Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-14-55854/USCOURTS-ca9-14-55854-0/pdf.json

Parties Involved:
Said Adeli
Appellant
Christopher R. Barclay
Appellee
Berkeley Delaware Court, LLC

First Citizens Bank & Trust Company
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE BERKELEY DELAWARE COURT,

LLC,

Debtor,

SAID ADELI,

Plaintiff-Appellant,

v.

CHRISTOPHER R. BARCLAY, Chapter 

7 Trustee,

Trustee-Appellee,

FIRST CITIZENS BANK & TRUST 

COMPANY,

Defendant-Appellee.

No. 14-55854

D.C. No.

3:12-cv-02908-

CAB-MDD

OPINION

Appeal from the United States District Court

for the Southern District of California

Cathy Ann Bencivengo, District Judge, Presiding

Argued and Submitted May 3, 2016

Pasadena, California

Filed August 23, 2016

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2 IN RE BERKELEY DELAWARE COURT, LLC

Before: Raymond C. Fisher, Milan D. Smith, Jr.,

and Jacqueline H. Nguyen, Circuit Judges.

Opinion by Judge Nguyen

SUMMARY*

Bankruptcy

The panel affirmed the district court’s order dismissing 

a bankruptcy appeal as moot under 11 U.S.C. § 363(m).

The debtor’s owner appealed the bankruptcy court’s 

approval of a settlement agreement between the Chapter 7 

trustee and a creditor that had sought to foreclose on the 

debtor’s construction project. The panel held that the appeal 

was moot because the owner did not seek a stay of the 

bankruptcy court’s order allowing the sale to the creditor of 

the bankruptcy estate’s legal claims arising out of a state 

court case filed by the debtor against the creditor. Agreeing 

with other circuits and with the Ninth Circuit Bankruptcy 

Appellate Panel, the panel held that a bankruptcy court has 

discretion to apply the procedures of § 363(m) to a sale of 

claims pursuant to a settlement approved under Bankruptcy 

Rule 9019. In addition, the bankruptcy court did not clearly 

err in determining that the creditor was a good faith 

purchaser of the debtor’s claims. Under § 363(m), therefore, 

the sale could not be modified or set aside on appeal unless 

it was stayed pending appeal.

 * This summary constitutes no part of the opinion of the court. It has 

been prepared by court staff for the convenience of the reader.

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IN RE BERKELEY DELAWARE COURT, LLC 3

COUNSEL

Eric M. Schiffer (argued), Costa Mesa, California; 

Mohammed K. Ghods and William A. Stahr, Ghods Law 

Firm, Santa Ana, California; for Plaintiff-Appellant.

Lisa Torres (argued), Gates, O’Doherty, Gonter & Guy, 

LLP, San Diego, California; J. Barrett Marum (argued),

Karin Dougan Vogel, and Aaron J. Malo; Sheppard, Mullin, 

Richter & Hampton LLP, San Diego, California; for 

Defendants-Appellees.

OPINION

NGUYEN, Circuit Judge:

Said Adeli appeals the district court’s order dismissing 

his bankruptcy appeal as moot under § 363(m) of the 

Bankruptcy Code. We find no error and affirm.

I

About twenty years ago, Adeli bought a parcel of land in 

Berkeley, California, and formed Berkeley Delaware Court, 

LLC (“Debtor”) for the purpose of constructing a mixed-use 

building on the property. In 2007, Debtor obtained a $16.25 

million construction loan that was later sold to First-Citizens 

Bank & Trust Company (“First-Citizens”). First-Citizens 

eventually attempted to foreclose on the project, which 

prompted Debtor to file a Chapter 11 bankruptcy petition 

and a lawsuit against First-Citizens in the California 

Superior Court. After First-Citizens successfully removed 

the state court action to the bankruptcy court to be 

consolidated with the bankruptcy case, the parties reached a 

settlement. Under the terms of the settlement, First-Citizens 

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4 IN RE BERKELEY DELAWARE COURT, LLC

agreed to reduce the loan pay-off amount by several millions 

of dollars on the conditions that Debtor pay the entire loan 

balance by a fixed date, and that construction on the project 

would be completed within six months. The settlement fell 

apart for reasons disputed by the parties. Debtor then filed a 

second Chapter 11 bankruptcy petition, and another action 

in state court alleging that First-Citizens acted fraudulently 

in connection with the project. Once again, First-Citizens 

successfully removed the state court action to bankruptcy 

court and consolidated it with the bankruptcy petition. FirstCitizens obtained relief from the automatic stay, took 

possession of the project, and sold it to a third-party 

purchaser for $11,925,000, leaving First-Citizens with a

deficiency claim of approximately $7 million. First-Citizens 

also filed cross-claims in the state action, alleging various 

breaches of the settlement agreement by Debtor including 

entering into leases and collecting rents. Based on the 

alleged breaches, First-Citizens asserted an administrative 

priority claim against the bankruptcy estate.

The bankruptcy court eventually converted the 

bankruptcy case to a Chapter 7 proceeding and appointed a 

Trustee, who met with counsel for Debtor and First-Citizens 

to explore settlement options. A few months after his 

appointment, the Trustee reached a settlement with FirstCitizens that allowed First-Citizens to purchase the estate’s 

legal claims arising out of the state court case, subject to 

overbid procedures, in exchange for cash and a waiver of 

First-Citizens’ claims against the estate. The Trustee filed a 

motion seeking approval of the settlement under Federal 

Rule of Bankruptcy Procedure 9019 and the sale of the 

estate’s claims under 11 U.S.C. § 363(b), which the 

bankruptcy court granted.

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IN RE BERKELEY DELAWARE COURT, LLC 5

In support of the motion, the Trustee submitted a 

declaration which outlined the terms of the settlement and 

his evaluation of those terms. The Trustee declared that the 

settlement allowed First-Citizens to purchase the estate’s 

legal claims as reflected in the state court action, subject to 

overbid procedures, in exchange for $108,000 in cash and a 

waiver of First-Citizens’ $7,000,000 deficiency claim and its 

$2,000,000 administrative Chapter 11 claim. The Trustee 

had investigated Debtor’s legal claims against First-Citizens, 

including their value, likelihood of success, and estimated 

costs to defend. In the Trustee’s view, the uncertainty of the 

legal claims against First-Citizens and the possibility of 

protracted litigation weighed in favor of the settlement. 

Finally, in the Trustee’s professional judgment, the terms of 

the settlement were fair and equitable under Rule 9019 

because, in light of the proposed overbid procedures, they 

presented the maximum amount that the estate and its 

creditors could realize for the value of the estate’s claims.

In November of 2012, after no third parties bid on the 

sale, the bankruptcy court granted the Trustee’s motion and 

approved the settlement agreement. Adeli appealed the 

bankruptcy court’s approval of the settlement to district 

court. Significantly, he failed to seek a stay of the sale order. 

The district court dismissed the appeal as moot under 

11 U.S.C. § 363(m). Adeli now appeals the district court’s 

dismissal order.

II

We review the district court’s decision de novo. Ewell 

v. Diebert (In re Ewell), 958 F.2d 276, 279 (9th Cir. 1992). 

The bankruptcy court’s factual findings are reviewed for 

clear error, and its conclusions of law are reviewed de novo. 

Id.

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6 IN RE BERKELEY DELAWARE COURT, LLC

III

Section 363 of the Bankruptcy Code generally allows the 

trustee to use, sell, or lease property of an estate, other than 

in the ordinary course of business, after notice and a hearing. 

11 U.S.C. § 363. Under § 363(m), the validity of a “sale or 

lease of property” executed under the terms of section 363 

cannot be challenged on appeal “unless [the bankruptcy 

court’s] authorization and such sale or lease were stayed 

pending appeal.” Id. § 363(m). The requirement to seek a 

stay pending appeal only applies to purchases of estate 

property that were made in good faith, and is designed to 

protect the interests of good faith purchasers by guaranteeing 

the finality of property sales. In re Onouli-Kona Land Co., 

846 F.2d 1170, 1172 (9th Cir. 1988). Relatedly here, a 

trustee’s proposed settlement between an estate and its 

creditors must be approved by the bankruptcy court under 

Rule 9019, which allows the court to grant approval if the 

settlement is deemed fair and equitable. Fed. R. Bankr. P. 

9019(a); In re A & C Props., 784 F.2d 1377, 1381 (9th Cir. 

1986).

There is no dispute in this case that Adeli failed to seek 

a stay pending appeal, but he offers several arguments as to 

why his appeal is nevertheless not moot under § 363(m). We 

address each in turn.

Adeli first argues that § 363 only applies when a trustee 

sells estate property, not the estate’s potential legal claims. 

Thus, his argument goes, the requirement to seek a stay in 

order to avoid mootness under § 363(m) does not apply here. 

Although we have not addressed in a published decision 

whether § 363 can apply to a settlement of potential claims, 

the Ninth Circuit Bankruptcy Appellate Panel (“BAP”) has 

done so. See In re Mickey Thompson Entm’t Grp., Inc. 

(“Mickey Thompson”), 292 B.R. 415 (BAP 9th Cir. 2003). 

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IN RE BERKELEY DELAWARE COURT, LLC 7

In Mickey Thompson, the Ninth Circuit BAP held that “a 

bankruptcy court is obliged to consider . . . whether any 

property of the estate that would be disposed of in 

connection with the settlement might draw a higher price 

through a competitive process and be the proper subject of a 

section 363 sale.” Id. at 421–22. The BAP reasoned that 

“the disposition by way of ‘compromise’ of a claim that is 

an asset of the estate is the equivalent of a sale of the 

intangible property represented by the claim.” Id. at 421; see 

also In re Nuttery Farm, Inc., 467 F. App’x 711, 712 (9th 

Cir. 2012) (“The Bankruptcy Code allows the trustee [to 

seek authorization] to sell or settle a cause of action.”). 

Similarly, two of our sister circuits have held that § 363 may 

be applied to the sale of an estate’s legal claims. See In re 

Moore, 608 F.3d 253, 258 (5th Cir. 2010) (holding that “[a] 

trustee may sell litigation claims that belong to the estate, as 

it can other estate property, pursuant to § 363(b)”); In re 

Martin, 91 F.3d 389, 394–95 (3d Cir. 1996) (noting that 

§ 363 procedures may be applied to a settlement agreement 

that involves the mutual release of claims).

We agree with the BAP in Mickey Thompson and with 

our sister circuits, and hold that a bankruptcy court has the 

discretion to apply § 363 procedures to a sale of claims 

pursuant to a settlement approved under Rule 9019. As the 

Fifth Circuit noted, “[a] compromise of a claim of the estate 

is in essence the sale of that claim to the defendant.” In re 

Moore, 608 F.3d at 264 (quoting 10 Collier on Bankruptcy

¶ 6004.01 (15th ed. rev. 2009)). We see no good reason why 

a trustee and the bankruptcy court cannot utilize the 

procedures of § 363 in certain settlements in order to ensure 

maximum value for the estate.1

 

 1 Adeli’s reliance on In re Healthco Int’l, Inc., 136 F.3d 45 (1st Cir. 

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8 IN RE BERKELEY DELAWARE COURT, LLC

Adeli next argues that even if § 363 applies, its 

requirement of a stay pending appeal should not be triggered 

here because the Trustee’s overbid procedures did not in fact 

entice outside bidders, and First-Citizens is not deserving of 

the finality guaranteed by the stay-of-sale requirement. See

In re Healthco Int’l, Inc., 136 F.3d at 49. We have been 

reticent to carve out exceptions to the § 363(m) stay-of-sale 

requirement, and we again decline to do so now. See In re 

Exennium, Inc., 715 F.2d 1401, 1404 (9th Cir. 1983) (“We 

are quite reluctant to invoke public policy to override the 

Code’s express requirement that reversal of an authorization 

of sale not affect the sale’s validity unless the authorization

and sale were stayed.”). We have applied the mootness rule 

to § 363 sales even where the purchaser was a party to the 

appeal, and where the purchaser had not yet taken 

irreversible steps following the sale. See In re Onouli-Kona 

Land Co., 846 F.2d at 1172. Indeed, we have recognized 

only two narrow exceptions to § 363(m), neither of which 

applies here.2 See In re Ewell, 958 F.2d at 280 (recognizing 

 

1998), is misplaced. That case involved a settlement that was not 

processed under § 363, and thus is factually inapposite. Id. at 48.

