Thomas E. Reynolds v. ServisFirst Bank

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[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 20-11652
____________________
In Re: ROBERT FLETCHER STANFORD, SR.,
FRANCES SHARPLES STANFORD,
Debtors.
___________________________________________________
THOMAS E. REYNOLDS,
trustee for Chapter 7 Estate of Robert F. Stanford, Sr.
and Frances S. Stanford,
Plaintiffs-Appellant,
versus
SERVISFIRST BANK,
Defendant-Appellee.
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2 Opinion of the Court 20-11652
____________________
Appeal from the United States District Court
for the Northern District of Alabama
D.C. Docket No. 2:19-cv-01901-ACA
____________________
Before JORDAN, BRASHER, and JULIE CARNES, Circuit Judges.
BRASHER, Circuit Judge:
This appeal comes to us from a bankruptcy court by way of
an appeal to a district court. The debtors asked the district court to
overturn the bankruptcy court’s order approving the sale of the
debtors’ real estate. The sale was finalized while the appeal was
pending, and the district court dismissed the appeal as statutorily
moot under 11 U.S.C. § 363(m). That section of the Bankruptcy
Code provides that “[t]he reversal or modification on appeal of an
authorization . . . 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.” 11 U.S.C. §
363(m).
Now, the debtors have appealed to us. Although the facts
are complicated and the procedural history is tangled, the question
for us is relatively straightforward: in light of our inability to undo
a completed sale to a good faith purchaser under Section 363(m),
can we grant the debtors any relief in this appeal? We hold that the
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20-11652 Opinion of the Court 3
answer is “no.” Accordingly, we agree with the district court that
the appeal is statutorily moot and affirm.
I. BACKGROUND
This appeal involves transactions in two separate Chapter 11
bankruptcy proceedings. Robert and Frances Stanford were debt-
ors in one of those proceedings. They owned American Printing
Company, which was a debtor in the other proceeding. Before the
Stanfords and APC declared bankruptcy, they each had borrowed
money from ServisFirst, and each served as guarantor for the
other’s debt. The Stanfords owed ServisFirst around $5 million for
which APC was the guarantor; APC owed ServisFirst around $7.2
million, for which the Stanfords were guarantors. The Stanfords
had secured their loans from ServisFirst with a piece of real prop-
erty.
After the Stanfords and APC declared bankruptcy, APC
sought permission from the bankruptcy court to acquire a debtor-
in-possession loan from ServisFirst of up to $13.2 million. That
amount would “roll up” the $12.2 million in debt that APC owed
or had guaranteed and provide APC an additional $1 million of
working capital. The bankruptcy court authorized the loan. At the
time the loan was authorized, neither APC, the Stanfords, nor
ServisFirst thought that ServisFirst’s loan to APC would affect
ServisFirst’s lien on the Stanfords’ real property.
About a month later, the Stanfords filed a motion in their
bankruptcy proceeding asking the bankruptcy court to approve the
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4 Opinion of the Court 20-11652
sale of that property to ServisFirst for $3.5 million. The Stanfords
filed their request under 11 U.S.C. § 363(b), which provides for the
sale of a bankruptcy estate’s assets outside the normal course of
business. The Stanfords knew that ServisFirst planned to purchase
the property with a credit bid against the Stanfords’ obligations to
ServisFirst. The bankruptcy court held a hearing on the motion and
later entered an order approving the sale of the property to
ServisFirst “via a credit bid of $3.5 million” under 11 U.S.C. §
363(k). In doing so, the bankruptcy court expressly found that
ServisFirst was “a good faith purchaser under Section 363(m) of the
Bankruptcy Code.” It also found that “the consideration provided
for in the Credit Bid constitutes the highest and/or best offer” and
“the consideration to be paid by [ServisFirst] under the Credit Bid
exceeds the liquidation value” of the property.
It was only at this point, after final approval of the sale, that
the Stanfords raised the possibility that ServisFirst’s roll-up loan to
APC had paid off their own debts to ServisFirst and, therefore, had
eliminated ServisFirst’s lien on their real property. Shortly after the
bankruptcy court approved the sale, the Stanfords filed a motion to
amend the sale order and to stay the sale. They argued that APC’s
roll-up loan had converted ServisFirst’s pre-petition claims against
the Stanfords and APC into post-petition administrative expense
claims against APC alone. They further argued that because
ServisFirst never required them to execute a guaranty of the roll-
up loan obligations, they had no remaining pre-petition obligations
to ServisFirst. Consequently, they argued, ServisFirst no longer
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20-11652 Opinion of the Court 5
held a lien on their property and was no longer a secured creditor
that could make a credit bid for that property.
