Mission Product Holdings, Inc. v. Old Cold, LLC

United States Court of Appeals
For the First Circuit

Nos. 16-9012, 16-9015

IN RE: OLD COLD LLC, f/k/a Tempnology, LLC,*
Debtor.

MISSION PRODUCT HOLDINGS, INC.,

Appellant/Cross-Appellee,

v.

OLD COLD LLC, f/k/a Tempnology, LLC and
SCHLEICHER AND STEBBINS HOTELS LLC,

Appellees/Cross-Appellants.

APPEALS FROM THE BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT

Before

Torruella, Lynch, and Kayatta,
Circuit Judges.

Robert J. Keach, with whom Lindsay K.Z. Milne and Bernstein,
Shur, Sawyer & Nelson, P.A. were on brief, for appellant/cross-
appellee.
Christoper M. Desiderio, with whom Daniel W. Sklar and Nixon
Peabody LLP were on brief, for appellee/cross-appellant Old Cold
LLC.
Christoper M. Candon, with whom Sheehan Phinney Bass & Green

* By order dated December 23, 2015, the bankruptcy court
granted Debtor's motion to amend the caption by replacing
"Tempnology, LLC" with "Old Cold LLC."
PA was on brief, for appellee/cross-appellant Schleicher &
Stebbins Hotels LLC.

January 12, 2018
 KAYATTA, Circuit Judge. Chapter 11 debtor Tempnology,

LLC ("Debtor") auctioned off its assets pursuant to section 363 of

the Bankruptcy Code. Schleicher and Stebbins Hotels LLC ("S&S")

was declared the winning bidder over Mission Product Holdings,

Inc. ("Mission"). With the bankruptcy court's approval, Debtor

and S&S completed the sale. On appeal, Mission now asks that we

order the bankruptcy court to unwind the sale and treat Mission as

the winning bidder. Because the sale to S&S was completed and S&S

is a good faith purchaser entitled to protection under

section 363(m), we affirm without reaching the merits of Mission's

various challenges to the sale. Our explanation follows.

I.

Debtor made specialized products -- such as towels,

socks, headbands, and other accessories -- designed to remain at

low temperatures even when used during exercise. It marketed these

products under the "Coolcore" and "Dr. Cool" brands. S&S is an

investment holding company with its primary interest in hotels.

Prior to Debtor's bankruptcy, S&S owned a majority interest in

Debtor. Until just under two months before Debtor commenced this

Chapter 11 proceeding, Mark Schleicher and Mark Stebbins -- S&S's

two principals -- sat on Debtor's management committee.

Almost three years before petitioning for bankruptcy,

Debtor executed a Co-Marketing and Distribution Agreement with

Mission. This Agreement granted Mission a nonexclusive, perpetual

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license to Debtor's intellectual property and an exclusive

distributorship for certain of Debtor's manufactured products.

The Agreement forbade Debtor from selling the covered products in

Mission's exclusive territory, which included the United States.

When the relationship between Mission and Debtor soured,

Mission exercised its contractual right to terminate the Agreement

without cause on June 30, 2014. This election triggered a two-

year "Wind-Down Period" through July 1, 2016, during which

Mission's rights remained in effect. Debtor responded by seeking

to terminate the Agreement for cause, claiming as a breach

Mission's hiring of Debtor's former president. Unlike Mission's

election, Debtor's termination for cause, if effective, would have

terminated the Agreement without a Wind-Down Period. The dispute

went before an arbitrator, who found that Debtor's attempted

termination for cause was improper, potentially entitling Mission

to damages for Debtor's failure to abide by the Agreement leading

up to arbitration. The hearing to determine the amount of these

damages has been stayed pending the resolution of Debtor's

bankruptcy petition.

As the parties' relationship deteriorated, so too did

Debtor's financial results. Debtor posted multi-million dollar

losses in 2013, 2014, and 2015, for which it blames the Agreement

with Mission. To combat its liquidity problems, Debtor took on

increased debt. S&S, which had already made substantial loans to

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Debtor, loaned additional money, and Debtor obtained a secured

line of credit with People's United Bank for approximately

$350,000. In 2014, after deciding that it would only continue

lending to Debtor on a secured basis, S&S acquired People's United

Bank's line of credit. S&S increased the secured loan limit, first

to $4 million, and later to $5.5 million. This tactic allowed S&S

to gradually convert its unsecured debt into secured debt.

