Lehman Brothers Holdings Inc. dropped its attempt to collect $11 billion from Barclays Plc after a long-running dispute over the sale of Lehman operations in 2008, giving up its largest potential gain from litigation.
Once the fourth-largest investment bank, defunct Lehman under Chief Executive Officer Bryan Marsal mounted lawsuits seeking tens of billions of dollars from banks including Barclays, JPMorgan Chase & Co. and Bank of America Corp. Any gain from London-based Barclays would have fattened the $65 billion pot of assets that Marsal has said he aims to fill for creditors holding estimated claims of more than $300 billion.
Lehman said it will drop an appeal contesting a judge’s ruling that Barclays owed Lehman nothing. Lehman, which is gathering creditor support for a liquidation plan before a November vote, said it also won’t appeal a Sept. 14 ruling by U.S. Bankruptcy Judge James Peck in Manhattan rejecting its claim that Barclays owed about $500 million for allegedly unpaid bonuses.
“This is the start of them winding down the litigation,” said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky, who has written articles about Lehman’s case. “They’re backing off of the cutting edge litigation that they were using to try to bring in more money for creditors.”
No ‘Willful Misconduct’
Lehman, which accused Barclays of making an $11 billion “windfall” when it bought the brokerage in the 2008 financial crisis, tried in court to persuade Peck that he had grounds for overturning his own order approving the sale. Ruling in February, Peck told Lehman he found no “willful misconduct” as Barclays bought defunct Lehman’s brokerage in the credit crisis. He awarded Lehman no money, concluding after more than 30 days of court testimony that the sale was fair.
Explaining its decision to stop fighting with Peck and Barclays, Lehman said in a statement yesterday that it was “cognizant of the burdens that continued litigation of these issues would place on the court and the assets of the estate.”
Because of the cost of continuing the litigation, Lehman said, “we have determined that we will not pursue these issues through appeals, believing that the resources of the court and the estate will be better employed at this point to move the bankruptcy toward a conclusion.”
Lehman creditors also dropped their appeal of Peck’s ruling on the Barclays suit, said James Tecce, a lawyer for the creditors committee.
Lehman, once the world’s fourth-biggest investment bank, has spent about $1.4 billion on lawyers and managers since its 2008 bankruptcy filing, the largest in U.S. history, with assets of $639 billion. Jones Day, Lehman’s law firm for the Barclays litigation, was paid $55.6 million through July by Lehman for work in the U.S. and Asia, according to a filing with the U.S. Securities and Exchange Commission.
“The Lehman estate wasted tens of millions of dollars in a flawed and inappropriate effort to re-trade the terms of the Barclays sale and wrongfully challenged that fact that, as the court correctly found, Barclays took a massive risk in acquiring Lehman’s business,” Barclays’ litigation lawyer Jonathan Schiller of Boies, Schiller & Flexner LLP said in an e-mail.
Lehman still has a large suit against JPMorgan, from whom it is demanding $8.6 billion plus damages, saying the bank helped to cause its downfall. Bank of America has appealed Peck’s ruling that it return to Lehman $500 million in allegedly seized deposits and pay interest.
Companies using litigation to raise money have to make sure the odds of succeeding remain decent, said Nancy Rapoport, a bankruptcy-law professor at the University of Nevada, Las Vegas.
‘A Certain Point’
“Once the odds fall below a certain point, it’s important for the lawyers and the client to consider dropping the litigation,” she said.
The New York-based firm’s bankruptcy became the most expensive in U.S. history in April 2010, when it topped the $757 million cost of energy trader Enron Corp.’s three-year liquidation, according to data compiled by Lynn LoPucki, a bankruptcy-law professor at the University of California, Los Angeles.
Lehman’s creditors range from banks and hedge funds to the New York Giants and Abu Dhabi Investment Authority, as well as individuals who hold Lehman bonds. Lehman filed for bankruptcy on Sept. 15, 2008.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).