596 B.R. 473
D. Del.2019Background
- Energy Future Holdings (EFH) and subsidiaries filed Chapter 11 in 2014; the confirmed Plan included a merger of EFH with Sempra and became effective March 9, 2018 after PUCT approval.
- Several wholly-owned EFH subsidiaries (the Asbestos Debtors) had former operations exposing workers to asbestos; many potential claimants ("Unmanifested Asbestos Claimants") did not have cognizable injuries by the court-set bar date and thus did not file claims.
- The Bankruptcy Court set a bar date for prepetition claims (including unmanifested asbestos claims); that bar date order was not appealed.
- The Bankruptcy Court entered a Confirmation Order approving the Plan and Merger Agreement; Appellants appealed the Confirmation Order but did not seek a stay of the order or the merger closing.
- Appellants argued the Bankruptcy Court erred by discharging unmanifested asbestos claims; appellees moved to dismiss the appeal as statutorily moot under 11 U.S.C. § 363(m) and on other grounds.
- The district court concluded Sempra was a good-faith purchaser, the Confirmation Order was an order authorizing a sale under § 363(m), no stay was obtained, and vacating or altering the Confirmation Order would affect the sale’s validity, so the appeal is statutorily moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Confirmation Order is an "order authorizing the sale" under § 363(m) | Confirmation Order is not a § 363 sale order because a separate Merger Approval Order approved the merger | Both Merger Approval Order and Confirmation Order were conditions to closing; Confirmation Order authorized the transactions under § 363 | Confirmation Order is an order authorizing the sale under § 363(m) |
| Whether the purchaser (Sempra) is a good-faith purchaser entitled to § 363(m) protection | Appellants suggested the § 363(m) finding was boilerplate and inadequate | Bankruptcy Court made an unchallenged finding Sempra acted in good faith | Court adopts Bankruptcy Court's unchallenged good-faith finding for Sempra |
| Whether failure to seek a stay excuses § 363(m) protections | Appellants said they could not post a bond to stay a $9.45B transaction so they could not obtain a stay | Inability to post bond does not excuse seeking a stay; courts can sometimes waive bond but appellants did not obtain a stay | No stay was requested/issued; inability to post bond does not excuse the failure to seek a stay |
| Whether reversing or modifying the Confirmation Order would affect validity of the sale (i.e., statutory mootness) | Vacation or "blue-penciling" to preserve unmanifested asbestos claims would be collateral and would not claw back the sale | Discharging unmanifested asbestos claims was central to purchaser certainty; adding those claims would alter the bargained-for liabilities | Discharge of unmanifested asbestos claims was a central element; any relief would affect sale validity, so appeal is statutorily moot under § 363(m) |
Key Cases Cited
- In re Pursuit Capital Mgmt., LLC, 874 F.3d 124 (3d Cir.) (statutory mootness under § 363(m) and concept of challenges to central elements of a sale)
- In re ICL Holding Co., 802 F.3d 547 (3d Cir.) (§ 363(m) protects sales from appeals that would claw back sold assets)
- Krebs Chrysler-Plymouth, Inc. v. Valley Motors, Inc., 141 F.3d 490 (3d Cir.) (framework for determining when § 363(m) moots appeals)
- Pittsburgh Food & Beverage, Inc. v. Ranallo, 112 F.3d 645 (3d Cir.) (challenge to a central element of a sale inevitably challenges sale validity)
- In re River West Plaza-Chicago, LLC, 664 F.3d 668 (7th Cir.) (policy rationale for protecting post-sale purchasers to encourage bidding)
- Bowen v. United States, 422 U.S. 916 (U.S.) (courts should avoid unnecessary constitutional rulings)