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CarVal

1. Supreme Court Denies Investment Firm's Lehman Appeal

   Feb 29, 2016 | Law 360

   By Carmen Germaine
   
   
   The U.S. Supreme Court on Monday denied British investment manager CarVal UK’s appeal of a Second Circuit decision that the company can’t have a higher priority in pursuing $44 million in claims against defunct Lehman Brothers Inc. because it doesn’t have customer status.

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

CarVal

1. Supreme Court Denies Investment Firm's Lehman Appeal

   Feb 29, 2016 | Law 360

   By Carmen Germaine

   The U.S. Supreme Court on Monday denied British investment manager CarVal UK’s appeal of a Second Circuit decision that the company can’t have a higher priority in pursuing $44 million in claims against defunct Lehman Brothers Inc. because it doesn’t have customer status.
   
   The high court denied CarVal’s petition for writ of certiorari, letting stand the Second Circuit’sJune decision that CarVal's repurchase transaction claims don't satisfy the entrustment requirement for the firm to be recognized as a customer under the Securities Investor Protection Act.
   
   The Monday order, delivered without comment, means CarVal will have to pursue its $44.3 million in claims with the lower priority of a regulator creditor, despite the firm’s claim that the Second Circuit’s decision created a circuit split “of surpassing importance.”
   
   “Especially since the nation’s financial center is in the Second Circuit, bankruptcy protection is now uncertain for the trillions of dollars’ worth of repurchase and reverse repurchase agreements that are executed every year,” CarVal had argued in its petition.
   
   The claims arise from a series of reverse repurchase agreements entered between Lehman and Doral Bank in 2000 and 2001 in which Doral sold securities to Lehman with an agreement to repurchase them later for a set price.
   
   Doral filed claims for two transactions that were still open when Lehman failed in September 2008, but Lehman’s Securities Investor Protection Act trustee denied Doral customer status in 2009. Doral then transferred both claims to CarVal in December 2010.
   
   U.S. Bankruptcy Judge James M. Peck in June 2013 confirmed the trustee’s determination, finding that CarVal had failed to establish that Lehman held cash or securities on Doral’s behalf when it filed for bankruptcy in 2008 or that Doral had delivered securities to Lehman for safekeeping.
   
   That decision was affirmed by U.S. District Judge Denise Cote in February 2014, and ultimately upheld by the Second Circuit in a June 2015 opinion authored by Chief Judge Robert A. Katzmann.
   
   In that opinion, the appellate court ruled that Doral had not entrusted its assets to Lehman merely by delivering them to the bank, saying entrustment must involve a fiduciary relationship arising out of the broker’s obligation to handle the customer’s assets for the customer’s benefit but that Lehman was allowed to trade the securities as it saw fit.
   
   “Because Lehman was acting for its own interests, it had no obligation to use the securities on Doral’s behalf, and its relationship with Doral thus bore none of ‘the indica of the fiduciary relationship between a broker and his public customer,’” the panel said. “And without these indica of a fiduciary relationship, we cannot say that Doral entrusted securities to Lehman.”
   
   CarVal filed its petition with the Supreme Court in September 2015, arguing that the Second Circuit’s decision had “judicially imposed a fiduciary-entrustment requirement nowhere found in SIPA’s express definition of the term ‘customer’,” and that the decision created a circuit split.
   
   In a reply brief, the Securities Investor Protection Corp. said the Second Circuit’s ruling is actually consistent with other circuit courts, and that the Second Circuit had correctly recognized that Doral had not “entrusted” Lehman with the securities because the repurchase agreement allowed Lehman to use the securities freely for its own benefit.
   
   “CarVal’s insistence that this matter is certiorari-worthy is nothing more than an attempt to elevate its general creditor claims to “customer” status, above all other general creditors, in order to receive a one-hundred percent payment,” the protection agency said.
   
   Securities Investor Protection Corp. Senior Counsel Kenneth J. Caputo told Law360 Monday that he and the agency were happy to see the end of the long-running litigation.

   For full story: http://www.law360.com/newyork/articles/764968/supreme-court-denies-investment-firm-s-lehman-appeal

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