In Re: SVB Financial Group

Background

Morgan Stanley & Co. LLC, Christopher Cooper, and Anthony DeChellis appealed an order by the United States Bankruptcy Court for the Southern District of New York. That order denied their motions for permission to file late proofs of claim in SVB Financial Group’s Chapter 11 bankruptcy proceedings. SVB Financial Trust, identified as the successor in interest to SVB Financial Group, was the appellee.

The underlying claims sought indemnification, advancement, and contribution from the debtor. SVB Financial Trust argued that the confirmed Chapter 11 plan had taken effect and that the claims were claims under Section 510(b) of the Bankruptcy Code. Under the plan provision cited by SVB Financial Trust, holders of Section 510(b) claims would receive no distributions, and those claims would be canceled, released, discharged, and extinguished. On that basis, SVB Financial Trust argued that the appeal was moot because the district court could not provide effective relief even if it reversed the bankruptcy court and allowed the late proofs of claim.

Arguments about mootness

The appellants argued that SVB Financial Trust had waived the mootness argument by raising it late. The court rejected that argument, explaining that mootness is jurisdictional. The appellants also argued that the district court should not decide mootness first because deciding it would require resolving other unanswered legal and factual questions, including whether their claims qualified as Section 510(b) claims.

The appellants pointed out that the record did not establish how the claims should be classified and that the issue had not been adjudicated in the bankruptcy process. They also stated that Morgan Stanley had filed other indemnification and contribution claims that were classified as general unsecured claims rather than Section 510(b) claims. In addition, they argued that whether indemnification claims for defense costs qualify as Section 510(b) claims had not been squarely resolved by the relevant appeals court. The district court noted that SVB Financial Trust’s appellate briefing did not address these potentially decisive questions.

Ruling and disposition

Judge Jesse M. Furman concluded that a limited remand to the bankruptcy court was appropriate. The bankruptcy court was better positioned, because of its specialized knowledge, to consider the Section 510(b) classification issue and the related mootness question in the first instance. The district court did not decide whether the claims were Section 510(b) claims or whether the appeal was moot.

The court directed the Clerk to remand the matter to the bankruptcy court for further proceedings consistent with the opinion and to close the case pending a timely request to reopen. The district court retained jurisdiction over the appeal if it was not abandoned. To reinstate the appeal, the appellants must file a letter-motion to reopen within fourteen days after the bankruptcy court resolves the limited remand. The court stated that a request filed after that deadline would be denied as untimely and the appeal would be deemed dismissed.