Barclays Wins Reversal of Liability Ruling in $300M Black Diamond Suit

By | February 19, 2015

New York state’s top court on Thursday reversed a 2013 ruling that found Barclays Plc liable in a $300 million dispute with hedge fund Black Diamond Capital over the British bank’s refusal to pay back collateral.

Connecticut-based Black Diamond filed a lawsuit against Barclays in 2008, claiming it had defaulted on a $40 million collateral call made at the height of the financial crisis. A lower court agreed and ordered Barclays to return $297 million in collateral it was holding under a 2005 agreement with Black Diamond.

The New York Court of Appeals in a unanimous decision said it was unclear whether Barclays failed to follow the contract’s procedures for disputing a collateral call and sent the case back to a state judge in Manhattan.

The court denied Barclays’ counterclaim that Black Diamond violated the agreement by failing to meet two subsequent collateral calls from the bank.

A Barclays spokesman did not immediately have comment. An attorney for Black Diamond did not return a request for comment.

The deal, known as a total return swap, transferred the benefits and risks of an investment in a Barclays-held portfolio of corporate debt instruments to Black Diamond in exchange for financing fees paid to the bank.

The contract allowed each side to make collateral demands on the other based on changes to the value of the underlying loans.

The case is BDC Finance Llc v. Barclays Bank Plc, New York State Court of Appeals No. 5.

(Editing by Jeffrey Benkoe)

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