 2 Adeli’s argument that the language of the settlement agreement 

exempts him from § 363(m) lacks merit. Although we suggested in In 

re CADA Investments, Inc., 664 F.2d 1158, 1160 (9th Cir. 1981), that 

express contractual language could form a basis for an exception to the 

stay requirement, that case preceded In re Ewell, 958 F.2d at 280 

(recognizing “only two exceptions” to § 363(m) mootness). Assuming 

In re CADA is still good law, it is distinguishable on its facts: there, the 

sale documents were explicitly premised on specific appeals the parties 

had clearly taken into account. See In re CADA Invs., Inc., 664 F.2d at 

1160. The settlement agreement at issue here simply states that the 

transaction will be effective upon entry of a final and non-appealable 

order of the bankruptcy court. The Trustee and First-Citizens – the only 

two parties to the settlement agreement – obviously viewed this 

condition as satisfied, as they both executed their respective obligations 

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IN RE BERKELEY DELAWARE COURT, LLC 9

exceptions “where real property is sold subject to a statutory 

right of redemption” and “where state law otherwise would 

permit the transaction to be set aside”). Where, as here, a 

bankruptcy court invokes § 363 for a sale of claims pursuant 

to a settlement agreement, all parties are bound by 

§ 363(m)’s requirement to seek a stay regardless of whether 

an outside party makes a bid on the sale. See In re OnouliKona Land Co., 846 F.2d at 1172 (“Finality in bankruptcy 

has become the dominant rationale for our decisions; the 

trend is towards an absolute rule that requires appellants to 

obtain a stay before appealing a sale of assets.”).

Finally, Adeli argues that § 363(m) does not apply 

because the sale of claims to First-Citizens was not 

authorized in good faith. See 11 U.S.C. § 363(m). Absence 

of good faith is “typically shown by fraud, collusion between 

the purchaser and other bidders or the trustee, or an attempt 

to take grossly unfair advantage of other bidders.” In re 

Filtercorp, Inc., 163 F.3d 570, 577 (9th Cir. 1998) (internal 

quotation marks and alterations omitted). The bankruptcy 

court found that the agreement “was the product of an armslength negotiation between the Trustee and First-Citizens 

and entered into by the parties without collusion and in good 

faith.” This good faith finding was supported by a 

declaration of the Trustee in which he stated that he met with 

counsel for Debtor and First-Citizens to investigate the 

parties’ claims and explore settlement options. Adeli faults 

the Trustee for being insufficiently thorough in his 

assessment of the parties’ claims, but does not identify any 

facts suggesting bad faith. Based on this evidence, the 

bankruptcy court did not clearly err in finding that First-

 

under the contract, and First-Citizens proceeded to litigate one of the 

causes of action against a third party until securing summary judgment 

in 2014.

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10 IN RE BERKELEY DELAWARE COURT, LLC

Citizens was a purchaser in good faith for the purpose of 

§ 363(m).

* * *

We conclude that the bankruptcy court had the discretion 

to apply 11 U.S.C. § 363 to the settlement involving a sale 

of the estate’s potential claims, and did not clearly err in 

determining that First-Citizens was a good faith purchaser of 

those claims. Under § 363(m), therefore, the sale may not 

be modified or set aside on appeal unless it was stayed 

pending appeal. And because Adeli failed to seek a stay, the 

appeal is moot. We do not reach Adeli’s challenges to the 

propriety of the sale of claims under § 363, as such an 

analysis would require us to impermissibly reach the 

underlying merits of the settlement. In re Exennium, Inc., 

715 F.2d at 1404 (“[T]he equitable power to overturn a 

confirmed judicial sale is conditioned on the appellant’s 

compliance with the stay requirement. . . .”).

AFFIRMED.

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