Summary
Under 11 U.S.C. § 363(m), a bankruptcy sale authorized by the court is protected from appellate modification if the purchaser acted in good faith and no stay was obtained pending appeal. The Fifth Circuit held that a debtor's failure to obtain a stay of the sale renders the appeal moot, even if the challenge is based on the bankruptcy court's alleged lack of subject matter jurisdiction. Additionally, arguments regarding the purchaser's good faith cannot be raised for the first time on appeal if not presented to the bankruptcy court.
Topics
Practice areas
Questions Presented
- Whether the district court properly dismissed the appeal as moot under 11 U.S.C. § 363(m) due to Gilchrist's failure to obtain a stay of the sale.
- Whether the bankruptcy court's alleged lack of subject matter jurisdiction excuses the failure to obtain a stay.
- Whether Westcott's good faith can be challenged for the first time on appeal.
Holdings
- Yes, the appeal is moot. Section 363(m) protects an authorized sale from modification on appeal where the purchaser acted in good faith and the sale was not stayed. Failure to obtain a stay moots the appeal.
- No, the failure to obtain a stay is fatal regardless of whether the bankruptcy court had jurisdiction. The court adopted the reasoning of In re Sax, 796 F.2d 994 (7th Cir. 1986), that valid procedural rules cannot be ignored because a jurisdictional decision is being challenged.
- No, arguments not raised in the bankruptcy court are not considered on appeal.
Key quotations
“The appellants raise the jurisdictional argument as if it somehow negates or excuses their failure to obtain a stay. It does not. This appeal is moot because [the appellants] failed to obtain a stay, so we cannot reach the question of whether the bankruptcy court had jurisdiction to order and approve the sale.... The bankruptcy court made the determination that it had jurisdiction; an issue which it had jurisdiction to decide.... That decision stands unless it is appealed properly.... Despite the maxim that 'subject matter jurisdiction can be raised at any time,' valid procedural rules cannot be ignored just because the jurisdictional decision is being challenged rather than the decision on the merits.” (at 559)
Factual background
The bankruptcy court entered an order approving the sale of certain assets to defendant Carl Westcott. Gilchrist failed to perfect an appeal from that order and did not obtain a stay pending appeal. Almost two years later, Gilchrist filed a motion for reconsideration under Fed.R.Civ.P. 60(b), which was denied. He appealed to the district court from the denial of that motion.
Procedural history
The bankruptcy court approved sale of assets to Westcott. Gilchrist did not appeal that order or obtain a stay. Nearly two years later, he moved for reconsideration under Rule 60(b); the motion was denied. He appealed to the district court, which dismissed the appeal as moot under 11 U.S.C. § 363(m). Gilchrist appeals to the Fifth Circuit.