June 27 (Bloomberg) -- A 30-story skyscraper in London’s Canary Wharf financial district continues to haunt the remnants of defunct Lehman Brothers Holdings Inc.
The business hub’s developer, Canary Wharf Group Plc, is seeking a U.S. court order for Lehman’s estate to pay $780 million in back rent and damages over the early departure of the investment bank’s European headquarters in March 2010.
Canary Wharf’s decision nine months later to forfeit the contract and sign a 999-year lease with JPMorgan Chase & Co. as the new tenant didn’t exempt Lehman from its obligations, as Lehman claims, David Tulchin, the developer’s lawyer, said yesterday in a filing in U.S. Bankruptcy Court in Manhattan.
The forfeiture “provides no basis, under English law or common sense, for Lehman to avoid its obligations to indemnify Canary Wharf for its outstanding losses,” Tulchin, of Sullivan & Cromwell LLP in New York, said in the filing.
The dispute is coming to a head as creditors of Lehman and its defunct broker, Lehman Brothers Inc., fight over remaining cash. The parent company in April began paying out about $17.9 billion in the fifth such distribution since filing the biggest bankruptcy in U.S. history at the peak of the financial crisis. Lehman said it expects to make a sixth payout Sept. 30.
Canary Wharf withdrew a threat to vote against Lehman’s liquidation plan and reduced its claims against the bankrupt firm to $780 million from $4.5 billion after Lehman agreed to reserve money to pay the obligations.
Lehman, in return, agreed to put aside enough money to pay “the maximum allowed amount” of the claims, it said in court papers.
Canary Wharf’s chief executive officer, George Iacobescu, and Lehman’s lead negotiator, Frank Bartolotta, both said in depositions in 2013 and 2014 that Lehman would be liable for the lease “no matter what” its subsidiary did, Canary Wharf said in yesterday’s filing.
Lehman contends that Canary Wharf’s forfeiture terminated the defunct bank’s obligations under the lease, according to a May 22 court filing that cited a “centuries old principle of English law” concerning landlords and tenants.
The developer argues the forfeiture was a common-sense step to avoid “massive losses” from Lehman’s early departure, a mitigation of the problem that benefited both sides, Tulchin said in his filing.
“Lehman’s attempt now to use that mitigation transaction as a basis for nullifying its obligations to indemnify Canary Wharf should be rejected,” Tulchin said.
A hearing on the matter hasn’t been scheduled.
Kimberly Macleod, a spokeswoman for Lehman, declined to comment on the dispute.
Lehman, once Canary Wharf’s largest tenant, occupied more than 1 million square feet (93,000 square meters) of office space at London’s 20-25 Bank Street in 2003 on a 30-year lease, court records show. The structure was designed and built for Lehman, Canary Wharf said in court papers.
Lehman has said it expects payouts to third-party creditors to reach at least $80.6 billion before the bankruptcy case is resolved, court records show. That estimate, made public in July, is an increase over the $65 billion recovery projected in the company’s liquidation plan approved in December 2011.
Lehman filed a Chapter 11 petition on Sept. 15, 2008, listing $613 billion in debt, after the New York-based bank failed to win U.S. government aid or attract a buyer.
Harvey Miller, Lehman’s bankruptcy lawyer, estimated in September that recoveries may rise to as much as 22 cents on the dollar as the value of Lehman’s assets increases.
The case is In re Lehman Brothers Holdings Inc., 08- bk-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).