Bank of America Ordered to Repay More than $500 Million Seized from Lehman Accounts

On November 16, 2010, the Bankruptcy Court in the Southern District of New York decided Bank of America, N.A. v. Lehman Brothers Holdings, Inc., et al., 08-1753 (the “BofA Proceeding”). It (i) granted summary judgment for Lehman Brothers Holdings, Inc. (“LBHI”), Lehman Brothers Special Financing (“LBSF,” collectively with LBHI and LBHI’s other affiliates and subsidiaries, “Lehman”) and Quinn Emanuel client, the Official Creditors Committee of LBHI and its affiliated debtors (the “Committee”), (ii) denied Bank of America’s cross-motion for summary judgment, and (iii) directed Bank of America to return $501.8 million plus interest to the debtors’ estates for the benefit of creditors. The ruling should put all creditors on notice of the inherent risks in taking self-help measures against a debtor after a bankruptcy stay has issued.

Prior to LBHI’s Chapter 11 filing, Bank of America served as one of Lehman’s clearing banks. Lehman incurred intra-day overdrafts as funds came in and went out of the account. To the extent there were overdrafts during the business day, Bank of America was essentially extending unsecured credit to Lehman with the expectation that any overdrafts would be eliminated by the end of the business day.