Mission Product Holdings, Inc. v. Schleicher & Stebbins Hotels, L.L.C. and Old Cold, LLC

Summary

The First Circuit affirmed a bankruptcy court order granting a secured creditor relief from the automatic stay under 11 U.S.C. § 362(d)(2), holding that the appeal was not moot despite the creditor's post-order disbursement of the debtor's remaining cash, because cash is fungible and disgorgement remains practicable when the recipient is a party to the appeal. The court also held that the bankruptcy court retained jurisdiction to decide the stay relief motion while a petition for certiorari was pending on a separate issue, as the stay relief did not interfere with the rights on appeal. On the merits, the court rejected the debtor's argument that the creditor implicitly waived its liens by matching a bid structure that "left behind" assets in the estate, finding no evidence of waiver and noting that such a theory would create an impermissible "lien laundry." Finally, the bankruptcy court did not abuse its discretion in denying discovery and an evidentiary hearing on the stay relief motion, as the creditor's lien validity was undisputed and the waiver claim lacked factual support.

Holdings

1. The appeal is not moot because cash is a fungible asset, and the court can order disgorgement of the cash from the party on appeal, which is feasible and provides meaningful relief.
2. The bankruptcy court retained jurisdiction because the stay relief motion did not interfere with the subject of the pending appeal. The appeal concerned only the merits of Mission's claim against the debtor, not the priority of that claim, and the stay relief order did not take away any benefit that the Supreme Court appeal might grant.
3. S&S did not waive its liens. The auction, the APA, and the sale order contained no reference to such a waiver, and there is no evidence that S&S intended to relinquish its security interest. The argument that a bidder could wash assets clean of liens by leaving them behind is unsupported by law and would allow lien laundering.
4. The bankruptcy court did not abuse its discretion in denying discovery and an evidentiary hearing because there were no disputed issues of material fact. The claim that S&S waived its liens was meritless based on the written record, and further discovery would have been a fishing expedition.

Questions Presented

1. Whether the appeal is moot due to the disbursement of the remaining cash to S&S.
2. Whether the bankruptcy court was divested of jurisdiction to decide the stay relief motion because Mission's petition for a writ of certiorari was pending.
3. Whether the bankruptcy court erred in granting relief from the automatic stay, including whether S&S waived its liens, and whether the bankruptcy court should have allowed discovery and an evidentiary hearing.

Disposition

affirmed