted above, and stated:
"The definition of 'Loss' in the Indenture, however, does not expressly address losses realized upon the sale, pursuant to sections 4.04(b) and 4.15 of the Indenture, of Underlying Certificates for less than the corresponding Underlying Certificate Principal Balances, even though such sale will also result in the non-payment to the Note Trust of any remaining principal balance on the Underlying Certificates to the extent that such balance exceeds the net proceeds of the sale (because the Note Trust will no longer own the Underlying Certificate)."

The petition explained that "[b]ecause the Indenture does not expressly address the allocation of losses realized as a result of the sale of all or a portion of the Underlying Certificates in the Trust Estate and because the allocation of losses pursuant to the Allocation Instruction would have a significant impact on Noteholders, the Trustee seeks instruction from the Court. [Fn. omitted.]" Copies of relevant instruments and other documents, including the Indenture and the Allocation Instruction were attached to the petition. The Trustee did not file any further papers in support of its petition.
Third Point, as holder of all of the Class A-3 Notes, filed objections and responses to the petition. Third Point argued that the Allocation Instruction was improper because the term "Loss," as defined in the Indenture, does not include any loss realized from a sale of the Underlying Certificates. It argued that if the Allocation Instruction's expansive definition of "Loss" was followed by the Trustee, the principal balance of the Class A-3 Notes would be reduced from $36,876,385 to $0, thereby wiping out the Class A-3 Notes and increasing the pro rata share of future distributions received by the Class A-1 and Class A-2 Notes. Citing the Indenture's definition of "Loss," Third Point argued the principal balance loss sustained by the Trust on the sale of the four liquidated Underlying Certificates did not qualify as a "Loss" under the Indenture's definition of that term because, in particular, under prong (ii) of that definition the final distributions on the classes to which the Underlying Certificates belong had not yet occurred. Third Point also argued that the Indenture's definition of "Loss" was not ambiguous, Assured's implied covenant of good faith and fair dealing barred its wrongful conduct, and there was no equitable basis to support modification of the Indenture's terms. The private offering memorandum for the Trust's offering of the Notes and other documents were attached to Third Point's objections and responses.
Assured filed a response to Third Point's objections, arguing that under prong (ii) of the Indenture's definition, the term "Loss" should include a principal balance loss when an Underlying Certificate is sold and the Trustee has received the final distribution it will receive on that Underlying Certificate. In particular, Assured argued that the plain meaning of the term "final distribution," as used in the Indenture's definition of the term "Loss," includes the circumstance in which an Underlying Certificate is sold by the Trust and the Trustee will never receive another distribution from it.
After considering the papers submitted by the parties and arguments of counsel, the court issued a minute order in favor of Third Point, instructing the Trustee to reject the Allocation Instruction and ordering it to follow the Indenture's definition of the term "Loss." The court stated: "This will result in approximately $3.6 million of the Sales Proceeds being allocated to the Class A-3 Noteholders (i.e., [Third Point]) and [Third Point's] continued pro-rata share of future distributions. The Court rejects the position taken by [Assured] which would render these securities worthless in contrast to market realities. It would also reward the conduct of [Assured] in violation of the New York implied covenant of good faith and fair dealing and would be inequitable to [Third Point]." Assured timely filed a notice of appeal challenging the order.
DISCUSSION
I
Applicable Law
The Indenture provides that it is to be construed in accordance with the laws of the State of New York. Under New York law, because a trust indenture is a contract, interpretation of an indenture's provisions is a matter of basic contract law. (Quadrant Structural Products Co., Ltd. v. Vertin (N.Y. 2014) 16 N.E.3d 1165, 1172 (Quadrant).) "In construing a contract we look to its language, for 'a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms' [citations]." (Ibid.) The language of an indenture or other contract is ambiguous if it is "susceptible to more than one reasonable interpretation." (Evans v. Famous Music Corp. (N.Y. 2004) 807 N.E.2d 869, 872.) "[I]f parties to a contract omit terms[,] . . . the inescapable conclusion is that the parties intended the omission." (Quadrant, at p. 1172.) Also, "[u]nder New York law an interpretation of a contract that has 'the effect of rendering at least one clause superfluous or meaningless . . . is not preferred and will be avoided if possible.' [Citation.]" (Galli v. Metz (2d Cir. 1992) 973 F.2d 145, 149.) Accordingly, in interpreting a contract, we generally give effect to all of its terms rather than leaving one part or a term of no effect. (Ibid.)
