BANKRUPTCY BULLETIN
In MOAC Mall Holdings LLC v. Transform Holdco LLC, the United States Supreme Court held that the case was not moot, and 11 U.S.C. § 363(m) of the Bankruptcy Code is not a jurisdictional provision that limits a court’s adjudicatory capacity.
The Bankruptcy Code under 11 U.S.C. § 363(b) permits a debtor-in-possession (or trustee) to sell or lease the bankruptcy estate’s property outside of the ordinary course of the bankruptcy entity’s business. Section 363(m) states that the “reversal or modification on appeal of an authorization under [§ 363(b)] 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.”
In the case, the debtor filed for Chapter 11 bankruptcy. The debtor exercised its § 363(b) powers by conveying assets in a sale to a buyer. The assets sold included the right of the buyer to designate to whom a lease between the debtor and the landlord should be assigned for certain retail space in a shopping center. Note that 11 U.S.C. § 365 of the Bankruptcy Code prohibits assignment of an unexpired lease to anyone without “adequate assurance of future performance by the assignee.” Further, Section 365 establishes adequate-assurance criteria related to a shopping center, which includes that the proposed assignee has a similar financial condition and operating performance as the debtor and the assignment will not disrupt the tenant mix in the shopping center.
The landlord objected to the buyer’s designation for the assignment. The bankruptcy court approved the assignment. The landlord appealed the assignment order to the district court. The district court vacated the assignment order. The buyer then sought a rehearing on the grounds that § 363(m) was applicable and required the district court to dismiss the appeal. The district court agreed and dismissed the landlord’s appeal, thus leaving the assignment order unscathed. The Second Circuit affirmed the dismissal of the landlord’s appeal based on § 363(m).
Before the United States Supreme Court, the buyer argued that the landlord’s appeal was moot. In rejecting the argument, the Supreme Court noted that the landlord simply sought typical appellate relief for the reversal of the district court’s decision.
Further, the Supreme Court held that Congress has not clearly stated that § 363(m) is a limit on judicial power, rather than a mere restriction on the effects of a valid exercise of that power when a party successfully appeals a court order authorizing a sale under § 363(b).
As a result, the Supreme Court vacated the judgement of the Second Circuit and remanded the case for further proceedings based on the high-court’s opinion that the case was not moot, and § 363(m) does not limit a court’s adjudicatory capacity.
To read the United States Supreme Court opinion, click here.
Editors-in-Chief:
C.J. Harayda, Stinson LLP
David M. Tanabe, Winthrop & Weinstine, P.A.