ServisFirst opposed the motion, and the bankruptcy court
held another hearing. At that hearing, the Stanfords and one of
their unsecured creditors reiterated the arguments contained in the
motion to amend. The bankruptcy court rejected their arguments
for two reasons.
First, it rejected the Stanfords’ arguments on their merits. It
explained that after the roll-up loan, APC still owed ServisFirst the
approximately $7.2 million that it had borrowed. And, instead of
being a guarantor of the Stanfords’ debt, the bankruptcy court held
that APC was now a co-obligor on that debt. It concluded that the
roll-up loan had no other effect on the Stanfords’ obligations to
ServisFirst—including the lien that ServisFirst held on the Stan-
fords’ property.
Second, the bankruptcy court explained that the Stanfords
were foreclosed from arguing, after final approval of the sale, that
ServisFirst lacked a biddable interest in the property. The bank-
ruptcy court noted that either the Stanfords themselves or their at-
torneys were present at every hearing held in the APC bankruptcy
proceeding and had never raised the possibility that the roll-up loan
had extinguished ServisFirst’s interest in the property. It further
noted that the Stanfords had instead given every indication that
ServisFirst’s lien on the property survived the roll-up loan and that
ServisFirst’s credit bid was valid. Accordingly, the bankruptcy
court held that the doctrines of equitable estoppel, judicial
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6 Opinion of the Court 20-11652
estoppel, and law of the case barred the Stanfords from amending
the sale on the ground that ServisFirst lacked a biddable interest in
the property.
The bankruptcy court therefore denied the motion to
amend the sale order. It concluded that APC’s roll-up loan simply
“rolled up” all of APC’s obligations as a borrower and as a guaran-
tor, making APC an obligor or co-obligor on all debt owed to
ServisFirst without eliminating the Stanfords’ obligations to
ServisFirst.
The Stanfords appealed the sale order and the order denying
their motion to amend the sale order to the district court. The Stan-
fords also petitioned the bankruptcy court to stay the sale pending
appeal. The bankruptcy court granted a stay conditioned on the
posting of a $1.5 million supersedeas bond, which the Stanfords did
not post. Ultimately, the Stanfords delivered an executed deed to
the property to ServisFirst. The deed was duly recorded.
After consummating the sale, ServisFirst moved to dismiss
the Stanfords’ appeal as moot under 11 U.S.C. § 363(m). The dis-
trict court granted that motion. It explained that, because the Stan-
fords were unable to obtain a stay or prevent the sale from being
completed, it lacked authority to grant effective relief under the
Bankruptcy Code, rendering the appeal moot. The Stanfords
timely appealed to this Court.
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20-11652 Opinion of the Court 7
II. STANDARD OF REVIEW
When reviewing a district court’s appellate review of a bank-
ruptcy court’s decision, we apply the same standards of review as
the district court. See In re Walter Energy, Inc., 911 F.3d 1121, 1135
(11th Cir. 2018). Accordingly, we review conclusions of law drawn
by both the district court and the bankruptcy court de novo. We
review factual findings for clear error. See id. A factual finding is
clearly erroneous if the reviewing court examines the evidence and
is “left with the definite and firm conviction that a mistake has been
made.” In re Feshbach, 974 F.3d 1320, 1328 (11th Cir. 2020).
The Stanfords argue that ServisFirst is not a good faith pur-
chaser under the Bankruptcy Code provision governing sales of
debtor assets. Whether a buyer purchases in good faith is a mixed
question of fact and law. See In re Gucci, 126 F.3d 380, 390 (2d Cir.
1997). The standard of review for a mixed question depends on
“whether answering it entails primarily legal or factual work.” U.S.
Bank Nat’l Ass’n ex rel. CWCapital Asset Mgmt. LLC v. Vill. At
Lakeridge, LLC, 138 S. Ct. 960, 967 (2018). We review a mixed
question de novo when it requires us to “expound on the law, par-
ticularly by amplifying or elaborating on a broad legal standard.”
Id. We review a mixed question for clear error when it requires us
to “marshal and weigh evidence, make credibility judgments, and
otherwise address . . . ‘multifarious, fleeting, special, narrow facts
that utterly resist generalization.’” Id. (quoting Pierce v. Under-
wood, 487 U.S. 552, 561–62 (1988)).
