MEMORANDUM OPINION AND ORDER
On June 16, 1993, the Appellants, Franz and Use Scherer, appealed to this court to challenge a bankruptcy court’s order authorizing the sale of an asset in which the Scherers have a security interest. The Scherers argue the bankruptcy court erred because it did not condition the sale upon compliance with state foreclosure law. In the alternative, they argue the bankruptcy order violates Section 363(f) of the Bankruptcy Code. The Appellees, Terrace Chalet Apartments and the Federal National Mortgage Association, argue that the sale need not comply with state law. They further argue that the Scherers waived their right to contest the validity of the bankruptcy order under Section 363(f). Finally, they contend the sale is excepted from Section 363(f) under 363(f)(3), 363(f)(4) and/or 363(f)(5). For the reasons set forth in this opinion, the bankruptcy order is remanded for further consideration consistent with this decision.
I. STATEMENT OF FACTS
This appeal is taken from the order entered by the bankruptcy court on April 9, 1993 (the “Order”) in the Chapter 11 proceedings of Terrace Chalet Apartments, Ltd. (“Terrace Chalet”). The Order allows for the auction of Terrace Chalet’s sole asset, a 180-unit apartment complex known as Camelot Arms.
In October 1984, Terrace Chalet purchased Camelot Arms for $4,250,000 from the Scherers. The Scherers loaned Terrace Chalet $1,050,000 and secured the loan by
In January of 1993, Fannie Mae moved the bankruptcy court to lift the automatic stay 1 and to allow Fannie Mae to foreclose on its mortgage; Fannie Mae contended its interest in the Camelot Arms was not adequately protected. In February of 1993, the bankruptcy court began to conduct hearings on the issue. At the March 4th hearing, Terrace Chalet and Fannie Mae advised the court they had successfully negotiated a settlement agreement the previous night. The court therefore adjourned the hearings on adequate protection.
According to the proposed agreement, Fannie Mae would attempt to sell its interest in Camelot Arms to a third party for $4,200,000. If Fannie Mae was unable to consummate such a purchase before February 14, 1994, Terrace Chalet would sell the property at a public auction on March 7, 1994 pursuant to Section 363(b) of the Bankruptcy Code.
The proposed settlement agreement further provided that the sale of Camelot Arms at the auction would extinguish the Scherers’ security interest. The Scherers filed written objections with the bankruptcy court, and the bankruptcy court heard oral arguments regarding the settlement agreement. The court decided the sale did not violate Section 363(f) and adopted the settlement agreement as a bankruptcy order.
II. DISCUSSION
Section 363 of the Bankruptcy Code provides in pertinent part:
(b)(1) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate....
(f) The trustee may sell property under subsection (b) ... of this section free and clear of any interest in such property of an entity other than the estate, only if—
(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.
11 U.S.C. § 363 (1993).
1. Whether a Sale Under Section 363 Must Comply With State Foreclosure Law
The Scherers argue that the bankruptcy court erred by failing to condition the trustee’s sale of Camelot Arms upon compliance with the procedural requirements of Wisconsin foreclosure law. However, the Bankruptcy Rules — not state law — provide the procedural requirements with which a bankruptcy trustee must comply. The Rules expressly provide that the trustee need only give 20 days notice to sell property pursuant to Section 363(b). Fed.R.Bankr.P. 2002(a)(2). The Rules further provide that such a sale may be private or by public auction. Fed.R.Bankr.P. 6004(f)(1). Because the United States Supreme Court has established these requirements, it is specious for the Scherers to argue that a trustee must comply with the requirements of Wisconsin foreclosure law. Indeed, the Scherers have cited no statutory authority for this proposition. Moreover, the Scherers have not presented this court with any cases which have interpreted Section 363(b) as requiring compliance
2. Whether the Scherers Waived their Right to Argue that Section 363(f) Prohibits the Extinguishment of their Lien
The Scherers argue that Section 363(f) invalidates the portion of the Order which provides for the extinguishment of the Scherers’ lien. Section 363(f) provides that a sale cannot extinguish a secured party’s lien unless one of the five specified exceptions applies. 11 U.S.C. § 363(f)(1)-(5).
Fannie Mae asserts the Scherers waived their right to argue that Section 363(f) prohibits the extinguishment of their lien because the Scherers failed to raise the issue before the bankruptcy court. However, “[w]hile it is true that an argument cannot be raised for the first time on appeal, it is also true that a party may attack the legal theory upon which the [lower] court based its decision.”
