By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
Barclays Group PLC (BCS) and the Lehman Brothers Holdings Inc.'s
(LEHMQ) are continuing their appeals of a judge's split decision
last year to the lesser-followed aspects of the so-called
"secret-discount lawsuit."
Barclays said the trustee unwinding Lehman Brothers Holdings
Inc.'s U.S. brokerage "did not read the nine-page, $50 billion
contract" he signed in the days after Barclays bought the brokerage
business in 2008. In Friday filings with the U.S. District Court in
Manhattan, lawyers for Barclays and the trustee, James W. Giddens,
traded their final written arguments ahead of a decision by Judge
Katherine B. Forrest, the new judge in the case after Judge Richard
J. Holwell retired from the bench last week.
Barclays is asking Forrest to overturn a bankruptcy judge's
decision that it should turn over all $2.054 billion in a "margin
account" to the trustee. Barclays says much of the money in that
account was explicitly designated to go to the British bank as part
of the terms of its purchase of Lehman's brokerage.
In the more widely followed portion of a February 2011 ruling, a
judge 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. While Lehman is not appealing
that decision, the trustee and Barclays continue to fight over some
of the other aspects of the ruling.
The trustee, in renewing its argument that the bankruptcy court
was correct to assign the money to the brokerage customers, said in
its Friday court filing, "It is odd for an appellee to devote most
of its brief to arguing against the trial court's findings, but
Barclays cannot otherwise defend the judgment."
The lawyers for Barclays said, "The Trustee's version of history
created for this litigation defies common sense," arguing that
there was "never any question" that Barclays would receive the bulk
of the money in the margin account.
Giddens, who is unwinding Lehman's brokerage under the terms of
the Securities Investor Protection Act, said in a statement emailed
to Dow Jones, "Barclays is attempting to contravene bankruptcy law
and SIPA by laying claim to property that should be available to
satisfy the claims of the LBI customers."
Barclays is asking Forrest for a hearing in its appeal, a
request that is at her discretion.
Lehman in 2010 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 Judge James Peck of U.S.
Bankruptcy Court in Manhattan 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, Giddens disputed the
transfer of assets in the margin account and other accounts.
Last 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.
Peck late last year approved Lehman's historic $65 billion
creditor payback plan, and distribution to its non-brokerage
clients is expected to begin soon.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler; Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com