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").

Update on various items including Waterfall I - 23 June 2017
Waterfall Application – Subordinated debt and other Affiliate relationship issues – Supreme Court Judgment – 17 May 2017
Waterfall Application - Subordinated debt and other Affiliate relationship issues - Impending Judgment - 11 May 2017

Waterfall Application – Subordinated debt and other Affiliate relationship issues – Statement of Conclusions and Full Judgment – 14 March 2014

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:

Tranche A dealing primarily with insolvency law matters;
Tranche B dealing with matters concerning the effect of release clauses in post-Administration contracts; and
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:

The Plaintiff Summons the Defendant (Complaint): Dkt.1 - 28 November 2011
Verified Answer to Plaintiff's Complaint and Defendant's Counterclaims (Answer/Counterclaim): Dkt.37 - 22 April 2013
Defendant's Memorandum in Support of its Motion to Dismiss the First and Third Causes of Action of the Complaint: Dkt.9 (Opening) - 3 February 2012
Plaintiff's Opposition to Defendant's Motion to Dismiss the First and Third Causes of Action of the Complaint: Dkt.11 (Opposition) - 9 March 2012
Defendant’s Reply in Further Support of its Motion to Dismiss the First and Third Causes of Action of the Complaint: Dkt.12 (Reply) - 3 April 2012
Motion to Dismiss - Hon. Marcy S. Friedman, JSC Decision/Order (Ruling): Dkt.31 - 15 March 2013
Defendant’s Memorandum in Support of its Motion for Summary Judgment: Dkt.137 - 22 February 2016
Plaintiff’s Memorandum in Opposition to Defendant’s Motion for Summary Judgment: Dkt.340 - 28 September 2018
Defendant’s Reply Memorandum in Further Support of its Motion for Summary Judgment: Dkt.268 - 28 September 2018
Hon. Marcy S. Friedman, JSC Decision/Order (SJ Ruling): Dkt.156 - 2 July 2018
Brief for Defendant-Appellant (Opening): Dkt.16 from the 2108 Interlocutory Appeal - 1 October 2018
Brief for Plaintiff-Respondent (Opposition): Dkt.22 from the 2108 Interlocutory Appeal - 31 October 2018
Reply Brief for Defendant-Appellant (Reply): Dkt.30 from the 2108 Interlocutory Appeal - 9 November 2018
Notice of Entry (Appeal Ruling Affirming SJ): Dkt. 354 - 17 January 2019
Defendant’s Pre-Trial Memorandum: Dkt.731 - 24 May 2021
Plaintiff's Pre-Trial Brief: Dkt.741 - 24 May 2021
Plaintiff's Post-Trial Brief: Dkt.777 - 22 April 2022
Defendant’s Post-Trial Brief: Dkt.779 - 22 April 2022
Plaintiff’s Post-Trial Response Brief: DKt. 782 – 21 June 2022
Defendant’s Post-Trial Response Brief: Dkt. 783 – 21 June 2022
Hon. Melissa A. Crane Justice Decision After Trial: Dkt.790 - 8 March 2023
Brief for Plaintiff-Appellant (Opening): Dkt.22 in respect of the Appeal of the Decision - 22 September 2023
Brief for Defendant-Respondent (Opposition): Dkt.26 in respect of the Appeal of the Decision - 15 December 2023
Reply Brief for Plaintiff-Appellant (Reply): Dkt.29 in respect of the Appeal of the Decision - 12 January 2024
New York Supreme Court, Appellate Division, First Judicial Department Decision After Trial: Dkt.30 - 14 March 2024
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
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
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

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].

Reply Brief for Plaintiff-Appellant (Reply) Dkt.29 in respect of the Appeal of the Decision - 12 January 2024

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 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].

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.

Brief for Plaintiff-Appellant (Opening) Dkt.22 in respect of the Appeal of the Decision- 22 September 2023
Brief for Defendant-Respondent (Opposition) Dkt.26 in respect of the Appeal of the Decision - 15 December 2023
Reply Brief for Plaintiff-Appellant (Reply) Dkt.29 in respect of the Appeal of the Decision - 12 January 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:

Plaintiff's Opening Post-Trial Brief: Dkt.777 - 22 April 2022
Defendant’s Opening Post-Trial Brief: Dkt.779 - 22 April 2022
Plaintiff’s Post-Trial Response Brief: DKt. 782 – 21 June 2022
Defendant’s Post-Trial Response Brief: Dkt. 783 – 21 June 2022

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 February 2012 AGFP filed a motion seeking to have LBIE’s first and third causes of action dismissed. [Item 3.] LBIE responded in March [Item 4.] and AGFP filed a reply in April 2012 [Item 5.]

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

Update - UK Withholding Tax - Supreme Court Judgment - 15 March 2019
Update – UK withholding tax application (the “Application”) – Court of Appeal Judgment – 20 December 2017
Update – UK Withholding Tax Application (the “Application”) – Appeal Hearing – Daily Transcripts - 3 November 2017
Lehman Brothers International (Europe) (in administration) - UK Withholding Tax Judgment and Sealed Order - 14 October 2016
Lehman Brothers International (Europe) (in administration) - UK Withholding Tax Judgment - 11 October 2016
Creditor Update - UK Withholding Tax Update re Payment of Statutory Interest - 17 December 2015

Update – Lehman Brothers International (Europe) (in administration) (“LBIE”) – Application to challenge LBIE Administrators’ decision to admit proof of debt – 7 December 2017

Contacts

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

General queries: generalqueries@lbia-eu.com
HR queries: uk.hrqueries@lbia-eu.com

_{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}