F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

I N T H E M A T T E R O F S P A N I S H P E A K S H O L D I N G S I I
, L L C, Debtor.

P I N N A C L E R E S T A

U R A N T A T B I G S K

Y , L L C; M O N T A

N A O P T I C O M , L L C, Plaintiffs-Appellants
,

v

.

CH SP A C Q U I S I T I O N S , L L C; R O S S P. R I C H A R D S O N , Ch. 7 Trustee, Defendants-Appellees. N o. 15-35572

D.C. No. 2:14-cv-00040- SEH

AMENDED OPI NI ON

A ppeal from the United States District Court for the District of Montana Sam E. Haddon, Senior District J udg e, Presiding

Arg ued and Submitted April 6, 2017 Seattle, W a shing ton

F iled J uly 13, 2017 Amended September 12, 2017I

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B efore: Alex Koz inski and W illiam A. F letcher, Circuit J u dg es, and F rederic B lock, District J udg e. *

O pinion by J udg e B lock

SUMMARY * *

Bankruptcy

The p anel a ffirmed the district court’s judg ment affirming the bankruptcy c o u r t ’ s decision that a bankruptcy trustee’s sale of a deb t o r ’ s property was free a nd clear of unex pired leases.

Ag reeing with the Seventh Circuit, the panel h eld that 11 U.S. C

. § 363(f), authoriz ing a trustee to sell a debtor’s
assets f ree and clear of third-party interests, applied, and did

n o t co nflict with § 365(h), w hich protects the rig hts o f lessees, because the trustee did not “reject” the leases.

* T h e Ho n o rab le Fred eric B lo ck
, Sen io r Un ited States District J u dg e f o r th e Eastern District o f

New Yo rk , sittin g b y

d esig n atio n

.

** T h is su m m ary co n stitu

t es n o p art o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.I

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COUNSEL

Mark A. L indsay (arg

ued) and David W

. Ross, B abst Calland Clements and Z omnir P. C

. , Pittsburg h
, Pennsy lvania, for Plaintiffs-Appellants.

J ames F

. W allack (arg

ued) and Peter D. B ilowz
, Goulston & Storrs PC, B oston, Massachusetts; Steven M. J ohnson, Church Harris J o hnson & Williams P.C., Great Fa l l s, Montana; for Defendants-Appellees.

OP INION

B L OCK, Senior District J udg e:

The primary function of the B a nkruptcy Code is to set out the rules f

or d ividing u

p ass et s that are insufficient to pay a debtor’s creditors in full. One such rule, co ntained in 11 U .S.C. § 363(f), authoriz es a trustee in b a n k r u ptcy to

s e l l

— w i t h some ex ceptions and limitations—a d e b t o r ’ s a s s e t s free and clear of third-party interests. Another, contained in 11 U.S.C. § 365(h), empowers the trustee to “reject”—that is, in effect, to b reac h

— an unex p ired lease o f the debtor’s property , but al l o w s the lessee to retain any ex isting rig hts, including possession of the property

.

I n this case, w e are called upon to d ec i d e what happens when property that the trustee proposes to sell is s ubject to

unex p ired leases

. W e hold that, on the facts of this c ase, section 363 a p p lies and section 365 does not. W e therefore affirm the bankruptcy court’s con c l usion that the sale was free and clear of the leases.I

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I

A. Pre-B ankruptcy

B ackg round

Spanish Pea k s was a 5,700-acre resort in B ig Sky
, Montana, the brainchild of J ames J . Dolan, J r., and Timothy L

. B lix seth. The project was financed by a $130 million loan, which w a s s e c ured by a mortg ag e and assig nment of r e nts, from Citig roup Global Market s R e alty Corp. (“Citig roup”). Citig roup later assig ned the note and mortg ag e to Spanish Peaks Acquisition Partners, L L C (“SPAP”).

A collection of interrelated entities owned the resort and
manag ed its a menities, including a ski club, a g olf course, a nd residential and comme r c i a l real-estate sales and rentals. At issue here are two leases o f commercial property at the resort.