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8 Opinion of the Court 20-11652
III. DISCUSSION
Before addressing the Stanfords’ arguments, we begin with
background on mootness in the context of bankruptcy appeals. “In
bankruptcy, mootness comes in a variety of flavors: constitutional,
equitable, and statutory.” In re PW, LLC, 391 B.R. 25, 33 (9th Cir.
BAP 2008). Constitutional mootness is jurisdictional and derives
from the case-or-controversy requirement of Article III. See id. If,
during an appeal, a court finds that it can no longer provide a plain-
tiff with effective relief, the case is usually moot. See Uzuegbunam
v. Preczewski, 141 S. Ct. 792, 796 (2021). Equitable mootness is, as
the name suggests, a doctrine of equity that moots an appeal be-
cause of (1) the effects of a reversal on third parties who have relied
on a bankruptcy court’s order or (2) the complexity and difficulty
of unwinding a contested transaction. See PW, 391 B.R. at 33. If a
third party has altered its position in reliance on a bankruptcy
court’s order or a transaction is simply too complex or difficult to
unwind, an appeal may be moot as a matter of equity. See id. at 34.
This appeal is about statutory mootness under Section
363(m). Statutory mootness is not based on the impossibility or in-
equity of relief, but the preclusion of relief under a statute. See id.
at 35; 3 Collier on Bankruptcy ¶ 363.11 (16th 2021). As relevant
here, Section 363(m) precludes an appellate court from reversing
or modifying a bankruptcy court’s authorization of a sale of a bank-
ruptcy estate’s property to someone who “purchased . . . such prop-
erty in good faith” under Section 363(b) or (c) unless the sale was
“stayed pending appeal.” 11 U.S.C. § 363(m). In other words, “once
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20-11652 Opinion of the Court 9
a sale is approved by the bankruptcy court and consummated by
the parties, the bankruptcy court’s authorization of the sale cannot
be effectively altered on appeal.” In re The Charter Co., 829 F.2d
1054, 1056 (11th Cir. 1987). The language of Section 363(m) “states
a flat rule governing all appeals of section 363 authorizations.” Id.By precluding the possibility of relief, Section 363(m) statutorily
“moots” appeals from authorizations under Section 363(b) or (c),
unless they are stayed.
Statutory mootness under 363(m), however, is not jurisdic-
tional. Though it provides a defense against appeals from bank-
ruptcy court orders, “even an ironclad defense, does not defeat ju-
risdiction.” See Trinity 83 Dev., LLC v. ColFin Midwest Funding,
LLC, 917 F.3d 599, 602 (7th Cir. 2019). Instead, even though courts
may retain appellate jurisdiction over appeals from Section 363 au-
thorizations, they are barred by the Code from affording the relief
an appellant seeks. Because a judicial opinion on the propriety of
the transaction would therefore be advisory-only, we consider such
appeals statutorily “moot.” See Chafin v. Chafin, 568 U.S. 165, 172
(2013).
A. The Stanfords’ Appeal Is Covered by Section 363(m)
We turn now to the Stanfords’ arguments. The Stanfords ar-
gue that Section 363(m) does not apply to their appeal for two rea-
sons. First, they argue that Section 363(m) shields from review only
transactions specifically authorized by the Bankruptcy Code, not
transactions authorized by bankruptcy courts. And they assert that
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10 Opinion of the Court 20-11652
this transaction was not authorized by the Code because
ServisFirst’s credit bid was invalid. Second, they argue that
ServisFirst was not a good faith purchaser because its purportedly
invalid credit bid did not provide any value. ServisFirst responds
that the district court properly applied Section 363(m) as a “flat
rule” mooting any appeal of a sale that was authorized by the bank-
ruptcy court, not stayed, and consummated. ServisFirst also argues
that it bid on the property in good faith, citing the bankruptcy
court’s express finding to that effect. We agree with ServisFirst and
hold that Section 363(m) applies to this appeal.
1. Section 363(m) Moots Appeals from Any Sale Authorized by
the Bankruptcy Court, Not Just Those Properly Authorized
by the Code
We begin our inquiry with the plain language of Section
363(m)’s text, which unambiguously supports ServisFirst’s posi-
tion. See Ga. Advoc. Off. v. Jackson, 4 F.4th 1200, 1211 (11th Cir.
