Lehman Feb 27

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

Repurchase Transaction Claims

1. 2nd Circ. Wary Of CarVal's Quest For Lehman Customer Status

   Feb 26, 2015 | Law360

   By Pete Brush
   
   
   British investment manager CarVal UK Ltd. urged the Second Circuit on Thursday to give it customer status for the purpose of pursuing $44 million in repurchase transaction claims initially lodged by Doral Bank in the liquidation of bankrupt Lehman Brothers Inc., but three appellate judges appeared skeptical of its bid to move up in line.

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

Repurchase Transaction Claims

1. 2nd Circ. Wary Of CarVal's Quest For Lehman Customer Status

   Feb 26, 2015 | Law360

   By Pete Brush

   British investment manager CarVal UK Ltd. urged the Second Circuit on Thursday to give it customer status for the purpose of pursuing $44 million in repurchase transaction claims initially lodged by Doral Bank in the liquidation of bankrupt Lehman Brothers Inc., but three appellate judges appeared skeptical of its bid to move up in line.
   
   Judges Robert A. Katzmann, Denny Chin and John M. Walker Jr. all appeared to think  the so-called "repo" transactions at issue relate to a contractual agreement, akin perhaps to a secured loan, between the bank and the defunct brokerage, as opposed to a deal where securities were handed over, creating a fiduciary relationship that would afford CarVal customer status under the Securities Investor Protection Act. 
   
   If the Second Circuit affirms decisions in the case made by two lower courts, including Manhattan U.S. District Judge Denise Cote in 2014, it would mean CarVal will have a lower priority in collecting its assigned claims — that of a regular creditor instead of a customer for whom Lehman acted as a fiduciary.
   
   “Where is the entrustment here?” Katzmann asked CarVal counsel Luc A. Despins of Paul Hastings LLP.
   
   “The act of entrustment was the act of giving the security,” Despins said.
   
   But later in the hearing, Securities Investor Protection Corp. Senior Counsel Kenneth J. Caputo said no security was actually turned over to Lehman on the date the contract was agreed to.
   
   “The key component is the entrustment of securities,” Caputo said.
   
   Citing cases including In re: Bernard L. Madoff Investment Securities from 2011 and earlier Second Circuit precedent, Lehman's SIPA liquidation trustee, James W. Giddens, noted in a brief that "entrustment is the sine qua non of customer status" under the Securities Investor Protection Act.
   
   For its part, CarVal hung its hat on a 1986 New Jersey federal court precedent called Bevill Bresler that held repurchase and reverse repurchase agreements give rise to customer status. But while CarVal called Bevill the "seminal case on this issue," Giddens' brief called it "distinguishable" and "outdated." 
   
   Judge Cote last year affirmed U.S. Bankruptcy Judge James M. Peck,  who held earlier that CarVal failed to establish that Lehman held cash or securities on its behalf when it filed for bankruptcy in 2008 — or that it had delivered securities to Lehman for safekeeping.
   
   Doral Financial Corp. asserted the claims in the Lehman bankruptcy in 2009. The following year they were transferred to CarVal, which is pressing the case in New York appellate court...

   For full story:

   http://www.law360.com/articles/625564/2nd-circ-wary-of-carval-s-quest-for-lehman-customer-status
   

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