Liquidators of Lehman Brothers Australia Ltd. v. Lehman Brothers Special Financing Inc. (In re Lehman Brothers Holdings Inc.)

Summarized by Janice Grubin , Barclay Damon, LLP
13 years 5 months ago

Citation:

Liquidators of Lehman Brothers Australia LImited, Liquidator, Dante Noteholders v. Lehnman Brothers Special Financing Inc. (in re Lehman Brother Holdings Inc.), ___ F3d ___, ___ WL _______ (2d Cir. Oct. 4, 2012), Case No. 11-2967-cv (LEAD), 11-2992-cv (CON)

Tag(s):

Ruling:

The Circuit Court VACATED and REMANDED the judgment of the District Court and REINSTATED the appeal for consideration of the Bankruptcy Court order denying intervention on the merits. Given that (i) denials of intervention are generally considered to be final appealable orders in the non-bankruptcy context, (ii) the bankruptcy standard for finality is more flexible than in other civil litigation and (ii) the pragmatic approach required by the instant circumstances, the Circuit HELD that the Bankruptcy Court's denial of appellants' motions to intervene was a final, appealable order.

Procedural context:

Appeal from a judgment of the District Court (S.D.N.Y.) dismissing appeal for lack of appellate jurisdiction.

Facts:

In 2002, Lehman Brothers International Europe ("LBIE") created the "Dante Programme" under which special purpose entities (the "SPEs") issued notes of collateralized debt obligations (the "Notes"). Appellants purchased some of the Notes. The SPEs entered into a swap agreement with appellee Lehman Brothers Special Financing Incorporated ("LBSF") whereby LBSF agreed to pay amounts due under the Notes in exchange for being granted certain interests in the collateral securing the Notes. Pursuant to the Dante Programme documents, appellants had priority regarding the Notes' collateral under certain circumstances, and in other circumstances LBSF had priority. On September 15, 2008, Lehman Brothers Holdings Incorporated ("LBHI") and LBSF filed for chapter 11 relief. Appellants state that the bankruptcy filings constituted events of default giving them priority regarding the Notes' collateral. On September 14, 2010, LBSF filed an adversary proceeding against the trustees of the Dante Programme and the issuers of the Notes seeking declaratory relief as to the priority of the Notes' collateral. LBSF successfully moved to stay the adversary proceeding to pursue alternative dispute resolution. The Bankruptcy Court subsequently extended the stay three more times through January 20, 2013. The stay order only allowed the debtors and the named defendants to seek stay relief, thereby precluding the non-party appellants from challenging the stay. On January 23 and 25, 2011, holders of the Notes and LB Australia moved to intervene in the adversary proceeding pursuant to 11 U.S.C. sec. 1109(b), Rule 24 of the Federal Rules of Civil Procedure and Rule 7024 of the Federal Rules of Bankrutpcy Procedure. They argued that, as parties in interest, their intervention should be granted because their interest in the Notes' collateral was being affected by the adversary proceeding, and that they would be bound by any judgment issued against their trustee, who they claimed was not adequately representing them. At a hearing on February 16, 2011, the Bankruptcy Court orally denied the motions to intervene without prejudice, reasoning that (i) the intervention motions were really motions to vacate the stay and (ii) appellants failed to comply with Rule 24(c) of the Federal Rules, which required the motion to be accompanied by a proposed pleading. A written order was entered on February 18, 2011, denying the intervention motions without prejudice. Appellants appealed the Februrary 18, 2011 Bankrutpcy Court order. LBSF moved to dismiss the appeal on the basis that the Bankruptcy Court order was not a final, appealable order. On June 21, 2011, the District Court dismissed the appeal for lack of appellate jurisdiction. The District Court concluded that the "without prejudice" nature of the Bankruptcy Court order did not resolve the intervention motion on the merits and that appellants could renew their motions upon the lifiting of the stay. Furthermore, the District Court found that appellants faced no risk of prejudice because no substantive ruling would be rendered in the proceeding during the pendency of the stay.

Judge(s):

Jacobs, Chief Judge, and Chin and Droney, Circuit Judges

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