Schepis v. Burtch (In re Pursuit Capital Management, LLC)

Section 363(m) allows an appeal if the remedy won’t upset the sale itself, Third Circuit says.

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Case Type:
Case Status:
No. 16-3953 (Pursuit Capital Mgmt. Fund I, L.P. v. Burtch (In re Pursuit Capital Mgmt., LLC), 2017 U.S. App. LEXIS 20889) (3rd Circuit, Oct 24,2017) Published
In this precedential ruling, the Third Circuit ruled that Section 363(m) moots a challenge to a trustee's sale of avoidance actions because the appellant did not obtain a stay pending appeal and a ruling would effect the validity of such a sale. The Court stressed that it was not deciding the ultimate issue of whether a Trustee was authorized to sell avoidance actions to third parties, which the Court left for another day.
Procedural context:
On Appeal from the from the United States District Court for the District of Delaware (D.C. No. 1-15-cv-00801) District Judge: Hon. Richard G. Andrews, Third Circuit affirmed the District Court.
A chapter 7 trustee reached an agreement to sell certain claims including avoidance actions to certain of the debtor’s creditors (the “Creditor Group”). After the Trustee sought court approval of the sale, the parties against whom the claims were to be asserted (the “Pursuit Parties”) objected to the sale and sought to purchase the claims themselves to avoid litigation. After protracted sale proceedings, the Trustee held an auction at which the Creditor Group ultimately succeeded as the purchaser of the claims. The Pursuit Parties objected to approval of the sale arguing, among other things, that the Trustee could not assign avoidance actions to third parties that were not fiduciaries. Significantly, the Trustee's sale to the Creditor Group required the Creditor Group to return any net proceeds from the litigation to be pursued to the estate for distribution to creditors. The Creditor Group promptly sued the Pursuit Parties and the litigation was put on hold while the appeal was prosecuted. The Third Circuit concluded the appeal was moot, rejecting the Pursuit Parties' arguments that the appeal could be decided without a stay having been obtained.
JORDAN, KRAUSE, Circuit Judges and RICHARD G. STEARNS, District Judge sitting by designation

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