Bankruptcy Preference Creditor's Digest

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08/05/2011 - Plaintiffs Memorandum Addressing the Effect of the Supreme Courts Decision in Stern v. Marshall on the Bankruptcy Courts Ability to Render Final Judgment on the Common Law Claims

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Count I – Avoidance of September Agreements as Actually Fraudulent Under Section 548 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether Lehman entered into the September Agreements with the actual intent to hinder, delay, or defraud its creditors;
• whether so-called “badges of fraud” support an inference of Lehman’s fraudulent intent; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, to the extent that this claim seeks to avoid a transfer, it seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618. To the extent that this claim does not seek to avoid a transfer, but rather an obligation, it still cannot constitutionally be determined by a bankruptcy court because such a claim for avoidance is in aid of, and embedded in, claims that themselves must be determined by an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX, XL) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process.

Count II – Avoidance of August Guaranty and August Security Agreement as Actually Fraudulent Under Section 548 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether Lehman entered into the August Agreements with the actual intent to hinder, delay, or defraud its creditors;
• whether so-called “badges of fraud” support an inference of Lehman’s fraudulent intent; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, to the extent that this claim seeks to avoid a transfer, it seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618. To the extent that this claim does not seek to avoid a transfer, but rather an obligation, it still cannot constitutionally be determined by a bankruptcy court because such a claim for avoidance is in aid of, and embedded in, claims that themselves must be determined by an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX, XL) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process.

Count III – Avoidance of Collateral Transfers as Actually Fraudulent Under Section 548 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether Lehman provided collateral to JPMorgan with the actual intent to hinder, delay, or defraud its creditors;
• whether so-called “badges of fraud” support an inference of Lehman’s fraudulent intent;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid transfers seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count IV – Recovery of Avoided Fraudulent Transfers Under Section 550 of the Bankruptcy Code

Stern Analysis

This claim seeks to recover transfers alleged to have been made with actual fraudulent intent in Counts I, II, and III. For the reasons stated above, those claims, and hence this claim, must be determined in an Article III court.

This result is not altered by JPMorgan’s filing of a proof of claim because Lehman waived the application of section 502(d) to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b).

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for recovery of transfers until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count V – Avoidance of September Agreements as Constructively Fraudulent Under Section 548 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent, inadequately capitalized, or intended to or believed it would incur debts beyond its ability to pay;
• whether Lehman received reasonably equivalent value in exchange for entering into the September Agreements; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, to the extent that this claim seeks to avoid a transfer, it seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618. To the extent that this claim does not seek to avoid a transfer, but rather an obligation, it still cannot constitutionally be determined by a bankruptcy court because such a claim for avoidance is in aid of, and embedded in, claims that themselves must be determined by an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX­XLV) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process.

Count VI – Avoidance of September Guaranty as Constructively Fraudulent Under Section 548 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent, inadequately capitalized, or intended to or believed it would incur debts beyond its ability to pay;
• whether Lehman received reasonably equivalent value in exchange for entering into the September Guaranty; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

This claim also cannot constitutionally be determined by a bankruptcy court because it is in aid of, and embedded in, claims that themselves must be determined by an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX-XLV) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process. 131 S. Ct. at 2618.

Count VII – Avoidance of August Guaranty as Constructively Fraudulent Under Section 548 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent, inadequately capitalized, or intended to or believed it would incur debts beyond its ability to pay;
• whether Lehman received reasonably equivalent value in exchange for entering into the August Guaranty; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

This claim also cannot constitutionally be determined by a bankruptcy court because it is in aid of, and embedded in, claims that themselves must be determined by an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX, XL) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process. 131 S. Ct. at 2618.

Count VIII – Avoidance of Collateral Transfers as Constructively Fraudulent Under Section 548 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent, inadequately capitalized, or intended to or believed it would incur debts beyond its ability to pay;
• whether Lehman received reasonably equivalent value in exchange for the transferred collateral;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid transfers seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count IX – Recovery of Avoided Fraudulent Transfers Under Section 550 of the Bankruptcy Code

Stern Analysis

This claim seeks to recover transfers alleged to have been constructively fraudulent in Counts V, VI, VII, and VIII. For the reasons stated above, those claims, and hence this claim, must be determined in an Article III court.

