MUNGER, TOLLES & OLSON, LLP Marc T. G. Dworsky (State Bar

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AMENDED ANSWER TO THIRD AMENDED COMPLAINT

MUNGER, TOLLES & OLSON, LLP Marc T. G. Dworsky (State Bar No. 157413) [email protected] Lawrence C. Barth (State Bar No. 123002) [email protected] Randall G. Sommer (State Bar No. 214099) [email protected] Matthew A. Macdonald (State Bar No. 255269) [email protected] 355 South Grand Avenue Thirty-Fifth Floor Los Angeles, CA 90071-1560 Telephone: (213) 683-9100 Facsimile: (213) 687-3702 WELLS FARGO & COMPANY Thomas O. Jacob (State Bar No. 125665) Wells Fargo & Company Office of General Counsel 45 Fremont Street, Twenty-Sixth Floor MAC A0194-266 San Francisco, CA 94105 Telephone: (415) 396-4425 Facsimile: (213) 975-7864

Attorneys for Defendant WELLS FARGO BANK, N.A.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

SOUTHERN DIVISION

In re: MEDICAL CAPITAL SECURITIES LITIGATION

This document relates to: NO. SACV 09-1048 DOC (RNB) STEVEN MASONEK, et al.,

Plaintiffs,

v.

WELLS FARGO BANK, N.A., et al.

CASE NO. SA 10-ML-2145 DOC (RNB)

AMENDED ANSWER TO THIRD AMENDED COMPLAINT OF DEFENDANT WELLS FARGO BANK, N.A.

Case 8:10-ml-02145-DOC -RNB Document 180 Filed 05/06/11 Page 1 of 43 Page ID #:4532

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1 AMENDED ANSWER TO THIRD AMENDED COMPLAINT

Defendant Wells Fargo Bank, N.A. (“Wells Fargo”) answers the Third

Amended Complaint of Steven J. Masonek, et al. as follows:

Wells Fargo asserts that the headings and sub-headings in the

Complaint are argumentative and require no response. To the extent any response

is deemed necessary, Wells Fargo denies each and every allegation deemed to be

contained in each such heading and sub-heading.

Similarly, Wells Fargo does not understand the Preface to the

Complaint (Third Amended Complaint, at p. 1, ln. 1−18) to call for any response.

To the extent a response is required, Wells Fargo denies the allegations of the

Preface, except that Wells Fargo lacks knowledge or information sufficient to form

a belief as to the truth of the allegations of the Preface as they relate to the Bank of

New York Mellon Corporation (“BNYM”) or to the Plaintiffs themselves, and, on

that basis, denies such allegations.

1. Wells Fargo denies the allegations of paragraph 1, except that

Wells Fargo lacks knowledge or information sufficient to form a belief about the

truth of the allegations of paragraph 1 as they relate to any other party, and, on that

basis, denies such allegations.

2. Wells Fargo admits that Plaintiffs purport to bring the claims

described in paragraph 2. Except as expressly admitted, Wells Fargo denies the

allegations of paragraph 2.

3. Wells Fargo is informed and believes that (1) Sidney Field was

the CEO of Medical Capital Holdings, Inc. (“MCH”) and Medical Capital

Corporation (“MCC”); (2) that Joseph Lampariello was the COO and President of

MCH and MCC; (3) that MCH was based in Tustin, California; (4) that MCH’s

business included the financing of medical receivables; (5) that MCH did some of

its business through MCC; and (6) that MCC is a wholly owned subsidiary of

MCH. Except as expressly admitted, Wells Fargo lacks knowledge sufficient to


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form a belief as to the truth of the allegations of paragraph 3, and on that basis,

denies such allegations.

4. On information and belief, Wells Fargo admits that Special

Purpose Corporations (“SPCs”) Medical Provider Financial Corporation II (“MP

II”), Medical Provider Financial Corporation III (“MP III”), Medical Provider

Financial Corporation IV (“MP IV”), Medical Provider Funding Corporation V

(“MP V”), and Medical Provider Funding Corporation VI (“MP VI”) raised money

from investors through the offering of the Notes. Except as expressly admitted,

Wells Fargo lacks knowledge or information sufficient to form a belief about the

truth of the allegations of paragraph 4 and, on that basis, denies such allegations.

5. Wells Fargo denies the allegations of paragraph 5, except to the

extent they accurately reflect the contents of the Private Placement Memorandums

(“PPMs”), and respectfully refers the Court to such documents for evidence of the

complete contents thereof.


Wells Fargo (1) admits that it was retained to serve as indenture trustee for certain

Notes sold by MP III and MP V; (2) admits that it was paid fees for serving as an

indenture trustee; (3) lacks knowledge or information sufficient to form a belief as

to the truth of the allegations of paragraph 6 as they relate to BNYM, and, on that

basis, denies such allegations; and (4) lacks knowledge or information sufficient to

form a belief as to the truth of the allegations about what investors “were told” and

that MCH was a “scam,” and, on that basis, denies such allegations.

7. Wells Fargo lacks knowledge or information sufficient to form a

belief as to the truth of the allegations of paragraph 7, and, on that basis, denies

such allegations. To the extent paragraph 7 makes allegations concerning the

contents of the Receiver’s reports, the Trustees’ correspondence, and the SEC’s

Complaint, Wells Fargo respectfully refers the Court to the documents themselves

for evidence of the complete contents thereof.


