Lehman Bankruptcy Court Rules Safe Harbors Do Not Override Setoff Mutuality Requirement

On May 5, 2009, Judge James Peck, the bankruptcy judge in the Lehman Brothers bankruptcy cases, held that the safe harbor provisions of the Bankruptcy Code do not override the mutuality requirements for setoff under section 553(a) of the bankruptcy Code. As a consequence, the bankruptcy court prohibited Swedbank, a non-debtor counter party to a swap agreement, from setting off pre-petition claims against Lehman against funds collected for Lehman's account post-petition. See In re Lehman Bros. Holdings Inc., Bankr. Case No. 08-13555 (JMP) (Bankr. S.D.N.Y. May 5, 2010) (the "Opinion"). While Swedbank does not involve a triangular setoff, the analysis of the Swedbank court should equally apply to triangular setoff situations (or to any setoff lacking mutuality).