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Under § 363 of the Bankruptcy Code, a trustee or debtor in possession may sell property “free and clear of any interest in such property of an entity other than the estate” if certain conditions are met.[1] That property may be sold “free and clear of any interest” has the effect of blocking post-sale claims against the purchaser, as “principles underlying the finality of 363 sale orders” are considered “much too important” for a court to otherwise deny full enforcement.[2]

Editor’s Note: This article was originally published by Law360 on April 24, 2014.
One of the highest-profile aspects of the City of Detroit’s chapter 9 case[1] has been the intense discussion of the fate of the Detroit Institute of Arts (DIA), which is almost unique among U.S. art museums in that its building and collection are owned by the city itself rather than by a charitable nonprofit entity. City ownership is what has put the DIA’s collection “in play,” as the city’s creditors are looking to the DIA’s rich collection as a potential source of repayment of the city’s debts.

In In re Tribune Co., 2014 WL 2797042 (D. Del. June 18, 2014), the U.S. District Court for the District of Delaware upheld Tribune Company’s plan of reorganization, dismissing a series of appeals as equitably moot. The court’s decision is of particular interest because it comes on the heels of a significant decision by the U.S. Court of Appeals for the Third Circuit in In re SemCrude L.P., 728 F.3d 314 (3d Cir. 2013), which articulated a narrow construction of the doctrine of equitable mootness.

Many potential buyers of assets out of bankruptcy assume that making a deposit gives them an option to walk away from the deal and lose nothing more than the amount they put down. In a recent case in the Southern District of New York, that assumption proved to be unwarranted — and costly to the reneging buyer, who ended up liable for damages equal to the difference between the price it had agreed to pay and the assets’ value as of the time of the purchaser’s breach.

With the increase of bankruptcies among retailers, online merchants and other consumer companies, the accumulated marketing and ordering information embedded in these companies databases are growing more and more valuable. These firms have built sophisticated analytics to improve sales results by massaging the acquisition data of each and every customer. This data in no way was responsible for the company's demise. More than likely, if it was carefully pursued, the company would not be in a bankruptcy situation. The disposal value of this customer information is extremely time-sensitive.

It doesn't take too much experience in the world of bankruptcy to learn that most of the time, when the proverbial train is leaving the station, it stops for no one. The bankruptcy court approves the transaction over objection and the objecting parties are unable to obtain a stay pending appeal. Because there is no stay pending appeal, the parties to the court-approved transaction head to closing table. The egg is scrambled and cannot be unscrambled. Any appeal is resisted, and often dismissed, on mootness grounds.

Rule 502 of the Federal Rules of Evidence (FRE), which became law in 2008, addresses whether a party’s disclosure of materials protected by the attorney-client privilege or the work-product rule effects a waiver and if so, whether that waiver should be considered a subject-matter waiver. Although parts of the rule restate prior law, FRE 502(d) provides specific authorization for a federal court to enter a new kind of order, decreeing that disclosure of a privileged document during litigation does not effect a waiver.