While the bankruptcy blogosphere patiently awaits a ruling in Bellingham, I thought I would drop in for a few brief updates on the most popular topic of 2014: credit bidding. I have previously written here on Fisker, and here on Free Lance-Star. I have two updates, only one of which is actually substantive:
My partner, Bob Goodrich and I recently published a more in-depth look at the Fisker decisions in the April 2014 edition of the Norton Bankruptcy Law Adviser. Please Click that last link to subscribe to the excellent newsletter edited by Judge Keith Lundin. The article itself is linked with permission here.
In Free Lance-Star, the District Court recently denied the lender's motion for an interlocutory appeal of the credit bid decision. Here is the District Court's May 7, 2014 Opinion. Recall that this also happened in the Fisker case, which the FLS court declared was "strikingly similar" to its appeal. The FLS court found that there was no controlling question of law, let alone a substantial grounds for difference of opinion. It also noted that even if the Bankruptcy Court erred regarding its lien determinations, those determinations were "not dispositive" and could be revisted after the auction (which is going on now).
But when, precisely? Is the District Court suggesting that the right time to appeal is from the sale order itself? Or, is the right time going to be from whatever order actually distributes some proceeds to the disappointed credit bidder (i.e., a confirmation order?) Both of these credit-bidding decisions are about two related, but not identical issues. Issue A is the right to influence the ultimate sales price by creating a floor below which third-parties cannot bid. Once the sale order is entered, the price is set and this issue is is decided. Issue B is: if sold to a third-party, the right of the lender to recover the proceeds of its collateral. This issue is not necessarily resolved when the sale order is entered, but more likely much later, especially if there is a fight about the allocation of the sales price.
To further complicate things, consummation of the sale may very well moot the appeal altogether. Recall that Section 363(m)'s equitable mootness doctrine states that:
(m)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.
What is a lender to do when today is too early to appeal and tomorrow may be too late?