Allison v. Ticor Title Ins. Co.,
In Allison, the plaintiffs had leasehold interests in property owned by a Chapter 7 debtor. Id. at 1190. The bankruptcy trustee was able to sell the property free and clear of the plaintiffs’ interests. Id. at 1191-92. The plaintiffs sued the insurance title company because the company failed to honor the insurance policies and to defend the plaintiffs’ interests. Id. at 1190. In its brief on appeal, the insurance company argued it was not liable; it reasoned that the plaintiffs consented to the sale under Section 363(f)(2) because they had failed to object to it. Id. at 1194. The plaintiffs in Allison correctly noted that the insurance company failed to even mention Section 363(f)(2) to the lower court. Id. The Seventh Circuit Court of Appeals noted, however, that the lower court had held, “[t]here is no law that provides that failure to object renders a ... Settlement Agreement invalid.” Id. Because the lower court implicitly predicated its ruling upon Section 363(f)(2), the Seventh Circuit held that the insurance company could challenge this determination on appeal, although it had failed to raise the issue previously. Id.
Similarly, in their brief to the bankruptcy court, the Scherers neglected to mention Section 363(f); they argued merely that the sale of Camelot Arms fails to provide them “any of the protections afforded by the Bankruptcy Code.” Appellants’ Objections to “Agreed Order to Provide Adequate Protection to First National Mortgage Association” at 2, No. 92-B-18070 (Bankr.N.D.Ill.1993), reprinted in Record at 18. However, the Order itself provides that Camelot Arms “will be sold free and clear of all liens, claims or encumbrances pursuant to Section 363 of the Bankruptcy Code.” Record at 2. Indeed, when it adopted the Order, the bankruptcy court noted, “If we were to go forward with a 363 sale. ... your lien could be wiped out entirely.” Record at 64. Under Allison, because the bankruptcy court explicitly permitted the sale free and clear of the Scherers’ lien pursuant to Section 363(f), the Scherers have the right to argue before this court that Section 363(f) does not authorize such a sale. Therefore, Fannie Mae’s contention is rejected.
3. Whether the Trustee Can Sell the Camelot Arms Pursuant to Section 363(f)(3)
A sale which extinguishes a lien may proceed under Section 363(f)(3) if the proceeds from the sale of the asset exceed “the aggregate value of all liens” on the property. 11 U.S.C. § 363(f)(3). The federal courts are sharply divided as to the meaning of the term “value of all liens.”
Other courts, however, hold that “value of all liens” means the face amount of the lien.
In re Stroud Wholesale, Inc.,
In
dicta,
the Seventh Circuit Court of Appeals has espoused the second interpretation. In
Riverside Investment Partnership,
the Seventh Circuit stated, “[a]s a general rule, the bankruptcy court should not order property sold ‘free and clear of’ liens unless the court is satisfied that the sale proceeds
will fully compensate secured lienholders and produce some equity for the benefit of the bankrupt’s estate.” In re Riverside Inv. Partnership,
The result reached by the Seventh Circuit in dicta accords with Congress’ intent in enacting Section 363(f). In discussing Section 363(f), the House and Senate Reports stress that “[t]he trustee may sell free and clear if ... the sale price of the property is greater than the amount secured by the lien.” H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 345 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6301-02 (emphasis added); S.Rep.No. 95-989, 95th Cong., 2d Sess. 56 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5842 (emphasis added). These reports expressly provide that Congress intended Section 363(f) to protect the amount of secured debt, not the actual economic value of the lien.
The Bankruptcy Amendments of 1984 further demonstrate that Section 363(f) does not protect merely the actual value of the lien. Previously, Section 363(f)(3) authorized a sale free and clear of liens if the sale proceeds exceeded the value of the “interests” of secured parties in the property. Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 372. In 1984, Congress amended Section 363(f)(3) to authorize a sale if the proceeds exceeded the value of “all liens on the property.”
Id.
When Congress intends to denote the concept of “actual value” in the Bankruptcy Code, it consistently refers to the value of the secured party’s
interest. E.g.,
11 U.S.C. § 361 (using the phrase “the interest of an entity in property” to express the concept of actual value); 11 U.S.C. § 506(a) (using
Further, the reasoning upon which the interpretation in
Beker
is predicated actually buttresses the interpretation in
Riverside Investment Partnership.
The courts that have adopted the interpretation espoused in
Beker
rely upon the “interplay of [Sections] 506(a) and 363(f)(3).”
Beker,
The interpretation that Section 363(f)(3) protects more than actual value comports with the axiomatic principle of statutory construction that unless the context dictates otherwise, “terms connected by a disjunctive [should] be given separate meanings.”
