TMST Inc. (fka THMRQ)

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Barclays Fails to Win Dismissal of Thornburg Suit

The Chapter 11 trustee for Thornburg Mortgage Inc. avoided dismissal of the main portion of his $94 million lawsuit against Barclays Capital Inc. The trustee’s complaint is based on claims that Barclays made unauthorized margin calls under documents governing a reverse repurchase agreement for mortgage-backed securities.

U.S. District Judge Ellen L. Hollander ruled on Sept. 7 that the trustee’s breach-of-contract claims were sufficient to withstand Barclay’s dismissal motion at an early stage of the lawsuit where the facts laid out in the complaint must be taken as true and the plaintiff must be given favorable inferences from the facts.

Hollander dismissed the trustee’s claim for breach of an implied covenant of good faith and fair dealing. She cited a “legion” of New York cases not recognizing a separate claim for breach of the implied covenant “when a breach of contract claim based on the same facts is also pled.” To read Hollander’s opinion, click here.

The Thornburg trustee didn’t oppose having his lawsuit taken from the bankruptcy court to Hollander’s court.

Barclays’s unsuccessful motion to dismiss was based on the idea that the documents and the facts in the complaint by themselves demonstrated that Barclays had the right to demand more collateral and call a default when it wasn’t forthcoming.

At the same time he sued Barclays in April, the trustee filed complaints against JPMorgan Chase & Co., Citigroup Inc., Credit Suisse Group AG, Royal Bank of Scotland Group Plc and UBS AG for almost $2 billion. He also sued Bank of America Corp. and Countrywide Home Loans Inc.

The suits allege that the banks made “unjustified margin calls” that led to the demise of Thornburg, a former jumbo mortgage lender and securitizer.

Thornburg filed for reorganization in May 2009. It was servicing 29 securitizations containing mortgages with outstanding balances totaling $11.1 billion when it applied to the judge to sell the portfolio. The mortgage-servicing business was sold to a Credit Suisse affiliate for 0.77 percent of the unpaid principal balances of the mortgage loans.

The trustee was appointed after a whistle-blower disclosed that the top two officers formed a new company to carry on Thornburg’s business plan and used Thornburg employees to work on their new venture. The trustee later sued the executives.

Thornburg’s petition listed assets of $24.4 billion and debt totaling $24.7 billion, including $304 million owing on 8 percent senior unsecured notes, $1.3 billion on senior subordinated notes, and $214 million on junior subordinated notes. The Santa Fe, New Mexico-based company listed assets and debt both exceeding $26 billion on the September 2008 balance sheet.

The lawsuit is Sher v. Barclays Capital Inc., 11-01982, U.S. District Court, District of Maryland (Baltimore). The Chapter 11 case is In re TMST Inc., 09-17787, U.S. Bankruptcy Court, District of Maryland (Baltimore).

http://www.businessweek.com/news/2011-09-12/lehman-venue-innkeepers-thornburg-sbarro-bankruptcy.html Lehman, Venue, Innkeepers, Thornburg, Sbarro: Bankruptcy
September 12, 2011, 10:38 AM EDT