Ongoing Litigation

The Joint Administrators continue to provide regular information updates on this website regarding the joint Application to seek a determination on various issues relating to the ranking of the subordinated debt, existence of currency conversion claims, extent of potential contribution claim and other issues relating to LBIE and its Shareholders (the "Waterfall Application").

The Joint Administrators continue to provide regular information updates on this website regarding the joint Application to seek a determination on various issues relating to the ranking of the subordinated debt, existence of currency conversion claims, extent of potential contribution claim and other issues relating to LBIE and its Shareholders (the "Waterfall Application").

The Joint Administrators continue to provide regular information updates on this website regarding an application to Court for directions in relation to a number of issues (39 different questions) concerning entitlements to the surplus in the LBIE Estate. The UK High Court directed that the 39 matters should be divided into the following 3 tranches, each to be subject to a separate timetable:

  1. Tranche A dealing primarily with insolvency law matters;
  2. Tranche B dealing with matters concerning the effect of release clauses in post-Administration contracts; and
  3. Tranche C dealing with cost of funding matters, principally arising in respect of claims under ISDA Master Agreements.

Please click on the links shown below to provide you with further information:

The Joint Administrators continue to provide regular information updates on this website regarding an application to Court for directions in relation to a number of additional Shareholder related issues and the calculation of contributory claims.

Please click on the links shown below to provide you with further information:

The Joint Administrators continue to provide regular information updates on this website regarding the US litigation between Lehman Brothers International (Europe) (in Administration) (“LBIE”), Plaintiff v. AG Financial Products, Inc. (“AGFP”), Defendant. The Joint Administrators brought proceedings in the NY State Court in November 2011 asking the court to interpret the termination and valuation provisions of the ISDA Master Agreement. A five week trial was held, commencing 18 October 2021 and ending on 19 November 2021, to determine which valuation (if either) of the Plaintiff or Defendant for a series of terminated credit default swaps (“CDS”) was correct.

Between 2005 and 2008, LBIE and AGFP entered into the 28 CDS at issue in this litigation, documented pursuant an ISDA Master Agreement. LBIE, as protection buyer, agreed to make fixed payments to AGFP, which as protection seller would make payments to LBIE in connection with the occurrence of payment defaults in the securities underlying the 28 CDS. Under the ISDA Master Agreement, LBIE’s entrance into administration in September 2008 provided AGFP with the right to terminate the CDS, which it did in July 2009. Termination under the ISDA Master Agreement was not treated as a breach of contract; the value of the terminated contract was to be paid on a no-fault basis to whichever of the parties it was more valuable at the point of termination.

The ISDA Master Agreement required AGFP, as the terminating party, to calculate a termination payment based on its “Loss,” defined to be the amount that a party reasonably determines in good faith to be its total losses or gains arising from the termination of transactions subject to the agreement. In October 2009, notwithstanding that the collapse in credit markets should have made the CDS “in the money” for LBIE, AGFP calculated that LBIE should make a termination payment to it of $20.6 million. AGFP’s novel methodology ignored standard market practice to calculate Loss on a market basis, which would have demonstrated that AGFP owed LBIE hundreds of million dollars, as the cost of obtaining credit protection provided by the terminated CDS would have been significantly more expensive in 2009 than it was when the CDS were entered into years earlier.

The key documents are attached below:

  1. The Plaintiff Summons the Defendant (Complaint)Dkt.1 - 28 November 2011
  2. Verified Answer to Plaintiff's Complaint and Defendant's Counterclaims (Answer/Counterclaim)Dkt.37 - 22 April 2013
  3. Defendant's Memorandum in Support of its Motion to Dismiss the First and Third Causes of Action of the ComplaintDkt.9 (Opening) - 3 February 2012
  4. Plaintiff's Opposition to Defendant's Motion to Dismiss the First and Third Causes of Action of the ComplaintDkt.11 (Opposition) - 9 March 2012
  5. Defendant’s Reply in Further Support of its Motion to Dismiss the First and Third Causes of Action of the ComplaintDkt.12 (Reply) - 3 April 2012
  6. Motion to Dismiss - Hon. Marcy S. Friedman, JSC Decision/Order (Ruling)Dkt.31 - 15 March 2013
  7. Defendant’s Memorandum in Support of its Motion for Summary JudgmentDkt.137 - 22 February 2016
  8. Plaintiff’s Memorandum in Opposition to Defendant’s Motion for Summary JudgmentDkt.340 - 28 September 2018
  9. Defendant’s Reply Memorandum in Further Support of its Motion for Summary JudgmentDkt.268 - 28 September 2018
  10. Hon. Marcy S. Friedman, JSC Decision/Order (SJ Ruling)Dkt.156 - 2 July 2018
  11. Brief for Defendant-Appellant (Opening)Dkt.16 from the 2108 Interlocutory Appeal - 1 October 2018
  12. Brief for Plaintiff-Respondent (Opposition)Dkt.22 from the 2108 Interlocutory Appeal - 31 October 2018
  13. Reply Brief for Defendant-Appellant (Reply)Dkt.30 from the 2108 Interlocutory Appeal - 9 November 2018
  14. Notice of Entry (Appeal Ruling Affirming SJ)Dkt. 354 - 17 January 2019
  15. Defendant’s Pre-Trial MemorandumDkt.731 - 24 May 2021
  16. Plaintiff's Pre-Trial BriefDkt.741 - 24 May 2021
  17. Plaintiff's Post-Trial BriefDkt.777 - 22 April 2022
  18. Defendant’s Post-Trial BriefDkt.779 - 22 April 2022
  19. Plaintiff’s Post-Trial Response BriefDKt. 782 – 21 June 2022
  20. Defendant’s Post-Trial Response BriefDkt. 783 – 21 June 2022
  21. Hon. Melissa A. Crane Justice Decision After TrialDkt.790 - 8 March 2023
  22. Brief for Plaintiff-Appellant (Opening)Dkt.22 in respect of the Appeal of the Decision - 22 September 2023
  23. Brief for Defendant-Respondent (Opposition)Dkt.26 in respect of the Appeal of the Decision - 15 December 2023
  24. Reply Brief for Plaintiff-Appellant (Reply)Dkt.29 in respect of the Appeal of the Decision - 12 January 2024
  25. New York Supreme Court, Appellate Division, First Judicial Department Decision After Trial: Dkt.30 - 14 March 2024
  26. Plaintiff's motion and memorandum in support of its motion for leave to reargue, or in the alternative, leave to appeal to the New York State Court of Appeals: Dkt.31 - 15 April 2024
  27. Defendant-Respondent (Opposition): Dkt.32 - opposing LBIE's motion for leave to reargue or leave to appeal to the New York State Court of Appeals - 29 April 2024
  28. Plaintiff's reply memorandum: Dkt.33 - in further support of LBIE's leave to reargue or leave to appeal to the New York State Court of Appeals - 3 May 2024
  29. New York Supreme Court, Appellate Division, First Judicial Department decision and Order dated July 18, 2024, denying the Plaintiff's motion to reargue or, in the alternative, for leave to appeal to the New York State Court of Appeals - 18 July 2024
  30. Notice of Entry: Dkt.880 - 18 July 2024

On 15 April 2024, LBIE filed with the New York Supreme Court, Appellate Division, First Judicial Department its motion for leave to reargue, or in the alternative, leave to appeal to the New York State Court of Appeals from the Decision and Order of the Court dated 14 March 2024, Dkt. 31 [Item 26].

Following the oral hearing on 21 February 2024, the New York Supreme Court, Appellate Division, First Judicial Department entered their decision and order on 14 March 2024 [item 25], affirming Justice Crane’s decision in full.

