In the
United States Court of Appeals
For the Seventh Circuit
No. 11-2085
IN RE:
R IVER W EST P LAZA -C HICAGO, LLC,
doing business as JOFFCO S QUARE,
Debtor-Appellee.
A PPEAL OF:
F RANK S CHWAB.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:10-cv-7227—Elaine E. Bucklo, Judge.
A RGUED O CTOBER 21, 2011—D ECIDED D ECEMBER 22, 2011
Before B AUER and T INDER, Circuit Judges, and M AGNUS-
S TINSON, District Judge.
M AGNUS-STINSON, District Judge. While substance
counts, procedure does too. This appeal arises out of the
The Honorable Jane E. Magnus-Stinson, District Judge for
the United States District Court for the Southern District of
Indiana, is sitting by designation.
2 No. 11-2085
Chapter 11 bankruptcy petition of River West Plaza-
Chicago, LLC (“River West”). The bankruptcy court
disallowed the claim by Appellant, and purported
creditor, Frank Schwab, erroneously in his view. As we
explain below, however, two procedural impediments
prevent us from reviewing the propriety of the bank-
ruptcy court’s disallowance decision because they fore-
close any possibility of substantive relief if he were to
prevail here. The first is Mr. Schwab’s failure to obtain
a stay of the sale of River West’s property pending
appeal, as required under 11 U.S.C. § 363(m). The second
is his failure to file a notice of appeal that challenged
the bankruptcy court’s order approving the joint liquida-
tion plan that distributed the sales proceeds. Mr. Schwab
therefore cannot seek to modify the plan here, in an
effort to excuse his failure to obtain a stay.
I.
B ACKGROUND
River West was organized to own and operate a single
asset: Joffco Square, a shopping center in Chicago.
Before it filed for bankruptcy, Mr. Schwab had filed
suit against River West in state court, alleging that he
was entitled to a percentage of River West’s profits
under a written agreement. After the bankruptcy
petition, a stay automatically issued against the state-
court litigation. See 11 U.S.C. § 362(a). Accordingly,
Mr. Schwab filed a notice of claim with the bankruptcy
court, so that he could continue to pursue the money
that he believes River West owes him.
No. 11-2085 3
Although Mr. Schwab argued that a lis pendens that he
filed in connection with his state-court lawsuit made
his claim a secured one, the bankruptcy court disagreed.
At a September 2010 hearing, the bankruptcy court disal-
lowed the claim in its entirety. According to the bank-
ruptcy court, even if the allegations in the state-court
litigation were true, Mr. Schwab could have nothing
more than an equity interest in River West, which
would necessarily be subordinate to all other creditors’
claims and thus worthless.
The timing of what happened after the bankruptcy court
disallowed Mr. Schwab’s claim is critical for this appeal.
•October 4, 2010: River West and its largest secured
creditor, Bank of America, N.A.,
file a joint liquidation plan, pro-
posing to sell Joffco Square at auc-
tion.
•October 6, 2010: M r. Schwab appeals the bank-
ruptcy court’s disallowance of his
claim to the district court.
•December 9, 2010: Mr. Schwab requests that the bank-
ruptcy court stay the sale of Joffco
Square pending resolution of his
appeal.
•December 10, 2010: Mr. Schwab requests that the dis-
trict court stay the sale of Joffco
Square pending resolution of his
appeal and expedite the briefing
of his appeal.
4 No. 11-2085
•December 14, 2010: The district court denies the mo-
tion for stay as premature, because
the bankruptcy court had not is-
sued a ruling on Mr. Schwab’s
pending motion for a stay from
that court. It does, however, expe-
dite briefing of the appeal.
•December 14, 2010: The bankruptcy court denies Mr.
Schwab’s motion to stay.
•December 14, 2010: Mr. Schwab files an objection to
the joint liquidation plan with the
bankruptcy court, arguing among
other things that “confirmation
should not take place until the
District Court has ruled on
Schwab’s appeal . . . .”
•December 15, 2010: The auction of Joffco Square oc-
curs, as scheduled, with Inland
Real Estate Corporation’s (“In-
land”) bid prevailing.
•December 22, 2010: The bankruptcy court overrules
Mr. Schwab’s objection to the joint
liquidation plan and enters an or-
der confirming it, which among
other things specifies the distribu-
tion that each creditor would re-
ceive. The bankruptcy court also
approves the sale of Joffco Square
to Inland, “free and clear of liens,
No. 11-2085 5
clams, and encumbrances, as pro-
vided in Bankruptcy Code sec-
tion 363.”