Debtor failed to improve financially. On July 13, 2015,

Debtor's management committee and Stebbins met to discuss Debtor's

outstanding debt. At this meeting, S&S and Debtor agreed to the

outline of a forbearance agreement, which was memorialized and

signed four days later. The forbearance agreement provided for an

additional $1.4 million in funding for Debtor on the condition

that it file for bankruptcy and sell substantially all of its

assets in a section 363 sale. See 11 U.S.C. § 363(b).

Stebbins and Schleicher both stepped down from Debtor's

management committee following the July 13 meeting. Thereafter,

neither had contact with Debtor's management regarding Debtor's

operation or subsequent bankruptcy.

Debtor then engaged Phoenix Capital Resources, a crisis

management, investment banking, and financial services firm, to

explore its options. Phoenix concluded that Debtor's best route

was to be put up for sale. It then solicited approximately five

companies to serve as the stalking horse bidder for Debtor's

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assets. In the context of a bankruptcy sale, a stalking horse

bidder is an initial bidder whose due diligence and research serve

to encourage future bidders, and whose bid sets a floor for

subsequent bidding. See ASARCO, Inc. v. Elliott Mgmt. (In re

ASARCO, L.L.C.), 650 F.3d 593, 602 n.9 (5th Cir. 2011). None of

the firms solicited by Phoenix were interested in taking on the

expense of this role. In August of 2015, Phoenix approached S&S,

which agreed to be the stalking horse bidder.

On September 1, 2015, Debtor filed a petition for

Chapter 11 bankruptcy. On the same day, S&S formally became the

stalking horse bidder by signing an agreement to purchase Debtor's

assets for $6.95 million, composed almost entirely of forgiven

pre-petition debt owed by Debtor to S&S. This strategy of

offsetting a purchase price with the value of a secured lien is

called credit bidding, and it is permitted in a section 363 sale

"unless the court for cause orders otherwise." 11 U.S.C. § 363(k).

A provision in the Agreement also left Debtor able to back out in

favor of a superior bid at the auction.

The next day, Debtor moved for approval of its proposed

asset sale procedures. It also moved to reject a number of its

executory contracts, including the Mission Agreement. The

bankruptcy court ultimately granted that motion, and Mission's

challenge to that order is the subject of our separate opinion

issued this date in appeal No. 16-9016.

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 Because the stalking horse bidder -- S&S -- was an

insider of Debtor, both the United States Trustee and Mission

sought the appointment of an independent examiner to evaluate the

proposed sale and bidding procedures. Although Debtor initially

resisted, it ultimately concurred in the recommendation. The court

agreed, and appointed an examiner.

On October 8, the bankruptcy court held a hearing on the

sale motion. In light of a concern raised in the examiner's

interim report and echoed by the court about S&S's pre-petition

credit bid, S&S agreed at the hearing to change the composition of

its stalking horse bid and to lower its value from approximately

$7 million to just over $1 million. Its revised bid consisted of

$750,000 in post-petition debt and the assumption of about $300,000

in pre-petition liabilities. As the bankruptcy court concluded,

this agreement was a concession intended to defer to a later day

a possible fight over S&S's credit-bidding rights.

The bankruptcy court approved the sale procedures on

October 8, after which Phoenix sent 164 emails to companies that

Phoenix determined might be interested in bidding for Debtor's

assets. Included with its standard email was a confidentiality

agreement and an invitation to visit a data room, in which Phoenix

had deposited Debtor's confidential business information. Despite

conducting 112 follow-up calls, and a few visits by interested

companies to the data room, Phoenix failed to secure any party --

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other than Mission and S&S -- willing to bid at the auction.

Potential bidders were deterred by, among other things, Debtor's

poor financial track record, its dispute with Mission, the size of

the market opportunity, and S&S's ability to credit bid. Debtor

had also given Phoenix a list of parties not to contact, comprised

of Debtor's customers. Debtor believed that these customers would

be less likely to continue their relationship with Debtor if they

knew that Debtor was undergoing an asset sale, and that their

withdrawal would further threaten Debtor's already precarious

financial viability.

Through an affiliate, S&S continued to lend to Debtor

during the run-up to the auction. S&S included the full amount of

this disbursed and imminent loan -- $750,000 -- as post-petition

debt in a revised stalking horse bid, submitted at the beginning

of October.

On November 2, 2015, Mission placed a qualifying overbid

of $1.3 million, entitling the company to bid at auction. Three

days later, on November 5, Debtor's counsel held an auction for

Debtor's assets, at which S&S and Mission were the only bidders.

