Order Approving an Option Held Non-Final and Non-Appealable

An order approving a lease with an option to purchase is not a final, appealable order, according to District Judge Beth Bloom of Miami.

Alongside confirmation of a reorganization plan, the chapter 11 trustee filed a motion to lease some of the estate’s property with an option to purchase the property for $6 million. The bankruptcy court approved the lease with purchase option and confirmed the plan six days later.

One of the debtor’s 50% shareholders appealed the order approving the lease with purchase option. Although the parties conceded that the district court had jurisdiction, Judge Bloom dismissed the appeal sua sponte for lack of appellate jurisdiction under 28 U.S.C. § 158(a) in a five-page opinion on October 23. She also ruled that the appeal was statutorily moot under Section 363(m).

Section 158(a) gives district courts jurisdiction over appeals “from final orders, judgments, and decrees.” Of course, Judge Bloom said that “finality is a more flexible concept in bankruptcy.”

With little analysis, Judge Bloom concluded that the order approving the lease with purchase option was not final and did not give appellate jurisdiction to the district court. Unlike an order approving an outright sale of property, she said that the bankruptcy court’s order “does not immediately and permanently transfer property rights.”

One wonders when a lease with a purchase option would become appealable? Was Judge Bloom inferring that the trustee was obliged to file a later motion to approve an exercise of the purchase option?

Judge Bloom then observed that the bankruptcy court’s approval of the lease with purchase option “may not have been required” because the debtor was in the business of leasing property, thus giving rise to an “ordinary course” transaction not requiring court approval.

“Properly viewed,” Judge Bloom said, the lease-approval order was part of the plan, “as opposed to a standalone order.”

However, Judge Bloom foreclosed a challenge to the lease as part of the shareholder’s separate appeal from confirmation, because she held that the lease-approval order was statutorily moot under Section 363(m), even if it were a final order.

Section 363(m) provides that reversal or modification of an order approving “a sale or lease of property does not affect the validity or a sale or lease . . . to an entity that purchased or leased such property in good faith . . . unless such authorization and such sale or lease were stayed pending appeal.”

To skirt Section 363(m), the shareholder argued on appeal that the lessee/purchaser was not in good faith. Judge Bloom ruled that the order was nevertheless statutorily moot because the appellant had not sought a stay pending appeal.

Judge Bloom may have been as disposing of a pesky appeal showing little merit. As an alternative to ruling that an option does not give rise to an appealable order, she might have dismissed the appeal for lack of appellate standing if the shareholder was not an “aggrieved person” with an economic interest in the outcome.