Bloomberg News

JPMorgan Says Lehman Fight Becomes ‘Tale of Two Lawsuits’

November 17, 2011

(Updates with lawsuits in first paragraph.)

Nov. 16 (Bloomberg) -- JPMorgan Chase & Co., fighting Lehman Brothers Holdings Inc. over billions of dollars in claims and damages, said the defunct firm’s strategy has become a “tale of two lawsuits” in an effort to win one way or another.

JPMorgan is trying to move an $8.6 billion lawsuit by Lehman from bankruptcy court to district court, saying today that a bankruptcy judge can’t rule on Lehman’s allegation that the lender caused monetary damage to the failing firm in 2008. Yesterday, the biggest U.S. bank defended $6 billion in claims filed against Lehman, and its own conduct in an $18 billion sale of Lehman’s collateral “in some of the most difficult markets in modern times.”

“There is the lawsuit that plaintiffs filed in the bankruptcy court, in which Lehman Brothers blames JPMorgan for its bankruptcy filing,” the bank said in a court filing. “And then there is the imaginary lawsuit that plaintiff chose not to file,” where the goal is “disallowance” of JPMorgan’s demand for payment of money owed.

The existing case and the possible lawsuit should be handled by a district judge, JPMorgan said in the filing. Court filings by Lehman, which opposes the move to another court, show the firm knows its “causes of action” can only be handled in bankruptcy court if they are confined to bankruptcy matters, the bank said.

Kimberly Macleod, a Lehman spokeswoman, didn’t immediately respond to an e-mail seeking comment on today’s filing.

$11 Billion ‘Windfall’

Lehman’s fight with JPMorgan goes on, even after the defunct firm dropped its battle with Barclays Plc for an alleged $11 billion “windfall” made on a purchase of Lehman’s North American business. Dropping an appeal in that case, Lehman said it wanted to get on with its liquidation plan, which it has said it aims to confirm next month.

Citing a ruling in the Anna Nicole Smith case that described limits to the power of bankruptcy judges, JPMorgan said a district judge must decide Lehman’s common-law damage claims in its lawsuit, which run to tens of billions of dollars.

Referring to the fight over the claims, the bank said, “there is no sense in splitting this lawsuit and leaving some subset of plaintiff’s 49 interrelated claims in the bankruptcy court.”

‘Significantly Overstated’

Lehman said in August that JPMorgan’s claims against the former investment bank and its brokerage are “significantly overstated.” The bank, a go-between for repurchase agreements with short-term investors after Lehman’s Sept. 15, 2008, bankruptcy, failed to sell collateral securing the loans in a “commercially reasonable manner,” it alleged.

Lehman filed the biggest bankruptcy in U.S. history in 2008, listing $613 billion in debt.

JPMorgan, which lent $70 billion to Lehman’s brokerage around the time of the September 2008 bankruptcy, sued Lehman back after the $8.6 billion suit, alleging Lehman defrauded its lender into making the loan.

The main case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--Editors: Michael Hytha, Peter Blumberg

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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