U.S. Bankruptcy Judge Issues Decision Resolving Lehman Multi-Billion Dollar RMBS Claims After Lengthy Trial

March 16, 2018

Court estimates RMBS claims at $2.38 billion amount requested by Willkie on behalf of its client the Plan Administrator for Lehman Brothers Holdings, Inc.

On March 8, U.S. Bankruptcy Judge Shelley Chapman issued a decision estimating claims brought by several financial institutions serving as trustees to more than 230 residential mortgage-backed securities (RMBS) trusts against Willkie client the Plan Administrator for Lehman Brothers Holdings at $2.38 billion—the amount requested by Willkie on behalf of the Plan Administrator. The RMBS Trustees had argued that the claim was worth at least $11.4 billion. The decision resolves a long-running, complex, multibillion dollar Lehman legacy case stemming from its 2008 bankruptcy.

The unique trial, which ran from November 2017 through February 2018, was the culmination of years of litigation. After Lehman filed for bankruptcy in September of 2008, a number of financial institutions serving as trustees to more than 400 RMBS trusts holding approximately 1.8 million mortgage loans totaling $37 billion claimed that Lehman was required to repurchase mortgage loans held in the trusts based on alleged breaches of various representations and warranties. After years of litigation (through which Willkie and the Plan Administrator for Lehman significantly reduced the number of trusts and loans at issue), settlement discussions, and the implementation of an extensive claims submission protocol, the parties agreed in March 2017 that the value of the RMBS Trustees’ claims on the remaining 94,000 loan files would be estimated by the Court after a bench trial.

In its decision (which has received widespread media coverage), the Court found that the Trustees had failed to meet their burden that they were entitled to the $11.4 billion the Trustees were seeking or any amount greater than the $2.38 billion that the Plan Administrator for Lehman had determined was fair to all creditors of the estate. The Court specifically cited the testimony elicited by Willkie from the Plan Administrator’s various economic experts to support its conclusion that $2.38 was a fair and reasonable result.

Willkie Farr & Gallagher represented the Plan Administrator for Lehman Brothers Holdings. The Willkie team was led by litigation partners Todd Cosenza, Joseph G. Davis and Benjamin P. McCallen, as well as Thomas French and Paul Shalhoub.