Prophet Mortgage Opportunities, LP v. Christiana Trust et al

Filing 38

OPINION AND ORDER re: #30 MOTION to Intervene as Plaintiff; with certificate of service. filed by Richard A. Marshack.For the above stated reasons, the motion to intervene is denied in its entirety. Defendants shall file their proposed motion to dismiss by July 5, 2023. Prophet shall file its response by August 21, 2023. Defendants shall file their reply, if any, by September 20, 2023. The Clerk of Court is respectfully directed to close the motion pending at Docket Number 30. SO ORDERED. (Motions due by 7/5/2023., Replies due by 9/20/2023., Responses due by 8/21/2023) (Signed by Judge John P. Cronan on 5/18/2023) (jca)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------------- X
:
PROPHET MORTGAGE OPPORTUNITIES, LP,
:
:
Plaintiff,
:
:
-v:
:
:
CHRISTIANA TRUST, a Division of Wilmington
:
Savings Fund Society, FSB, as Both Owner Trustee and :
Indenture Trustee of RBSHD 2013-1 Trust et al.,
:
:
Defendants.
:
:
---------------------------------------------------------------------- X

22 Civ. 9771 (JPC)
OPINION AND ORDER

JOHN P. CRONAN, United States District Judge:
In this action involving numerous claims related to the mismanagement of, and
misappropriation of funds from, a residential mortgage-backed securities trust, the RBSHD 2013-1
Trust, Richard A. Marshack (the “Proposed Intervenor”), a Chapter 7 bankruptcy trustee, seeks to
intervene as of right or via permissive intervention to protect a bankruptcy estate’s alleged interest
in that trust. Because the Court determines that the Proposed Intervenor has failed to show that he
has an interest in this litigation, it denies the motion with respect to intervention as of right.
Because the Court further determines that allowing the Proposed Intervenor to intervene would
result in undue delay, the Court also denies the motion with respect to permissive intervention.
The Proposed Intervenor’s motion therefore is denied in its entirety.

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I. Background
A.

Facts 1
1.

Background Allegations

This action concerns the conduct of Defendant Christiana Trust in its capacity as trustee of
the Nominal Defendant, the RBSHD 2013-1 Trust, a residential mortgage-backed securities trust.
Complaint ¶ 1. In short, Plaintiff Prophet Mortgage Opportunities, LP (“Prophet”) alleges that
Christiana Trust knowingly assisted in a fraudulent scheme by Matthew Browndorf to
misappropriate trust assets for his own use. Id. ¶¶ 1-3.
Browndorf controlled, and held himself out as the managing partner and chief investment
officer of, an entity called DCM-P1, LLC (“DCM-P1”). Id. ¶ 20. DCM-P1 was the “Majority
Certificateholder” under the trust agreement which governed, among other things, a set of
certificates issued by the RBSHD 2013-1 Trust, and was able to direct Christiana Trust in the
management of the RBSHD 2013-1 Trust unless that direction was contrary to the terms of the
trust agreement, other documents related to the trust, or other law. Id. ¶¶ 15, 18-20. DCM-P1’s
managing member, Distressed Capital Management, LLC (“DCM”), also was owned and
controlled by Browndorf. Id. ¶ 39. Browndorf additionally owned and controlled, among other
entities, Plutos Sama, LLC (“Plutos Sama”), which owned the BP Fisher Law Group, LLP (“BP
Fisher”), a law firm that represented lenders and mortgage loan servicers in foreclosure and default
actions. Id. ¶¶ 31-32. Proceeds from those actions were to be deposited in client trust accounts,