"The court's role is limited to interpretation and enforcement of the terms agreed to by the parties; it does not include the rewriting of their contract and the imposition of additional terms [citation]." (Salvano v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (N.Y. 1995) 647 N.E.2d 1298, 1302-1303.) This rule especially applies where a contract " 'was negotiated between sophisticated, counseled business people negotiating at arm's length' [citation]." (Vermont Teddy Bear Co., Inc. v. 538 Madison Realty Co. (N.Y. 2004) 807 N.E.2d 876, 879.) "In such circumstances, 'courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include' [citation]." (Ibid.)
On appeal, "[w]e generally apply an independent, or de novo, standard of review to conclusions of law regarding interpretation of" a contract. (ASP Properties Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266.) Where extrinsic evidence is not admitted or is not in conflict, "construction of the agreement is a question of law for our independent review. [Citation.]" (Appleton v. Waessil (1994) 27 Cal.App.4th 551, 556.) "[W]e may affirm a trial court judgment on any [correct] basis presented by the record whether or not relied upon by the trial court. [Citation.]" (Day v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 252, fn. 1.)
II
Construction of the Term "Loss" under the Indenture
Assured contends the probate court erred in construing the term "Loss" under the Indenture and instructing the Trustee to follow the Indenture's definition of that term. Assured argues the court should have construed the term "Loss" to include the realized loss from the liquidation sale of the four Underlying Certificates because the principal balance of those certificates exceeded their sale proceeds and there will be no further distributions to the Trust from them. As we explain below, we conclude Assured's proffered definition of the term "Loss" conflicts with the Indenture's plain language and therefore the loss in principal balance sustained by the Trust on the liquidation sale of the four Underlying Certificates did not in the circumstances of this case constitute a "Loss" under the Indenture that would reduce the principal balance of the Class A-3 Notes.
A
The Indenture defines the term "Loss" as follows:
"With respect to any Underlying Certificate, a principal loss equal to the sum of (i) the amount by which the Underlying Certificate Principal Balance thereof is reduced as a result of realized losses on the related Underlying Mortgage Loans, in accordance with the related Underlying Agreement, and (ii) the Underlying Certificate Principal Balance of the related Underlying Certificate remaining unpaid following the final distribution on the class to which such Underlying Certificate belongs." (Italics added.)

Assured does not argue that prong (i) of the above definition applies to the Trustee's liquidation sale of the four Underlying Certificates, conceding the Underlying Agreements related to those Underlying Certificates do not provide for reduction of their principal balances as a result of realized losses, such as a liquidation sale. Rather, Assured argues that prong (ii) of the Indenture's "Loss" definition applies to the liquidation sale of the four Underlying Certificates because they are no longer "Underlying Certificates" owned by the Trust and therefore it cannot receive any future distributions on those certificates.
However, Assured's proffered interpretation of the Indenture's definition of the term "Loss" disregards the import of the phrase "on the class" under prong (ii) of that definition. Under that prong, a "Loss" can occur only "following the final distribution on the class to which such Underlying Certificate belongs." (Italics added.) As Third Point notes, the final distributions on the classes to which the four Underlying Certificates belong have not yet occurred.
Based on the class designations clearly set forth on the schedule of Underlying Certificates attached to the Indenture, three of the liquidated Underlying Certificates belong to Class "A-2B" and the fourth Underlying Certificate belongs to Class "A-2D." However, the four liquidated Underlying Certificates were not the only certificates in their classes. In particular, Citigroup Mortgage Loan Trust 2006-AMC1 (CUSIP 17309PAB2) also belongs to Class A-2B and Citigroup Mortgage Loan Trust 2006-NC1 (CUSIP 172983AE8) also belongs to Class A-2D. The record on appeal does not show, nor does Assured specifically assert, that either of those Underlying Certificates in those classes is no longer a part of the Trust's estate. Furthermore, although Assured generally argues in its appellant's reply brief that the Trust no longer holds any Underlying Certificates that belong to the same class as the four Underlying Certificates sold at the liquidation auction, it does not cite any evidence in the record on appeal supporting that argument or showing that the "[c]lass" designations reflected on Schedule I to the Indenture are not, in fact, the "class[es]" of the Trust's 37 Underlying Certificates within the meaning of the Indenture's definition of the term "Loss." Absent any such showing, Assured has not carried its burden on appeal to show those designated classes are inapplicable and/or incorrect or that the two remaining Underlying Certificates in Classes A-2B and A-2D, identified above, are not in the same classes as the four liquidated Underlying Certificates within the meaning of the Indenture's definition of the term "Loss" or are no longer held by the Trust.
