Does Deutsche Bank have “buyer’s remorse,” or a legitimate argument that it bought a Lehman Brothers claim that provided for treatment as a “general unsecured claim” and thus it should be treated as a general unsecured claim?
On Wednesday, Judge James M. Peck of the United States Bankruptcy Court in Manhattan gets to decide that very issue.
The debate involves claims against Lehman and one of its subsidiaries that Deutsche Bank bought from the administrator for Lehman Brothers Bankhaus, Lehman’s primary German subsidiary. Deutsche Bank then sold pieces of the claims to a variety of distressed debt investors, who (surprise) have joined on Deutsche Bank’s side in this fight.
The settlement agreement between Bankhaus and Lehman, previously approved by the bankruptcy court, provides that the former Bankhaus claims will be treated as “general unsecured claims” under the Lehman plan. Lehman’s pending plan has a class called “general unsecured claims” for both Lehman Holdings and the relevant subsidiary – perhaps a different name might have been wise, no? – and Deutsche Bank says that’s where its claims belong.
Lehman says Deutsche Bank more properly belongs in the classes of unsecured claims that cover intercompany claims, since that is the root of the claims at issue. And that’s where Lehman has put them in the plan that is currently out for a vote.
In the holding company case, the difference in recovery between the two classes amounts to 4 cents on the dollar. In the subsidiary case, the difference is 5 cents on the dollar.
Before you say, “What are they fighting over?” you should know that the Bankhaus claims are so large that the difference in recovery means a difference of more than $100 million to Deutsche Bank and friends — well worth spending even a few million dollars in legal expenses.
Moreover, as Judge Peck is expected to rule on Wednesday, an appeal might be worthwhile, since contract interpretation is a question of law. That means the appellate courts need not give Judge Peck’s decision any deference.
What do I think? Normally, I lean pro-debtor, probably because that was where the bulk of my time in practice was. But in this case, I can’t really figure out what the administrator bargained for if Lehman can effectively subordinate the Bankhaus claim at will.
Stephen J. Lubben is the Daniel J. Moore Professor of Law at Seton Hall Law School and an expert on bankruptcy.
Article source: http://dealbook.nytimes.com/2011/10/18/deutsche-banks-lehman-claims/?partner=rss&emc=rss