Rev Op Group v. ML Manager LLC (In Re Mortgages Ltd.)

Mortgages Ltd. was a private lender for certain real estate investments in Arizona. Mortgages Ltd. raised money from investors to extend loans to real estate purchasers, secured by the purchased real estate, and acted as servicing agent for the loans and properties. The investors received “pass-through” fractional interests in the real estate that secured the loans and the resulting loan payments. The pass-through investors acquired an actual interest in each underlying loan.

On June 24, 2008, Mortgages Ltd. filed for Chapter 11 bankruptcy. The company was restructured through a confirmed bankruptcy plan. Pursuant to that plan, the entity ML Manager LLC (ML Manager), the appellee here, manages and operates the loans left in Mortgages Ltd.’s portfolio. ML Manager took a $20 million loan in “exit financing” to pay for expenses related to the completed bankruptcy. The bankruptcy plan was confirmed by the bankruptcy court in May 2009.

After confirmation, a group of the pass-through investors (Rev Op Group) moved for an order in the bankruptcy court ruling that ML Manager could not act as agent for their interests, and that objecting investors like the Rev Op Group should…