Barclays Capital Inc. v. Giddens (In re Lehman Bros.)
478 B.R. 570
S.D.N.Y.2012Background
- Barclays bought Lehman Brothers Inc.'s North American business assets in a rapid September 2008 sale approved by the Bankruptcy Court, with a pre-approval Sale Order and related documents.
- Disputed assets include Margin Assets (about $4 billion), 15c3-3 Assets (about $769 million plus related margin), and Clearance Box Assets (about $1.9 billion) held at DTCC/ OCC and other institutions.
- The Clarification Letter amended the APA to redefine Purchased Assets and to include assets held to secure obligations under exchange-traded derivatives, and to modify Excluded Assets accordingly.
- Between signing and closing, the Transfer and Assumption Agreement (TAA) transferred Lehman’s OCC margin deposits to Barclays, aligning with the intended collateral transfer.
- The Bankruptcy Court ruled: (i) Margin Assets belong to the Trustee (Barclays’ position denied); (ii) 15c3-3 Assets largely denied to Barclays; (iii) Clearance Box Assets to Barclays; and (iv) prejudgment interest on Margin Assets awarded to Trustee.
- The Second Circuit affirmed in part and reversed in part, holding that the APA and Clarification Letter unambiguously transfer Margin Assets to Barclays, affirmed the 15c3-3 decisions, affirmed the Clearance Box Asset transfer, and reversed the Margin Assets transfer/interest remedy.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Margin Assets transferred to Barclays under the APA/Clarification Letter? | Barclays asserts Margin Assets are Purchased Assets under the APA/Clarification Letter. | Trustee argues the Clarification Letter creates ambiguity or material change not properly approved, limiting Margin Assets to Trustee. | Margin Assets transferred to Barclays; the contract language unambiguous. |
| Does the 'any property that may be held to secure obligations under such derivatives' phrase unambiguously transfer cash collateral? | Cash collateral falls within 'any property' and thus transfers to Barclays. | Ambiguity exists; cash may be excluded or limited. | Unambiguous transfer of Margin Assets to Barclays. |
| May extrinsic evidence create ambiguity where the contract language is clear? | Extrinsic evidence supports Barclays' view of the deal. | Extrinsic evidence cannot create ambiguity when the four corners are clear. | Extrinsic evidence cannot alter clear terms; contract interpreted black‑letterly. |
| What is the status of Clearance Box Assets under the two letters (Clarification vs DTCC Letter)? | Clarification Letter governs transfer; DTCC Letter supports transfer. | DTCC Letter classifies as Excluded Assets; conflict unresolved. | Clarification Letter controls; Clearance Box Assets belong to Barclays. |
| What is the disposition of 15c3-3 Assets? | Barclays is entitled to 15c3-3 assets under the Clarification Letter. | Custodian protections and Rule 15c3-3 require denying transfer until customer claims are resolved. | 15c3-3 assets disposition upheld in Barclays favor only to extent permitted; Trustee's position affirmed for other aspects. |
Key Cases Cited
- Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63 (2d Cir. 2011) (contract interpretation: give effect to clear terms; avoid superfluous language)
- WWW Assocs., Inc. v. Giancontieri, 565 N.Y.S.2d 642 (N.Y. 1990) (ambiguity not created to conjure extrinsic evidence)
- Kass v. Kass, 696 N.E.2d 174 (N.Y. 1998) (ambiguity determined by four corners of contract; apply consistent usage)
- Seabury Constr. Corp. v. Jeffrey Chain Corp., 289 F.3d 63 (2d Cir. 2002) (reconciling seemingly conflicting contract provisions)
- Home Indem. Co. v. City of New York, 66 N.Y.2d 669 (N.Y. 1985) (ambiguous terms require consideration of contract as a whole)
- Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519 (N.Y. 1927) (consideration of circumstances in contract interpretation)
- In re Kalikow, 602 F.3d 82 (2d Cir. 2010) (clear findings of fact reviewed for clear error; contract interpretation on appeal)