Ten months ago, the Supreme Court ruled unanimously that Section 363(m) is not jurisdictional but is a limitation on the remedy available to an appellate court on an appeal from an order approving a sale. MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288 (April 19, 2023). To read ABI’s report, click here.
In an opinion on February 20, the Fifth Circuit rejected the idea that MOAC wrought major changes limiting the efficacy of Section 363(m) in dismissing appeals from sale orders. Succinctly, the Fifth Circuit said, “Section 363(m) is alive and well and waivable. It was not waived here.”
The Plan Cut Off Subrogation Rights
The chapter 11 debtor was an operator of offshore oil and gas wells. The confirmed chapter 11 plan barred sureties from asserting subrogation rights. The plan was consummated. The sureties appealed but were denied a stay pending appeal.
The district court didn’t reach the merits. Instead, the district court decided that the appeal was equitably moot and statutorily moot under Section 363(m).
In his opinion for the Court of Appeals, Circuit Judge Leslie H. Southwick held that the appeal was moot under Section 363(m) and said he therefore “will not reach [the district] court’s alternative holding that the challenge was equitably moot as well.”
Section 363(m)
Section 363(m) provides:
The 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 . . . 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 Southwick recited how the sureties argued on appeal that MOAC “fundamentally narrowed the provision’s ability to bar relief on appeal.” To the contrary, he saw in MOAC “no narrowing of the effect of Section 363(m) other than to clarify that a party can lose the benefit of its terms” by waiver or forfeiture.
Observing that the sureties were not contending on appeal that the debtor had waived or forfeited protection by Section 363(m), Judge Southwick examined whether the application of the section was “otherwise appropriate.”
Regarding the propriety of invoking Section 363(m), the sureties argued that the section did not apply because they had sought a stay pending appeal, albeit unsuccessfully. Citing the circuit’s own precedent, he said that failure to obtain a stay by itself is “fatal.”
Since barring subrogation rights was integral to the sale, Judge Southwick upheld the district court’s conclusion that the appeal was “statutorily moot.”
Ten months ago, the Supreme Court ruled unanimously that Section 363(m) is not jurisdictional but is a limitation on the remedy available to an appellate court on an appeal from an order approving a sale. MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288 (April 19, 2023).
In an opinion on February 20, the Fifth Circuit rejected the idea that MOAC wrought major changes limiting the efficacy of Section 363(m) in dismissing appeals from sale orders. Succinctly, the Fifth Circuit said, “Section 363(m) is alive and well and waivable. It was not waived here.”