•December 28, 2010: The fourteen-day period expires
for Mr. Schwab to appeal to the
district court the bankruptcy
court’s December 14 denial of his
motion to stay. See Fed. R. Bankr.
Pro. 8002(a).
•January 5, 2011: The fourteen-day period expires
for Mr. Schwab to appeal to the
district court the bankruptcy
court’s December 22 confirmation
of the joint liquidation plan. See id.
•January 11, 2011: The joint liquidation plan becomes
effective. The sale of Joffco Square
to Inland closes.
•February 9, 2011: The bankruptcy court holds a hear-
ing to address any outstanding
post-confirmation matters. Mr.
Schwab does not attend.
•February 9, 2011: River West and Bank of America
move to dismiss Mr. Schwab’s
appeal as moot under 11 U.S.C.
§ 363(m).
•February 23, 2011: The bankruptcy court issues its fi-
nal decree and closes the bank-
ruptcy.
6 No. 11-2085
•April 11, 2011: The district court dismisses Mr.
Schwab’s appeal as moot in light
of § 11 U.S.C. 363(m).
•May 11, 2011: Mr. Schwab files his notice of ap-
peal to this Court from the dis-
trict court’s April 11 dismissal.
II.
D ISCUSSION
As he did before the district court, Mr. Schwab argues
that (1) his state-court notice of lis pendens gave him
a property interest in Joffco Square; (2) nothing in the
Bankruptcy Code allowed the bankruptcy court to re-
characterize that interest as equity; and (3) the bank-
ruptcy court erred in authorizing and confirming a sale
of Joffco Square free and clear of his interest, see 11
U.S.C. § 363(f) (authorizing free-and-clear sales only
under certain circumstances). The district court held that
because Mr. Schwab neither obtained a stay of the sale
of Joffco Square nor challenged Inland’s status as a good-
faith purchaser, § 363(m) rendered his appeal of the
disallowance order moot, and dismissed it.
We review the district court’s finding of mootness
de novo. Hower v. Molding Sys. Eng’g Corp., 445 F.3d 935, 937
(7th Cir. 2006) (citation omitted). And we agree with the
district court that we cannot reach the merits of those
issues, as they are indeed moot.
“A central purpose of bankruptcy . . . is to maximize
creditor recovery.” Corporate Assets, Inc. v. Paloian, 368
No. 11-2085 7
F.3d 761, 767 (7th Cir. 2004). Because “purchasers are
likely to demand a steep discount” when purchasing a
bankruptcy debtor’s property if the sale can later be
disturbed, In re Sax, 796 F.2d 994, 998 (7th Cir. 1986)
(citation omitted), Congress has decided that bank-
ruptcy sales are usually final. Accordingly, if a bank-
ruptcy court authorizes the sale of property, the subse-
quent reversal on appeal of the sale authorization “does
not affect the validity of [the] sale . . . 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.” 11 U.S.C. § 363(m).
Given the statutory guarantee of finality that § 363(m)
provides, “we have repeatedly held that when a party
challenges the bankruptcy court’s order approving the
sale of estate property to a good faith purchaser, it
must obtain a stay of that order pending appeal, lest the
sale proceed and the appeal become moot.” In re CGI
Indus., 27 F.3d 296, 299 (7th Cir. 1994) (collecting cases).
A case must be declared moot where “there is no
possible relief which the court could order that would
benefit the party seeking it.” In re Envirodyne Indus., 29
F.3d 301, 303 (7th Cir. 1994) (citation omitted).
So even if Mr. Schwab were correct that the bankruptcy
court should not have stripped away his interest in
Joffco Square (which we do not decide), § 363(m)
prevents us from resurrecting that interest in the real
estate itself. As below, Mr. Schwab does not contest In-
land’s status as a good-faith purchaser, which is the sole
8 No. 11-2085
ground § 363(m) provides for modifying the terms of a
sale completed in the absence of a stay. See In re Sax, 796
F.2d at 997-98 (finding appeal moot where no stay was
entered pending appeal that alleged that bankruptcy
court improperly authorized the sale of property that
was not even part of the bankruptcy estate); In re Gucci,
105 F.3d 837, 839 (2d Cir. 1997) (“Our appellate jurisdic-
tion over an unstayed sale order issued by a bankruptcy
court is statutorily limited to the narrow issue of
whether the property was sold to a good faith purchaser.”