I n 2006, Spanish Peaks Holding s, L L C (“SPH”), leased
restaurant space to Spanish Peaks Dev e lopment, L L C (“SPD”), for $1,000 per month. Dolan was an officer of both companies, and sig ned the lease for both lessor and lessee. A
y ear later, SPH and SPD replaced the 2006 lease with a lease under which SPD received a 9 9 -y ear leasehold in the
restaurant property in e x chang e for $1,000 per y ear in rent. I n 2008, SPD assig ned its interest to The Pinnacle Restaurant
at B ig Sky
, L L C (“Pinnacle”), a company speci a l l y created for that purpose.

I n 2009, SPH leased a separate parcel of commercial real
estate at the resort to Montana Opticom, L L C (“Op t i c o m ”), of which D olan was the sole member. T he lease had a term of six ty y e ars and an annual rent of $1,285.I

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B

. B a nkruptcy Proceeding s

Facing a shrinking real-estate market and mount i n g operational losses, SPH beg an to d efault on its loan
pay ments. On October 14, 2011, SPH and two r e l ated entities—T h e C lub at Spanish Peaks, L L C, which manag ed the resort’s ski and g olf facilities, and Spanish Peaks L odg e , L L C, which manag e d its real-estate sales—p e t itioned for bankruptcy p rotection under Chapter 7 of the Code

. 1 The petitions were filed in Delaware, but the procee d i n gs were tr a nsferred to the B ankruptcy Court for the District o f M ontana, where they were consolidated f o r j o i n t administration.

SPH’s larg est cred i t o r was, by far, SPAP, which had a valid claim of more than $122 million secured by the mortg ag e on the property

. SPAP subs e q u e n tly assig ned its interest to CH SP Acquisitions, L L C (“CH SP”).

The truste e a n d SPAP ag r eed to a plan for liquidating “substantially ” all of the d ebtors’ real and personal property

. Their stipulation contemplated an auction with a m i n i mum bid of $20 million. I t fu r t h e r stated that the sale would be “free and clear of all liens.”

1 B y t h e tim e o f th e b an k

ru p tcy , t h e reso rt w as o p erated b y Sp an ish P eak s Ho ld in g s II, L L C, a su ccesso r t o S P H. W e ref er to b o th th e o rig in al

an d su ccesso r en tities as “ SP H .”I

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The trustee then moved the bankruptcy court for an order authoriz ing and approving the sale. 2 The trustee represented that the proposed sale would be “ free and clear of any and all liens, claims, encumbrances and interests,” ex cept f or c ertain specified encumbrances, and that other specified liens would be paid out o f the proceeds of the sale or otherwise protected.

The Pinnacle and Opticom leases were not mentioned in either the list of encumbrances that would survive the sale o r the list of liens for which p r o t e c t ion w ould be provided. Noting the omission, both companies o bjected to “any effort
to sell the D ebtors[ ’ ] assets free and c lear of [ their] leasehold interests.” They arg u ed that the Code g ave them the rig ht to retain possession of the property notwithstanding the sale.

After a h earing
, the bankruptcy court authoriz ed the sale. I t did not rule on Pinnacle’s and O pticom’s o bjection. I nstead, further discussion of the claimed rig ht to possession

was deferred to the hearing on the motion to approve the sale.

Bo th the auction a

n d the approval hearing took place o n J une 3
, 2013. CH SP won the auction with a bid o f $26.1 million

. At the approval h earing
, Pinnacle and Opticom renewed their claim that they were entitled to r et ain possession pursuant to their leases, a nd a rg ued that lang uag e in the proposed approval order providing that the sale would be free and clear of those interests was inconsistent with their claimed rig ht. I n response, CH SP’s principal testified that its

2 B an k ru p t cy p r o c e d u re is n o th in g if n o t B y zan tin e. T h e tru stee’ s

m o tio n s o u g h t tw o distin ct o rd ers: f irst, an o rd er a u t

h o rizi n g t h e tru stee to co n d u ct t

h e s ale in acco rd an ce w ith sp ecif ied p ro ced u

res, an d seco n d
, an o rd er ap p ro vin g th e sale—th at is, co n f

irm in g th at th e sale co n f

o rm ed
to th o se p ro ced u res.I

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bid was conting ent on the p roperty being free and clear of the leases, while the trustee testified that he did not “ t[ ake] a position” on that issue.

On J une 13, 2013, the bankruptcy court entered an order approving the sale. Parag r aph I of the o rder held that the sale

was f r e e and clear of a

n y “I nterests,” a term defined to include any leases “(ex c ept any rig h t a lessee may have under 11 U.S.C. § 3 6 5 ( h )
, w ith respect to a valid and enforceable lease, all a s determined throug h a motion broug ht before the Court by proper procedure).”

