Two of the me mbers of the orig inal panel have bee n repla ced. H onorable Robert A. * Katzmann rec used himself prior to the or al ar g ument, and Honor able Sonia Sotomay or wa s elevated to the United States Supreme Court on August 8, 2009. Accor dingly , Honora ble Peter W. Hall and Honora

ble Debr a Ann L ivingston have been de signated as membe rs of the pa nel. See Second Circ uit I nterna l Operating Proc edure E(b). 1 0 7

- 4 7 7 2

- b k( L) In r e WestPoint Stevens, I nc.

1 UN ITED STA TES C OU RT OF AP P EA LS 2 F OR THE SE CO ND CI RC UI T 3 August Term 2008 4 Docke t Nos. 07-4772-bk (L ); 07-4843-bk ( CON); 07-4845-bk ( CON); 07-4865- 5 bk (XAP); 07-4872- bk (CON); 07-4874- bk (CON); 07-4964- bk (XAP); 07-5018- 6 bk (XAP); 07-5019- bk (CON); 07-5043- bk (CON); 07-5049- bk (CON) 7 Argued: Novembe r 14, 2008 De cided: Mar ch 26, 2010

8

_____________________________________________________________________________ 9 I N RE: WES TPOI

NT STEVENS, I

NC., 10 11 Debtor

. 12 ************************************************************** 13 CONTRARI AN F UNDS L L C, SATEL L I TE SENI OR I NCOME FU

ND, L L C, CP CAPI TAL 14 I NV EST MENT S, L L C, WA YLAN D D I STRESSE D O PPO RTU NI TI ES F UN D I -B , L L C, 15 WAYL AND DI STRES SED OPPORTUNI TI ES FUND I -C, L L C, BEAL BA NK, S.S.B., 16 Ap pe lle es- Cro ss-

Ap pe lla nts , 17 - v.- 18 ARETEX L L C, W ESTPOI NT I NTERNATI ONAL , I

NC., WES TPOI

NT HOME, I

NC., 19 WI L MI

NGTONTRUST COMP ANY, a s Ag ent for the Second L ien L ender s, 20 Appellants-Cross-Appellees , 21 PERR Y PRI

NCI PAL S L L C, GSC P ARTNERS, PEQUOT CAPI TAL MANAGEMEN T, 22 Appellee s . 23

_____________________________________________________________________________ 24 B e fo re : MI

NE R, H AL L , a

nd L I VI NG STO N, Cir c uit

Judg e s. *2 1 Appea l and cr oss-appe al from or ders e ntere d on November 16, 2005, and Oc tober 9, 2 2007, in the United States District Court for the Southern D istrict of NewYork (Swa in, J .), (1) 3 reve rsingorder s of the B ankruptc y Court (Dra in, J .) (a ) appr oving the distribution of unreg istered 4 secur ities and subscription rig hts in satisfaction of liens held by senior sec ured c reditors; and ( b) 5 permitting the distribution of the remainingsubscription rig hts to juni or sec ured c reditors; and 6 (2) a ffirmingthe orde r of the B ankruptc y Court relea sing c erta in escrow ed ade quate pr otection 7 pay

ments to the junior secure d cre ditors. 8 Reverse d in part and a ffirme d in part. 9 B RUCE B E NN E TT , S I DNE Y P. L EV I NS ON , and Joshua 10 M. Mester, He nniga n, Be nnett & D orman L L P, L os 11 An g e le s, Ca lif or nia , f or a pp e lle e s- c ro ss- a

pp e lla nts 12 Contr ari an F un ds L L C, Sate lli te Se nio r I nc ome 13 Fund L L C, CP Capital Investments, L L C, W ayland 14 Distressed Oppor tunities Fund I -B , L L C, W ayland 15 Distressed Oppor tunities Fund I -C, L L C. 16 17 Gr e g or y G. He sse , H un ton

& Willi ams, Da lla s, 18 Texas, (Richard P. Meth, Da y Pitney L L P, Florham 19 Park, Ne w J erse y ), for appellee -cr oss-appe llant Be al 20 Bank , S .S .B. 21 P HI L I P A. L A COV A RA , Andre w H. Schapir o, 22 Kenne th E. Noble, and D aniel B . Kirschne r, Mayer 23 Br own L L P, New Yor k, New Y ork, (Peter

D. 24 Wolfson, R ichar d M. Z ucker man, J o Christine 25 Reed, Sonnensche in Nath & Rosenthal L L P, New 26 York, Ne w York) , for a ppellants-cr oss-appe llees 27 Are tex L L C, W estPoint I nternational, I nc., 28 WestP oint Home, Inc. 29 P. B R ADL EY O’N EIL L and Thomas M. Mayer, 30 Kramer L evin Naf talis & F ranke l L L P, New Yor k, 31 New Y ork, for appellant- cross-a

ppellee Wilmington 32 Trust Company , as ag ent to the Second L ien 33 L e nd e rs . 34 MI

NER, Circuit J udg e: 35 In th is b ank ru ptc y pr oc e e din g , s e c ur e d c re dit or , A re te x L L C ( “ Ar e te x”) , a nd its a ff ili ate s, 36 WestP oint I nternational, I nc. (“ WestP oint I nternational”) a nd WestP oint Home, Inc. (“ WestP oint 37 Home”) , collectively , “Ar etex Group,” a nd Wil mington Trust Co. (“ Wil mington Trust” ), the 38 administrative ag ent for the junior secur ed cr editors, appe llants-cross-a ppellees in this matter, 39 appea l principally from orde rs enter ed on Nove mber 16, 2005, a nd October

9, 2007, in the 40 United States District Court for the Southern D istrict of NewYork (Swa in, J .). The D istrictIn addition to W estPoint S tevens, Inc., the de btors in this bankruptcy case are 1 comprised of

sever al af

filiated entities, namely , WestP oint St evens I nc. I , WestP oint St evens Stores, Inc., J.P . Stevens Enterpr ises, Inc., and J.P. S tevens & Co., I nc. See g ener ally In re Wes tPo int

Ste ve ns , Inc ., 33 3 B .R. 30 , 3 3 ( S.D .N .Y . 2 00 5) . We wi ll r e fe r t o th e de bto rs in t his case as one e ntity

in the singula

r for m, the “De btor.”

3 1 Court reve rsed the or ders of the B ankruptc y

Court (Dra in, J .) per

mitti ng(1) the distribution of 2 unreg istered se curities and subsc ription rights to satisfy the liens held by

senior sec ured c reditors 3 and (2) the distribution of the remainingsubscription rig hts to juni or sec ured c reditors. 4 Objectingsenior sec ured c reditors, Contrar ian Funds, L L C (“Contrar ian Funds” ), Satellite Senior 5 Income F und, L L C (“Satellite Fund” ), CP Capital I nvestments, L L C (“Capital Investments”), 6 Wayland Distressed O pportunities Fund 1-B , L L C (“Distresse d Funds I ”), Wayland Distressed 7 Opportunities Fund 1- C, L L C (“Distresse d Funds I I ”), c ollectively , the “Contrar ians,” a nd Be al 8 Ba nk, S.S.B. (“B eal B ank”) , the administrative ag ent and c ollatera l trustee for the senior se cure d 9 cre ditors, appellee s-cr oss-appe llants in thi s matter, cr oss-appe al, inter a lia, from the or ders of the 10 District Court to the ext ent that they aff irm the Ba

nkruptcy Court’s order

of ade quate pr otection 11 pay

ments to the junior secure d cre ditors. 12 I. BACK GR OUND 13 WestP oint St evens, Inc. (the “De btor”) is a domestic company

eng ag ed in the 14 manufa cture and distribution of tex tiles. Be g inning in or a bout 2000, due to “an ove rleve rag ed 1 15 debt structure and an inc rea se in fore ign c ompetition,” the Debtor f ace d financ ial difficulties that 16 require d substantial sacrif ices in re g ard to its operations and workfor ce. O ver the next s ever al 17 y ear s, the Debtor initiated business strateg ies to improve its ailing fina ncial hea lth — but to no 18 ava il. By

2003, the Debtor

conclude d that it would be in the best interests of its cr editors and 1 9 s h ar e h o l d e r s t o e f f e c tu at e a c o n s e n s u a l r e o r g an i z at i o nun d e r th e B an kr

u p t c y C o d e . A c c o r d i n g l y, 20 on

June 1, 20 03 , th e De bto r c omm e nc e d b ank ru ptc y pr oc e e din g s b y

fi lin ga pe tit ion purs ua nt t o 21 Chapter 11 of

the B ankruptc y

Code. 22 Shortly

afte r the c ommenceme nt of bankruptc y proce eding s, the Debtor, w ith the4 1 a pp ro va l of

the B ank ru ptc y Court , o bta ine d f

ur the r f ina nc ingfr om p os t- pe tit ion

c re dit or s to 2 p re s erv e i t s b u s i n es s as a go i n g co n ce rn . As a c o n d i t i o nfo r o b t ai n i n g th e p o s t -p et i t i o nfi n an ci n g, 3 the B ankruptc y

Court ordere d the Debtor to make ade quate pr otection pay ments to both the 4 senior and junior se cure d cre ditors as protec tion from the diminishi ngvalue of their collate ral. 5 Whil e pla

ns fo r r e or g anizatio n w e re be ingdis c us se d, ho we ve r, the B ank ru ptc y Court ’s a de qu ate 6 protec tion order wa s challeng ed by a majority

of the senior

secur ed cr editors who soug ht to end 7 the a de qu ate pr ote c tio n p ay me nts to t he jun ior se c ur e d c re dit or s. Th e matte r w a s te mpo ra ri ly 8 resolved by

a stipulation, requiringthe place ment of fur ther distributions of adequate protec tion 9 pa y me nts to t he jun ior se c ur e d c re dit or s into a

n e sc ro w a c c ount u

nti l th e oc c ur

re nc e of c e rt a in 10 e ve nts re latin gto t he re or g anizatio n o r s a le of the De bto r’ s b us ine ss. 11 Ev e ntu a lly , it be c ame a pp are nt t o th e De bto r t

hat r e or g anizatio n w a s n ot a re a lis tic 12 so lut ion

to i ts f ina nc ia l w oe s. Acc ordingto the Debtor, the proposed plans f or re org anization 13 wer e re

jected be cause the Contraria ns and Are tex — creditors of the De btor and holder s of the 14 majority

of the sec ured liens — e ach “ insist[ ed] on controlling the r estructur ed De btor[] and 15 [were] unable to re ach a compromise on such issue.” The princ ipal investor in the Contraria ns 16 was Wilbur L . Ross J r., and the principal investor in Ar etex was Carl C. I cahn. See In re 17 WestP oint St evens, Inc., 333 B .R. 30, 34 (S.D.N.Y. 2005). Af ter a lmost t wo y ear s of fa iled 18 attempts at rea chinga conse nsus on a plan for reor g anization, the Debtor a nd its advisors 19 conclude d that a sale of its assets pursuant to 11 U.S.C. § 363(b) “[was] the only viable option 20 available to preser ve [its] business operations and provide a me aning ful rec overy to [ its] secur ed 21 cre ditor constituencies.” Ac c or din g ly , a n a uc tio n w a s h e ld o n Jun e 23 , 2 00 5, fo r s ub sta nti a lly a ll 22 of the De btor’s asse ts, and Are tex emerg ed as the winning bidde r followinga heated competition 23 wi th t

he Contr ari ans . D e sp ite the ir ini tia l ob je c tio ns , th e Contr ari ans sti pu late d to a llo w the sa le 24 to close. Ther eaf ter, pursua

nt to the terms of the sale and the B ankruptc y Court’s acc ompanying 25 sa le or de r, the De bto r’ s a sse ts w e re tr ans fe rr e d, fr e e and c le ar o f l ie ns , to Wes tPo int Ho me and

in 26 eff

ect to WestPointInternational — Arete x ’s vehicle corpor ations for the a cquisition of the5 1 Debtor’ s business — and WestPoi nt I nternational’s secur ities were distributed to the Debtor’s 2 secur ed cr editors for the purpose of satisfying the ir liens. The ter ms of the sale a lso require d 3 other distributions and the purc hase of additional stocks, permitting Arete x to become the 4 majority

share holder of WestPoint I nternational. Arete x used its majority owner ship to elect 5 WestP oint I nternational’s board of direc tors, and WestPointInternational has since be en 6 op e ratin gthe De bto r’ s b us ine ss f or se ve ra l y e ars . Subsequent to the closing , the B ankruptc y 7 Court also order ed the a dequate protec tion pay ments held in escr ow to be re lease d to the junior 8 secur ed cr editors. 9 Actingin its capac ity as an a ppellate c ourt in this bankruptcy proce eding , the District 10 Court affir

med the B ankruptc y

Court’s rele ase of

adequate protec tion pay

ments to the junior 11 secur ed cr editors; howeve r, notwithstanding the closing of the sale , the District Court reve rsed 12 the B ankruptc y

Court’s order s in certa in respec ts affe ctingAre tex’s control of the Debtor ’s 13 bu sin e ss. Th is a

pp e a l pr e se nts tw o p ri nc ipa l is su e s: ( 1) wh e the r t he Di str ic t Co ur

t ha d a uth or ity 14 to m od if

y po rt ion s o f t

he te rm s o f t

he sa le a ff

e c tin gAr e te x’s c on tr ol o f t he De bto r’ s b us ine ss 15 wher e (a ) ac quisiti on of control wa s the primary purpose of

the sale, ( b) the sale betwee n Are tex 16 and the De btor had a lrea dy closed, (c ) there is no order in plac e stay ing the closing of the sale , 17 and (d) the par

ties do not contest that the sale w as complete d in good f aith; and (2) whether

the 18 adequate protec tion pay ments held in escr ow wer e prope rly rele ased to the junior se cure d 19 c re dit or s. F or

the re a so ns that f

oll ow , w e re ve rs e the or de rs of the Di str ic t Co ur

t a s it re late s to 20 the first issue and a ffirm a s it relates to the sec ond. The followingsubsections, Part I (A)–( G), 21 prese nt in further de tail the essential fa cts of this case

. 22 A. The De btor’s Secur ed Creditors 23 The De btor’s cr editors consist of, amongothers, the F irst L ien L ender s and the Sec ond 24 L ie n L e nd e rs . The F irst L ien L ender s are senior sec ured c reditors who ha ve liens on the 25 Debtor’ s assets havinga value of appr ox imately $488 milli on. The Sec ond L ien L ender s are 26 junior secur ed cr editors who have liens on the same a ssets havinga value of appr ox imately $165A priming lien is a “ne w lien on prope rty that is give n priority

over e x isting liens.” 2 Alvin L . Arnold, The Arnold Encyclopedia of Real Estate 438 ( 2d ed. 1993). Thus, he re, the 6 1 mil lio n. Th e Contr ari ans ho ld a ma jor ity sh are of the lie ns he ld b y

the F ir st L ie n L e nd e rs , 2 a pp ro ximate ly

54 %, but ho ld n on e of

the lie ns he ld b y

the Se c on d L ie n L e nd e rs . A re te x hold s a 3 min or ity

sh are of the lie ns he ld b y

the F ir st L ie n L e nd e rs , a

pp ro ximate ly

40 %, and

a lso ho lds a 4 majority

of the liens held by

the Second L ien L ender s, approximately 51%. B eal B ank is the 5 administrative ag ent and c ollatera l trustee of the First L ien L ender s, and Wilm ington Tr ust is the 6 administrative ag ent for the Second L ien L ender s. 7 Be fore the commenc ement of ba nkruptcy proce eding s, on J une 29, 2001, the F irst and 8 Second L ien L ender s entere d into an Interc reditor a nd L ien Subordination Ag ree ment (the 9 “ Inte rc re dit or

Agre e me nt” ), wh ic h p ro vid e d, int e r a lia , th at “ [u]nt il a ll F ir st L ie n Ind e bte dn e ss 10 has bee n paid in full in cash . . . the Sec ond L ien L ender s shall not be entitled to . . . exercise any 11 rig hts or reme dies with respe ct to the Second Priority L iens or the Collatera l . . . .” The 12 Interc reditor Agree ment provided for sever al exceptions, two of which we re that the Second L ien 13 L ender s might re ceive (1) a dequate protec tion pay ments and (2) permitted mandatory 14 prepa

y ments. In particula

r, the Interc reditor Agree ment define d “per mitted mandatory 15 prepa

y ments” as includingpay

ments to the Second L ien L ender s “occ urringas a r esult of [the 16 Debtor’ s] s ale . . . of the Collateral . . . to the e x tent that . . . any net proc eeds of

such sale . . . 17 re ma in a ft e r a

pp lic atio n to the F ir st L ie n Ind e bte dn e ss t o th e e xtent r e qu ir e d b y the Se nio r C re dit 18 Ag ree ment.” 19 Shortly

afte r the c ommenceme nt of bankruptc y proce eding s, on J une 18, 2003, the 20 Ba

nkruptcy Court entere d an orde r g rantingadequate protec tion pay ments to both the First and 21 Second L ien L ender s (the “A dequate Protection Orde r”) . This order w as ente red 22 c on te mpo ra

ne ou sly wi th t he B ank ru ptc y Court ’s a uth or izatio n to pe rm it p os t- pe tit ion le nd e rs , 23 wh o a

re unre late d to e ith e r t

he F ir st o r S e c on d L ie n L e nd e rs or any oth e r p re -p e tit ion

c re dit or s, to 24 ob ta in p ri min glie ns on the De bto r’ s a sse ts. In return f or the primingliens, the Debtor r ece ived 2p r i m i n gl i e n s w o u l d h av e p r i o r i ty o v e r

th e l i e n s o f

b o thp r e - p e t i t i o ns e c ur e d c r e d i t o r s , n am e l y, the Fir st and Second L ien L ender s. 7 1 fi na

nc ingfr om t

he po st- pe tit ion

le nd e rs , th

us a llo wi ngthe De bto r t o ma int a in i ts b us ine ss a s a 2 g oing c oncer

n and avoid a

n imminent dis solution before a plan of re org anization could be 3 confirme d. The Ade quate Protec tion Order sought to provide protec tion to the pre-pe tition 4 secur ed cr editors by order ing the Debtor to pa y them amounts relating

to the diminuti on in value 5 of the c ollatera l beingused by the Debtor

to maintain its busi ness as a g oing c oncer

n. Neither 6 the Fir st nor the Second L ien L ender s initi ally objected to the A dequate Protection Orde r, which 7 provided prote ction for both cla sses of pre -petition secur ed cr editors. 8 In a motion dated Jul y 22, 2004, howeve r, a me mber of the First L ien L ender s g roup, 9 supported by

the Contraria

ns and there fore repr esentinga substantial majority of the F irst L ien 10 L ender s (the “O bjectingFirst L ien L ender s”), moved f or a grant of a dditional adequate protec tion 11 to the First L ien L ender s throug h the termination of the a dequate protec tion pay ments to the 12 Se c on d L ie n L e nd e rs . The Obje ctingFirst L ien L ender s claimed that they had bee n misinformed 13 a bo ut t he De bto r’ s v a lue at th e tim e the Ad e qu ate Pr ote c tio n O rd e r w a s e nte re d a nd argue d th at, 14 havingbeen pr operly informed of

the status of the De btor’s business, there was insuffic ient value 15 in the Debtor to justify adequate protec tion pay

ments to the Second L ien L ender s. 16 On August 18, 2004, the ObjectingFirst L ien L ender s and the Sec ond L ien L ender s 17 e nte re d into a

sti pu latio n p ro vid ingfo r t he de po sit

of the Se c on d L ie n L e nd e rs ’ a de qu ate 18 protec tion pay

ments into an escr ow ac count until the occur renc e of c erta in events re lating to the 19 reor g anization or sale of the Debtor’ s business (the “Esc row Stipulation”). In return, the 20 ObjectingFirst L ien L ender s ag ree d to withdraw their motion to terminate a dequate protec tion 21 pa

y me nts to t he Se c on d L ie n L e nd e rs . The Esc row Stipulation ex pressly provided, “ [f] or 22 avo ida

nc e of do ub t,” that th e a de qu ate pr ote c tio n p ay me nts he ld i n e sc ro w “ sh a ll n ot c on sti tut e 23

. . . p ay

me nts ma de

. . . a s a de qu ate pr ote c tio n to the Se c on d L ie n L e nd e rs . . . unle ss a nd un til 24 [the c ourt ] autho ri zes the re le a se of fu nd s . . . to t

he Se c on d L ie n A g e nt f

or a pp lic atio n to c la imsA “stalkinghorse” contra ct is a first, fa vorable bid strateg ically

solicited by

the 3 bankrupt c ompany

to preve nt low-ball offe rs. 8 1 held by

the Second L ien L ender s.” (quotation mar ks omitt ed). 2 B

. Init ia l Sk ir mis he s Re latin gto t

he Sa le 3 On Marc h 9, 2005, the Debtor filed a motion with the Ba nkruptcy Court reque sting 4 a uth or izatio n to se ll s ub sta nti a lly a ll o f i ts a sse ts f

re e and c le ar o f l ie ns , c la ims , e nc umb ra nc e s, 5 and other

interests throug h an auc tion. The Debtor e x plained that it had attempted to r eac h a 6 consensus among its cr editors on the ter ms of a Chapter

11 plan of re org anization but that such 7 eff orts wer e “bloc ked” by

either the Contrarians or

Are tex. Accordingto the Debtor, “ both [ the 8 Contrarians] and [Aretex] demand c ontrol of the re structure d Company and they have be en 9 unable to re ach a

compromise, eve n with the assistance of the De btor[] .” The De btor also stated 10 that, i n li g ht o f t

he imp a sse , b oth

the Contr ari ans and

Ar e te x ha d in fo rm e d th e De bto r t hat it 11 “should consider pursuinga sale pursuant to sec tion 363(b) of the B ankruptc y Code.” The 12 Debtor a sserted in its motion that, “[ a]fter a n extensive review of

the ava ilable options,” a sale of 13 its assets was “the only viable option available to preser ve [its] business operations and provide a 14 meaning ful rec overy to [ its] secur ed cr editor constituencie s.” 15 The De btor informed the Ba nkruptcy Court that it had solicited bids to enter into a 16 “stalkinghorse” contra ct in prepa ration for the auc tion. Both Ar etex and the Contraria ns had 3 17 competed to be come the sta lking hor se, and the Debtor e ventually selec ted the Contrar ians as the 18 winning bidde r. Un de r t he te rm s o f t

he sta lki ngho rs e c on tr a c t, t he Contr ari ans , a s ma

jor ity 19 me mbe rs of

the F ir st L ie n L e nd e rs g ro up , w ou ld d ir e c t B e a l B ank to m ake a

“ c re dit bid ” to 20 purc ha se the De bto r’ s a sse ts f re e and c le ar o f e nc umb ra

nc e s. Th at is , th e e nti re va lue of the F ir st 21 L iens, approximately $488 milli on, would be used a s cre dit to purchase the Debtor’ s assets. 22 There afte r, the Contrar ians would exchang e sec urities in New Te x tile Co., a corpor ation the 23 Contrarians c reated for pur poses of a cquiringthe Debtor ’s business, for the assets purc hased 24 throug h Be al B ank. The secur ities of New T exti le Co. would then be distributed to the F irst L ien9 1 L ender s as consider ation. 2 Of c ourse, the sta lking hor se contra ct was not a binding c ontrac t of sale a nd only serve d 3 to fix the minimum bi d at the auc tion. The De btor explained in its m otion to procee d with the 4 auction sale that the Contraria ns’ bid repr esente d “the most attrac tive alternative available . . . at 5 this ti me.” The Contrarians f iled a sepa

rate response , asser

ting that ( 1) its cre dit bid was 6 equivalent to a c ash bid, and (2) any competingbids theref

ore w ere require d to offer a suff icient 7 amount of ca sh to pay the Fir st L ien L ender s in full. 8 On April 7, 2005, followinga hea ringon the Debtor ’s motion, the Ba nkruptcy Court 9 denied the D ebtor’s motion on sever al g rounds, includingthe unre asonable ness of the br eakup 10 fee s. The De btor filed a subse quent motion on April 15, 2005, purporting to addre ss the 11 Ba

nkruptcy Court’s conce rns by

removingref

ere nces to the stalkinghorse c ontrac t and bre akup 12 fe e s. The Contrar ians opposed the De btor’s modified motion to procee d with the sale be cause , 13 amongother re asons, the propose d timetable for the auction wa s insufficient for any potential 1 4 th i rdp art i es t o o b t ai nfi n an ci n g. The Contrar ians asser ted that, pursuant to 11 U.S.C. § 363(k) 1 5 an d

th e In t e r c r e d i t o r

A g r e e m e n t , o n l y th e y — an d n o tan y o th e r

p arty, i n c l u d i n g , s p e c i f

i c a l l y, 16 Ar e te x — c ou ld p ur c ha se the De bto r’ s a sse ts “ wi th s toc k r athe r t ha n c a sh ” wi tho ut f

ir st 17 satisfying the First L ien L ender s in cash. Notwithstanding the Contrarians’ objections, the 18 Ba

nkruptcy Court, on April 22, 2005, g rante d the Debtor ’s motion and authorized the auc tion of 19 the Debtor ’s assets to proc eed. T he B ankruptc y Court did not rule prior to the auc tion on the 20 su

pe ri or ity of the Contr ari ans ’ c re dit

bid or on the iss ue of

wh e the r a

ny oth e r b id m

us t f ir st 21 satisfy

the Fir st L ien L ender s in cash. 22 In r e sp on se to t he B ank ru ptc y Court ’s or de r a

pp ro vin gthe a

uc tio n o f t

he De bto r’ s a sse ts 23 to proce ed, Wilmi ng ton Trust, as ag ent of the Sec ond L ien L ender s, on May 10, 2005, filed a 24 motion to release the adequa te protec tion pay

ments held in escr ow pursuant to the Esc row 25 Stipul ation so that it could distribut e the e scrowe d funds to the Second L ien L ender s. Arete x 26 joined Wil mington Trust’s motion to relea se the e scrowe d adequate protec tion pay ments to theThe “ control pre mium” is the rate at which the value of the bid is discounted to ac count 4 for the bidde r’s purc hase of control of the busine ss. Thus, for instance , Are tex’s ini tial bid may have y ielded a total va lue of a

pproxi mately

$940 milli on, but, with the application of the 25.8% control pre mium as part of the a ssessment of the bid, Are tex’s bid was valued at $617.1 million. The Contrar ians’ cr edit bid was provisional bec ause, at the time of the auc tion, Bea l 5 B ank ha d n ot ye t a g re e d to c re dit bid fo r t he De bto r’ s a sse ts. Be al B ank had indicated, howeve r, that it had no rea son to believe that it would not follow the Contraria ns’ direc tion to credit bid. 10 1 Se c on d L ie n L e nd e rs . B e a l B ank , a s c oll ate ra l tr us te e of the F ir st L ie n L e nd e rs , o bje c te d to 2 Wil mington Trust’s motion on the g rounds that the motion was pre mature be cause the auc tion of 3 the Debtor ’s assets ha d not y et eve n occur red. The Contrar ians also objecte d to Wi lmington 4 Trust’s motion, arguing that the Second L ien L ender s were not entitled to the escrow ed funds 5 beca

use the funds w ere not adequate protec tion pay ments at all and ther efor e we re subjec t to the 6 su bo rd inatio n c la

us e s o f t he Inte rc re dit or

Agre e me nt. The e nsuing r eply and subseque nt hear ing 7 in r e g ard

to t hat di sp ute oc c ur

re d a ft e r t he a uc tio n a nd the e ntr y of the B ank ru ptc y Court ’s sa le 8 order

. 9 C. Th e B id f or Contr ol o f t

he De bto r’ s B us ine ss 10 The a

uction was he ld on J une 23, 2005. To solicit bids, t he De btor contac ted 111 11 potential bidders and published a notice of sa le in the Wall St ree t J ournal a nd The Ne w York 12 Times. At the auc tion, however , the Contraria ns and Are tex were the only two parties pr esent. 1 3 T h e au ct i o nco m m en ce d wi thAr et ex ’s b i d

b ei n g th e b as el i n e b i d , wh i ch , ap p l yi n g a 14 control pre mium of 25.8%, was va lued at appr ox imately $617.1 milli on. Are tex’s bid s tructure 4 15 essentially

was c omposed of sec urities of WestPoint International for conside ration, with an 16 additional pay

ment of $165 million cash for a 17.5% intere st in W estPoint I nternational. In 17 re sp on se to Are te x’s b id, the Contr ari ans su bmi tte d a pr ov isi on a l bi d v a lue d at a pp ro ximate ly 18 $621.6 milli on. The Contrar ians’ provisional bid structure differ ed fr om Arete x ’s, in that it was 5 19 c omp os e d o f a

c re dit bid by B e a l B ank

and a su bs e qu e nt e xch ang e of

se c ur iti e s in

Ne w T e xtile 20 Co. — the vehicle c orporation created by the Contraria

ns to acquire the Debtor ’s business — for 21 the assets purc hased by the cr edit bid. This bid structure wa s g ener ally identical to the11 1 Contrarians’ stalking hor se proposa l. The Contraria ns indicated that, upon their taking c ontrol of 2 New T exti le Co., they wer e “pr epar ed to provide minority [shareholder] protec tions.” 3 Af

te r s ome dis a g re e me nt a

bo ut whe the r a

pr ov isi on a l bi d s ho uld

be pe rm itt e d to c omp e te 4 with Arete x ’s unconditional bid, Are tex s ubmitted a new bid ra ising its purcha se price for a 5 17.5% intere st in W estPoint I nternational to $170 mil lion — an incre ase of $5 milli on. This new 6 bid was value d, applying the control pre mium of 25.8%, at appr ox imately $639.8 milli on. 7 Unlike the Contrar ians, Are tex i ndicated that its bi d would not provide “minority [shareholder] 8 protec tions other than what is re quired by law.” There afte r, the Contrarians asser ted that they 9 would continue to bid; however , in the event they did not emerg e the winningbidder, they 10 rese rved the rig ht to argue that their initial provisional bid “wa s highe r and be tter.” The 11 Contrarians a ccor dingly set aside their

cre dit bid and bid in a structure ide ntical to that proposed 12 by

Are tex, ex cept that the Contra rians would purc hase 7.75% of the stock of New T exti le Co., 13 the Contraria

ns’ vehicle company

(as oppose d to Arete x ’s purc hase of 17.5% of WestPoint 14 International, Arete x ’s vehicle company ), to secur e contr ol of the De btor’s business; the 15 Contrarians ne w bid was va lued at appr ox imately $650.1 milli on. Ar e te x the n s ub mitte d a bid 16 that incre ased its purc hase pr ice f or 17.5% inter est in WestP oint I nternational to $180 mil lion, 17 raisingthe value of its entire bid to approxim ately $677.3 milli on. 18 Th e Contr ari ans re sp on de d b y ra isi ngthe ir

bid but e mph a sizi ngtha

t “ wh e n [th e ] dus t a ll 19 settles, we must end up with 50.1 [perce nt;] that is obviously incorporated into our proposal.” 20 The De btor reje cted the bid be cause it was not able to conf irm that it could “meet the c ondition 21 that the [Cont rar ians] would retain 50.1 perc ent of the ownership of [New T exti le Co.].” The 22 Contrarians pr otested that obtaininga contr olling intere st in the vehicle c ompany acquir ing the 23 Debtor’ s business was “one of [Aretex’s] conditi ons for their bid.” The De btor explained that 24 Are tex “can mee t the condition based on their [bid] s tructure . . . . [However,] based on how we 25 evaluated your [(the Contrarians’ )] bid, we cannot mee t the 50.1 [percent] minim um condition.” 26 The Contrar ians then ce ased to bid.12 1 Are tex responded by incre asingits bid once more, r aising its purchase price for 17.5% 2 int e re st i n We stPo int Inte rn atio na l to $1 87 mil lio n a nd thu s r a isi ngthe va lue of

its e nti re bid

to 3 approximately

$703.5 milli on. Appar ently dissatisfied with lawy ers plac ing unne cessa ry 4 provisions in the bids, C arl I cahn, on be half of Arete x , indicated that the pr ovision protecting 5 “any

rig ht [ of Are tex] to buy

additional share s [t o g uara ntee c ontrol over WestPoint 6 International] ” would be stric ken. As e xpla ine d in a su bs e qu e nt h e ari ng , A re te x state d th at it 7 was “ comforta

ble with the math [that itwould own more tha n 50% of WestPoint I nternational] .” 8 The a

uction acc ording ly

conclude d with Arete x emer g ing a s the winning bidder. The De btor and 9 Ar e te x the re a ft e r p re pa re d a n A sse t Purc ha se Agre e me nt i nc or po ra tin gthe te rm s o f t

he sa le in 10 acc ordanc e with the bid. 11 In the subsequent he aring s held on J une 24, 2005, and June 29, 2005, the De btor soug ht 12 to h ave the As se t Purc ha se Agre e me nt a pp ro ve d b y

the B ank ru ptc y Court

. After

hear ing 13 testimony

from witnesses a

nd observingthat the auc tion was well-publicized, open, f air, a nd 14 betwee n sophisticated par ties, eac h with their own prof essional advisors, the B ankruptc y Court 15 a pp ro ve d A re te x’s p ur c ha se of “ su bs tanti a lly

a ll the [De bto r’ s] a sse ts, in e ff e c t of the [De bto r’ s] 16 business.” 17 D. The B ankruptc y Court’s Sale Orde r and the Contrarians’ Appea l to the District 18 Court 19 20 On J uly

8, 2005, the B ankruptc y

Court entere d its Order Authorizi ngSale of 21 Substantially

All of the Sellers’ A ssets Fre e and Clea r of L iens, Claims, Encumbranc es and 22 Inte re sts , th e As sumpt ion of Ce rt a in L ia

bil iti e s, Ap pr ov a l of

Suc c e ssf ul B idd e r a

nd Ce rt a in 23 Related Matter s (the “Sale Orde r”)

. The Sale O rder confirme d that the winningbid presente d 24 “the hig hest and be st bid at the Auction” a nd that the auc tion was conduc ted lawf ully and in a 25 “noncollusive, fa ir, and g ood faith manne r.” 26 The Sale O rder approve d the Asset Purcha se Ag ree ment, which provide d a two-step 27 proce ss in the sale of the D ebtor’s a ssets. First, the De btor’s asse ts would be ac quired byThe Contrar ians did not challeng e the va lue of the distributed Sec urities as dete rmined 6 by the B ankruptc y

Court. See g ener ally

In re WestPoint S tevens, Inc., 333 B .R. 30 (S.D.N.Y. 2005). Those f

indings re main uncontested in this appea l. 13 1 WestP oint Home, a wholly owned subsidiary

of WestPointInternational, “fre e and c lear ” of liens 2 and enc umbranc es; howeve r, re place ment liens would be plac ed on WestPointInternational’s 3 secur ities to account for the sec ured c reditors’ inter ests. Second, at c losing, WestPoint 4 International’s secur ities would be direc tly distributed to the secure d cre ditors, thereby 5 exti ng uishing the r eplac ement liens. This second ste p, in conjunction with Arete x ’s purc hase of 6 a 17.5% inter est, worke d to gua rante e Ar etex control of WestPoi nt I nternational and, by 7 e xten sio n, the De bto r’ s b us ine ss. Be cau s e t h es e s t ep s wo u l d o cc ur s i mu l t an eo u s l y

atcl o s i n g, 8 howeve r, “a lthough it might be a two step proc ess, it can only be metaphy sically

a two step 9 proce ss.” In re WestPoint S tevens, Inc., 333 B .R. at 51 (quoting the Ba nkruptcy Court). The 10 se c ur iti e s to be dis tr ibute d to the F ir st L ie n L e nd e rs we re pa re nt s ha re s a nd su bs c ri pti on

ri g hts to 11 WestP oint I nternational (the “F irst Securities”) . The re maining subsc ription rights, the va lue of 12 which we re c alculate d at the time of c losing a nd found to be wor

th approxim ately

$95 milli on 13 (the “ Second Secur ities”), we re to be distributed to the Second L ien L ender s. 14 Th e Contr ari ans a pp e a le d th e Sa le Or de r t o th e Di str ic t Co ur t. After filing the notice of 6 15 a pp e a l, t he Contr ari a

ns mov e d to sta

y the Sa le Or de r i n th e B ank ru ptc y Court

. The B ankruptc y 16 Court denied the stay motion, and the Contrarians, joined by Be al B ank, ther eaf

ter filed a stay 17 mot ion

wi th t he Di str ic t Co ur

t. The Contrar ians submitted their brief a rguing the merits of the 18 appea l to the District Court, but the parties then agree d to a stipulation (the “Stay Stipul ation”), 19 which nar

rowe d the issues on appe al. Specific ally , the Stay Stipul ation provided for

the 20 withdrawa l of the Contraria ns’ stay motion, with prejudice, as to “that portion of the [stay 21 motion] seekinga stay of the c losing of the sale by [t he De btor] to P urcha sers a pproved by

the 22 [S ale Or der].” The Contrar ians also agree d that it would “seek no othe r stay of the c losing of the 23 sale unde r the Sale O rder or otherw ise.”To preve nt confusion, we note at this juncture that “a dequate protec tion” makes two 7 dis tin c t a pp e ara nc e s in thi s c a se . F ir st, the re are the “ a de qu ate pr ote c tio n” pa y me nts he ld i n escr ow pursuant to the Esc row Agree ment. That ade quate pr otection compensated for the dim ini sh ingva lue of

the se c ur e d c oll ate ra l r e su lti ngfr om t he De bto r’ s u se of

the c oll ate ra l in maintaining its business as a g oing c oncer

n. Second, ther e is the “a dequate protec tion” that the Ba nkruptcy Court uses as a justification to dis tribute the F irst Securities to the Fir st L ien L ender s in satisfaction of their

claims and thus per

mit the dist ribution of the Second Sec urities to the Second L ien L ender s. We discuss the validity of ea ch infra

Part I I (D)( 2), (E)

. 14 1 The Stay

Stipul ation expressly

provided, howe ver, f

or a stay of “the distribution of the 2 [S econd Sec urities] allocable to the Second L ien L ender s.” In particula r, the Stay

Stipul ation 3 require d that the Second Sec urities be distributed to the Second L ien L ender s but that such 4 dis tr ibutio n b e he ld i n e sc ro w unti l a su bs e qu e nt c ourt

or de r r e so lve d th e pr op e r a llo c atio n, if 5 any , o f t

he Se c on d Se c ur iti e s to the F ir st L ie n L e nd e rs . T h e St ay St ip u lati o np r o v id e d

th at “ [i ]n 6 a ll o the r r e sp e c ts, ” the dis tr ibutio n o f t he Se c on d Se c ur iti e s “ sh a ll b e in a c c or da nc e wi th t he Sa le 7 Orde r and te rms of the Asse t Purchase A g ree ment.” Th e Sta y Stip ulatio n a lso pr ov ide d th at, 8 e xce pt a s se t f

or th i n th e Stay

Stip ulatio n, “ the ri g hts of a ll p art ie s . . . a s to the a

pp e a l and a ll 9 oth e r d isp ute s and matte rs . . . in c lud ingwi tho ut l imi tatio n r ig hts un de r P ara g ra phR of the Sa le 10 Or de r, are e xpre ssl y pr e se rv e d a

nd are no t a ff

e c te d b y thi s st ipu latio n. ” Para g ra phR of the Sa le 11 Orde r included the Ba nkruptcy Court’s conclusion that the e x ceptions to the subordination 12 c la

us e s o f t he Inte rc re dit or

Agre e me nt, i.e ., the pe rm itt e d ma nd ator y pr e pa y me nts and

a de qu ate 13 pr ote c tio n, a

uth or ize d th e Se c on d L ie n L e nd e rs to r e c e ive the Se c on d Se c ur iti e s. The Stay 7 14 Stipul ation rec ited that the minority members of

the Second L ien L ender s g roup did not favor the 15 stipulation and that it was beingenter ed over their objec tion. 16 Se ve ra l da y s a ft e r t he Stay Stip ulatio n w a s “ so or de re d” by the Di str ic t Co ur

t, o n Augus t 17 8, 2005, the Debtor and Ar etex Group closed the sa le. Acc ording ly , the Debtor ’s assets we re 18 tr ans fe rr e d, fr e e and c le ar o f l ie ns , to Wes tPo int Inte rn atio na l; the se c ur iti e s a llo c ate d to the F ir st 19 L ien L ender s were distributed to the First L ien L ender s in satisfaction of their liens; a nd the 20 Second Secur ities allocated to the Sec ond L ien L ender s were place d in escrow pursuant to the 21 Stay

Stipul ation. There afte r, Are tex purchased 17.5% of WestPoint International’s share s for15 1 $1 87 mil lio n p ur su ant t o it s b id a nd a lso e xer c ise d th e su

bs c ri pti on

ri g hts dis tr ibute d to it a s a 2 First L ien L ender , paying $32.8 million for additional common stock in WestPoint International. 3 Thus , in

a dd iti on to t he sto c k d istri bute d to it p ur su ant t o th e As se t Purc ha se Agre e me nt a nd Sa le 4 Orde r, Are tex’s purchase of stock and e x erc ise of subscr iption rights re ndere d it the controlling 5 share holder of WestPoint I nternational. As the controllingshare holder, Ar etex elected 6 WestP oint I nternational’s board of direc tors. 7 E. The District Court’s Nove mber 16, 2005 De cision and Orde r RemandingThe 8 Case To The Ba nkruptcy Court 9 In a published dec ision and order dated Nove mber 16, 2005, the D istrict Court rever sed, 1 0 i np art , th e B an kr u p t c y C o urt ’ s S a l e O r d e r

an d r e m an d e d

th e c a s e f

o r f urth e r p r o c e e d i n g s . S e e In 11 re Wes tPo int

Ste ve ns , Inc ., 33 3 B .R. at 54 –5 5. Th e Di str ic t Co ur t in iti a lly dis mis se d a s mo ot, 12 pursuant to 11 U.S.C. § 363(m), any claims that it believed c halleng ed the va lidity of the c losed 13 sa le . I d. at 40 . T he Di str ic t Co ur t r e je c te d, int e r a lia , th e Contr ari ans ’ a rgume nt t hat th e F ir st 14 Securities should have been distributed to B eal B ank (a s the collater al trustee of the Fir st L ien 15 L ender s) and not dire ctly to the First L ien L ender s. I d. The District Court re asoned that such a 16 dis tr ibutio n w ou ld “ vit iate the purp os e of the Ar e te x . . . Gr ou

p b id” be c a

us e , if the F ir st 17 Securities we re distributed to B eal B ank — which is c ontrolled by the Contraria

ns — “that 18 would be tantamount to dec laringthe [Cont rar ians] the winner of the a uction.” I d. (quoting the 19 Ba

nkruptcy Court). 20 The District Court conc luded, howeve r, that the Stay Stipul ation staying the allocation of 21 the Second Sec urities had in fa ct “stayed the c laim satisfaction and lien r elea se provisions of [the 22 Sa le Or de r]” and , a c c or din g ly , th e qu e sti on of wh e the r t he dis tr ibutio n o f t

he F ir st Se c ur iti e s to 23 the Fir st L ien L ender s had satisfied their liens remaine d open for

adjudication, unobstructe d by 24 the mandator

y mootness provision of 11 U.S.C. § 363(m). See id. at 40, 51. Inasmuch a s Arete x 25 Gr ou

p a rgue d, in t

he a lte rn ativ e , th at any

c ha lle ng e that w ou ld u

nw ind the lie n r e le a se and

c la im26 satisfac tion provisions of the Sale Orde r should be equitably moot because those provisions were16 1 nece ssary

for Ar etex to maintain control over WestPointInternational, the District Court found 2 that e qu ity

did no t f avo r Are te x. I d. at 41 . “ [S]uc h [a ] re su lt i s n ot i ne qu ita ble a s A re te x an d it s 3 aff iliates retain the a

bility to acquire more e quity

by purcha se and . . . the y

chose to c lose the 4 transac tion [ despite the Stay Stipul ation staying the distribution of the Second Securities a nd] . . . 5 the Objec ting F irst L ien L ender s’ consistent ar g ument that non cash c onsideration would be 6 insufficient to satisfy the Debtor [’s] obligations to t hem.” I d. 7 Havingset the par ameter s for its revie w of the B ankruptc y Court’s decision, the District 8 Court rejec ted, as without merit, the re maining pr eliminary arguments raised by

Are tex Group. 9 See id. at 41–43. In particula r, the District Court noted that the Contra rians we re not e stopped 10 from cha lleng ing Arete x ’s bid structure despite the Contrar ians havingsubmitt ed bids that wer e 11 purportedly

identical in structure to Arete x ’s bid duringthe auc tion. I d. Acc ordingto the 12 District Court, this di sparity in treatment wa s proper

beca use the Contrar ians, as majority holders 13 of

the F ir st L ie ns , w e re in a po sit ion to f or e g o h avin gthe F ir st L ie n L e nd e rs ’ c la ims satis fi e d in 14 cash while Are tex, as only a minority

holder of the First L iens, did not have this option to act on 15 behalf

of the F irst L ien L ender s. I d. 16 The District Court then c oncluded that ther e wa s no contrac tual basis for a uthorizi ngthe 17 distribution of the Second Securities to the Sec ond L ien L ender s. Specifica lly , it concluded that 18 none of the exceptions to the subordination clauses of the Interc reditor Agree ment, namely , the 19 pay

ment of ade quate pr otection or pe rmitted mandatory prepa y ments, justified the Second L ien 20 L ender s’ re ceivingthe Second Sec urities without the First L ien L ender s havingbeen satisfied 21 first in full and in cash. See id. at 45–49. 22 The District Court also conc luded that there was no statutory basis for a

uthorizi ngthe lien 23 rele ase a

nd claim-satisfa ction provisions of the Sale Or der. I d. at 50–54. The D istrict Court 24 noted that such provisions wer e beyond the scope of 11 U.S.C. § 363(b) and f ound that the 25 Ba

nkruptcy Court’s deter

minations circumvented the proce dural saf eguards of

a Chapter

11 26 reor g anization. I d. at 52. The D istrict Court stated that the rese rved e quitable power s of the17 1 B ank

ru ptc y Court un de r 1 1 U .S. C. § 10 5( a ) c ou ld n ot j us tif y the lie n r e le a se and

c la im2 satis fa c tio n p ro vis ion s o f t he Sa le Or de r b e c a

us e the B ank

ru ptc y Court ’s e qu ita

ble po we rs c ou ld 3 not be used in contra vention to the Ba

nkruptcy Code. I d. at 53–54. Acc ording ly , the District 4 Court remande d the ca se to the B ankruptc y Court. I d. at 54–55. Are tex Group therea fter move d 5 in the District Court for ce rtification of a n interlocutory

appea l to this Court, but that moti on was 6 denied on January 25, 2006. In re WestPoint S tevens, Inc., No. 05 Civ. 6860, motion denied 7 (S .D .N .Y . Jan . 2 5, 20 06 ). Ar e te x Gr ou p th e n f ile d a pe tit ion fo r a wr it o f m and amus in t

his 8 Court to direct the District Court to vac ate its dec ision, but we denied that pe tition on M arc h 16, 9 2006. In re Arete x , L L C, et al., No. 06-0483, pe tition denied (2d Cir. Mar. 16, 2006). 10 F. The B ankruptc y Court’s Orde rs on Remand 11 On re mand from the D istrict Court, the Ba nkruptcy Court issued two orders, one 12 imp le me nti ngthe Di str ic t Co ur t’ s d e c isi on , a

nd on e re le a sin gthe a de qu ate pr ote c tio n p ay me nts 13 held in escr ow pursuant to the Esc row Stipulation to t he Second L ien L ender s. Both orde rs wer e 14 enter ed on Apr il 13, 2006. 15 1. Orde r Implementing D ecision 16 After

submissi on of brief

s and ora l argument, the B ankruptc y Court issued its Order on 17 Remand implementing the District Court’s dec ision. The Ba nkruptcy Court ordere d that the 18 Securities, i.e., the F irst Securities and the Sec ond Securities, includingthose secur ities and 19 subscription rig hts alrea dy distributed to Aretex, be distributed instead to the collater al trustee of 20 the Fir st L ien L ender s, Be al B ank. The B ankruptc y Court noted, howeve r, that the 17.5% of 21 WestP oint I nternational’s secur ities purchase d by Are tex “do not constit ute Replac ement 22 Collateral [(the Secur ities)] and are not subjec t to any liens of the F irst L ien L ender s or the 23 Second L ien L ender s.” The B ankruptc y Court further

order ed, inter a lia, that Are tex, i nasmuch 24 as it was a F irst L ien L ender , would share in the proce eds re alized from the disposition of the 25 Se c ur iti e s w iththe Ob je c tin gF ir st L ie n L e nd e rs on a pr o r ata ba sis

. L ikewise, Ar etex, inasmuch 26 as it was also a

Second L ien L ender , would share in the proce eds re alized from the disposition of18 1 the Se c ur iti e s w iththe Se c on d L ie n L e nd e rs on a pr o r ata ba sis

. The B ankruptc y

Court denied 2 Ar e te x Gr ou

p’ s r e qu e st t o s up e rv ise the sa le of the Se c ur iti e s. 3 In a sepa

rate order enter ed the same day , the B ankruptc y Court gr anted Ar etex Group’s 4 motion to s tay

the cour t’s Orde r on Remand. 5 2. Or de r R e le a sin gAd e qu ate Pr ote c tio n Pa y me nts 6 In it s Re le a se Or de r, the B ank ru ptc y Court g ra nte d Wil min g ton

Tr us t’ s mo tio n to re le a se 7 the a de qu ate pr ote c tio n p ay me nts , in the amou nt o f a pp ro ximate ly

$2 9 mi lli on , h e ld p ur su ant t o 8 the Escr ow Stipulation. The B ankruptc y Court found that the F irst L ien L ender s had re ceive d 9 their ade quate pr otection pay ments but that the Second L ien L ender s, on acc ount of the Escr ow 10 Stipul ation, had bee n deprive d of ade quate pr otection pay ments to which they

wer e entitled. 11 The B ankruptc y Court observed that the Adequate Protection Orde r wa s entere d in light 12 of unconte sted evidenc e that ther e wa s sufficient va lue in the Debtor ’s assets to sec ure both the 13 F ir st a

nd Se c on d L ie n L e nd e rs . In a dd iti on , th e B a nk ru ptc y Court no te d th at th e Ad e qu ate 14 Protection Orde r re serve d the rig ht of the F irst L ien L ender s to f ile an a dv e rs ary

pr oc e e din gto 15 alter the Second L ien L ender s’ rig ht to adequate protec tion pay ments and, fur

ther, re serve d the 16 ri g ht o f a ll s e c ur e d c re dit or s to se e k a dd iti on a l a de qu ate pr ote c tio n, but th at th e Ob je c tin gF ir st 17 L ien L ender s had not filed any action to cha lleng e the Sec ond L ien L ender s’ rig ht to rece ive 18 a de qu ate pr ote c tio n p ay me nts

. Ev e n if

the Ob je c tin gF ir st L ie n L e nd e rs ha d s uc c e ssf ull y 19 challeng ed the Sec ond L ien L ender s’ rig ht to adequate protec tion, the Ba nkruptcy Court noted 20 that any

such cha lleng e would only have r esulted in the ac cumulated a dequate protec tion 21 pay

ments beingallocate d to satisfy the principa l, rather

than the intere st, on the Second L ien 22 de bt. Insofar

as the Obje ctingFirst L ien L ender s argued for additional adequate protec tion by 23 terminatingthe ade quate pr otection af forde d to the Second L ien L ender s, the Ba nkruptcy Court 24 reje cted this argument as inconsistent with the law a nd the Adequa

te Protection Orde r. 25 The B ankruptc y Court also rejec ted the Objec ting F irst L ien L ender s’ ar g ument that the 26 funds held pursua nt to the Escrow Stipulation were subject to the subordination cla uses of the19 1 Inte rc re dit or

Agre e me nt. The B ankruptc y Court stated that the Escr ow Stipulation di d not 2 terminate the Second L ien L ender s’ rig hts to adequate protec tion pay ments; rather , the Escr ow 3 Stip ulatio n “ sim

ply de fe rr e d a

nd c on dit ion e d th e de liv e ry

of the [ad e qu ate pr ote c tio n p ay me nts ] 4 on the entry

of a f urther Court or der.” The B ankruptc y Court also stated that the Interc reditor 5 Ag ree ment, which it conclude d rema ined binding, e x pressly provided for

the Second L ien 6 L ender s’ rig ht to rece ive ade quate pr otection pay ments and that “the entry

of this Order

suffice s 7 to qualify

the [adequate protec tion pay ments held in escr ow] for the exception in the Interc reditor 8 Ag ree ment.” Acc ording ly , finding no merit to the objections made to Wilmington Trust’s 9 motion, the Bankr uptcy Court entere d the Relea se Orde r per mitti ngWil mington Trust to re ceive 10 the ade quate pr otection pay ments held in escr ow. 11 G. The District Court’s Oc tober 9, 2007 De cision and Orde r Aff irming The 12 Ba nkruptcy Court’s Orde r on Remand a nd Release Orde r 13 In an unpublished dec ision and order dated Oc tober 9, 2007, the D istrict Court affirme d 14 the B ankruptc y

Court’s Orde r on Remand a nd Release Orde r. See In re WestPoint S tevens, Inc., 15 Nos. 06 Civ. 4128/4129/4130/ 4164; M-47, 2007 WL2936212 (S.D.N.Y. Oc t. 9, 2007). The 16 Di str ic t Co ur

t r e je c te d th e Contr ari ans ’ c ha lle ng e to t he Or de r o n Re mand

that A re te x, a s a 17 member of

the Fir st L ien L ender s g roup, should not share pr o rata in the proce eds fr om the 18 dispositi on of the Sec urities. I d. at *1–*2. 19 The District Court also re jected Arete x Group’s c halleng e to the Or der on Rema nd that 20 the B ank

ru ptc y Court e rr e d whe n it

(1 ) r e fu se d to lim it the or de r t o p e rm it A re te x to ma int a in 21 control of WestPoint I nternational; (2) deter mined that the Fir st Securities distributed to Aretex 22 wer e amongthe sec urities subject to sale towa rd satisfac tion of the claims of the F irst L ien 23 L ender s; (3) re fused to condition any sale involving control of WestPoint I nternational on 24 repa

y ment of the $187 million Aretex paid for 17.5% inter est of WestPointInternational; and (4) 25 direc ted the re lease of the Sec urities to Be al B ank. I d. at *2–*4. To the e x tent Are tex arg ued for 26 repa

y ment of the $32.8 million paid in connection with the exercise of the subscr iption rights that20 1 wer e pre viously

distributed to it, t he District Court g ener ally ag ree d with Arete x and modified 2 the B ankruptc y

Court’s order

acc ording ly . I d. at *4. 3 Inasmuch a s the Contrarians a lso raised objec tions to t he Relea se Orde r, the District 4 Court affir

med the Relea se Orde r for substantially

the same r easons state d by the B ankruptc y 5 Court. I d. at *1, *4. This timely appea l followed. 6 II. DI SCU SSIO N 7 A. Standard of Re view 8 In appea ls from district court orde rs re lating to ba nkruptcy court de cisions, “we r eview 9 the dec ision of the bankruptc y court indepe ndently , examining its conclusions of law de novo 10 and its fac tual finding s for c lear err or.” I n re Wireless Data, Inc., 547 F .3d 484, 492 (2d Cir. 11 2008) (quotingAdelphia B us. Solut ions, I nc. v. Abnos, 482 F .3d 602, 607 (2d Cir. 2007)) 12 (interna l quotation marks omitted). Wi th limi ted exceptions, we re view questions of textual 13 c on str

uc tio n d e no vo . Se e In r e Du pla n Co rp ., 21 2 F .3 d 1 44 , 1 51 (2 d Ci r. 20 00 ) ( statin gthat th is 14 Court review s de novo questions of “pur e textual construction . . . , whateve r the proc edura l 15 posture of the case ” (quotingBe llefonte Reinsura nce Co. v. Ae tna Cas. and Sur. Co., 903 F.2d 16 910, 912 (2d Cir. 1990)) ( internal quotation marks omitted)) ; see, e .g ., Truskoski v. ESPN, I nc., 17 60 F.3d 74, 77 ( 2d Cir. 1995) (ac cordingdefe renc e to the district cour t’s interpre tation of its own 18 or de r) . Wh e the r a n a pp e a l is moo t is a lso a

le g a l qu e sti on

that is re vie we d d e no vo . N .Y . Ci vil 19 L iberties Union v. Gr andea u, 528 F.3d 122, 128 ( 2d Cir. 2008). 20 B

. Se c tio n 3 63 (m ) M oo tne ss 21 Se c tio n 3 63 (m ) o f t he B ank ru ptc y Cod e pr ov ide s: 22 The re versa l or modification on appe al of a n authorization under subsec tion (b) or 23 (c ) o f t

his se c tio n o f a

sa le or le a se of pr op e rt y do e s n ot a ff

e c t th e va lid ity

of a sa le 24 or lea se under such authorization to an entity that purcha sed or lea sed such 25 proper

ty in good f aith, whether

or not such entity

knew of the pende ncy

of the 26 appea l, unless such authorization and such sale or lea se we re stayed pending 27 appea l. 28 This section cre ates a rule of “ statutory

mootness,” see Weinga

rten Nostat, Inc. v. Serv. 29 Me rc h. Co. , 3 96 F .3 d 7 37 , 7 44 (6 th C ir . 2 00 5) , whic h b ars a pp e llate re vie w o f a

ny sa le21 1 authorized by

11 U.S.C. § 363(b) or (c ) so longas the sale was made to a g ood faith purc haser 2 and wa s not stay ed pendingappea l, see In re Gucci, 105 F .3d 837, 839–40 (2d Cir. 1997) (“ Gucc i 3 I ”); see also In re Gucci, 126 F .3d 380, 392 (2d Cir. 1997) (“ Gucc i I I ”). B y restric ting the 4 exceptions to the application of sec tion 363(m) to an entry of a stay or a c halleng e to the “g ood 5 faith” a spect of the sale, sec tion 363(m) moots a broade r ra ng e of c ases than a

re ba rre d under 6 traditional doctrines of mootness. See Weinga

rten Nostat, Inc., 396 F .3d at 742 (“ Even if the 7 appea l is not m oot as a c onstitut ional matter be cause a cour t could provide a

reme dy , . . . 8 § 363(m) re quires that ce rtain appe als nonethele ss be treated as moot absent a stay .”). I ndeed, w e 9 have e quated se ction 363(m) to an imposed jurisdictional limit on our authority to reviewthe 10 Ba

nkruptcy Court’s sale orde r. See Gucci I , 105 F.3d at 838 (“We hold that . . . we ha ve no 11 jurisdiction to review a n unstay ed sale order

once the sale oc curs, e x cept on the limited issue of 12 whether

the sale w as made to a g ood faith purc haser .”). 13 In this appeal, ther e is no issue with respe ct to the “g ood faith” a spect of the sale of the 14 Debtor’ s assets. See In re WestPoint S tevens, 333 B .R. 30, 40 (S.D.N.Y. 2005). Instead, the 15 Contrarians make two principal a rguments: (1) the Stay

Stipul ation stay ed the lien r elea se and 16 claim-satisfa ction provisions of the Sale Or der, a nd, there fore , any

challeng e to those provisions 17 are not mooted under sec tion 363(m), and (2) even if the lien re lease and cla im-satisfaction 18 provisions were not stay ed, a r uling on those pr ovisions of the Sale Orde r does not af fec t the 19 va lid ity

of the “ sa le ” be tw e e n th e a c tua l e nti tie s invo lve d in the purc ha se of

the De bto r’ s a sse ts, 20 namely , WestP oint Home, WestP oint I nternational, and the De btor, and, ther efor e, any 21 challeng es to those provisions of the Sale Or der a re not mooted by

section 363(m). We c onclude 22 that the Contraria ns’ first ar g ument is unsupported by the terms of the Stay

Stipul ation and that 23 the ir

se c on d a rgume nt l a c ks me ri t in

light o f t he int e g ra l na

tur e of the lie n r e le a se and

c la im24 satisfac tion provisions t o the sale. We a ddress these arguments in rever se orde r. 25 1. Review of the Sale Orde r 26 We have he ld in no ambiguous ter ms that section 363(m) is a limit on our jurisdiction andSection 363(b) a llows for the de btor to sell its property , other than in the or dinary 8 course of business, af

ter notice and a he aring . See 11 U.S.C. § 363(b). B eca use a sa le pursuant t o s e c t i o n3 6 3 ( b ) m ay

d e p r i v e c r e d i t o r s o f

th e s a f e g u ar d s o f

a C h a p t e r 1 1 r e o r g an i z at i o n , s e e In re L ionel Corp., 722 F.2d 1063, 1066, 1069 ( 2d Cir. 1983), this Court has restricted the Ba nkruptcy Court’s exercise of

discretion in per

mitti nga sale under se ction 363(b) by requiring the B ank ru ptc y Court to “ fi nd fr om t he e vid e nc e pr e se nte d b e fo re [it] a g oo d b us ine ss r e a so n to g rant . . . [the] application [ to sell property under se ction 363(b)],” id. at 1071. It is uncontested in t his c a se that th e B ank

ru ptc y Court a uth or ize d th e sa le of

the De bto r’ s a sse ts p ur su ant t o section 363(b)

. Section 363(c) , which allows for the sale of

proper ty in the ordinary

course of business without noti ce or hear ing, is not applica

ble her e. 22 1 that, a

bs e nt a n e ntr y of a sta y of the Sa le Or de r, we on ly

re ta in a uth or ity to r e vie w c ha lle ng e s to 2 the “ g oo d f

a ith ” a sp e c t of

the sa le . Se e Gu c c i I , 1 05 F .3 d at 83 8, 84 0. Spe c if ic a lly , w e he ld i n 3 Gucc i Ithat we lac k jurisdiction to review the “ unstay ed sale order ,” id. at 838 (e mphasis added) , 4 of a sa le su bje c t to the pr ote c tio ns of se c tio n 3 63 (m ) a

nd c on c lud e d th at “ we may

ne ith e r r e ve rs e 5 nor modify

the judicially -authorized sale ,” id. at 839–40 (e mphasis added) . We noted that it was 6 unclea

r why “an a ppellate c ourt . . . could not order some form of r elief othe r than invalidation of 7 the sale,” but acc epted our place in the statutory

scheme and obser

ved that “whateve r other r elief 8 might be a

vailable c ould presumably be pursue d in the bankruptc y court by those entitled to such 9 relief

.” I d. at 840 n.1 (e mphasis added) . We adher e to our holdingin Gucci I that, under se ction 10 36 3( m) , w e la c k ju ri sd ic tio n to re vie w the e nti re Sa le Or de r — no t ju st t he a c tua l sa le 11 transac tion. See id. at 838; United States v. Salerno, 932 F .2d 117, 122–23 (2d Cir. 1991); see 12 also In re Par

ker, 499 F .3d at 621 (obser ving that the First, Second, F ifth, Seventh, Eleventh, a nd 13 the D. C. C ir c uit s h ave a do pte d a “ pe r s e ru le a

uto matic a lly

moo tin ga

pp e a ls f or fa ilure to o bta in 14 a stay

of the sale at issue” ( citations omitt ed)) ; cf. In re Par ker, 499 F .3d 616, 620 (6th Cir. 2007) 15 (“[W] e beg in by

dispelling a

ny notion that we sit in review of the bankr uptcy court’s O rder

of 16 Sale. Def

endant’ s attempts to assail the validity of the ba nkruptcy court’s O rder

of Sale, 17 howeve r indirec tly , are statutorily moot.”). 18 This holding is consistent with the uniquely important interest in assuringthe finality of a 19 sale that is completed pur suant to 11 U.S.C. § 363(b) or (c ) in bankruptc y proce eding s. See

8 2 0 G u c c i I I , 1 2 6 F

. 3 d at 3 8 7 ( s tati n gth at “ w it

h o u t t h is a s s ur an c e o f

f in a li ty [un d e r s e c ti o n3 6 3 ( m) ],23 1 purcha sers c ould demand a la rg e discount for

investing in a

proper ty that is laden with the risk of 2 endless litigation as to who has rig hts to estate prope rty”); see also In re Rar e Ea rth Minera ls, 445 3 F .3 d 3 59 , 3 63 (4 th C ir . 2 00 6) (“ Se c tio n 3 63 (m ) c od if ie s Co ng re ss’ s st

ro ngpr e fe re nc e fo r f

ina lity 4 and ef

ficienc y in the bankruptc y

context, particularly

wher e third par

ties are involved.”). Similar 5 to the logic that the sale pr ice of the debtor’ s assets will be driven down if the purc haser is not 6 g uara

nteed owne rship of those asse ts upon closing of the sale, se e Guc ci I I , 126 F.3d at 387, a 7 purcha ser will demand a discount for the pur chase of asse ts in which the terms and c onditions of 8 the sale c annot be pr otected f rom cha lleng e eve n afte r closingthe sale, c f. In re Tr ism, I nc., 328 9 F.3d 1003, 1007 ( 8th Cir. 2003) (“[A] challeng e to a r elated pr ovision of an orde r authorizing the 10 sale of the debtor’s a ssets aff ects the va lidity

of the sale [and theref

ore f alls under se ction 11 363(m)] when the re lated provision is integ ral to the sale of the e state’s a ssets.”). 12 A nar

row e x ception may

lie for c halleng es to the Sale Or der that are so divorced f rom the 13 overa ll transaction that the c halleng ed provision would have aff ecte d none of the considerations 14 on which the pur chase r re lied. Cf. Kre bs Chry sler-Ply mouth, I nc. v. Va lley

Motors, Inc., 141 15 F .3 d 4 90 , 4 99 (3 d Ci r. 19 98 ) ( statin gthat an a pp e a l is no t mo ot u

nd e r § 36 3( m) un le ss t

he pa rt y 16 fa ile d to ob ta in a sta y and re vie wi ngc ourt s c an f

a sh ion a re me dy “ that w ill no t a ff

e c t th e va lid ity 1 7 o f

th e s a l e ” )

. B u ts e e G e o r g e W

. K un e y , S l i p p i n gIn t o M o o tn e s s , 2 0 0 7 A n n . S ur v . o f B an kr . L. 18 Part

I§ 9 , s ub pa

rt I I I (A )( i) (“ [I ]t do e s n ot a pp e ar t hat [th e Th ir d Ci rc uit ’s ] ‘e xce pti on ’ t o 19 moo tne ss i s f

ound in m any fa c t patte rn s a

nd on e is l e ft

to w on de r what r e me dy

an o bje c tin gpa

rt y 20 to a sec tion 363 sale would be see king that ‘did not distort’ the validity of the sec tion 363 21 sa le

. . . . Gi ve n th e na rr owne ss o f t

his e xce pti on , f

or mos t pr a c tic a l pu

rp os e s th e Th ir d Ci rc uit 22 should be viewe d as havingadopted a de fa cto per

se rule.” ). We nee d not here addre ss the 2 3 p o t en t i al fo r s u ch an ex ce p t i o ni nth i s ca s e, h o we v er , b ec au s e t h e C o n tra ri an s cl ea rl y ch al l en ge 24 an integ ral provision of the Sale Orde r. 25 Th e lie n r e le a se and c la im- satis fa c tio n p ro vis ion s, in c on jun c tio n w iththe pr o r ata 26 distribution provisi on and Ar etex’s purcha se of a 17.5% intere st, were essential to Are tex’sTh e Sa le Or de r a lso state d th at 9 at the Closing the Purc hased A ssets shall be transf err ed to the Purcha ser f

ree and clea r of a ll I ntere sts of any

kind or nature whatsoeve r . . . with the Intere sts of the F ir st L ie n L e nd e rs and

Se c on d L ie n L e nd e rs atta c hin gto t he Sa le pr oc e e ds

. . . to the same e xtent, v a lid ity , a nd pr ior ity that th e y atta c he d to the Pur c ha se d A sse ts immediately

prior to the Closing. All such Intere sts of any kind or nature whatsoeve r shall be a

nd shall be dee med to be satisfied at the Closing upon the rele ase ( or tende r of r elea se) of such re place ment collater al . . . . 24 1 acquir ing c ontrol of the De btor’s business bec ause: (1) the distribution provision guar antee d that 2 the Secur ities would be distributed pro rata to the Fir st and Second L ien L ender s; (2) the lien 3 rele ase a

nd claim-satisfa ction provisions gua rante ed that the Sec urities rec eived by the individual 4 First and Sec ond L ien L ender s would be unenc umbere d by other liens; and ( 3) Are tex’s holdi ng 5 of appr ox imately

40% of the F irst L iens and 51% of the Second L iens guara

nteed it a substantial 6 dis tr ibutio n o f t

he un e nc umb e re d Se c ur iti e s. In a c c or da nc e wi th i ts b id, Ar e te x wa s r e qu ir e d to 7 purc ha se an a dd iti on a l 17 .5 % i nte re st i n We stPo int Inte rn atio na l, whic h th e n gua ra nte e d it a 8 holding of

55.5% owne rship in that corporation. Even under the terms of the subse quent Stay 9 Stipul ation, which per mitted the closing of

the sale, the scena

rio least fa

vorable to Arete x , i.e., 10 distribution of the entirety of the Sec ond Securities to the F irst L ien L ender s, would still leave 11 Are tex owning a c ontrolling 50.5% of WestP oint I nternational. 12 Indeed, both the Sale Orde r and the Asset Purcha se Ag ree ment emphasize the importance 13 of

the lie n r e le a se , c la im s atis fa c tio n, and dis tr ibutio n p ro vis ion s o f t he Sa le Or de r t o o c c ur

a s a 14 condition to the closing of the “sa le.” F or example, the Sale Or der pr ovides that the purc haser s 15 “would not have enter ed into the Ag ree ment and would not consummate the transac tions 16 c on te mpl ate d th e re by , . . . if the

. . . Se c ur iti e s w e re no t f re e and c le ar o f a ll Inte re sts ,” Inte re sts 17 be ingde fi ne d a s “ L ie ns , c la ims , e nc umb ra nc e s, and oth e r i nte re sts .” F ur

the r, un de r t

he Sa le 18 Or de r, “ e ff

e c tiv e a s o f t

he Clo sin g ” the tr ans fe r o f a sse ts “ ve st[e d] . . . A re te x, the oth e r F ir st 19 L ie n L e nd e rs , a

nd to t he e xtent a

pp lic a ble , th e oth e r S e c on d L ie n L e nd e rs , w iththe ir 20 proportionate sha re of [t he Secur ities] . . . in satisfaction of their repla ceme nt lien.” L ikewise, 9 21 the Asset Purcha se Ag ree ment require d that the Sale Or der “ find and provide , amongother25 1 things . . . that the Par ent Common S tock and Subscription Rights purc hased, r etained by and/or 2 distributed to . . . the First L ien L ender s and Second L ien L ender s shall be re ceive d and re tained 3 by eac h of them fr ee a

nd clea r of a ll L iens, claims and e ncumbra nces of any nature .” Thus , 4 without the lien relea se, cla im satisfaction, and distribution provisions as integr al par ts, there 5 simply

could not be a “ sale.” Cf. In re Stadium Mg mt. Corp., 895 F.2d 845, 849 (1st Cir. 1990) 6 (conc luding that a cer tain condition of the sale w as “integral to the sale and re moving it from the 7 sale would have adve rsely aff ecte d the terms of the sale” ). 8 Th e Contr ari ans ’ a rgume nt t hat c on tr ol w a s n ot a

n e sse nti a l e le me nt o f Are te x’s b id i s 9 belied not only

by the Sale Or der a

nd Asset Purcha se Ag ree ment, but also by the re cord. The 10 Debtor ma de it clea r that it pursued a

section 363(b) asset sale as a la st resort bec ause both the 11 Contrarians a

nd Are tex could not agr ee on a ny plan that would per

mit the other to control the 12 restruc tured De btor. F ur the r, bo th Are te x an d th e Contr ari ans we re e xplic it a bo ut t he ir 13 un de rs tand ingthat th e wi nn e r o f t he a uc tio n w ou ld o bta in c on tr ol o f t he De bto r’ s b us ine ss, 14 noting throughout the auction the importanc e of “ control” a nd ref ere ncingminority

share holder 15 protec tions which would apply to the losing bidder . Indeed, that the bids were assessed by 16 incorpora

ting a “contr ol premium” shows that all par ties involved in the auction under stood that 17 the wi nn ingbid de r w ou ld a c qu ir e c on tr ol o f t he De bto r’ s b us ine ss. Al tho ug h A re te x’s f ina l bi d 18 did not ex plicitly condition the sale on obtainingcontrol of WestPoint I nternational, the 19 combination of the lien re lease , claim satisfac tion, and distribution provisi ons, alongwith the 20 purcha se of 17.5% interest, mathematically g uara nteed Ar etex control of WestPoi nt 21 International. 22 The Contrar ians furthe r ar g ue that Ar etex cannot claim any protec tions under sec tion 23 36 3( m) be c a

us e it w a s n ot t

he a c tua l e nti ty

re c e ivi ngthe purc ha se d a sse ts. Th is a rgume nt f a ils , 24 howeve r, bec ause it conf lates the issue of sta

nding f or the a ppealingparty

with the application of 25 se c tio n 3 63 (m ) b y a re vie wi ngc ourt . We re pe at th at w e la c k ju ri sd ic tio n to re vie w the Sa le 26 Orde r unless a stay has bee n enter ed or the re is a c halleng e to the “g ood faith” a spect of the sale;Insofar as standingis conce rned, Arete x has standingin this appeal. As explained 10 above, the entire ba

nkruptcy proce edingwas a

battle for c ontrol of the De btor betwe en Ar etex and the Contrar ians. Althoug h the phy sical asse ts were transfe rre d to WestP oint International/Home, the ac tual purcha ser of the Debtor ’s assets wa s undeniably Are tex. W ithout Are tex, t here would be no WestPointInternational or WestPoi nt Home, which e ntities were c re ate d b y

Ar e te x to a c qu ir e the De bto r’ s a sse ts; wi tho ut Are te x, the re wo uld be no e nti ty

to purcha se the 17.5% inter est in WestP oint I nternational for $187 million, which was an e ssential c omp on e nt o f t

he wi nn ingbid ; and

wi tho ut Are te x, the wi nn ingbid of $7 03 .5 mil lio n —

ne arl y $8 2 mi lli on

mor e tha n th e Contr ari ans ’ p ro vis ion a l bi d — wo uld no t ha ve be e n ma de . In s ho rt , Are tex i s the indispensable e ntity behind the winning$703.5 milli on bid. I t alone wa s responsible for

the bid’s cr eation, pre sentation, advoc acy , and subseque nt execution. The alleg ed

“ a c tua l pu

rc ha se rs ,” i.e ., Wes tPo int Inte rn atio na l and

Ho me , b y

c on tr a st, we re e mpt

y sh e lls wi th no purs e , w ill , o r j ud g me nt t o p ur su e the ir own b us ine ss i nte re sts . A ny a dv e rs e de c isi on

wi th respe ct to the Sale Or der dire ctly inflicts injury

on Are tex, which, in addition t o beingthe bidderin-fac t, has alre ady

invested over

$200 milli on in relianc e of the orig inal Sale Orde r. See Pac

. Ca pit a l B ank , N .A . v . Co nn e c tic ut, 54 2 F .3 d 3 41 , 3 50 (2 d Ci r. 20 08 ) ( statin gthat to e sta bli sh standing , the plaintiff must show, inter alia, that “it has suffe red a n ‘injury in fac t’ that is . . . concr ete a

nd particula

rized and . . . ac tual or imminent, not conjectura l or hy pothetical”) ; I n re Colony Hill Assocs., 111 F.3d 269, 273 (2d Cir. 1997) (statingthat an “a g g rieve d person,” one who is “direc tly

and adve rsely

aff ecte d pecunia

rily ,” has a

ppellate standingin an appe al of a bankruptc y

case (interna l quotation marks omitted)). Simi larl y , th e Contr ari ans argue that, whil e se c tio n 3 63 (m ) p ro te c ts the sa le 11 tr ans a c tio n, it h a s n o b e ari ngon the dis tr ibutio n o f t

he pr oc e e ds of

tha t sa le tr ans a c tio n. Th e ir argument on this dist inction, however , misunderstands the natur e of the sale prote cted by section 363(m). As noted a

bove, all distributions here we re integral to the sale itself. 26 1 our jurisdiction does not depend on which entity challeng es the Sale O rder

. See Guc ci I , 105 10 2 F.3d at 839–40 (stating that section 363(m) moots the appe al); see also In re The Charter Co., 3 829 F.2d 1054, 1056 ( 11th Cir. 1987) (“[A]ppellant argues that the stay require ment does not 4 apply

to a purc haser

who cha lleng es the a

uthorization. . . . There is nothing in the la ng uag e of 5 section 363(m) to sug g est that such an e x ception exists.”). 11 6 In sum, this case pre sents an unmistakable r ecor d of a sa le for c ontrol of the De btor’s 7 bu sin e ss. Thro ug ho ut i ts l iti g atio n h ist or y — b e fo re , d

ur ing , a nd a ft e r t he a uc tio n — the ma in 8 conce rn in this case w ith any plan of re org anization or section 363(b) sa le was “ control.” The 9 Sa le Or de r a

nd As se t Purc ha se Agre e me nt c on fi rm thi s o bv iou s tr

uth . T he lie n r e le a se , c la im 10 satis fa c tio n, and

dis tr ibutio n p ro vis ion s o f t he Sa le Or de r, in c on

jun c tio n w ithAr e te x’s p ur c ha se 11 of a 17.5% interest, ar e nec essar y for “ control” to tra

nsfer from the De btor to Arete x . 12 Acc ording ly , we do not hesitate to conclude that any challeng es to these integral a nd integ rate d27 1 provisions of the Sale Or der do not ser ve to under

mine the statutory

mootness of this appeal a s 2 provided by

section 363(m). 3 2. The Stay Stipul ation 4 Acc ordingto the District Court, reviewof the lien re lease and cla im-satisfaction 5 pr ov isi on s o f t

he Sa le Or de r w e re no t mo ote d b y se c tio n 3 63 (m ) b e c a

us e the a pp lic atio n o f t

ho se 6 provisions were stay ed pursua nt to the Stay

Stipul ation. See In re WestPoint S tevens, Inc., 333 7 B.R. at 40, 54–55. The District Court rea soned that bec ause the parties ha d ag ree d to stay the 8 allocation of the Second Secur ities, it necessar ily stay ed the lien r elea se and c laim-satisfac tion 9 provisions of the Sale Or der. I d. at 40. Althoug h we unde rstand the District Court’s c oncer n 10 with the merits of the c ontention that the Sale Orde r violated the se vera l cre dit ag ree ments and 1 1 ar gu ab l y

ef fe ct eda c i rc u m v en t i o no f t h e s af egu ar d s o f aC h ap t er

1 1 re o rga n i z at i o np ro ce ed i n g, 12 se e id. at 45 –5 4; i nf ra Part I I (D )( 2) , th e Di str ic t Co ur t in e ff e c t r e a d a sta y of the Sa le Or de r i nto 13 the Stay

Stipul ation despite the lac k of any basis for suc h a re ading . See Guc ci I , 105 F.3d at 840 14 (“[R] eg ardle ss of the merit of a n appellant’ s challeng e to a sa le orde r, we may neither r ever se nor 15 mod if

y the jud ic ia lly -a

uth or ize d s a le if

the e nti ty that pu rc ha se d o r l e a se d th e pr op e rt y did so in 16 g ood faith and if no sta y was g rante d.”). 17 As an initial matter, the Contrar ians argue that we must give de fer ence to the District 18 Court’s interpre tation of the Stay Stipul ation beca

use the c ourt “so orde red” the Stay Stipul ation 19 a ft e r c on sid e ri ngthe pa rt ie s’ mot ion s and

ne arl y tw o h ours of

or a l argume nt. To be sure , 20 defe renc e is owed to a court’s inter

pretation of its own orders, see In re B lackwood A ssocs., L .P., 21 153 F.3d 61, 66 ( 2d Cir. 1998); howeve r, such de fer ence is only appropr iate whe re the court 22 draf

ts the order , see United States v. Spallone, 399 F.3d 415, 423 (2d Cir. 2005) (explaining the 23 rea son for de fer

ringto a cour

t interpretingits own order a s “pre mised on the truism that the 24 draf

tsman of a doc ument is uniquely situated to understand the intended mea ning of that 2 5 d o c u m e n t ” ( c i t at i o nan d i n t e r n a l qu o t at i o nm ar

k s o m i t t e d ) ( e mp h a s i s a d d e d ) )

. A c c o r d i n g l y, 26 beca

use the Stay

Stipul ation was dra fted by the par ties and not by

the District Court, we a ccor d28 1 no defe renc e to the District Court’s interpr etation of the Stay Stipul ation. We reviewthe Stay 2 Stipul ation de novo. 3 The Stay

Stipul ation provides for

the withdraw al of the Contra rian a nd Be al B ank motion 4 “ se e kin ga

sta y of the c los ingof

the sa le by

[the De bto r] t o Purc ha se rs a pp ro ve d b y

the [Sal e 5 Orde r].” The Stay Stipul ation further

rec ites that the parties “ shall seek no other stay of the 6 closing of the sale under the Sale Orde r or other wise.” The Stay

Stipul ation does provide f or a 7 stay

limit ed to a sing le eve nt: “the distribution of the [S econd Sec urities] allocable to the Second 8 L ien L ender s pursuant to the Sale Or der.” To this end, the Stay Stipul ation provides that the 9 distribution of the Second Securities to the Sec ond L ien L ender s “shall be made at the closing[of 10 the sale], but shall be held in escr ow” until, inter alia, the escr owed f unds are order ed to “be 1 1 d is b ur s e d

to th e Se c o n d

L ie nL e n d e r s [o r

f urth e r h e ld in e s c r o w ] .

. . in

a c c o r d an c e w it

h[a 12 subsequent cour

t order].” (e mphasis added) . “In all other re spects, the distributions [ of the 13 Se c on d Se c ur iti e s] sh a ll b e in a c c or da nc e wi th t he Sa le Or de r a

nd te rm s o f t

he As se t Purc ha se 14 Ag ree ment.” In short, the Stay Stipul ation acc omplishes two goa ls: it(1) pe rmits the closing of 15 the sa le and

(2 ) d e fe rs the a llo c atio n o f t he Se c on d Se c ur iti e s unti l a pr op e r d ist

ri butio n o f t

ho se 16 rig hts has been de termined. 17 Sig nif

ic antl y , n oth ingwi thi n th e fo ur c or ne rs of the Sta y Stip ulatio n s tay s th e lie n r e le a se 18 and

c la im- satis fa c tio n p ro vis ion s o f t he Sa le Or de r. Th is o mis sio n, ho we ve r, is c on sis te nt w ith 19 the purpose of

the Stay Stipul ation to permit the closingof the sale of the De btor’s asse ts. As 20 noted above , see supr a Part I I (B )(1) , the lien re lease , claim satisfac tion, and distribution 21 provisions were indispensable conditions of the sa le. Thus, it is clear that in withdrawingthe 22 mot ion

fo r “ a sta y of the c los ingof

the sa le ,” the Sta

y Stip ulatio n p e rm itt e d th e tr ans fe r o f a sse ts 23 and the lien r elea se, cla im satisfaction, and distribution to occur a s a sing le integ rate d transac tion. 24 Gi ve n th e c e ntr a lit y of the lie n r e le a se and

c la im- satis fa c tio n p ro vis ion s to the sa le , it is 25 imp la

us ibl e that th e Stay

Stip ulatio n w ou ld s tay

tho se po rt ion s o f t

he sa le wi tho ut a

ny e xplic it 26 mention of them.29 1 Not only

does the omission of languag e stay ing the lien rele ase a

nd claim-satisfa ction 2 provisions of the Sale Or der strong ly sug g est that such provisions wer e not stay ed, but the fa ct 3 that the Stay

Stipul ation specifie s the ag ree d upon stay as “the stay

relating to the Sec ond L ien 4 Distribution” also convince s us that the lien rele ase a nd claim-satisfa ction provisions could not 5 have be e n s tay e d. In a dd iti on to t he Se c on d Se c ur iti e s, the Sa le Or de r a nd As se t Purc ha se 6 Agre e me nt r e qu ir e d th e lie n r e le a se and c la im- satis fa c tio n p ro vis ion s to a pp ly to a ll Se c ur iti e s, 7 including those First Secur ities distribut ed to the F irst L ien L ender s. The Stay Stipul ation, 8 howeve r, only

stay ed the distribution of the Second Sec urities. I f the pa rties intended to stay

the 9 lien rele ase a

nd claim-satisfa ction provisions of the Sale Or der, it is unimag inable that they 10 would have done so by ag ree ing to stay

only the distribution of the Second Secur ities. 11 The Contrar ians mount a wea k response by

pointing to the Stay

Stipul ation’s provision 12 that “[e]x cept a s specific ally set forth he rein, the r ights of a ll parties to this appeal . . . a s to the 13 appea l and all other disputes a nd matters betwe en them . . . ar e expressly prese rved a

nd are not 14 a ff

e c te d b y thi s st ipu latio n. ” B ut t

he Stay Stip ulatio n w ith dr e w the sta y on the c los ingof

the sa le 15 and re place d it with a much narr ower stay of the distribution of the Second Sec urities. Thus, “as 16 specific ally

set forth” in the Stay

Stipul ation, the Contraria ns lost the right to see k reme dies that 17 roll back a

ny element of

the sale. 18 Notwithstanding the absenc e of suppor t in the tex t of the Stay

Stipul ation, the Contraria ns 19 argue that “a

stay of the distribution of the [S econd Sec urities] i s only meaning ful if [the lien 20 rele ase a

nd claim satisfac tion provisions were a lso stay ed].” That is not true, bec ause a ny 21 allocation of the Second Secur ities to the First L ien L ender s would result in a windfa ll for them. 22 This is so because the Fir st L ien L ender s would rec eive the Sec ond Securities despite the fac t 23 that their cla ims have bee n satisfied by the unconteste d value of

the Fir st Securities 24 (a

pp ro ximate ly

$4 88 mil lio n) a lr e a dy

dis tr ibute d to the m. T he Contr ari ans re ly on a fa lse 25 pr e mis e that th e on ly wa y the Se c on d Se c ur iti e s c an b e a llo c ate d to the F ir st L ie n L e nd e rs is i f 26 the lien re lease and cla im-satisfaction provisions wer e also stayed. The Stay Stipul ation,30 1 ho we ve r, c on te mpl ate s th e po ssi bil ity of a re vie wi ngc ourt

a llo c atin gthe Se c on d Se c ur iti e s, in 2 whole or in pa

rt, to the First L ien L ender s as an indepe ndent re medy not affe ctingthe “c losing of 3 the sale.” 4 The Contrar ians also ar g ue that the Stay Stipul ation did not lim it the District Court’s 5 re me dia l a

uth or ity to a llo c ate the Se c on d Se c ur iti e s a nd su g g e st t hat th is r e me dia l a

uth or ity 6 included the a

uthority to stay the lien re lease and cla im-satisfaction provisions of the Sale O rder

. 7 Th e Contr ari ans re ly on the Stay Stip ulatio n’ s p ro vis ion

tha t th e Di str ic t Co ur

t ma y or de r “ so me 8 or all of the [Second Sec urities] . . . [ to] be distributed to the Fir st L ien L ender s under the 9 Interc reditor Agree ment or otherw ise” to support their a rgument that there is an “a bsence of any 10 limit ation or re striction on the reme dies ava ilable to the district court a s a re sult of the [S tay 11 Stipul ation].” I f a me re r efe renc e to the District Court’s re medial authority could superse de any 12 sp e c if

ic a g re e me nts ma de in t

he Stay Stip ulatio n, ho we ve r, the n th e e nti re Stay Stip ulatio n w ou ld 13 not be a bindingag ree ment betwee n parties but mer ely advisory g uidelines for the District 14 Court’s discretion to cr eate a re medy . That ca nnot be. A g ener al re fer ence to the District Court’s 15 re me dia l a

uth or ity c ann ot b e re a d to nu lli fy

on e of the pr ima

ry g oa ls o f t he Stay Stip ulatio n —

to 16 close the sa le. See Pane cca sio v. Unisource Worldwide, Inc., 532 F .3d 101, 111 (2d Cir. 2008) 17 (statingthat “spec ific languag e in a c ontrac t will prevail over g ener al languag e whe re the re is an 18 inconsistency

betwee n two provisions” (citingAB N Amro Ve rzekering en B V v. Geolog istics 19 Ams., Inc., 485 F .3d 85, 102 (2d Cir. 2007)))

. 20 Th e re fo re , w e c on c lud e that th e Di str ic t Co ur t e rr e d whe n it

re a d th e Stay

Stip ulatio n to 21 have sta

y e d th e lie n r e le a se and

c la im- satis fa c tio n p ro vis ion s o f t he Sa le Or de r. Ac c or din g ly , in 22 the a

bs e nc e of a sta y (o r a c ha lle ng e to t

he g oo d- fa itha sp e c t of

the sa le ), se c tio n 3 63 (m ) 23 pr e c lud e s o ur

re vie w o f t

he Sa le Or de r. B e c a

us e we c on c lud e tha

t th e a pp e a l of the Sa le Or de r i s 24 moot pursuant to 11 U.S.C. § 363(m), we nee d not consider Ar etex’s alternative argument on the 25 applicability

of equitable mootness. L ikewise, we need not c onsider Ar etex’s argument that 26 restitution is warra nted if this Court were to affir m the District Court’s decision vac atingthe lien31 1 rele ase a

nd claim-satisfa ction provisions of the Sale Or der. We re ject, as w ithout merit, the 2 re ma ini ngargume nts ma de by the Contr ari ans and

B e a l B ank

in t his a pp e a l a s th e y

re late to 3 statutory

mootness. 4 C. I ssues Relatingto the Sale Orde r on Cross-Appe al 5 Th e Contr ari ans arg ue on c ro ss- a pp e a l th at th e Di str ic t Co ur t e rr e d in tw o r e sp e c ts. F ir st, 6 they

argue that the District Court incor rec tly conclude d as moot under se ction 363(m) the issue 7 of wh e the r t he F ir st Se c ur iti e s sh ou ld h ave be e n d istri bute d to the c oll ate ra l tr us te e of the F ir st 8 L ien L ender s instead of having the First Secur ities directly distributed to the First L ien L ender s. 9 Th e Contr ari ans make thi s a lte rn ativ e argume nt i n th e e ve nt t his Court ru le s th at th e lie n r e le a se 10 and cla im-satisfaction provisions of the Sale O rder wer e mooted under

section 363(m). Sec ond, 11 the Contr ari ans argue that A re te x, a s a me mbe r o f t

he F ir st L ie n L e nd e rs g ro up , w a ive d it s r ig hts 12 to share in the f

ruits of the Contraria

ns and B eal B ank’s suc cessf ul appea l at the district court 13 level af

fec ting the status of the Secur ities. Both of these arguments are without merit. 14 The Contrar ians’ first a rgument must be rejec ted bec ause a distribution t o the collater al 15 tr us te e , i. e ., B e a l B ank , in ste a d o f a pr o r ata dis tr ibutio n to the F ir st L ie n L e nd e rs , d ir e c tly a ff e c ts 16 Are tex’s obtaining control of WestPoint I nternational. Arete x ’s bid for c ontrol is dependent 17 up on

its re c e ivi nga

pr o r ata sh are of the dis tr ibute d Se c ur iti e s. Se e su pr a Part I I (B )( 1) . It is its 18 status a s a

su bs tanti a l but mi no ri ty

me mbe r o f t

he F ir st L ie n L e nd e rs g ro up , c omb ine d w ithits 19 other distributions and purcha se of stock, that allows Arete x to become the controlling 20 share holder of WestPoint I nternational. I d. Thus, the pro rata distribution of the First Secur ities 21 is a s mu c h e sse nti a l to the sa le a s th e lie n r e le a se and c la im- satis fa c tio n p ro vis ion s o f t he Sa le 22 Orde r. Ac cording ly , beca use the Contrar ians’ cha lleng e dire ctly aff ects Ar etex’s control of the 23 De bto r’ s b us ine ss t hr ou g h We stPo int

Inte rn atio na l — a

n inte g ra l e le me nt o f t

he sa le — it

is 24 moot pursuant to section 363(m). I d. 25 Th e Contr ari ans ’ s e c on d a rgume nt r e qu ir e s n o c on sid e ratio n in light o f o ur

ho ldi ngto 26 reve rse the D istrict Court’s decision perta ining to the lien r elea se and c laim-satisfac tion32 1 provisions of the Sale Or der. 2 D. Remedy 3 Although se ction 363(m) moots any challeng e to the Sale Or der a s it relates to the c losing 4 of the sale , the Stay Stipul ation expli citly

stay ed the a llocation of the Sec ond Securities. As we 5 will elaborate upon below, we conclude that the orig inal distribution of the Second Securities 6 under the Sale Orde r violated the Interc reditor Agree ment beca use the F irst L ien L ender s had the 7 ri g ht t o b e pa id i n c a sh . B e c a us e the F ir st L ie n L e nd e rs wi thd re w the ir a pp e a l w ithre sp e c t to 8 their rig ht to be paid in cash, how ever , we f ind that they

cannot none theless maintain that they 9 s h o u ld

r e c e iv e a ll o f

th e Se c o n d

Se c ur it ie s to th e to ta l e xc lu s io no f th e Se c o n d

L ie nL e n d e r s . We 10 there fore look to both the Sale Order and the Stay

Stipul ation, as we ll as to the intent of the 11 parties in re achingthese a g ree ments and to equity , in fashioningan appr opriate a llocation. To 12 this end, three inter ests g uide our c onsideration: (1) Arete x ’s purc hase of control of WestPoint 13 International; (2) the non-Arete x members of the Second L ien L ender s g roup whose r ights we re 14 deeme d expendable and w ere forc ed to ac cept the Stay Stipul ation over the ir objection; and (3) 15 the entry

of a Sale Orde r whose te rms violated the F irst L ien L ender s’ rig hts to cash satisfac tion 16 pursuant to the cr edit ag ree ments. We articulate the nature of ea ch intere st below and c onclude 17 that all three interests should be af forde d a re medy

to the extent practica

ble. 18 As Are tex emphasiz ed duringargument and in their brie fs, any allocation of the Second 19 Securities does not a ffe ct Are tex’s obtaining control of WestPoint I nternational. I f all of the 20 Second Secur ities had bee n allocate d to the First L ien L ender s, Arete x would have obta ined a 21 total share of

50.5% of WestPoint I nternational; if all of the Second Sec urities had bee n allocate d 22 to the Second L ien L ender s, Arete x would have obta ined a total shar e of 55.5% of WestPoint 23 International. Any allocation of the Second Secur ities which split the dist ribution betwee n the 24 First and Sec ond L ien L ender s would have r esulted in Are tex obt ainingsomewher e betwe en 25 50 .5 % a

nd 55 .5 % o f We stPo int

Inte rn atio na l’ s sh are s. Thus , A re te x expe c te d to re c e ive at le a st 26 50.5% and at most 55.5% of WestP oint I nternational’s share s as a r esult of the entire transac tion33 1 in light of the Stay Stipul ation. At argument, Are tex di d not find it strang e that any Second 2 Securities the F irst L ien L ender s may rec eive would be in addition to the First Securities alr eady 3 distributed to the First L ien L ender s in satisfaction of a ll of their claims. 4 Although Arete x may have little intere st in whether it ends up with 50.5% or 55.5% of 5 WestP oint I nternational’s share s beca use it would be guara

nteed c ontrol of WestPoi nt 6 International reg ardle ss of the allocation, the minority members of

the Second L ien L ender s were 7 ri g htl y

c on c e rn e d a

bo ut r e c e ivi ng

no thi ngin t

he e ve nt t he Se c on d Se c ur iti e s w e re e nti re ly 8 allocate d to the First L ien L ender s. The Stay Stipul ation, which plac ed the a llocation of the 9 Second Secur ities in uncertainty , was e ntere d over the objection of the minority members of

the 10 Second L ien L ender s g roup. B eca use the Stay

Stipul ation clea

rly contemplates that a subsequent 11 court orde r may

allocate none, some, or a ll of the Second Sec urities to the First L ien L ender s 12 “under

the Interc reditor Agree ment or otherw ise,” we conclude , in acc ordanc e with the Stay 13 Stipul ation’s boundar ies, that the minority members of

the Second L ien L ender s g roup should be 14 distributed the Second Secur ities promised them under the Sale Orde r, i.e., a pro rata distribution 15 of appr ox imately 49% of the Sec ond Securities. Thus, settingaside the Sec ond Securities that 16 mus t be dis tr ibute d to Ar e te x to gua ra nte e the m 50 .5 % o f We stPo int Inte rn atio na l’ s inte re sts 17 (appr ox imately

40% of the Sec ond Securities), a pproxi mately

11% of the Sec ond Securities 18 rema in for allocation to either the F irst or Second L ien L ender s. 19 In addition to the interests of the minority members of

the Second L ien L ender s g roup 20 and

Ar e te x, the re are he re a lso the int e re sts of the F ir st L ie n L e nd e rs wh os e ri g hts to c a sh 21 satisfac tion were passed ove r in violation of the cr edit ag ree ments. Although the First L ien 22 L ender s were not powerle ss as wer e the minority members of

the Second L ien L ender s g roup 23 and, indee d, had contr ibuted to their own per ceive d misfortune by ag ree ing to the Stay 24 Stipul ation, we c onclude that the r emaining11% of the Sec ond Securities should be distributed 25 pro rata to the non-Ar etex members of the F irst L ien L ender s g roup. It is appropriate that the 26 First L ien L ender s rec eive some r emedy for the e rrone ous ruling r elatingto the First L ienThe B ankruptc y Court also ref

err ed to sec tion 105(a) a s one of the statutory g rounds 12 for pe rmitting the distribution of the Second Sec urities to the Second L ien L ender s. Section 105(a) provides that the c ourt may “issue any

order . . . that is nece ssary

or appr opriate to c arr

y out the provisions of [t he B ankruptc y Code].” 11 U.S.C. § 105(a). We ag ree with the District Court in rejec ting se ction 105(a) as a ba sis for justifying distributions to the Second L ien L ender s. As discussed below, the distributions wer e not prope rly justified as ade quate pr otection under se ction 361; nor wer e the distributions “permitted mandatory prepa y ments” as de fined under the Interc reditor Agree ment. Thus, it is neither “nec essar y ” nor “ appropr iate” to make distributions that are contra ry to the Ba nkruptcy Code and the Interc reditor Agree ment. 34 1 L ender s’ priority

rig hts to cash pay

ments. 2 The B ankruptc y Court relied on two e x ceptions in the Interc reditor Agree ment to the 3 require ment that the Fir st L ien L ender s must be paid in full and in cash be fore pay ments are to be 4 made to the Sec ond L ien L ender s, namely , (1) a dequate protec tion pay ments and (2) permitted 5 mandatory

prepa y ments. Neither of

these e x ceptions apply

to permit the distribution of the 6 Se c on d Se c ur iti e s to the Se c on d L ie n L e nd e rs . 12 7 B e fo re re a c hin gthe me ri ts o f t he se g ro un ds fo r d ist

ri butio n to the Se c on d L ie n L e nd e rs , 8 howeve r, we addre ss Arete x and Wilmi ng ton Trust’s equitable- estoppel ar g ument. They asser t 9 that du

ri ngthe bid din gpe ri od

the Contr ari ans atte mpt e d to satis fy the F ir st L ie n L e nd e rs wi th 10 equity

rathe r than c ash and, the ref ore, a rgue that the Contrar ians should be estopped f rom 11 challeng ing a

ny subsequent tra

nsaction that satisfies the F irst L ien L ender s in equity rathe r than 12 cash. This a

rgument must be rejec ted. Althoug h estoppel is an equitable doctrine that “ca nnot 13 be re duced to a

prec ise formula or

test,” its application at lea st require s the party ag ainst whom 14 estoppel is beingasser ted to have taken cle arly

contra ry or inconsistent positions. S ee Z edner v. 15 United States, 547 U.S. 489, 504 (2006) (stating that e stoppel only applies if “a

party ’s later 16 position [ is] clea

rly inconsistent with its ear lier position” (citation and inter nal quotation marks 17 omitted)); see a lso Shepardson by Shepardson v. Town of Schodac k, 195 A.D.2d 630, 632 (N .Y. 1 8 Ap p . Di v . 1 9 9 3 ) ( s t at i n g th ates t o p p el ap p l i es “t o p re v en ta p arty fr o mi n equ i t ab l y

ad o p t i n g a 19 po sit ion

dir e c tly c on tr ary to o r i nc on sis te nt w ithan e arl ie r a ssume d p os iti on in t he same 20 proce edingor a pr ior proce eding ”). 2 1 He re , th e C o n tra ri an s h av e c o n s i s t en t l y ar gu edth ro u gh o u tth e b an krup t cy p ro ce ed i n gs35 1 that (1) their

unique status as a ma

jority holder of the First L iens entitled them to cre dit bid — 2 throug h Be al B ank — on beha lf of the F irst L ien L ender s pursuant to 11 U.S.C. § 363(k); (2) 3 beca

use neither

the Second L ien L ender s nor any other third par

ty can be a majority

holder of the 4 First L iens, those par ties cannot wa ive the F irst L ien L ender s’ rig ht to cash satisfac tion; and (3) 5 erg o, any

competingbids must first satis fy the Fir st L ien L ender s in cash. The Contrarians r epeat 6 the same a

rguments in this appeal, emphasizing that Arete x is in a signific antly differ ent position 7 than the Contrar ians vis-à-vis the F irst L ien L ender s. Indeed, the Contrarians a ssert — and w e 8 ag ree , as discussed be low — that Are tex’s bid s tructure requiringan in-kind distribution of 9 secur ities in satisfaction of the F irst L iens was not author ized under the Interc reditor Agree ment. 10 In short, althoug h both Arete x ’s and the Contra rians’ bids involve an in- kind distributi on of 11 secur ities in satisfaction of the F irst L iens, we do not a g ree that the Contraria ns, who have argued 12 that th e ir

in- kin d d istri butio n s c he me re su lte d a ft e r a lawf ul c re dit bid purs ua nt t o 1 1 U .S. C. 13 § 363(k), should be e stopped from c halleng ing Arete x ’s unauthorized bid structure

. 14 Ins of

ar a s th e Contr ari ans mod if ie d th e ir bid tow ard s th e e nd

of the a uc tio n to imi tate 15 Are tex’s bid s tructure , they did so only

afte r qualify

ing the ir new bid with the c aveat that “we 16 rese rve our

rig hts to claim in court that the cr edit bid that we made previously was hig her a

nd 17 better.” Thus , th e Contr ari ans g ave c le ar n oti c e to Are te x that th e y we re no t a

ba nd on ingthe ir 18 cre dit bid. S ee B ates v. L ongI sland R.R. Co., 997 F.2d 1028, 1037 (2d Cir. 1993) (e x plaining 19 that estoppel is “desig ned to ensure fairne ss in the relationship betwee n parties” (interna l 20 quotation marks omitted)). More over, that the Ba nkruptcy Court had re fused to rule on the 21 superiority

of the Contrar ians’ cr edit bid before the auc tion — despite the Contrarians’ ear lier 22 pleas that the c ourt do so — also place s the Contrarians’ modification of their bid struc ture 23 tow ard

the e nd of the a uc tio n in a re a so na ble pe rs pe c tiv e . E sto pp e l se e ms e sp e c ia lly 24 inappropriate her e bec ause the Contrarians’ new bid wa s never adopted a s the winning bid at any 25 time, and the Contrar ians rea ped no bene fits from their a lleg ed aba ndonment of the orig inal 26 cre dit bid. C f. Pera lta v. Vasque z, 467 F.3d 98, 105 (2d Cir. 2006) (statingthat, under judicia lWe r e je c t th e argume nt t

hat th e F ir st Se c ur iti e s c ou ld b e dis tr ibute d a s a de qu ate 13 protec tion because they

constituted the “indubitable e quivalent” of the debts. We ag ree with the Di str ic t Co ur

t th at a de qu ate pr ote c tio n “ de a ls w iththe pr e se rv atio n o f t he va lue of

a se c ur ity 36 1 estoppel, “the party ag ainst whom it is asserted must have a dvance d an inconsistent position in a 2 pr ior

pr oc e e din g , a

nd [] the inc on sis te nt p os iti on mus t ha ve be e n a do pte d b y

the c ourt in s ome 3 matte r” ). We t

hu s r e je c t A re te x an d Wil min g ton Tr us t’ s e qu ita

ble -e sto pp e l argume nt. 4 Turningto the first exception in the Interc reditor Agree ment, we a g ree with the District 5 Court that “ade quate pr otection” did not per mit the dist ribution of the Second Sec urities to the 6 Second L ien L ender s. Adequate protec tion is gene rally define d as a me thod by

which a se cure d 7 c re dit or

may a pp ly to t he B ank ru ptc y Cou rt to p ro te c t “ its int e re sts a g a ins t th e dim inutio n in 8 va lue of

[its] s e c ur ity

duri nga ba nk ru ptc y pr oc e e din g .” B lue bir d Pa rt ne rs , L .P. v. F ir st F ide lity 9 Ba nk N.A., 85 F .3d 970, 972 (2d Cir. 1996). Such ade quate pr otection may manifest in the for

m 10 of “c ash pay

ments, a lien, or suc h other re lief as will re sult in t he re alization by such entity

of the 11 indubitable equivalent of such entity ’s intere st in such property .” In re D airy Mart Convenienc e 12 Stores, Inc., 351 F .3d 86, 90 (2d Cir. 2003) (inter nal quotation marks and e llipsi s omitt ed). 13 Thus, as wa s the ca se her e, per mitti ngthe sale of

the Debtor ’s assets fr ee a nd clea r of 14 e nc umb ra

nc e s b ut atta c hin gre pla c e me nt l ie ns on the pr oc e e ds of

su c h s a le to t

he same e xtent, 15 va lid ity , a

nd pr ior ity a s th e or ig ina l li e ns wa s “ sq ua re ly wi thi n th e le tte r a

nd purp os e of

[ad e qu ate 16 protec tion.] ” See I n re WestPoint S tevens, Inc., 333 B .R. at 48. 17 As re c og nize d b y the Di str ic t Co ur

t, h ow e ve r, the dis tr ibutio n o f t he Se c ur iti e s in 18 satisfac tion of the First L ien L ender s’ claims we re c lassified as a dequate protec tion by the 19 Ba

nkruptcy Court without any

showing that additional adequa te protec tion was nee ded. I d. at 49. 20 Mo re ov e r, the a c c or da nc e of “ a de qu ate pr ote c tio n” in t his c a se re su lte d in

the F ir st L ie n L e nd e rs ’ 21 satis fa c tio n o f t

he ir c la ims in n on -c a shpr oc e e ds in v iol atio n o f t he ir c on tr a c tua l r ig hts to c a sh 22 satisfac tion. Thus, given the signific ance of the re sulting injury and the less- than-c lear

basis for 23 the B ankruptc y

Court’s distribution of the Securities as a grant of a dequate protec tion, we 24 conclude that those distributions were not prope rly justified as “a dequate protec tion.” See In re 13interest and doe s not empower the bankruptc y court to re solve a c reditor’ s claim.” In re WestP oint St evens, Inc., 333 B .R. at 49 n.22. Wi thout a showing that there is some need f or adequate protec tion, the Ba nkruptcy Court cannot use a dequate protec tion as a def ault provision fo r d istri butin gc oll ate ra l to the se c ur e d c re dit or . Se e 11 U. S.C. § 3 61 (“ Whe n a de qu ate protec tion is required unde r sec tion 362, 363, or 364 . . . such ade quate pr otection may be provided by [, i nter a lia,] . . . gra nting suc h other re lief . . . as will re sult in t he re alization by [t he secur ed cr editor] of the indubitable equivale nt of such [secure d cre ditor’s] int ere st in [ the] p r o p e rty . ” ( e mp h a s i s a d d e d ) ) ; c f

. Inr e B u s h e e , 3 1 9 B

. R

. 5 4 2 , 5 5 1 ( B an kr . E

. D

. T e n n . 2 0 0 4 ) ( “ In order to obtain relief . . . f

or lac k of ade quate pr otection [under 11 U.S.C. § 362(d)(1) ], [ the c re dit or ] mus t e sta

bli sh [, inte r a lia ,] . . . th at c a us e e xists jus tif

yingre lie f, su c h a s th e De bto rs ’ failure to make pay

ments or that the collate ral is dec rea sing in va lue.” ( citation omitted)). 37 1 Swe de land

De v. Gr ou

p, Inc ., 16 F .3 d 5 52 , 5 64 (3 d Ci r. 19 94 ) ( “ [T]he wh ole purp os e of a de qu ate 2 protec tion for a c reditor is to insure that the c reditor r ece ives the value for whic h he bar g ained 3 preba

nkruptcy .” (c itation and internal quotation marks omitted)) ; id. (“[A] proposal depe nding 4 upon a pre -petition lender ha ving a dequate protec tion . . . should as nearly as possible under the 5 circ umstances of

the ca se provide the cre ditor with the value of his ba rg ained f or rig hts.” 6 (citation and inter

nal quotation marks omitted)). 7 Withre sp e c t to the se c on d e xce pti on in t he Inte rc re dit or

Agre e me nt, we a lso a g re e wi th 8 the District Court that the “pe rmitted mandatory prepa y ments” did not authorize the distribution 9 of the Sec ond Securities to the Second L ien L ender s. The Interc reditor Agree ment define s 10 “ pe rm itt e d ma

nd ator y pr e pa y me nts ” a s “ any

pa y me nt u po n th e Se c on d L ie n Ind e bte dn e ss 11 occur

ringas a r esult of [the Debtor’s] sale . . . of the Collateral . . . to the extent that . . . any net 12 proce eds of suc h sale . . . re main afte r application to the First L ien Indebtedne ss to the ext ent 13 require d by

the Senior Credit Ag ree ment.” Section 3.15(a ), (b) of the Senior Cre dit Agr eeme nt 1 4 p r o v i d e s f

o r th e m an d at o r

y a p p l i c at i o nt o th e F i r s tL i e nd e b t s o f p aym e n t s m a d e i n“ c ur

r e n c y” 15 and in “immediately available funds,” but does not re quire the a pplication of non-c ash proc eeds 16 to the First L ien L ender s’ claims. Thus, bec ause the application of the Securities to the F irst L ien 17 L ender s’ claims is not “re quired” by the Senior Credit Ag ree ment, there rema in no “net 18 proce eds” that the Second L ien L ender s may claim as pe rmitted mandatory prepa y ments. 19 To be sure , in addition to section 3.15(a), ( b) of the Senior Credit Agree ment requiring 20 the pay

ment of cla ims in cash, section 3.15(c ) of the Senior Credit Ag ree ment sets forth pay ment38 1 priorities in the eve nt of defa ult — including the “ pay

ment of the surplus, if a

ny , to whoever

may 2 be lawf

ully entitled to rec eive suc h surplus” — of “ all amounts . . . [n] otwithstanding a ny other 3 provisions of [t he Senior Cre dit Agr eeme nt] .” (e mphasis added) . Wil mington Trust re lies on 4 thi s p ro vis ion

to a rgue that th e “ a ll amou

nts ” langua g e su g g e sts tha t th e “ re qu ir e d” pa

y me nts 5 need not be restric ted to cash in c ases whe re, a s here , the Debtor ’s assets a re sold in bankr

uptcy 6 proce eding s. We rejec t Wi lmington Trust’s a rgument and agree with the District Court that 7 section 3.15(c ) “simply chang es the orde r in which the r equire d cash pa y ments are to be applied 8 in t

he e ve nt o f a

de fa ult ” “ rathe r t

ha n p e rm itt ing[the De bto r] t o f or c e the c re dit or

to t ake ill iqu id 9 proper

ty in satisfaction of its loan pay ment obligations.” See In re WestPoint S tevens, Inc., 333 10 B .R. at 46 . A s th e Di str ic t Co ur t a ptl y ob se rv e d: 11 I t tax es the imag ination to suppose that a sophisticated g roup of c reditors, such a s 12 the orig inal bank par ties to the Credit Ag ree ment, would enter into an ag ree ment 13 g iving them the c lear contra ctual rig ht to cash pay ments when the bor

rowe rs ar e 14 complying w ith their obligations under the agree ment, but givingthe borrow ers 15 the unilatera l rig ht to substi tute proper ty in satisfaction of their

pay ment 16 ob lig atio ns wh e n th e bo rr ow e rs are in b re a c h o f t he a g re e me nt. 17 I d. 18 Mo re ov e r, no t on ly is Wi lmi ng ton

Tr us t’ s r e a din gof

se c tio n 3 .1 5( c ) i mpl a

us ibl e , b ut i t is 19 a lso inc on sis te nt w iththe sp e c if ic pr ov isi on s w ith in s e c tio n 3 .1 5( c ), wh ic h p ro vid e fo r “ a ll 20 amounts” to be a pplied to, inter alia, “ fee s” — includingattorney s’ fe es — and othe r 21 administrative “c osts and expenses.” The se re fer ence s to various “fe es” a nd administrative 22 “costs and e x penses” mean c ash pay ments, as there is nothing in section 3.15(c ) that would alter 23 the plain under standing of these te rms. See B ank of B oston Conn. v. P latz, 596 A.2d 31, 32 24 (Conn. Ct. S uper. 1991) (obser ving that pay

ment of debt “ must be in money , unless the par ties 25 ag ree otherwise, or the oblige e conse nts to acce pt some other medium of pa y ment” (c iting 60 26 Am. J ur. 2d Pay

ment § 32)); 28 Willi ston on Contracts § 72:31 (4th ed. 2007) ( “[A]bs ent the 27 ag ree ment of the pa rties in advanc e, . . . both the tende r of pa y ment and the a ctual pay

ment of a 28 debt owed must be in law ful money .”); 60 Am. Jur. 2d, Pay ment § 21 (providingthat “[t] he 2 9 g e n e r a l r

u le is th at b o th

th e p ay me n t o f an d te n d e r o f p ay me n t o f a d e b t m u s t b e in mo n e y []All refe renc es ar e to the for mer Ne w York Code of

Professional Responsibility , which 14 was in ef fec t prior to the April 1, 2009 ena ctment of the N ew Yor k Rules of Professional Con du c t. Be cause we c onclude that the distributions to the Second L ien L ender s were not

15 a uth or ize d b y

the Inte rc re dit or

Agre e me nt, we ne e d n ot d e c ide wh e the r t he lie n r e le a se , c la im satisfac tion, and distribution provisi ons could be pe rmitted under a section 363(b) sale. 39 1 unless the par

ties ag ree otherwise” ); cf. I n re Shea , 308 A.D.2d 29, 30 (N .Y. App. Div. 2003) 2 (obser

ving the ethical r

ule prohibiting a

lawy er f rom rec eivingproper

ty or sec urity

interests that 3 are adver se to a c lient (citing Connecticut Rules of Profe ssional Conduct § 1.8)); see a lso New 4 York Code of

Professional Responsibility , DR 5-103, N.Y. Comp. Codes R. & Reg s. tit. 22, 5 § 1200.22 (prohibiting la wy ers f rom ac quiring a propr ietary interest in the subjec t of the 6 litigation); DR 5-104, N.Y . Comp. Codes R. & Reg s. tit. 22, § 1200.23 (prohibiti nga lawyer 7 from ente ringinto a “business transa ction with a client if they have dif fer ing inter ests there in”). 14 8 Thus , r e a din gse c tio n 3 .1 5 in its e nti re ty , w e c on c lud e tha t se c tio n 3 .1 5( c ) d oe s n ot s e rv e to 9 overr ide the re quirement that the F irst L ien L ender s be satisfied in ca sh. Acc ording ly , the 10 Second Secur ities could not have be en distributed to the Second L ien L ender s as “pe rmitted 11 mandatory

prepa y ments.” 15 12 * * * * 13 In light of the se consider ations pertainingto Arete x , the minority members of

the Second 14 L ien L ender s g roup, and the First L ien L ender s, we dire ct the District Court to rema nd to the 15 B ank

ru ptc y Court wi th i ns tr

uc tio ns to ( 1) re qu ir e dis tr ibutio n o f t he Sub sc ri pti on

Rig hts dir e c tly 16 to Arete x to the extent necessar y to enable it to sec ure 50.5% of WestPoint International’s 17 common stock (appr ox imately 40% of the Sec ond Securities); (2) require , once the total share of 18 the Second Sec urities to which the minority members of

the Second L ien L ender s are entitled has 19 be e n d e fi nit e ly

a sc e rt a ine d ( a

pp ro ximate ly

49 % o f t he Se c on d Se c ur iti e s) , d istri butio n o f t ho se 20 Second Secur ities directly to the minority

members in propor

tion to their holdings; and (3) 21 re qu ir e the dis tr ibutio n o f t he re ma ini ngri g hts (a

pp ro ximate ly

11 % o f t he Se c on d Se c ur iti e s) to 22 the non-Ar etex members of the F irst L ien L ender s. In all other re spects, it is ordere d that the40 1 Sale Orde r be r einstated c onsistent with thi s opinion. 2 E. Cross-Appea l: Release Or der 3 The Contrar ians and B eal B ank ar g ue that the District Court er red in a ffirmingthe 4 B ank

ru ptc y Court ’s Re le a se Or de r, wh ic h r e le a se d th e a de qu ate pr ote c tio n p ay me nts he ld i n 5 e sc ro w p ur su ant t o th e Es c ro w St ipu latio n to the Se c on d L ie n L e nd e rs . D e te rm ini ngthe va lid ity 6 of this claim require s review of three documents: the Escr ow Stipulation, Adequate Protec tion 7 Orde r, and Interc reditor Agree ment. We reviewthese doc uments de novo. See I n re D uplan 8 Corp., 212 F.3d at 151; see also Spallone, 399 F .3d at 423; supra Par t I I (A). We c onclude that 9 the ade quate pr otection pay ments held in escr ow wer e prope rly rele ased to the Sec ond L ien 10 L ender s. 11 We beg in by observingthat the Second L ien L ender s are entitled to adequate protec tion 12 pay

ments pursuant to the Interc reditor Agree ment, Adequate Protection Orde r, and Esc row 13 Stip ulatio n. In b ank ru ptc y pr oc e e din g s, a

se c ur e d c re dit or

or din ari ly

ha s a statut or y ri g ht t o 14 a de qu ate pr ote c tio n p ay me nts to p ro te c t it s inte re sts a g a ins t th e dim inutio n in va lue of its 15 secur ity . See 11 U.S.C. § 363(e) ; Bluebird Par tners, L .P., 85 F.3d at 972. He re, that statutory 16 rig ht is refe rre d to in the I nterc reditor Agree ment as an e x ception to the prohibition on the 17 Second L ien L ender s from re ceiving any cash pa y ments befor e the F irst L ien L ender s’ claims ar e 18 satis fi e d. In a c c or da nc e wi th t his un de rs tand ing , th e B ank ru ptc y Court e nte re d it s A de qu ate 19 Pr ote c tio n O rd e r i mpl e me nti ngthe ri g hts of the Se c on d L ie n L e nd e rs to r e c e ive a de qu ate 20 pr ote c tio n p ay

me nts a s p ro te c tio n f

ro m th e dim ini sh ingva lue of the c oll ate ra l se c ur ingits 21 claims. The Esc row Stipulation, which was ente red a fter the Interc reditor Agree ment and the 22 Adequate Protection Orde r, spec ifically provides that it does not aff ect the substantive r ights of 23 the par

ties to rece ive ade quate pr otection: “F or avoida nce of doubt, nothing in this [ Escrow 24 Stipul ation] was intended or shall be de emed to af fec t or alter the entitlement of the F irst L ien 25 L ender s or the Second L ien L ender s to adequate protec tion under the Ade quate Protec tion 26 Orde r.” In s um, the Se c on d L ie n L e nd e rs have a statut or y ri g ht t o a de qu ate pr ote c tio n p ay me nts ;41 1 these rights have not bee n restric ted by the Interc reditor Agree ment; the Adequate Protection 2 Orde r implements the Second L ien L ender s’ rig hts to adequate protec tion pay ments; and the 3 EscrowStipul ation confirms that the Sec ond L ien L ender s’ rig hts to adequate protec tion 4 pay

ments have not be en alter ed or othe rwise unde rmined. 5 Notwithstanding the above, B eal B ank ra ises sever al points in support of its argument 6 that the Second L ien L ender s were not entitled to the escrow ed ade quate- protec tion pay ments. 7 First, B eal B ank re fer s to the Adequate Protection Orde r, which inc ludes two rese rvations to the 8 g ra

nt o f a de qu ate pr ote c tio n to the se c ur e d c re dit or s: ( 1) the F ir st L ie n L e nd e rs have a ri g ht t o 9 commence an adve rsar y proce edingto challeng e the r ight of the Second L ien L ender s to rece ive 10 adequate protec tion pay ments to be applied towa

rds intere st rather

than principa l, and (2) e ither 11 the Fir st or Second L ien L ender s may seek a dditional or further adequate protec tion. To date, 12 howeve r, the F irst L ien L ender s have not c ommenced a n adver sary

proce edingand, eve n if they 13 did, their reme dy would not be to terminate the rig ht of the Second L ien L ender s to rece ive 14 a de qu ate pr ote c tio n b ut o nly to a pp ly the Se c on d L ie n L e nd e rs ’ a de qu ate pr ote c tio n p ay me nts 15 toward the Second L ien debt’s pr incipal rather than inter est. Thus, the first re servation is of no 16 importance in discerningthe basis upon which the F irst L ien L ender s may terminate the rig hts of 17 the Second L ien L ender s to rece ive ade quate pr otection. With respect to the sec ond rese rvation, 18 the F ir st L ie n L e nd e rs have no t pr e se nte d to the B ank ru ptc y Court “ a dim inutio n in

va lue [that] 19 had occ urre d in the First L ien L ender s’ collater al that would have entitled the Fir st L ien L ender s 20 to any

form of ‘ additional or fur ther a dequate protec tion.’” More over, a ssuming ar g uendo that 21 the F ir st L ie n L e nd e rs we re e nti tle d to a dd iti on a l a de qu ate pr ote c tio n, it d oe s n ot n e c e ssa ri ly 22 follow that the for m of such ade quate pr otection would have consisted of de priving the Second 23 L ien L ender s of their right to adequate protec tion gr anted unde r the Ade quate Protec tion Order. 24 Se e 3 Co lli e r o n B ank ru ptc y § 3 61 .0 2 ( 15 th e d. re v. 19 99 ) ( “ [W]he n p ro pe rt y on wh ic h th e e nti ty 25 ha s a

lie n is to b e us e d a s c oll ate ra l f or a loa n, the e nti ty

is e nti tle d to a de qu ate pr ote c tio n a s a 26 matte r o f r ig ht, no t me re ly a s a matte r o f d isc re tio n. ” (c iti ngH. R. R e p. No . 5 95 , 9 5th Con g ., 1s t42 1 Sess. 340, 343–44 (1977)))

. 2 Second, B eal B ank ar g ues that sec tions 2.4(g) and 2.13 of the Interc reditor Agree ment 3 pr ov ide a

ri g ht t o th e Se c on d L ie n L e nd e rs to “ re ta in a nd a pp ly” c a shpa

y me nts fo r a de qu ate 4 pr ote c tio n b ut n ot a ri g ht t o “ re c e ive ” a de qu ate pr ote c tio n p ay me nts

. Thus, acc ordingto Be al 5 B ank , whe re , a s h e re , th e pa y me nts are he ld i n e sc ro w a nd no t y e t “ ma de ,” the re are no a de qu ate 6 pr ote c tio n p ay

me nts to whic h th e Se c on d L ie n L e nd e rs have a ri g ht t o “ re ta in a

nd a pp ly .” Th is 7 argument, howeve r, must be re jected. A dequate protec tion is a statutory rig ht that is taken “ve ry 8 se ri ou sly ,” and

a se c ur e d c re dit or

wi ll n ot b e fo un d to have wa ive d it s r ig ht t o a de qu ate 9 protec tion unless there is more tha n an ambiguous waiver

of that rig ht. See, e.g ., In re 10 B la c kw oo d A sso c s. , L .P. , 1 53 F .3 d at 68 –6 9 ( fi nd ingtha t th e se c ur e d c re dit or

did no t w a ive its 11 rig hts to adequate protec tion where the stipulation was “not so clea r as to constitute a w aiver of 12 this right”) . Her e, the I nterc reditor Agree ment makes no spec ific re fer ence that the “r etain and 13 a pp ly” pr ov isi on

is a lim it o n th e Se c on d L ie n L e nd e rs ’ s tatut or y ri g ht t o r e c e ive a de qu ate 14 protec tion pay

ments. To the contra

ry , section 2.4(g ) of the I

nterc reditor Agree ment provides that 15 the Se c on d L ie n L e nd e rs may a sse rt the ir ri g hts “ to a de qu ate pr ote c tio n . . . in a c c or da nc e wi th 16 Sections 361 throug h 364 of the B ankruptc y Code.” Our c onclusion is further suppor ted by 17 section 2.13 of the I nterc reditor Agree ment, which prohibits the Second L ien L ender s from 18 “re ceiv[ing]” any pay ments until t he F irst L ien L ender s are satisfied in full and in ca sh. 19 (empha sis added). B eca use the a dequate protec tion pay ments are an exception to the g ener al 20 prohibition of cash pa y ments to the Second L ien L ender s, it follows that the Second L ien 21 L ender s would be per mitted to “rec eive” adequate protec tion pay ments should the exception 22 apply

. 23 Third, B eal B ank re lies on its erroneous r eadingof the Interc reditor Agree ment to argue 24 that the Escr ow Stipulation pl ace d the ade quate pr otection pay ments in escrowand thus wer e not 25 “ ma de ” to t

he Se c on d L ie n L e nd e rs . B e c a us e the pa y me nts we re no t “ ma de ,” B e a l B ank argue s, 26 the Se c on d L ie n L e nd e rs have no ri g ht t o “ re ta in a nd a pp ly” su c h p ay

me nts . A lth ou g h th is43 1 argument is irreleva nt in light of the a

bove, we take note that the Escrow Stipul ation 2 demonstrates that the parties we re c apable of usinglanguag e to re lease the esc rowe d funds to the 3 Second L ien L ender s only afte r the F irst L ien L ender s’ claims had be en satisfied. Par ag raph 4 5(a) (iii), (iv) of the EscrowStipul ation expressly provides that the pr iority claims of the pr iming 5 liens be satisfied be fore the esc rowe d funds ar e re lease d to the Second L ien L ender s The 6 absenc e of a

simil ar pr ovision preservingthe priority rig hts of the Fir st L ien L ender s with respec t 7 to the escr owed f

unds strong ly

sug g ests that the esc rowe d funds wer e in fa ct ade quate pr otection 8 pa y me nts c on te mpl ate d b y

the Inte rc re dit or

Agre e me nt a s a

n e xce pti on

to t he F ir st L ie n L e nd e rs ’ 9 priority

rig hts to cash satisfac tion. 10 Fur

thermore , the Escr ow Stipulation’s int ent was to “ maintain the status quo as of the 11 date of

execution of this [ EscrowStipul ation].” As of the date of the e x ecution of the Escrow 12 Stip ulatio n, the Se c on d L ie n L e nd e rs we re re c e ivi ngthe ir statut or ily

a uth or ize d a de qu ate 13 protec tion pay

ments. To be sure , para g raph 3 of the Escr ow Stipulation does provide that the 14 adequate protec tion pay ments deposited in escr ow “sha ll not constit ute ‘c ash pay ments made by 15 [t he De btor] as adequate protec tion’ to the Second L ien L ender s, such that the . . . Second L ien 16 L ender s would be ‘e ntitled to retain and a pply ’ such pa

y ments to indebtedness under the Second 17 L ie n Cr e dit

F a c ili ty

. . . . ” Th at pr ov isi on , h ow e ve r, is i mme diate ly qu a lif ie d, “ un le ss a

nd un til 18 the Re le a se Or de r . . . a uth or ize s th e re le a se of

fu nd s h e ld [i n e sc ro w]. ” (e mph a sis a dd e d) . T hu s, 19 the Escr ow Stipulation does not t erminate the Second L ien L ender s’ rig hts to adequate protec tion 20 but, as the B ankruptc y Court summarized, “simply defe rre d and conditioned the de livery of the 21 Second L ien Intere st Pay ments on the entry

of a f urther Court or der . . . .” 22 Finally , the par ties make a

n issue of whe ther a

lien had attac hed to the esc rowe d funds or 23 not. Given the ter ms of the Relea se Orde r, howe ver, w e see no signific ance in these ar g uments. 24 In our view, the lien was usef ul insofar a s it provided a leg al hook by which the e scrowe d funds 25 might have been distributed to the F irst L ien L ender s in the event that it was late r dete rmined that 26 there was a

proper basis for makingsuch a distribution. Be cause the subsequent c ourt order here44 1 rele ased the funds to the Second L ien L ender s, howeve r, any lien that may

have attached to the 2 funds while they

wer e in esc row would be inapplicable when those funds w ere rele ased to the 3 Second L ien L ender s as ade quate pr otection pay ments. This readingof the B ankruptc y Court’s 4 order s is consistent with the Escrow Stipulation’s “unless and until” provision noted above and, 5 as we ll, the Escrow Stipulation’s purpose of ma intaining the status quo with respec t to the 6 Second L ien L ender s’ rig hts to adequate protec tion. I f the liens continued to attach eve n afte r a 7 de te rm inatio n th at th e Se c on d L ie n L e nd e rs we re e nti tle d to the a de qu ate pr ote c tio n p ay me nts 8 he ld i n e sc ro w, the n th e Se c on d L ie n L e nd e rs ’ r ig hts to a de qu ate pr ote c tio n p ay me nts wo uld 9 have f

undamentally

chang ed. 10 There fore , upon revie w of the Interc reditor Agree ment, Adequate Protection Orde r, and 11 the Escr ow Stipulation, we find no err or in the District Court’s af firmanc e of the Ba

nkruptcy 12 Court’s Release Orde r. We find B eal B ank’s r emainingarguments to be without merit. 13 III . CO NC LU SION 14 For

the fore g oing r easons, the or ders of the District Court are REVERSED, in part, and 15 AFF I RMED, in part. We direc t the District Court to REMAND this case to the B ankruptc y 16 Court for fur

ther proc eeding s consistent with this opi nion.