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such allegations. To the extent paragraph 8 makes allegations concerning the

contents of the PPMs and the NISAs, Wells Fargo denies such allegations, except

to the extent the allegations accurately reflect the contents of those documents, and

respectfully refers the Court to the documents themselves for evidence of the



(1) Wells Fargo lacks knowledge or information sufficient to form a belief as to the

truth of the allegations of paragraph 9 as they relate to BNYM, and, on that basis,

denies such allegations; and (2) Wells Fargo understands and believes that the

allegations of the first sentence of paragraph 9 purport to reference certain

statements in the Receivers’ reports and the SEC’s Complaint, and, on that basis,

Wells Fargo respectfully refers the Court to the documents themselves for evidence

of the complete contents thereof.


belief about the truth of the allegations of paragraph 10 and, on that basis, denies

such allegations, except that: (1) Wells Fargo admits that Wells Fargo has declared

Events of Default related to the Notes issued by MP III and MP V; (2) Wells Fargo

admits that Plaintiffs purport to recover damages for alleged losses as set forth in

the last sentence of paragraph 10; and (3) Wells Fargo understands and believes that

the allegations of the second sentence of paragraph 10 purport to reference certain

statements in the Receivers’ reports, and, on that basis, Wells Fargo respectfully

refers the Court to the reports themselves for evidence of the complete contents

thereof.

11. Wells Fargo admits that Plaintiffs purport to seek more than

$5,000,000 in damages. The remaining allegations of paragraph 11 are legal

conclusions to which no response is required.


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12. Wells Fargo denies that it violated any United States law. Wells

Fargo admits that venue is proper in this District and that (1) a related SEC action is

pending in this District; (2) Wells Fargo maintains offices in this District; (3) Wells

Fargo conducted business in this District; and (4) MCH and MCC were

headquartered in this district. Wells Fargo lacks knowledge or information

sufficient to form a belief as to the truth of the remaining allegations of paragraph

12, and, on that basis, denies such allegations.

13. Paragraphs 13–22, inclusive, contain allegations concerning the

identity and residency of the individual plaintiffs, and concerning the Notes they

allegedly held or hold. As to each and every one of these paragraphs, Wells Fargo

states as follows:

a. Plaintiffs’ allegations as to the residency of the individual

plaintiffs are legal conclusions to which no response is required. To the extent a

response is required, Wells Fargo lacks knowledge and information sufficient to

form a belief as to the truth of such allegations and, on that basis, denies such

allegations.

b. Wells Fargo lacks knowledge and information sufficient

to form a belief as to the truth of the allegations regarding the ownership of Notes

issued by MP II, MP IV, and MP VI and, on that basis, denies such allegations.

c. Wells Fargo admits that Steven J. Masonek, Joann

Hosking, and Peter Braunstein are listed in the Note Registers for MP III and/or MP

V provided to Wells Fargo.

d. Wells Fargo admits that Robert H. Ludlow is listed in the

Note Register for MP V as the holder of a note with a face value of $100,000.

e. Wells Fargo admits it has declared Events of Default with

respect to Notes issued by MP III and MP V.

f. Except as expressly admitted or denied above, Wells

Fargo lacks knowledge or information sufficient to form a belief as to the truth of


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the allegations contained in paragraphs 13–22, inclusive, and, on that basis, denies

such allegations.


(1) Wells Fargo admits that it has offices in Minnesota and in San Francisco and

Los Angeles, California; and (2) Wells Fargo understands and believes that the

allegations of the second sentence of paragraph 23 purport to reference certain

statements on Wells Fargo’s website, and, on that basis, Wells Fargo respectfully

refers the Court to the website itself for evidence of the complete contents thereof.



such allegations.

25. Wells Fargo does not understand paragraph 25 to call for a

response. To the extent a response is required, Wells Fargo denies the allegations

of paragraph 25.


response. To the extent a response is required, Wells Fargo lacks knowledge or

information sufficient to form a belief as to the truth of the allegations of paragraph

26 and, on that basis, denies such allegations, except that Wells Fargo admits that

Plaintiffs purport to make allegations against the Doe Defendants as set forth in

paragraph 26.


response. To the extent a response is required, Wells Fargo denies the allegations

of paragraph 27.

28. Wells Fargo admits that certain non-parties participated in the

wrongdoing alleged in Plaintiffs’ Third Amended Complaint (“TAC”), and that

some of those non-parties have been named in the SEC’s Complaint and/or

included in the Court’s Permanent Injunction Order. Wells Fargo does not

understand the balance of paragraph 28 to call for a response. To the extent a


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response is required, Wells Fargo lacks knowledge or information sufficient to form

a belief as to the truth of the remaining allegations of paragraph 28, and, on that


29. On information and belief, Wells Fargo admits the allegations of

the first sentence of paragraph 29. Wells Fargo also admits on information and

belief that, in 2001, the California Department of Corporations issued a cease and

desist order against Medical Capital Holdings, Inc., and Wells Fargo respectfully

refers the Court to the order itself for evidence of the complete contents thereof.

Wells Fargo lacks knowledge or information sufficient to form a belief as to truth

of the remaining allegations of 29, and, on that basis, denies such allegations.


the first and third sentences of paragraph 30, that MCC is the administrator of the

SPCs, that Alan Meister is Treasurer and CFO of MCC, and that Thomas Fazio is

General Counsel for MCC. Wells Fargo lacks knowledge or information sufficient

to form a belief as to the truth of the remaining allegations of paragraph 30, and, on

that basis, denies such allegations.


the first two sentences of paragraph 31, and that MTS provided certain services for

the SPCs. Wells Fargo lacks knowledge or information sufficient to form a belief

as to the truth of the remaining allegations of paragraph 31, and, on that basis,


32. On information and belief, Wells Fargo admits that Sidney M.

Field served as CEO and as a member of the board of directors of MCH and of

certain of MCH’s subsidiaries. Wells Fargo lacks knowledge or information

sufficient to form a belief as to the remaining allegations of paragraph 32, and, on

that basis, denies such allegations, except that Wells Fargo respectfully refers the

Court to the public filings and records of the California Department of Insurance for

evidence of the complete contents thereof.


