602 B.R. 564
Bankr. S.D.N.Y.2019Background
- SRM (hedge fund) entered prime brokerage relationships with LBIE on May 9, 2008 (PBA, CMNA, MIFCA) and an ISDA; LBHI (parent) issued a Corporate Resolution purportedly guaranteeing subsidiaries including LBIE.
- LBHI filed Chapter 11 on Sept. 15, 2008; LBIE entered UK administration the same day. SRM demanded return of segregated securities and margin in Sept. 2008; LBIE did not return them. SRM terminated the PBA on Nov. 6, 2008.
- SRM filed a proof of claim against LBHI alleging LBHI guaranteed LBIE’s obligations and asserting claims for (inter alia) value of segregated assets, forced sales, lost opportunities, and fees.
- SRM settled with LBIE years later under an LBIE Settlement and received a cash payment covering asserted LBIE liabilities; SRM reserved rights against LBHI.
- LBHI objected to SRM’s contested claims, arguing (inter alia) SRM waived reliance on the Corporate Resolution in the PBA, LBHI can enforce that waiver as a third‑party beneficiary, damages must be measured at termination or petition date under sections 562/502, and PBA Clause 14.4 limits/excludes consequential damages.
- The Court held a sufficiency (Rule 12(b)(6)-style) hearing and sustained LBHI’s objection, disallowing and expunging the contested claims.
Issues
| Issue | Plaintiff's Argument (SRM) | Defendant's Argument (LBHI) | Held |
|---|---|---|---|
| Existence/enforceability of LBHI guarantee | SRM relied on Corporate Resolution guarantee and has given sufficient notice; reliance is a factual question | PBA disclaims reliance (Clauses 2.2, 16.3); SRM waived reliance; LBHI (an affiliate) may enforce waiver as third‑party beneficiary | SRM waived reliance under PBA §16.3(a); LBHI is an affiliate third‑party beneficiary and can enforce the waiver; guarantee claim fails |
| Whether LBHI can enforce PBA terms as third‑party beneficiary | SRM: LBHI is not a party and not a beneficiary | LBHI: PBA and Contract (Rights of Third Parties) Act permit affiliates (holding company) to enforce; Clause 31.1 contemplates affiliates | LBHI is an Affiliate/holding company and may enforce PBA terms as third‑party beneficiary |
| Valuation date for Segregated Assets (measure damages) | SRM: damages properly valued at LBIE Settlement Date (post‑termination value) | LBHI: Section 562 applies (securities contract) — value fixed at PBA termination date; alternatively §502 fixes at petition date; SRM already recovered full value from LBIE | Court: Corporate Resolution relates to securities contract; §562 applies so valuation as of PBA termination (or, alternatively, petition date under §502); SRM’s post‑termination valuation at LBIE settlement date rejected; SRM was paid in full |
| Applicability of PBA Clause 14.4 (exculpation) and Lost Opportunities claim | SRM: Clause 14.4 ambiguous; breach of trust or trustee recklessness may avoid exculpation; Lost Opportunities also arises under CMNA and English law permits such damages | LBHI: Clause 14.4 limits liability to gross negligence/fraud/willful default and caps damages at market value at date of discovery of loss; CMNA is ancillary to PBA so Clause 14.4 applies; lost‑profits speculative and barred as consequential | Court: Clause 14.4 applies and SRM failed to plead gross negligence/fraud/willful default with required culpable state of mind; “date of discovery of loss” is around Sep–Nov 2008 not settlement date; lost opportunities are speculative/consequential and barred; claims dismissed |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard; plausibility requirement)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (Rule 12(b)(6) plausibility pleading framework)
- In re Allegheny Int'l, Inc., 954 F.2d 167 (3d Cir.) (proof of claim prima facie validity standard)
- Bankers' Trust Co. v. Irving Trust Co. (In re United Cigar Stores Co. of Am.), 73 F.2d 296 (guarantor claim may be allowed in full against guarantor even if principal provides security)