This result is not altered by JPMorgan’s filing of a proof of claim because Lehman waived the application of section 502(d) to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b).

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for recovery of transfers until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count X – Avoidance of September Agreements as Constructively Fraudulent Under Section 544 and Applicable State Fraudulent Conveyance or Fraudulent Transfer Law

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent, inadequately capitalized, or intended to or believed it would incur debts beyond its ability to pay;
• whether Lehman received fair consideration in exchange for entering into the September Agreements; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, to the extent that this claim seeks to avoid a transfer, it seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618. To the extent that this claim does not seek to avoid a transfer, but rather an obligation, it still cannot constitutionally be determined by a bankruptcy court because such a claim for avoidance is in aid of, and embedded in, claims that themselves must be determined by an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX­XLV) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process.

Count XI – Avoidance of September Guaranty as Constructively Fraudulent Under Section 544 and Applicable State Fraudulent Conveyance or Fraudulent Transfer Law

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent or intended to or believed it would incur debts beyond its ability to pay;
• whether Lehman received fair consideration in exchange for entering into the September Guaranty; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

This claim also cannot constitutionally be determined by a bankruptcy court because it is in aid of, and embedded in, claims that themselves must be determined by an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX-XLV) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process. 131 S. Ct. at 2618.

Count XII – Avoidance of August Guaranty as Constructively Fraudulent Under Section 544 and Applicable State Fraudulent Conveyance or Fraudulent Transfer Law

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent or intended to or believed it would incur debts beyond its ability to pay;
• whether Lehman received fair consideration in exchange for entering into the August Guaranty; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

This claim also cannot constitutionally be determined by a bankruptcy court because it is in aid of, and embedded in, claims that themselves must be determined in an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX, XL) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process. 131 S. Ct. at 2618.

Count XIII – Declaratory Judgment Invalidating August Security Agreement

Stern Analysis

This common-law claim asserts that the August Security Agreement is invalid and unenforceable because, “[f]or the reasons set forth above, the August Guaranty is invalid and unenforceable.” Accordingly, Count XIII’s request for a declaratory judgment is founded upon plaintiffs’ earlier claims that the August Guaranty is voidable as a fraudulent transfer. For the reasons stated above, those claims, and hence this claim, must be determined in an Article III court.

This claim also cannot constitutionally be determined by a bankruptcy court because it is in aid of, and embedded in, claims that themselves must be determined in an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX, XL) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process. 131 S. Ct. at 2618.

Count XIV – Declaratory Judgment Invalidating the September Security Agreement, the September Amendment, and the Account Control Agreement

Stern Analysis

This common-law claim asserts that the September Security Agreement, the September Amendment, and the Account Control Agreement are invalid and unenforceable because, “[f]or the reasons set forth above, the September Guaranty is invalid and unenforceable.” Accordingly, Count XIV’s request for a declaratory judgment is founded upon plaintiffs’ earlier claims that the September Guaranty is voidable as a fraudulent transfer. For the reasons stated above, those claims, and hence this claim, must be determined in an Article III court.

This claim also cannot constitutionally be determined by a bankruptcy court because it is in aid of, and embedded in, claims that themselves must be determined in an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX-XLV) because they seek “to augment the bankruptcy estate” and will not be completely resolved in the claims-allowance process. 131 S. Ct. at 2618.

Count XV – Avoidance of Collateral Transfers as Constructively Fraudulent Under Section 544 and Applicable State Fraudulent Conveyance or Fraudulent Transfer Law

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent, inadequately capitalized, or intended to or believed it would incur debts beyond its ability to pay;
• whether Lehman received fair consideration in exchange for the challenged collateral transfers;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether JPMorgan has an affirmative defense to avoidance because it acted in good faith and provided value to Lehman.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid transfers seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count XVI – Recovery of Avoided Fraudulent Transfers Under Section 550 of the Bankruptcy Code

Stern Analysis

This claim is for recovery of transfers alleged to have been constructively fraudulent in Count XV. For the reasons stated above, that claim, and hence this claim, must be determined by an Article III court.

