In re Nashville Senior Living, LLC, BAP No. 08-8087.

• Decision Date: 11 June 2009
• Docket Number: BAP No. 08-8091.,BAP No. 08-8094.,BAP No. 08-8092.,BAP No. 08-8089.,BAP No. 08-8090.,BAP No. 08-8087.,BAP No. 08-8095.,BAP No. 08-8093.
• Citation: 407 B.R. 222
• Parties: In re NASHVILLE SENIOR LIVING, LLC, et al., Debtors. Official Committees of Unsecured Creditors, Appellants, v. Anderson Senior Living Property, LLC, et al., Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

407 B.R. 222

In re NASHVILLE SENIOR LIVING, LLC, et al., Debtors.

Official Committees of Unsecured Creditors, Appellants, v. Anderson Senior Living Property, LLC, et al., Appellees.

BAP No. 08-8087.

BAP No. 08-8091.

BAP No. 08-8094.

BAP No. 08-8089.

BAP No. 08-8092.

BAP No. 08-8095.

BAP No. 08-8090.

BAP No. 08-8093.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

June 11, 2009.

COPYRIGHT MATERIAL OMITTED

Before: FULTON, RHODES, and SHEA-STONUM, Bankruptcy Appellate Panel Judges.

OPINION

SHEA-STONUM, Bankruptcy Judge.

The Official Committees of Unsecured Creditors ("Committee"), comprised solely of the non-debtor co-owners of the Properties (defined herein), appeal an order of the bankruptcy court granting the Debtors¹ authority to sell the Properties held in a tenancy in common between the Debtors and the co-owners pursuant to 11 U.S.C. § 363(b) and (h). The Committee sought a stay of the order from both the bankruptcy court and this Panel. Those requests were denied, and the sale of the Properties has closed. The good faith of the purchaser has not been challenged.

Because the bankruptcy court's order was not stayed and the sale has closed, the Debtors seek dismissal of the appeal pursuant to 11 U.S.C. § 363(m). The Committee argues that § 363(m) should not apply to the aspect of the order that authorized the sale of the co-owners' interest under § 363(h). For the reasons set forth below, we conclude that the appeal is moot pursuant to § 363(m).

I. ISSUE ON APPEAL

The issue that would be raised in this appeal is whether the bankruptcy court erred when it granted the Debtors' motion to sell to a third party, pursuant to 11 U.S.C. § 363(b), (f) and (h), property held by the Debtors and the co-owners as tenants in common. Because we conclude that the appeal is moot, we do not reach the merits of this issue.

II. JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction to decide this appeal. The United States District Court for the Middle District of Tennessee has authorized appeals to the Bankruptcy Appellate Panel of the Sixth Circuit and no party has elected to have the appeal heard by the district court. A final order of the bankruptcy court may be appealed as of right. 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). An order approving a sale is a final order. Sugarloaf Ind. & Marketing Co., LLC v. Quaker City Castings, Inc. (In re Quaker City Castings, Inc.), 337 B.R. 729, 2005 WL 3078607, *1 (6th Cir. BAP 2005) (unpublished table decision) (citing In re Sax, 796 F.2d 994, 996 (7th Cir. 1986)).

III. FACTS

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"). See Exhibit A to TIC's objection to motion to dismiss. 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.² (Bankr.Ct. Docket # 266).

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 Committee opposed the Sale Motion. The Debtors also filed adversary proceedings against the TIC in which Debtors sought permission to sell the TIC's interest in the Properties pursuant to § 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. At the conclusion of the sale hearing, the court approved the sale of the Properties to Five Star. On November 20, 2008, the court issued an order approving the sale based on, inter alia, a finding that the Debtors had satisfied the requirements of § 363(h) (the "Sale Order"). The court entered orders granting the Debtors' motions for summary judgment in the adversary proceedings on November 24, 2008.

On November 20, 2008, the Committee filed a notice of appeal of the Sale Order and an Expedited Motion for Stay Pending Appeal with the bankruptcy court. The Committee also filed notices of appeal in the adversary proceedings on November 25, 2008,³ and again requested that the bankruptcy court stay the sale pending appeal. On November 25, 2008, the bankruptcy court denied the Committee's motions for stay pending appeal. On December 2, 2008, the bankruptcy court denied the Committee's motion for stay pending appeal in the adversary proceedings.

On December 3, 2008, the Committee filed an "Emergency Motion for Stay Pending Appeal" before this Panel.⁴ The Debtors filed a response in opposition on the afternoon of December 3, 2008. That evening, the Debtors filed a "Notice of Sale Closing" in which they stated that the sales had closed just prior to the filing of that notice, and a Motion to Dismiss the appeal as moot.⁵ This Panel held a hearing on the motion to stay on December 4, 2008, and entered an order denying the motion on December 5, 2008.

IV. DISCUSSION

The Debtors assert that the Committee's appeal is moot pursuant to 11 U.S.C. § 363(m) because the sale has been consummated and there is no allegation that Five Star was not a good faith purchaser. The Committee argues that it is not moot because § 363(m) does not apply to authorizations of the sale of the co-owners' interest under § 363(h).

Section 363, as enacted in 1978, continued what had long been a primary function of bankruptcy proceedings, i.e., efficient liquidation of estate assets for the benefit of creditors. The dynamics of bankruptcy cases are in some ways ever changing, but certain truisms remain. There will always be interested parties who will try to augment their positions by delaying tactics. As adopted in 1978, § 363 strikes a balance between protection of the legitimate interests of non-debtor parties in property in which the estate has a saleable interest and the rights of other claim holders in the bankruptcy case. Sections 363(h) and (i) codify the right of the trustee,⁶ proceeding from the debtor's position as one joint tenant or tenant in common, to cause the liquidation of jointly held property, when partition has been shown to be impracticable and when the right of first purchase of non-debtor joint tenants or tenants in common will not be exercised. As discussed more fully below, with respect to tenants in common, which is all that is before this panel, §§ 363(h) and (i) capture the majority view of the respective rights of tenants in common under state law. The drafters of § 363 recognized that value of estate assets can only be achieved in an environment in which good faith purchasers can operate without undue fear of being taken hostage. See Weingarten Nostat, Inc. v. Serv. Mech. Co., Inc., 396 F.3d 737, 741-42 (6th Cir.2005) (finding that § 363(m) "encourage[s] participation in bankruptcy asset sales and increase[s] the value of property of the estate by protecting good faith purchasers from modification by an appeals court of the bargain struck with the debtor"). Finally, the drafters of § 363 fully understood that it must serve as a tool in dealing with the respective rights of all parties in the estate, in general, and in specific property that is property of the estate.

With this as background, we undertake the requested analysis of the interaction of § 363(h) and § 363(m). Although § 363(h) and § 363(m) have been a part of the Bankruptcy Code since the effective date of the Bankruptcy Reform Act of 1978 (the "Code"), it appears that this is the first appellate court asked to address the interaction of these two subsections. Perhaps this reflects the fact that neither of these subsections broke with existing common law...