The bid procedures allowed negotiations to be conducted off the

record. Although S&S had revised its stalking horse bid to exclude

forgiven pre-petition debt, its first bid at auction -- for a total

of $1.4 million -- included such a credit bid. Mission then

asserted that S&S had no right to credit bid pre-petition debt,

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and announced that it would bid under protest for the remainder of

the auction. The next opportunity to bid went to Mission. To

beat S&S's proposal, Mission increased the value of its previous

bid, to the apparent confusion of some present, by agreeing to

leave in the estate $200,000 in cash, thus increasing the total

value of its bid to $1.5 million. Bidding continued to proceed in

this fashion: S&S increased its bid using credit, and Mission

agreed to leave additional assets in the estate, including Debtor's

finished goods inventory and accounts receivable. Given Mission's

bidding structure, Debtor then revalued its accounts receivable

and inventory to reflect their liquidation value as opposed to

their book value. This revaluation reduced the bidding value of

the accounts receivable by twenty percent, to $80,000, and the

bidding value of the inventory by ninety percent, to $120,000.

Mission's counsel, after being informed that Debtor would

recalculate the inventory value, responded that "[a]s long as it's

apples to apples, I don't care." Mission's counsel did not object

to the new figures after Debtor announced them.

The parties then broke for lunch. Back on the record,

Debtor's counsel informed those present that, after a negotiation

between Debtor's counsel and S&S off the record, S&S intended to

adopt Mission's bid structure by leaving assets in the estate. In

its next bid, S&S credit bid only its post-petition debt, assumed

all pre-petition liabilities other than rejection damages and

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disputed liabilities, assumed post-petition accounts payable, and

left in the estate all accounts receivable, inventory, and cash.

In subsequent bidding, S&S increased its bid by credit bidding

pre-petition debt, and Mission increased its bid with cash.

Mission soon ceased to bid and declined to be designated the backup

bidder, ending the auction. S&S's winning bid, for a total value

of $2.7 million, consisted of forgiven pre-petition debt, forgiven

post-petition debt, the assumption of post-petition accounts

payable, the assumption of certain pre-petition unsecured debt,

and cash, inventory, and accounts receivable left in the estate.

For this consideration, S&S acquired "all of [Debtor's] assets,

properties and businesses," excluding, among other things, the

assets left in the estate.

Before ruling on Debtor's motion to approve the sale,

the bankruptcy court held two days of evidentiary hearings. A

Phoenix partner, Debtor's two top officers, and Mark Stebbins of

S&S all testified. To support its contention that the sale process

was tainted by fraud and collusion, Mission relied on cross-

examining Debtor's witnesses, but did not present any witnesses of

its own.

At the second day of the hearing, on November 23, 2015,

the bankruptcy court noted that it would have an order "very, very

quickly." Debtor informed the court that the parties were "ready

to close as soon as an order is entered." In its proposed order,

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submitted on December 1, Debtor requested that the automatic stay

provision of rules 6004(h) and 6006(d) be waived. Debtor had also

submitted this request in an earlier draft order. On December 15,

2015, Debtor submitted a status report informing the court that if

it could not close the sale by December 18, it would need to draw

an additional $150,000 on its post-petition line of credit.

On December 18, 2015, the bankruptcy court posted its

order and opinion approving the sale of Debtor's assets to S&S.

In re Tempnology, LLC, 542 B.R. 50 (Bankr. D.N.H. 2015). In its

analysis, the court looked to whether the sale process provided

creditors the same substantive protections as the confirmation

process, and also weighed the business reasons for the proposed

transaction, including whether it made sense in the overall context

of the reorganization. It held that the transaction did not

subvert Chapter 11's substantive creditor protections. The court

determined that the absolute priority rule was not implicated

because "S&S will not retain its equity interest or receive any

distribution on account of it, but is instead purchasing the

Debtor's assets." Id. at 66. Because an assumption of liabilities

"is common practice and there are sound business reasons why some

are assumed and others are not," the court ruled that S&S's

assumption of liabilities "does not constitute an attempt to

circumvent" the Code's prohibition against intra-class

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discrimination. Id. The court held that S&S was permitted to

credit bid under section 363(k). Id. at 69.

The court further found that "there is no evidence in

the record establishing any misconduct or collusion in the sale

process by the Debtor and S&S." Id. at 67. In doing so, it

credited the testimony of Stebbins and Debtor's top officers.

Based in part on this finding, the court held that S&S was a "good

faith purchaser" within the meaning of section 363(m). Relying on

testimony presented at the November 23 hearing, the court

concluded that, whatever their initial relationship, "Stebbins and

S&S essentially divorced themselves from the Debtor when it became

clear that a reorganization was needed." Id. at 72. According to

the court, Mission had "failed to demonstrate that the proposed

transaction is anything other than an arm's length transaction."