1

The Court first cites facts alleged in the Complaint, Dkt. 1 (“Complaint”), which are
largely reiterated in the proposed complaint in intervention, see generally Dkt. 30-2, to provide
background relevant to this motion. The Court then cites to the Proposed Intervenor’s allegations
for additional factual content, which the Court accepts as true for the purposes of this motion. See
Floyd v. City of New York, 302 F.R.D. 69, 83 (S.D.N.Y.), aff’d, 770 F.3d 1051 (2d Cir. 2014) (per
curiam).
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including an account for its client Specialized Loan Servicing LLC (“SLS”), an entity which acted
as a servicer for the loans and properties that made up the RBSHD 2013-1 Trust’s trust estate. Id.
¶¶ 27, 32-34. In 2017 and 2018, BP Fisher collected approximately $1.7 million in funds from
foreclosures relating to six of the RBSHD 2013-1 Trust’s mortgage loans, which were serviced by
SLS, but never provided those funds to SLS, and therefore to the RBSHD 2013-1 Trust. Id. ¶ 34.
Browndorf is alleged to have misappropriated those funds collected by BP Fisher for his own use.
Id. ¶ 35. BP Fisher eventually declared bankruptcy in the Central District of California in 2019.
Id. ¶ 36.
Essentially, Prophet alleges that Christiana Trust aided Browndorf in replacing SLS with
DCM as servicer in an attempt to lessen Browndorf’s personal liability in the BP Fisher bankruptcy
by causing DCM to withdraw SLS’s previously filed proof of claim for the RBSHD 2013-1 Trust’s
assets held by BP Fisher and misappropriated by Browndorf. Id. ¶¶ 50-55; see also id. ¶¶ 37 (“SLS
in its capacity as Servicer for the Trust, filed a proof of claim against the debtor’s estate, in the
amount of approximately $1.7 million, representing the value of the six Mortgage Loans that BP
Fisher foreclosed, but for which Browndorf never remitted the proceeds.”), 39 (alleging that in
May 2020, “Browndorf caused DCM-P1 to direct Christiana Trust to terminate SLS . . . without
cause and install DCM-P1’s own managing member, [DCM], as sole Servicer for the Trust”), 49
(“Christiana Trust declined to act on SLS’s warning that DCM intended to withdraw . . . SLS’s
proof of claim concerning $1,731,207.67 Mortgage Assets in the BP Fisher Bankruptcy, which
would deprive the Trust of funds that were collected and owed to it.”). Additionally, Christiana
Trust failed to require DCM to actually perform its new role as servicer, which DCM allegedly
failed to do entirely. Id. ¶¶ 56-59. Christiana Trust then also “sold” numerous loans to another
Browndorf affiliate at the direction of DCM-P1 and received no cash for the sales, instead

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accepting a promissory note in violation of its duties. Id. ¶¶ 60-65. The Browndorf affiliate that
purchased the loans then defaulted on the promissory note, on which Christiana Trust took no
efforts to recover. Id. ¶¶ 66-68. Christiana Trust is also alleged to have undertaken other improper
actions not immediately relevant to the Proposed Intervenor’s motion.
2.

The Proposed Intervenor’s Allegations

The Proposed Intervenor is the Chapter 7 Trustee for the bankruptcy of Plutos Sama, now
known as LF Runoff 2, LLC (the “Debtor”). Dkt. 30-1 ¶ 1. He claims that in 2015, the Debtor in
conjunction with its wholly owned entities DCM and DCM-P1 purchased the equity rights to the
RBSHD 2013-1 Trust for $8,200,000, and that DCM or DCM-P1 further acquired noteholder
interests with a face value of approximately $22,000,000 in various note tranches of the RBSHD
2013-1 Trust. Id. ¶ 4. The Proposed Intervenor states that the “Debtor’s bankruptcy estate’s
wholly owned entity[] holds the rights to junior priority Noteholder interests with an undisputed
face value of approximately $22,000,000.” Id. ¶ 12. However, the Proposed Intervenor also
acknowledges that Browndorf “transferred in the Fall of 2018 to his Newco entity the Debtor’s
interest in DCM/DCM-P1,” Dkt. 37 (“Reply”) at 2, and that “Browndorf transferred the
$22,000,000 Noteholder interest previously controlled by the Debtor to another entity controlled
by Matthew Browndorf,” id. at 4. In addition, the Proposed Intervenor elsewhere refers to DCM
and DCM-P1 as the Debtor’s “previously wholly owned entities.” Id. at 8 (emphasis added).
B.

Procedural History
Prophet filed this action on November 16, 2022, bringing claims on behalf of itself as well

