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BSF Wins Court Battle for Barclays in Lehman Purchase Suit

Litigation Highlights

Firm Newsletter Spring 2011

Jonathan Schiller

The historic sale of Lehman Brothers Holdings Inc.'s brokerage unit to Barclays in the market free-fall of September 2008 has not once, but twice, passed muster in federal bankruptcy court. First it was approved on September 19, 2008 — just five days after Lehman filed the country's largest-ever bankruptcy.  And then again on February 22, 2011, following a lengthy trial, the Court upheld the purchase of Lehman's North American operations by Barclays.

In a 103-page ruling, U.S. Bankruptcy Judge James Peck found that, "nothing in the current record, if presented at the Sale Hearing, would have changed the outcome of that hearing.  The Court still would have entered the very same Sale Order because there was no better alternative and, perhaps most importantly, because the sale to Barclays was the means both to avoid a potentially disastrous piecemeal liquidation and to save thousands of jobs in the troubled financial services industry." Judge Peck also held that, "Barclays acted in good faith," and "the Court was not deceived in a manner that should now be permitted to upset the integrity of the Sale Order."

In a thirty-four day bench trial conducted last year over an extended schedule from late April to mid-October, BSF vigorously defended Barclays against claims brought by the Lehman estate and creditors in excess of $11 billion that alleged Barclays received a "windfall" and a "secret discount" and essentially asked the Court to amend the sale order — or rewrite the contract — which the Court rejected.

The Firm's legal team was directed by managing partner Jonathan Schiller, who told The American Lawyer after the ruling, "We are excited to be working with Barclays which is effectively a new and enormous competitor in the U.S. banking industry following its acquisition of Lehman.  We have valued working with them through and beyond the financial crisis. And we are delighted by Barclays' victory over Lehman."

Echoing many of the key points and principles of Barclays' defense made throughout the trial, BSF Chairman David Boies, in closing argument, said: "I'm speaking now about the fundamental fairness of what's gone on here. The fundamental fairness of the fact that Barclays stepped up when nobody else would, took an enormous risk, did so in reliance on a written, executed document that the Movants signed, was filed with the Court, and that they performed.  And whether they had a problem or not, whether there was a defect or not back in 2008, they had no right, it is not fair, there's no legal principle that justifies them putting it into their pocket and then waiting to come back into court after they have seen how the market has turned and say to this Court, rewrite that contract."

The trial and ruling were closely covered by leading business and legal media in the U.S. and the U.K.  In a story headlined "Barclays Purchase Of Lehman Is Upheld," The New York Times reported, "The months-long trial over Lehman's claims brought back to the fore the frenzy that accompanied the September 15 bankruptcy filing by the investment bank at the height of the financial crisis." Under the headline "Barclays purchase of Lehman unit ruled fair," The Financial Times said, "Barclays argued that all aspects of the deal were fully disclosed via a clarification letter to the court, and that Lehman's own counsel, Harvey Miller of Weil Gotshal, signed off on the transaction."

In addition to Boies and Schiller, partners Hamish Hume and Jack Stern led the BSF team, which included partners Tricia Bloomer, William Dzurilla, Chris Green, Amy Neuhardt, Jonathan Shaw and Todd Thomas; counsel Jonathan Davenport and Laurie Josephs, and associates Rick Bettan, Andrew Borchini, Randall Ewing, Heather King, Jonathan Krisbergh, Camille Oberkampf, Michelle Sekowski, Louis Smith and Emile Snijders.

For media coverage of this case, please click here.


Related Lawyers: David Boies, Jonathan D. Schiller, Hamish P. M. Hume, Jack G. Stern, Tricia J. Bloomer, William T. Dzurilla, Christopher M. Green, Amy L. Neuhardt, Jonathan M. Shaw, W. Todd Thomas, Jonathan W. Davenport, , , , , Heather King, , , ,

Related Practice: Litigation