Said Adeli v. Christopher Barclay
834 F.3d 1036
| 9th Cir. | 2016Background
- Debtor Berkeley Delaware Court, LLC filed multiple bankruptcies after a construction loan with First-Citizens led to foreclosure and litigation; First-Citizens bought the loan and later foreclosed and sold the project, leaving a large deficiency claim.
- A Chapter 7 Trustee later negotiated a Rule 9019 settlement permitting First-Citizens to purchase the estate’s legal claims (subject to overbids) in exchange for cash and waivers of deficiency and administrative claims.
- The bankruptcy court approved the settlement and § 363(b) sale; no third-party overbids were received.
- Adeli (appealing party) appealed the bankruptcy court’s approval but did not obtain a stay of the sale pending appeal.
- The district court dismissed Adeli’s appeal as moot under 11 U.S.C. § 363(m); Adeli appealed to the Ninth Circuit.
- The Ninth Circuit affirmed, holding § 363 may apply to sales of estate claims under Rule 9019 and that the sale was protected by § 363(m) because First-Citizens was a good-faith purchaser and Adeli failed to stay the sale.
Issues
| Issue | Plaintiff's Argument (Adeli) | Defendant's Argument (Trustee/First-Citizens) | Held |
|---|---|---|---|
| Whether § 363 applies to sale/settlement of estate’s potential legal claims | § 363 governs sales of estate property, not settlements of potential claims; thus § 363(m) mootness rule should not apply | A sale/compromise of an estate claim is the functional equivalent of a sale of estate property and § 363 procedures can apply | Court: § 363 can apply to sales of estate claims approved under Rule 9019 |
| Whether failure to attract overbids or purchaser’s status defeats § 363(m) protection | Overbid procedures failed and First-Citizens shouldn’t get finality protections; carve out exception | § 363(m) requires a stay regardless of whether third parties bid; finality protects good-faith purchasers | Court: No exception; failure to attract bidders does not avoid § 363(m) |
| Whether language of settlement contract exempts parties from § 363(m) stay requirement | Settlement’s condition of effectiveness upon a final non-appealable order shows intent to avoid § 363(m) | Condition does not negate statutory stay requirement; parties proceeded as if order was final | Court: Contract language does not exempt parties from § 363(m) |
| Whether purchaser lacked good faith so § 363(m) inapplicable | Trustee’s assessment was insufficient; alleged collusion or unfair advantage | Bankruptcy court found arm’s-length negotiation and Trustee’s investigation; no evidence of fraud or collusion | Court: No clear error; First-Citizens was a good-faith purchaser, so § 363(m) applies |
Key Cases Cited
- In re Onouli-Kona Land Co., 846 F.2d 1170 (9th Cir. 1988) (finality of sales and protection for good-faith purchasers under § 363(m))
- In re Ewell, 958 F.2d 276 (9th Cir. 1992) (appellate review standards and recognition of narrow § 363(m) exceptions)
- In re Moore, 608 F.3d 253 (5th Cir. 2010) (trustee may sell litigation claims under § 363(b))
- In re Martin, 91 F.3d 389 (3d Cir. 1996) (§ 363 procedures may govern settlement involving release of claims)
- In re Filtercorp, Inc., 163 F.3d 570 (9th Cir. 1998) (good-faith purchaser standard under § 363(m))
- In re A & C Props., 784 F.2d 1377 (9th Cir. 1986) (standards for approval of settlements under Rule 9019)