By Joseph Checkler
The U.S. Supreme Court on Monday declined to hear an appeal by
Lehman Brothers Inc. in its long-running fight over assets that
went to Barclays PLC when the British bank bought Lehman's
brokerage in 2008.
Trustee James W. Giddens, who is winding down Lehman's
brokerage, had appealed lower courts' decisions to award $4 billion
in disputed assets to Barclays.
In petitioning the Supreme Court, Mr. Giddens had argued that
allowing Barclays to keep the $4 billion could broadly inflict
long-term damage to the section of the bankruptcy code that allows
a trustee to sell a debtor's assets outside of the ordinary course
of business.
"We are disappointed but remain focused on continued progress in
winding down and closing out the LBI estate," said Kent Jarrell, a
spokesman for Mr. Giddens. "The trustee appropriately reserved for
the Barclays litigation, so the decision does not impact
distributions already completed or assets on hand for potential
additional distributions to unsecured general creditors."
Boies Schiller & Flexner LLP's Jonathan Schiller, who
represented Barclays in the dispute, said, "We are happy for
Barclays to have successfully concluded this long litigation after
its bold and brilliant purchase of Lehman in the crisis that helped
stabilize markets and get 12,000 people back to work."
The legal fight over the sale began in 2009, when the Lehman
brokerage and its parent company both sued Barclays, saying the
British bank negotiated a secret discount when it bought Lehman's
brokerage.
The fight came down to a "clarification letter" agreed upon by
the two sides in the hectic days of September 2008, but never
reviewed by James Peck, who was Lehman's bankruptcy judge. The
judge ultimately decided that while he didn't approve the terms of
the letter explicitly, all parties involved treated it as if he
had. The letter spelled out the terms of which assets would go to
Barclays and which would stay with Lehman.
While Judge Peck had said in court that "no cash" could be
transferred from Lehman to Barclays, some assets that the trustee
later construed as cash did end up being transferred, per the
letter. After the trial, the judge ultimately concluded that
Barclays didn't receive an improper "windfall" from the sale, but
that Lehman's brokerage was entitled to the approximately $4
billion in money described as margin assets.
Later, however, a three-judge court of appeals panel said
"ambiguities and loose ends were inevitable" in such a speedy sale
and ruled that Barclays was entitled to these disputed assets.
In his December appeal, Mr. Giddens said, "while the bankruptcy
court rightly rejected Barclays' claims to the margin cash assets,
the decisions by the district and appeals courts reduced the amount
available for the general estate by $4 billion, frustrated the
purpose of the liquidation, and undermined the credibility of a
sale hearing."
The $4 billion would have been a boon for the creditors of the
Lehman brokerage, who have already received more money back than
originally expected. While individual customers of the U.S.
brokerage received about $92.3 billion almost immediately after
Lehman collapsed, other creditors had to wait until all others with
"customer" status got 100% of their money back. Since then,
distributions to unsecured creditors have begun in earnest, and Mr.
Giddens has returned about $112 billion in all to customers and
creditors of the brokerage.
Write to Joseph Checkler at joseph.checkler@wsj.com
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