Most Lehman Claims to Billions Held by JPMorgan Thrown Out

  • Ruling moves five-year-old dispute closer to resolution
  • JPMorgan says it's `pleased' with judge's decision on dispute

A U.S. judge said he won’t rewrite contracts Lehman Brothers Holdings Inc. agreed to and threw out most of the bank’s claims to $8.6 billion taken as collateral by JPMorgan Chase Bank NA on the eve of Lehman’s 2008 bankruptcy.

JPMorgan took advantage of its status as Lehman’s primary lender to unfairly extract cash and position itself ahead of other creditors in case of bankruptcy, the creditors said, claiming JPMorgan had “life or death” leverage. JPMorgan’s demand for the collateral helped force Lehman into insolvency, according to the bank’s creditors.

The judge’s decision on Wednesday was largely a win for JPMorgan in the five-year dispute, although some issues will have to be resolved at trial if no settlement is reached.

The bank cited its contracts with Lehman, saying it had no obligation to lend it money and there were no restrictions on the collateral it could demand. Lehman could’ve found someone else from whom to borrow, the bank had argued.

Sophisticated Players

“The parties were sophisticated players, represented by counsel, and practiced in executing contracts of this type,” U.S. District Judge Richard Sullivan wrote in his 31-page decision. “The court will not now rewrite the parties’ contractual text -- with express or implied terms -- to provide Lehman with language more beneficial than what it negotiated.”

Andrew Rossman, a lawyer for the official committee of unsecured creditors of Lehman, didn’t immediately respond to phone and e-mail messages seeking comment on the ruling.

Brian Marchiony, a spokesman for JPMorgan, said the bank was pleased with the decision.

Sullivan allowed six Lehman claims to move ahead to trial, ruling he didn’t have enough evidence to dismiss them. The surviving claims include that Lehman’s payments to JPMorgan before the bankruptcy filing should be set aside as wrongful transfers.

Lehman filed the biggest bankruptcy in U.S. history in September 2008, with $613 billion in debt.

The case is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA (In re Lehman Brothers Holdings Inc.), 11-06760, U.S. District Court, Southern District of New York (Manhattan).

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