How is the Lehman bankruptcy like Hurricane Katrina?

The Am Law Daily spent Thursday morning and afternoon standing in the aisle of Judge James Peck's courtroom in a federal bankruptcy court for a major hearing in the Lehman Brothers bankruptcy. Sweating in a standing-room-only crowd was still better than being stuck in one of the two overflow courtrooms reserved for the hearing.

The reason for the crowd? A motion initially filed by a Bingham McCutchen team on behalf of Harbinger Capital Partners seeking the disclosure of Lehman records linked to cash transfers in the month before the bank filed for Chapter 11 protection on 15 September. Creditors and some Lehman higher-ups have questioned an $8bn (£4.6bn) transfer from Lehman's London operation to its New York headquarters shortly before the bankruptcy filing, according to The Wall Street Journal.

Harvey Miller, the Weil Gotshal & Manges partner leading Lehman's bankruptcy case, took the podium just after 11am and sought to explain why creditors need to be patient about getting their hands on internal Lehman records.

The bank never contemplated bankruptcy until 12 September, when it became clear that a proposed merger, possibly with Bank of America, wasn't going to happen. Even worse, the US Government decided to leave Lehman to fend for itself instead of offering a bailout. That gave Lehman no time to plan for its bankruptcy or get its documents in order, Miller said.

In a moment few in the crowd will forget, Miller told the court the Government's decision to turn its back on Lehman showed "a lack of foresight" that reminded him of "the federal government's reaction to Katrina."

"That's how it will be recorded in the history books," Miller said.

Lehman is now left to unravel more than 1.5 million contracts, mostly derivative swaps, before it can begin dealing with creditor requests, according to Miller and Bryan Marsal of Alvarez & Marsal, the restructuring firm Lehman hired to help in the transition. Marsal wants to hire as many as 300 people to do the job. It will take between 45 and 60 days for Lehman to get its records in order, Miller said.

As for the $8bn, Miller said Lehman's European businesses routinely transferred money to New York on Fridays and had it repaid on Mondays. Critics have said Lehman's New York execs never repaid the money in full, and have suggested Lehman kept the cash in New York to make its North American operations a more attractive buy; Barclays bought those units on 17 September for $1.75bn.

Peck seemed to sympathize with Lehman, and neither Giddens nor Dennis Dunne, the Milbank Tweed Hadley & McCloy partner representing the creditors committee, registered any strong rejection to Miller's calls for patience. That's probably bad news for the Bingham motion, which Peck was hoping to rule on later on Thursday.

If he has time, Peck may also address a motion filed Tuesday by Wachtell Lipton Rosen & Katz on behalf of the Carlyle Group challenging the $2.15bn (£1.24bn) sale of Lehman's Neuberger Berman unit to two private equity groups. Carlyle claims the price is too low and wants to submit its own bid.

This article first appeared on The Am Law Daily blog on AmericanLawyer.com.