This result is not altered by JPMorgan’s filing of a proof of claim because Lehman waived the application of section 502(d) to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b).

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for recovery of transfers until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XVII – Avoidance of Funds Sweep as Constructively Fraudulent Under Section 548 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent, inadequately capitalized, or intended to or believed it would incur debts beyond its ability to pay;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether the movement of funds from one account to another harmed creditors by diminishing LBHI’s estate.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid a transfer seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count XVIII – Recovery of Avoided Fraudulent Transfer Under Section 550 of the Bankruptcy Code

Stern Analysis

This claim seeks to recover cash that was part of the transfer alleged to have been constructively fraudulent in Count XVII. For the reasons stated above, that claim, and hence this claim, must be determined in an Article III court.

This result is not altered by JPMorgan’s filing of a proof of claim because Lehman waived the application of section 502(d) to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b).

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for recovery of transfers until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XIX – Avoidance of Funds Sweep as Constructively Fraudulent Under Section 544 and Applicable State Fraudulent Conveyance or Fraudulent Transfer Law

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent, inadequately capitalized, or intended to or believed it would incur debts beyond its ability to pay;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether the movement of funds from one account to another harmed creditors by diminishing LBHI’s estate.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid a transfer seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count XX – Recovery of Avoided Fraudulent Transfer Under Section 550 of the Bankruptcy Code

Stern Analysis

This claim seeks to recover cash that was part of the transfer alleged to have been constructively fraudulent in Count XIX. For the reasons stated above, that claim, and hence this claim, must be determined in an Article III court.

This result is not altered by JPMorgan’s filing of a proof of claim because Lehman waived the application of section 502(d) to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b).

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for recovery of transfers until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XXI – Avoidance of Preferential Transfer of September Security Agreement Under Section 547 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent at the time it entered into the September Security Agreement;
• whether Lehman’s entry into the agreement constituted a transfer of an interest of LBHI in property;
• whether any such transfer was on account of antecedent debt and enabled JPMorgan to receive more on account of such debt than it would receive in a chapter 7 liquidation;
• whether the agreement was intended to be, and in fact was, a contemporaneous exchange for new value; and
• whether JPMorgan subsequently provided new value to LBHI, not secured by an otherwise unavoidable security interest, as to which LBHI did not make an otherwise unavoidable transfer to or for the benefit of JPMorgan.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid a transfer seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count XXII – Avoidance of Preferential Transfer of Account Control Agreement Under Section 547 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent at the time it entered into the Account Control Agreement;
• whether Lehman’s entry into the agreement constituted a transfer of an interest of LBHI in property;
• whether any such transfer was on account of antecedent debt and enabled JPMorgan to receive more on account of such debt than it would receive in a chapter 7 liquidation;
• whether the agreement was intended to be, and in fact was, a contemporaneous exchange for new value; and
• whether JPMorgan subsequently provided new value to LBHI, not secured by an otherwise unavoidable security interest, as to which LBHI did not make an otherwise unavoidable transfer to or for the benefit of JPMorgan.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid a transfer seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count XXIII – Avoidance of Preferential Transfer of September Transfers Under Section 547 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether Lehman was insolvent at the time of the collateral transfers;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity;
• whether the transfers were on account of antecedent debt and enabled JPMorgan to receive more on account of such debt than it would receive in a chapter 7 liquidation;
• whether the transfers were intended to be, and in fact were, a contemporaneous exchange for new value; and
• whether JPMorgan subsequently provided new value to LBHI, not secured by an otherwise unavoidable security interest, as to which LBHI did not make an otherwise unavoidable transfer to or for the benefit of JPMorgan.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid a transfer seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count XXIV – Recovery of Avoided Preferential Transfers Under Section 550 of the Bankruptcy Code

Stern Analysis

This claim seeks to recover transfers made by Lehman to JPMorgan that are alleged to have been preferential in Count XXIII. For the reasons stated above, that claim, and hence this claim, must be determined in an Article III court.

This result is not altered by JPMorgan’s filing of a proof of claim because Lehman waived the application of section 502(d) to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b).