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33. On information and belief, Wells Fargo admits: (1) that Joseph

J. Lampariello was the President, COO, and a member of the board of directors of

MCH and certain of its subsidiaries; and (2) that Lampariello and Field are

defendants in the SEC enforcement action. Wells Fargo lacks knowledge or

information sufficient to form a belief as to the truth of the remaining allegations of

paragraph 33, and, on that basis, denies such allegations.



such allegations, except that Wells Fargo states on information and belief that

BNYM served as indenture trustee for certain notes issued by MP II.

35. On information and belief, Wells Fargo admits (1) the

allegations of the first sentence of paragraph 35; (2) that MP III conducted two

series of note offerings; (3) that, in those note offerings, MP III raised

approximately $550 million by issuing approximately 5300 notes; (4) that MP III

has approximately $109 million in outstanding notes; and (5) that, as of May 2009,

MP III had failed to make principal payments due on approximately $26 million in

Notes. Wells Fargo denies the allegations of the fourth sentence of paragraph 35,

except that Wells Fargo states that it served as indenture trustee for certain notes

issued by MP III. Wells Fargo lacks knowledge or information sufficient to form a

belief as to the truth of the remaining allegations of paragraph 35, and, on that





BNYM served as indenture trustee for certain notes issued by MP IV.

37. On information and belief, Wells Fargo admits (1) the

allegations of the first sentence of paragraph 37; (2) that MP V conducted a note

offering; (3) that, in that note offering, MP V raised approximately $400 million by


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issuing approximately 4300 notes; (4) that as of March 31, 2009, MP V had

approximately $400 million in outstanding notes issued to approximately 4270

investors; and (5) that MP V has defaulted on interest and principal payments to

noteholders. Wells Fargo denies the allegations of the fifth sentence of paragraph

37, except that Wells Fargo states that it served as indenture trustee for certain notes

issued by MP V. Wells Fargo lacks knowledge or information sufficient to form a

belief as to the truth of the remaining allegations of paragraph 37, and, on that





BNYM served as indenture trustee for certain notes issued by MP VI.


belief as to the truth of the allegations of the first sentence of paragraph 39, except

that Wells Fargo is informed and believes that MP III and MP V, among other

activities, provided financing to healthcare providers by purchasing their accounts

receivable at a discount and making secured loans to them. On information and

belief, Wells Fargo admits the remaining allegations of paragraph 39.



such allegations.


Wells Fargo lacks knowledge or information sufficient to form a belief as to the




Wells Fargo: (1) lacks knowledge or information sufficient to form a belief as to the



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denies such allegations; and (2) denies the allegations of paragraph 42 concerning

the contents of Wells Fargo’s marketing materials, except to the extent the

allegations accurately reproduce the contents of those materials, and respectfully

refers the Court to the documents themselves for evidence of the complete contents

thereof.


Wells Fargo: (1) admits that it entered into Note Issuance and Security Agreements

(“NISAs”) with MP III and MP V; (2) admits, on information and belief, that

BNYM entered into NISAs with MP IV and MP VI and assumed obligations with

respect to NISAs with MP I and MP II; and (3) denies the allegations of paragraph

43 purporting to set forth the terms of the NISAs, except to the extent such

allegations accurately reflect the terms of the NISAs, and respectfully refers the

Court to the NISAs themselves for evidence of the complete contents thereof.


extent the allegations accurately reflect the terms of the NISAs, and respectfully

refers the Court to such documents for evidence of the complete contents thereof.


extent they accurately reflect the terms of the NISAs and the contents of the PPMs,

and respectfully refers the Court to such documents for evidence of the complete

contents thereof.


extent they accurately reflect the terms of the NISAs, and respectfully refers the

Court to such documents for evidence of the complete contents thereof.





extent they accurately reflect the terms of the NISAs and the Administrative


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Services Agreements, and respectfully refers the Court to such documents for


49. Wells Fargo denies the allegations of paragraph 49, except (1) to

the extent they accurately reflect the terms of the NISAs, and respectfully refers the

Court to such documents for evidence of the complete contents thereof; and (2) that


truth of the allegations of the last sentence of paragraph 49, and, on that basis,



extent they accurately reflect the terms of the NISAs and the contents of the PPMs,

and respectfully refers the Court to the documents themselves for evidence of the





52. Wells Fargo denies the allegations of paragraph 52 concerning

the terms of the NISAs, except to the extent the allegations accurately reflect the

terms of the NISAs, and respectfully refers the Court to such documents for

evidence of the complete contents thereof. The remaining allegations of paragraph

52 contain legal conclusions to which no response is required. To the extent a

response is required, Wells Fargo denies such allegations.








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such allegations; however, Wells Fargo states on information and belief that the

SPCs offered the Notes to investors.

55. Wells Fargo denies the allegations of paragraph 55, except that:

(1) Wells Fargo admits on information and belief that the Notes sold by MP III and

MP V were sold as private placements pursuant to PPMs; and (2) Wells Fargo

denies the allegations of paragraph 55 concerning the contents of those PPMs,

except to the extent the allegations accurately reflect the contents of those

documents, and respectfully refers the Court to the documents themselves for




such allegations. To the extent paragraph 56 makes allegations about the scope of

Wells Fargo’s duties, such allegations are legal conclusions to which no response is

required. To the extent a response is required, Wells Fargo denies such allegations,

except to the extent they accurately reflect the terms of the NISAs, and respectfully


57. Wells Fargo admits that it served as indenture trustee for notes

sold by MP III and MP V, and admits, on information and belief, that BNYM

served as indenture trustee for notes sold by MP I, MP II, MP IV, and MP VI.

Except as expressly admitted, Wells Fargo denies the allegations of paragraph 57.



such allegations, except that: (1) Wells Fargo admits that on or about July 16, 2009,

the SEC brought an action against MCH, MCC, MP VI, Field, and Lampariello

alleging violations of certain securities laws; and (2) Wells Fargo understands and

believes that the allegations of paragraph 58 purport to reference certain statements

in the SEC’s Complaint, and, on that basis, Wells Fargo respectfully refers the

Court to the Complaint itself for evidence of the complete contents thereof.


