## Facts

- American Home Mortgage Investment Corp. (AHMIC), a chapter 11 debtor-in-possession, entered into a Master Repurchase Agreement (MRA) with Lehman Brothers Inc. and Lehman Commercial Paper Inc. (Lehman).
- Under the MRA, AHMIC purchased two subordinated notes secured by mortgage loans totaling about $84,125,000.
- The MRA permitted Lehman to issue margin calls when the notes’ market value declined, requiring AHMIC to post additional collateral.
- AHMIC satisfied an initial margin call but refused a subsequent margin call; Lehman declared a default.
- Shortly after the default notice, AHMIC filed for chapter 11 relief.
- Postpetition, Lehman invoked an ipso facto provision in the MRA, terminated the agreement, and foreclosed/liquidated the collateral.
- AHMIC filed an adversary complaint asserting, among other claims, that (i) the transaction was not a Bankruptcy Code “repurchase agreement,” (ii) Lehman’s postpetition actions violated the automatic stay, and (iii) the liquidation was subject to U.C.C. Article 9 commercial-reasonableness requirements.
- Lehman moved to dismiss most claims under Rule 12(b)(6), arguing the MRA was a qualifying repurchase agreement protected by Bankruptcy Code safe harbors.

## Issues

1. Whether the MRA qualified as a “repurchase agreement” under Bankruptcy Code § 101(47).
2. If so, whether Bankruptcy Code §§ 555 and 559 permitted termination and liquidation notwithstanding the automatic stay and general limits on ipso facto clauses.
3. Whether U.C.C. Article 9 applied to, or limited, Lehman’s foreclosure/liquidation of collateral under the MRA.
4. Whether AHMIC’s non-declaratory counts stated plausible claims for relief under Rule 12(b)(6), including any prepetition contract claim.

## Decision

- The court held the MRA transaction was a “repurchase agreement” within § 101(47).
- The court held Bankruptcy Code §§ 555 and 559 safe harbors applied to Lehman’s exercise of contractual rights.
- The court held Lehman’s postpetition termination and foreclosure under the ipso facto clause did not violate the automatic stay.
- The court held Lehman was not constrained by U.C.C. Article 9 when exercising rights under the ipso facto clause in the qualifying repurchase agreement.
- The court dismissed Counts I–IV for failure to state a claim and dismissed four of five declaratory-judgment requests in Count V; one declaratory-judgment request not challenged by Lehman remained.
- The court dismissed without prejudice the portion of the breach-of-contract count premised on prepetition conduct to permit a more specific pleading of damages.

## Legal Principles

- A transaction may qualify as a Bankruptcy Code “repurchase agreement” under § 101(47) when the parties’ documentation and economic structure reflect a sale with a contemporaneous agreement to repurchase, and the underlying assets fall within the statute (including broadly construed “interests in mortgage loans”).
- For qualifying repurchase agreements, §§ 555 and 559 permit termination, liquidation, and foreclosure rights notwithstanding § 362(a)’s automatic stay and Bankruptcy Code policies disfavoring ipso facto enforcement.
- When a transaction is treated as a qualifying repurchase agreement for Bankruptcy Code safe-harbor purposes, the counterparty’s liquidation/foreclosure may proceed without being subject to U.C.C. Article 9 constraints.
- A debtor-plaintiff must plead sufficient facts, including a plausible damages theory, to survive dismissal under Rule 12(b)(6); conclusory allegations are insufficient.

## Conclusion

The bankruptcy court treated the parties’ MRA as a statutory repurchase agreement and applied §§ 555 and 559 to permit Lehman’s postpetition termination and liquidation under an ipso facto clause without violating the automatic stay or being limited by U.C.C. Article 9, while dismissing most of the debtor’s claims for deficient pleading.


In re Am. Home Mortg. Holdings, Inc. (Am. Home Mortg. Inv. Corp. v. Lehman Bros. Inc.), 388 B.R. 69 (Bankr. D. Del. 2008)