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for recovery of transfers until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XXV – Turnover of Property Held by JPMorgan Under Section 542 of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether the September Agreements (and in particular, the three-day notice provision) permitted JPMorgan to hold collateral to secure extant non-clearance exposure, and to secure clearance exposure that JPMorgan anticipated incurring in unwinding LBI’s triparty repos on September 15; and
• whether the September and August Agreements are void and invalid as a result of plaintiffs’ previous claims (which, for the reasons stated above, must be determined by an Article III court).

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for the turnover of property until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XXVI – Avoidance of September Transfers as Transfers Made for Purpose of Obtaining a Right to Setoff Under Section 553(a)(3) of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether LBHI was insolvent at the time of the challenged transfers; and
• whether the challenged transfers were made for the purpose of JPMorgan’s obtaining a right of setoff against LBHI.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid transfers seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count XXVII – Turnover of Property Held by JPMorgan Under Section 542 of the Bankruptcy Code

Stern Analysis

This claim seeks the turnover of collateral on the basis that it was transferred for the purpose of JPMorgan’s obtaining a right of setoff, as alleged in Count XXVI. For the reasons stated above, that claim, and hence this claim, must be determined in an Article III court.

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for the turnover of property until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XXVIII – Avoidance of September Transfers as Improvement in Position Under Section 553(b) of the Bankruptcy Code

Stern Analysis

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is barred by the safe-harbor provisions of the Bankruptcy Code;
• whether LBHI was insolvent;
• whether JPMorgan was a creditor of LBHI before LBHI entered into the September Agreements;
• whether JPMorgan effectuated a setoff; and
• whether any such setoff was an improvement of JPMorgan’s position.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’s claims. This result is not altered by JPMorgan’s filing of a proof of claim because Lehman agreed that section 502(d) would not apply to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b). Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to avoid the September Transfers (on the basis that they constituted an impermissible improvement in JPMorgan’s position in the event JPMorgan set off its claims against the amounts in Lehman’s account), seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

Count XXIX – Recovery of Avoided Transfers as Impermissible Improvement in Position Under Section 550 of the Bankruptcy Code

Stern Analysis

This claim is for recovery of the improvement in position that is alleged to have been impermissible in Count XXVIII. For the reasons stated above, that claim, and hence this claim, must be determined in an Article III court.

This result is not altered by JPMorgan’s filing of a proof of claim because Lehman waived the application of section 502(d) to JPMorgan’s claims until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved. CDA § 6(b).

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for recovery of transfers until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XXX – Equitable Subordination Under Sections 501(c) and 105(a) of the Bankruptcy Code

Stern Analysis

This claim seeks equitable subordination of JPMorgan’s claims on the basis that “JPMorgan engaged in and benefited from inequitable conduct.” Plaintiffs’ brief in opposition to JPMorgan’s motion to dismiss confirms that the “inequitable conduct” underlying this claim encompasses all of the conduct alleged in support of plaintiffs’ damages claims — including allegations that “JPMorgan employed unlawfully coercive tactics and fraud, and breached several of its contractual obligations to LBHI.” Pl. Br. 143; see also Am. Compl. ¶ 252 (incorporating all previous allegations by reference into claim for equitable subordination). Accordingly, this claim cannot constitutionally be determined by a bankruptcy court because it requires adjudication of the same facts and issues underlying claims that seek “to augment the bankruptcy estate,” the elements of which (for the reasons stated below) will not need to be addressed in the course of determining whether to allow or disallow JPMorgan’s proof of claim. 131 S. Ct. at 2618.

In addition, this claim seeks to augment the bankruptcy estate by “chang[ing] the character and value” of JPMorgan’ s liens and thus “exercis[ing] control over property.” Palmdale Hills Prop., LLC v. Lehman Commercial Paper, Inc. (In re Palmdale Hills Prop., LLC), __ F.3d __, 2011 WL 3320429, at ^*5, 6 (9th Cir. Aug. 3, 2011) (upholding Lehman’s position that claim for equitable subordination seeks “affirmative relief” and is thus subject to the automatic stay when asserted against a debtor in bankruptcy (internal quotation marks omitted)).

