Clear Contractual Terms Prevail Over Equitable Principles in Bankruptcy Cases (Again)

October 06, 2015

Bankruptcy courts in the U.S. are widely viewed as favorable fora for debtors, trustees and creditors’ committees to pursue creative and difficult causes of actions against deep-pockets lenders and others in an attempt to augment the resources available for distributions to creditors. In yet another case, however, the District Court for the Southern District of New York (after withdrawing the litigation from the bankruptcy court), recently dismissed many of the claims asserted by the Lehman debtors against J.P. Morgan Chase Bank, N.A. (“JPM”) which were based on the alleged inequitable conduct of JPM. The Court held that a creditor could not be held liable for (aggressively) protecting its own interests when the plain language of the relevant documents permitted the actions taken by the creditor. The decision was issued in Lehman Brothers Holdings Inc v. JPMorgan Chase Bank, N.A. , No. 11-cv-7670 (RJS) (S.D.N.Y. Sept. 30, 2015) and arose out of an adversary proceeding initiated by Lehman Brothers Holdings Inc. (“LBHI”) and its affiliated debtors (collectively, the “Debtors”) against JPM. The Debtors advanced multiple causes of action and theories against JPM, alleging that JPM improperly and unfairly appropriated value from the Debtors (thus harming their creditors) in the months leading up to LBHI’s bankruptcy filing by allegedly strong-arming the Debtors into providing it with additional collateral and protections. The Court, however, entered summary judgment against LBHI on nearly all counts because it found that the written contracts between JPM and LBHI expressly permitted JPM’s purportedly inequitable actions. The facts, as described herein, are based on the facts and allegations contained in the Court’s opinion.

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