Schedule I to the Indenture lists four Underlying Certificates in Class A-2B. Because only three of the four Underlying Certificates in Class A-2B were sold at the liquidation auction, one Underlying Certificate in Class A-2B remained in the Trust's estate. Furthermore, because the Trustee presumably will continue to receive distributions of principal and interest from that remaining Underlying Certificate in Class A-2B, the Trustee had not, as of the time of the liquidation sale, received "the final distribution on the class to which such [liquidated] Underlying Certificate[s] belong[] [i.e., Class A-2B]," and potentially could continue to receive distributions from the remaining Class A-2B Underlying Certificate for many years. Therefore, within the plain language of prong (ii) of the Indenture's definition of the term "Loss," the liquidation sale of the three Underlying Certificates in Class A-2B did not result in a "Loss."
Likewise, Schedule I to the Indenture lists two Underlying Certificates in Class A-2D. Because only one of the two Underlying Certificates in Class A-2D was sold at the liquidation auction, one Underlying Certificate in Class A-2D remained in the Trust's estate. Furthermore, because the Trustee presumably will continue to receive distributions of principal and interest from that remaining Underlying Certificate in Class A-2D, the Trustee had not, as of the time of the liquidation sale, received "the final distribution on the class to which such [liquidated] Underlying Certificate belongs [i.e., Class A-2D]," and potentially could continue to receive from the remaining Class A-2D Underlying Certificate such distributions for many years. Therefore, within the plain language of the Indenture's definition of the term "Loss," the liquidation sale of the Underlying Certificate in Class A-2D did not result in a "Loss."
Accordingly, after the liquidation sale of the four Underlying Certificates, there had yet to be any principal balance remaining unpaid on either Class A-2B or Class A-2D Underlying Certificates "following the final distribution on the class [i.e., Class A-2B and/or Class A-2D] to which such Underlying Certificate[s] belong[]." (Italics added.) Under the plain language of prong (ii) of the Indenture's definition of the term "Loss," the loss in principal balance realized by the Trust on the liquidation sale of the four Underlying Certificates will be recognized and treated as a "Loss" under the Indenture only "following the final distribution on the class [i.e., Class A-2B and/or Class A-2D]." Because that event has yet to occur, no "Loss" under prong (ii) of the Indenture's definition of that term resulted on the liquidation sale of the four Underlying Certificates.
B
Assured argues that a "final distribution" on the four Underlying Certificates has occurred within the meaning of the term "Loss," as defined in the Indenture, because those certificates are no longer held by the Trust and therefore cannot be considered "Underlying Certificates" under the Indenture. It cites the Indenture's definition of "Underlying Certificates" as follows: "Each of the securities transferred to the Indenture Trustee by the Issuer pursuant to the Granting Clause, as from time to time are held as a part of the Trust Estate and as more fully described in Schedule I attached hereto." Assuming arguendo, without deciding, that an Underlying Certificate that is sold is no longer a part of the Trust's estate and therefore cannot be considered an "Underlying Certificate" under the Indenture, we nevertheless conclude, based on our reasoning above, a "Loss" did not occur on the liquidation sale of the four Underlying Certificates within the Indenture's definition of the term "Loss." Alternatively stated, regardless of whether or not the four Underlying Certificates that were sold at the liquidation auction continued to be "Underlying Certificates" under the Indenture, there was no "Loss" under the Indenture on that liquidation sale because the Trust continued to hold other Underlying Certificates in the same classes [i.e., Class A-2B and Class A-2D] as those (former) Underlying Certificates. Any loss of principal balance sustained by the Trust because of the liquidation sale of the four Underlying Certificates will not constitute a "Loss" under prong (ii) of the Indenture's definition of that term until the Trustee has received the "final distribution on the class[es] to which such [former] Underlying Certificate[s] belong[ed]."
To the extent Assured argues a "Loss" occurred because the Trustee had received its final distributions on the four Underlying Certificates sold at the liquidation auction, it, in effect, asks us to disregard the phrase "on the class" in prong (ii) of the Indenture's definition of the term "Loss." We decline to do so. To disregard the phrase "on the class" in the Indenture's definition of the term "Loss" would render that phrase superfluous or meaningless, which result we must avoid if possible. (Galli v. Metz, supra, 973 F.2d at p. 149.) In interpreting a contract, we generally give effect to all of its terms rather than leaving one part or a term of no effect. (Ibid.) Accordingly, as long as the Trustee continues to receive distributions on the classes to which the four Underlying Certificates belong (i.e., Class A-2B and Class A-2D), there has been no "final distribution on the class" within the meaning of prong (ii) of the Indenture's definition of the term "Loss."