Count XXXI – Disallowance of Claims Under Section 502(d) of the Bankruptcy Code and Avoidance of Liens Securing Such Claims Under Section 506(d)

Stern Analysis

This claim seeks the disallowance of JPMorgan’s claims and the avoidance of the liens securing those claims based on all of plaintiffs’ other claims seeking to establish that JPMorgan is liable on avoidance and turnover theories. For the reasons stated above, those claims, and hence this claim, must be determined in an Article III court.

In any event, this claim is not appropriately part of the case because Lehman expressly waived the right to assert claims under section 502(d), and “any other provisions that would . . . impose adverse consequences for failing to turnover” recovered property,

Count XXXII – Imposition of Constructive Trust and Turnover of $5 Billion of Cash

Stern Analysis

The adjudication of this common-law claim will require resolution of the following issues, among others:

• whether this claim is preempted by the safe-harbor provisions of the Bankruptcy Code;
• whether JPMorgan and LBHI were in a confidential or fiduciary relationship;
• whether an individual at JPMorgan promised an individual at LBHI that the collateral requested on September 11, 2008 would be returned the next day;
• whether this promise was governed by a valid and enforceable written agreement;
• whether LBHI actually and reasonably relied on this promise;
• whether JPMorgan was unjustly enriched as a result; and
• whether plaintiffs lack an adequate remedy at law.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this claim is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611.

In addition, this claim to impose a constructive trust over $5 billion that was transferred to JPMorgan seeks “to augment the bankruptcy estate,” as did the debtors’ claims in Stern and Granfinanciera. 131 S. Ct. at 2618.

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for the recovery of transfers until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XXXIII – Violation of Automatic Stay

Stern Analysis

This claim alleges that JPMorgan violated the automatic stay by effectuating setoffs using funds on which it allegedly did not have a valid lien. This claim is therefore entirely dependent upon plaintiffs’ previous claims to avoid the September Agreements which, for the reasons stated above, must be determined by an Article III court. Accordingly, this claim, too, must be determined by an Article III court.

Count XXXIV – Turnover of Funds Seized in Violation of Automatic Stay

Stern Analysis

This claim seeks to augment the bankruptcy estate through the turnover of funds that were allegedly seized in violation of the automatic stay because JPMorgan did not have valid liens. It is therefore entirely dependent upon plaintiffs’ previous claims to avoid or invalidate the September Agreements which, for the reasons stated elsewhere in this submission, must be determined by an Article III court. Accordingly, this claim, too, must be determined by an Article III court.

In any event, this claim is not appropriately part of the case because Lehman expressly agreed to waive the right to assert claims for the turnover of property until all disputes between the parties, including this adversary proceeding, have been fully and finally resolved, and Lehman is contractually required to condition any requests for relief to reflect that agreement. CDA § 6(b).

Count XXXV – Declaratory Judgment Invalidating the September Agreements

Stern Analysis

While this common-law claim purports only to seek a declaration that the September Agreements are invalid, the requested declaration serves no purpose other than to provide the predicate for (and thus this claim is entirely embedded in) claims that themselves must be determined by an Article III court (see, e.g., Counts XXXVI, XXXVII, XXXIX-XLV), as they seek “to augment the bankruptcy estate” and are “not necessarily resolvable by a ruling on the creditor’s proof of claim.” 131 S. Ct. at 2611, 2618.

Count XXXVI – Unjust Enrichment: All Collateral

Stern Analysis

This common-law claim alleges that JPMorgan had no contractual or other right to the $8.6 billion in cash and other collateral that Lehman provided to it, and that JPMorgan was unjustly enriched, and LBHI was damaged, as a result of the collateral transfers.

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is preempted by the safe-harbor provisions of the Bankruptcy Code;
• whether, “[f]or the reasons set forth above” in plaintiffs’ other claims, JPMorgan did not have a contractual or other right to that collateral;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether JPMorgan’s holding collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XXXVII – Conversion: All Collateral

Stern Analysis

This common-law claim alleges that JPMorgan “locked down” cash and other collateral at the close of trading on September 12, 2008, refused repeated demands to return the collateral over the following weekend, and held such collateral in accordance with invalid agreements, or in breach of any valid agreements because such agreements prohibited JPMorgan from being overcollateralized. Plaintiffs allege that Lehman is entitled to a return of the collateral and damages caused by JPMorgan’s wrongful holding of the collateral.

