• Lehman Bankruptcy Court Rules on Right to Withhold Payment under ISDA Master Agreement
  • October 6, 2009
  • Law Firm: Sutherland Asbill & Brennan LLP - Washington Office
  • On September 17, 2009, the U.S. Bankruptcy Court for the Southern District of New York granted Lehman Brothers Special Financing Inc.'s (LBSF, and collectively with its affiliates, Lehman) Motion to compel performance of Metavante Corporation's (Metavante) obligations under an executory contract and to enforce the automatic stay (the Motion). The Order requires Metavante to make all payments to LBSF required under the ISDA Master Agreement (Master Agreement) between the parties, including payments suspended as a result of the bankruptcy filing, together with default interest on such payments. Metavante withheld its payments in reliance on § 2(a)(iii) of the Master Agreement, which imposes a condition precedent that no Event of Default exist before a party is obligated to make any payment or delivery. Metavante argued that Lehman's bankruptcy filings constituted Events of Default and therefore allowed suspension of Metavante's payment obligations. In an oral statement accompanying the ruling, the Court found that Metavante's reliance on the condition precedent language in § 2(a)(iii) of the Master Agreement violated § 365(e)(1) of the Bankruptcy Code's prohibition of any termination or modification of a contract due to the debtor's bankruptcy filing, so-called ipso facto clauses.