S&C Registers Trial Win for Barclays in New York State Supreme Court

December 7, 2018

On December 7, Justice Bransten of the Commercial Division, New York State Supreme Court, issued her decision after the bench trial in BDC Finance LLC v. Barclays Bank PLC, finding that S&C client Barclays Bank PLC (Barclays) is not liable to BDC Finance LLC (BDC) on BDC's breach-of-contract claims. The decision is a total victory for Barclays on a claim for which BDC was seeking hundreds of millions of dollars.
In 2005, Barclays and BDC entered into a “total return swap” agreement pursuant to which BDC obtained from Barclays the economic performance (i.e., the total return) of certain financial instruments, primarily comprised of high-yield corporate debt, that were held by Barclays. In 2008, the facility covered more than $1 billion in assets.
In October 2008, in the midst of the financial crisis and after a series of disputes about the requisite amount of collateral, BDC and Barclays exchanged competing collateral calls based on different valuation methodologies. After several days of escalating communications and exchanging collateral payments, BDC claimed that Barclays had defaulted under the agreement and initiated an action against Barclays for breach of contract.
Years of litigation followed, after which the parties filed cross-motions for summary judgment that resulted in a 2012 decision finding for Barclays on one of BDC's theories and otherwise denying the motions. Both parties appealed to the First Department, which in 2013 issued a 3-2 decision reversing the Supreme Court's decision and granting summary judgment to BDC on liability. Barclays then sought and was granted permission to appeal to the Court of Appeals. In a unanimous opinion, the Court of Appeals reversed and remanded for trial the disputed issue of whether Barclays' $5 million collateral payment gave BDC the full benefit of the amount BDC was owed.
After remand and briefing on the proper scope of trial, Justice Bransten ordered a trial on a limited set of issues left open by the Court of Appeals' decision. The parties then briefed the proper scope of trial, and Justice Bransten ordered a trial on a limited set of issues left open by the Court of Appeals' remand. In that April 2017 two-day bench trial, BDC and Barclays called three witnesses and addressed the issues set forth in Justice Bransten's order.
In the December 7 decision, the Court found for Barclays on every disputed issue. Justice Bransten concluded that Barclays' $5 million payment constituted substantial compliance under the parties' agreement, even though the payment was $80,000 short and one day late. Adopting the arguments made in Barclays' briefs, Justice Bransten found, among other things, that the transfer was timely because it was made within the agreement's two-day cure period and time was not of the essence in paying the undisputed amount of a collateral call.
The Court found that Barclays' witness showed that the delay in Barclays' payments was “a mere oversight,” which weighed in favor of the finding that Barclays' transfer constituted substantial compliance. Justice Bransten found the testimony of BDC's COO about the materiality of the one-day delay and shortfall during the financial crisis to be “purely self-serving” and contradicted by BDC's actual behavior. The Court drew particular attention to the testimony of BDC's former Treasurer, quoting extensively her cross-examination by Jeffrey Scott before rejecting that testimony “in its totality” as “unresponsive, uninformative, cagey, and basically incredible.”
Justice Bransten concluded in her decision that Barclays is not liable to BDC on its breach-of-contract claims. As a result, BDC cannot seek the return of what it asserted was the total amount of withheld collateral ($298 million) plus interest that BDC contended should be compounded at a 15.6 percent annual rate. Barclays now has the option to proceed on its counterclaims and contractual right to attorneys' fees.
The S&C team was led by Marc De Leeuw and Jeffrey Scott.