In Re Nashville Senior Living Llc.

• Decision Date: 03 September 2010
• Docket Number: No. 09-5817.,09-5817.
• Citation: 620 F.3d 584
• Parties: In re NASHVILLE SENIOR LIVING, LLC; Anderson Senior Living Property, LLC; Charlotte Oakdale Property, LLC; Greensboro Oakdale Property, LLC; Mt. Pleasant Oakdale I Property, LLC; Mt. Pleasant Oakdale II Property, LLC, et al., Debtors. The Official Committee of Unsecured Creditors, fka The Official Committees of Tenants in Common Investors, Appellant, v. Anderson Senior Living Property, LLC; Charlotte Oakdale Property, LLC; Greensboro Oakdale Property, LLC; Mt. Pleasant Oakdale I Property, LLC; Mt. Pleasant Oakdale II Property, LLC; Pinehurst Oakdale Property, LLC; Winston-Salem Oakdale Property, LLC, Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

620 F.3d 584

In re NASHVILLE SENIOR LIVING, LLC; Anderson Senior Living Property, LLC; Charlotte Oakdale Property, LLC; Greensboro Oakdale Property, LLC; Mt. Pleasant Oakdale I Property, LLC; Mt. Pleasant Oakdale II Property, LLC, et al., Debtors.The Official Committee of Unsecured Creditors, fka The Official Committees of Tenants in Common Investors, Appellant,

v.Anderson Senior Living Property, LLC; Charlotte Oakdale Property, LLC; Greensboro Oakdale Property, LLC; Mt. Pleasant Oakdale I Property, LLC; Mt. Pleasant Oakdale II Property, LLC; Pinehurst Oakdale Property, LLC; Winston-Salem Oakdale Property, LLC, Appellees.

No. 09-5817.

United States Court of Appeals,Sixth Circuit.

Argued: June 15, 2010.

Decided and Filed: Sept. 3, 2010.

ARGUED: Lawrence R. Ahern, III, Burr & Forman LLP, Nashville, Tennessee, for Appellant. Andrew J. Sloniewsky, Steptoe & Johnson, LLP, Washington, D.C., for Appellees. ON BRIEF: Lawrence R. Ahern, III, David W. Houston, IV, Burr & Forman LLP, Nashville, Tennessee, for Appellant. Andrew J. Sloniewsky, Filiberto Agusti, Steptoe & Johnson, LLP, Washington, D.C., Robert A. Guy, Jr., Waller Lansden Dortch & Davis, LLP, Nashville, Tennessee, for Appellees.

Before: CLAY, ROGERS, and COOK, Circuit Judges.

ROGERS, J., delivered the opinion of the court, in which COOK, J., joined. CLAY, J. (pp. 595-96), delivered a separate opinion concurring in the judgment.

OPINION

ROGERS, Circuit Judge.

Under 11 U.S.C. § 363(m), an approved sale of chapter 11 bankruptcy estate property generally cannot be challenged on appeal if the sale has already been consummated in good faith without an intervening stay. This “statutory mootness” provision not only protects the buyer, but also increases the ability of the bankruptcy estate to get a good price. The issue in this case is whether the same statutory provision extends to approved sales of property in which both the bankruptcy estate and non-debtors have an undivided interest, such as a tenancy in common. Only a cramped reading of the statutory mootness provision would lead to the anomalous result that the provision does not extend to such sales. Instead, the Bankruptcy Appellate Panel correctly read the provision to apply to sales of property in which the bankruptcy estate has an undivided interest in common with other co-owners.

The appellant below, the Official Committee of Unsecured Creditors, represents the interests of approximately thirty tenants in common who co-owned seven properties with the debtors, who initiated the chapter 11 bankruptcy proceedings that underlie this appeal. The bankruptcy court authorized the debtors to sell not only their interests in the seven co-owned properties, pursuant to 11 U.S.C. § 363(b), but also the undivided interests of the tenants in common, pursuant to 11 U.S.C. § 363(h). The Committee appealed the bankruptcy court's authorization of the sale and then moved the bankruptcy court for a stay pending appeal. After the bankruptcy court denied a stay, the Committee waited more than one week before seeking similar relief from the Bankruptcy Appellate Panel. Before the Bankruptcy Appellate Panel could decide whether to grant a stay, however, the sale of the properties had closed. The debtors then moved to dismiss the Committee's appeal as moot pursuant to 11 U.S.C. § 363(m), and the Bankruptcy Appellate Panel ultimately granted that motion. Because § 363(m), fairly read, applies to a sale authorized under both § 363(b) and (h), the Committee's appeal was properly dismissed as statutorily moot.

