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Law360, New York (July 6, 2017, 10:08 PM EDT) -- A compromise years in the making to resolve claims against Lehman Brothers for selling billions of dollars' worth of dud mortgage-backed securities before its collapse by using a court-assisted estimation process was approved by a New York bankruptcy judge Thursday, who hailed the deal as "impressively robust."
The multiparty deal approved by U.S. Bankruptcy Judge Shelley C. Chapman stipulates that Lehman Brothers Holdings Inc. will waive its right to challenge the court’s ultimate determination of what the defunct firm owes investors for the repurchase of MBS that lost value in the financial crisis.
The agreement, reached after several years of negotiations and failed alternative proposals, calls for a multiweek estimation proceeding to take place in October, wherein the plan administrator has already agreed to seek estimation and allowance of $2.4 billion, and the trustees overseeing hundreds of the MBS trusts have the ability to fight for a higher amount.
Judge Chapman, who has overseen Lehman’s mammoth bankruptcy case and mountain of creditor disputes for years, said she found the agreement more than sufficient and complimented the attorneys and financial professionals who helped put the “highly unusual” but “perfectly acceptable” deal together.
“This is really difficult stuff, and I think that everybody is well aware of what it looks like for litigation not to settle,” she said to a room packed with attorneys. “If you don’t, just look around.”
Institutional investors signed on to the deal in early June, heralding Lehman's promise to back a $2.4 billion claims floor level, but also triggering a spate of objections that prompted a few revisions to the proposed agreement. Notably, Lehman and the investors that had helped the deal come together agreed to remove statements that the claimants found the claims floor to be “fair and reasonable.”
Two objections remained before Thursday’s hearing, including one filed by a group of former employees of affiliated debtor BNC Mortgage Inc., who complained that the settlement may unfairly eat into what they could potentially recover from pending discrimination and wrongful termination claims against BNC.
The other standing objection was filed by iFreedom Direct Corp., which had previously brokered and sold mortgage loans to Lehman and feared that the settlement would adversely affect its ability to defend against indemnification claims sought by Lehman.
Judge Chapman overruled both, finding that the settlement met all applicable factors for “reasonableness,” and that iFreedom would not have its claim defenses impaired.
Of note, she said, investors with significant loss claims have signed on to the deal.
“The fact that the parties with the true economic stake in the amount of $6 billion have stood up and support the settlement and appear to have actively participated in helping this come together goes a long way,” she said.
In the trustee group, U.S. Bank is represented by Franklin Top III and Scott Lewis of Chapman & Cutler LLP, and Michael Kraut of Morgan Lewis & Bockius LLP. Wilmington Trust is represented by John Weitnauer of Alston & Bird LLP. Dwight Healy and Michael Steven Shuster of Holwell Shuster & Goldberg LLP are co-counsel to U.S. Bank and Wilmington Trust. Law Debenture Trust Co. of New York is represented by M. William Munno and Daniel Guzmán of Seward & Kissel LLP. Deutsche Bank National Trust Co. is represented by Dennis Drebsky of Nixon Peabody LLP.
In the institutional investor group, the investors are represented by Robert Madden and Kathy Patrick of Gibbs & Bruns LLP.
In the investor group, the investors are represented by Daniel Fliman and Michael Hanin of Kasowitz Benson Torres LLP, and Nicole Gueron and Isaac Zaur of Clarick Gueron Reisbaum LLP.
The LBHI debtors are represented by Paul Shalhoub and Todd Cosenza of Willkie Farr & Gallagher LLP, and Michael Rollin and Maritza Dominguez Braswell of Rollin Braswell Fisher LLC.
The case is In re Lehman Brothers Holdings Inc., case number 1:08-bk-13555, in the U.S. Bankruptcy Court for the Southern District of New York.
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