Deutsche Bank AG, London Branch filed a complaint against Finepoint Capital LP, Warbler Run I, LLC and Warbler Run II, LLC.
The document, seen by FX News Group, was filed on June 14, 2024, in the Southern District Court of New York.
This is an action for breach of contract and breach of the implied covenant of good faith and fair dealing. The parties to this action entered into a transaction nearly six years ago in which the defendants agreed to acquire claims from Deutsche Bank against the bankruptcy estate of Lehman Brothers Holdings, Inc., in the nominal amount of $906 million, in exchange for a purchase price approximately $14.6 million.
Deutsche Bank alleges that, for more than five years, the defendants have frustrated the parties’ ability to settle the Trade by unreasonably refusing to execute an assignment of claim unless it includes:
- literally impossible representations and warranties, which would be breached at the time the assignment was signed, which is clearly not something Deutsche Bank agreed to when it entered the trade. the
- idiosyncratic compensation language that goes far beyond what the parties agreed to when they agreed to the Trade.
On September 15, 2008, Lehman Brothers Holdings, Inc., which at the time was the fourth largest investment bank in the United States, filed for Chapter 11 bankruptcy of the United States Bankruptcy Code.
Lehman’s bankruptcy filing remains the largest bankruptcy filing in United States history. On the day it filed, Lehman had assets of about $639 billion and owed about $619 billion in liabilities.
After Lehman’s bankruptcy proceedings began, a secondary market emerged for the sale and purchase of claims against Lehman’s assets.
This case concerns a Trade in which Deutsche Bank and the Defendants entered into an agreement to sell claims against Lehman’s assets, set forth in the form of two written trade certificates. Deutsche Bank alleges that the defendants breached their obligations to Deutsche Bank (I) unjustified refusal to perform assignments of claims with Deutsche Bank on the terms agreed by the parties and (ii) otherwise refuses to cooperate in good faith with Deutsche Bank in settling the Trade.
Defendant Finepoint is a Boston, Massachusetts-based investment manager with approximately $4 billion in assets under management. Defendants Warbler Run I and Warbler Run II are two limited liability companies that, upon information and belief, were created and controlled by Finepoint for the purpose of holding assets.
In a telephone call on November 7, 2018, Deutsche Bank and Finepoint discussed the terms of the Trade, under which the Defendants would pay Deutsche Bank $14,677,200 in exchange for claims with a nominal amount of $906 million, distributed as follows: a. $7,516,251.35 to assign claims against the estate of Lehman in the nominal amount of $463,966,133.00 to Warbler Run I LLC (the “Warbler Run I Transaction”). and b. $7,160,948.65 to assign claims against the estate of Lehman in the nominal amount of $442,033,867.00 to Warbler Run II LLC (the “Warbler Run II Transaction” and collectively with the Warbler Run I Transaction the “Trade”).
The purchase price for the Trade represented 1.62% of the nominal amount of the claims to be assigned.
Immediately following discussions with Finepoint on November 7, 2018, Deutsche Bank realized that it had not disclosed to the Defendants the existence of certain communications that took place between Lehman and Deutsche Bank earlier that year and which related to a claim that it would partially assign to Defendants under Commerce.
On July 23, 2018, Deutsche Bank had received a letter from Lehman, as trustee of the plan for its own bankruptcy estate, regarding claim no. 58233, for which Deutsche Bank was the holder of record (the “Lehman Letter”).
In Lehman’s letter, Lehman alleged that this claim represented a “collateral claim,” that there was a corresponding “principal claim” against its property, and that Lehman allegedly overpaid claim no. in this “primary claim”. Lehman then demanded repayment from Deutsche Bank of the alleged overpayment.
At the time the Lehman Letter was sent, Deutsche Bank and Lehman were engaged in an unrelated but high-stakes dispute over hundreds of millions of dollars of Capital Enhanced Preferred Securities (“ECAPS”) issued by Lehman’s London subsidiary. Deutsche Bank immediately recognized the Lehman Letter for what it was: a transparent, weak and ultimately failed attempt to create leverage for use in the ECAPS dispute.