B o th sides moved for clarification of the approval order. Pinnacle and Opticom sou g h t clarification that the order preserved their rig hts under the leases, while CH SP soug ht clarification that the order approved a sale free and clear o f those interests. The bankruptcy court de n i ed having ruled

one way or the other, ex plaining that it would not consider the issue until the parties had “ f ile[ d ] an ap p r o priate motion, notice[ d] the matter for h earing
, and present[ e d ] their evidence.”

The tru s t e e then offered his version of an “appropriate motion,” seeking leave to reject the Pinnac l e and Opticom leases o n the g round that the subject property was no long er property of the estate. CH SP, meanwhile, fo r m ally moved for a determination that the property was free and clear of the leases. Pinnacle and Opticom did not object to the trustee’s motion, which was g ranted. They did, however, renew their previous arg

u ments as objections to CH SP’s motion.

A ft e r a two-day evidentiary hearing on that motion, t h e bankruptcy

court made the following finding s of fact:I

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• Pinnacle had not operated a restaurant o n the property since 2011;

• Pinnacle’s r e nt was far b elow the p roperty ’s fair market rental value of $40,000 to $100,000 per y ear;

• Opticom’s lease was not recorded;

• the leases were e x ecuted “at a time when all parties involved were controlled by J ames J . Dolan”;

• the leases were the subject of bona fide disputes;

• Citig roup’s mortg ag e was senior to the leases; and

• the leases were not protected from foreclosure of the underly ing mo r t g a g e b y subordination or nondisturbance ag reements.

I t further o bserved that Pinnacle and O p ticom had not requested adequate protection f or th e i r leasehold interests prior to sale, and had at no tim e provided any e vidence that they would “suffer any economic h arm if their posse ssory interests [ we] re terminated.”

B a sed o n those finding s, the b ankruptcy court—apply ing what it called a “ case-by -case, fact-intensive, totality of the circumstan c e s , approach”—held that the sale was free a nd clear of the Pinnacle and Opticom lea s e s

. P innacle a nd Opticom a

ppealed to the district court, which affirmed. 3 I n a

3 In ad d itio n , P in n acle an d O p tico m m o v ed th e b an k ru p tcy co u rt f or

an o rd er aw ard i n g th em m o n etary co m p en satio n as “ ad eq u ate p ro tectio n ”I

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brief opinion, the district court h eld that the sale ex ting u ished the leases because the foreclosure of a mortg ag e would, under Montana law, terminate any leasehold interests junior to the mortg ag e. This appeal followed.

I I

The principal issue is whether the Pinnacle and Opticom leases survived the sale of the property to CH SP. 4 B ecause that issue is ultimately one of s t a t u t ory interpretation, we review the bankruptcy court’s d ecision de novo. S e e Simpson

v. Burkart (

I n re Simpson)
, 557 F. 3 d 1010, 1014 (9th Cir. 2009); Robertson v. Peters ( In re W eisman)
, 5 F

. 3d 417, 419 (9th Cir. 1993) ( “W e ind e p e n d ently review the bankruptcy court’s decision and do not g ive deference t o t he district court’s determinations.”).

As we noted a t the outset, the issue bring s two sections o f the Code into apparent conflict. Section 363 a u t horiz e s the
trustee to sell property of the estate, both within the ordinary

f o r th eir “ d iv ested in terests” in th e p ro p erty

. T h e b an k ru p tcy co u rt n ev er

ru led o n th at m o tio n

.

4 In reach in g th e m erits, w e rej ect CH S P ’ s arg u m en t th at th e case is

m o o t becau se th e sale w as ap p ro v ed an d co n su m m ated

. “ T h e rev ersal or

m o d if icatio n o n ap peal o f a n a u t h o rizatio n

. . . o f a sale or lease of
p ro p erty d oes n o t af

f ect th e v a l i d ity o f a sale o r lease u n d er su ch

au th orizatio n

to an en t ity th at p u rch ased o r leased su ch p ro p erty

in g o o d f aith
, w h eth er o r n o t su c h e n tity k n ew o f th e p en d en cy o f th e ap p eal,