On 15 April 2024, LBIE filed with the New York Supreme Court, Appellate Division, First Judicial Department its motion for leave to reargue, or in the alternative, leave to appeal to the New York State Court of Appeals from the Decision and Order of the Court dated 14 March 2024, Dkt.31 [Item 26].

On 29 April 2024, AGFP filed with the New York Supreme Court, Appellate Division, First Judicial Department its brief in opposition to LBIE's motion for leave to reargue or leave to appeal to the New York State Court of Appeals, Dkt.32 [Item 27].

On 3 May 2024, LBIE filed with the New York Supreme Court, Appellate Division, First Judicial Department its reply memorandum of law in further support of LBIE's motion for leave to reargue or leave to appeal to the New York State Court of Appeals, in response to AGFP's brief in opposition, Dkt.33 [Item 28].

On 18 July 2024, the New York Supreme Court, Appellate Division, First Judicial Department denied LBIE's motion for reargument of, or, in the alternative, leave to appeal to the New York Court of Appeals from, its decision and order entered on March 14, 2024, by its Order, July 18, 2024, Dkt.34 [Item 29].

On 18 July 2024, AGFP filed with the Supreme Court of the State of New York, County of New York its Notice of Entry, Dkt.880 [Item 30] of the Appellate Division's July 18, 2024 Order.

LBIE has 30 days from July 18, 2024 Order to file a petition with the New
York State Court of Appeals requesting permission to appeal the Decision
and Order of the Appellate Division, First Department, dated March 14, 2024
which affirmed the March 8, 2023 Decision After Trial and the June 30, 2023
Judgment entered by Supreme Court for the County of New York, Commercial
Division in favor of the Defendant, AGFP.

Justice Crane delivered her decision after trial on 8 March 2023 [Item 21] finding in favour of AGFP.

LBIE gave timely notice of appeal. Briefs have been exchanged in support of the parties’ arguments in favour of and in opposition to the appeal [Items 22, 23, 24], and oral arguments will be heard on 21 February 2024.

After the trial the parties exchanged sets of post-trial briefs addressing the evidence and arguments presented at trial [Items 17, 18, 19, 20] as set out below:

Trial was set by Justice Friedman for March 2020, but due to the developing pandemic, trial was postponed until procedures for hearings in the NY courts could be implemented. During the interim period, before hearings were able to be scheduled, Justice Friedman retired and the case needed to be reassigned. For a considerable time, no replacement judge was assigned, and LBIE sought to remove the case to the US Bankruptcy Court requesting the judge that had handled the Lehman bankruptcy cases to accept the case for trial. Ultimately, the US Bankruptcy Court declined to accept the removal of the case from the NY State courts. A replacement judge, Melissa Crane, was assigned the case on 29 March 2021, and on 20 April 2021 she set a target trial date of September 2021. Eventually, trial was held during October and November 2021. Before trial, LBIE and AGFP exchanged pre-trial briefs setting out their arguments in support of their valuation calculations. [Items 15 and 16].

In July 2018 the Trial Court delivered its Summary Judgment Decision dismissing LBIE’s third cause of action, but refusing to dismiss the second cause of action for breach of contract resulting from AGFP’s Loss calculation. [Item 10]

In October 2018 AGFP appealed the Summary Judgment Decision of the Trial Court [Item 11].

LBIE responded with its brief in opposition [Item 12].

And in November 2018, AGFP replied to LBIE’s brief in opposition [Item 13].

The First Department upheld the Trial Court judgment requiring a trial to determine the reasonableness of AGFP’s Loss calculation [Item 14].

After several years of extensive fact and expert discovery, in February 2016, AGFP filed a motion asking the Court to grant it summary judgment against the remaining second and third causes of action arguing that as the non-defaulting party, its determination of Loss is subject to deference and must be judged based on a subjective standard, not an objective standard [Item 7].

In 2016, LBIE filed a brief opposing AGFP’s motion for summary judgment [Item 8]

AGFP replied to LBIE’s opposing brief in May, 2016 [Item 9].

