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The U.S. Circuit Court of Appeals for the Second Circuit ruled yesterday that Barclays Plc is entitled to about $6 billion of disputed assets as part of its hurried purchase of much of Lehman Brothers Holdings Inc.’s brokerage unit at the height of the 2008 financial crisis, Reuters reported yesterday. The decision is a setback for the brokerage's creditors, including Lehman affiliates and hedge funds, for whom the trustee James Giddens has been seeking to recoup money. Lehman had been Wall Street's fourth-largest investment bank. It had $639 billion of assets when it filed for chapter 11 protection on Sept. 15, 2008, making its bankruptcy by far the biggest in U.S. history. Barclays won court approval to buy much of Lehman's brokerage business at a Sept. 19, 2008 hearing overseen by U.S. Bankruptcy Judge James Peck in Manhattan. A dispute remained, however, over how to dispose of various "cash" assets of the brokerage. These included about $4 billion of margin assets held by third parties to support a Lehman exchange-traded derivatives business, and $1.9 billion of "clearance box" assets used to process securities trades.

A a judge yesterday ordered the Archdiocese of Milwaukee must come up with $1.35 million to pay lawyers involved in its ongoing bankruptcy case, at least a portion of the many more millions they're owed, the Milwaukee Journal Sentinel reported today. The lawyers and other professionals involved haven't been paid since the archdiocese won a suspension of payments more than a year ago, saying that it barely had enough money to continue operations. Bankruptcy Judge Susan V. Kelley at a hearing yesterday also granted the archdiocese's request Tuesday to return the case to mediation for a possible consensual resolution to the long, complex and fractious proceeding. Judge Kelley gave the parties 28 days to submit statements for the mediator, who ideally would begin the process in early September. A prior mediation effort in 2012 failed to reach a settlement.

After California and New York courts in June and July tossed out “unfinished business” claims by trustees of failed firms against former partners and the firms they fled to, all eyes are now fixed on the outcome of a hearing today in the one remaining large firm bankruptcy where such claims are still being fought: the Howrey chapter 11 proceeding, American Lawyer reported today. A decision by U.S. Bankruptcy Judge Dennis Montali on a motion to dismiss could go one of two ways: provide trustees outside New York with a new path forward to press such suits, or put the last nail in the coffin on such litigation nationally. Unfinished business claims have cropped up in every major law firm bankruptcy over the past decade, from Coudert Brothers to Dewey & LeBoeuf. Most are based on precedent established in 1984 in the California case Jewel v. Boxer, which allowed trustees to claw back profits owed from unfinished matters that former partners took with them when they joined other firms. A 2008 decision by Judge Montali in the liquidation of Brobeck in 2003 affirming the applicability of Jewel v. Boxer emboldened trustees nationally to go after those firms. Judge Montali held that at the time of Brobeck's dissolution, partners owed the estate profits from unfinished matters, even though they had signed a waiver of that duty. Judge Montali found that the waiver constituted a fraudulent transfer of Brobeck property under bankruptcy laws. In New York in 2012, one federal district judge also sided with trustees that unfinished business belongs to the liquidated firm.

Federal bankruptcy officials asked a federal judge to dismiss the chapter 11 application for protection from creditors filed by Sherman Industry Inc., a geothermal heating and cooling installation company that lost licenses to operate on Long Island after dozens of consumer complaints, Newsday reported today. As an alternative to dismissal, the office of U.S. Trustee William K. Harrington asked Bankruptcy Judge Alan S. Trust yesterday to convert the filing to chapter 7. The application filed in federal court in Central Islip, N.Y., by an attorney for the U.S. trustee said, "Since the filing of this chapter 11 case, the debtor [Sherman] has failed to provide any financial information to the United States trustee...[and] has failed to demonstrate to the court and the trustee that it has either the means or the desire to proceed toward a successful reorganization."

The federal judge who sentenced Bernard Madoff to 150 years in prison in 2009 ruled against an apparently phony request to disqualify prosecutors and dismiss criminal charges against the con man, Bloomberg News reported yesterday. U.S. Circuit Judge Denny Chin denied a rambling one-page motion brought in Madoff’s name by a federal convict who’s filed hundreds of frivolous lawsuits in U.S. courts, including many claiming that the government used mind control against him. The case is U.S. v. Madoff , 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).