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59. Wells Fargo understands and believes that the allegations of the

paragraph 59 purport to reference certain statements in the SEC’s Complaint, and,

on that basis, Wells Fargo respectfully refers the Court to the Complaint itself for

evidence of the complete contents thereof. To the extent that paragraph 59 makes

allegations concerning the contents of the PPMs, Wells Fargo denies such

allegations, except to the extent the allegations accurately reflect the contents of

those documents, and respectfully refers the Court to the documents themselves for


60. Wells Fargo lacks knowledge or information sufficient to form

a belief as to the truth of the allegations of paragraph 60, and, on that basis, denies

such allegations, except Wells Fargo understands and believes that the allegations

of the second sentence of paragraph 60 purport to reference certain statements in

the SEC’s Complaint, and, on that basis, Wells Fargo respectfully refers the Court

to the Complaint itself for evidence of the complete contents thereof. To the extent

that paragraph 60 makes allegations concerning the contents of the PPMs, Wells

Fargo denies such allegations, except to the extent the allegations accurately reflect

the contents of those documents, and respectfully refers the Court to the documents

themselves for evidence of the complete contents thereof.

61. Wells Fargo understands and believes that the allegations of





belief as to the truth of the allegations in paragraph 62, and, on that basis, denies

such allegations, except that Wells Fargo admits on information and belief that the

Court appointed a receiver for Medical Capital after the SEC filed its complaint.

63. Wells Fargo admits that the Receiver filed numerous reports

with the Court, including a Nineteenth Report dated February 10, 2011. Wells


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Fargo understands and believes that the remaining allegations of paragraph 63

purport to reference certain statements in the SEC’s Complaint and the Receiver’s

reports, and, on that basis, Wells Fargo respectfully refers the Court to the

documents themselves for evidence of the complete contents thereof. Except as

expressly admitted, Wells Fargo denies the allegations of paragraph 63.

64. Wells Fargo denies the allegations of the third and fourth

sentences of paragraph 64, except that Wells Fargo lacks knowledge or information

sufficient to form a belief as to the truth of such allegations as they relate to

BNYM, and, on that basis, denies such allegations. Wells Fargo understands and

believes that the remaining allegations of paragraph 64 purport to reference certain

statements in the Receiver’s reports and in filings in the SEC Action, and, on that

basis, Wells Fargo respectfully refers the Court to the documents themselves for




truth of such allegations as they relate to BNYM, and, on that basis, denies such

allegations; and (2) Wells Fargo denies the allegations of paragraph 65 concerning

the terms of the NISAs, except to the extent the allegations accurately reflect the

terms of the NISAs, and respectfully refers the Court to the documents themselves








truth of such allegations as they relate to BNYM and MP VI, and, on that basis,

denies such allegations. To the extent the allegations of paragraph 67 purport to


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reference statements in the SEC’s Complaint and the Receiver’s reports, Wells

Fargo respectfully refers the Court to the SEC’s Complaint and the Receiver’s

reports for evidence of the complete contents thereof.


first sentence of paragraph 68 purports to reference certain statements in the

Receiver’s reports, and, on that basis, Wells Fargo respectfully refers the Court to

the document itself for evidence of the complete contents thereof. Wells Fargo

lacks knowledge or information sufficient to form a belief as to the truth of the

remaining allegations of paragraph 68, and, on that basis, denies such allegations.

69. Wells Fargo denies the allegations of paragraph 69, except that:

(1) Wells Fargo admits, on information and belief, that MP V’s note offering began

in approximately November 2007; and (2) Wells Fargo states that Wells Fargo

disbursed approximately $6.35 million in administrative fees from MP V during

2007.



truth of the allegations as they relate to BNYM, and, on that basis, denies such

allegations.




allegations.

72. Wells Fargo admits that the SPCs purchased, among other

things, medial receivables and healthcare-related assets. Wells Fargo denies the

remaining allegations of paragraph 72, except to the extent they accurately reflect

the terms of the NISAs, and respectfully refers the Court to such documents for



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allegations.





the requirements of the NISAs, except to the extent the allegations accurately

reflect the terms of the NISAs, and respectfully refers the Court to the documents





allegations; and (2) Wells Fargo denies the allegations concerning the requirements

of the NISAs, except to the extent they accurately reflect the terms of the NISAs,


contents thereof. Wells Fargo also incorporates its responses to the allegations of

paragraphs 114-130.







contents thereof.


belief as to the truth of the allegations of paragraph 77 and, on that basis, denies


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such allegations, except that Wells Fargo: (1) denies the allegation that there were

“red flags apparent in the MP III account”; and (2) Wells Fargo understands and

believes that the allegations of the fifth and sixth sentences of paragraph 77 purport

to reference certain statements in filings made in litigation involving Trace, and, on

that basis, Wells Fargo respectfully refers the Court to the public record for


78. Wells Fargo denies the allegations of paragraph 78.



Court to such documents for evidence of the complete contents thereof. Wells

Fargo incorporates by reference its responses to paragraphs 48−50.




allegations; and (2) Wells Fargo denies the allegations of paragraph 80 purporting

to describe the contents of MP III’s NCCR Reports, except to the extent the

allegations accurately reflect the contents of those documents, and respectfully


thereof.







contents thereof.


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Court to the documents themselves for evidence of the complete contents thereof.

