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Citigroup has been on the receiving end of at least one suit over a credit default swap, a case brought by the hedge fund VCG Special Opportunities that was dismissed last year. But now it’s on the other side of the caption, playing plaintiff in a suit filed last Friday in Manhattan federal district court against Morgan Stanley. Here’s Citi’s 15-page complaint. The bank’s suit, first reported by Reuters, claims that Morgan Stanley reneged on a deal to pay Citi $245 million in the event that an issuer of collateralized debt obligations failed to make payments on a line of credit Citi provided. According to the complaint, the liquidation of the CDO didn’t cover the $245 million Citi is owed, and Morgan Stanley has refused to make up the difference. Paul, Weiss, Rifkind, Wharton & Garrison successfully defended Citigroup in the VCG credit default swap case. But in the suit against Morgan Stanley, Citigroup has turned to Gregory Joseph, a former Fried Frank litigator who heads his own firm. That’s not surprising, given Paul Weiss’ tradition of not suing other banks; Citi also used Joseph’s firm last year when it sued Wells Fargo in the fight over Wachovia. In what seems like a bigger surprise, Morgan Stanley has retained Michael Carlinksy of Quinn Emanuel Urquhart Oliver & Hedges to defend the Citi suit. With its record of suing major financial institutions, Quinn Emanuel doesn’t have a lot of friends and clients at the big banks. But Morgan Stanley is the exception; Quinn Emanuel has long had a special relationship with its management, including chief legal officer Gary Lynch. Carlinsky declined to comment on the Citigroup matter, but he did give us a comment about the broader picture of litigation involving financial institutions. “In this economic environment, we are seeing more and more large financial institutions suing each other than we’ve previously seen,” Carlinsky said.

This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.

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