In re Flynn

Summarized by Michael Herz , Fox Rothschild LLP
15 years 2 weeks ago

Citation:

No formal citation (3d Cir., docket no. 10-2914, 3/15/11)

Tag(s):

3rd Circuit

Ruling:

NOTE: This Opinion is stamped as "Not Precedential" 11 U.S.C. § 363(m) prohibits reversal of a sale to a good faith purchaser of bankruptcy estate property if the objecting party failed to obtain a stay of the sale. There is a two-pronged test for whether an appeal of a sale or lease is moot under § 363(m): 1) The underlying sale or lease must not have been stayed pending appeal, and 2) Reversing or modifying the authorization to sell would affect the validity of the sale or lease. The first prong did not apply as the debtor did seek a stay of the sale, meaning the only issue is whether the debtor's appeal was moot because vacating or modifying the Order would affect the validity of the sale. Given the price paid by the purchaser, the fact that the purchaser assumed several times the purchase price in liabilities, that the purchaser had been operating the franchises without the debtor since assuming the franchise agreements, and that there was no evidence that the purchaser was not a good-faith purchase or that there was any bad faith with respect to the transaction, allowing the debtor to void the sale would be impermissible under 363(m) because doing so would affect the validity of the sale.

Procedural context:

Appeal of District Court's finding that debtor's prior appeal of Bankruptcy Court's Order authorizing Chapter 7 trustee to effectuate sale of assets, was moot under 11 U.S.C. § 363(m).

Facts:

In a case converted from Chapter 11 to Chapter 7, Chapter 7 trustee moved for authorization to execute all necessary closing documents for the sale of Burger King franchises formerly owned by the debtor. The debtor objected to the motion on the grounds that he did not have any post-closing obligations to Burger King Corporation. Following a hearing, Burger King withdrew its request that the debtor have any continuing contingent liability following the sale, thereby mooting the debtor's objection and leading to the Bankruptcy Court authorizing the trustee to effectuate the sale. The debtor thereafter appealed to the District Court (D.N.J.) but did so without seeking to stay the pending sale pursuant to F.R.B.P. 8005. The trustee responded by moving to dismiss the appeal on mootness grounds pursuant to 11 U.S.C. § 363(m). The trustee's motion was granted, prompting the debtor to appeal to the 3rd Circuit.

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