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is preempted by the safe-harbor provisions of the Bankruptcy Code;
• whether, “[f]or all of the reasons set forth” in plaintiffs’ other claims, JPMorgan’s right to the relevant collateral is based on invalid and unenforceable agreements;
• whether JPMorgan’s agreements with LBHI prohibited JPMorgan from being overcollateralized;
• whether JPMorgan in fact was overcollateralized;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether JPMorgan’s holding collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XXXVIII – Declaratory Judgment That JPMorgan Has No Lien Over LBHI’s $6.9 Billion Pursuant to Either the August Agreements or the September Agreements

Stern Analysis

While this state-law claim purports only to seek a declaration that JPMorgan’s transfer of $6.9 billion in cash from one JPMorgan account to another constituted conversion of Lehman’s property and resulted in the loss of JPMorgan’s lien thereon, the requested declaration serves no purpose other than to provide the predicate for (and thus this claim is entirely embedded in) other claims that themselves must be determined by an Article III court (see, e.g., Count XXXIX), as they seek “to augment the bankruptcy estate” and are “not necessarily resolvable by a ruling on the creditor’s proof of claim.” 131 S. Ct. at 2611, 2618.

Count XXXIX – Unjust Enrichment: $8.6 Billion in Cash and Money Market Funds

Stern Analysis

This common-law claim is predicated on Count XXXVIII, which alleges that JPMorgan’s transfer of $6.9 billion in cash from one JPMorgan account to another constituted conversion of Lehman’s property and resulted in the loss of JPMorgan’s lien thereon, as well as Count XXXV, which seeks a declaration that the September Security Agreement is invalid. Plaintiffs allege that Lehman is entitled not only to a return of the collateral but also to damages caused by wrongful holding of the collateral.

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is preempted by the safe-harbor provisions of the Bankruptcy Code;
• whether JPMorgan was “enriched” at LBHI’s expense when it transferred funds from one account to another;
• whether, “[f]or the reasons discussed above” in plaintiffs’ other claims, JPMorgan did not have a contractual or other right to the relevant collateral;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether JPMorgan’s holding the relevant collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XL – Conversion: $8.6 Billion in Cash and Money Market Funds

Stern Analysis

This common-law claim is predicated on Count XXXVIII, which alleges that JPMorgan’s transfer of $6.9 billion in cash from one JPMorgan account to another constituted conversion of Lehman’s property and resulted in the loss of JPMorgan’s lien thereon, as well as Count XXXV, which seeks a declaration that the September Security Agreement is invalid. Plaintiffs allege that Lehman made repeated demands for a return of the collateral, that JPMorgan wrongfully refused such demands, and that Lehman is entitled to the damages caused by JPMorgan’s wrongful holding of the collateral.

The adjudication of this claim will require resolution of the following issues, among others:

• whether this claim is preempted by the safe-harbor provisions of the Bankruptcy Code;
• whether, “[f]or the reasons discussed above” in plaintiffs’ other claims, JPMorgan did not have a contractual or other right to the relevant collateral;
• whether LBHI was in fact the source of the relevant collateral, or whether that collateral belonged to a different Lehman entity; and
• whether JPMorgan’s conduct caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XLI – In the Alternative, Breach of the 2000 Clearance Agreement: Improper Collateral Demands

Stern Analysis

This common-law claim alleges that JPMorgan’s requests for collateral in September 2008 breached the Clearance Agreement because that agreement did not authorize JPMorgan to be “more than fully collateralized,” or to request collateral for obligations other than those arising under the Clearance Agreement.

