Are Bankruptcy Sales Finally Final?

Since it was issued three years ago by the Ninth Circuit Bankruptcy Appellate Panel, the Clear Channel decision (Clear Channel Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008)) has been widely criticized as "an aberration in well-settled bankruptcy jurisprudence." Before Clear Channel, conventional wisdom (and what most people perceived to be the law) supported the notion that a bankruptcy sale order that contained a good faith finding under Section 363(m) could not be disturbed on appeal. Clear Channel deeply shook all confidence in the finality of Section 363 sales. The decision has been assailed by various courts, but only recently has a district court within the same jurisdiction flatly refused to follow Clear Channel's "unpersuasive" logic.

In Clear Channel, the Bankruptcy Appellate Panel drew an arbitrary line between section 363(m) of the Bankruptcy Code, which insulates sales and transfers from appellate review, and section 363(f), which provides for sales free and clear of liens. The panel held that the appeal by Clear Channel, a junior lienholder whose lien was stripped by the sale, was not equitably moot, although the sale itself was final and unappealable. Thus, while the panel agreed with the longstanding notion that a court-approved sale cannot be judicially reviewed after it had been completed, appellants could appeal the lien-stripping component of the sale, thus stretching a previously short and efficient process into a potentially lengthy and burdensome affair.

Clear Channel was quickly and widely denounced by several courts around the country, such as the Sixth Circuit Bankruptcy Appellate Panel (In re Nashville Senior Living, LLC, 407 B.R. 222, 231 (6th Cir. B.A.P. 2009) (stating that the "overwhelming weight of authority disagrees" with Clear Channel's holding)) and the Eighth Circuit Court of Appeals (United States v. Asset Based Resource Grp., LLC, 612 F.3d 1017, 1019 (8th Cir. 2010) (quoting In re Nashville's characterization of Clear Channel as "an aberration")). These courts viewed the Clear Channel holding as severely undermining the finality of Section 363 sales, injecting uncertainty and instability into the process and...