2021). Section 363(b) and (c) provide that bankruptcy trustees and
debtors-in-possession must be “authorized” by the bankruptcy
court to use, sell, or lease certain property in the bankruptcy estate.
See 11 U.S.C. §§ 363(b)–(c), 1107(a). Then, Section 363(m) moots
an appeal from “an authorization under subsection (b) or (c) of this
section.” This language makes it clear that all “authorizations” are
covered, not just those that may be proper under the Code. The
rule’s applicability is further clarified by the conditional phrase “un-
less such authorization . . . were stayed.” This language further es-
tablishes that Section 363(m) moots appeals from any
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20-11652 Opinion of the Court 11
authorization of a sale by a court, because a court order—unlike a
Code provision—can be stayed.
We have adopted this interpretation of Section 363(m) be-
fore and remain bound by our precedent. In The Charter Com-
pany, we explained that “once a sale is approved by the bankruptcy
court and consummated by the parties, the bankruptcy court’s au-
thorization of the sale cannot be effectively altered on appeal.”
Charter, 829 F.2d at 1056 (emphasis added). We also rejected an
argument similar to the Stanfords’ here, namely that “the stay re-
quirement does not apply to a purchaser who challenges the au-
thorization”—in other words, that Section 363(m) shields only
sales properly authorized under the Code. Id. We instead held that
“[t]here is nothing in the language of section 363(m) to suggest that
such an exception exists” and that the language “states a flat rule
governing all appeals of section 363 authorizations.” Id.; see also 3
Collier on Bankruptcy ¶ 363.11 (16th 2021).
Importantly, the Stanfords do not challenge the credit bid
mechanism itself—they challenge a specific transaction involving a
credit bid. Accordingly, the Stanfords’ reliance on In re Saybrook
Manufacturing Co., Inc., 963 F.2d 1490 (11th Cir. 1992) is mis-
placed. Our Saybrook decision involved 11 U.S.C. § 364, which al-
lows trustees to obtain additional credit on behalf of Chapter 11
debtors and contains a 363(m)-like provision mooting appeals from
orders approving new loans to debtors. See 963 F.2d at 1495. In
Saybrook, a creditor held pre-petition debt that was under-secured.
Id. at 1491. To become fully secured, the creditor “cross-
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12 Opinion of the Court 20-11652
collateralized” the pre-petition debt by offering the debtor a new,
post-petition loan that was secured by all of the debtor’s property.
Id. Other creditors appealed on the ground that “cross-collaterali-
zation” of this kind was not allowed under Section 364. Id. at 1492.
The district court dismissed the appeal as moot. Id. We reversed,
holding that the appeal was not moot because, rather than chal-
lenging the propriety of a single transaction, the appeal challenged
the propriety of cross-collateralizations generally. Id. at 1496. Here,
the Stanfords are not challenging the propriety of credit bids gen-
erally, or even credit bids using disputed liens. Accordingly, Section
363(m) applies to their appeal.
2. The Stanfords Have Not Shown that ServisFirst Acted in
Bad Faith
Though a “flat” rule, Section 363(m)’s applicability is none-
theless conditioned on the presence of two factors: (1) the failure
of the appellant to obtain a stay of the sale order and (2) a sale trans-
acted with “an entity that purchased or leased [the] property in
good faith.” Consequently, several circuits have held that Section
363(m) allows limited appellate review on the issue of whether the
buyer acted in good faith. See James Lockhart, Construction and
Application of 11 U.S.C.A. § 363(m), 51 A.L.R. Fed. 2d 471 Art. 2 §
4 (2010) (citing reported cases from the First, Second, Third, Fifth,
Seventh, and Ninth Circuit Courts of Appeals holding that an ap-
peal is not moot under Section 363(m) “insofar as the appeal seeks
to challenge the good faith status of the purchaser or lessee”). We
agree that appellate courts can assess whether a buyer acted in
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20-11652 Opinion of the Court 13
good faith as part of its inquiry into whether Section 363(m) moots
an appeal. 1
For its part, the Bankruptcy Code does not define good faith.
But we have defined a “good faith purchaser” as “one who buys in
good faith, that is, free of any fraud or misconduct and for value
and without knowledge of any adverse claim.” Mia. Ctr. Ltd. P’ship
v. Bank of N.Y., 838 F.2d 1547, 1554 (11th Cir. 1988). Bankruptcy
courts in our Circuit have defined the term in a similar manner.