(citations omitted)).
Inland successfully bid to purchase Joffco Square free
and clear. With the sale now completed, § 363(m) guaran-
tees that no appellate court will disturb the bankruptcy
court’s order that Inland take Joffco Square “free and
clear of liens, claims, encumbrances,” including any that
Mr. Schwab would like to assert if he could revive his
claim here. And despite Mr. Schwab’s suggestion to
the contrary, we may not ignore § 363(m) just because
Inland is not a party to this appeal and has not, therefore,
raised § 363(m) itself. See In re Vlasek, 325 F.3d 955, 962
(7th Cir. 2003) (affirming invocation of § 363(m) by a
trustee, rather than a good-faith purchaser, who suc-
cessfully argued that the absence of a stay prevented
the court from overturning sales of various pieces of
property).
Mr. Schwab alternatively argues that he can avoid a
challenge to the “validity” of the sale for the purposes of
§ 363(m), and thus its stay requirement, by asking us
to simply rearrange the distribution of the sale proceeds
No. 11-2085 9
if he prevails. Specifically, he argues that his claim can
be paid out of the distribution that went to Bank of Amer-
ica, which is a party to this appeal.
Mr. Schwab’s alternative argument also falters, for
two reasons: the effect of his notice of appeal to the
district court and, again, § 363(m).
First, the notice of appeal: The only notice filed in the
bankruptcy court was Mr. Schwab’s challenge to his
claim’s disallowance. Mr. Schwab never appealed the
bankruptcy court’s order approving the liquidation plan
to the district court. The order established Bank of Amer-
ica’s share of the proceeds. Because Mr. Schwab’s first
notice of appeal did not (and cannot) encompass orders
that post-date it, the district court could not order the
modification of the plan to rearrange the distribution of
the sale proceeds. See In re Vlasek, 325 F.3d at 962
(“[The appellant] could have—and should have—
appealed and sought stays of any subsequent orders
approving the sale of estate assets.”). By extension,
neither can we. Id. at 960 (“A court of appeals’ jurisdic-
tion over a district court’s review of a bankruptcy court
order can only be based on a proper exercise of the
district court’s jurisdiction.” (citation omitted)).
Second, just as § 363(m) prevents us from letting
Mr. Schwab challenge the sale of the property if he
could succeed in reviving his disallowed claim on
appeal, it also prevents us from letting him upset the
expectations from the sale that River West’s other
creditors had when deciding to support the sale. Courts
take a dim view of arguments that attempt to craft any
10 No. 11-2085
sort of “end run around the appeal and stay requirements
of § 363(m).” Id. at 962. Accord In re Sax, 796 F.2d at 998
(“Creditors, who may lose money under the rules now,
stand to lose even more if we allow the proposed excep-
tion to the stay requirement. The courts should follow
statutory provisions precisely; to look for exceptions
would increase litigation, which would seriously under-
mine the finality and certainty imposed by § 363(m).”).
Accordingly, courts hearing appeals from sale or-
ders—which Mr. Schwab did not appeal either—reject
attempts to attack the distribution of proceeds if no stay
was obtained. See, e.g., BDC Fin., L.L.C. v. Metaldyne
Corp. (In re Metaldyne Corp.), 421 B.R. 620, 626 (S.D.N.Y.
2009) (“Black Diamond seeks to escape the limitations
imposed by § 363(m) by arguing that it does not chal-
lenge the sale itself, but the allocation of the assets of the
sale, which delivered Metaldyne’s assets to MDI free
and clear of liens. This is a specious distinction.” (citation
omitted)).1
1
The narrow exception to this rule that we have previously
recognized occurs where, unlike here, the proceeds from the
sale of partially exempt property have not yet been distributed
to creditors and an exemption attaches to the sale proceeds.
See In re Lloyd, 37 F.3d 271, 273 (7th Cir. 1994) (“But Lloyd’s
inability to recover the land sold does not render the entire
appeal [from a sale order] moot because the Wisconsin home-
stead exemption applies to and follows the proceeds of the
sale.” (citation omitted)).
No. 11-2085 11
III.
C ONCLUSION
Having failed to obtain a stay of the sale of the
property at issue and having appealed only the disal-
lowance of his claim, Mr. Schwab’s appeal is moot and
is, therefore, D ISMISSED.
12-22-11