Firm Obtains District Court Ruling Denying Mortgage Loan Sellers' Effort to Challenge Bankruptcy Jurisdiction Over Lehman's Indemnification Claims

The Firm represents Lehman Brothers Holdings Inc. (“Lehman”) in seeking to obtain contractual indemnification from more than 100 defendants that sold defective mortgage loans to Lehman’s affiliate, and that Lehman subsequently sold to The Federal National Mortgage Association (“Fannie Mae”) or The Federal Home Loan Mortgage Corporation (“Freddie Mac”). In early 2014, the Bankruptcy Court approved Lehman’s multi-billion dollar settlements with Fannie Mae and Freddie Mac concerning defective loans that Lehman sold to Fannie Mae and Freddie Mac.

In 2016, Lehman filed an omnibus adversary proceeding in the Bankruptcy Court against more than 100 mortgage loan sellers, seeking contractual indemnification for the amounts Lehman paid to Fannie Mae and Freddie Mac, based upon the defective loans that defendants sold to Lehman’s affiliate. Many of the mortgage loan sellers filed a motion (i) challenging the bankruptcy court’s jurisdiction over Lehman’s indemnification claims and the adversary proceedings, and (ii) disputing that venue for the proceedings was appropriate in the bankruptcy court.

On August 13, 2018, the Bankruptcy Court (Chapman, J.) denied the defendants’ motion to dismiss and held that it had subject matter jurisdiction over Lehman’s indemnification claims and the adversary proceedings. The Bankruptcy Court also denied the defendants’ motion to dismiss on the basis of improper venue.

On May 8, 2019, the United States District Court for the Southern District of New York (Caproni, J.) denied the mortgage loan sellers’ motion for leave to appeal the Bankruptcy Court’s August 13, 2018 Order, and also denied a separate motion to treat the Order as proposed findings of fact and conclusions of law, and thus subject the Order to immediate de novo review. The District Court held that “[t]he Bankruptcy Court’s ruling as to subject-matter jurisdiction does not provide a ‘substantial ground for difference of opinion.’”

Following these two favorable jurisdictional rulings, Lehman’s contractual indemnification claims against the mortgage loan sellers continue to be litigated by the Firm on behalf of Lehman in the Bankruptcy Court.

A copy of the Bankruptcy Court’s Decision and a copy of the District Court’s Opinion and Order are attached.