United States: JPMorgan Scores Major Victory In Ongoing Lehman Bankruptcy

Last Updated: October 15 2015
Article by John H. Thompson, Shawn R. Fox and Dion W. Hayes

On Sept. 30, a district court resolved a significant portion of outstanding litigation in the bankruptcy proceeding of Lehman Brothers Holdings Inc. and its debtor subsidiaries. See Lehman Bros. Holdings Inc. v. JPMorgan Chase Bank, N.A. (In re Lehman Bros. Holdings Inc.), No. 1:11-cv-06760 (S.D.N.Y. Sept., 30, 2015). This litigation flows from the debtors' allegations that JPMorgan Chase Bank, N.A. (JPMC) coerced billions of dollars from Lehman on the eve of its bankruptcy filings in September 2008. Lehman Brothers Holdings Inc. (LBHI) originally filed a complaint in 2010 on behalf of itself and several of its affiliates, including Lehman Brothers Inc. (LBI). (The LBHI Official Committee of Unsecured Creditors is a plaintiff-intervenor in this case.) The court's most recent ruling granted summary judgment in favor of JPMC on multiple counts, denying over $8 billion in potential recoveries for the liquidating Lehman estates. Now, only six of the 49 counts present in the original complaint and seven of JPMC's counterclaims remain before the court.

Relationships Connecting JPMC, LBI and Lehman

The dispute arose from JPMC's role as the bank and primary source of credit for LBI in its triparty repurchase agreements. In a repurchase agreement, a party sells an asset and agrees to repurchase the asset at a specified date, often the next day. In a triparty repurchase agreement, a third party acts as a custodian to coordinate the sale and repurchase of an asset. JPMC was the custodian bank for the repurchase agreements that LBI executed with outside investors.

Pursuant to a series of clearance agreements, JPMC agreed to supply LBI with secured credit, consisting of cash and securities, to allow LBI to close out its positions in repurchase agreements. LBI relied on this source of credit, borrowing as much as $242 billion in intraday credit from JPMC. In turn, Lehman relied on LBI because LBI's broker/dealer activities were critical to the brokerage services that Lehman offered to institutional investors.

These clearance agreements provided that JPMC could refuse to extend credit to LBI at any time. In addition, the clearance agreements required LBI to fully secure its obligations to JPMC at all times. As a result, JPMC could prohibit LBI from making use of borrowed cash and securities if JPMC was not fully collateralized at all times.

Transactions Central to this Litigation

During the summer of 2008, JPMC developed concerns about its exposure to the intraday credit market and requested additional security from Lehman. As a result, JPMC and LBHI negotiated agreements in June, August and September 2008, in which LBHI pledged additional collateral and guaranteed LBI's intraday borrowing activity. The Sept. 30, 2015, ruling focused on the agreements executed on Sept. 9 and 12, 2008, each within a week of LBHI's bankruptcy filing on Sept. 15, 2008.

In early September 2008, JPMC stated that it would no longer provide credit to LBI without additional collateral from LBHI. Absent JPMC's credit, LBI could no longer function as a broker/dealer, further crippling Lehman's operations.

To induce additional credit, between Sept. 9 and 12, 2008, LBHI provided an additional $8.6 billion in security. Specifically, it pledged $1.7 billion in money-market funds and deposited $6.9 billion in cash collateral into a demand deposit account maintained at JPMC. Following that deposit, JPMC transferred the $6.9 billion to a general ledger account, from which only JPMC could make transfers, effectively walling LBHI off from exercising any control over this cash. After LBHI filed its bankruptcy petition on Sept. 15, JPMC continued to provide intraday credit to LBI under the terms of the August and September agreements.

In October 2008, JPMC applied $1.9 billion from the $6.9 billion in its general ledger account to set off various claims. Ultimately, JPMC filed a $30 billion proof of claim against LBHI, of which $25 billion was for secured claims arising from the agreements that LBHI and JPMC executed in August and September 2008.

Overview of LBHI's Claims for Relief

The district court placed LBHI's 49 counts into four general categories. One category consisted of 20 counts of alleged liability based on constructively fraudulent conveyances and preferential transfers. All 20 of these counts were dismissed by the bankruptcy court in 2012.

The district court categorized the remaining 29 counts as follows: "(1) claims seeking relief under various common law doctrines [including breach of implied covenants of good faith and fair dealing, and invalidation of the August and September 2008 agreements based on coercion, lack of consideration, and lack of authority]; (2) claims seeking to avoid and recover actual fraudulent transfers ...; and (3) claims seeking relief under various other sections of the Bankruptcy Code [including avoidable setoffs and violations of the automatic stay]." Lehman Bros. Holdings Inc. v. JPMorgan Chase Bank, N.A. (In re Lehman Bros. Holdings Inc.), 480 B.R. 179, 186-87 (S.D.N.Y. 2012).

The Court's Ruling

The court rejected Lehman's arguments and enforced the agreements among JPMC, LBHI and LBI based upon the unambiguous terms of the agreements and the high level of sophistication among the parties. As a result, LBHI's "various common law doctrines" failed. The court succinctly captured its approach to the vast majority of LBHI's bases for relief by remarking that "a party does not breach an agreement by behaving as the instrument permitted."

Despite LBHI's contention that JPMC unfairly threatened to withhold credit absent additional security from LBHI, the court noted that the clearance agreements did not require JPMC to supply credit indefinitely. Rather, these agreements permitted JPMC to withhold credit after notice to Lehman.

LBHI also argued that the clearance agreements prohibited JPMC from requesting additional security in August and September 2008. However, the court found that the agreements gave JPMC the right to determine what constituted sufficient collateral for the purpose of being "fully collateralized."

Similarly, the court rejected LBHI's arguments that the June, August and September 2008 agreements should be invalidated due to lack of consideration, duress, or lack of authority. The court found that a "hell or high water" clause barred LBHI from asserting many of those claims. In addition, the court held that that LBHI ratified the August and September agreements by performing under them after its petition date without protest to the bankruptcy court.

LBHI also advanced several theories that JPMC had wrongfully transferred the $6.9 billion it received and released its lien on those funds as a result of that transfer. However, the court determined that JPMC acted properly under the express language in the clearance agreements and Article 9 of the Uniform Commercial Code, and therefore had the authority to transfer the $6.9 billion in cash collateral into its general ledger account and retain its lien.

JPMC also won summary judgment on LBHI's actual fraudulent transfer claims. The court found that extensive discovery failed to uncover facts that could lead any reasonable juror to find that LBHI acted with the requisite intent to defraud.

Notwithstanding the broad sweep of its decision on summary judgment, the court determined that six of LBHI's counts should proceed. Specifically, the court found that a genuine issue of material fact remained about whether the transfers JPMC received in September 2008 should be avoided because they were made to obtain a setoff. The court also declined to grant summary judgment in favor of JPMC on LBHI's claims that JPMC violated the automatic stay by setting off $1.9 billion of its claims in October 2008. Finally, LBHI's equitable subordination claim and JPMC's counterclaims related to fraud and indemnification also survived the summary judgment stage.


The Court's ruling was a significant victory for JPMC. By enforcing the express terms of the parties' agreements, the court knocked out many of LBHI's remaining counts against JPMC. By enforcing the express terms of the parties' agreements, the court knocked out many of LBHI's remaining counts against JPMC. Nevertheless, several claims and counterclaims remain, indicating that an ultimate conclusion to this litigation is many months, if not years, away.

Perhaps most notably, LBHI's voidable setoff claims survived summary judgment, potentially offering LBHI an avenue for unwinding some of the largest transfers that JPMC received in the days preceding Lehman's bankruptcy filings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.