Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
Former Lehman Brothers and Barclays star trader Jonathan Hoffman will be able to assert a claim against Lehman’s bankruptcy estate for $7.7 million of unpaid bonuses, the Second Circuit Court of Appeals ruled July 27. But the court otherwise left intact the district court’s finding that $83 million of bonus had already been paid by Barclays, and Hoffman wouldn’t be allowed to seek that compensation in Lehman’s bankruptcy case ( 1EE LLC v. Giddens ( In re Lehman Bros. Holdings Inc.) , 2017 BL 260154, 2d Cir., 16-2737, 7/27/17 ).
The summary, non-precedential order by the court also found that former employee Wayne Judkins was paid his entire promised bonus by Barclays and wouldn’t be able to pursue the bankruptcy case for the same award.
In the fall of 2008, Lehman Bros. filed what remains one of the largest and most consequential business bankruptcies in U.S. history. Almost immediately after the filing, Barclays acquired most of Lehman’s assets and employed many of the company’s employees, including Hoffman and Judkins. Barclays agreed to pay those transferred employees the bonuses promised by Lehman.
Hoffman garnered some notoriety when he sought to recover from the Lehman bankruptcy case about $83 million of bonuses owed him when Lehman filed its bankruptcy case in 2008, even though Barclays paid him the amounts as they agreed in the asset purchase agreement. Hoffman argued that what Barclays paid was independently negotiated compensation and didn’t absolve Lehman of its debt to pay the bonus.
The bankruptcy court conducted hearings and determined that Barclays paid the majority of Hoffman’s bonus claim—all but a $7.7 million “claw back” for 2007—and all of Judkin’s $800,000 bonus.
On appeal, the district court ruled that Hoffman can’t pursue the $7.7 million claw-back either.
The Second Circuit returned the decision to that made by the bankruptcy court. The bankruptcy court found that the $7.7 million obligation was not assumed by Barclays in its asset purchase agreement, meaning Barclays had no obligation to pay it. The circuit court found no error in that determination.
Accordingly, Hoffman can pursue a claim in the bankruptcy case to recover the $7.7 million. But Hoffman gets no second bite at the apple as to the $83 million of bonuses that Barclays paid him.
The panel consisted of Circuit Judges Dennis Jacobs and Debra Ann Livingston, and District Judge George B. Daniels, sitting by designation.
The appellant assignee for Hoffman was represented by Douglas P. Baumstein, White & Case LLP, New York and Thomas M Mullaney, New York. Gregory L. Reid, Reid Rodriguez & Rouse, LLP, represented Judkins.
The liquidation trustee was represented by James C. Fitzpatrick, Hughes Hubbard & Reed LLP, New York.
To contact the reporter on this story: Daniel Gill in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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