The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge
Appellants Ka Kin Wong, Siu Lui Ching, Tim Choy Fung, Lin Tei Tse, Sau King Tse, Lai Kuen Chan, Fuk Shing Wong, Siu Kwan Wong, Yee Ming Shen, and Yuen Fun Tang appeal from an order of the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), entered on March 3, 2011, which sets forth alternative dispute resolution procedures for disputes relating to certain derivative transactions (the "ADR Order"). Lehman Brothers Special Financing Inc. ("LBSF") joins Lehman Brothers Holdings Inc. ("LBHI" and, together with LBSF, "Lehman") in opposing the appeal.
For the reasons stated herein, we grant Lehman's motion to dismiss the appeal and decline to address appellants' arguments on the merits.
Appellants are a subset of investors who own, or owned and maintain beneficial interests in, collateralized notes referred to as "Minibonds" that were issued by Pacific International Finance Limited ("Pacific Finance"), a special purpose vehicle ("SPV"). In connection with the issuance of the Minibonds, Pacific Finance entered into a swap agreement with LBSF. Pacific Finance used the proceeds of the Minibonds sales to purchase collateral (the "Saphir Notes"), which secured Pacific Finance's obligation to pay LBSF and the Minibonds noteholders. HSBC Bank USA, National Association ("HSBC") holds the Saphir Notes in trust.
LBHI provided the credit necessary to support the Minibonds program, and its insolvency in 2008 triggered a default event, making the Saphir Notes redeemable. LBHI voluntarily filed for bankruptcy on September 15, 2008, but HSBC neither liquidated nor distributed the Saphir Notes. LBSF filed for bankruptcy eighteen days later, on October 3, 2008.
Appellants filed suit in the Bankruptcy Court on March 12, 2009, alleging that LBSF had prevented the liquidation of the Saphir Notes. The Bankruptcy Court dismissed the complaint on the grounds that the appellants lacked standing to sue LBSF directly, but after an appeal the appellants were permitted to amend their complaint to allege derivative claims. Lehman's motion to dismiss the amended complaint is pending.
On January 25, 2010, in a separate adversary proceeding, the Bankruptcy Court issued an order (the "Ipso Facto Order") holding that provisions in swap agreements that would alter LBSF's payment priority based on LBHI's bankruptcy are barred by the ipso facto protections of Sections 365(e)(1) and 541(c)(1)(B) of the Bankruptcy Code. See Lehman Bros. Special Fin., Inc. v. BNY Corp. Trustee Servs. Ltd. (In re Lehman Bros. Holdings, Inc.), 422 B.R. 407, 418-20 (Bankr. S.D.N.Y. 2010). BNY Corporate Trustee Services Limited ("BNY") moved for leave to appeal the order, which was granted by District Court Judge Colleen McMahon on September 23, 2010. LBSF and BNY, however, settled the dispute at the end of 2010, before a district court had made any determinations on the merits of the order.
LBSF moved for entry of the ADR Order in the main Lehman bankruptcy proceeding on November 24, 2010. The omnibus order establishes procedures for non-binding mediation of disputes involving SPVs and pertains to a number of adversary proceedings in the Lehman bankruptcy. Although the order requires SPVs to participate in mediation, it does not require any party to enter into a settlement, nor does it preclude settlement outside of the provided procedures.
Objections to the motion for the ADR Order were to be filed "seven (7) calendar days before the applicable hearing date or . . . [by] any date and time otherwise ordered by the Court." Second Am. Order Implementing Certain Notice & Case Management Procedures, In re Lehman Bros. Holdings Inc., No. 08-13555, docket no. 9635, at ¶ 32 (Bankr. S.D.N.Y. June 17, 2010). LBSF noticed the motion hearing for December 15, 2010, and a number of objections were filed on December 8, 2010, though appellants were not among the objectors. Five days later, the hearing was adjourned to January 13, 2011. Appellants objected to the motion on January 6, 2011, requesting exemption from the order for all claims pertaining to the Minibonds transactions. The Bankruptcy Court overruled the objection as untimely and entered the ADR Order on March 3, 2011. On April 21, 2011, appellants appealed the order to this Court, without moving for leave to appeal.
While the ADR Order was being litigated below, LBSF was also working toward a settlement with the SPVs and trustees, including Pacific Finance and HSBC, involved with the Minibonds transactions (the "Settlement"). The trustees had made no distributions to either the Minibonds noteholders or LBSF since the initiation of the Lehman bankruptcy proceedings, and the Settlement provided that the noteholders would receive 70% of their principal at minimum. The Settlement required approval of a supermajority of the Minibonds holders who voted on it, and in May 2011 the noteholders voted overwhelmingly in favor of the Settlement.
Appeals from a bankruptcy court to a district court are governed by 28 U.S.C. § 158(a). That section provides, in relevant part, that district courts "shall have jurisdiction to hear appeals (1) from final judgments, orders, and decrees; . . . and (3) with leave of the court, from other interlocutory orders and ...