To promote the finality of bankruptcy asset sales, section 363(m) of the Bankruptcy Code "moots" an appeal of an order approving a sale to a good-faith purchaser unless the party challenging the sale obtains a stay pending appeal. Courts, however, sometimes disagree over the scope of section 363(m) and whether it also bars appeals of orders approving transactions that are related to a sale, such as settlements.The U.S. District Court for the Eastern District of Louisiana recently addressed this question in In re Royal Street Bistro LLC, 2022 WL 6308294 (E.D. La. Sept. 23, 2022) ("Royal Street II"), appeal filed, No. 22-30629 (5th Cir. Oct. 5, 2022). The district court affirmed bankruptcy court orders approving an auction sale of properties free and clear of a tenant's leasehold interest as well as a related settlement agreement because both appeals were mooted by section 363(m)—the sale, by the express terms of section 363(m), and the settlement, because it was an integral part of the sale.The ruling reinforces the principle that property can be sold free and clear of a t

In a ruling issued just yesterday, MOAC Mall Holdings LLC v. Transform Holdco LLC et al., 598 U.S. ----, 2023 WL 2992693 (2023) (“MOAC”), the United States Supreme Court (the “Supreme Court”) held that Bankruptcy Code section 363(m) is not jurisdictional in terms of appellate review of asset sale orders, but rather, that such section only contains limitations on the relief that may be afforded on appeal. Section 363(m) of the Bankruptcy Code is often relied upon by purchasers of assets in a bankruptcy case as providing finality to any sale order. The section states in relevant part that:“The reversal or modification on appeal of an authorization under [§363(b) or §363(c)] of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.”Aggrieved parties seeking to overturn sale orders have argued that the language in section 363(m) precludes effective appellate review of such orders and controls the appellate court’s jurisdiction with respect thereto. This ruling resolves

The finality of asset sales and other transactions in bankruptcy is an indispensable feature of U.S. bankruptcy law designed to maximize the value of a bankruptcy estate as expeditiously as possible for the benefit of all stakeholders. To promote such finality, section 363(m) of the Bankruptcy Code prohibits reversal or modification on appeal of an order authorizing a sale or lease to a "good-faith" purchaser or lessee unless the party challenging the sale obtains a stay pending appeal. What constitutes "good faith" has sometimes been disputed by the courts.The U.S. Court of Appeals for the Fifth Circuit recently revisited this issue in SR Construction Inc. v. Hall Palm Springs LLC (In re RE Palm Springs II LLC), 65 F.4th 752 (5th Cir. 2023). The court reaffirmed its earlier decisions that a buyer's or lessee's good faith under section 363(m) is not defeated merely because it is aware of objections to the proposed sale or lease. Instead, the claims of the party challenging the sale or lease must rise to the level of an "adverse interest" in the ownership of the property. The Fifth Circuit also held that transparency in the sale or lease process is of paramount importance in establishing good faith. Mootness of Appeals Under Section 363(m)"Mootness" is a doctrine that precludes a

The ability of a trustee or chapter 11 debtor-in-possession ("DIP") to sell bankruptcy estate assets "free and clear" of competing interests in the property has long been recognized as one of the most important advantages of a bankruptcy filing as a vehicle for restructuring a debtor's balance sheet and generating value. Still, section 363(f) of the Bankruptcy Code, which delineates the circumstances under which an asset can be sold free and clear of "any interest in such property," has generated a fair amount of controversy. This is so in part because the statute itself does not define "interest."Although section 363(f) is generally acknowledged to encompass liens and security interests, some courts, taking into account both the language of the provision and its underlying purpose, have interpreted it much more broadly to also include leasehold interests, among other things.

An appeal can also be rendered moot (or otherwise foreclosed) by statute. For example, section 363(m) of the Bankruptcy Code provides that, absent a stay pending appeal, "[t]he reversal or modification on appeal of an authorization … of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith." Although courts disagree on the point, section 363(m) has been interpreted "to render statutorily moot any appellate challenge to a sale that is both to a good faith purchaser, and not stayed."

