In re Lehman Bros. Holdings Inc., Case No. 08–13555(SCC)

544 B.R. 62

In re: Lehman Brothers Holdings Inc., et al., Debtors.

Case No. 08–13555(SCC)

United States Bankruptcy Court, S.D. New York.

Signed December 29, 2015

WEIL, GOTSHAL & MANGES LLP, 767 Fifth Avenue, New York, NY 10153, By: Ralph I. Miller, Esq., Jacqueline Marcus, Esq., Attorneys for Lehman Brothers Holdings Inc.

KAYE SCHOLER LLP, 250 West 55th Street, New York, NY 10019, By: Madlyn Gleich Primoff, Esq., Attorneys for Spanish Broadcasting System, Inc.

MEMORANDUM DECISION GRANTING PLAN ADMINISTRATOR'S MOTION FOR SUMMARY JUDGMENT REGARDING CLAIM 67707 FILED BY SPANISH BROADCASTING SYSTEM, INC.

SHELLEY C. CHAPMAN, UNITED STATES BANKRUPTCY JUDGE

Before the court is the Motion of Lehman Brothers Holdings Inc. ("LBHI"), as Plan Administrator under the Modified Third Amended Joint Chapter 11 Plan of Lehman Brothers Holdings Inc. and its Affiliated Debtors, for Summary Judgment Regarding Claim 67707 Filed by Spanish Broadcasting System, Inc. (the "Motion") [ECF No. 50032].

Spanish Broadcasting System, Inc. ("Spanish Broadcasting") filed proof of claim number 67707 (the "Claim") against Lehman Commercial Paper Inc. ("LCPI") on November 3, 2011. See LBHI Facts¹ Ex. B. The Claim amends proof of claim number 15941, filed on September 18, 2009.² The Claim arises from that certain Credit Agreement, dated as of June 10, 2005, among Spanish Broadcasting, as borrower; LCPI, as lender and administrative agent; and certain other lenders (the "Credit Agreement"). See LBHI Facts Ex. C. By the Claim, Spanish Broadcasting seeks damages of $55,462,228.33 allegedly arising from the failure of LCPI, as lender under the Credit Agreement, to fund $10 million pursuant to a draw request made by Spanish Broadcasting on October 3, 2008. On July 10, 2012, LBHI, as Plan Administrator, objected to the Claim via its Three Hundred Twenty–Eighth Omnibus Objection to Claims (No Liability Claims) [ECF No. 29323] (the "Claims Objection").

On February 13, 2013, at a "Sufficiency Hearing"³ on the Claim, the Honorable James M. Peck,⁴ declined to disallow the Claim.⁵ Thereafter, pursuant to a Claims Litigation Schedule with Respect to Claim No. 67707 Filed by Spanish Broadcasting System, Inc. and the Objection Interposed by Lehman Brothers Holdings Inc. [ECF No. 46498] (the "Scheduling Order"), as amended, the parties engaged in a discovery process. At an April 27, 2015 discovery conference before the Court, LBHI proposed that it should be permitted to file a summary judgment motion on the issue of whether section 10.12(e) of the Credit Agreement, which comprised a waiver by Spanish Broadcasting of "any special, exemplary, punitive or consequential damages," survived termination of the Credit Agreement pursuant to that certain payoff letter, dated February 7, 2012 between LCPI and Spanish Broadcasting (the "Payoff Letter"). LBHI Facts Ex. C § 10.12(e); Miller Decl.⁶ Ex. 4. The parties subsequently exchanged discovery with respect to the negotiation of the Payoff Letter, and, on May 22, 2015, the Court entered a Stipulated Order Regarding Briefing Schedule Regarding Claim 67707 of Spanish Broadcasting System, Inc. [ECF No. 49706], thereby granting LBHI's request to file the Motion.

In accordance with the terms of the parties' agreement, LBHI filed the Motion together with a Memorandum of Law of Lehman Brothers Holdings Inc. in Support of Motion for Summary Judgment Pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure Regarding Claim 67707 [ECF No. 50033] on June 26, 2014. Spanish Broadcasting filed its Memorandum of Law in Opposition to Motion by Lehman Brothers Holdings Inc. for Summary Judgment Pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure Regarding Claim 67707 Filed by Spanish Broadcasting System, Inc. [ECF No. 50415] (the "Opposition") on July 23, 2015. LBHI filed a Reply Memorandum of Law in Further Support of Motion for Summary Judgment Pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure Regarding Claim 67707 Filed by Spanish Broadcasting System, Inc. [ECF No. 50596] (the "Reply") on August 13, 2015. The Court heard oral argument on September 21, 2015, at which time it took the matter under advisement.

For the reasons set forth in this Memorandum Decision, the Court will grant the Motion. Accordingly, the Claim, to the extent not already withdrawn, and with the exception of the Fee Damages (as defined below), shall be disallowed and expunged from the claims register.

