Barclays Appeals Order To Pay Lehman Trustee $2.054 Billion
By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
Barclays PLC (BCS) on Friday appealed a June ruling that called for the British bank to pay $2.054 billion to the trustee overseeing the liquidation of Lehman Brothers Holdings Inc.'s (LEHMQ) U.S. brokerage business.
In its appeal to the Southern District of New York, filed with the U.S. Bankruptcy Court in Manhattan, Barclays renewed its argument made in court that it should keep the assets in the so-called "margin account." Barclays had said previously that it should keep at least $1.5 billion of the money in the account, particularly government-issued securities with maturities of more than three months. Last month, Judge James Peck of U.S. Bankruptcy Court in Manhattan ruled that all $2.054 billion in the account, including the government-issued securities, should go to the trustee.
The ruling was part of the bigger "secret discount" lawsuit, in which Barclays otherwise prevailed.
Peck quoted a statement from the trustee's prior arguments about the fact that Barclays never mentioned the government securities during the 34-day trial. "The trial was a fight about margin and it was very clearly a fight about all the margin," placing his emphasis on the word "all." "That was clearly a correct statement."
In the more widely followed portion of a February ruling, Peck rejected most of the Lehman parent company's claims of Barclays reaping a secret windfall when it bought Lehman's broker-dealer unit in September 2008.
"The Bankruptcy Court rightly rejected claims by the Lehman estate and creditors to modify the Sale Order approving Barclays Capital's acquisition of Lehman Brothers' North American business in September 2008," said Boies, Schiller & Flexner LLP's Jonathan Schiller, a lawyer for Barclays, in a statement e-mailed to Dow Jones. "However, Barclays believes the Court erred in its interpretation of two specific contractual disputes. Barclays was expressly promised certain assets, and relied upon receiving them when making the decision to move forward with this historic acquisition. We look forward to presenting Barclays' arguments on appeal."
"We will vigorously defend against Barclays' appeal," said Hughes, Hubbard & Reed LLP's William Maguire, a lawyer for trustee James W. Giddens.
Lehman last year sued Barclays for billions, accusing the British bank of negotiating a discount not adequately disclosed to the court when it bought Lehman's broker-dealer unit in 2008. Barclays argued in the months-long trial that both sides negotiated in good faith, and the deal, approved by Peck just days after the investment bank collapsed into bankruptcy, was Lehman's best option.
Lehman pressed its case that in the tumultuous days of September 2008, when Barclays was finalizing its purchase of Lehman's brokerage, Barclays scrambled for more assets and negotiated with some Lehman executives a $5 billion discount. Lehman said its bankruptcy attorney, Weil, Gotshal & Manges partner Harvey Miller, and other Lehman representatives weren't informed of the discount and neither was Peck. Lehman sought to recover what it called more than $11 billion in ill-gotten gains by Barclays.
In his ruling, Peck wrote at several points about the so-called "clarification letter" that became a focal point of the case, a letter Peck agreed on at the time of the sale should be drafted to address several complications and list some assets moving over from Lehman to Barclays. On several occasions throughout Lehman's bankruptcy and the Barclays trial, Peck emphasized he had never approved the actual letter.
But in his ruling, Peck agreed with a key Barclays argument about the letter, saying, "While not expressly approved in so many words, the clarification letter is deemed approved" by the fact that it was known that it would be drafted, and that no party objected to it in court.
While Lehman fought to prove the discount, the trustee disputed the transfer of assets in the margin account and other accounts.
In May, the two sides settled on another dispute, with the trustee agreeing to pay Barclays $1.1 billion for so-called clearance box assets that were worth $869 million at the time Barclays bought Lehman's brokerage business.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-By Joseph Checkler; Dow Jones Newswires; 212-416-2152;
[email protected]
(END) Dow Jones Newswires
July 15, 2011 15:48 ET (19:48 GMT)
