For the second time this year, a panel of the Second Circuit has ruled in a nonprecedential opinion that the failure to obtain the stay of a sale approval order erects a jurisdiction bar to appeal under Section 363(m).
We put our cards on the table up front: True, earlier Second Circuit decisions said that Section 363(m) is jurisdictional in the absence of a stay pending appeal. However, this writer submits that the prior panels made a mistake committed by lawyers and judges who sometimes say there is no “jurisdiction” when it would be proper to say there is no “power.”
The facts of the case were laid out in our report last year on the opinion by the district court. MOAC Mall Holdings LLC v. Transform Holdco LLC (In re Sears Holdings Corp.), 616 B.R. 615 (S.D.N.Y. May 11, 2020) (“MOAC II”). To read ABI’s report on MOAC II, click here.
Truncated, here are the facts:
A landlord objected to the assignment of a lease but lost in bankruptcy court. Initially, the district court reversed the bankruptcy court, holding that a provision in a lease cannot supplant the requirement in Section 365(b)(3)(A) mandating that the financial condition of an assignee of a lease must be “similar to the financial condition . . . of the debtor . . . as of the time the debtor became the lessee under the lease . . . .” MOAC Mall Holdings LLC v. Transform Holdco LLC (In re Sears Holdings Corp.), 613 B.R. 51 (S.D.N.Y. May 11, 2020). (“MOAC I”). To read ABI’s report on MOAC I, click here.
Two weeks later, the purchaser of the lease filed a motion for rehearing. Although having taken contrary positions throughout, the purchaser contended for the first time on rehearing that the appeal should be dismissed under Section 363(m) because the landlord did not obtain a stay pending appeal. Previously, the purchaser had consistently contended that the transaction was not a sale and that Section 363 did not apply.
Without referring to jurisdiction, Section 363(m) says that reversal or modification “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 [to a purchaser in good faith] . . . unless such authorization and such sale or lease were stayed pending appeal.”
Ruling on the motion for rehearing in MOAC II, the district judge said that the buyer now “seeks to benefit from a complete reversal of that representation.” MOAC II, 616 B.R. at 626. Citing In re WestPoint Stevens Inc., 600 F.3d 231, 248 (2d Cir. 2010), and In re Gucci, 105 F.3d 837, 838–840 (2d Cir. 1997), the district judge said that the Second Circuit had twice held that Section 363(m) is “a jurisdiction-depriving statute.” Id. at 624.
In MOAC II, the district judge granted rehearing, concluded that she lacked appellate jurisdiction, vacated her earlier opinion, and dismissed the appeal. The Second Circuit affirmed in a nonprecedential, summary order on December 17.
The circuit panel was on firm ground by first holding that Section 363(m) applied. Like the district court, the appeals court said that the section “also limits appellate review of any transaction that is integral to a sale authorized under § 363(b).”
Finding Section 363(m) to be applicable was not the end of the story. If the question only deals with the appellate court’s power, the failure to raise Section 363(m) earlier can be waived. On the other hand, if the section goes to the court’s subject matter or appellate jurisdiction, it can never be waived and could be raised for the first time on appeal.
The circuit panel said that the landlord’s argument “is foreclosed by our binding precedent in In re WestPoint Stevens Inc., under which § 363(m) deprived the District Court of appellate jurisdiction.” Earlier this year, in another nonprecedential opinion citing WestPoint Stevens, a Second Circuit panel indeed had said that Section 363(m) is jurisdictional because it “creates a rule of statutory mootness.” Pursuit Holdings (NY) LLC v. Piazza (In re Pursuit Holdings (NY) LLC), 845 Fed. App’x 60, 62 (2d Cir. 2021).
A Circuit Split
There seems to be a circuit split on the question of whether Section 363(m) is jurisdictional. In its brief in the Second Circuit leading to the December 17 opinion, the landlord said, “This Court is the only circuit to describe § 363(m) using the term ‘jurisdictional.’”
Ideally, the landlord will file a motion for rehearing en banc or file a certiorari petition. It is not unusual for courts to conflate jurisdiction and power.
The distinction is critical, nonetheless. If Section 363(m) is jurisdiction even though the word “jurisdiction” is never used, courts may decide that other provisions throughout the U.S. Code silently deprive federal courts of jurisdiction.
A court may have jurisdiction but may lack power to impose a remedy in view of a statute limiting the power of the court or for prudential reasons. For example, Section 550(b) limits the power to recover a fraudulent transfer from a transferee but does not deprive the court of jurisdiction.
The appellate jurisdiction of district courts in bankruptcy cases is contained in 28 U.S.C. § 158. There is no jurisdictional carveout for approved sales in Section 158. The policy behind Section 363(m) can be enforced without depriving appellate courts of jurisdiction.
For the second time this year, a panel of the Second Circuit has ruled in a nonprecedential opinion that the failure to obtain the stay of a sale approval order erects a jurisdiction bar to appeal under Section 363(m).
We put our cards on the table up front: True, earlier Second Circuit decisions said that Section 363(m) is jurisdictional in the absence of a stay pending appeal. However, this writer submits that the prior panels made a mistake committed by lawyers and judges who sometimes say there is no “jurisdiction” when it would be proper to say there is no “power.”
The facts of the case were laid out in our report last year on the opinion by the district court. MOAC Mall Holdings LLC v. Transform Holdco LLC (In re Sears Holdings Corp.), 616 B.R. 615 (S.D.N.Y. May 11, 2020) (“MOAC II”)