In re Tribune Co. Fraudulent Conveyance Litigation

United States District Court for the Southern District of New York · Corporations

CorporationsCivil ProcedureInterventionRule 24(a)(2)interventiontimelinessadequate representationinterest impairment

Facts

Movants purchased Tribune notes in 2007 and attempted to tender them for cash shortly before Tribune filed for bankruptcy, but Tribune never consummated the exchange. After Tribune entered Chapter 11, Wilmington Trust Company filed a non-bankruptcy action on behalf of multiple noteholders, including Movants, but the Bankruptcy Court later ruled that Movants were not eligible to receive the full principal value of their notes because their attempted exchange effectively stripped them of noteholder status for bankruptcy-claim purposes. After that ruling, Wilmington Trust concluded that it no longer represented Movants in the MDL, and after unsuccessful good-faith discussions with Wilmington Trust, Movants sought to intervene to protect their own interests. Defendants did not dispute Movants' factual account.

Issue

Whether the Tendering PHONES Holders were entitled to intervene as of right under Rule 24(a)(2) in the noteholder actions, and specifically whether their motion to intervene was timely after Wilmington Trust determined that it no longer represented them.

Rule

Under Rule 24(a)(2), intervention as of right is available when the applicant shows: (1) a timely application; (2) an interest relating to the property or transaction that is the subject of the action; (3) that disposition of the action may as a practical matter impair or impede protection of that interest; and (4) that the interest is not adequately protected by an existing party. Timeliness is not determined by chronology alone; courts consider how long the applicant had notice before moving, prejudice to existing parties from delay, prejudice to the applicant if denied, and any unusual circumstances bearing on timeliness.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In complex fraudulent-transfer litigation pending in Manhattan, a litigation trustee had been pursuing avoidance claims on behalf of several debenture holders, including Elena Ortiz of Miami. After a separate bankruptcy court ruling in Delaware, the trustee informed Elena for the first time in August that it no longer considered her part of the represented group. Elena spent six weeks trying to resolve the dispute, then moved to intervene and stated she would adopt the trustee's existing complaint without adding new claims.

Under Rule 24(a)(2) as applied by the court, what is the strongest argument that Elena's motion is timely?

Explanation. The majority emphasized that timeliness is not confined strictly to chronology. Although the movants had long known of their interest, the key point was that they did not know until later that the existing representative would refuse to represent them. Once notified, they pursued good-faith discussions and moved promptly. That reasoning makes Choice A correct. (Derived from In re Tribune Co. Fraudulent Conveyance Litigation (n.d.).)