Treasurer wins legal battle with Lehman Brothers bank

The treasurer's office has won its legal battle with the bankrupt Lehman Brothers Commercial Bank, saving the state up to $30 million.

When the bank declared bankruptcy in October 2008, Nevada Treasurer Kate Marshall canceled the state contract and stopped making debt service payments to the bank. The bank responded by suing, demanding $30 million as a termination penalty payment.

Marshall refused, saying the contract was lawfully terminated in accordance with its terms since the bank failed to assign the contract to a qualified provider after its credit ratings were downgraded. The contract was contingent on the bank maintaining a certain credit rating, which it couldn't once it went into bankruptcy.

In a two-page order issued July 25, Carson District Judge James Wilson agreed and granted summary judgment in favor of the state.

"As of October 24, 2008, Board of Finance and the treasurer are entitled to cease all future deliveries of debt service monies to the trustee," Wilson wrote in his order.

Since the dispute, Marshall said she has been putting the payments Lehman claimed it was entitled to in an escrow account in case the court case went against the state. That money, now over $2.1 million, she said, is now available for the state.

That money, she said, is interest earned by not giving the money to the bank over the past four years.

In addition, the state won't have to pay the rest of the $30 million Lehman demanded for terminating the contract.

Lehman, however, still could appeal the ruling to the Nevada Supreme Court. No notice of appeal had been filed as of Wednesday.

When Lehman went bankrupt, Nevada lost an estimated $50 million.

Marshall said she still is working to recover as much of that as possible. She said the biggest chunk came by holding onto the state's interest in Lehman instead of liquidating it immediately after the bankruptcy was filed. Marshall said the state would have received just 10 cents on the dollar. By holding out, she said the federal court finally ordered the state get 33 cents on the dollar - more than $17 million.