Section 363(m) of the Bankruptcy Code provides that the reversal or modification of an order approving a sale or lease of assets in bankruptcy does not affect the validity of the sale or lease to a good-faith purchaser or lessee unless the party challenging the sale or lease obtains a stay pending its appeal of the order. Bankruptcy and appellate courts, however, have long disagreed as to whether this provision is jurisdictional—meaning that it can never be waived and an appellate court lacks jurisdiction to hear any appeal of an unstayed sale or lease authorization order—or instead a defense that can be invoked by the proponents of the sale (e.g., the debtor, the bankruptcy trustee, or the purchaser) on appeal subject to waiver, forfeiture, and similar doctrines.The U.S. Supreme Court settled this question on April 19, 2023. A unanimous Court ruled in MOAC Mall Holdings LLC v. Transform Holdco LLC, 143 S. Ct. 927, 2023 WL 2992693 (2023) ("Transform Holdco"), that section 363(m) is not jurisdictional, and that an appeal o

The Supreme Court of the United States granted certiorari on June 27, 2022, to determine whether section 363(m) of the Bankruptcy Code—concerning appellate review of bankruptcy court sale orders—is jurisdictional or only limits the remedy an appellate court may fashion. This issue has split the circuit courts of appeals.

InMOAC Mall Holdings LLC v. Transform Holdco LLC, 134 S.Ct. 927, 937 (2023), the U.S. Supreme Court recently resolved a debate that has long divided Circuit Courts throughout the U.S: whether section 363(m) of the Bankruptcy Code, a provision that is intended to protect good-faith purchasers of bankruptcy assets, imposes a jurisdictional barrier to a party-in-interest’s ability to challenge a bankruptcy sale on appeal. The Supreme Court held it did not. The Court further held that the appeal at issue–involving a contested sale in the Sears bankruptcy case–was not moot (i.e., another jurisdictional restriction), because, notwithstanding the hurdles imposed by section 363(m), the Court could not find that no relief remained available to the appellant on remand.Let’s see what the facts reveal and analysis reveal.FactsThe case involves the 2018 bankruptcy of Sear, Roebuck & Company (“Sears“). After the retailer’s filing, Sears sought permission to sell most of its assets outside the ordinary course of business, pursuant to section 363(b)(1) of the Bankruptcy Code, to Transform Holdco LLC (“Transform“).Among the assets sold to Transform was the right to designate to whom certain leases between Sears and various lan

The finality of asset sales in bankruptcy is an indispensable feature of U.S. bankruptcy law designed to maximize the value of a bankruptcy estate as expeditiously as possible for the benefit of all stakeholders. To promote the finality of bankruptcy sales, section 363(m) of the Bankruptcy Code prohibits reversal or modification on appeal of an order approving a sale to a good-faith purchaser unless the party challenging the sale obtains a stay pending appeal. Section 363(m) has also been read broadly to protect the interests of any good-faith purchaser in the purchased assets.The U.S. Court of Appeals for the Seventh Circuit recently examined the scope of 363(m) in Archer-Daniels-Midland Co. v. Country Visions Cooperative, 29 F.4th 956 (7th Cir. 2022).

he bankruptcy estate "free and clear" of "any interest in property" asserted by a non-debtor is an important tool designed to maximize the value of the estate for the benefit of all stakeholders. The U.S. Bankruptcy Court for the Southern District of Illinois recently examined whether such interests include "successor liability" claims that might otherwise be asserted against the purchaser of a debtor's assets. In In re Norrenberns Foods, Inc., 642 B.R. 825 (Bankr. S.D. Ill. 2022), appeal dismissed, No. 22-1460 (S.D. Ill. Aug. 5, 2022), the court granted a debtor-in-possession's motion to sell substantially all of its assets free and clear of claims asserted by a union pension fund against the debtor and the purchaser for withdrawal liability under the Employment Retirement Income Security Act ("ERISA"). In so ruling, the bankruptcy court "follow[ed] the majority trend to interpret the term 'interest' broadly," finding that "successor liability claims are an 'interest' for purposes of Section 363(f) of the Bankruptcy Code."Free and Clear Bankruptcy SalesSection 363(b)(1) of the Bankruptcy Code provides in relevant part that a bankruptcy trustee or chapter 11 debtor-in-possession, "after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." Courts generally apply some form of a business judgment test in determining whether to approve a proposed use, sale, or lease of estate property under section 363(b)(1). See ASARCO, Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.),650 F.3d 593, 601 (5th Cir. 2011); In re Stearns Holdings, LLC, 607 B.R. 781, 792 (Bankr. S.D.N.Y. 2019); In re Friedman's, Inc., 336 B.R. 891, 895 (Bankr. S.D. Ga. 2005); see generally Collier on Bankruptcy ("Collier") ¶ 363.02[4] (16th ed. 2022).Under this deferential standard, a bankruptcy court will generally approve a reasoned decision by a trustee or debtor-in-possession to use, sell, or lease estate property outside the ordinary course of business. See In re Alpha Nat. Res.,