Lehman Jan 22

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Lehman Brothers Special Financing Inc.

1. Judge Pans Industry's Bid To Weigh In On Lehman Swap Suit

   Jan 21, 2016 | Law360

   By Jonathan Randles
   
   
   A New York federal judge bristled Thursday at the financial industry's attempt to influence a lawsuit filed by a Lehman Brothers subsidiary over billions of dollars it says it lost on soured credit default swap agreements, saying trade groups were attempting to muddle legal questions with their view on how derivative markets should function.

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Client Attorney Privileged/Attorney Work Product/At Request of Counsel

Lehman Brothers Special Financing Inc.

1. Judge Pans Industry's Bid To Weigh In On Lehman Swap Suit

   Jan 21, 2016 | Law360

   By Jonathan Randles

   A New York federal judge bristled Thursday at the financial industry's attempt to influence a lawsuit filed by a Lehman Brothers subsidiary over billions of dollars it says it lost on soured credit default swap agreements, saying trade groups were attempting to muddle legal questions with their view on how derivative markets should function.
   
   U.S. Bankruptcy Judge Shelley Chapman indicated at a court hearing that she would likely not give two financial industry trade groups permission to file an amicus brief in support of a motion seeking to dismiss Lehman’s lawsuit over the swaps. Lehman accused numerous financial institutions of violating its payment priority rights on more than $3 billion and is seeking to recover funds it says were improperly distributed to swap noteholders.
   
   The lawsuit contends that when Lehman filed for bankruptcy in September 2008, the filing should have constituted an “event of default” under dozens of swap agreements and triggered a freeze on payment priority exchanges. A fourth version of the lawsuit was filed in October and is being brought by subsidiary Lehman Brothers Special Financing Inc.
   
   Two trade groups are seeking to weigh in on Lehman’s lawsuit: the Securities Industry and Financial Markets Association and International Swaps and Derivatives Association Inc. The groups, which represent hundreds of financial institutions, argue Lehman’s suit is at odds with how Congress’ intends to regulate the U.S. derivatives market and is blocked by bankruptcy safe-harbor provisions. An adverse decision in the case, ISDA and SIFA, argue, could create “uncertainty” in the financial markets.
   
   But during Thursday’s hearing, Judge Chapman said ISDA and SIFA are presenting policy arguments that have no place in how the court will decide a question of law: in considering a motion to dismiss she said she is required to assume Lehman’s allegations as true and whether the firm has presented an actionable lawsuit, nothing more.
   
   Further, Judge Chapman said although the trade group's’ interests will not disqualify them from filing a brief, she said it was clear that ISDA and SIFA were clearly aligned with the defendants in the case.
   
   “There is an absolute alignment here,” Judge Chapman said. “There is no grey.”
   
   Swap transactions remain one of the largest unresolved issues remaining in the Lehman bankruptcy. According to LBSF, trustees on various swap agreements, a group that includes Bank of America NA, Citibank NA, and Wells Fargo Bank NA, relied on “unenforceable ipso facto clauses” in the swap agreements and began avoiding their obligation to make the agreements’ mandated termination payments to LBSF before paying interest and principal to noteholders.
   
   In 2010, former U.S. Bankruptcy Judge James Peck, who oversaw the Lehman case before it was transferred to Judge Chapman, ruled in a similar lawsuit that “substantially similar priority modification provisions were unenforceable ipso facto clauses,” according to LBSF. Referencing that prior holding, Judge Chapman said during the hearing Thursday that Judge Peck “is a pretty smart guy.”
   
   Judge Chapman did not decide at the hearing whether to allow the trade groups to file an amicus brief and allowed Lehman to file an additional rebuttal to the request. Argument over the motion to dismiss is expected to occur in the spring, attorneys said...

   For full story: http://www.law360.com/articles/749166/judge-pans-industry-s-bid-to-weigh-in-on-lehman-swap-suit
   

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