Efforts to cap the amount of interest due to U.S. bondholders of Nortel Networks Ltd. are a "blatant attempt" to "subvert" the priority of debtholders in bankruptcy cases, Nortel's U.S. bondholders argue in new legal filings, Dow Jones Daily Bankruptcy Review reported today. Canada's Globe and Mail reported an ad hoc group of U.S. bondholders and debenture trustees filed court submissions on Tuesday, arguing that they deserve to be paid the contractual amount of interest that has accrued on $4.1 billion (U.S.) of outstanding bonds since Nortel filed for bankruptcy protection in 2009 — an amount estimated to be worth $1.6 billion and climbing.

Former executives and officers of sandwich chain Quiznos are suing several Quiznos-related entities that didn't file for bankruptcy, demanding the entities defend them in litigation being promised by former Quiznos owners Avenue Capital Management and Fortress Investment Group LLC, Dow Jones Daily Bankruptcy Review reported today. This lawsuit brought by Quiznos founder Richard Schaden, former board members, a former chief executive and a former chief financial officer says that the entities agreed to pay in advance for legal fees and costs associated with defending their work for Quiznos, according to the lawsuit filed Friday with the Delaware Chancery Court.

Diamond McCarthy LLP is suing a former partner, who Diamond McCarthy says unjustly pocketed a $1.4 million fee for her work as Dreier LLP’s bankruptcy trustee, the Wall Street Journal reported today. Sheila Gowan, a former federal prosecutor in New York, began unwinding Ponzi-scheme operator Marc Dreier’s law firm in December 2008 while working as a partner at Diamond McCarthy. She moved to Sadowski Fischer PLLC in February 2013 and took the assignment with her, concluding work on the case in May when Dreier’s creditor-repayment plan went into effect. In a suit filed earlier this month in Texas state court, Diamond McCarthy says that it is entitled to much of the $1.4 million because its partnership agreement requires all fees earned by its lawyers, including as a bankruptcy trustee, to flow back to the firm. The firm says that it brought the suit “with considerable regret and only after potential avenues of compromise reached an impasse.”

The liquidating trustee of defunct law firm Dewey & LeBoeuf is arguing that his clawback suit against two former firm leaders should not be stayed while they face criminal charges because there is little overlap between the criminal and bankruptcy cases — and because every delay diminishes recovery for creditors, the New York Law Journal reported today. "The trustee's urgency in pursuing these claims is heightened by the real risk that [Joel Sanders and Stephen DiCarmine's] assets will dry up while they scramble to defend themselves against the criminal charges and other potential lawsuits," trustee Alan Jacobs said in court papers filed on July 4. Jacobs is seeking more than $21.8 million from Sanders, the firm's former CFO, and DiCarmine, former executive director, in Jacobs v. DiCarmine, 13-01765. Jacobs claims that the former executives' employment contracts awarded them exorbitant compensation that required nothing in return. Meanwhile, Sanders and DiCarmine are also facing criminal charges that they defrauded and stole from the firm's lenders, investors and others. They have pleaded not guilty.
http://www.newyorklawjournal.com/home/id=1202662172414?kw=Dewey%20Trust…

In related news, three former top executives at Dewey & LeBoeuf, charged by New York prosecutors with breaking the law in a failed bid to keep the struggling law firm afloat, contend they always intended to pay back the firm’s lenders and bond investors, New York Times DealBook blog reported today. The three defendants said that the criminal charges against them should be dismissed because they lacked the intent to deprive the law firm’s creditors of their money. The defendants also said that that they did not understand “complex, arcane and nuanced accounting rules.” A joint motion filed on Friday to dismiss the charges argues that prosecutors working for the Manhattan district attorney, Cyrus R. Vance Jr., are making “scapegoats” out of the defendants: Steven Davis, Dewey’s former chairman; Stephen DiCarmine, the firm’s former executive director; and Joel Sanders, the former chief financial officer.
http://dealbook.nytimes.com/2014/07/14/former-dewey-executives-seek-dis…

Philip Falcone’s LightSquared Inc. settled a fight with Dish Network Corp. Chairman Charles Ergen over more than $1 billion in debt he holds in the bankrupt wireless broadband company, taking it one step closer to exiting court protection, Bloomberg News reported yesterday. Details of a new chapter 11 plan will be filed within a week, Joshua Sussberg, a lawyer for a special committee of LightSquared, told Bankruptcy Judge Shelley Chapman at a court hearing yesterday. A dispute between the company and Ergen, its one-time suitor, scuttled a prior plan to reorganize. The deal with Ergen, which has yet to be completed, “will alleviate a significant burden and execution risk around the plan,” Sussberg said.