Id. The court also noted that the entire transaction was overseen

by both the United States Trustee and an independent examiner,

neither of whom lodged any objection to the sale. Id. at 72.

In its order approving the sale, as Debtor had requested,

the bankruptcy court waived the automatic stay in rules 6004(h)

and 6006(d). In doing so, it stated:

This Court expressly finds and rules that
there is no just reason for delay in the
implementation of this Order and expressly
directs entry of judgment as set forth herein
and the stay imposed by Bankruptcy
Rules 6004(h) and 6006(d) are hereby waived
and this Order shall be effective immediately

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 upon its entry and the Debtor is hereby
authorized and directed to consummate the sale
of the Assets to the Successful Bidder . . . .

Later that day, S&S and Debtor consummated the sale. Mission

appealed to the Bankruptcy Appellate Panel for the First Circuit

("BAP").

After the bankruptcy court's order, but prior to the

BAP's ruling, Debtor sold its remaining finished goods inventory

to S&S, which had left this asset in the estate as part of its

winning bid at the auction. On February 25, 2016, Debtor filed a

comfort motion seeking approval of the inventory sale. Debtor

took the position in its motion that, because "[a]ll of the

Debtor's inventory currently consists of branded product," then,

"[a]s a result of S&S's acquisition of the Debtor's trademarks and

tradenames, the only party who can purchase the branded inventory

without violating S&S's intellectual property rights is S&S."

Although the initial motion listed the price as seventy-five

percent of cost, S&S later raised the price to one-hundred percent

of cost.

Mission challenged the inventory sale. On March 22,

2016, the bankruptcy court held a hearing, in which it ultimately

approved the sale of the inventory to S&S. It determined the price

to be fair and noted that it would be difficult to get a higher

price for inventory given that Debtor was in liquidation.

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 Mission's appeal to the BAP also proved unsuccessful.

Mission Prod. Holdings, Inc. v. Old Cold, LLC (In re Old Cold,

LLC), 558 B.R. 500 (B.A.P. 1st Cir. 2016). Section 363(m), the

BAP held, limited its review to the issue of good faith in the

absence of a stay. Id. at 513. Because "[n]othing in the record"

persuaded the BAP "that the bankruptcy court's good faith finding

was clearly erroneous," it held that section 363(m) barred further

review. Id. at 515. The BAP also held that the bankruptcy court

applied the correct legal standards and that the post-sale conduct

regarding inventory did not upset the good faith finding below.

Id. at 520-21.

II.

We begin our analysis of Mission's arguments on appeal

by summarizing the statutory framework. Section 363(b) of the

Bankruptcy Code permits a debtor-in-possession,1 "after notice and

a hearing," to "sell . . . property of the estate." 11 U.S.C.

§ 363(b)(1). In a section 363(b) asset sale, the debtor-in-

possession may sell the estate property "free and clear of any

interest in such property of an entity." Id. § 363(f). According

1 Although this provision of the statute only refers to the
powers of a trustee, per 11 U.S.C. § 1107(a), a Chapter 11 "debtor
in possession shall have all the rights . . . and powers, and shall
perform all the functions and duties, . . . of a trustee serving
in a case under this chapter." See also Mason v. Official Comm.
of Unsecured Creditors, for FBI Distrib. Corp. & FBC Distrib. Corp.
(In re FBI Distrib. Corp.), 330 F.3d 36, 42 n.8 (1st Cir. 2003)
(citing this provision).

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to an observer, asset sales have become increasingly common as a

substitute for Chapter 11 confirmation plans. See Kimon Korres,

Bankrupting Bankruptcy, 63 Fl. L. Rev. 959, 960 (2013). Asset

sales provide speed and efficiency to the estate and may maximize

the value of the underlying assets by subjecting them to a

competitive auction. Id. But, because of a concern that a debtor-

in-possession may use an asset sale to circumvent the creditor

protections of Chapter 11, section 363(b) does not grant a "carte

blanche." Comm. of Equity Sec. Holders v. Lionel Corp. (In re

Lionel Corp.), 722 F.2d 1063, 1069 (2d Cir. 1983). Instead, the

bankruptcy court must determine whether there is a "good business

reason" for the sale, and whether the sale adheres to the

substantive protections of Chapter 11. Id. at 1071.

Should the bankruptcy court approve the sale, the

Bankruptcy Code provides a degree of finality to the estate and

the purchaser. Section 363(m) provides that:

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.

