The New York State Supreme Court, Appellate Division, First Department (Court), recently awarded a hedge fund an important victory in its suit to unwind a total return swap with a counterparty and to recover collateral being held by the counterparty.  The Court ruled that the counterparty had defaulted on the swap when it failed to pay in full a $40 million collateral call by the hedge fund pursuant to the ISDA documents governing the swap.  See “How Have Dodd-Frank and European Union Derivatives Trading Reforms Impacted Hedge Fund Managers That Trade Swaps?,” Hedge Fund Law Report, Vol. 6, No. 40 (Oct. 17, 2013).  A critical issue in the suit was whether language contained in the ISDA Master Confirmation negotiated by the parties modified and trumped the mechanism for disputing a collateral call contained in the credit support annex.  For a discussion of another action involving swap counterparty risk, see “British High Court Interprets ISDA Master Agreement to Suspend Non-Defaulting Party’s Payment Obligations Until Defaulting Party Has Cured the Default,” Hedge Fund Law Report, Vol. 5, No. 20 (May 17, 2013).