Sax, In re

• Citation: 796 F.2d 994
• Decision Date: 22 July 1986
• Docket Number: No. 85-2925,85-2925
• Parties: Bankr. L. Rep. P 71,258 In re Samuel William SAX, Debtor, Appeal of THREE RIVERS MARINE SERVICE, INC.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 994

796 F.2d 994

Bankr. L. Rep. P 71,258

In re Samuel William SAX, Debtor,

Appeal of THREE RIVERS MARINE SERVICE, INC.

No. 85-2925.

United States Court of Appeals, Seventh Circuit.

Argued April 18, 1986.

Decided July 22, 1986.

Robert Keith Larson, Riordan, Larson, Bruckert & Moore, Chicago, Ill., for debtor.

David G. Lynch, Rudnick & Wolfe, Chicago, Ill., for appellant.

Before CUMMINGS, Chief Judge, EASTERBROOK, Circuit Judge, and NOLAND, District Judge. ^*

NOLAND, District Judge.

This is an appeal from a district court order dismissing as moot two consolidated appeals from bankruptcy court orders approving the sale of a yacht and ordering the yacht to be turned over to the purchaser. The question on appeal is whether this appeal is moot because the appellant failed to obtain a stay of the sale of the yacht. We hold that the appeal is moot, and, therefore, affirm the district court and bankruptcy court orders.

I.

Sax, the debtor, owned a 42-foot trawler yacht called the Sommerset III (the Yacht). After Sax had started bankruptcy proceedings under Chapter 7, and before he converted to Chapter 11, Sax transferred and conveyed his right, title and interest in and to the Sommerset III to the law firm of Arvey, Hodes, Costello & Burman (the Law Firm) in lieu of a retainer and as consideration for the services rendered and expenses incurred by the Law Firm while representing Sax in the bankruptcy proceedings. ¹

The bankruptcy court ordered that the Sommerset III be sold unless objections were filed. The Law Firm consented to the sale. The appellant, Three Rivers Marine Services, Inc. (Three Rivers), filed written objections. Three Rivers claimed an interest in the Sommerset III in the form of a maritime lien for work done on and storage of the yacht. Three Rivers claims its lien was worth $44,000 as of April 24, 1985, but the Trustee argues that the lien's value is far less. ² Over Three Rivers' objections, the bankruptcy court ordered the Yacht to be sold, with Three Rivers' lien to attach to the proceeds of the sale. Pursuant to said order, the Sommerset III was sold for $65,000 to Homer Lange, Sr., the intervenor in this appeal.

The bankruptcy court approved the sale, again over objections filed by Three Rivers. The Sommerset III was in Three Rivers' possession, and Three Rivers apparently refused to turn over the Yacht voluntarily. On the Trustee's motion and over Three Rivers' objections, the bankruptcy court issued a turnover order. Three Rivers abided by this order and relinquished possession of the Sommerset III.

Three Rivers then appealed to the district court the bankruptcy court's order approving the sale and the turnover order. On the Trustee's motion, the district court dismissed the appeal as moot because Three Rivers had not obtained a stay of the sale, and, therefore, the district court's ruling could not affect the sale pursuant to 11 U.S.C. Sec. 363(m). Alternatively, the district court denied the appeal and affirmed the two bankruptcy court orders.

On appeal to this Court, Three Rivers claims that the Sommerset III was not property of the debtor's estate; therefore the sale was not under 11 U.S.C. Sec. 363(b), Sec. 363(m) does not apply, and the district court erred in dismissing the appeal. Appellant argues further that the Trustee's sale of the Sommerset III is void because the bankruptcy court lacked jurisdiction. The Trustee and the intervenor argue that this appeal is moot.

II.

First, to dispose of the threshold issue of appellate jurisdiction, Liberty Mutual Insurance v. Wetzel, 424 U.S. 737, 96 S.Ct. 1202, 47 L.Ed.2d 435 (1976); In re Boomgarden, 780 F.2d 657, 659 (7th Cir.1985), we conclude that the order under appeal is final, and that we have jurisdiction of this appeal. We have jurisdiction of appeals from final decisions of district courts in bankruptcy cases. 28 U.S.C. Sec. 158(d); In re Boomgarden, 780 F.2d at 659. "Final" is interpreted more liberally in bankruptcy cases than in other federal cases. In re Barker, 768 F.2d 191, 193 (7th Cir.1985). ³ Orders approving or failing to approve the sale of a debtor's property are considered final decisions and are immediately appealable. In re Kaiser, 791 F.2d 73 (7th Cir.1986); Sulmeyer v. Karbach Enterprises (In re Exennium), 715 F.2d 1401, 1402-03 (9th Cir.1983); 1 Collier on Bankruptcy p 3.03, at 3-156 (15th ed.1986); see also Gross v. Russo (In re Russo), 762 F.2d 239 (2nd Cir.1985) (jurisdiction assumed without discussion); House Corp. v. Vetter Corp. (In re Vetter Corp.), 724 F.2d 52 (7th Cir.1983) (jurisdiction assumed without discussion). In cases similar to the one before us, other courts of appeals have exerted jurisdiction over appeals of district court orders dismissing appeals of bankruptcy court orders approving sales, Tompkins v. Frey (In re Bel Air Associates), 706 F.2d 301 (10th Cir.1983); Bleaufontaine, Inc. v. Roland International (In re Bleaufontaine, Inc.), 634 F.2d 1383 (5th Cir.1981); as in the case at bar, the appellants in those cases failed to obtain a stay of the sale. The immediate appealability of decisions determining the validity of a sale works to the benefit of the debtor's estate and creditors. If purchasers at a trustee's sale of a debtor's property had to wait until after the entire bankruptcy proceedings were finished to have their property rights determined, undoubtedly a debtor's property would be worth less than it is under current law.