u n less su ch au th o rizatio n an d su ch sale o r l ease w ere stay ed p en d in g ap p eal.” 1 1 U .S.C. § 3 63 (m ). B y its term s, sectio n 3 6 3 (m ) preserv es th e

va lid ity of a sale ch allen g ed o n ap p eal. A l th ou g h

P in n acle an d Op tico m seek a d eterm in atio n th at th eir leaseh o ld s su rv i v ed th e sale to CH S P
, th ey h av e n ot ask ed u s to u n d o th e sale. T h eref o re, th e o u tco m e o f th e ap p eal

w ill n ot af

f ect th e sale’ s v alid ity

.I

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course of business, see 11 U .S.C. § 363(c), and outside it, see id. § 363(b). 5 Sales may be “ f ree and clear of any

interest in such property of an entity other than the estate,” id. § 363(f), but only if

(1) a p p l i cable nonbankruptcy law p e r m i t s s a l e of such property f

r e e and c lear o f such interest;

(2) such entity

consents;

(3) su c h i n t erest is a lien and the price at which such property is t o be sold is
g re a t e r than the ag g reg ate value o f all liens on such property ;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a leg al

o r equitable proceeding
, to a ccept a money satisfaction of such interest.

Id. Upon the r equest of a p arty with an interest i n the property , the bankruptcy co u rt “shall prohibit or condition such

. . . sale

. . . as is n ecessary to pro v i d e adequate protection of such interest.” Id. § 363(e).

Meanwhile, section 365 of the Code authoriz e s the trustee, “subject to the court’s approval,” to “assume o r reject

5 S ales in th e o rd in ary

co u rse o f b u sin ess d o n o t req u i re p rio r n otice

an d co u rt ap p ro v al, w

h ile sales o u tsid e t

h e o rd in ary co u rse of b u sin ess d o

. C o m p a re 1 1 U.S.C. § 3 6 3(c) with id

. § 3 63 (b ). T h e sale o f S P H ’s
p ro p erty w as o u tsid e th e o rd in ary co u rse o f b u sin ess.I

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any ex ecutory contract or unex pired lease of the debtor.” 11 U.S.C. § 365(a). Subsection (h) makes special provision for rejected leases under which the debtor is the lessor:

(i) i f the rejection by the trustee amounts t o such a breach a s would entit l e t he lessee to treat such lease as terminated by virtue of i ts terms, applicable nonbankruptcy law, o r any ag reement made b y the lessee, then the lessee u nder such lease may treat such lease as terminated by the rejection;

or

(ii) if the term of such lease has commenced, the lessee may retain its rig hts under such lease (including rig hts s u c h as those relating to the am o unt a nd timing o f
pay ment of rent a

nd o ther a mounts pay able by the lessee and any rig ht of use, possession, q uiet enjoy

ment, subletting
, assig nment, or h y

pothecation) t h a t are in

or a ppurtenant to the real property for the balance of the term o f such lease and for
any renewal or ex tension of such rig hts to the ex tent that such rig hts are enforceable under applicable nonbankruptcy law.

The crux of this dense statutory lang uag e is that the rejection of an u nex pired lease leaves a lessee in possession with two options: treat t h e l e ase as terminated (and make a claim
ag ainst the e state for any breach), or retain any rig hts—including a rig ht o f continued possession—to the

ex tent those rig hts are enforceable outside of bankruptcy

.I

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The statutes frequently o perate in isolation

. Many bankruptcies will involve a sale of property unencumbered b y

a l e a s e, and many will involve the rejection of a lease o n pr operty that the trustee does not intend to sell. B ut when b o t h provisions come into p lay —that is, when the trus t e e proposes to sell property free and clear of encumbrances, a nd

o ne of the encumbrances is an unex pired lease—federa l
courts h a ve addressed the resulting dilemma in different
way s.

