Now Barclays has expanded on its earlier victory–and gutted the trustee’s. On Tuesday, in a 59-page ruling, a federal judge in Manhattan reversed a crucial part of Peck’s order and held that the 2008 sale included $2 billion that had been held on margin for Lehman customers at the Options Clearing Corporation. U.S. District Judge Katherine Forrest separately rejected Giddens’s claims to $1.9 billion in Lehman assets held at other clearing institutions, but she did agree with the trustee (and Peck) that the sale didn’t include $769 million in securities in segregated customer accounts and $507 million in assets posted by Lehman as reserve.
For anyone struggling to keep score, that amounts to a $3.9 billion ruling for Barclays–or $4.2 billion if you include $280 million in prejudgment interest on the disputed margin assets that Barclay now won’t have to pay. LBI, meanwhile, maintains control of about $1.3 billion in various reserve accounts that it had already won at the bankruptcy court.
Judge Forrest ruled that Peck, who approved the original Barclays transaction in 2008, should have confined himself to reading the sale documents as “black and white letters on a page” when he resolved the ensuing court battle. Peck, she found, improperly relied on his own conception of the deal in determining that the margin assets shouldn’t have been included. She also faulted him for looking to extrinsic evidence to find “ambiguities” in a letter that amended the purchase agreement instead of taking the sale documents at face value.
“References to [Peck's] personal recollection precipitated a cart-before-the-horse, result-oriented decision regarding the Margin Assets rather than one firmly grounded in the documents themselves,” Forrest wrote. “No principle of law allowed the Bankruptcy Court to approve the letter as an enforceable contract, but then construe it based upon its own personal recollection and understandings about the terms of the deal (rather than upon established principles of contract interpretation).”
Schiller, who was lead counsel for Barclays throughout the litigation, told us the ruling was “good for the United States of America” because it would give foreign institutions the ability to make major U.S. deals with confidence that the terms would be enforced. “We’re gratified that we’re now able to conclude the purchase that we made,” he said.
Giddens said in a statement that he was still reviewing the decision but expected to appeal. “We strongly believe that the former customers of Lehman Brothers Inc. are entitled to these assets,” Giddens said. Hughes Hubbard’s McGuire declined to comment.