Excerpt:

A federal appeals court blocked SunCal Cos. from suing Lehman Brothers Holdings Inc., a blow to the California real-estate developer in its cross-country legal battle with the failed investment bank.

The Second U.S. Circuit Court of Appeals in New York also sided with Lehman in its efforts to buy back seven loans totaling $1.5 billion from affiliate Fenway Capital LLC, in a ruling issued Wednesday. SunCal had sought to prevent that transaction because the purchase puts those assets further from its grasp.

A three-judge appellate panel affirmed the U.S. Bankruptcy Court in Manhattan's previous rulings, saying the butting of heads is an "inevitable result" of bankruptcy proceedings occurring in two different courts.

The ruling casts doubt upon SunCal's legal strategy in the bankruptcies of several of its stalled California projects. Its bankruptcy plan for the developments was centered on the lawsuit the appeals court prevented it from pursuing.

Lehman and SunCal, former business partners, have been battling for two years over the fate of more than a dozen real-estate ventures in bankruptcy courts in New York and California.