Deutsche Bank immediately placed a telephone call with Lehman—along with Deutsche Bank and Lehman’s outside counsel—to discuss Lehman’s letter. This call took place on August 22, 2018.
During the call, Deutsche Bank disputed Lehman’s suggestion that claim no. purportedly disclosed that it related to Claim No. 58233. In response to this question, Lehman admitted that it could not identify any such claim.
Also, during the telephone call, Deutsche Bank disclosed to Lehman that Deutsche Bank had sold interests in almost all of claim 58233 (ie, a legal right to participate in any distributions) to other investors, so that if Lehman followed through on the request for repayment and somehow prevailed, other creditors, instead of Deutsche Bank, would be the ones obliged to make the repayment.
Lehman’s apparent disappointment upon hearing this news during the call and Lehman’s reluctance to press the issue further after the call confirmed Deutsche Bank’s conclusion that the Lehman letter was sent only to create leverage for the ECAPS dispute and that Lehman did not believe the demand for repayment had merit.
After the August 22, 2018 phone call, Lehman never attempted to pursue the request for repayment, never sent any further communication regarding this request, and never withheld any distribution regarding the allegedly already overpaid Claim No. 58233 based on the allegations made in the Lehman Letter. In the nearly six years since the August 22, 2018 phone call, Lehman has never again contacted Deutsche Bank about this matter.
However, out of an abundance of caution, Deutsche Bank has decided to make full, frank and prompt disclosure to Defendants of both the Lehman letter and the August 22, 2018 telephone call, and to do so before the parties execute written confirmations. for Trade. Accordingly, within minutes of reaching an agreement on November 7, 2018, Deutsche Bank made another phone call to Finepoint to: (i) bring the Lehman letter to their attention and (ii) schedule a conference call the following day between Deutsche Bank, Finepoint and Deutsche Bank’s outside counsel who participated in the August 22, 2018 telephone call with Lehman, to discuss these matters and to answer any questions that Finepoint may have.
During the November 8, 2018 conference call between Finepoint, Deutsche Bank and Deutsche Bank’s outside counsel, Finepoint did not express a belief that the Lehman Letter had any material relevance to the trade and did not suggest that the disclosure of the Lehman Letter required the parties to review or renegotiate any terms discussed on November 7, 2018.
In short, it was clear that neither party considered the existence of the Lehman letter to be relevant to their trade.
However, after the Commercial Confirmations were executed, when it came time to draft and execute the Assignments of Claim, Finepoint began to exploit the existence of the Lehman letter to try to turn this transaction into a scenario for the Defendants, with Deutsche Bank. assuming all risk.
Specifically, Finepoint took advantage of the fact that the Trade Confirmations: (i) included a statement that the “assignment of claim would contain [] customary representations, warranties, covenants and indemnities, including, for the avoidance of doubt and without limitation, those previously provided by Seller in similar transactions, and also (ii) such example of a “similar transaction” is attached;[]” (which actually reflected a “Claim Participation”, not an Assignment of Claim), which included a statement, clearly inappropriate for this transaction, that “the seller has not received any notice that the Participating Participation is void or voidable or subject to any disqualification, reduction, impairment or objection of any kind. . . .”
Deutsche Bank says it has been harmed by the defendants’ refusal to settle the trade. Deutsche Bank spent millions of dollars to acquire the claims at issue for the sole purpose of selling those claims to the defendants. Defendants’ breach of the Trade Confirmations left Deutsche Bank holding complex, long-term assets on its books that it did not expect to hold for more than a short time. As a result, Deutsche Bank has suffered damages, including but not limited to out-of-pocket expenses, administrative costs, lost opportunity costs, interest and investment losses.
Deutsche Bank contends that these costs and damages, in an amount to be proven at trial, are the direct and immediate result of the defendants’ violations and are in the millions of dollars. Deutsche Bank says it is entitled to cover those losses.