The finality of asset sales in bankruptcy is an indispensable feature of U.S. bankruptcy law designed to maximize the value of a bankruptcy estate as expeditiously as possible for the benefit of all stakeholders. To promote such finality, section 363(m) of the Bankruptcy Code prohibits reversal or modification on appeal of an order authorizing a sale or lease to a "good-faith" purchaser unless the party challenging the sale obtains a stay pending appeal. A bankruptcy appellate panel ("BAP") for the Sixth Circuit examined the scope of section 363(m) in Clearview Eastern Fund LLC v. Woodward (In re Human Housing Henrietta Hyatt LLC), 666 B.R. 332 (B.A.P. 6th Cir. 2025). The BAP ruled that an appeal of asset sale orders by a disappointed bidder was moot under section 363(m) because the bidder did not obtain a stay pending appeal and waived any challenge to the good faith of the purchasers by failing to raise the issue before the bankruptcy court. The panel also held that merely having a competing bid does not constitute an "adverse interest" sufficient to defeat a buyer's good faith in connection with a sale.
Mootness of Appeals Under Section 363(m)
"Mootness" is a doctrine that precludes a reviewing court from reaching the underlying merits of a controversy. An appeal can be either constitutionally, equitably, or statutorily moot. Constitutional mootness is derived from Article III of the U.S. Constitution, which limits the jurisdiction of federal courts to actual cases or controversies and, in furtherance of the goal of conserving judicial resources, precludes adjudication of cases that are hypothetical or merely advisory.
The court-fashioned remedy of "equitable mootness" bars adjudication of an appeal when a comprehensive change of circumstances has occurred such that it would be inequitable for a reviewing court to address the merits of the appeal. In bankruptcy cases, appellees often invoke equitable mootness as a basis for precluding appellate review of an order confirming a chapter 11 plan that has been "substantially consummated."
An appeal can also be rendered moot (or otherwise foreclosed) by statute. For example, section 363(m) of the Bankruptcy Code provides as follows:
The reversal or modification on appeal of an authorization [of a sale or lease of property in bankruptcy] 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). Section 363(m) of the Bankruptcy Code is a powerful protection for good-faith purchasers because it limits appellate review of a consummated sale irrespective of the legal merits of the appeal. See Made in Detroit, Inc. v. Official Comm. of Unsecured Creditors of Made in Detroit, Inc. (In re Made in Detroit, Inc.), 414 F.3d 576, 581 (6th Cir. 2005); see also In re Palmer Equip., LLC, 623 B.R. 804, 808 (Bankr. D. Utah 2020) ("Section 363(m)'s protection is vital to encouraging buyers to purchase the debtor's property and thus insuring that adequate sources of financing are available.") (citations and internal quotation marks omitted).
Bankruptcy and appellate courts have long disagreed as to whether section 363(m) is jurisdictional'meaning that it can never be waived and an appellate court lacks jurisdiction to hear any appeal of an unstayed sale or lease authorization order other than on the ground that the purchaser or lessee did not act in good faith'or instead a defense that can be invoked by the proponents of the sale (e.g., the debtor, the bankruptcy trustee, or the purchaser) in connection with the appeal. The U.S. Supreme Court definitively settled this question in MOAC Mall Holdings LLC v. Transform Holdco LLC, 143 S. Ct. 927 (2023). A unanimous Court held that section 363(m) is not jurisdictional and that an appeal of a bankruptcy court order approving the assignment of a lease was not moot. The Court was also skeptical about mootness in general as a bar to appellate review of bankruptcy court decisions, despite the importance of finality in bankruptcy sales.
Good Faith
The Bankruptcy Code does not define "good faith." Courts have adopted various definitions, many of which are substantially similar. See generally Collier on Bankruptcy ("Collier") ' 363.11 (16th ed. 2025). For example, the Fifth Circuit has defined a "good faith purchaser" for purposes of section 363(m) as "'one who purchases the assets for value, in good faith, and without notice of adverse claims.'" Hsin Chi Su v. C Whale Corp. (In re C Whale Corp.), 2022 WL 135125, at *3 (5th Cir. Jan. 13, 2022) (quoting In re TMT Procurement Corp., 764 F.3d 512, 521 (5th Cir. 2014)); accord Made in Detroit, 414 F.3d at 581; Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380, 390 (2d Cir. 1997); In re Mark Bell Furniture Warehouse, Inc., 992 F.2d 7, 8 (1st Cir. 1993).
Lack of good faith is commonly manifested by "fraud, collusion between the purchaser and other bidders or the trustee, or an attempt to take grossly unfair advantage of the other bidders." TMT Procurement, 764 F.3d at 521 (citations and internal quotation marks omitted); accord Ewell v. Diebert (In re Ewell), 958 F.2d 276, (9th Cir. 1992); In re Abbotts Dairies of Pennsylvania, Inc., 788 F.2d 143, 147-148 (3d Cir. 1986); Hoese Corp. v. Vetter Corp. (In re Vetter Corp.), 724 F.2d 52, 56 (7th Cir. 1983); Badami v. Burgess (In re Burgess), 246 B.R. 352, 356 (B.A.P. 8th Cir. 2000); In re General Motors Corp., 407 B.R. 463, 494 (Bankr S.D.N.Y. 2009).
Some courts'principally in the Third Circuit'require a finding of good faith at the time the bankruptcy court approves a sale or lease of property under section 363. See Abbotts Dairies, 788 F.2d at 149-50; In re Perona Bros., Inc., 186 B.R. 833, 839-840 (D.N.J. 1995); In re Primel, 629 B.R. 790, 799 (Bankr. W.D. Pa. 2021); Factory Mutual Ins. Co. v. Panda Energy Int'l, Inc. (In re Hereford Biofuels, L.P.), 466 B.R. 841, 860 (Bankr. N.D. Tex. 2012).
Other courts do not. See, e.g., Harbison-Fischer Mfg. Co. v. Zinke (In re Zinke), 97 B.R. 155, 156-157 (E.D.N.Y. 1989) (declining to adopt the Abbotts Dairies rule); T.C. Investors v. Joseph (In re M Cap. Corp.), 290 B.R. 743, 748 (B.A.P. 9th Cir. 2003) ("Because findings of 'good faith' made at the time of the sale may be premature because they are made before the really interesting facts emerge, the Ninth Circuit does not require that a finding of 'good faith' be made at the time of sale and has rejected the Third Circuit's contrary rule.") (citations and internal quotation marks omitted).
Courts also disagree as to whether any entity asserting a lien on, or other interest in, property to be sold free and clear under section 363(f) of the Bankruptcy Code must be provided with advance notice of the sale for the purchaser of the property to be entitled to the protection of section 363(m). See generally Collier at ' 363.11 ("The protection afforded by section 363(m) has been held not to protect even an otherwise good faith purchaser when no notice was given to the lienholder, resulting in the purchaser taking the property subject to the lien."). Compare Archer-Daniels-Midland Co. v. Country...
