JPMorgan-Lehman trade barbs in $8.6 billion suit
JPMorgan Chase Bank NA and creditors of Lehman Brothers Holdings Inc. submitted final papers in a dispute over who's entitled to $8.6 billion in collateral the bank received on the eve of Lehman's 2008 bankruptcy.
JPMorgan and Lehman both filed so-called motions for summary judgment, each claiming it should win without a trial.
Whether U.S. District Judge Richard J. Sullivan in Manhattan hands either side a victory at this stage is open to doubt because winning requires showing there are no disputed issues of fact, despite dueling and often contradictory recitations of the events.
In prior filings, the Lehman creditors seemed to suggest that JPMorgan's demand for cash triggered the bankruptcy. In papers on Oct. 31, the creditors drew back, saying the demand accelerated “Lehman's free fall.”
The Lehman filing is heavy on characterization. For example, the creditors said JPMorgan “grossly inflated claims” and “gorged itself on Lehman's cash.”
JPMorgan took a different tack, saying the judge need only look at the contracts to see the bank had no obligation to lend and no restriction on collateral it could demand. In substance, the bank said, Lehman was at liberty to borrow from someone else if those demands for collateral were too great.
Sullivan could defeat both motions simply by pointing out disputed issues of fact. Otherwise, he will address a technical argument regarding $6.9 billion of the final $8.6 billion in cash that Lehman gave JPMorgan on the eve of bankruptcy.
The Lehman creditors contend that JPMorgan lost its lien on the $6.9 billion when the money was transferred from a Lehman collateral account into one of JPMorgan's own general accounts. Lehman argues the bank had no lien once the cash moved out of the collateral account.
JPMorgan counters that it retained a right of setoff even after the transfer, because such a right is the equivalent of a security interest.
The lawsuit originated in bankruptcy court in May 2010. Sullivan took it over at the summary-judgment stage.
For a discussion of the original round of filings, click here for the Sept. 18 Bloomberg bankruptcy report. For the second set, click here for the Oct. 17 report. For more on the case, click here for the Aug. 14 report.
The suit before Sullivan is one of three unresolved Lehman disputes with JPMorgan. The bankruptcy court still has a contested $2.3 billion claim on derivatives and a multibillion- dollar dispute over clearing claims, Lehman said previously.
Lehman and its brokerage unit began separate bankruptcies in September 2008. The parent's reorganization plan was approved in December 2011 and implemented in March 2012. Creditors have received six distributions.
The district court suit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA (In re Lehman Brothers Holdings Inc.), 11-06760, U.S. District Court, Southern District of New York (Manhattan). The lawsuit in bankruptcy court was Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA (In re Lehman Brothers Holdings Inc.), 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
The holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-bk-13555; the brokerage's liquidation proceeding is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).