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In re Lehman Brothers Inc.

United States District Court, S.D. New York

April 22, 2015

JAMES W. GIDDENS, as TRUSTEE for the SIPA LIQUIDATION of LEHMAN BROTHERS INC., Appellee and Cross-Appellant. BARCLAYS CAPITAL INC. and BARCLAYS BANK PLC, Appellant and Cross-Appellees,



Before the Court is an unusual application - cast as a motion by James W. Giddens, as Trustee for the SIPA Liquidation of Lehman Brothers Inc. (the "Trustee"), "to Confirm the Scope" of this Court's July 16, 2012 Order and Judgment. That Order and Judgment, which held that Barclays was entitled to approximately $4 billion of Margin Assets to support Lehman's exchange-traded derivatives business, was affirmed by the Second Circuit on August 5, 2014. In re Lehman Bros. Holdings Inc. , 761 F.3d 303 (2d Cir. 2014). In essence, the instant motion seeks a declaration in 2015 that certain assets are not included in the Margin Assets that were the subject of this Court's prior Order and Judgment in 2012, and were therefore not part of the appeal to the Second Circuit in 2014. The amount at issue on this motion is approximately $1.3 billion. Barclays Capital Inc. and Barclays Bank PLC (together "Barclays") oppose the motion.

The Court has received substantial briefing on this motion (see ECF Nos. 66, 67, 70, 72) and heard oral argument on January 16, 2015 (Transcript at ECF No. 76). At the outset of the oral argument, the Court expressed a number of concerns with the procedural posture of the instant motion: that there is no such thing as a motion for "clarification" - though such are often made to district courts[1]; that, in effect, any such motion should have been made long ago and prior to the appeal to the Second Circuit; that to the extent the Trustee seeks a new ruling on a new issue, it is unclear whether this Court has jurisdiction as the "Lehman Bankruptcy" matters remain before Bankruptcy Court; that this Court has appellate jurisdiction (and while this Court could withdraw the reference, it declines to do so); and that ultimately any order from this Court on the issue now before it may not be appealable to the Second Circuit. The parties nonetheless expressed a keen and mutual desire for clarity from this Court.[2]

Accordingly, this Court issues the instant Order pursuant to its general authority under Rule 1 of the Federal Rules of Civil Procedure, that a court should construe the rules "to secure the just, speedy, and inexpensive determination of every action and proceeding." Fed.R.Civ.P. 1.

The core question on the motion now before the Court is whether its 2012 decision, as affirmed by the Second Circuit, entitled Barclays to all Margin Assets - or only those assets which were (at the time of the sale) securing open trading positions. For the reasons set forth below, the Court's Opinion and Judgment of July 16, 2012 included those assets which the Trustee seeks here to exclude. The Trustees' motion to confirm the scope to the judgment to something narrower is therefore DENIED.


The facts relevant to the instant motion are set forth in detail in both this Court's prior Opinion, 478 B.R. 570 (S.D.N.Y. 2012), and that of the Second Circuit, 761 F.3d 303 (2d Cir. 2014). The Court recites here only those facts necessary to resolution of this motion.

On September 16, 2008, Lehman Brothers Holdings Inc. ("LBHI"), Lehman Brothers Inc. ("LBI") and certain of their affiliates (together, "Lehman") entered into an Asset Purchase Agreement (the "APA") under which Lehman agreed to sell the majority of its assets to Barclays. This sale was "the largest, most expedited and probably the most dramatic asset sale that has ever occurred in bankruptcy history." See In re Lehman Brothers Holdings Inc. , 445 B.R. 143, 148-49 (Bankr. S.D.N.Y. 2011.) The APA defined the assets that would be "Purchased" by Barclays and those that would be "Excluded" from that purchase. The APA defines the "Purchased Assets" broadly as all the assets of Lehman that were "used in connection with the Business" and were within the scope of the seller warranty stating that "all of the necessary assets and services used by the Seller and its Affiliates to operate the Business as it is currently operated." (R. 10.)[3] The assets to be "Purchased" included, inter alia, Retained Cash, all deposits and prepaid charges and expenses, and "exchange traded derivatives." (Id.) The assets that were to be "Excluded" from the "Purchase" were set forth in Section 1.1 of the APA, and encompassed "all cash, cash equivalents, bank deposits or similar cash items of LBI and its Subsidiaries (the Retained Cash') other than $1.3 billion in cash, cash equivalents, bank deposits or similar cash items, " as well as "all assets primarily related to... derivative contracts." (R. 6, 8.)

