The Firm recently obtained a victory at the Second Circuit for its client Lehman Brothers Holdings Inc. resolving an important issue regarding the Bankruptcy Court’s jurisdiction. The ruling denied a petition for a writ of mandamus filed by SecurityNational Mortgage Company (“SNMC”), one of dozens of defendants that Lehman seeks to obtain contractual indemnification from for selling defective mortgage loans to Lehman’s affiliate and that Lehman subsequently sold or securitized. The contractual indemnification actions, including two actions against SNMC, are pending in the United States Bankruptcy Court for the Southern District of New York (Chapman, J.).
In its effort to dismiss the actions, SNMC asserted numerous defenses, including that the Bankruptcy Court did not have jurisdiction. SNMC contended that, following the confirmation of Lehman’s bankruptcy plan, the downstream indemnification claims were no longer subject to the jurisdiction of the Bankruptcy Court and therefore had to be brought in a non-bankruptcy court. In August 2018, the Bankruptcy Court denied the motion to dismiss for lack of jurisdiction. In May 2019, the United States District Court for the Southern District of New York (Caproni, J.) denied SNMC’s motion for leave to appeal the Bankruptcy Court’s ruling that sustained its jurisdiction.
Nonetheless, in January 2020 SNMC filed a “miscellaneous” proceeding in the District Court (Kaplan, J.), contending that federal subject matter jurisdiction must be determined at the outset of a case, there is no bankruptcy jurisdiction over the downstream claims, and thus no federal subject matter jurisdiction. SNMC moved in the “miscellaneous” proceeding to dismiss Lehman’s adversary proceeding against it in the Bankruptcy Court. Lehman opposed the entire action as an improper procedural end-run around the prior rulings on bankruptcy jurisdiction. The District Court referred the matter to Magistrate Judge Debra Freeman, who in a July 2020 Report and Recommendation recommended that SNMC’s motion to dismiss be denied. In August 2020, the District Court issued a brief order that denied SNMC’s motion, substantially for the reasons contained in the Report and Recommendation. A copy of Magistrate Judge Debra Freeman’ order is attached here.
With no right to appeal, SNMC filed a petition for a writ of mandamus in the United States Court of Appeals for the Second Circuit. On January 5, 2021, the Second Circuit denied that writ because SNMC “ha[d] not demonstrated that exceptional circumstances warranted the requested relief.” In re SecurityNational Mortg. Co., Case No. 20-3110, ECF No. 46 at 1 (2d Cir. Jan. 5, 2021).