83. Wells Fargo denies the allegations of paragraph 83 concerning

the requirements of the NISAs, except to the extent they accurately reflect the terms

of the NISAs, and respectfully refers the Court to such documents for evidence of

the complete contents thereof. Wells Fargo denies the remaining allegations of

paragraph 83, except that Wells Fargo lacks knowledge or information sufficient to

form a belief as to the truth of the allegations as they relate to BNYM and, on that



first two sentences of paragraph 84 purport to reference certain statements in the

Receiver’s reports, and, on that basis, Wells Fargo respectfully refers the Court to

the documents themselves for evidence of the complete contents thereof. Wells

Fargo denies the allegations of the third sentence of paragraph 84, except to the



thereof. Wells Fargo denies the remaining allegations of paragraph 84, except that



allegations.




allegations; (2) Wells Fargo admits that it claims that it is entitled conclusively to

rely on Medical Capital’s collateral reports; and (3) Wells Fargo denies the

allegations concerning the requirements of the NISAs, except to the extent they


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accurately reflect the terms of the NISAs, and respectfully refers the Court to the

documents themselves for evidence of the complete contents thereof.




allegations; (2) Wells Fargo denies the allegations concerning the requirements of

the NISAs, except to the extent the allegations accurately reflect the terms of the

NISAs, and respectfully refers the Court to the documents themselves for evidence

of the complete contents thereof; and (3) Wells Fargo understands and believes that

the allegations of the first sentence of paragraph 86 purport to reference certain

statements in the Receiver’s reports, and, on that basis, Wells Fargo respectfully


thereof.

87. Wells Fargo denies the allegations of the first sentence of

paragraph 87. Wells Fargo understands and believes that the remaining allegations

of paragraph 87 purport to reference certain statements in the Receiver’s reports,

and, on that basis, Wells Fargo respectfully refers the Court to the reports



paragraph 88 purport to reference certain statements in the Receiver’s reports, and,

on that basis, Wells Fargo respectfully refers the Court to the reports themselves for



Wells Fargo (1) denies the allegations concerning the requirements of the NISAs,

except to the extent the allegations accurately reflect the terms of the NISAs, and


complete contents thereof; (2) lacks knowledge or information sufficient to form a

belief as to the truth of the allegations as they relate to BNYM, and, on that basis,


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denies such allegations (3) denies the allegations of paragraph 89 purporting to

describe the contents of Exhibit 6 to the Complaint, except to the extent such

allegations accurately reflect the contents of Exhibit 6, and respectfully refers the

Court to the document itself for evidence of the complete contents thereof.


Wells Fargo (1) lacks knowledge or information sufficient to form a belief as to the

truth of the allegations as they relate to BNYM or other corporate trustees, and, on

that basis, denies such allegations; (2) admits that it established a tracking system --

sometimes called a “tickler” system -- that helped Wells Fargo employees track

when certificates were due from Medical Capital; and (3) to the extent paragraph 90

makes allegations concerning the requirements of the NISAs, Wells Fargo denies

such allegations except to the extent the allegations accurately reflect the terms of

the NISAs, and respectfully refers the Court to the documents themselves for



Wells Fargo: (1) admits that Wells Fargo received a fourth quarter 2007 collateral

schedule for MP V on July 22, 2008; (2) denies the allegations of paragraph 91

concerning the requirements of the NISAs, except to the extent the allegations

accurately reflect the terms of the NISAs, and respectfully refers the Court to the

documents themselves for evidence of the complete contents thereof; and (3) denies

the allegations purporting to describe the contents of Exhibits 7 and 8, except to the

extent those allegations accurately reflect the contents of those documents, and






allegations.


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Wells Fargo: (1) lacks knowledge or information sufficient to form a belief as to the

truth of the allegations of paragraph 93 as they relate to BNYM and, on that basis,

denies such allegations; (2) admits, on information and belief, that Sidney Field was

sued in an action arising out of his ownership of a California auto insurance

company and that Field had his insurance license revoked and that the company

was liquidated by a bankruptcy trustee, and respectfully refers the Court to the

public record for the full and accurate contents thereof; and (3) admits that it has

internal policies concerning new corporate trust clients, and respectfully refers the

Court to the policies themselves for evidence of the complete contents thereof.


Wells Fargo: (1) admits that it has internal policies; (2) denies the allegations

concerning the contents of those internal policies, except to the extent the

allegations accurately reflect the contents of those documents, and respectfully


thereof; and (3) lacks knowledge or information sufficient to form a belief as to the






allegations; and (2) Wells Fargo denies the allegations concerning the NISAs,

except to the extent the allegations accurately reflect the terms of the NISAs, and




belief as to the truth of the allegations of the first sentence of paragraph 96, and, on

that basis, denies such allegations. To the extent paragraph 96 purports to reference


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certain statements in the Receiver’s reports or SEC’s Complaint, Wells Fargo


complete contents thereof. Wells Fargo denies the remaining allegations of

paragraph 96, except that Wells Fargo lacks knowledge or information sufficient to

form a belief as to the truth of the allegations as they relate to BNYM, and, on that


97. Wells Fargo denies the allegations of the first and last sentences

of paragraph 97, except that Wells Fargo lacks knowledge or information sufficient

to form a belief as to the truth of such allegations as they relate to BNYM and MP

VI, and, on that basis, denies such allegations. Wells Fargo understands and

believes that the remaining allegations of paragraph 97 purport to reference certain

statements in the SEC’s Complaint, and, on that basis, Wells Fargo respectfully

refers the Court to the Complaint itself for evidence of the complete contents

thereof.



such allegations, except that Wells Fargo (1) denies that it accepted calculations

“without question”; and (2) Wells Fargo understands and believes that the chart in

paragraph 98 purports to reference certain statements in the SEC’s Complaint, and,





such allegations, except that: (1) Wells Fargo admits that some SPCs sold assets to

other SPCs; (2) denies that such sales occurred “at [Wells Fargo’s] instructions;”

and (3) to the extent paragraph 99 references statements in the SEC’s Complaint,

Wells Fargo respectfully refers the Court to the Complaint itself for evidence of the