See, e.g., In re TLFO, LLC, 572 B.R. 391, 433 (Bankr. S.D. Fla. 2016)
(adopting “a traditional equitable definition” of “one who pur-
chases the assets for value, in good faith and without notice of ad-
verse claims”); In re Dawkins & Assocs., Inc., 56 B.R. 691, 692–93
(Bankr. M.D. Fla. 1986) (holding that an appeal was moot under
Section 363(m) where the sale was made “to a good-faith purchaser
for value”). And Collier’s treatise explains that in this context “[a]
good faith purchaser is ‘one who buys property . . . for value, with-
out knowledge of adverse claims.’” 3 Collier on Bankruptcy ¶
363.11 (16th 2021) (alteration in original). Accordingly, we will use
that well-established definition here.
The Stanfords assert that ServisFirst was not a good faith
purchaser. They argue that the roll-up loan satisfied their obliga-
tions to ServisFirst, which in turn extinguished the lien on their
property. They further contend that if their theory is correct, then
1We assume without deciding that the Stanfords preserved this argument in
bankruptcy court.
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14 Opinion of the Court 20-11652
ServisFirst lacked an interest with which to make a credit bid and
therefore offered nothing of value in the sale. Of course, the Stan-
fords previously argued that ServisFirst was a “‘good faith’ pur-
chaser within the meaning of section 363(m)” in their own motion
to approve the sale. And the bankruptcy court found as a matter of
fact that the “sale process and sale were non-collusive, fair and rea-
sonable, conducted . . . at arm’s length, and resulted in the Debtor
obtaining the highest and/or best value” for their property.
We cannot say that the bankruptcy court’s factual findings
were clearly erroneous. There is no evidence, for example, that
ServisFirst engaged in fraudulent behavior. The Stanfords do not
allege, as debtors sometimes do when alleging bad faith, that
ServisFirst bid a lien that never existed (e.g., that ServisFirst bid a
lien to purchase Property A when the lien was on Property B). In-
stead, they contend that ServisFirst bid a lien that had been extin-
guished by its roll-up loan to APC in an attempt “to satisfy a single
debt twice.” But it is undisputed that ServisFirst never intended to
do any such thing. It has always been ServisFirst’s position that the
roll-up loan did not affect its interest in the property at all—a posi-
tion held by all parties until the sale was finalized.
We hold that ServisFirst’s credit bid offered sufficient value
to support the bankruptcy court’s fact-finding, irrespective of the
roll-up loan’s alleged effect on ServisFirst’s lien. The bankruptcy
court concluded that its own order authorizing the loan had no ef-
fect on the lien. Cf. In re FFS Data, Inc., 776 F.3d 1299, 1303 (11th
Cir. 2015) (“Unless it clearly abused its discretion, ‘a bankruptcy
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20-11652 Opinion of the Court 15
court’s interpretation of its own order is entitled to substantial def-
erence.’” (quoting In re Optical Techs., Inc., 425 F.3d 1294, 1302–
03 (11th Cir. 2005))). But even if we view the lien as disputed, the
fact that a creditor’s lien is contested does not mean that it has no
value. Cf. Gowetz v. Comm’r, 320 F.2d 874, 876 (1st Cir. 1963)
(“Even a disputed claim may have a value, to which lawyers who
settle cases every day may well testify, fully as measurable as the
possible future amounts that may eventually accrue on an uncon-
tested claim.”). In fact, some courts have explicitly held that a dis-
puted lien can be used to credit bid under Section 363(k). See, e.g.,
In re Charles St. Afr. Methodist Episcopal Church, 510 B.R. 453,
458 (Bankr. D. Mass. 2014); In re Mia. Gen. Hosp., Inc., 81 B.R. 682,
687–88 (S.D. Fla. 1988). Although we need not go nearly that far,
we are confident that ServisFirst’s lien in this case—which was only
disputed by the Stanfords after the sale had been authorized—had
value enough to support the bankruptcy court’s fact-finding that
ServisFirst was a good faith purchaser.
To be clear, although we reject the Stanfords’ attempt to re-
cast arguments about the insufficient value of the credit bid as ar-
guments about ServisFirst’s status as a good faith purchaser, we
recognize that a bid’s low value may be relevant to a good faith
inquiry. Evidence that a buyer has given little value in exchange for
a debtor’s property does not necessarily mean there is an absence
of good faith. In re Crowder, 314 B.R. 445, 449 (B.A.P. 10th Cir.
