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Bankruptcy Court Permits Stipulated Dismissal Over Objection of Potential Intervenor

Tampa Port Auth. v. Taylor (In re Irish Bank Resolution Corp. Ltd.), No. 14-50084 (CSS), 2014 WL 1884916 (Bankr. D. Del. May 12, 2014)

In this Memorandum Order, the Honorable Christopher S. Sontchi allowed dismissal of an adversary proceeding by voluntary stipulation signed by the plaintiff and all defendants pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii).  The Court allowed the dismissal over the objection of Liberty Channelside, LLC (“Liberty”), which previously sought to intervene in the proceeding but had not yet been granted authority to do so.

By way of background, the adversary proceeding (the “Proceeding”) arose within the Chapter 15 bankruptcy of Irish Bank Resolution Corporation Ltd. (“IBRC”) and related to multi-year disputes arising from a long-term ground lease of real estate owned by the Tampa Port Authority (the “Port”).  More specifically, in 1998 the Port leased the property to Channelside Bay Mall, LLC (the “Developer”), which then mortgaged the lease in favor of IBRC to finance improvements.  In 2010, the Port sought to evict the Developer and IBRC, and IBRC attempted to foreclose its leasehold mortgage.  IBRC agreed to assign the lease to Liberty in April 2013, but the deal never closed.  A few months later, the Port sought to take back the property free of the lease, but IBRC filed its Chapter 15 petition.  Two lawsuits followed.  The first was commenced by Liberty against IBRC and Port for tortious interference with the lease assignment.  The second—the Proceeding—was commenced by the Port against the Developer and IBRC for various forms of declaratory relief related to ownership of the lease.  Liberty moved to intervene in the Proceeding, alleging an entitlement to a constructive trust.  Before the Court could rule, Port and IBRC entered into a voluntary stipulation to dismiss the Proceeding.  Liberty objected, arguing that any dismissal required its signature or a court order.  Judge Sontchi disagreed.

Under Federal Rule 41(a)(1)(A)(ii), an action may be dismissed without a court order if, among other things, “a stipulation of dismissal [is] signed by all parties who have appeared” in the action.  As explained by the Court in its Memorandum, an entity seeking to intervene in a proceeding does not become a party until its motion is granted.  Accordingly, a potential intervenor’s signature generally is not required for a Rule 41(a)(1)(A)(ii) stipulation to effectuate a dismissal.  However, if dismissal would prejudice an intervening party’s rights, the Court noted that equitable principles could be invoked to treat an intervenor as a de facto party.  In such a case, the de facto party’s signature or a court order would be required for dismissal.

In the instant case, no court order existed allowing Liberty to intervene in the Proceeding.  Moreover, the Court found the circumstances lacking to invoke equity and treat Liberty as a de facto party.  The Proceeding was in its infancy and, importantly, Liberty’s own action against IBRC and Port served to preserve its rights.  Because “[a] dismissal without prejudice is exactly that—a dismissal without prejudice to the rights of any party to raise any argument” in the future, the Court noted that Liberty remained free to raise its constructive trust argument (or any other) in its own proceeding.  As such, the Court overruled Liberty’s objection and allowed the Port, IBRC, and the Developer to effectuate a dismissal of the Proceeding by stipulation.