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July 8‚ 2011
Are Bankruptcy Sales Finally Final?
By Kevin J. Walsh
and Ella Shenhav
Since it was issued three years ago by the Ninth Circuit
Bankruptcy Appellate Panel, the Clear Channel decision (Clear
Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25
(9th Cir. B.A.P. 2008)) has been widely criticized as “an aberration in
well-settled bankruptcy jurisprudence.” Before Clear Channel,
conventional wisdom (and what most people perceived to be the law)
supported the notion that a bankruptcy sale order that contained a good
faith finding under Section 363(m) could not be disturbed on appeal. Clear
Channel deeply shook all confidence in the finality of Section 363
sales. The decision has been assailed by various courts, but only recently
has a district court within the same jurisdiction flatly refused to follow Clear
Channel’s “unpersuasive” logic.
In Clear Channel, the Bankruptcy Appellate Panel drew
an arbitrary line between section 363(m) of the Bankruptcy Code, which
insulates sales and transfers from appellate review, and section 363(f),
which provides for sales free and clear of liens. The panel held that the
appeal by Clear Channel, a junior lienholder whose lien was stripped by the
sale, was not equitably moot, although the sale itself was final and
unappealable. Thus, while the panel agreed with the longstanding notion
that a court-approved sale cannot be judicially reviewed after it had been
completed, appellants could appeal the lien-stripping component of the
sale, thus stretching a previously short and efficient process into a
potentially lengthy and burdensome affair.
Clear Channel was quickly and widely denounced by
several courts around the country, such as the Sixth Circuit Bankruptcy
Appellate Panel (In re Nashville Senior Living, LLC, 407 B.R. 222,
231 (6th Cir. B.A.P. 2009) (stating that the “overwhelming weight of
authority disagrees” with Clear Channel’s holding)) and the Eighth
Circuit Court of Appeals (United States v. Asset Based Resource Grp.,
LLC, 612 F.3d 1017, 1019 (8th Cir. 2010) (quoting In re Nashville’s
characterization of Clear Channel as “an aberration”)). These courts
viewed the Clear Channel holding as severely undermining the
finality of Section 363 sales, injecting uncertainty and instability into
the process and ultimately chilling the bidding.
But not until now has a court in Clear Channel’s own
jurisdiction rejected that holding outright. The Clear Channel case
originated in the Bankruptcy Court for the Central District of California.
In two recent decisions, the District Court for the Central District of
California found the Clear Channel decision to be “unpersuasive” and
refused to follow it. In In re Thorpe Insulation Co., 2011 WL
1378537, *1 (C.D. Cal. April 11, 2011), the court took a first stab at Clear
Channel by stating it has been “widely criticized” and that it is
“generally unpersuasive.” Shortly after, a different district judge in the
same court issued a second opinion, In re NAMCO Capital Group, Inc.,
2011 WL 2312090 (C.D. Cal. June 7, 2011), citing the uncompromising
language used by other courts (but not citing Thorpe), and
denouncing Clear Channel even more forcefully as resting on faulty
logic.
Although these decisions by the district court do not
directly overrule the bankruptcy appellate panel’s Clear Channel holding, they serve as a powerful rebuke to its proponents.
Section 363 sales are designed as a quick and efficient tool for maximizing
the benefit to the estate. The finality of these sales is intended, among
other things, to encourage bidders to extend their highest and best offers
at the auction, knowing that the sale will not be second-guessed. While Clear
Channel introduced an uncertainty into the process and opened the door
to prolonged post-sale litigation, these recent district court decisions
should reinstate confidence in the finality of the sale and all its
attendant circumstances.
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