The adjudication of this claim will require resolution of the following issues, among others:

• whether the Clearance Agreement governed JPMorgan’s requests for collateral;
• whether the Clearance Agreement prohibited JPMorgan from being “more than fully collateralized”;
• whether JPMorgan in fact was “more than fully collateralized”;
• whether the Clearance Agreement prohibited JPMorgan from seeking additional collateral for clearance exposure or any other purpose if it was “fully collateralized”;
• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement;
• whether LBHI waived its claim or ratified any breach; and
• whether JPMorgan’s requests for collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XLII – In the Alternative, Breach of the 2000 Clearance Agreement: Improper Withholding of Collateral

Stern Analysis

This common-law claim alleges that JPMorgan’s holding of collateral at the end of the trading day on September 12, 2008 breached the Clearance Agreement because that agreement required JPMorgan to provide access to cash, money-market funds, and securities that had been pledged by Lehman.

The adjudication of this claim will require resolution of the following issues, among others:

• whether the Clearance Agreement governed JPMorgan’s requests for collateral;
• whether the Clearance Agreement granted LBHI the right to remove collateral from its account at JPMorgan after the close of business on September 12, 2008;
• whether and how Lehman could have used the collateral after the close of business on September 12, 2008 to alter its condition;
• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement;
• whether LBHI waived its claim or ratified any breach; and
• whether JPMorgan’s holding collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XLIII – In the Alternative, Breach of the August Agreements: Improper Collateral Demands

Stern Analysis

This common-law claim is predicated on the allegation that, “[f]or the reasons set forth above, the September Agreements are invalid and unenforceable,” and then alleges that the August Agreements prohibited JPMorgan from requesting collateral for obligations other than intraday clearance obligations, and that JPMorgan breached those agreements by requesting and holding collateral for purposes other than clearance exposure and in amounts greater than was reasonably required for clearance exposure.

The adjudication of this claim will require resolution of the following issues, among others: 

• whether the August Agreements prohibited JPMorgan from requesting collateral for obligations other than intraday clearance obligations;

• whether JPMorgan requested and held collateral for purposes other than clearance exposure;
• whether JPMorgan requested and held collateral in amounts greater than what was reasonably required for clearance exposure;
• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement;
• whether LBHI waived its claim or ratified any breach; and
• whether JPMorgan’s requests for collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XLIV – In the Alternative, Breach of the August Agreements: Improper Withholding of Collateral

Stern Analysis

This common-law claim is predicated on the allegation that, “[f]or the reasons set forth above, the September Agreements are invalid and unenforceable”; it alleges that JPMorgan’s holding collateral at the end of the trading day on September 12, 2008 constituted a breach of the August Agreements.

The adjudication of this claim will require resolution of the following issues, among others:

• whether the August Agreements governed the relevant collateral;
• whether the August Agreements required JPMorgan to give LBHI access to collateral at the end of the trading day to the extent that such collateral exceeded LBHI’s obligations to JPMorgan under the agreements;
• whether the collateral held by JPMorgan on September 12, 2008 exceeded LBHI’s obligations to JPMorgan under the August Agreements;
• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement;
• whether LBHI waived its claim or ratified any breach; and
• whether JPMorgan’s holding collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XLV – In the Alternative, Breach of the Implied Covenant of Good Faith and Fair Dealing: August Agreements

Stern Analysis

This common-law claim is predicated on the allegation that, “[f]or the reasons set forth above, the September Agreements are invalid and unenforceable”; it alleges that JPMorgan breached the implied covenant of good faith and fair dealing under the August Agreements by making unreasonable and excessive collateral demands to secure exposure other than clearance-related exposure and by holding such collateral at the end of the trading day on September 12, 2008.

The adjudication of this claim will require resolution of the following issues, among others:

• whether the August Agreements, expressly or impliedly, gave LBHI the “right” to “refuse unreasonable and excessive collateral demands by JPMorgan”;
• whether JPMorgan’s requests for collateral violated this “right” under the August Agreements;
• whether JPMorgan acted in bad faith when it requested and held collateral;
• whether the collateral “was critical to [Lehman]’ s efforts to save its business” and whether JPMorgan knew this;
• whether and how Lehman would have used the relevant collateral to “save its business”;
• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement;
• whether LBHI waived its claim or ratified any breach; and
• whether JPMorgan’s requesting and holding collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a

Count XLVI – Coercion and/or Duress With Respect to the September Agreements

Stern Analysis

This common-law claim alleges that the September Agreements were entered into by Lehman under coercion and duress, that the agreements are therefore invalid, and that JPMorgan’s holding of collateral under such agreements was improper. This claim seeks not only rescission of the September Agreements, but also damages.