On 12 March 2013, the Court delivered its decision on AGFP’s motion to dismiss [Item 6.], granting AGFP’s request in respect of the first cause of action relating to the transactions terminated on the basis of the additional event of default in December 2008.

AGFP filed an answer to LBIE’s pleadings and made a counterclaim for the payment of the “Loss” amount it had determined and certified in respect of the transactions it terminated [Item 2].

In November 2011, asserting that AGFP breached its contractual obligations by improperly calculating Loss without reference to market information and in a commercially unreasonable manner, LBIE filed the original complaint, setting out three causes of action [Item1]:

  • First, a claim for breach of an implied covenant of good faith and fair dealing in respect of 9 transactions that AGFP terminated in December 2008 on the basis of a contractual provision that entitled it to terminate those transactions in the event LBIE failed to deliver to it copies of trustee reports;
  • Second, a breach of contract claim in respect of the “Loss” calculation AGFP certified in respect of the 28 transactions it terminated in July 2009 when it determined that its termination of those transactions in which it was the seller of credit default protection resulted in a loss to it that LBIE should pay rather than a gain to it which it should pay to LBIE; and
  • Third, a claim for breach of an implied covenant of good faith and fair dealing in respect of the 28 transactions terminated in July 2009 based upon the design and implementation of the auction it held to determine the market value of the terminated transactions.

AGFP filed an answer to LBIE’s pleadings and made a counterclaim for the payment of the “Loss” amount it had determined and certified in respect of the transactions it terminated [Item 2].

The Joint Administrators continue to provide regular information updates on this website regarding the Applications to seek a determination on various issues:

  • the claims of Barclays Capital Inc in its unsecure and Client Money estates (“Barclays”);
  • the application of withholding tax legislation to payments of statutory interest (“UK Withholding Tax”);
  • unpaid statutory interest should LBIE go into liquidation (“Statutory Interest Lacuna”); and
  • the application challenging the decision to admit the proof of debt submitted by Olivant Investments Switzerland S.A. ("Olivant")
  • Firth Rixson / collection of 2(a)(iii) amounts

Contacts

All queries to the Administrators of LBIE should be sent to: 

Alison Campbell Grant, David James Kelly, Edward John Macnamara and Gillian Eleanor Bruce were appointed as Joint Administrators of Lehman Brothers International (Europe) to manage its affairs, business and property as agents without personal liability. Alison Campbell Grant, David James Kelly, Edward John Macnamara and Gillian Eleanor Bruce are licensed in the United Kingdom to act as insolvency practitioners by the Institute of Chartered Accountants in England and Wales. The Joint Administrators are bound by the Insolvency Code of Ethics which can be found at: https://www.gov.uk/government/publications/insolvency-practitioner-code-of-ethics

The Joint Administrators may act as controllers of personal data, as defined by the UK data protection law, depending upon the specific processing activities undertaken. PricewaterhouseCoopers LLP may act as a processor on the instructions of the Joint Administrators. Personal data will be kept secure and processed only for matters relating to the Joint Administrators' appointment. Further details are available in the privacy statement on the PwC.co.uk website or by contacting the Joint Administrators. 

Lehman Brothers International (Europe) is registered in England and Wales with registered no. 02538254. 

VAT registration no. 446 9315 28

Contact us

Alison Grant

Alison Grant

Director, PwC United Kingdom

Tel: +44 (0)20 7804 7933

David Kelly

David Kelly

Restructuring and Insolvency Partner, UK Head of Insolvency, PwC United Kingdom

Tel: +44 (0)7974 332659

Ed  Macnamara

Ed Macnamara

Partner, Head of Restructuring, PwC United Kingdom

Tel: +44 (0)7739 873104

Gillian  Bruce

Gillian Bruce

Director, PwC United Kingdom

Tel: +44 (0)7715 540817

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