Lehman Motion Against Appointment of Examiner

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WEIL, GOTSHAL & MANGES LLP767 Fifth AvenueNew York, New York 10153Telephone: (212) 310-8000Facsimile: (212) 310-8007Harvey R. MillerLori R. FifeShai Y. WaismanAttorneys for Debtorsand Debtors in Possession

UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK-------------------------------------------------------------------x:In re : Chapter 11:LEHMAN BROTHERS HOLDINGS INC.,

et al.

, : Case No. 08-13555 (JMP):Debtors. : (Jointly Administered)::-------------------------------------------------------------------xDEBTORS’ RESPONSE IN OPPOSITION TO THE MOTION OF THE NEW YORKSTATE COMPTROLLER FOR THE APPOINTMENT OF A TRUSTEEOR, IN THE ALTERNATIVE, AN EXAMINER WITH EXPANDED POWERS

TO THE HONORABLE JAMES M. PECKUNITED STATES BANKRUPTCY JUDGE:The response in opposition of Lehman Brothers Holdings Inc. (“LBHI”) and itsaffiliated debtors and as debtors in possession, (the “Debtors” and, collectively with their non-debtor affiliates, “Lehman”), to the motion of New York State Comptroller (the “Comptroller”)for Appointment of a Trustee or, in the Alternative, an Examiner with Expanded Powers (the“Motion”), dated November 4, 2008, and respectfully represents:

Preliminary Statement

1.

There is no basis for the appointment of a trustee in these chapter 11 cases.The Comptroller has failed to provide an iota of credible evidence to establish cause for the

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2appointment of a trustee or that such an appointment would be in the interests of the economicstakeholders of the Debtors’ estates, particularly in the perspective that the Debtors haveacknowledged that the appointment of an examiner under section 1104(b) of the BankruptcyCode to conduct such investigation of the Debtors and their affairs, as the Court may determineto be appropriate, is imminent.2.

The Comptroller’s reliance upon unsubstantiated hyperbole of media reportsand unfounded rumors does not establish cause or that the interests of the administration of theDebtors’ estates require the appointment of a trustee. The Comptroller’s motion for theappointment of a trustee should be denied.

Cause Does Not Exist for theAppointment of a Chapter 11 Trustee

3.

The Comptroller’s motion is fatally defective. In lieu of credible evidence,the Comptroller has resorted to unfounded accusations, rumors and gross speculation to accusethe Debtors’ management, and in particular, the Chairman and former Chief Executive Officer,Richard S. Fuld, with gargantuan misconduct, incompetence and mismanagement without asingle shred of substantive supporting proof. The Comptroller fails to recognize that Lehmanwas a victim of a financial tsunami that was beyond its control. The Comptroller blithely ignoresthat under the long term leadership of Mr. Fuld, Lehman had become one of the premierindependent investment banking concerns in the world and had steadily provided significantreturns to its investors, employees and shareholders. Likewise, the Comptroller is oblivious tothe critical facts that caused the financial meltdown that engulfed Lehman and, generally, thefinancial markets, including,

inter alia

, the failure of government authorities to appropriatelyregulate and oversee financial markets and the deficiencies of rating agencies. The unsupported

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3blunderbuss accusations of the Comptroller are insufficient to establish cause under theBankruptcy Code.4.

Section 1104(a) of the Bankruptcy Code provides, in relevant part, that –(a) At any time after the commencement of the case but beforeconfirmation of a plan, on request of a party in interest or theUnited States trustee, and after notice and a hearing, the court shallorder the appointment of a trustee –(1) for cause, including fraud, dishonesty, incompetence, or grossmismanagement of the affairs of the debtor by currentmanagement, either before or after the commencement of the case.11 U.S.C. §1104(a).5.

In

In re Smart World Tech., LLC

, 423 F.3d 166, 176 (2d Cir. 2005), theCourt of Appeals stated unequivocally that the appointment of a chapter 11 trustee is an“extraordinary remedy.” Indeed, it is the strong presumption underlying section 1104(a) of theBankruptcy Code and the applicable principles of law that unless there is a clear and convincingshowing of credible evidence establishing cause, the appointment of a trustee should be denied.

See, e.g., In re Marvel Entm’t Group, Inc.

, 140 F.3d 463 (3d Cir. 1996);

In re Ionosphere Clubs, Inc.

, 113 B.R. 164, 168 (Bankr. S.D.N.Y. 1990) (citing H.R. Rep. No. 595, 95th Cong., 1st Sess.220 (1977), U.S. Code Cong. & Admin. News 1978, pp. 5787, 6179, 6180).6.

The burden is on the Comptroller to demonstrate by “clear and convincingevidence” that cause exists to appoint a trustee in these cases.

In re The 1031 Tax Group, LLC

,374 B.R. 78, 85 (Bankr. S.D.N.Y. 2007). It is a very substantial burden that cannot be satisfiedby speculation and unsubstantiated hyperbole. The difficulty of sustaining such burden isdemonstrated by the extensive cases reflecting the denial of motions for the appointment of atrustee in similarly large and complex cases beset by similarly unfounded assertions of cause.

See In re Adelphia Commc’ns Corp., et. al.

, 336 B.R. 610, 645-648 (Bankr. S.D.N.Y. 2006)