as derivatively on behalf of other noteholders and on behalf of the Indenture Trustee of the RBSHD
2013-1 Trust. Dkt. 1. On January 19, 2023, the Court granted Christiana Trust leave to file a
motion to dismiss by March 6, 2023. Dkt. 16. The Proposed Intervenor then filed a letter on
February 8, 2023 seeking a pre-motion conference regarding his anticipated motion to intervene.
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Dkt. 22. The Court held that conference on February 17, 2023, set a briefing schedule for the
motion to intervene, and adjourned the briefing schedule for the motion to dismiss sine die pending
resolution of the motion to intervene. Feb. 17, 2023 Minute Entry. The Proposed Intervenor then
filed his motion on March 10, 2023, seeking to file an intervenor’s complaint that is largely
identical to Prophet’s Complaint. Dkts. 30, 31 (“Motion”), 32. Defendants responded in support
of that motion on March 24, 2023. Dkt. 33. Prophet opposed the motion that same day. Dkts. 34
(“Opposition”), 35. The Proposed Intervenor filed a reply on March 31, 2023. Dkt. 37.
II. Legal Standard
Intervention is “a procedural device that attempts to accommodate two competing policies:
efficiently administrating legal disputes by resolving all related issues in one lawsuit, on the one
hand, and keeping a single lawsuit from becoming unnecessarily complex, unwieldy or prolonged,
on the other hand.” Floyd, 770 F.3d at 1057 (internal quotation marks omitted). Federal Rule of
Civil Procedure 24 “strikes this balance by providing potential intervenors with two ways to
intervene: intervention as of right under Rule 24(a) and permissive intervention under Rule 24(b).”
Cont’l Indem. Co. v. Bulson Mgmt., LLC, No. 20 Civ. 3479 (JMF), 2020 WL 6586156, at *2
(S.D.N.Y. Nov. 10, 2020).
Rule 24(a)(2) provides that a court must grant intervention to anyone who “claims an
interest relating to the property or transaction that is the subject of the action, and is so situated
that disposing of the action may as a practical matter impair or impede the movant’s ability to
protect its interest, unless existing parties adequately represent that interest.” Thus, to intervene
as of right pursuant to Rule 24(a)(2), “a movant must ‘(1) timely file an application, (2) show an
interest in the action, (3) demonstrate that the interest may be impaired by the disposition of the
action, and (4) show that the interest is not protected adequately by the parties to the action.’” In

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re N.Y.C. Policing During Summer 2020 Demonstrations, 27 F.4th 792, 799 (2d Cir. 2022)
(quoting “R” Best Produce, Inc. v. Shulman-Rabin Mktg. Corp., 467 F.3d 238, 240 (2d Cir. 2006)).
“A non-party moving to intervene in an action bears the burden of demonstrating that it meets the
requirements for intervention.” Greater Chautauqua Fed. Credit Union v. Marks, No. 22 Civ.
2753 (MVK), 2023 WL 2744499, at *6 (S.D.N.Y. Mar. 31, 2023) (internal quotation marks
omitted). “Failure to meet any one of these requirements suffices for a denial of the motion.” In
re Holocaust Victim Assets Litig., 225 F.3d 191, 197-98 (2d Cir. 2000).
Rule 24(b) “provides that, on timely motion, intervention may be permitted to anyone who
‘has a claim or defense that shares with the main action a common question of law or fact.’”
Eddystone Rail Co. v. Jamex Transfer Servs., LLC, 289 F. Supp. 3d 582, 595 (S.D.N.Y. 2018)
(quoting Fed. R. Civ. P. 24(b)(1)(B)). “In exercising its discretion, the court must consider whether
intervention will unduly delay or prejudice the adjudication of the original parties’ rights.” Fed.
R. Civ. P. 24(b)(3). Thus, the Court “analyze[s] three criteria in adjudicating a motion for
permissive intervention: (1) the timeliness of the motion; (2) a common question of law or fact;
and (3) undue delay or prejudice.” John Wiley & Sons, Inc. v. Book Dog Books, LLC, 315 F.R.D.
169, 172 (S.D.N.Y. 2016); cf. United States v. Pitney Bowes, Inc., 25 F.3d 66, 73 (2d Cir. 1994)
(noting that undue delay or prejudice is “[t]he principal guide in deciding whether to grant
permissive intervention”).
III. Discussion
No party challenges the timeliness of the Proposed Intervenor’s motion. See Motion at 810 (arguing that the motion is timely); Opposition at 4 (offering no argument that Proposed
Intervenor failed to file a timely motion to intervene). The Court therefore turns to the second
Rule 24(a)(2) factor: whether the Proposed Intervenor has shown an interest in this action. “‘The