In a Clarification Letter dated as of September 20, 2008, the parties modified the definition of Purchased Assets to include, inter alia, "(C) exchange traded derivatives (and any property that may be held to secure obligations under such derivatives) and collateralized short-term agreements." (R. 62.) "Excluded Assets" was defined as to "not include any and all property of any customer, or maintained by or on behalf of LBI to secure the obligations of any customer, whose account(s) are being transferred to Purchaser as part of the Business." (Id.) Regarding the Transfer of Customer Accounts, paragraph 8 of that letter states that "All customer accounts of LBI (other than customer who are affiliates of LBI) shall be transferred to Purchaser." (R. 64.)

The parties came before the Bankruptcy Court to determine whether certain assets acquired by Barclays were part of the sale. The Bankruptcy Court evaluated groups of disputed assets after (i) a motion by Barclays to secure delivery of certain undelivered assets and (ii) a motion by the Trustee for relief from the Sale Order regarding the Margin Assets, requesting that those assets be returned to the Trustee. See In re Lehman , 445 B.R. at 148, 150. While entertaining those motions, the Bankruptcy Court also considered motions brought pursuant to Rule 60(b) of the Federal Rules of Civil Procedure for relief from the order approving the Sale to Barclays. Id. at 148. In connection with both sets of motions, the Bankruptcy Court held a hearing over thirty-four days in 2010 and found that it "provided an opportunity to review in slow motion and from multiple vantage points the circumstances of an acquisition that had to proceed so very quickly." Id. at 149.

In its 2011 Opinion, the Bankruptcy Court stated, "The Margin Assets that are in dispute consist of a total of approximately $4 billion in cash and cash equivalents held at the OCC, other clearing corporations and exchanges, certain banks, and certain foreign futures brokers in connection with derivatives trading."[4] Id. at 195. The court also stated that the "Margin Assets consist of LBI property used to support trading conducted by LBI on its own behalf and on behalf of its customers and affiliates." Id. That court then noted that "[t]he parties disagree as to whether these Margin Assets were purchased in connection with the acquisition or were excluded from the sale to Barclays." Id. In its Opinion, the Bankruptcy Court dealt with the Margin Assets in an undifferentiated manner and granted the Trustee's motion with regard to relief. At no point did that court distinguish treatment of Margin Assets then being used to support open trading positions with Margin Assets which did not (at the time of the sale) support open positions.

In its opening brief on appeal to this Court, Barclays argued that "the Margin Assets at issue consist of proprietary LBI assets (i.e. assets owned by LBI) that were held in LBI's various ETD accounts to secure its ETD obligations. [R. 66878]."[5] (Opening Appeal Br. at 11, ECF No. 16.) In a footnote, Barclays continues, "Most of the Margin Assets secured ETDs in LBI's proprietary accounts, but some secured ETDs in LBI's customer accounts. [R.66878; R.8354; R.3697-3706]. While customers would provide assets to LBI to secure their ETDs (Customer Margin'), it was LBI's responsibility (assumed by Barclays) to ensure these customer ETDs were fully secured. [R.58470-71]." (Id., at 11, n.4.)

The briefing before this Court on appeal did not distinguish between categories of Margin Assets. The Trustee's brief confirmed that Barclays' appeal encompassed the same universe of Margin Assets (of approximately $4 billion) that were in dispute at trial before the Bankruptcy Court. (See Trustee Br., ECF No. 24.) The brief cited the Bankruptcy Opinion in defining the Margin Assets as "consist[ing] of approximately $4 billion of LBI's cash and cash equivalents that LBI posted at clearing corporations, exchanges, banks, and futures brokers to support its derivatives trading" and stated that "The Bankruptcy Court awarded the Margin Assets to the Trustee." (Id. at 10-11, 21.)

This Court's 2012 Opinion recited the description of Margin Assets as that in the Bankruptcy Opinion, but noted that "the Margin Assets held at the Options Clearing Corporation ("OCC") were only LBI proprietary margin assets, not LBI customer margin." In re Lehman, 487 B.R. at 577-78 (citing the Bankruptcy Court's Opinion In re Lehman , 445 B.R. at 195 and Tr. at 17:3-17:4, 17:7-17:8 of the April 20, 2012 oral argument). In a footnote accompanying that statement, this Court quoted the Bankruptcy Court's definition of Margin Assets in full from page 195, with additional language from the Bankruptcy Court's Opinion at 198 (referring to approximately $2 billion of customer property held as margin for futures positions of LBI's customers, along with additional customer property held to secure positions.) Id. at 578. This ...

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