JPMorgan Chase & Co. prevailed in an $8.6 billion lawsuit brought on behalf of Lehman Brothers Holdings Inc. creditors who said the bank abused its power by draining Lehman of critical liquidity in its final days, precipitating the global financial crisis.
In a decision made public on Thursday, U.S. District Judge Richard Sullivan in Manhattan rejected claims that JPMorgan exploited its "life or death" leverage as Lehman's main "clearing" bank to extract billions of dollars of collateral just before Lehman went bankrupt on Sept. 15, 2008.
Creditors said JPMorgan had no need for this despite volatile markets and extracted a windfall at their expense.
But the judge said JPMorgan was entitled to demand collateral to secure Lehman's obligations and did not defraud Lehman into providing it. He also said JPMorgan had no contractual obligation to extend credit to keep Lehman alive.
"That plaintiffs are now dissatisfied with the bargain they struck and believe that (JPMorgan) behaved badly in enforcing its terms is of no moment," Sullivan wrote.
"The court will not now rewrite the parties' contractual text — with express or implied terms — to provide Lehman with language more beneficial than what it negotiated," he added.
Lawyers for Lehman creditors and Lehman did not immediately respond to requests for comment.
JPMorgan spokesman Brian Marchiony said the New York-based bank is pleased with the decision
Sullivan ruled 3-1/2 years after U.S. Bankruptcy Judge James Peck allowed the $8.6 billion lawsuit to proceed. Peck oversaw Lehman's Chapter 11 proceedings at the time.
The fight with JPMorgan is one of the last major pieces of litigation arising from Lehman's demise.
Once Wall Street's fourth-largest bank, Lehman reported $639 billion of assets when it went bankrupt, making its bankruptcy six times larger than any other in U.S. history.
Unsecured creditors were to have recouped $105.4 billion on their claims, including a scheduled Oct. 1 distribution, Lehman said last week. Much of Lehman's brokerage unit was sold to Barclays Plc. after the Chapter 11 filing.
In his decision, Sullivan also said it was premature to decide whether to pay JPMorgan later than other Lehman creditors on some claims because of its alleged "egregious" and "unconscionable" actions.
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