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term “interest” in this context defies simple definition,’ yet the Second Circuit has observed that
the interest must be ‘direct, as opposed to remote or contingent’ and ‘significantly protectable.’”
Cont’l Indem. Co., 2020 WL 6586156, at *2 (quoting, with a slight modification, Restor-A-Dent
Dental Labs., Inc. v. Certified Alloy Prods., Inc., 725 F.2d 871, 874 (2d Cir. 1984)).
The Proposed Intervenor initially argued that he holds, on behalf of the Debtor’s
bankruptcy estate, a $22,000,000 interest in the Nominal Defendant, the RBSHD 2013-1 Trust, as
a junior priority noteholder. Motion at 11. However, the Proposed Intervenor’s own subsequent
briefing shows that not to be the case. In his reply brief, the Proposed Intervenor states that the
Debtor’s ownership interest in “DCM and/or DCM-P1,” through which the Debtor held its
noteholder interest in the RBSHD 2013-1 Trust, Dkt. 30-1 ¶ 4, was transferred in fall 2018 by the
Debtor’s former principal, Browndorf. Reply at 2. The Proposed Intervenor argues that this
transfer was done “covertly and fraudulently,” id., and predicts that he will “finalize his undisputed
standing as the owner of the concealed fraudulent transfer of the bankruptcy estate’s interest in the
$22,000,000 B Noteholder/B Bonds interests in the RBSHD 2013-1 Trust,” by means of a
litigation that he “expects . . . to be quickly resolved by way of a default and default judgment in
favor of Proposed Intervenor.” Id. at 7-8.
Thus, as the Proposed Intervenor acknowledges in his briefing, his claimed interest was
transferred away from the Debtor, and it is only by means of a separate litigation that he will claw
back that interest. But “courts have denied motions to intervene where the movant’s interests are
contingent upon the outcome of pending or future litigation,” because “[a]n interest that is remote
from the subject matter of the proceeding, or that is contingent upon the occurrence of a sequence
of events before it becomes colorable, will not satisfy” Rule 24(a)(2)’s interest requirement. Cont’l
Indem. Co., 2020 WL 6586156, at *2 (internal quotation marks omitted). Nor has the Proposed

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Intervenor described the circumstances of that transfer or provided any other information that
would allow this Court to assess the likelihood of his success in that other litigation even if such a
contingent interest could satisfy Rule 24(a)(2). Because the Proposed Intervenor’s interest is
contingent on the resolution of a separate proceeding, he fails to demonstrate that he may intervene
in this action as a matter of right. 2
Turning then to permissive intervention, allowing the proposed intervention would cause
undue delay in this case, as it would likely require the adjudication of matters not otherwise at
issue in this litigation, including the status of the Proposed Intervenor’s potential interest in the
RBSHD 2013-1 Trust via DCM and DCM-P1. For example, it is not clear to the Court that the
Proposed Intervenor would have the ability to bring each of his proposed claims against
Defendants given that the alleged conduct occurred almost entirely after the 2018 transfer of the
Debtor’s interests in DCM and DCM-P1, though the Court of course reaches no holding on that
point. Regardless of whether DCM and DCM-P1 themselves would be properly interested parties
in that transaction if they sought to intervene, or whether Defendants will bring claims against
those entities in the event their motion to dismiss is unsuccessful, as they expect, Dkt. 33 at 5, it
also is not clear from the Proposed Intervenor’s briefing that he properly represents those parties.
Resolving those issues would unnecessarily complicate and delay this litigation. Therefore,
because the proposed intervention would likely cause undue delay in this case, the Court denies

2

For similar reasons, the Proposed Intervenor’s argument that “Christiana Trust’s pleading
make[s] it clear that they intend to assert claims against the Debtor’s previously wholly owned
entities,” Reply at 8 (emphasis added), thereby requiring the Proposed Intervenor’s participation
in this case, is undermined by the fact that it is not clear that the Debtor would be implicated by
such claims. The same is true of Defendants’ statement that, if their proposed motion to dismiss
is denied, they will seek to join DCM and DCM-P1 in this action. Dkt. 33 at 5.
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the motion to intervene in its entirety.3 See Pitney Bowes, 25 F.3d at 73 (stating that undue delay
or prejudice is “[t]he principal guide in deciding whether to grant permissive intervention”).
IV. Conclusion
For the above stated reasons, the motion to intervene is denied in its entirety. Defendants
shall file their proposed motion to dismiss by July 5, 2023. Prophet shall file its response by
August 21, 2023. Defendants shall file their reply, if any, by September 20, 2023. The Clerk of
Court is respectfully directed to close the motion pending at Docket Number 30.
SO ORDERED.
__________________________________
JOHN P. CRONAN
United States District Judge

Dated: May 18, 2023
New York, New York

3

The Court notes as well that the Proposed Intervenor appears to have abandoned his
arguments in favor of a permissive intervention, as he did not address Prophet’s arguments against
such an intervention in his reply brief.
9