11 U.S.C. § 363(m). The effect of this provision is to render

statutorily moot any appellate challenge to a sale that is both to

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a good faith purchaser, and not stayed. See Anheuser-Busch, Inc.

v. Miller (In re Stadium Mgmt. Corp.), 895 F.2d 845, 847 (1st Cir.

1990).

III.

So, is Mission's appellate challenge to the now-

consummated sale moot? To establish otherwise, Mission advances

two arguments: First, it argues that section 363(m) does not

control because S&S was not a good faith purchaser. Second, it

argues that Mission was given no chance to seek a stay of the sale,

and thus we should overlook the absence of a stay. We address

each argument in turn.

A.

Good faith, in the context of section 363(m), is a "mixed

question of law and fact." Mark Bell Furniture Warehouse, Inc. v.

D.M. Reid Assocs. (In re Mark Bell Furniture Warehouse, Inc.), 992

F.2d 7, 8 (1st Cir. 1993). On appeal from a decision by the BAP,

"[w]e accord no special deference to determinations made by the

[BAP]," and instead "train the lens of our inquiry directly on the

bankruptcy court's decision."2 Wheeling & Lake Erie Ry. Co. v.

2 We do nevertheless pay great attention to the considered
opinion of the three experienced bankruptcy judges who sit on the
BAP. Among other things, our consideration of such an opinion
reduces the likelihood that our court of general appellate
jurisdiction is blindsided by the effect that a decision might
have on matters or issues of bankruptcy law and practice that are
beyond the ken of the parties in a particular proceeding.

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Keach (In re Montreal, Maine & Atl. Ry., Ltd.), 799 F.3d 1, 5 (1st

Cir. 2015). Mission accepts the proposition that we review the

determination of good faith for clear error unless the bankruptcy

court's analysis is "infected by legal error." Prudential Ins.

Co. of Am. v. SW Bos. Hotel Venture, LLC (In re SW Bos. Hotel

Venture, LLC), 748 F.3d 393, 402 (1st Cir. 2014) (quoting Winthrop

Old Farm Nurseries, Inc. v. New Bedford Inst. for Sav. (In re

Winthrop Old Farm Nurseries, Inc.), 50 F.3d 72, 73 (1st Cir.

1995)). Absent legal error, this is a "formidable standard," and

we will not reverse if the "bankruptcy court's account of the

evidence is plausible in light of the record viewed in its

entirety." Id. (quoting Goat Island S. Condo. Ass'n v. IDC

Clambakes, Inc. (In re IDC Clambakes, Inc.), 727 F.3d 58, 64 (1st

Cir. 2013)). Only if "on the whole of the record, we form a

strong, unyielding belief that a mistake has been made" will we

upset the bankruptcy court's determination under a clear error

standard. Id. (quoting Cumpiano v. Banco Santander P.R., 902 F.2d

148, 152 (1st Cir. 1990)).

Mission argues that the bankruptcy court did indeed

commit legal error in finding that S&S was a good faith purchaser.

Reasons Mission, because S&S was an insider, the bankruptcy court

was required to apply "heightened scrutiny," yet failed to do so.

To reject this argument, we need not decide whether heightened

security was required. Rather, we can rest our rejection of

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Mission's argument on the fact that the bankruptcy court did bring

heightened scrutiny to bear in its relevant findings. It prefaced

its findings of fact by expressly stating that it employed a

greater level of scrutiny because section 363 "sales to insiders

are subject to a higher scrutiny," and observed that, in this

context, "higher scrutiny requires a debtor to demonstrate that

the assets are being sold for the highest price attainable and

that the insider transaction is the result of a bona fide arm's

length transaction and not driven by other factors." In re

Tempnology, LLC, 542 B.R. at 65 (quotation marks and alterations

omitted). The court also applied a "greater level of scrutiny"

because of its concern that a sale close "to the heart of the

reorganization process" might evade Chapter 11 protections. Id.

at 64. Finally, the court expressly rested its finding of good

faith upon those findings made under heightened scrutiny. Id. at

72. In sum, there is no basis to claim that the bankruptcy court

applied a standard of scrutiny too favorable to Debtor or S&S. We

therefore review for clear error.

So the question remains: Did the bankruptcy court commit

clear error in finding that S&S is a good faith purchaser within

the meaning of section 363(m)? Although the Bankruptcy Code does

not define "good faith purchaser," we have defined this phrase in

the context of section 363(m) as "one who buys property in good

faith and for value, without knowledge of adverse claims." In re

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Mark Bell Furniture Warehouse, Inc., 992 F.2d at 8. We address

each prong of this three-part definition in turn.

1.

First, and true to its name, a good faith purchaser must

act "in good faith." Id. This means that the party must purchase

without fraud, misconduct, or collusion, and must not take

"'grossly unfair' advantage of other bidders." Id. (quoting In re

Andy Frain Servs., Inc., 798 F.2d 1113, 1125 (7th Cir. 1986)); see

also Oakville Dev. Corp. v. FDIC, 986 F.2d 611, 614 (1st Cir.

1993).

Mission posits that the following alleged events, as

Mission characterizes them, evidence collusion or other

misconduct: Debtor did not negotiate the forbearance agreement;

Stebbins exercised control over Debtor; Debtor instructed Phoenix

not to contact certain customers in its marketing efforts; S&S's

stalking horse bid included a credit bid of funds not yet

disbursed; Debtor and S&S discussed S&S's bid during a break at

the auction; and Debtor changed the value of inventory and accounts

receivable to their liquidation value at the auction. The

bankruptcy court carefully addressed the gist of these

allegations. It concluded, based in part on two days of

evidentiary hearings, that "there is no evidence in the record

establishing any misconduct or collusion in the sale process by

the Debtor and S&S." In re Tempnology, LLC, 542 B.R. at 67. The

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court found, among other things, that Debtor's marketing efforts

were sufficient and appropriate, that Stebbins did not exert

influence over Debtor after stepping down from its management

committee, that the forbearance agreement and stalking horse bid

were negotiated by counsel, that any issue regarding the stalking

horse bid's funding was resolved prior to the auction, that S&S

was entitled to credit bid at the auction, that the revaluation of

the assets at auction applied equally to both bidding parties,

that the sale procedures permitted ex parte communication, and,

finally, that S&S's bid was superior to Mission's. We see no clear

error.

We therefore shift our focus to Mission's alternative

argument that information that emerged after the bankruptcy court

ruled undercut the basis for its ruling by revealing evidence of

collusion during the auction. To briefly recapitulate, both

Mission and S&S increased the value of their bids at the auction

by leaving the finished goods inventory in the estate, which

consisted of branded consumer products ready for sale. After the

auction, Debtor sold this inventory to S&S3 for its book value with

approval from the bankruptcy court. Although Debtor took the

position that the goods could only be sold to S&S to avoid

3 In its brief and at oral argument, Debtor claimed that it
had offered the inventory to Mission, who failed to respond to the
offer. Because Debtor does not provide support in the record, we
do not consider its assertion.

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violating S&S's newly-acquired intellectual property rights, the

bankruptcy court "ignore[d]" this theory. It further stated that,

if there were such restrictions, it might "prove [Mission's

counsel's] point."

Mission seizes on the bankruptcy court's statement to

argue that, if faced with the question of good faith again, the

bankruptcy court might not hold fast to its prior ruling. Relying

on a recent decision from the Ninth Circuit's Bankruptcy Appellate

Panel, Mission argues that we can consider post-sale conduct in

evaluating the purchaser's good faith. See Hujazi v. Schoenmann

(In re Zuercher Tr. of 1999), No. 12-32747, 2016 WL 721485, at *1

(B.A.P. 9th Cir. 2016) (unpublished opinion).

In reviewing Debtor's sale motion, the BAP expressed

skepticism about whether it was appropriate for an appellate court

to take this tack. Nevertheless, it reviewed Debtor's conduct and

concluded that the post-closing sale of inventory did not render

the bankruptcy court's finding clearly erroneous.

We share the BAP's reticence to consider post-closing

conduct in the first instance. Doing so risks placing an appellate

court in the shoes of a trial court and undermines the policy of

finality underlying section 363(m). In this particular instance,

however, it makes no difference who decides the issue, because we

see nothing in the record capable of upsetting the bankruptcy

court's determination.

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 Mission points to two infirmities with Debtor's post-

closing sale of inventory. First, Mission argues that the sale to

S&S is evidence of a prior secret agreement, thus supporting its

allegation of collusion. The record does not support this

proposition. Mission, not S&S, introduced the concept of leaving

inventory in the estate at the auction. Only after S&S

restructured its bid to reflect Mission's strategy did S&S choose

to leave inventory in the estate. Further, the examiner concluded,

prior to the inventory sale, that S&S was the logical buyer because

it had "just acquired a business with potential sales orders and

no inventory." Selling the remaining inventory to the most logical

buyer at a price the bankruptcy court determined to be fair does

not constitute collusion.

Second, Mission argues that the existence of

intellectual property restrictions reduced the value of the

inventory, thus calling into question the superiority of S&S's

bid: If only S&S could purchase the inventory, Mission contends,

the market value of the inventory would be decreased. Although it

is true that an intellectual property restriction, if it exists,

would reduce the market value of the inventory, Mission has offered

no counter to the bankruptcy court's apparently apt observation at

the motion hearing that such a restriction would have reduced the

value of Mission's bid in the same manner, had it prevailed.

Therefore, even if a restriction altered the absolute value of the

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parties' bids, it did not materially change their relative

superiority.

Further, as we read the record, the bankruptcy court's

statements do not reflect a hesitance to abide by its prior good

faith determination, as Mission contends. When the court stated

that a restriction on who might buy the inventory might "prove

[Mission's counsel's] point," we read it as referring to the point

made by Mission's counsel that a restriction could reduce the value

of S&S's bid, not that there is evidence of collusion pointing to

bad faith, as Mission now argues. Mission's counsel never made a

point about good faith or collusion at the hearing. Adding support

to our reading, later in the proceeding, the court again referenced

its decision to proceed on the theory that any party could purchase

the inventory, and stated that a restriction "could effectively

reduce its value to next to nothing" and that the court did not

want to make the assumption that "either side" -- meaning S&S or

Mission, the two bidders at the auction -- was following this

strategy.

Therefore, we agree with the bankruptcy court that S&S

acted in good faith, thus satisfying the first requirement of the

good faith purchaser test.

2.

The second prong of the good faith purchaser definition

requires the buyer to have purchased the property "for value."

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Greylock Glen Corp. v. Comty. Sav. Bank, 656 F.2d 1, 4 (1st Cir.

1981). If a purchaser buys in good faith at a fairly-conducted

auction, paying the auction price is sufficient evidence of having

paid value. Licensing by Paolo, Inc. v. Sinatra (In re Gucci),

126 F.3d 380, 390 (2d Cir. 1997). This turns the inquiry primarily

back to the issue of good faith, id., which ends our second-prong

inquiry because we have already affirmed the bankruptcy court's

finding that S&S purchased in good faith.

3.

Third, and finally, a good faith purchaser must not have

knowledge of adverse claims. Greylock Glen Corp., 656 F.2d at 4.

Mission contends that, because S&S knew of Mission's challenge to

its right to credit bid, S&S had knowledge of an adverse claim.

But a likely appellate challenge to the sale itself is not the

type of "adverse claim" that, if known, deprives the purchaser of

good faith status. See 11 U.S.C § 363(m) (stating that the

statutory protection applies "whether or not [the purchaser] knew

of the pendency of the appeal"). Nor does knowledge of an

objection to the sale procedures constitute knowledge of an adverse

claim. As the Fifth Circuit recently held, there "is a

difference . . . between simply having knowledge that there are

objections to the transaction and having knowledge of an adverse

claim." TMT Procurement Corp. v. Vantage Drilling Co. (In re TMT

Procurement Corp.), 764 F.3d 512, 522 (5th Cir. 2014) (per curiam);

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see also Shupak v. Dutch Inn of Orlando, Ltd. (In re Dutch Inn of

Orlando, Ltd.), 614 F.2d 504, 506 (5th Cir. 1980) (per curiam)

("[M]ere knowledge of the claims . . . that are the basis of this

appeal does not deprive [the purchaser] of the protection accorded

to a good faith purchaser."). Because Mission does not point to

any knowledge that would deprive S&S of the protection of

section 363(m), S&S satisfies this third and final prong of the

good faith purchaser inquiry.

In sum, for the foregoing reasons, the bankruptcy court

did not clearly err in finding S&S to be a good faith purchaser.

B.

We turn to the second requirement of section 363(m):

that the sale be unstayed. It is undisputed that the sale closed

in the absence of any stay. Normally, this would end our inquiry.

Mission, however, raises an argument based on the interaction

between section 363(m) and Bankruptcy Rule 6004(h). The latter

rule, in normal course, automatically stays the effect of an order

authorizing a sale of the type at issue here. Among other things,

this automatic stay creates a window within which an objector might

seek a longer stay -- in the bankruptcy court or on an expedited

appeal -- in order to preserve the possibility of an appeal.

Rule 6004(h), however, also expressly allows the bankruptcy court

to waive the automatic stay, which is what the bankruptcy court

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did here, allowing the sale to close promptly upon issuance of the

order approving the sale.

Mission's argument is not that a bankruptcy court cannot

waive the automatic stay. Nor does it argue that such a waiver

automatically renders section 363(m)'s bar on appellate review

inapplicable. Instead, it argues that the Due Process Clause of

the United States Constitution requires that we create an exception

to the appellate bar in section 363(m) if the absence of a stay

arises from a Rule 6004(h) waiver issued without notice and basis.

Mission advances this argument with scant support or

analysis of the embedded due process issues. We need not ourselves

dive into such issues because the factual premises upon which

Mission rests its argument are incorrect. Debtor repeatedly gave

notice -- both in writing and orally -- that it needed to conduct

the sale immediately upon approval, and no later than December 18,

2015. On December 1, Debtor submitted its proposed order. This

order, like the one it had previously submitted on September 2,

requested that the automatic stay be waived. At the November 23

hearing on the motion to approve the sale, Debtor's counsel stated

that "I believe we're ready to close as soon as an order is

entered."

Debtor also explained why it needed to close on

December 18. After the court on November 23 had urged Debtor to

avoid obtaining further loans because "it's only going to

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complicate things," Debtor submitted a status report informing the

court that "[i]n the event the Debtor cannot close a transaction

on or before December 18th, it anticipates it will need to draw an

additional $150,000 on its post-petition line of credit." Three

days later, on December 18, the bankruptcy court approved the sale

and waived the automatic stays on the "express" finding that "there

is no just reason for delay."

In short, Mission had notice of the fact that Debtor was

seeking a waiver of the stay, and the record made clear the basis

for the requested waiver. Mission's due process argument therefore

fails on its own terms.

C.

As a final shot, Mission argues that Czyzewski v. Jevic

Holding Corp., 137 S. Ct. 973 (2017) -- decided by the Supreme

Court over a year after the bankruptcy court's order -- controls

the outcome of this appeal. In Jevic, the Supreme Court held that

structured dismissals must follow the same priority rules as

confirmation plans. The Court, however, carved out from its ruling

interim distributions that further "significant Code-related

objectives." Id. at 985. Thus, the Court did not call into

question the validity of first-day wage orders or critical vendor

orders that violate priority rules. But in a structured dismissal

that "does not preserve the debtor as a going concern" and is

"attached to a final disposition," the Court concluded that the

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violation of ordinary priority rules did not serve "any significant

offsetting bankruptcy-related justification." Id. at 986.

Mission argues that Jevic's enforcement of priority

rules applies to all end-of-case distributions, including asset

sales. As part of its winning bid, S&S agreed to assume

approximately $657,000 of Debtor's liabilities. This action,

Mission asserts, violates two creditor protections. First, it

runs afoul of the prohibition against intra-class discrimination,

which requires "the same treatment for each claim or interest of

a particular class," 11 U.S.C. § 1123(a)(4), because it provides

for payment to creditors of the same class as Mission, without

paying Mission's equal priority claim. Second, it violates the

absolute priority rule, which prevents a junior claim holder from

receiving value before certain senior claim holders are paid in

full, see id. § 1129(b)(2)(B)(ii), because it provides for the

payment of certain unsecured claims before Mission's

administrative claims. Debtor replies, simply, by contending that

Jevic -- which, on its face, pertains only to structured dismissals

-- does not apply to section 363(b) asset sales, which likely

involve potentially "offsetting bankruptcy-related

justification[s]" not present in structured dismissals. See

Jevic, 137 U.S. at 986.

We need not -- and do not -- consider this challenge to

the propriety of the sale. As we have explained, section 363(m)

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applies even if the bankruptcy court's approval of the sale was

not proper, as long as the bankruptcy court was acting under

section 363(b). In re Stadium Mgmt. Corp., 895 F.2d at 849.

Section 363(m) sets forth only two requirements: that there is a

good faith purchaser, and that the sale is unstayed. Nothing in

Jevic appears to add an exception to this statutory text. Nor

does Mission offer any argument that there is such an exception.

Rather, it simply asserts -- in one sentence -- that such a

purchaser would not be a good faith purchaser. Mission offers no

explanation for why this is so. See United States v. Zannino, 895

F.2d 1, 17 (1st Cir. 1990) ("[I]ssues adverted to in a perfunctory

manner, unaccompanied by some effort at developed argumentation,

are deemed waived."). Certainly the fact that a sale is improper

cannot mean ipso facto that there is no good faith purchaser.

Otherwise, section 363(m) would not preclude any challenges to the

propriety of consummated sales.

IV.

We conclude that S&S is a good faith purchaser entitled

to the protection of section 363(m). Mission's remaining

challenges to the sale order are therefore rendered statutorily

moot. For the foregoing reasons, the bankruptcy court is affirmed.

Costs are awarded to appellees/cross-appellants.

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