28 F. Supp. 3d 174
S.D.N.Y.2013Background
- Citibank had a 2004 CLS agreement to clear Lehman Brothers’ FX transactions and expected daily repayment of any short balances; no contractual interest term was in that CLS Agreement.
- After LBHI’s bankruptcy filing in mid‑September 2008, Citibank provided CLS Services Sept. 17–19, 2008 only after Barclays provided $700M collateral and entered a Pledge Agreement (Sept. 17) and later a Supplement (Nov. 13) indemnifying Citibank for losses arising from those services.
- Citibank incurred principal CLS losses (net about $260M; later reduced to ~$91M after settlement and sale of claim) and claims additional ‘‘Funding Losses’’ (interest and capital charges) tied to carrying the receivable for years.
- Citibank litigated in Lehman’s bankruptcy over setoff of a $1B deposit and other Lehman deposits; the bankruptcy outcome and a later Settlement Agreement affected Citibank’s recoverable principal loss amount.
- Citibank demanded payment from Barclays on Feb. 1, 2013 and sued May 6, 2013 for breach of the indemnity; parties cross‑moved for summary judgment on prejudgment interest, Funding Losses, and whether Lehman deposits could defeat Barclays’ obligations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Recoverability of Funding Losses (interest & capital charges) under Pledge Agreement & Supplement | Citibank: the indemnity language is broad and includes Funding Losses incurred carrying the CLS receivable | Barclays: contracts do not require payment of such funding costs; recovery would be unreasonable/absurd and speculative | Court: Held for Citibank — Funding Losses are potentially recoverable; Barclays’ SJ denied; Citibank’s SJ granted as to entitlement subject to proof of causation and amount |
| Recovery of Funding Loss Interest (cost of funding at 4.65%) | Citibank: cost of funding is part of indemni‑fiable CLS Losses and covered by broad indemnity language | Barclays: no contractual obligation to pay interest; delay in demand would allow Citibank to inflate obligation; Lehman deposits offset losses | Court: Funding Loss Interest is part of indemnifiable losses; factual issues (e.g., use/access to Lehman deposits, timing) preclude summary judgment on amounts/timing |
| Recovery of Capital Charges (regulatory equity cost) | Citibank: capital charges were incurred because regulatory capital had to be held against the reinstated receivable; covered by ‘‘any and all losses’’ language | Barclays: no express contract term; Citibank didn’t actually raise equity; speculative | Court: Contract language covers capital charges in concept; fact issues remain whether such charges were actually incurred and their amount |
| Prejudgment interest: constitutionality & accrual date | Citibank: seeks prejudgment interest from date of initial CLS losses | Barclays: 9% statute unconstitutional; prejudgment interest should run only from Citibank’s demand | Court: N.Y. 9% prejudgment statute is constitutional; prejudgment interest may run only from Feb. 1, 2013 (date of Citibank’s indemnity demand) |
| Effect of Lehman deposits as defense | Citibank: §18 of Pledge bars Barclays from asserting Lehman deposits as a defense to indemnity | Barclays: deposits meant Citibank did not suffer losses at certain times | Court: §18 prevents Barclays from asserting deposits discharged or impaired its obligations, but does not preclude Barclays from arguing deposits meant Citibank did not in fact incur particular losses; material factual disputes remain |
Key Cases Cited
- Paddington Partners v. Bouchard, 34 F.3d 1132 (2d Cir.) (prejudgment interest compensates for loss of use pending judgment)
- Ely-Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399 (N.Y.) (breach of contract accrues at time of breach)
- Overstock.com, Inc. v. New York State Dept. of Taxation and Fin., 20 N.Y.3d 586 (N.Y.) (facial challenges to statutes disfavored; presumption of constitutionality)
- Knox v. New York, 12 N.Y.3d 60 (N.Y.) (rational basis test for non‑fundamental‑rights due process challenges)
- McNally Wellman Co. v. New York, 63 F.3d 1188 (2d Cir.) (prejudgment interest accrues when breach occurred for contract claims)
- In re Chateaugay Corp., 53 F.3d 478 (2d Cir.) (economic regulation surviving due process review undermines takings challenge)
- Kelo v. City of New London, 545 U.S. 469 (U.S.) (public‑purpose requirement for takings doctrine)