This week around 100 mortgage lenders who had filed a motion to transfer the case with Lehman Brothers Holdings Inc. (LBHI) to a district court, were denied their application by Judge Shelley C. Chapman, who ruled [1] that LBHI could continue to pursue its indemnity claims against these companies in the New York Bankruptcy court.
Dismissing the motion filed by the mortgage sellers to transfer their case to a district court, Chapman ruled that the interest of justice, “which favors centralizing litigation in one forum to (i) avoid duplicative litigation; (ii) save time and expense; and (iii) efficiently administer adversary proceedings based on similar claims weighs heavily here in favor of retaining venue of all of the Adversary Proceedings in this Court.”
“It bears emphasis that multiple federal courts across the country, when confronted with litigation related to the Indemnification Claims, have agreed that this Court is the most appropriate forum to hear these Adversary Proceedings, given its extensive experience with Lehman matters and with the Indemnification Claims in particular,” Chapman said.
The claim filed by LBHI relates to its allegations that these mortgage sellers sold or submitted defective mortgage loans into LBHI’s loan sale and securitization channels. LBHI claims that it has the right to a third-party indemnification claim against them for its liability to Fannie Mae and Freddie Mac. The company had settled with the GSEs in 2014
“Specifically, the Complaints allege that it was Defendants’ breaches of the representations, warranties, and/or covenants under the Agreements that caused LBHI to have to compensate the GSEs pursuant to agreements between LBHI and the GSEs that contained representations, warranties, and/or covenants co-extensive with those contained in the Agreements,” Chapman wrote in her 115-page opinion on the matter.
Giving a background of the case Chapman said that pursuant to LBHI’s agreement to settle with Fannie Mae and Freddie Mac in 2014, the Plan Administrator for LBHI’s bankruptcy case had identified over 11,000 loans and over 3,000 potential counterparties against which LBHI “allegedly held third-party contractual claims for indemnification and/or reimbursement by virtue of the GSE settlements.”
To manage this volume of claims, the court had authorized the Plan Administrator to implement a pre-litigation mediation protocol with the sellers from which it sought indemnification.
“To further facilitate its pursuit of recoveries from those Sellers with whom mediation was unsuccessful, the Plan Administrator initiated adversary proceedings in this Court, including those at issue here, against more than one hundred Sellers (including the Defendants) in tandem with six previously-filed adversary actions,” Chapman wrote.
Read more about Chapman’s opinion on the LBHI RMBS Suit: