Lehman Court Holds Safe Harbors Eliminate Constructive Fraud and Preference Claims Against Clearing Bank, But Other Claims Allowed to Proceed
April 27, 2012
In a decision issued on April 19, 2012, Lehman Brothers Holding Inc. v. JPMorgan Chase Bank, N.A. (In re Lehman Brothers Holding Inc.), Adv. Pro. No. 10-03266 (JMP), 2012 Bankr. LEXIS 1721 (Bankr. S.D.N.Y. April 19, 2012), the U.S. Bankruptcy Court for the Southern District of New York granted in part a motion to dismiss claims asserted by Lehman against JPMorgan. Those claims challenged agreements and transfers made by Lehman in the months before its bankruptcy that enabled JPMorgan -- Lehman's primary clearing bank -- to mitigate its exposure to the Lehman debtors. Although the decision applies the safe harbor protections of Section 546(e) of the Bankruptcy Code literally to dismiss Lehman’s preference and constructive fraud claims at the pleading stage, it finds that other causes of action survive.
The alert memo discusses the potential implications of this decision. In particular, it suggests that even where a transaction falls within the scope of Section 546(e), artful pleading may permit plaintiffs to survive a motion to dismiss. The decision thus underscores the importance of considering potential litigation costs when analyzing transactions with distressed counterparties.