Can § 363(m)’s Appeal Protections Be Waived? (Mall v. Transform)

Waived protections? (Photo by Marilyn Swanson)

By: Donald L. Swanson

Is the § 363(m) limit on appeal of a sale order “subject to waiver”?

That’s the essential question before the U.S. Supreme Court in MOAC Mall Holdings LLC v. Transform Holdco LLC, Case No. 21-1270 (certiorari granted June 27, 2022).

A deep circuit split exists on whether the § 363(m) limitation is, (i) on an appellate court’s jurisdiction, or (ii) on remedies an appellate court can provide.[Fn. 1]

But the opposing views (in that split) are, actually, quite similar and lead to similar results. That’s because relief cannot be afforded, under either view, on matters “integral” to the § 363(b) sale: relief can be afforded (under either view) only on non-integral matters. 

So, its hard to imagine a practical circumstance under which the opposing views would reach differing results.

But in a “you can’t make this stuff up” context, Mall v. Transform manages to do just that: provide a practical circumstance in which the circuit split may make an actual difference in the result.

I’ll try to explain.


The two views (limit on jurisdiction v. limit on remedies) are, actually, quite similar because of a common focus on protecting transactions integral to the § 363(b) sale.  Here’s how.

–Second Circuit’s Appealed Opinion

The Second Circuit, in Mall v. Transform, explains its limit on jurisdiction view:

  • § 363(m) creates a rule of statutory mootness, barring appellate jurisdiction over any sale authorized by § 363(b), so long as the sale is made to a good-faith purchaser and is not stayed pending appeal;
  • in the absence of a stay, § 363(m) limits appellate review of a final sale to “challenges to the ‘good faith’ aspect of the sale” without regard to the merits of the appeal; and
  • § 363(m) also limits appellate review of any transaction that is integral to a § 363(b) sale.

In other words, § 363(m) allows relief only on non-integral rights, when a non-stayed sale is to a good-faith purchaser.

–Third Circuit’s Competing Opinion

The Third Circuit Opinion is In re Energy Future Holdings Corp., 949 F.3d 806 (3rd Cir. 2020).

Here is its remedy limitation explanation:

  • § 363(m) is often called a rule of “statutory mootness”; but
  • “mootness” is a misnomer here, because we construe § 363(m) as a constraint on our capacity to fashion relief—not on our jurisdiction.

§ 363(m) forbids only those appeals that “affect the validity of a sale”—not all those that call into question any aspect of such a sale.

So, a challenger seeking to avert § 363(m)’s bar must demonstrate that the relief affects only collateral issues not implicating an integral element of a sale.

In other words, § 363(m) allows relief only on non-integral rights, when a non-stayed sale is to a good-faith purchaser. That’s the same as the opposing view in the circuit split.

Mall v. Transform’s “Gambit”


Sears, the large retailer, files bankruptcy in October 2018.

Former Sears executives form a parent company (“Transform”) and an affiliate (“Leaseco”) to recapture and market Sears’ assets.

Transform buys all Sears’ assets under an Asset Purchase Agreement (“APA”), that’s approved by the Bankruptcy Court under § 363(b) (“Sale Order”).  The APA and Sale Order grant Transform the right to designate assignees of Sears’ retail property leases (there are hundreds of such leases).  

One such lease is at Mall of America in Minneapolis (“Mall”)—Transform designates Leaseco as assignee of this lease.

Mall objects, saying Leaseco is not a qualified assignee under § 365(b)(3).  As a practical matter, Mall:

  • does not want Sears’ anchor tenant space subleased to Transform’s highest bidder; and
  • instead, wants another big box retailer in that space to (i) preserve the Mall’s character, and (ii) avoid defaults on co-tenancy provisions with other tenants.

After an evidentiary hearing, the Bankruptcy Court overrules Mall’s objections.  So, Mall asks the Bankruptcy Court for a stay pending appeal, to preserve appeal rights under § 363(m).

The District Court describes what happens next as Transform’s “gambit.”

–The “Gambit” (Part I)

At a hearing on the Mall’s stay request:

  • Bankruptcy Judge says, “I can’t imagine 363(m) . . . applying here,” because the assignment is not part of the sale; and
  • Transform says, “we couldn’t rely on 363(m) for the purposes of arguing mootness” because the assignment is not a “sale or lease” under § 363(m).

So, the Bankruptcy Court denies Mall’s stay request because:

  • “this is a 365 order” to which 363(m) does not apply;
  • Transform is “not going to rely on 363(m), which [its counsel] just reiterated for the second time”; and
  • Transform would be estopped from arguing to the contrary.

Mall appeals the assignment approval.  But it does not (i) appeal the stay denial, or (ii) request a stay on appeal.  Meanwhile, the lease assignment closes.

–The “Gambit” (Part II)

On appeal, the District Court reverses, finding that § 365(b)(3)(A) requirements are not satisfied for assignment of a shopping center lease.  The District Court is unaware of any § 363(m) issue because neither party raises it. 

The following day, having lost the appeal, Transform requests a rehearing in District Court, arguing for the first time a lack of appellate jurisdiction because of § 363(m) and the absence of a stay.

Mall responds that (i) Transform waived § 363(m) rights and is judicially estopped from relying on that statute, and (ii) the Bankruptcy Court is correct in declaring that §363(m) is inapplicable here.

“I must reject” Mall’s arguments, the District Court declares, because:

  • the Second Circuit holds that § 363(m) is “jurisdictional,” which neither waiver nor judicial estoppel can overcome; and
  • “regrettably, § 363(m) does protect” the lease assignment from appellate review, because it is a “sale” under § 363(m)—Mall’s appeal “is, and always was, statutorily moot.”

The District Court adds:

  • While this court is appalled by Transform’s behavior, I must disagree that either doctrine confers jurisdiction over an appeal where Congress has expressly removed it” (emphasis added).


On further appeal, the Second Circuit declares (in Mall v. Transform) that, without a stay, there is no appellate authority to “reverse or modify a sale order in a way that affects the validity of a § 363 sale, regardless of the merit of the petitioner’s appeal.”  In other words, waiver and estoppel are unavailing (despite the appalling nature of Transform’s conduct), because of the statutory limit on jurisdiction.

Presumably, the Third Circuit’s limit on remedies would allow courts to consider appalling conduct and waiver/estoppel factors in the appellate analysis of an integral right under § 363(m)?  . . . But that’s a big presumption.


Can § 363(m)’s appeal protections be waived?

Only time and a U.S. Supreme Court ruling can tell.


Footnote 1. 11 U.S.C. § 363(m) provides: “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.”

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