In re Lehman Bros. Holdings Inc.
519 B.R. 47
Bankr. S.D.N.Y.2014Background
- Lehman RSUs and contingent stock awards were issued as compensation; stock would be delivered after five years upon conditions.
- Over 200 RSU claims sought cash equal to RSU values; LBHI sought to classify them as equity under the Plan with 510(b) subordination.
- Court conducted three-day evidentiary hearing (2014) after prior denials and extensive briefing.
- Court analyzes whether RSUs are securities, purchased via labor, and whether damages arise from such purchase.
- RSUs could pay dividends and vote via a Trust; employees understood stock value fluctuates with LBHI stock.
- Court sustains omnibus objections, holding RSU claims are subordinated or classified as equity, not unsecured claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are RSUs securities for 510(b) purposes | RSUs are not secured as cash claims; they are compensation rights | RSUs are securities because they represent a contingent right to stock and lacked fixed value | RSUs are securities under 101(49); 510(b) applies |
| Did employees purchase RSUs with labor | Employees exchanged labor for RSUs as part of compensation | Participation was voluntary and a choice to stay; labor purchase occurred | RSUs were purchased with labor; 510(b) applies |
| Do Neuberger Berman Claimants face duress claims rendering claims invalid | Claims should stand regardless of duress arguments | No duress; choices were rational and not coercive | Economic duress not proven; claims still subject to subordination or equity security treatment |
| If not 510(b), do RSUs fall under equity security under 101(16) | RSUs are equity securities | RSUs do not create general unsecured creditors | RSUs fall within 101(16) as equity securities or subject to 510(b) subordination |
Key Cases Cited
- In re Enron Corp., 343 B.R. 123 (Bankr.S.D.N.Y. 2006) (broad application of 510(b) to employee stock claims)
- In re Med Diversified, Inc., 461 F.3d 251 (2d Cir. 2006) (broad interpretation of 510(b))
- In re U.S. Wireless Corp., 384 B.R. 713 (Bankr.D. Del. 2008) (labor-based equity awards considered securities under 510(b))
- In re Touch America Holdings, Inc., 381 B.R. 95 (Bankr.D. Del. 2008) (broad view of 'purchase' and security status of employee compensation)
- In re MF Global Holdings, Ltd., N/A (2014) ((excluded due to lack of official reporter citation))
- In re Am. Housing Found., 2013 WL 1316723 (Bankr. E.D. Pa. 2013) (broad interpretation of 101(49) security definitions (non-reporting case))
- VKk Corp. v. NFL, 244 F.3d 114 (2d Cir. 2001) (economic duress and prompt repudiation principles)
- Baldwin-United Corp., 52 B.R. 549 (Bankr.S.D. Ohio 1985) (equity security considerations)