Appeal from a judgment of the United States District Court for the Southern District of New York (McMahon, J.) dismissing appellants' appeal from an order of the United States Bankruptcy Court for the Southern District of New York (Peck, Bankr. J.) denying without prejudice their motions for leave to intervene in an adversary proceeding.
In re Lehman Bros. Holdings Inc.
Before: JACOBS, Chief Judge, and CHIN and DRONEY, Circuit Judges.
Appellants Liquidators of Lehman Brothers
Australia Limited ("LB Australia") and Dante Noteholders appeal from a judgment of the United States District Court for the Southern District of New York (McMahon, J.) dismissing their appeal from an order of the United States Bankruptcy Court for the Southern District of New York denying without prejudice their motions for leave to intervene in an adversary proceeding. We hold that in the circumstances here the bankruptcy court's denial of appellants' motions to intervene was a final appealable order. Accordingly, we vacate and remand.
The relevant facts are largely undisputed. In 2002, Lehman Brothers International Europe ("LBIE") created the "Dante Programme" by which certain special purpose entities issued notes of collateralized debt obligations (the "Notes"). The Notes were purchased by appellants as well as other investors. The same special purpose entities 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 certain interests in the collateral that secured the Notes (the "Collateral").
Appellants and LBSF had competing interests in the Collateral. Under the transaction documents governing the Dante Programme, in certain circumstances appellants had priority with respect to the Collateral, and in other circumstances LBSF had priority.
On September 15, 2008, Lehman Brothers Holdings Incorporated ("LBHI") and LBSF filed for bankruptcy protection pursuant to Chapter 11 of the Bankruptcy Code. According to appellants, the bankruptcy filings constituted events of default giving them priority with respect to the Collateral.
On September 14, 2010, LBSF commenced an adversary proceeding in the bankruptcy court against the trustees of the Dante Programme and the issuers of the Notes (the "Dante Adversary Proceeding"), seeking declaratory relief with respect to priority in the Collateral. LBSF filed adversary proceedings against many other defendants as well, apparently to preserve certain claims prior to the expiration of the applicable statute of limitations. LBSF moved to stay the Dante Adversary Proceeding (as well as the other proceedings) to pursue alternative dispute resolution. On October 20, 2010, the bankruptcy court granted a stay until July 20, 2011. Thereafter, the bankruptcy court extended the stay three times, through January 20, 2013, subject to further extensions. See In re Lehman Bros. Holdings Inc., No. 08-13555, ECF No. 29506, at 3. The stay order provided that only the debtors and named defendants could apply to lift the stay. As appellants were not parties to the Dante Adversary Proceeding, they could not challenge the stay order.
On January 23 and 25, 2011, Dante Noteholders and LB Australia moved respectively to intervene in the Dante Adversary Proceeding pursuant to 11 U.S.C. § 1109(b), Rule 24 of the Federal Rules of Civil Procedure, and Rule 7024 of the Federal Rules of Bankruptcy Procedure. Appellants argued that they should be allowed to intervene because they were parties in interest, their interest in the Collateral was being affected by the proceedings, and they would be bound by any judgment rendered 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, concluding that the motions to intervene were in actuality motions to vacate the stay. The court also held that appellants failed to comply with Rule 24(c) of the Federal Rules ...