Prophet Mortgage Opportunities, LP v. Christiana Trust

Background

Prophet Mortgage Opportunities, LP sued Christiana Trust and others over alleged mismanagement of, and misappropriation of funds from, the RBSHD 2013-1 Trust, a residential mortgage-backed securities trust. Prophet alleged that Christiana Trust assisted Matthew Browndorf in a scheme involving trust assets, the replacement of a loan servicer, and other transactions involving trust loans.

Richard A. Marshack, identified as the Chapter 7 trustee for the bankruptcy of Plutos Sama, now known as LF Runoff 2, LLC, sought to file a complaint and join the case. He claimed that the bankruptcy estate had an interest in noteholder rights connected to the trust. His filings also acknowledged that the interests had been transferred in 2018 to another entity controlled by Browndorf and that he would need separate litigation to recover them for the estate.

Legal Standards

Federal Rule of Civil Procedure 24 allows a nonparty to seek intervention in an existing lawsuit in two ways. Intervention as of right requires the movant to show, among other things, a direct and legally protectable interest in the subject of the case. Permissive intervention allows a court to permit a party with a claim or defense sharing a common legal or factual question, but the court must consider whether joining the party would cause undue delay or prejudice.

Court’s Analysis

The court noted that no party challenged the timeliness of Marshack’s motion. It nevertheless held that he had not shown the required interest for intervention as of right. The court relied on Marshack’s acknowledgment that the bankruptcy estate’s claimed interest had been transferred away and that recovering it depended on the outcome of separate litigation. An interest dependent on future litigation was too remote and contingent to satisfy the intervention requirement. The court also noted that Marshack had not provided enough information to assess the likelihood of success in that separate litigation.

The court separately denied permissive intervention. It determined that joining Marshack would likely require the court to address matters not otherwise at issue, including the status of the potential interest through DCM and DCM-P1 and whether Marshack could assert all of his proposed claims based on conduct occurring largely after the 2018 transfer. Resolving those issues would unnecessarily complicate and delay the existing lawsuit. The court expressly made no ruling on whether Marshack would be able to bring those claims.

Disposition

The court denied the motion to intervene in its entirety, including both intervention as of right and permissive intervention. It did not rule on the merits of Prophet’s underlying claims. The court directed defendants to file their proposed motion to dismiss by July 5, 2023, set response and reply deadlines, and directed the Clerk to close the motion at Docket Number 30.