Lehman’s Bonus Claims Against Barclays Challenged by Judge

Lehman Brothers Holdings Inc.’s bankruptcy judge said he doesn’t see how the failed investment bank was damaged by what Lehman says is Barclays Plc (BARC)’s failure to pay $500 million in employee bonuses.

Lehman says Barclays was required to pay $2 billion in bonuses and paid only $1.5 billion as part of its purchase of Lehman operations in 2008. U.S. Bankruptcy Judge James Peck said at a hearing today that the amount for bonuses was an estimate and that the transaction was intended to protect Lehman from employee claims for compensation.

“I don’t see how Lehman was damaged,” Peck said.

The dispute stems from the purchase by Barclays of Lehman’s North American broker-dealer in the days following the investment bank’s September 2008 bankruptcy filing. Lehman lost a bid to recover what it said was an $11 billion windfall that went to London-based Barclays.

Lehman says it should be awarded $500 million in damages resulting from Barclays’s failure to meet its obligation to pay the full bonus amount. The bonus payments were part of the consideration in the sale, and Lehman is owed $500 million, said the bankrupt firm’s lawyer, Robert Gaffey.

‘Barclays Didn’t Pay’

“Lehman is entitled to all the sale consideration paid for the assets it has indisputably delivered to Barclays,” he told Peck. “Assets were given to Barclays, and Barclays didn’t pay for them.”

Peck said Lehman employees were the ones entitled to payment. Barclays assumed those liabilities from Lehman, providing a benefit to Lehman even if the bonus payments turned out to be less than estimated, the judge said. He didn’t say when he would rule on the dispute.

“If the liability, whatever it is, is off the books how can there be a damage claim?” Peck said.

Barclays asked Peck to reject Lehman’s claim. It says the $2 billion was an estimate of the exposure assumed for all compensation, which wasn’t limited to bonuses. The bank said in court papers that it paid $1.95 billion in bonus, severance and related tax payments.

The main case is In re Lehman Brothers Holdings Inc. (LEHMQ), 08- 13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Lehman v. Barclays, 09-01731, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.