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complete contents thereof. Wells Fargo also incorporates its responses to the

allegations of paragraphs 131-142.



such allegations, except that Wells Fargo denies it accepted reports “without

question.” To the extent paragraph 100 references statements in the Receiver’s

reports, Wells Fargo respectfully refers the Court to the reports themselves for







belief as to the truth of the allegations of the first and third sentences of paragraph

102, and, on that basis, denies such allegations. Wells Fargo understands and

believes that the allegations of the second sentence of paragraph 102 purport to

reference certain statements in the Receiver’s reports, and, on that basis, Wells

Fargo respectfully refers the Court to the reports themselves for evidence of the

complete contents thereof. Wells Fargo understands and believes that the

allegations of the last sentence of paragraph 102 purport to reference certain

statements in a filing in the SEC Action, and, on that basis, Wells Fargo

respectfully refers the Court to the filing itself for evidence of the complete contents

thereof.


belief as to the truth of the allegations of the last sentence of paragraph 103, and, on

that basis, denies such allegations. Wells Fargo denies the remaining allegations of

paragraph 103, except to the extent the allegations accurately reflect the terms of


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the NISAs and the Administrative Services Agreements, and respectfully refers the


104. Wells Fargo denies the allegations of paragraph 104, except to

the extent the allegations accurately reflect the terms of the NISAs and the contents

of the PPMs, and respectfully refers the Court to the documents themselves for




such allegations.


belief as to the truth of the allegations of the first sentence of paragraph 106, and,

on that basis, denies such allegations. Wells Fargo understands and believes that




thereof.





108. Wells Fargo denies the allegations of the last sentence of

paragraph 108, except that Wells Fargo lacks knowledge or information sufficient

to form a belief as to the truth of such allegations as they relate to BNYM, and, on

that basis, denies such allegations. Wells Fargo understands and believes that the

remaining allegations of paragraph 108 purport to reference certain statements in

the Receiver’s reports, and, on that basis, Wells Fargo respectfully refers the Court

to the reports themselves for evidence of the complete contents thereof.


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109. Wells Fargo denies the allegations of the last sentence of

paragraph 109, except that Wells Fargo lacks knowledge or information sufficient

to form a belief as to the truth of such allegations as they relate to BNYM, and, on

that basis, denies such allegations. Wells Fargo lacks knowledge or information








reflect the terms of such documents, and respectfully refers the Court to the

documents themselves for evidence of the complete contents thereof.


the extent such allegations accurately reflect the terms of the NISAs, and





such allegations. To the extent paragraph 112 makes allegations concerning public

filings in litigation, Wells Fargo respectfully refers the Court to the public record





allegations; (2) admits that it sent correspondence to Noteholders in 2009; (3)

admits that it hired a third party in 2009 to review MP III and MP V; and (4) denies

the allegations that purport to describe the contents of that correspondence, except


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to the extent the allegations accurately reflect the contents of the documents, and







the requirements of the NISAs except to the extent the allegations accurately reflect

the terms of such documents, and respectfully refers the Court to the documents





allegations; and (2) to the extent paragraph 115 makes allegations concerning the

the requirements of the NISAs, Wells Fargo denies such allegations except to the

extent the allegations accurately reflect the terms of such documents, and




the extent the allegations accurately reflect the terms of the NISAs, and respectfully


thereof.




allegations; (2) to the extent paragraph 117 makes allegations about the

requirements of the NISAs, Wells Fargo denies such allegations, except to the


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such allegations.







such allegations, except that: (1) Wells Fargo admits, on information and belief,

that MP III made investments related to Viva Vision, Inc.; and (2) Wells Fargo

understands and believes that the allegations of the second, third, fourth, and fifth

sentences of paragraph 120 purport to reference certain statements in the Receiver’s

reports, and, on that basis, Wells Fargo respectfully refers the Court to the reports


121. Wells Fargo lacks knowledge or information sufficient to form

a belief as to the truth of the allegations of the first sentence of paragraph 121, and,

on that basis, denies such allegations, except that Wells Fargo admits that, on July

30, 2010, the Court approved the sale of VVI stock held by MP III Series 2 for

$1.25 million. Wells Fargo understands and believes that the remaining allegations

of paragraph 121 purport to reference certain statements in the Receiver’s reports,

and, on that basis, Wells Fargo respectfully refers the Court to the reports



belief as to the truth of the allegations of the first sentence paragraph 122, and, on

that basis, denies such allegations. Wells Fargo understands and believes that the


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remaining allegations of paragraph 122 purport to reference certain statements in

the Receiver’s reports, and, on that basis, Wells Fargo respectfully refers the Court

to the reports themselves for evidence of the complete contents thereof.



such allegations.


first and fourth sentences of paragraph 124 purport to reference certain statements

in the Receiver’s reports, and, on that basis, Wells Fargo respectfully refers the

Court to the reports themselves for evidence of the complete contents thereof.

Wells Fargo understands and believes that the allegations of the second and third

paragraph 124 purport to reference certain statements in the articles published by

the OC Weekly, and, on that basis, Wells Fargo respectfully refers the Court to the

articles themselves for evidence of the complete contents thereof.
















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themselves for evidence of the complete contents thereof; and (3) Wells Fargo lacks

knowledge or information sufficient to form a belief as to the truth of the

allegations of paragraph 127 concerning whether the investments were unrelated to

the healthcare industry, and, on that basis, denies such allegations.


















denies such allegations. To the extent the allegations of paragraph 130 purport to

reference certain statements in the Receiver’s reports, Wells Fargo respectfully


thereof.


paragraph 131 purport to reference certain statements in the Receiver’s reports and


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to the documents themselves for evidence of the complete contents thereof.






belief as to the truth of the allegations of the first sentence of paragraph 133, and,

on that basis, denies such allegations. Wells Fargo understands and believes that




thereof.




allegations.




allegations.








