For Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank, SIFMA submitted an Amicus ("Friend of the Court") Brief, prepared by Mayer Brown lawyers, that asks the question re: the Bankruptcy Code:  Should the "in connection with" language (avoidance exemption for swap agreements) and the "related to" language (definition of swap agreement) be read narrowly so as to exclude transfers and agreements which are not expressly provided for in, or do not expressly refer to, the original transaction documents?

    Preliminary Statement.   This case presents another challenge by Lehman Brothers Holdings and affiliates (“Lehman”) to the safe harbors that Congress established, and repeatedly expanded, to encourage market participants, like the defendant in this case, to continue to make key financial markets available to a weakening party, secure in the knowledge that their rights under protected agreements will be respected should the weak party fail. The truly gargantuan liability that Lehman posits well illustrates the systemic risks posed by the unchecked application of avoidance claims. 

Lehman is well aware of the relevant statutory protections and has awkwardly attempted to disguise its claims as falling outside of the financial-agreement safe harbors. Amici curiae The International Swaps and Derivatives Association, Inc. (“ISDA”) and The Securities Industry and Financial Markets Association (“SIFMA”) urge the Court to enforce the plain text of the statute in light of Congress’s clearly expressed intent and to refrain from further constricting the safe harbors.

Other courts have recognized the broad legislative intent behind the financial-contract safe harbors.  The Ninth Circuit, for example, wrote that "[t]he legislative history of the Swap Amendments plainly reveals that Congress recognized the growing importance of interest rate swaps and sought to immunize the swap market from the legal risks of bankruptcy."  Thrifty Oil Co. v. Bank of Am. Nat’l Trust & Sav. Assoc., 322 F.3d 1039, 1050 (9th Cir. 2003) (emphasis added).  The Fourth Circuit, specifically addressing Sections 546(g) and 548(d)(2)(D), emphasized that those safe harbors supersede other bankruptcy policies:  Even though an overarching policy of the Bankruptcy Code is to provide equal distribution among creditors, in enacting 11 U.S.C. §§ 546(g) and 548(d)(2)(D), Congress intended to serve a countervailing policy of protecting financial markets and therefore favoring an entire class of instruments and participants.

Click to continue reading:  [SIFMA Amicus Brief, 2/2]