III.

Having found subject matter jurisdiction, we must nevertheless dismiss this appeal before reaching the merits. We hold this appeal moot because the sale of the Yacht was authorized under Sec. 363(b) and Three Rivers failed to obtain a stay of the sale. This result is required by 11 U.S.C. Sec. 363(m), which states:

(m) The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale ... of property does not affect the validity of a sale ... under such authorization to an entity that purchased ... such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale ... were stayed pending appeal.

(Emphasis added.) This Court and others have repeatedly held that an appeal of a bankruptcy sale is moot if the stay required by Sec. 363(m) is not obtained. ⁴ See, e.g., In re Vetter, 724 F.2d at 55-56; In re Exennium, 715 F.2d at 1403-04; In re Bel Air Associates, 706 F.2d at 304-05; ⁵ In re Bleaufontaine, 634 F.2d at 1389-90. "In the case of a bankruptcy sale, the failure to obtain a stay of the sale, pending appeal, allows the sale to be completed, thus preventing an appellate court from granting relief and thereby rendering the appeal moot." In re Vetter, 724 F.2d at 55. The sale has taken place, and the Sommerset III has been turned over to the purchaser. Three Rivers did not obtain a stay of the sale or of the order approving the sale, so there is nothing we can do to affect the validity of the sale.

Three Rivers attempts to avoid the requirements of Sec. 363(m) by arguing that Sec. 363(m) does not apply and a stay is unnecessary because the Sommerset III was not property of the estate and, therefore, could not have been sold under Sec. 363(b). ⁶ Three Rivers misses the point. Section 363(m) does not say that the sale must be proper under Sec. 363(b); it says the sale must be authorized under Sec. 363(b). There is no doubt that when the bankruptcy court authorized the sale and ordered that the Yacht be turned over to the purchaser, it was acting under Sec. 363(b). ⁷ At this juncture, it matters not whether the authorization was correct or incorrect. The point is that the proper procedures must be followed to challenge an authorization under Sec. 363(b). As stated earlier, Sec. 363(m) and the cases interpreting it have clearly held that a stay is necessary to challenge a bankruptcy sale authorized under Sec. 363(b).

Three Rivers essentially has asked us to create an exception such that a stay is required to challenge a Sec. 363(b) authorized sale except when the appellant argues that the property did not belong to the debtor's estate. To create such an exception would seriously undermine the purpose of Sec. 363(m) and could destroy the rule altogether. The stay requirement " 'is in furtherance of the policy of not only affording finality to the judgment of the bankruptcy court, but particularly to give finality to those orders and judgments upon which third parties rely.' " In re Vetter, 724 F.2d at 55 (quoting 14 Collier on Bankruptcy p 11-62.03, at 11-62-11 (14th ed. 1977)). Finality is important because it minimizes the chance that purchasers will be dragged into endless rounds of litigation to determine who has what rights in the property. Without the degree of finality provided by the stay requirement, purchasers are likely to demand a steep discount for investing in the property. Cf., In re Exennium, 715 F.2d at 1403. Creditors, who may lose money under the rules now, stand to lose even more if we allow the proposed exception to the stay requirement. The courts should follow statutory provisions precisely; to look for exceptions would increase litigation, which would seriously undermine the finality and certainty imposed by Sec. 363(m).

Three Rivers argues in the alternative that the lower court decisions should be reversed because the bankruptcy court lacked subject matter jurisdiction because the Sommerset III was not property of the debtor's estate. The appellants raise the jurisdictional argument as if it somehow negates or excuses their failure to obtain a stay. It does not. This appeal is moot because Three Rivers failed to obtain a stay, so we cannot reach the question of whether the bankruptcy court had jurisdiction to order and approve the sale. See Kennedy v. Nicastro (In re Seeburg Corp.), 10 B.R. 326, 328 (N.D.Ill.1981). Cf. United States v. Sarmiento-Rozo, 592 F.2d 1318 (5th Cir.1979) (dismissing appeal as...