A. The “Majority” A pproach

Several bankruptcy courts have held that sections 363 a nd 365 conflict w h e n they overlap because “each provision

seems to provide an ex clusive r ig ht that when invoked would override the i n t e rest of the other.” In re Churchill Props.
, 197 B .R. 2 83, 286 (B ankr. N.D. I ll. 1 9 9 6 ) ; see a lso In re Haskell, L.P.
, 3 21 B .R. 1, 8–9 (B ankr. D. Mass. 2005); In re Taylor
, 198 B .R. 142, 164–66 (B ankr. D.S.C. 1996); cf. I n re LHD Realty Corp.
, 20 B .R. 717, 719 (B ankr. S.D. I nd. 1982). Those courts—which constitute a majority of the courts to have addressed the issue—hol d that section 365 trumps section 363 under the canon of stat u tory c onstruction that “the specific p revails over the g e n eral.” In re Churchill Props.
, 197 B .R. a t 288. They f urther reason that “the leg is lative h istory reg arding § 365 evinces a clear intent on the part of Cong ress to protect a t e n a n t’s estate when the landlord f

iles bankruptcy ,” I

n re Taylor
, 1 9 8 B. R

. a t 165 (citing S

. Rep. No. 95-989, at 60 (1978), reprinted in 1978 U.S.C.C.A.N

. 5 787, 5846), and that the protection “would be nug atory ,” In re Churchill Props.
, 197 B .R. at 288, if the property could be s o l d f r ee a n d clear of the leasehold under section 363.I

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B

. The “Minority ” Approach

The only circuit court to have addressed the issue reached

a different conclusion based ex clusively on the statutory tex t. I n Precision Industries, I

n c. v. Qualitech Steel SBQ, LLC ( I n

re Qualitech Steel Corp. & Qualitech Steel Holdings Corp.)
, 327 F .3d 537 (7th Cir. 2003), the Seventh Circuit o b s er v ed that “the statutory

provisions themselves do not sug g est that one supersedes or limits the other.” Id. at 547.

The court then ex a m i n ed the scope of each statute. Section 363, it reasoned, confers a r ig ht to sell property free and clear of “any int erest,” w ithout ex cepting from that authority leases entitled to the protections of section 365. See id. Section 365, by

contrast, has a more “limited scope”:

Se ct ion 365(h)

. . . focuses on a specific ty pe of event—the r e

jection of an ex ecutory

c o n t ra c t b y the trustee or debtor-i n

possession—and spells out the rig hts o f parties af f e c ted by that event. I t say s nothing
at all a bout sales of estate property , which a re the province of section 363.

Id.

Ag ain focusing on the statutory tex t, the court n oted that lessees ar e entitled to seek “adequate protection” under section 3 63(e). “ L essees

. . . are therefore no t without

recourse in the event of a sale free and clear of their interests. They h ave the rig ht to seek protection under se c tion 363(e), and upon request, the b a

n kruptcy c ourt is oblig ated to ensure that their interests are adequately protected.” 327 F .3d at 548.I

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B a sed on the stat utes’ different scopes, the court concluded that they

did not conflict:

W h ere es t a t e property under lease is to be sold, section 363 permits the sale to occur free

a n d c l e a r o f a l e s s e e ’ s p o s s e s s o r y interest—provided that the lessee (upon request) is g ranted a d equate protection for its i n terest. W here the p roperty is not sold, a n d the [ estate] remains in possession thereof but

c h ooses to reject the lease, section 365(h)

comes into p l a y and the lessee retains the rig ht to possess the property

. So understood, both provisi o ns may be g iven full effect without coming into conflict with one another and without disreg a

rding the rig hts of lessees.

Id.

C. Our Approach

W e must “ read the statutes to g ive effect to each if we can do so while preserving their sense and pur p o s e .” W

att v

. Alaska
, 451 U.S. 259, 267 (1981). W e can easily do so h ere. B ased on our reading —and, in particular, a proper understanding of the concept of “rejection”—w e ag ree with the Seventh Circuit that sections 363 and 365 do not conflict.

Althoug h undefined in the Code, a “rejection” is universal l y u nderstood as an a f firmative declaration by the
trustee that the estate will no t t a k e on the oblig ations o f a lease or contract made by t h e debtor. See, e.g. , Eastover Bank for Sav. v. Sowashee Venture ( In re Austin Dev. Co.)
, 19 F

. 3d 1077, 1082 (5th Cir. 1994). A sale of property freeI

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and clear of a lease may be a n effective r ejection of the lease in some every

day sense, but it is n o t t h e s a me thing a s the “rejection” contemplated by section 365.

I n sum, section 363 g overns the sale of estate proper t y , while section 365 g overns the formal rejection of a lease. W h ere there is a sale, but no rejection (or a rejection, but no sale), there is no conflict.

