In re Alabama Aircraft Industries, Inc.

No. 12-1290
Transfer of a cause of action to a Litigation Trust - in accordance with the terms of an Asset Purchase Agreement - can be insulated from attack on appeal pursuant to Section 363(m). That section provides that “[t]he reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale . . . of property does not affect the validity of a sale . . . under such authorization to an entity that purchased or leased such property in good faith . . . unless such authorization and such sale . . . were stayed pending appeal.” In this instance, the Third Circuit found that invalidating the transfer of the cause of action would invalidate the related sale, since the value of the assets sold would be altered if the cause of action was not transferred in accordance with the terms of the applicable Asset Purchase Agreement. Accordingly, the Third Circuit dismissed the appeal as moot.
Procedural context:
Non-precedential decision; On appeal from the United States District Court for the District of Delaware (D.C. No. 1:11-cv-01003) following order affirming bankruptcy court's decision below.
The Debtor sold certain of its assets to a third party, Kaiser Aircraft. Pursuant to the Asset Purchase Agreement (APA) governing the sale to Kaiser, certain causes of action belonging to the Debtor were transferred to a Litigation Trust. Under the terms of the APA, 90% of the proceeds from the causes of action that were vested in the Trust went to Kaiser. Boeing, the party against whom certain of the transferred causes of action were asserted, sought to invalidate the transfer (the grounds of Boeing's objection were not specified). Since Boeing's objections were overruled and the sale was consummated, Section 363(m) was found to insulate the sale from attack on appeal.
McKee, Sloviter, and Vanaskie

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