2004) (“a mere allegation that a sale price was not sufficient is not
enough to create or preserve a § 363(m) issue for appellate
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16 Opinion of the Court 20-11652
review”). But an unusually low value could be evidence of fraud or
collusion, and if a seller establishes that a buyer acted fraudulently,
that fraudulent conduct could establish a lack of good faith. See 51
A.L.R. Fed. 2d 471 (2010). But here, the Stanfords’ argument is that
the allegedly low value of the lien that ServisFirst offered as its bid,
in and of itself, establishes a lack of good faith. For the reasons ex-
plained above, we reject that argument.
B. The Stanfords’ Requested Remedy Is Barred by 363(m)
Having rejected the Stanfords’ arguments that their appeal
is not covered by Section 363(m), we now turn to the final ques-
tion: if Section 363(m) applies, does it preclude the kind of relief
that the Stanfords are seeking, thereby mooting their appeal from
the bankruptcy court’s order authorizing the sale? We hold that it
does.
Again, Section 363(m) provides that, if the bankruptcy court
authorizes a sale to a good faith purchaser and that sale is finalized,
a court’s reversal or modification of the authorization order on ap-
peal will not affect the validity of the sale. See 11 U.S.C. § 363(m).
“Because this provision prevents an appellate court from granting
effective relief if a sale is not stayed, the failure to obtain a stay ren-
ders the appeal moot.” Charter, 829 F.2d at 1056. That is exactly
what has happened in this case. Here the bankruptcy court author-
ized the sale of the Stanfords’ property under Section 363(b), de-
claring that “the Credit Bid in the amount of $3,500,000.00 is ap-
proved.” The Stanfords failed to stay the sale, and the sale was
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20-11652 Opinion of the Court 17
completed. Accordingly, we cannot undo the sale by reversing or
modifying the authorization order.
The Stanfords argue that, rather than unwind the sale, we
could recognize that the value given by ServisFirst was illusory and
order ServisFirst to pay $3.5 million in cash for the property. We
disagree. In fact, our precedent firmly forecloses this argument. In
Charter, a buyer argued that an appellate court could order the
bankruptcy estate to refund a portion of the sale price. We held
that this relief, which would change the sale price after the fact,
would affect the validity of the sale on appeal. We reasoned that
“[o]ne cannot challenge the validity of a central element of a pur-
chase, the sale price, without challenging the validity of the sale
itself.” Charter, 829 F.2d at 1056. Here, the positions of the parties
are reversed—the seller, not the buyer, wants a different price—
but the result is the same. The bankruptcy court expressly ap-
proved ServisFirst’s credit bid as sufficient consideration for the
property. As in Charter, by ordering ServisFirst to pay something
other than what it bid and the bankruptcy court approved, we
would be undoing the sale itself, which we are powerless to do un-
der 363(m). Because the statute forbids us from providing a rem-
edy, this appeal is moot.
IV. CONCLUSION
For the reasons stated above, we affirm the district court’s
decision and hold that Section 363(m) statutorily moots the Stan-
fords’ appeal of the sale order.
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18 Opinion of the Court 20-11652
AFFIRMED.
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20-11652 JORDAN, J., Concurring 1
JORDAN, Circuit Judge, concurring in part and concurring in the
judgment.
I agree that the Stanfords are not entitled to relief in this ap-
peal, and therefore I concur in Parts I, II, III.A.2, and III.B of the
court’s opinion. As to Part III.A.1, I concur in the judgment. I write
separately because I do not believe we can so easily distinguish two
of our precedents – In re The Charter Company, 829 F.2d 1054(11th Cir. 1987), and Matter of Saybrook Manufacturing Company,
Inc., 963 F.2d 1490 (11th Cir. 1992) – and to express some thoughts
over the use of “roll-ups” as financing mechanisms in debtor-in-
possession scenarios.
*******
As relevant here, 11 U.S.C. § 363(m) provides that “[t]he re-
versal or modification on appeal of an authorization . . . of a sale …
of property does not affect the validity of a sale . . . under such au-
thorization to an entity that purchased … such property in good
faith . . . unless such authorization and such sale . . . were stayed
pending appeal.” The court cites Charter Company, 829 F.2d at
1056, for the proposition that § 363(m) applies to bankruptcy court
authorizations even if the party who seeks to appeal is challenging
the propriety of the authorization at issue. I agree that Charter
Company controls in this case, but for a different reason. I am not
sure that any sale which is authorized by a bankruptcy court, re-
gardless of whether the underlying transaction violates the Bank-
ruptcy Code, triggers statutory mootness.
