Section 363(m) is not a Jurisdictional Constraint on Appellate Review of Property Transfers

Agustin Bujanda

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff     

Section 363(b) of title 11 of the United States Code (the “Bankruptcy Code”) provides that bankruptcy courts may authorize the trustee of a debtor to sell or lease property of the bankruptcy estate.[1] Additionally, under section 363(m), “[t]he reversal or modification on appeal of an authorization under subsection (b) and (c) . . . does not affect the validity of a sale or lease.”[2] In MOAC Mall Holdings LLC v. Transform Holdco LLC, the Supreme Court of the United States held that section 363(m) is not a jurisdictional limitation on appellate courts and thus does not deprive them of the power to adjudicate appeals of orders under section 363(b).

In 2018, Sears, Roebuck and Co. (“Sears”) filed a petition for relief under chapter 11 of the Bankruptcy Code and, in 2019, agreed to sell substantially all of its assets to respondent Transform Holdco LLC (“Transform”).[3] Among the assets conveyed was the right for Transform to designate an assignee for a lease (“MOA Lease”) between Sears and MOAC Mall Holdings, LLC (“MOAC”) for space in the Minnesota Mall of America.[4] Transform thereafter designated the MOA Lease for assignment to its wholly owned subsidiary. MOAC objected to the assignment on the grounds that Transform failed to provide MOAC the requisite adequate assurance of future performance.[5] The Bankruptcy Court ruled in favor of Transform and entered an order authorizing the assignment of the MOA Lease (“Authorization Order”).[6] Before appealing the decision, MOAC sought a stay of the effectiveness of the Authorization Order. The Bankruptcy Court for the Southern District of New York denied MOAC’s request.[7] MOAC then appealed the Authorization Order to the District Court for the Southern District of New York, who ruled in favor of MOAC and vacated the Assignment Order “to the extent it approved” Sears’s assignment of the lease to Transform.[8] This is the point in the litigation where section 363(m) became relevant. After losing the appeal on the merits, Transform moved for a rehearing and—for the first time during the appeal[9]—argued that section 363(m) deprived the District Court of jurisdiction. Specifically, because the lease had, at that point, been transferred out of the possession of the estate.[10] The Second Circuit affirmed that section 363(m) amounted to a jurisdictional provision, and the Supreme Court granted certiorari.[11]

The Supreme Court found that section 363(m) is not a jurisdictional provision. The decision of the Supreme Court to reverse the holdings of the lower courts that section 363(m) amounts to a jurisdictional provision that was rooted in a blend of (i) a textual analysis and (ii) the legislative intent behind the provision.

First, the Supreme Court explained that provisions are only treated as jurisdictional “if Congress ‘clearly states’ as much.”[12] This standard—the clear-statement rule—implements “Congress’ likely intent regarding whether noncompliance with a precondition governs a court’s adjudicatory capacity.”[13] Additionally, the Supreme Court made a point to emphasize the statutory context of the provision.[14] Namely, that “Congress separated 363(m) from the Code provisions that recognize federal courts’ jurisdiction over bankruptcy matters.”[15]

Second, the Supreme Court analyzed the legislative intent and how it reinforced the notion that section 363(m) is not jurisdictional. Specifically, that Congress caveated the effect of a reversal of transfer under section 363(m), insomuch as a reversal under section 363(m) “may not affect the validity of a sale or transfer”.[16] The Supreme Court stated that similar “statutory traits” of explicitly constraining a court’s power, yet altogether avoiding any mention of jurisdictional constraints, have been previously found to support a non-jurisdictional inference.[17]

After MOAC Mall Holdings, appellate courts reviewing transfers of property under the Bankruptcy Code may make rulings on authorized transfers of property under section 363(b), even when such property is no longer in the possession of the estate. This is because section 363(m) does not amount to a jurisdictional provision that limits the adjudicatory capacity of appellate courts.