On March 29, 2016, the Second Circuit Court of Appeals ruled that FirstBank Puerto Rico (“FirstBank”) could not recover from Barclays Capital Inc. (“Barclays”) the securities (“Securities”) pledged by it, in connection with a pre-bankruptcy interest rate swap with a Lehman affiliate (“LBSF”). The Securities were first sold by LBSF to Lehman Brothers Inc. (“Lehman”) pursuant to a contractually authorized pre-bankruptcy transaction, and thereafter sold by Lehman to Barclays, free and clear of liens/claims, pursuant to a Bankruptcy Court authorized sale. The Second Circuit’s short decision affirmed the District Court, which had affirmed the Bankruptcy Court.

The Second Circuit also confirmed: (a) it is the Bankruptcy Court that should resolve this type of bankruptcy sale-related dispute in the first instance; (b) that FirstBank violated the injunction in the Bankruptcy Court’s Sale Order when it sought to side-step the Bankruptcy Court and commenced litigation against Barclays; and (c) the attorneys’ fee sanctions assessed against FirstBank.