I. Factual Background

A. Credit Agreement

The Credit Agreement, pursuant to which LCPI served as administrative agent and as lender, provided for a term loan of $325 million (the "Term Loan") and a revolving credit facility of $25 million (the "RCF"), which Spanish Broadcasting could draw upon at its election following closing. LBHI Facts ¶¶ 2, 3. LCPI was committed to fund $10 million of the $25 million RCF. LBHI Facts ¶ 4. The lenders under the Credit Agreement, including LCPI, fully funded the Term Loan in the amount of $325 million on June 10, 2005. LBHI Facts ¶ 10. Section 2.5(b) of the Credit Agreement required Spanish Broadcasting to submit a draw request on the RCF one business day prior to the borrowing date of the proposed loan. LBHI Facts Ex. C § 2.5(b). The Credit Agreement further provided, in section 10.12(e) (the "Damages Waiver"), that

[Spanish Broadcasting] hereby irrevocably and unconditionally ... waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding [relating to the Credit Agreement or other loan documents] any special, exemplary, punitive or consequential damages.

LBHI Facts Ex. C § 10.12(e).

B. Swap Agreement

On or about June 28, 2005, Spanish Broadcasting entered into a 1992 form ISDA Master Agreement and schedule governing swap transactions (the "Master Agreement") with Lehman Brothers Special Financing Inc. ("LBSF"). See Miller Decl. Ex. 3. On June 29, 2005, Spanish Broadcasting and LBSF entered into a confirmation whereby LBSF agreed to pay Spanish Broadcasting a floating rate of interest on a notional principal amount of $324,187,500 (which amount would decline by amortization payments through June 2010), and Spanish Broadcasting agreed to pay LBSF a fixed rate of 4.23% on the same notional principal amount (the "Swap"). See id.

LBHI served as Credit Support Provider under the Master Agreement. Id. at Sched. Pt. 4(g). On September 15, 2008, LBHI and certain of its subsidiaries⁷ each filed a voluntary petition under chapter 11 of title 11 of the United States Code. See ECF No. 1. LBHI's bankruptcy entitled Spanish Broadcasting to terminate all outstanding transactions under the Master Agreement, including the Swap. Miller Decl. Ex. 3 §§ 5(a)(vii), 6. Spanish Broadcasting, however, did not terminate the Swap until June 17, 2010, upon its entry into that certain Hedge Amendment and Settlement Agreement with LBSF. LBHI Facts Ex. D at 1. Spanish Broadcasting estimates that, had it terminated the Swap on October 3, 2008, the date of the Draw Request (as defined below), Spanish Broadcasting would have owed LBSF a close-out payment of $6,008,991.58. Garcia Decl.⁸ ¶ 31. When Spanish Broadcasting ultimately terminated the Swap on June 17, 2010, it paid a close-out payment of $10,311,965.00. Id.

C. LCPI's Failure to Fund

As of September 30, 2008, Spanish Broadcasting held approximately $34 million in cash. Garcia Decl. ¶ 13. At that time, Spanish Broadcasting was guarantor under a note, dated January 4, 2007, between SBS Miami Broadcast Center, Inc. and Wachovia Bank (the "MBC Guaranty"). Id. ¶ 11, Ex. F. Under the terms of the MBC Guaranty, as of September 30, 2008, Spanish Broadcasting was required to hold $8.5 million in cash. Id. ¶ 11, Ex. F at 6; that requirement left Spanish Broadcasting with $25.5 million of available cash on September 30, 2008. Id. ¶ 13.

At that time, the impending obligations of Spanish Broadcasting included (i) the maturity of its obligations under a secured promissory note, dated March 1, 2006, among Spanish Broadcasting, as maker, and BC Medic Funding Company II, LLC, as holder and assignee (the "Mega TV Note") in the amount of $18.5 million; (ii) a $5 million interest payment on the Term Loan payable in December 2008; and (iii) a $2.5 million dividend on preferred stock, payable in cash or in kind at Spanish Broadcasting's discretion. Opp'n at 7; Garcia Decl. ¶ 13.

On October 3, 2008, Spanish Broadcasting submitted a draw request for the full amount of the $25 million RCF (the "Draw Request"). Miller Decl. Ex. 1. Spanish Broadcasting intended to use the funds, plus a portion of cash on hand, to (i) pay off the $18.5 million Mega TV Note; (ii) terminate the Swap with LBSF and make a close-out payment of approximately $6 million; (iii) fund $4 million in advertising and marketing expenses; and (iv) pay the $5 million December 2008 interest payment on the Term Loan. Garcia Decl. ¶ 14. The Draw Request stated that the borrowing date for the proposed $25 million loan would be October 6, 2008. Id. As noted, LCPI commenced its chapter 11 case on October 5, 2008; it did not fund its $10 million portion of the Draw Request. See Miller Decl. Ex. 2. As administrative agent, LCPI facilitated the funding of the $15 million due from other lenders to Spanish Broadcasting. Id. Thus, Spanish Broadcasting received $15 million of the $25 million it requested pursuant to the Draw Request.

D. The Claim and Damages Alleged

The Claim seeks damages of $55,462,228.33. LBHI Facts Ex. B. Spanish Broadcasting filed the Credit Agreement and a report of Capstone Advisory Group, LLC (the "Capstone Report"), Spanish Broadcasting's financial advisor, as exhibits to the Claim. LBHI Facts Exs. C, D. According to the Capstone Report, Spanish Broadcasting's asserted damages are comprised of the following:

• 39.6 million in damages stemming from the expected decline in Spanish Broadcasting's "total invested capital ... as defined by the market value of common equity,

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