479 B.R. 268
S.D.N.Y.2012Background
- Lehman Brothers Holdings Inc. filed for Chapter 11; Barclays purchased LBI assets via APA.
- Transferred Employees Coreth and Bam continued employment under Barclays after the sale.
- APA §9.1(a) obliged Barclays to continue or offer employment to active LBI employees; §9.1(b) promised severance for transferred employees defined under Lehman plans.
- APA contained a no third-party beneficiary clause §13.9; APA §2.4(d) stated Barclays would not assume pre-Closing liabilities except as expressly Article IX.
- Barclays offered Barclays employment to Bam and Coreth; severance offers were made under Lehman’s plan, but no guaranteed minimum bonus payments were offered.
- Bankruptcy Court dismissed adversary complaints for lack of standing under the APA and for failure to show Barclays assumed the LBI contracts or the bonus obligation; orders affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue Barclays under the APA as third-party beneficiary | Coreth and Bam lack standing due to negating clause | APA negating clause bars third-party beneficiary claims | Yes; negating clause bars standing under the APA |
| Whether the negating clause precludes enforcement by third parties | Clause should not bar enforcement for specific obligations to transferred employees | Clause is decisive to deny third-party beneficiary status | Yes; negating clause controls |
| Whether Barclays assumed LBI contracts or obligations | Barclays assumed severance obligations; contracts implicitly assumed | Barclays did not assume individual LBI employment contracts | Barclays did not assume contracts; only Article IX severance benefits were undertaken |
| Whether Bam’s Barclays offer incorporated the LBI bonus obligation | Offer read with LBI bonus obligation; two documents should be read together | Documents read separately; no incorporation of bonus obligation | No incorporation; Barclays offer not read as single contract with LBI bonus |
| Whether Bam’s NY Labor Law claim survives without contractual wage right | Wages remain due under statutory claim despite no contract | No contractual wage right; Labor Law claim fails | Labor Law claim properly dismissed |
Key Cases Cited
- India.com v. Dalal, 412 F.3d 315 (2d Cir. 2005) (negating clause decisive against third-party beneficiaries)
- In re General Media, Inc., 368 B.R. 334 (Bankr.S.D.N.Y. 2007) (third-party beneficiary rights foreclosed by negating clause)
- Dalal (cited within India.com), 412 F.3d 315 (2d Cir. 2005) (reaffirmation of negating clause effect)
- BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 778 F. Supp. 2d 375 (S.D.N.Y. 2011) (contracting parties may confer but limit third-party rights)
- Diamond Castle Partners IV PRC, L.P. v. IAC/Interactivecorp., 82 A.D.3d 421 (N.Y. App. Div. 2011) (limitations of negotiating rights under negating clause versus specific rights)