No matter how foreshortened the procedures, Section 363(m) moots an amended order approving the sale of a chapter 11 debtor’s assets. Even due process arguments go down the drain, the Fifth Circuit said.
A hospital was the largest healthcare provider in a rural county in Texas. The hospital was in dire financial condition, on the cusp of running out of cash and closing down.
Initially, there were no bids to buy the hospital in a chapter 11 sale. Finally, a buyer made an offer acceptable to the creditors’ committee, conditioned on financing. The bankruptcy court approved the sale before the lender completed its due diligence.
During the due diligence delay pushing back closing, the hospital received a large Medicaid payment. The buyer had been expecting the payment to arrive after closing and thus mitigate part of the purchase price. Evidently, the lender refused to provide financing unless the buyer had the benefit of the Medicaid payment.
To solve the predicament, the debtor filed an emergency motion to lower the purchase price to satisfy the lender and allow the sale to close. Without the amendment, the sale would not close and the hospital would have gone out of business.
The creditors opposed lowering the price, because the Medicaid payment wouldn’t be available for creditors. About 24 hours after the emergency motion was filed, the bankruptcy court entered an order amending the original sale order and lowering the price. The amendment order authorized an immediate closing and granted a waiver of the otherwise automatic 14-day stay under Bankruptcy Rule 6007(h).
The amendment order admonished any aggrieved party to file an appeal immediately and seek a stay. The sale closed less than 24 hours after entry of the amendment order.
The creditors’ committee did not seek a stay but filed an appeal just short of the appellate deadline. The district court dismissed the appeal as statutorily moot under Section 363(m). The district court also said that the appeal was equitably moot.
The creditors appealed to the Fifth Circuit but garnered little sympathy from Circuit Judge E. Grady Jolly in his July 12 opinion.
Equitable Mootness
Judge Jolly relegated equitable mootness to one footnote.
He ruled tersely that equitable mootness “cannot apply” because “there was no bankruptcy plan ever proposed in this case, let alone a plan confirmation order.”
Statutory Mootness
Section 363(m) provides:
The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section 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.
Judge Jolly cited Fifth Circuit precedent saying that the lack of a stay pending appeal is “fatal.” He added his own touch, “And fatal means fatal,” citing numerous Fifth Circuit decisions dismissing appeals from sale orders that were not stayed.
The creditors launched theories attempting to skirt Section 363(m). They argued that they were only appealing the amendment order, not the sale approval order that had been entered previously.
Judge Jolly said that the amendment order “never purported to authorize a new or different sale; it only amended the Sale Order. . . . The Amendment Order, rather than being a discrete decree, was integrally linked to, and indeed, inseparable from, the Sale Order.”
Due Process
The creditors argued that their constitutional rights to due process were violated by the lightning fast approval of the amendment order.
Judge Jolly had a terse response, again relegated to a footnote. He said, “Having decided this appeal on statutory mootness grounds, we will not address these arguments.”
No matter how foreshortened the procedures, Section 363(m) moots an amended order approving the sale of a chapter 11 debtor’s assets. Even due process arguments go down the drain, the Fifth Circuit said.
A hospital was the largest healthcare provider in a rural county in Texas. The hospital was in dire financial condition, on the cusp of running out of cash and closing down.
Initially, there were no bids to buy the hospital in a chapter 11 sale. Finally, a buyer made an offer acceptable to the creditors’ committee, conditioned on financing. The bankruptcy court approved the sale before the lender completed its due diligence.
During the due diligence delay pushing back closing, the hospital received a large Medicaid payment. The buyer had been expecting the payment to arrive after closing and thus mitigate part of the purchase price. Evidently, the lender refused to provide financing unless the buyer had the benefit of the Medicaid payment.
To solve the predicament, the debtor filed an emergency motion to lower the purchase price to satisfy the lender and allow the sale to close. Without the amendment, the sale would not close and the hospital would have gone out of business.
The creditors opposed lowering the price, because the Medicaid payment wouldn’t be available for creditors. About 24 hours after the emergency motion was filed, the bankruptcy court entered an order amending the original sale order and lowering the price. The amendment order authorized an immediate closing and granted a waiver of the otherwise automatic 14-day stay under Bankruptcy Rule 6007(h).
The amendment order admonished any aggrieved party to file an appeal immediately and seek a stay. The sale closed less than 24 hours after entry of the amendment order.
The creditors’ committee did not seek a stay but filed an appeal just short of the appellate deadline. The district court dismissed the appeal as statutorily moot under Section 363(m). The district court also said that the appeal was equitably moot.
The creditors appealed to the Fifth Circuit but garnered little sympathy from Circuit Judge E. Grady Jolly in his July 12 opinion.