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2 JORDAN, J., Concurring 20-11652
The appellant in Charter Company was a third-party buyer
who consented to the sale price and then bought the debtor’s assets
following a competitive bid in open court. The bankruptcy court
subsequently approved the sale. After the sale had been finalized,
the buyer appealed, arguing that the bankruptcy court was not au-
thorized to direct potential buyers to engage in competitive bid-
ding for the debtor’s assets. Our opinion in Charter Company cor-
rectly cited the language of § 363(m) to highlight why principles of
equity demand finality once a sale is approved by the bankruptcy
court (and in part to deter this kind of buyer’s remorse).
Though the case before us involves § 363(m), the same pro-
vision at issue in Charter Company, the facts here are more analo-
gous to a case our court decided five years later. In Saybrook Man-
ufacturing, 963 F.2d at 1493, we addressed the effect of 11 U.S.C. §
364(e), a provision of the Bankruptcy Code that is strikingly similar
to § 363(m), but which concerns authorizations to obtain credit or
incur debt rather than authorizations of sales or leases. See § 364(e)
(“The reversal or modification on appeal of an authorization . . . to
obtain credit or incur debt, or of a grant … of a priority or a lien,
does not affect the validity of any debt so incurred, or any priority
or lien so granted, to an entity that extended such credit in good
faith . . . unless such authorization and the incurring of such debt,
or the granting of such priority or lien, were stayed pending ap-
peal.”). In Saybrook Manufacturing, the appellant was not a third-
party buyer, but rather a pre-petition creditor who “in return for
making new loans to a debtor in possession … obtain[ed] a security
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20-11652 JORDAN, J., Concurring 3
interest on all assets of the debtor.” 963 F.2d at 1491. This practice
of securing pre-petition debt through a post-petition loan to the
debtor is known as “cross-collateralization.”
We held in Saybrook Manufacturing that § 364(m) does not
bar an appeal of a bankruptcy court’s authorization of a financing
order if the claim is that the Bankruptcy Code does not permit the
type of financing that has been authorized (i.e., the cross-collateral-
ization). See 963 F.2d at 1493. We expressly rejected the “cart be-
fore the horse” approach embraced by other courts which, absent
a stay, mooted all claims irrespective of whether or not the Code
prohibited the underlying financing mechanism: “We cannot de-
termine if this appeal is moot under [§] 364(e) until we decide the
central issue in this appeal—whether cross-collateralization is au-
thorized under [§] 364.” Id. We concluded that cross-collateraliza-
tion was not authorized by § 364 because though “rehabilitation [of
a debtor] is certainly the primary purpose of Chapter 11 … [t]his
end does not justify the use of any means.” Id. at 1496.
As noted, §§ 363(m) and 364(e) share similar (and in some
ways identical) language. It seems to me incongruous to say that
the validity of an underlying authorized transaction cannot be
reached on appeal under § 363(m) absent a stay (Charter Com-
pany), and at the same time say that the validity of an underlying
authorized transaction can be reached on appeal absent a stay un-
der § 364(e) (Saybrook Manufacturing). But, as the court points
out, the Stanfords have not challenged the underlying financial
transaction in this case. Unlike the appellants in Saybrook
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4 JORDAN, J., Concurring 20-11652
Manufacturing, who challenged the propriety of cross-collaterali-
zation, the Stanfords have not challenged the validity of the credit
bid mechanism for the sale of their property. So this is not the right
case in which to address the tension (or conflict) between Charter
Company and Saybrook Manufacturing or to decide whether the
rationale of Saybrook Manufacturing applies to § 363(m). On bal-
ance, I’m just not sure that the two cases can be easily distin-
guished.
Aside from § 363(m), it also seems to me that the Stanfords
are seeking to appeal a ruling—the bankruptcy court’s approval of
the sale of their property to ServisFirst—which they asked for. Gen-
erally speaking, parties cannot appeal an order, action, or ruling
that they invited or requested. See, e.g., Ford ex. rel. Estate of Ford
v. Garcia, 289 F.3d 1283, 1293–94 (11th Cir. 2002). The invited error
doctrine applies to debtors just as it does to other litigants, see
Mach v. Abbott Co., 136 F.2d 7, 10 (8th Cir. 1943), and I think it
prevents the Stanfords from arguing on appeal that the bankruptcy
court erred in approving the sale of their property to ServisFirst. I
recognize that the Stanfords sought to set aside the sale after it
went through, but that attempt came too late.
