This holding is relevant to bankruptcy litigants, because if a statutory provision is jurisdictional, it can be invoked at any time during the pendency of an appeal and is not subject to doctrines such as waiver or judicial estoppel.
In MOAC Mall Holdings v. Transform Holdco, the Supreme Court of the United States addressed whether Section 363(m) of the Bankruptcy Code―which limits the effect of certain appeals on orders authorizing the sale or lease of bankruptcy estate property―is a jurisdictional provision. In a unanimous ruling, the Court held that Section 363(m) is not jurisdictional and therefore does not preclude an appellate court from adjudicating appeals of orders authorizing the sale or lease of estate property.
Section 363
Sections 363(b) and (c) of the Bankruptcy Code authorize a trustee or debtor-in-possession to use, sell or lease estate property outside of the ordinary course of business with bankruptcy court approval. Parties-in-interest may appeal a bankruptcy court’s order approving such a sale or lease over their objection, subject to certain limitations set forth in Section 363(m), which provides that:
The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.
11 U.S.C. § 363(m).
Facts and Procedural History
In 2018, Sears, Roebuck and Co. and certain of its affiliates filed for Chapter 11 bankruptcy protection. Sears, as debtor-in-possession, agreed to sell most of its assets to Transform Holdco LLC, and the U.S. Bankruptcy Court for the Southern District of New York issued an order approving the sale. As part of the sale, Transform purchased Sears’ right to assign certain leases, including a lease with MOAC Mall Holdings, the leasing company for the Minnesota Mall of America.
After the Bankruptcy Court authorized the sale, Transform assigned the Mall of America lease to its wholly owned subsidiary. MOAC objected to the assignment on the grounds that Sears did not provide “adequate assurance of future performance” as required by Section 365(b)(3). The Bankruptcy Court issued an order approving the assignment over MOAC’s objection.
Concerned that Section 363(m) would prevent an appellate court from invalidating the assignment order on appeal, MOAC asked the Bankruptcy Court to stay effectiveness of the order during the pendency of MOAC’s appeal. The Bankruptcy Court denied the request, reasoning that the assignment order is not the type of “authorization” subject to Section 363(m). Transform also assured the Bankruptcy Court that it would not invoke Section 363(m) to limit the effect of MOAC’s appeal.
On appeal, the U.S. District Court for the Southern District of New York agreed with MOAC on the merits and found that Sears did not provide adequate assurance of future performance under the lease. After this loss on the merits, and contrary to its prior statements to the Bankruptcy Court, Transform then argued for the first time that Section 363(m) deprived the District Court of jurisdiction to adjudicate MOAC’s appeal. The District Court, although “appalled” by Transform’s tactic in waiting to raise the issue, nevertheless ruled consistently with prior precedent in the Second Circuit that Section 363(m) was jurisdictional, which left the District Court without jurisdiction to hear MOAC’s appeal. This had the effect of nullifying MOAC’s prior victory on the merits. MOAC appealed the District Court’s Section 363(m) ruling to the U.S. Court of Appeals for the Second Circuit, which affirmed.
The U.S. Supreme Court’s Holding
MOAC appealed again to the U.S. Supreme Court, which granted certiorari to resolve a split between the circuits regarding whether an appellate court lacks jurisdiction to adjudicate the appeal of an order authorizing a sale or lease of estate property where Section 363(m) will ultimately prevent such appeal from affecting the validity of the underlying sale or lease.
The Court explained that statutory provisions that create preconditions for appellate relief are not automatically jurisdictional. In order for a provision to create a jurisdictional requirement, there must be a “clear statement” from Congress that it intended the statutory provision to be jurisdictional. Generally, jurisdictional rules “pertain to the power of the court rather than to the rights or obligations of the parties.”
Here, the Court found that nothing in the text of Section 363(m) purports to set limitations on judicial power or govern a court’s “adjudicatory capacity.” In fact, the text of Section 363(m) clearly contemplates that appellate courts can “reverse or modify” certain authorizations on appeal. Section 363(m) merely limits the impact of such an appeal or reversal on the underlying sale or lease if certain conditions are met.
The Court also looked to Section 363(m)’s placement in the context of the Bankruptcy Code. Section 363(m) does not appear in the part of the Bankruptcy Code that addresses federal courts’ jurisdiction over bankruptcy matters and does not have any “clear tie” to those jurisdictional provisions, lending further support to the Court’s view that Congress did not intend Section 363(m) to affect appellate courts’ jurisdiction.
In rejecting certain of Transform’s arguments to the contrary, the Court found that Transform improperly relied on numerous lower court decisions finding a precursor to Section 363(m) to be “jurisdictional.” The Court found that those lower-court rulings had been made before the Court’s effort to “bring some discipline” to the use of the term “jurisdictional,” and were therefore unpersuasive.
Conclusion and Commentary
Based on the foregoing analysis, the Court vacated the Second Circuit’s judgment and remanded the case. The Court’s opinion in MOAC Mall Holdings resolved a growing circuit split regarding whether Section 363(m) is jurisdictional. This holding is relevant to bankruptcy litigants, because if a statutory provision is jurisdictional, it can be invoked at any time during the pendency of an appeal and is not subject to doctrines such as waiver or judicial estoppel. Conversely, where a statutory provision is not jurisdictional—as is now confirmed with respect to Section 363(m)—failure to raise the argument in an objection or initial appeal could prevent the litigant from benefiting from that argument on appeal.
For More Information
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