879 F.3d 376
1st Cir.2018Background
- Tempnology (later Old Cold LLC) filed Chapter 11 and marketed Coolcore/Dr. Cool products; S&S (insider and prepetition lender) became stalking-horse bidder for a §363 sale.
- Mission held a perpetual, nonexclusive IP license and an exclusive U.S. distributorship; Mission terminated the distribution agreement triggering a two‑year wind‑down period, and an arbitration arising from Debtor’s attempted termination was pending.
- Debtor negotiated a forbearance with S&S that conditioned additional funding on filing bankruptcy and conducting a §363 sale; S&S stepped down from management before the sale.
- Auction proceeded with only Mission and S&S as bidders; S&S used credit bids (including pre‑petition debt) and ultimately was the winning bidder; bankruptcy court approved the sale, found S&S a good‑faith purchaser, and waived the automatic stays so the sale closed immediately.
- Mission appealed; the BAP affirmed the good‑faith finding and held §363(m) limited review absent a stay. After the sale closed and inventory was later sold to S&S, Mission continued its appeals.
Issues
| Issue | Mission's Argument | S&S/Debtor's Argument | Held |
|---|---|---|---|
| Whether §363(m) mootness bars Mission's challenge because purchaser was not in good faith | S&S was an insider, auction tainted by collusion/misconduct (forbearance, marketing limits, off‑record negotiations, post‑sale inventory transfer), so S&S lacked good faith | Bankruptcy court applied heightened scrutiny and found no misconduct; post‑sale inventory sale was fair and logical | Court affirmed: no clear error in finding S&S a good‑faith purchaser under §363(m) |
| Whether waiver of Bankruptcy Rule 6004(h) stay without adequate notice violates due process and defeats §363(m) protection | Debtor’s waiver prevented meaningful stay/appeal and thus due process required exception to §363(m) | Debtor gave repeated written and oral notice and explained need to close; court expressly found no just reason for delay | Court held Mission had notice and basis for waiver; due process argument fails |
| Whether post‑closing conduct (sale of inventory to S&S) undermines good‑faith finding | Post‑closing sale shows secret agreement and that only S&S could use branded inventory, lowering marketability and indicating collusion | Inventory sale was to the logical buyer; price was approved as fair; leaving inventory in the estate was proposed by Mission at auction | Court declined to overturn good‑faith finding on post‑sale facts; sale did not show collusion |
| Whether Jevic v. Jevic alters §363(m) protection because the sale may violate priority/absolute priority rules | Jevic requires strict enforcement of priority at end‑of‑case distributions, so the asset sale (and assumed liabilities) cannot be insulated by §363(m) | Jevic addressed structured dismissals, not §363(b) sales; §363(m) protects good‑faith, unstayed purchasers regardless of other objections | Court rejected the Jevic-based challenge and declined to create an exception to §363(m); Mission waived developed argumentation |
Key Cases Cited
- ASARCO, Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.), 650 F.3d 593 (5th Cir.) (discusses stalking‑horse bidding and credit bidding in §363 sales)
- Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063 (2d Cir.) (requires court to find good business reason and protect Chapter 11 substantive rights for §363 sales)
- Mark Bell Furniture Warehouse, Inc. v. D.M. Reid Assocs. (In re Mark Bell Furniture Warehouse, Inc.), 992 F.2d 7 (1st Cir.) (defines good‑faith purchaser for §363(m): buys in good faith, for value, without knowledge of adverse claims)
- Anheuser‑Busch, Inc. v. Miller (In re Stadium Mgmt. Corp.), 895 F.2d 845 (1st Cir.) (explains §363(m) renders moot appellate challenges to unstayed sales to good‑faith purchasers)
- Greylock Glen Corp. v. Comty. Sav. Bank, 656 F.2d 1 (1st Cir.) (‘‘for value’’ requirement in good‑faith inquiry)
- TMT Procurement Corp. v. Vantage Drilling Co. (In re TMT Procurement Corp.), 764 F.3d 512 (5th Cir.) (distinguishes knowledge of objections from knowledge of adverse claims for good‑faith analysis)
- Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2017) (enforces priority rules in structured dismissals; discussed by parties for priority‑related objections)