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first, second, third (including all of the bullet points), and fifth sentences of



to the documents themselves for evidence of the complete contents thereof. Wells

Fargo denies the allegations of the fourth sentence of paragraph 138, except that


truth of the allegations as they relate to BNYM and, on that basis, denies such

allegations.


second sentence of paragraph 139 purport to reference certain statements in the

SEC’s Complaint, and, on that basis, Wells Fargo respectfully refers the Court to

the Complaint itself for evidence of the complete contents thereof. Wells Fargo

lacks knowledge or information sufficient to form a belief as to the truth of the

remaining allegations of paragraph 139, and, on that basis, denies such allegations.




evidence of the complete contents thereof. To the extent paragraph 140 makes

allegations concerning the contents of the PPMs, the NISAs, or any other

agreement, Wells Fargo denies such allegations, except to the extent the allegations

accurately set forth the contents of those documents, and respectfully refers the


141. Wells Fargo denies the allegations of paragraph 141 except that


truth of such allegations as they relate to BNYM, MP I, MP II, MP IV, and MP VI


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and, on that basis, denies such allegations; and (2) Wells Fargo understands and

believes that the allegations of the fourth sentence of paragraph 141 purport to

reference certain statements in the Receiver’s reports, and, on that basis, Wells

Fargo respectfully refers the Court to the reports themselves for evidence of the





allegations.



Court to such documents for evidence of the complete contents thereof. In addition,

Wells Fargo states that the allegation that “Once an Event of Default occurs and

continues, the Trustee is held to a heightened duty of care to protect the

Noteholders” is a legal conclusion to which no response is required.







allegations.


Wells Fargo lacks sufficient knowledge or information to form a belief as to the

truth of allegations of paragraph 146 as they relate to BNYM, MP II, IV, or VI,

and, on that basis, denies such allegations.


Wells Fargo lacks sufficient knowledge or information to form a belief as to the


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truth of the remaining allegations of paragraph 147 as they relate to BNYM, MP I,

MP II, MP IV, and MP VI.

148. Wells Fargo lacks sufficient knowledge or information to form a

belief as to the truth of the allegations in paragraph 148, and, on that basis, denies

such allegations (except for the phrase “much like other offerings,” which it

denies).


Wells Fargo: (1) admits that it knew of default in principal and interest to

Noteholders, but, to the extent paragraph 149 alleges Wells Fargo had such

knowledge on or before August 4, 2008, Wells Fargo denies the allegations; (2)

denies the allegations of paragraph 149 concerning the requirements of the NISAs,

except to the extent such allegations accurately reflect the terms of the NISAs, and






allegations; and (2) Wells Fargo lacks knowledge or information sufficient to form

a belief as to the truth of the allegations of the second sentence of paragraph 150,

and, on that basis, denies such allegations. Wells Fargo also incorporates its

responses to the allegations of paragraphs 131-142.









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allegations; and (2) Wells Fargo admits it first notified Noteholders of an Event of

Default in November 2008.


Wells Fargo: 1) admits that it was in communication with Medical Capital about

Events of Default by February 2009; (2) lacks knowledge or information sufficient

to form a belief as to the truth of the allegations of paragraph 153 as they relate to

BNYM, and, on that basis, denies such allegations; (3) lacks knowledge or

information sufficient to form a belief as to the truth of the allegations of sentences

three, four, and five of paragraph 153, and, on that basis, denies such allegations;

(4) denies the allegations of paragraph 153 concerning the requirements of the

NISAs and Wells Fargo’s internal policies, except to the extent the allegations

accurately reflect the contents of those documents, and respectfully refers the Court



(1) Wells Fargo admits that it noticed and participated in conference calls with

Noteholders beginning in approximately December 2008; (2) Wells Fargo lacks

knowledge or information sufficient to form a belief as to the truth of the

allegations of paragraph 154 as they relate to BNYM, and, on that basis, denies

such allegations; and (3) Wells Fargo denies the allegations of paragraph 154

concerning Exhibit 12, except to the extent the allegations accurately reflect the

contents of that document, and respectfully refers the Court to the document itself



Wells Fargo denies the allegations of paragraph 155 purporting to set forth the

contents of Exhibit 13, except to the extent the allegations accurately reflect the


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contents of that document, and respectfully refers the Court to the document itself





allegations; (2) Wells Fargo admits, on information and belief, that the SEC’s

Complaint was filed “nearly” twelve months after August 2008.




allegations; and (2) Wells Fargo admits that as disbursing agent, Wells Fargo

charged fees for disbursement services, including wire transfer services.




allegations; and (2) admits that it earned fees in connection with investments

Medical Capital made in Wells Fargo investment vehicles.




allegations; and (2) admits that it earned fees in connection with investments

Medical Capital made in Wells Fargo investment vehicles.




allegations.




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allegations.




allegations.




allegations.


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belief as to the truth of the allegations of the first sentence of paragraph 167 and, on

that basis, denies such allegations, except that (1) Wells Fargo is informed and

believes that MP II, MP IV, and MP VI defaulted on their obligations to make

interest and principal payments to Noteholders; and (2) Wells Fargo admits that it

has declared Events of Default with respect to Notes issued by MP III and MP V.

Wells Fargo understands and believes that the allegations of the second sentence of























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175. Wells Fargo admits that Plaintiffs purport to bring this action as

a class action under Rule 23 of the Federal Rules of Civil Procedure and that

Plaintiffs purport to represent a class as set forth in paragraph 175.


belief as to the truth of the second sentence of paragraph 176, and, on that basis,

denies such allegations. The allegations of the first sentence of paragraph 176 are

legal conclusions to which no response is required. To the extent a response is

required, Wells Fargo denies such allegations.

177. The allegations of paragraph 177 are legal conclusions to which

no response is required. To the extent a response is required, Wells Fargo denies

such allegations.



such allegations.