The adjudication of this claim will require resolution of the following issues, among others:

• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement;
• whether LBHI waived its claim or ratified its agreements;
• whether holding collateral under agreements later determined to be unenforceable is wrongful; and
• whether JPMorgan’s holding collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XLVII – In the Alternative, Breach of the Implied Covenant of Good Faith and Fair Dealing: September Agreements

Stern Analysis

This common-law claim alleges that the implied duty of good faith and fair dealing under the September Agreements gave Lehman the “right . . . to refuse unreasonable and excessive collateral demands,” and that JPMorgan’s requesting and holding collateral was in “bad faith” and violated this “right,” thus injuring LBHI.

The adjudication of this claim will require resolution of the following issues, among others:

• whether the September Agreements, expressly or impliedly, gave LBHI the “right” to “refuse unreasonable and excessive collateral demands by JPMorgan”;
• whether JPMorgan’s requests for collateral violated this “right” under the September Agreements;
• whether JPMorgan acted in bad faith when it requested and held collateral;
• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement;
• whether LBHI waived its claim or ratified any breach; and
• whether JPMorgan’s requesting and holding collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.

Count XLVIII – Coercion and/or Duress With Respect to Demands for $8.6 Billion in Cash and Cash Equivalents

Stern Analysis

This common-law claim alleges that Lehman “accede[d]” to deliver cash and money market fund collateral to JPMorgan in response to improper threats, and that Lehman entered into such agreements “involuntarily.” The claim seeks the “rescission” of LBHI’s “agreements to deliver the $8.6 billion in cash and money market funds to JPMorgan,” as well as the return of that collateral and “other damages resulting from JPMorgan’s misconduct.”

The adjudication of this claim will require resolution of the following issues, among others:

• whether LBHI is able to seek “rescission” of its “agreements to deliver” collateral, when any such “agreements” were fully performed;
• whether LBHI ratified any such “agreements”;
• whether, to the extent plaintiffs are seeking to recover a transfer rather than rescind an alleged “agreement,” their claim is preempted by the safe-harbor provisions of the Bankruptcy Code;
• whether JPMorgan made a “threat” to stop “extending intra-day credit to, and clearing trades for, Lehman” if it did not receive collateral;
• whether any such threat was “improper”;
• whether LBHI had “contract rights” to refuse JPMorgan’s request for collateral;
• whether LBHI was “in no position to insist on its contract rights,” such that it delivered collateral “involuntarily”;
• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement; and
• whether JPMorgan’s requests for collateral caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim ” and hence must be

Count XLIX – Fraud With Respect to the September 12, 2008 Demand for $5 Billion Cash

Stern Analysis

This common-law claim alleges that JPMorgan fraudulently induced Lehman to deliver $5 billion in cash collateral, and that JPMorgan is liable for “direct damages” in that amount, “as well as all other damages resulting from” its conduct.

The adjudication of this claim will require resolution of the following issues, among others:

• whether the CEO of JPMorgan stated to the CEO of Lehman on September 11, 2008 that JPMorgan would return the $5 billion in cash collateral at the close of trading the next day;
• whether the CEO of JPMorgan made this statement with the intent to deceive Lehman;
• whether Lehman actually and reasonably relied on this oral promise, notwithstanding that the promise was inconsistent with Lehman’s written agreements with JPMorgan;
• whether LBHI’s claim for consequential damages is barred by the Clearance Agreement;
• whether LBHI waived its claim or ratified any agreement to provide collateral to JPMorgan; and
• whether JPMorgan’s conduct caused foreseeable damage to LBHI and, if so, in what amount.

None of these issues will need to be resolved in the course of determining whether to allow or disallow JPMorgan’ s proof of claim. Accordingly, like the counterclaim in Stern, this common-law claim “to augment the bankruptcy estate” through the recovery of money damages is “not necessarily resolvable by a ruling on the creditor’s proof of claim,” and hence must be determined in an Article III court. 131 S. Ct. at 2611, 2618.