The following facts, as recounted by the Bankruptcy Appellate Panel (B.A.P.), are not disputed on appeal:

Prior to filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code, each of the Debtors owned a parcel of real property improved with a facility for the elderly. Four of those properties were located in North Carolina and three others were located in South Carolina (collectively the “Properties”). The Debtors acquired the Properties in conjunction with a December 2006 transaction pursuant to which tenancy in common interests in the Properties were sold to investors. A group of approximately thirty investors (the tenants in common, or “TIC”) purchased tenant in common interests in the Properties pursuant to the December 2006 transaction reflected in the Tenants in Common Agreement (the “TIC Agreement”). Under the TIC Agreement, the TIC had various rights, including the right to partition the Properties and to require unanimous approval of any sale, transfer, or exchange of the Properties. The Debtors own approximately a 60% undivided interest in the Properties and the TIC own 40%.

In conjunction with the TIC Agreement, the TIC signed a Debt Assumption and Indemnification Agreement pursuant to which the TIC obligated themselves to Merrill Lynch Capital, apparently the predecessor in interest to GE Business Financial Services, Inc. (“GE”), for a specified portion of the debt and agreed that their fee interest was subordinate to GE. The Debtors defaulted on their payment obligations to GE, and GE accelerated the loan. In July 2008, GE commenced foreclosure proceedings.

On August 17, 2008, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. After filing their petitions for relief, the Debtors sought authority pursuant to 11 U.S.C. § 363 to sell the Properties to the highest and best bidder. Following the marketing of the Properties by the Debtors' broker, Five Star Quality Care, Inc. (“Five Star”) eventually emerged as the highest and best bidder. The Debtors and Five Star entered into an agreement regarding the sale of the Properties. On October 10, 2008, the Debtors filed a motion seeking approval of bidding procedures for the sale of the Properties, recognition of Five Star as the “stalking horse,” and authority to sell the Properties pursuant to 11 U.S.C. § 363(b) to the highest and best bidder

(the “Sale Motion”). The [Official] Committee [of Unsecured Creditors (“Committee”), which was formerly known as the Official Committees of Tenants in Common Investors, and which is comprised of the TIC,] opposed the Sale Motion. The Debtors also filed adversary proceedings against the TIC in which [the] Debtors sought permission to sell the TIC's interest[s] in the Properties pursuant to [11 U.S.C.] § 363(h). The Debtors filed motions for summary judgment in each of those proceedings, and the TIC opposed those motions.

On October 21, 2008, the bankruptcy court held a hearing at which it approved the proposed sale procedures over the objections of the Committee and set November 12, 2008[,] as the date for the hearing on the approval of the sale of the Properties to the highest and best bidder.

Official Comms. of Unsecured Creditors v. Anderson Senior Living Prop., LLC (In re Nashville Senior Living, LLC), 407 B.R. 222, 225-26 (6th Cir. BAP 2009) (citations omitted) (footnote omitted).

After taking testimony and reviewing evidence at the November 12, 2008, hearing, the bankruptcy court “granted in all respects” the debtors' motion to sell the properties. The bankruptcy court summarized the testimony, including that of one of the debtors' experts to the effect that “the sale of only the debtors' interest in the property would be difficulty [sic] at best” and would “most likely not ... result in a higher return.” The bankruptcy court then found that the debtors had proved, as required by Sixth Circuit precedent, that a sound business purpose justified the sale of the debtors' property interests, other than in the ordinary course of business, under 11 U.S.C. § 363(b). The bankruptcy court noted that, if the sale were not approved, GE would likely foreclose upon the properties and that any further delay in approving the sale would harm the assisted living facilities' elderly residents.

When the Committee's counsel asked the bankruptcy court for its decision with respect to the proposed sale of the TIC's interests pursuant to 11 U.S.C. § 363(h), the bankruptcy court responded that it had “stated its opinion. I mean, if you wish to appeal it, you're welcome to appeal it.” Later in the hearing, when addressing a distinct but related issue, a representative from the Office of the United States Trustee again mentioned the need for approval of the sale of the TIC's interests under 11 U.S.C. § 363(h). The bankruptcy court stated:

Right. I-that was subsumed in the Court's decision, quite frankly, about whether it was going to be sold. I-I don't think you can partition this.

I-I don't think you can-I mean, going through the-you know, § 363(h)-I think the expert met all of those criteria. I don't think we'd get much of a sale of any kind if we-if we sold it piecemeal, or half and half, or whatever.

So-so the Court probably should have said, you know, they-the findings of the sale equally applied to [subsection (h) ].

On November 20, 2008, the bankruptcy court issued an order approving the sale of the properties and the disbursement of the sale proceeds. In this order, the court found, in relevant part, that the transactions at issue had “been negotiated at arms-length, in good faith and are in the best interests of the Debtors' estates, their creditors, and the residents of the [assisted living] facilities.” Moreover, the court found that Five Star was a good faith purchaser and was therefore “entitled to the protections of Bankruptcy Code section 363(m).” The court further found that, based on the “pleadings and filings” in the adversary proceedings,

the [debtors] have demonstrated that (i) partition in kind of each Property among the applicable [debtor] and the TICs is impracticable; (ii) a sale of the [debtors'] undivided interests in the Properties would realize significantly less for the [debtors] and their estates than the sale of the Properties free of the interests of the TICs; (iii) the benefit to the [debtors] and the estates of the sale of the Properties

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