FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE BERKELEY DELAWARE COURT, No. 14-55854
LLC,
Debtor, D.C. No.
3:12-cv-02908-
CAB-MDD
SAID ADELI,
Plaintiff-Appellant,
OPINION
v.
CHRISTOPHER R. BARCLAY, Chapter
7 Trustee,
Trustee-Appellee,
FIRST CITIZENS BANK & TRUST
COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of California
Cathy Ann Bencivengo, District Judge, Presiding
Argued and Submitted May 3, 2016
Pasadena, California
Filed August 23, 2016
2 IN RE BERKELEY DELAWARE COURT, LLC
Before: Raymond C. Fisher, Milan D. Smith, Jr.,
and Jacqueline H. Nguyen, Circuit Judges.
Opinion by Judge Nguyen
SUMMARY *
Bankruptcy
The panel affirmed the district court’s order dismissing
a bankruptcy appeal as moot under 11 U.S.C. § 363(m).
The debtor’s owner appealed the bankruptcy court’s
approval of a settlement agreement between the Chapter 7
trustee and a creditor that had sought to foreclose on the
debtor’s construction project. The panel held that the appeal
was moot because the owner did not seek a stay of the
bankruptcy court’s order allowing the sale to the creditor of
the bankruptcy estate’s legal claims arising out of a state
court case filed by the debtor against the creditor. Agreeing
with other circuits and with the Ninth Circuit Bankruptcy
Appellate Panel, the panel held that a bankruptcy court has
discretion to apply the procedures of § 363(m) to a sale of
claims pursuant to a settlement approved under Bankruptcy
Rule 9019. In addition, the bankruptcy court did not clearly
err in determining that the creditor was a good faith
purchaser of the debtor’s claims. Under § 363(m), therefore,
the sale could not be modified or set aside on appeal unless
it was stayed pending appeal.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
IN RE BERKELEY DELAWARE COURT, LLC 3
COUNSEL
Eric M. Schiffer (argued), Costa Mesa, California;
Mohammed K. Ghods and William A. Stahr, Ghods Law
Firm, Santa Ana, California; for Plaintiff-Appellant.
Lisa Torres (argued), Gates, O’Doherty, Gonter & Guy,
LLP, San Diego, California; J. Barrett Marum (argued),
Karin Dougan Vogel, and Aaron J. Malo; Sheppard, Mullin,
Richter & Hampton LLP, San Diego, California; for
Defendants-Appellees.
OPINION
NGUYEN, Circuit Judge:
Said Adeli appeals the district court’s order dismissing
his bankruptcy appeal as moot under § 363(m) of the
Bankruptcy Code. We find no error and affirm.
I
About twenty years ago, Adeli bought a parcel of land in
Berkeley, California, and formed Berkeley Delaware Court,
LLC (“Debtor”) for the purpose of constructing a mixed-use
building on the property. In 2007, Debtor obtained a $16.25
million construction loan that was later sold to First-Citizens
Bank & Trust Company (“First-Citizens”). First-Citizens
eventually attempted to foreclose on the project, which
prompted Debtor to file a Chapter 11 bankruptcy petition
and a lawsuit against First-Citizens in the California
Superior Court. After First-Citizens successfully removed
the state court action to the bankruptcy court to be
consolidated with the bankruptcy case, the parties reached a
settlement. Under the terms of the settlement, First-Citizens
4 IN RE BERKELEY DELAWARE COURT, LLC
agreed to reduce the loan pay-off amount by several millions
of dollars on the conditions that Debtor pay the entire loan
balance by a fixed date, and that construction on the project
would be completed within six months. The settlement fell
apart for reasons disputed by the parties. Debtor then filed a
second Chapter 11 bankruptcy petition, and another action
in state court alleging that First-Citizens acted fraudulently
in connection with the project. Once again, First-Citizens
successfully removed the state court action to bankruptcy
court and consolidated it with the bankruptcy petition. First-
Citizens obtained relief from the automatic stay, took
possession of the project, and sold it to a third-party
purchaser for $11,925,000, leaving First-Citizens with a
deficiency claim of approximately $7 million. First-Citizens
also filed cross-claims in the state action, alleging various
breaches of the settlement agreement by Debtor including
entering into leases and collecting rents. Based on the
alleged breaches, First-Citizens asserted an administrative
priority claim against the bankruptcy estate.
The bankruptcy court eventually converted the
bankruptcy case to a Chapter 7 proceeding and appointed a
Trustee, who met with counsel for Debtor and First-Citizens
to explore settlement options. A few months after his
appointment, the Trustee reached a settlement with First-
Citizens that allowed First-Citizens to purchase the estate’s
legal claims arising out of the state court case, subject to
overbid procedures, in exchange for cash and a waiver of
First-Citizens’ claims against the estate. The Trustee filed a
motion seeking approval of the settlement under Federal
Rule of Bankruptcy Procedure 9019 and the sale of the
estate’s claims under 11 U.S.C. § 363(b), which the
bankruptcy court granted.
IN RE BERKELEY DELAWARE COURT, LLC 5
In support of the motion, the Trustee submitted a
declaration which outlined the terms of the settlement and
his evaluation of those terms. The Trustee declared that the
settlement allowed First-Citizens to purchase the estate’s
legal claims as reflected in the state court action, subject to
overbid procedures, in exchange for $108,000 in cash and a
waiver of First-Citizens’ $7,000,000 deficiency claim and its
$2,000,000 administrative Chapter 11 claim. The Trustee
had investigated Debtor’s legal claims against First-Citizens,
including their value, likelihood of success, and estimated
costs to defend. In the Trustee’s view, the uncertainty of the
legal claims against First-Citizens and the possibility of
protracted litigation weighed in favor of the settlement.
Finally, in the Trustee’s professional judgment, the terms of
the settlement were fair and equitable under Rule 9019
because, in light of the proposed overbid procedures, they
presented the maximum amount that the estate and its
creditors could realize for the value of the estate’s claims.
In November of 2012, after no third parties bid on the
sale, the bankruptcy court granted the Trustee’s motion and
approved the settlement agreement. Adeli appealed the
bankruptcy court’s approval of the settlement to district
court. Significantly, he failed to seek a stay of the sale order.
The district court dismissed the appeal as moot under
11 U.S.C. § 363(m). Adeli now appeals the district court’s
dismissal order.
II
We review the district court’s decision de novo. Ewell
v. Diebert (In re Ewell), 958 F.2d 276, 279 (9th Cir. 1992).
The bankruptcy court’s factual findings are reviewed for
clear error, and its conclusions of law are reviewed de novo.
Id.
6 IN RE BERKELEY DELAWARE COURT, LLC
III
Section 363 of the Bankruptcy Code generally allows the
trustee to use, sell, or lease property of an estate, other than
in the ordinary course of business, after notice and a hearing.
11 U.S.C. § 363. Under § 363(m), the validity of a “sale or
lease of property” executed under the terms of section 363
cannot be challenged on appeal “unless [the bankruptcy
court’s] authorization and such sale or lease were stayed
pending appeal.” Id. § 363(m). The requirement to seek a
stay pending appeal only applies to purchases of estate
property that were made in good faith, and is designed to
protect the interests of good faith purchasers by guaranteeing
the finality of property sales. In re Onouli-Kona Land Co.,
846 F.2d 1170, 1172 (9th Cir. 1988). Relatedly here, a
trustee’s proposed settlement between an estate and its
creditors must be approved by the bankruptcy court under
Rule 9019, which allows the court to grant approval if the
settlement is deemed fair and equitable. Fed. R. Bankr. P.
9019(a); In re A & C Props., 784 F.2d 1377, 1381 (9th Cir.
1986).
There is no dispute in this case that Adeli failed to seek
a stay pending appeal, but he offers several arguments as to
why his appeal is nevertheless not moot under § 363(m). We
address each in turn.
Adeli first argues that § 363 only applies when a trustee
sells estate property, not the estate’s potential legal claims.
Thus, his argument goes, the requirement to seek a stay in
order to avoid mootness under § 363(m) does not apply here.
Although we have not addressed in a published decision
whether § 363 can apply to a settlement of potential claims,
the Ninth Circuit Bankruptcy Appellate Panel (“BAP”) has
done so. See In re Mickey Thompson Entm’t Grp., Inc.
(“Mickey Thompson”), 292 B.R. 415 (BAP 9th Cir. 2003).
IN RE BERKELEY DELAWARE COURT, LLC 7
In Mickey Thompson, the Ninth Circuit BAP held that “a
bankruptcy court is obliged to consider . . . whether any
property of the estate that would be disposed of in
connection with the settlement might draw a higher price
through a competitive process and be the proper subject of a
section 363 sale.” Id. at 421–22. The BAP reasoned that
“the disposition by way of ‘compromise’ of a claim that is
an asset of the estate is the equivalent of a sale of the
intangible property represented by the claim.” Id. at 421; see
also In re Nuttery Farm, Inc., 467 F. App’x 711, 712 (9th
Cir. 2012) (“The Bankruptcy Code allows the trustee [to
seek authorization] to sell or settle a cause of action.”).
Similarly, two of our sister circuits have held that § 363 may
be applied to the sale of an estate’s legal claims. See In re
Moore, 608 F.3d 253, 258 (5th Cir. 2010) (holding that “[a]
trustee may sell litigation claims that belong to the estate, as
it can other estate property, pursuant to § 363(b)”); In re
Martin, 91 F.3d 389, 394–95 (3d Cir. 1996) (noting that
§ 363 procedures may be applied to a settlement agreement
that involves the mutual release of claims).
We agree with the BAP in Mickey Thompson and with
our sister circuits, and hold that a bankruptcy court has the
discretion to apply § 363 procedures to a sale of claims
pursuant to a settlement approved under Rule 9019. As the
Fifth Circuit noted, “[a] compromise of a claim of the estate
is in essence the sale of that claim to the defendant.” In re
Moore, 608 F.3d at 264 (quoting 10 Collier on Bankruptcy
¶ 6004.01 (15th ed. rev. 2009)). We see no good reason why
a trustee and the bankruptcy court cannot utilize the
procedures of § 363 in certain settlements in order to ensure
maximum value for the estate. 1
1
Adeli’s reliance on In re Healthco Int’l, Inc., 136 F.3d 45 (1st Cir.
8 IN RE BERKELEY DELAWARE COURT, LLC
Adeli next argues that even if § 363 applies, its
requirement of a stay pending appeal should not be triggered
here because the Trustee’s overbid procedures did not in fact
entice outside bidders, and First-Citizens is not deserving of
the finality guaranteed by the stay-of-sale requirement. See
In re Healthco Int’l, Inc., 136 F.3d at 49. We have been
reticent to carve out exceptions to the § 363(m) stay-of-sale
requirement, and we again decline to do so now. See In re
Exennium, Inc., 715 F.2d 1401, 1404 (9th Cir. 1983) (“We
are quite reluctant to invoke public policy to override the
Code’s express requirement that reversal of an authorization
of sale not affect the sale’s validity unless the authorization
and sale were stayed.”). We have applied the mootness rule
to § 363 sales even where the purchaser was a party to the
appeal, and where the purchaser had not yet taken
irreversible steps following the sale. See In re Onouli-Kona
Land Co., 846 F.2d at 1172. Indeed, we have recognized
only two narrow exceptions to § 363(m), neither of which
applies here. 2 See In re Ewell, 958 F.2d at 280 (recognizing
1998), is misplaced. That case involved a settlement that was not
processed under § 363, and thus is factually inapposite. Id. at 48.
2
Adeli’s argument that the language of the settlement agreement
exempts him from § 363(m) lacks merit. Although we suggested in In
re CADA Investments, Inc., 664 F.2d 1158, 1160 (9th Cir. 1981), that
express contractual language could form a basis for an exception to the
stay requirement, that case preceded In re Ewell, 958 F.2d at 280
(recognizing “only two exceptions” to § 363(m) mootness). Assuming
In re CADA is still good law, it is distinguishable on its facts: there, the
sale documents were explicitly premised on specific appeals the parties
had clearly taken into account. See In re CADA Invs., Inc., 664 F.2d at
1160. The settlement agreement at issue here simply states that the
transaction will be effective upon entry of a final and non-appealable
order of the bankruptcy court. The Trustee and First-Citizens – the only
two parties to the settlement agreement – obviously viewed this
condition as satisfied, as they both executed their respective obligations
IN RE BERKELEY DELAWARE COURT, LLC 9
exceptions “where real property is sold subject to a statutory
right of redemption” and “where state law otherwise would
permit the transaction to be set aside”). Where, as here, a
bankruptcy court invokes § 363 for a sale of claims pursuant
to a settlement agreement, all parties are bound by
§ 363(m)’s requirement to seek a stay regardless of whether
an outside party makes a bid on the sale. See In re Onouli-
Kona Land Co., 846 F.2d at 1172 (“Finality in bankruptcy
has become the dominant rationale for our decisions; the
trend is towards an absolute rule that requires appellants to
obtain a stay before appealing a sale of assets.”).
Finally, Adeli argues that § 363(m) does not apply
because the sale of claims to First-Citizens was not
authorized in good faith. See 11 U.S.C. § 363(m). Absence
of good faith is “typically shown by fraud, collusion between
the purchaser and other bidders or the trustee, or an attempt
to take grossly unfair advantage of other bidders.” In re
Filtercorp, Inc., 163 F.3d 570, 577 (9th Cir. 1998) (internal
quotation marks and alterations omitted). The bankruptcy
court found that the agreement “was the product of an arms-
length negotiation between the Trustee and First-Citizens
and entered into by the parties without collusion and in good
faith.” This good faith finding was supported by a
declaration of the Trustee in which he stated that he met with
counsel for Debtor and First-Citizens to investigate the
parties’ claims and explore settlement options. Adeli faults
the Trustee for being insufficiently thorough in his
assessment of the parties’ claims, but does not identify any
facts suggesting bad faith. Based on this evidence, the
bankruptcy court did not clearly err in finding that First-
under the contract, and First-Citizens proceeded to litigate one of the
causes of action against a third party until securing summary judgment
in 2014.
10 IN RE BERKELEY DELAWARE COURT, LLC
Citizens was a purchaser in good faith for the purpose of
§ 363(m).
* * *
We conclude that the bankruptcy court had the discretion
to apply 11 U.S.C. § 363 to the settlement involving a sale
of the estate’s potential claims, and did not clearly err in
determining that First-Citizens was a good faith purchaser of
those claims. Under § 363(m), therefore, the sale may not
be modified or set aside on appeal unless it was stayed
pending appeal. And because Adeli failed to seek a stay, the
appeal is moot. We do not reach Adeli’s challenges to the
propriety of the sale of claims under § 363, as such an
analysis would require us to impermissibly reach the
underlying merits of the settlement. In re Exennium, Inc.,
715 F.2d at 1404 (“[T]he equitable power to overturn a
confirmed judicial sale is conditioned on the appellant’s
compliance with the stay requirement. . . .”).
AFFIRMED.