Reiter v. Sonotone Corp.,
Moreover, even if this court would agree with the
Beker
line of decisions, the holdings of these cases would not apply to the instant case. The instant case involves the sale of the estate’s sole asset. The courts that have permitted a sale free of a secured party’s interest have expressly cautioned that such authorization may be inappropriate when the contemplated sale involves the estate’s only asset.
Beker,
Finally, it bears noting that the Court of Appeals’ statement in
Riverside Investment
is only the “general rule.”
Riverside Investment,
Therefore, Section 363(f)(3) simply does not authorize the sale of Camelot Arms free and clear of the Scherers’ interest under the terms of the Bankruptcy Court’s April 9, 1993 Order.
4. Whether Section 363(f)(4) A uthorizes the Sale of Camelot Arms Free and Clear of the Scherers’ Interest
A trustee can sell estate property free and clear of a lien if the lien is in bona fide dispute. 11 U.S.C. § 363(f)(4). The trustee has the burden of establishing the existence of a bona fide dispute.
See, e.g., In re Octagon Roofing,
However, these cases address whether a
trustee
can request authorization from a court to sell the property free and clear of a lien when the dispute involves third parties. In the instant case, the trustee, Terrace Chalet, did
not
argue either to the bankruptcy court or to this court that the sale can be authorized under Section 363(f)(4). Indeed, Terrace Chalet did not contend that the Scherers lacked a valid security interest. Rather, in its brief to this court, Terrace Chalet consistently acknowledged the validity of the Scherers’
5. Whether the Sale Free and Clear of the Scherers’ Lien Can Be Authorized under Section 363(f)(5)
Finally, the Appellees urge that the sale will extinguish the Scherers’ lien because the Scherers “could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.” 11 U.S.C. § 363(f)(5). The federal courts have espoused two interpretations of Section 363(f)(5). Some courts interpret this provision as meaning that the trustee must pay the full amount of the secured party’s lien, unless “equitable considerations” will justify lien extinguishment upon realization of less than the full amount of the secured debt.
In re Wing,
First, the clear statutory language suggests a Section 1129(b)(2) cram down. Section 363(f)(5) permits a sale free and clear of a lien if the creditor could be “compelled” to accept a monetary satisfaction of the claim. 11 U.S.C. § 363(f)(5). In a cram down, a creditor is compelled to accept monetary satisfaction of her claim and the consequent extinguishment of her lien.
In re James Wilson Ass’n,
Further, the decisions that require full satisfaction absent a showing of equitable consideration fail to capture the essence of Section 363(f)(5). As discússed supra, Section 363(f)(3) addresses how much a trustee must pay a secured creditor to extinguish the lien. Section 363(f)(5) would repeat Section 363(f)(3) if it were interpreted merely to require a specific amount of money that the trustee could pay in order to sell the property free and clear of a lien. By its express terms, Section 363(f)(5) permits lien extinguishment if the trustee can demonstrate the existence of another legal mechanism by which a lien could be extinguished without full satisfaction of the secured debt. Section 1129(b)(2) cram down is such a provision. Therefore, this court holds that Terrace Chalet can sell Camelot Arms free of the Scherers’ lien if it demonstrates it can cram down the Scherers pursuant to Section 1129(b)(2).
As discussed above, a trustee must demonstrate good faith to effectuate a cram down. It is important to emphasize the good faith requirement. In the instant case, Terrace Chalet filed for reorganization. Although reorganizing, it seeks to sell the sole asset of the estate and to accomplish this sale by extinguishing the Scherers’ lien. Because the estate will no longer contain any property, it is not clear how Terrace Chalet intends to reorganize or to make a good faith effort to remuner
III. CONCLUSION
For the reasons set forth above, the bankruptcy court’s April 9, 1993 order is vacated and this case is remanded for further consideration consistent with this opinion.
Notes
. The filing of the bankruptcy petition activates an "automatic stay.” 11 U.S.C. § 362. The stay prevents creditors from taking any action to pursue their claims against either the debtor or the bankruptcy estate. Id.
. “Cram down” is a way for a trustee to confirm a reorganization plan absent creditor consent. In order to confirm a plan, the trusteg typically must demonstrate that each class of creditors have accepted the plan. 11 U.S.C. § 1129(a)(8). However, a trustee can “cram down” the plan on dissenting creditors if s/he demonstrates that the three stated requirements are satisfied. 11 U.S.C. § 1129(b).
. We need not decide whether or under what conditions a court may authorize a sale that extinguishes a secured party's lien in order to adequately protect another secured party.