Assured also argues that the probate court's construction of the term "Loss" under the Indenture is erroneous because it would require the Trustee to continue to monitor the future distributions of the four Underlying Certificates sold at the liquidation auction so that it can determine when the "final distributions" on those certificates occur and then a "Loss" on the sale of those certificates can be recognized under the Indenture. However, as discussed above, Assured's argument, in effect, asks us to disregard the phrase "on the class," as used in the Indenture's definition of the term "Loss." No "Loss" under the Indenture can occur under prong (ii) of that definition until there is a "final distribution on the class" of the four Underlying Certificates. Because the Trustee will continue to receive future distributions from the two Underlying Certificates in Class A-2B and Class A-2D that remain in the Trust's estate, the Trustee presumably could have no obligation under the Indenture, whether implied or express, to monitor future distributions from the four liquidated Underlying Certificates to their new holders—at least until it receives final distributions from the two Underlying Certificates in Class A-2B and Class A-2D. Furthermore, it would be premature for us to address and/or decide whether the Trustee does, in fact, have such a duty to monitor future distributions from the four Underlying Certificates after it receives final distributions on Underlying Certificates in Class A-2B and Class A-2D. Accordingly, we refrain from addressing and/or deciding that issue in the context of this case.
C
Based on our discussion above, the probate court correctly rejected the Allocation Instruction. In its Allocation Instruction, Assured instructed the Trustee to treat a "Realized Loss," a term it newly defined therein, as a "Loss" under the Indenture and allocate that loss to the Class A-3 Notes. The effect of such an allocation following the liquidation sale of the four Underlying Certificates would be to reduce the principal balance of the Class A-3 Notes from $36,876,385 to $0, thereby excluding the holders of the Class A-3 Notes from receiving future distributions of principal or interest by the Trustee.
The Allocation Instruction defined the term "Realized Loss" as "the amount, if any, by which (a) the Underlying Certificate Principal Balance of [the four liquidated Underlying Certificates] exceeds (b) an amount equal to the Sales Proceeds with respect to [the four liquidated Underlying Certificates] . . . ." Alternatively stated, it defined a "Realized Loss" as the amount by which the sale proceeds of the four liquidated Underlying Certificates were less than their principal balance. Therefore, the Allocation Instruction directed the Trustee to immediately treat the net loss in principal balance on the sale of the four liquidated Underlying Certificates as a "Loss" under the Indenture and reduce the principal balance of the Class A-3 Notes to $0. Assured's arguments on appeal, as discussed above, are consistent with its Allocation Instruction and, in particular, its definition of a "Realized Loss."
However, as the Trustee alleged in its petition and as we concluded above, Assured's proffered interpretation of the term "Loss," whether through Assured's device of the newly-defined term "Realized Loss" or otherwise, is contrary to the plain language of the Indenture. Under prong (ii) of the Indenture's definition of the term "Loss," a "Loss" does not occur until all or part of the principal balance of an Underlying Certificate remains unpaid "following the final distribution on the class" to which that certificate belongs. (Italics added.) Therefore, contrary to the Allocation Instruction and Assured's arguments on appeal, the loss in principal balance realized on the liquidation sale of the four Underlying Certificates is not recognized as a "Loss" under the Indenture until there are final distributions on the classes to which they belong. Because, as we discussed above, the Trust continued, after the liquidation sale, to hold other Underlying Certificates in the same classes as the four liquidated Underlying Certificates, there has yet to be a "Loss" under the Indenture from that liquidation sale that can properly be allocated to the Class A-3 Notes. Accordingly, the court correctly instructed the Trustee to reject the Allocation Instruction and to, instead, follow the definition of the term "Loss" in the Indenture.
III
Remaining Contentions
Assured also contends the probate court erred by considering market realities and concluding that Assured's position would result in a breach of its implied covenant of good faith and fair dealing that it owed to the holders of the Class A-3 Notes. However, because we dispose of this appeal based on our independent construction of the Indenture's plain language, we need not, and do not, address Assured's other contentions.
DISPOSITION
The order is affirmed. Respondents are awarded their costs on appeal.




MCCONNELL, P. J.

WE CONCUR:




NARES, J.




HALLER, J.