179. The allegations of the first sentence of paragraph 179 are legal

conclusions to which no response is required. To the extent a response is required,

Wells Fargo denies such allegations. Wells Fargo lacks knowledge or information


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180. The allegations of paragraph 180 are legal conclusions to which

no response is required. To the extent a response is required, Wells Fargo denies

the allegations of paragraph 180.

181. Wells Fargo lacks sufficient knowledge or information to form a


such allegations.

182. Wells Fargo hereby incorporates by reference all of its responses

to the foregoing paragraphs.

183. Wells Fargo admits it was indenture trustee under the NISAs for

certain Notes sold by MP III and MP V. On information and belief, Wells Fargo

admits that BNYM was indenture trustee under the NISAs for certain Notes sold by

MP II, MP IV, and MP VI. Except as expressly admitted, Wells Fargo denies the

allegations of paragraph 183.

184. Wells Fargo admits the allegations of paragraph 184 to the

extent they relate to Wells Fargo (leaving aside the phrase “for example,” which it

denies), except that Wells Fargo denies that it entered into a NISA dated June 25,

2007. On information and belief, Wells Fargo admits the allegations of the second

sentence of paragraph 184 (leaving aside the word “similarly,” which it also

denies).

185. The allegation that “Plaintiffs and members of the Class were

intended third party beneficiaries of the NISAs” is a legal conclusion to which no

response is required. Wells Fargo denies the balance of the allegations of

paragraph 185, except to the extent they accurately reflect the terms of the NISAs


contents thereof.


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186. Wells Fargo denies the allegation that funds deposited into the

trust accounts were “under the exclusive control” of Wells Fargo. Wells Fargo

denies the balance of the allegations of paragraph 186, except to the extent they

accurately reflect the terms of the NISAs, and respectfully refers the Court to such

documents for evidence of the complete contents thereof.







allegations.




allegations.

DEFENSES

In addition to the grounds set out in the Answer to the Complaint

herein, Wells Fargo hereby additionally alleges as follows:

FIRST DEFENSE TO ALL CLAIMS

Plaintiffs’ damages, if any, are the result of superseding acts by third

parties and are not attributable to Wells Fargo.

SECOND DEFENSE TO ALL CLAIMS

Plaintiffs’ own conduct has contributed to their damages, if any, and to

the extent of such contribution, any damages awarded to Plaintiffs should be

reduced accordingly.

THIRD DEFENSE TO ALL CLAIMS


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At the time and place of the incidents alleged in the Complaint,

Plaintiffs knew of the risks incident to their investment in the Notes but, despite

such knowledge, freely and voluntarily assumed and exposed themselves to all risk

of loss along with consequential injuries and damages.

FOURTH DEFENSE TO ALL CLAIMS

Plaintiffs have failed to mitigate their damages, if any, and to the

extent of such failure to mitigate, any damages awarded to Plaintiffs should be

reduced accordingly.

FIFTH DEFENSE TO ALL CLAIMS

Plaintiffs’ Complaint, and each purported cause of action therein, is

barred in whole or in part by applicable statutes of limitations.

SIXTH DEFENSE TO ALL CLAIMS


barred in whole or in part by reason of Plaintiffs’ unclean hands.

SEVENTH DEFENSE TO ALL CLAIMS


barred in whole or in part by the doctrine of laches.

EIGHTH DEFENSE TO ALL CLAIMS


barred in whole or in part by the doctrine of estoppel.

NINTH DEFENSE TO ALL CLAIMS


barred in whole or in part by the doctrine of in pari delicto.

TENTH DEFENSE TO ALL CLAIMS


barred in whole or in part by Plaintiffs’ bad faith.

ELEVENTH DEFENSE TO ALL CLAIMS


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The non-performance of MP III and MP V bars any recovery for

breach of contract by Plaintiffs as third-party beneficiaries.

TWELFTH DEFENSE TO ALL CLAIMS

Wells Fargo’s partial performance is excused by the failure of MP III

and MP V to satisfy a condition precedent to Wells Fargo’s performance.

THIRTEENTH DEFENSE TO ALL CLAIMS

MP III and MP V waived any right to sue for defects in Wells Fargo’s

performance by accepting partial performance with full knowledge of those defects,

if any, and Plaintiffs’ breach of contract claims are barred by this waiver.

FOURTEENTH DEFENSE TO ALL CLAIMS

The acceptance by MP III and MP V of Wells Fargo’s performance

served as an accord and satisfaction that bars Plaintiffs’ breach of contract claims.

FIFTEENTH DEFENSE TO ALL CLAIMS

Inequitable conduct by MP III and MP V equitably estops Plaintiffs’

breach of contract claims.

SIXTEENTH DEFENSE TO ALL CLAIMS

To the extent any Plaintiff received any benefit as a result of an alleged

breach of contract by Defendants or breach of duty by Medical Capital, Wells

Fargo is entitled to an offset in the amount of such benefit.

SEVENTEENTH DEFENSE TO ALL CLAIMS

Wells Fargo presently has insufficient knowledge or information on

which to form a belief as to whether there may be additional, as yet unstated,

defenses available. Subject to further investigation and discovery, Wells Fargo

expressly reserves its right to assert additional defenses.

WHEREFORE, Defendant Wells Fargo Bank, N.A., prays for

judgment as follows:

a. That Plaintiffs take nothing by their Complaint;


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b. That the Complaint be dismissed with prejudice;

c. For costs of suit as may be provided by law; and

d. For such other and further relief as the Court deems just

and proper.

DATED: May 6, 2011

MUNGER, TOLLES & OLSON LLP

By: /s/ Matthew A. Macdonald

Attorneys for Defendant WELLS FARGO BANK, N.A.


Documents

MUNGER, TOLLES & OLSON, LLP Marc T. G. Dworsky (State Bar