583 B.R. 203
8th Cir. BAP2018Background
- Debtors (Veg Liquidation, Inc. / All Veg, LLC) conducted a § 363 sale in Chapter 11; bidding procedures, auction, and Sale Order approving sale to Sager Creek were entered in Feb. 2014 and not appealed. Closing occurred Feb. 28, 2014.
- Cases were later converted to Chapter 7; R. Ray Fulmer, II was appointed Chapter 7 Trustee and filed an adversary complaint (2016) against ~25 defendants (creditors, committee members, professionals, second-lien holders) alleging fraud, collusion, fraudulent transfer, conversion, tortious interference, unjust enrichment, equitable subordination, and related claims arising from the sale.
- Defendants moved to dismiss; bankruptcy court dismissed two claims in Sept. 2016, and on May 2, 2017 dismissed the remaining claims as barred by the final Sale Order and 11 U.S.C. § 363(m); denied leave to amend.
- Trustee argued his claims seek damages (not a collateral attack), that he lacked privity, the Sale Order findings were unsupported/boilerplate, notice was deficient, Jevic and due-process concerns permit relief, and Rule 60 provides relief.
- Bankruptcy Appellate Panel affirmed: § 363(m) and the final Sale Order bar the Trustee’s claims; no timely Rule 60(b)(1)–(3) relief; Rule 60(b)(4)–(6) relief not warranted; amendment would be futile.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Trustee's suit is an impermissible collateral attack on an unappealed § 363 sale | Fulmer: suing for damages against "strangers" to sale, not appealing Sale Order; not collateral attack | Defendants: claims attack integral aspects of sale and thus effectively collateral attack on Sale Order protected by § 363(m) | Held: Claims are barred by final Sale Order and § 363(m); treated as collateral attack and dismissed |
| Applicability of § 363(m) protections to post-sale damage claims | Fulmer: § 363(m) inapplicable because he seeks damages, not to overturn sale; also lacks privity | Defendants: § 363(m) protects good-faith purchasers and shields related challenges that affect sale validity regardless of who brings them | Held: § 363(m) applies; protections extend broadly to preserve finality and shield parties who relied on Sale Order |
| Whether Jevic or priority-rule arguments void the Sale Order | Fulmer: Jevic prevents nonconsensual priority-skipping distributions and may render sale/order void | Defendants: Jevic inapplicable because Jevic involved a timely appeal of a structured dismissal; here no appeal or stay | Held: Jevic does not apply; § 363(m) bars collateral attack absent appeal/stay |
| Whether Rule 60 or due-process defects justify relief from Sale Order | Fulmer: Sale Order was unsupported/boilerplate; notice and hearing defects, so Rule 60(b)(4)/(5)/(6) or constitutional issues permit relief | Defendants: record shows notice, auction transcripts, and opportunity to be heard; Trustee delayed >1 year; constitutional claims unpersuasive | Held: Rule 60(b)(1)–(3) untimely; (b)(4)–(6) relief not justified—notice and hearing were adequate; no voiding of Sale Order |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (plausibility pleading standard)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading requires plausible factual allegations)
- Regions Bank v. J.R. Oil Co., LLC, 387 F.3d 721 (§ 363 sales produce rights "good as against the world" and are shielded from collateral attack)
- Official Comm. of Unsecured Creditors v. Trism, Inc., 328 F.3d 1003 (challenge to sale provisions that are integral to the sale affects sale validity; § 363(m) protects purchasers)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (final orders not void for mere error; adequate notice/preclusion of Rule 60 relief when party had opportunity to object)