*******
Finally, some thoughts about the debtor-in-possession loan
requested by APC and approved by the bankruptcy court. That
“roll-up” loan, according to the bankruptcy court, took all of the
primary and secondary debt and the guarantees of APC, and rolled
it all up so that APC “became the primary or co-obligor with the
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20-11652 JORDAN, J., Concurring 5
Stanfords on all . . . of the Stanford debt on which it had pre-petition
been a guarantor, and now [it] has become co-obligor with the
Stanfords.” D.E. 10-61 at 15:24. But the debtor-in-possession financ-
ing agreement seems to have done more than that. First, pursuant
to 11 U.S.C. § 364(c)(1), ServisFirst obtained a superpriority claim,
entitling it to “priority over any and all administrative expenses”
and unsecured claims in the APC case. See D.E. 10-13 at 9. Second,
under § 364(c)(2), ServisFirst secured a lien on all of APC unencum-
bered property, both pre-petition and post-petition. See id. at 10.
Third, ServisFirst took junior liens on all property pursuant to §
364(c)(3). See id. at 12. Fourth, the agreement expressly referred to
the Industrial Lane property, and provided that the Stanfords
would guarantee the loan to APC and grant liens on that property.
See id. at Exh. A ¶ 18 § 5.
Why might this be problematic? Because in Saybrook Man-
ufacturing we held that “cross-collateralization” (“[s]ecuring pre-
petition debt with pre- and post-petition collateral as part of a post-
petition financing arrangement”) is not authorized as a financing
mechanism under the Bankruptcy Code. See 963 F.2d at 1491–92.
We explained that “cross-collateralization” is “directly contrary to
the fundamental priority scheme of the Bankruptcy Code.” Id. at
1495. In the years since Saybrook Manufacturing, bankruptcy at-
torneys have become creative and started requesting (and obtain-
ing) “roll-ups,” a formally distinct but functionally similar financing
arrangement “whereby pre-petition secured claims are converted
to post-petition secured claims.” Daniel J. Bussel & Kenneth N.
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6 JORDAN, J., Concurring 20-11652
Klee, Recalibrating Consent in Bankruptcy, 83 Am. Bankr. L. J. 663,
707 n. 209 (2009). See also 5 Norton Bankr. L. & Prac. 3d § 94:34
(Oct. 2021 Update) (“Conceptually similar to forward cross-collat-
eralization is the practice of ‘rolling-up’ prepetition indebtedness
into a DIP financing arrangement.”); Seth Shich, Debtors Qua
Salvees: Superimposing Salvage Law Onto DIP Financing Agree-
ments, 90 Am. Bankr. L. J. 129, 141 (2016) (“Roll-ups, also fre-
quently found in DIP loans, are similar in many ways to cross-col-
lateralization clauses. In a roll-up, the DIP lender seeks to enhance
the priority of its prepetition debt through extension of new loans.
However, whereas cross-collateralization involves the enhance-
ment of unsecured debt to a secured status, in a roll-up prepetition
unsecured claims are paid off by the extension of new post-petition
credit. In other words, a roll-up refinances a pre-petition loan
through a post-petition facility, which, if approved, is accorded su-
per-priority status.”) (footnotes omitted).
According to some bankruptcy commentators, “[i]t is un-
clear why any court that rejects forward cross-collateralization
would be more sympathetic to roll-ups, which appear to have pre-
cisely the same effect.” Bussel et al., Recalibrating Consent, 83 Am.
Bankr. L. J. at 707 n. 209. To make matters more interesting, a re-
cent Supreme Court opinion contains dicta which seems to ap-
prove of roll-ups as a practice, at least when the “priority-violating
distributions” serve “significant Code-related objectives.”
Czyzewski v. Jevic Holding Corp., 137 S.Ct. 973, 977 (2017). All of
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20-11652 JORDAN, J., Concurring 7
this is to say that the type of debtor-in-possession financing loan
approved in this case is due for serious substantive review.
*******
I join the court’s opinion except as to Part III.A.1. As to that
aspect of the opinion, I concur in the judgment