Barclays Capital Inc. v. Giddens
2014 U.S. App. LEXIS 15009
| 2d Cir. | 2014Background
- Lehman Brothers Inc. (LBI) entered SIPA liquidation after LBHI's bankruptcy in September 2008; an emergency Section 363 sale of LBI to Barclays closed quickly to avert systemic harm.
- The Asset Purchase Agreement (APA) defined Purchased and Excluded Assets; during the sale process parties drafted a Clarification Letter (CL) and a DTCC Letter clarifying which assets would transfer.
- Two disputed asset groups arose from last-minute negotiations: (1) Margin Assets — roughly $4 billion of cash/cash-equivalents posted as collateral for LBI's exchange-traded derivatives (ETD) business; and (2) Clearance Box Assets (CBAs) — about $1.9 billion in unencumbered securities held in LBI’s DTCC clearance boxes.
- Bankruptcy Judge Peck awarded Margin Assets to the SIPA Trustee and CBAs to Barclays; the district court reversed on Margin Assets (gave them to Barclays) and affirmed Barclays’ entitlement to CBAs; Trustee appealed to the Second Circuit.
- The Second Circuit reviewed contract interpretation under New York law (intent controls; plain meaning first; extrinsic evidence only if ambiguity) and affirmed the district court: Margin Assets and CBAs transferred to Barclays.
Issues
| Issue | Trustee's Argument | Barclays's Argument | Held |
|---|---|---|---|
| Whether the Margin Assets (ETD collateral) were transferred to Barclays | APA exclusions for cash and for "derivatives contracts" mean Margin Assets were retained by LBI/Trustee | The APA (as clarified by the CL) purchased the ETD business and "any property ... held to secure obligations under such derivatives," so Margin Assets transferred | Transferred to Barclays: CL and APA unambiguously cover collateral for exchange-traded derivatives; exclusions do not bar the transfer |
| Whether Clearance Box Assets (unencumbered securities at DTCC) were transferred to Barclays | DTCC Letter, which called LBI accounts "Excluded Assets," shows CBAs were excluded; CL and Schedule B cannot override that | CL and Schedule B specifically identify CBAs as Purchased; DTCC Letter did not unambiguously cover specific CBAs and can be read as excluding only the accounts, not lien-free assets within them | Transferred to Barclays: CL/Schedule B specifically list CBAs; any ambiguity resolved by extrinsic evidence and post-closing conduct favoring transfer |
Key Cases Cited
- In re Lehman Bros. Holdings Inc., 445 B.R. 143 (Bankr. S.D.N.Y. 2011) (background and sale proceedings)
- In re CBI Holding Co., 529 F.3d 432 (2d Cir. 2008) (standard of review for bankruptcy appeals)
- Cont'l Ins. Co. v. Atl. Cas. Ins. Co., 603 F.3d 169 (2d Cir. 2010) (contract interpretation: intent and plain meaning)
- Olin Corp. v. Am. Home Assurance Co., 704 F.3d 89 (2d Cir. 2012) (giving contract terms their plain meaning)
- Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63 (2d Cir. 2011) (ambiguity standard for contracts)
- John Hancock Mut. Life Ins. Co. v. Carolina Power & Light Co., 717 F.2d 664 (2d Cir. 1983) (specific contract terms govern over general language)