I n some circumstances, a trustee’s failure to act is deemed

a rejection. See 11 U.S.C. §§ 365(d)(1) (failure to assume o r reject residential lease within s ix ty day s in liquidation bankruptcy deemed a r e jection), 3 65(d)(4)(A) ( failure to

assume or reject nonresidential lease within 120 day s deemed

a rejection if the d e b t o r i s the lessee). B ut those circumstances are not present h ere, and the parties a g r e e that the Pinnacle and Opticom leases were not “rejected” p rior to the sale. Under our interpretation, then, section 365 was not trig g ered. 6

W e base our interpr e t a tion principally on the reasons g iven by the Seventh Circuit. T o t h at court’s sound tex tual analy sis, we a dd the following o b s e rvations to mitig ate the

concern that an attempt to harmoniz e the two s t a t u tes “arg u ably r e sults in the effective repeal of § 365(h).” Dishi & Sons , 510 B .R. at 704.

6 It is, of co u rse, p o s sib le f o r a tru s t ee to f

o rm ally rej ect a lease an d th en p ro p o se to sell th e p ro p erty su b j ect t o t h e (rej ected ) lease. S

ee Dish i & S o n s v. Ba y Co n d o s, LLC
, 5 1 0 B .R. 6 9 6
, 7 04 (S.D.N.Y. 2 01 4 ) (n o tin g th at Qu a l i tech “ co n v en ien tly ” dealt w i t h a situ atio n “ w h ere a f ree an d clear sale o ccu

rred w i th ou t an y f

o rm al assu

m p tio n o r rej ectio n t a k in g p lace”). T h at is n o t w

h at h ap p en ed h ere, an d so w e h av e n o o ccasio n to ad d ress t h e i n terp lay b etw een sectio n s 3 6 3 an d 3 6 5 in su ch circu m stan ces.I

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F irst, we note the mandatory lang uag e of section 363(e). A b a nkruptcy court must provide a dequate protection for a n i n terest that will be terminated by a sale if the holder of t h e interest requests it. Moreover, “adequate protect i o n ” includes
any relief—other than compe n s a tion as an administrative

ex p ense—that will “result in the realiz ation by such entity o f the indubitable equivalent” of the te r m inated interest. 11 U.S

. C

. § 361(3). I n D ishi & Sons
, the district court concluded that adequate prot ec t i o n could take the form o f continued possession. See 5 1 0 B .R. at 711–12. Since Pinnacle and Op t icom did not ask for adequate protection until a fter the sale h a d taken place—not, indeed, until they had appealed to the d i s t r i c t court, see supra note 2—the question of w hat protection the bankruptcy court could have

or shou l d h a v e awarded is n ot b efore us. Still, we think it worth mentioning that the b road definition of adequate protection makes it a powerful check on potentia l a b u ses o f free-and-clear sales.

Second, we emphasiz e that section 363(f) authoriz es freeand-clear sales only in certain circumstances. The bankruptcy court did not specify which circumstance justified the sale in this case, sta t i n g only that Pinnacle and Opticom “d[ id] not d ispute that at least one provision of § 363(f) was satisfied.” W e, on the other hand, f ocus on 1 1 U .S.C. § 363(f)(1), w hich authoriz es a sale if “applicable nonbank ruptcy law permits sale of such property f ree a nd clear of such interest.” 11 U.S.C. § 363(f)(1).

Un d er Montana law, a foreclosure sale to satisfy a mortg ag e terminates a subsequent lease on the m o rtg ag ed
p r o p erty

. See Ruby Valley Nat’l Bank v. W e lls Far g o D e l aware Trust Co.
, 317 P.3d 174, 178 (Mont. 2 014);I

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W illiard v. Campbell
, 11 P.2d 782, 787 (Mont. 1932). 7 SPH’s bankruptcy proceeded, practica l l y s p e a k ing
, like a f

oreclosure sale—hardly surprising s i n c e its larg est creditor was the holder of the n ote a

nd mortg ag e o n the p r operty

. I ndeed, h ad S P H n ot declared bankruptcy
, we c an confidently say t h at there would have been a

n actual foreclosure sale. Such a sale would have termin a t e d the Pinnacle and Opticom leases. Section 363(f)(1 ) does n ot r equire an a ctual o r anticipated foreclosure sale. I t is satisfied if such a sale would be leg ally permissible.

I n Dishi & Sons
, the district court held tha t s ection 363(f)(1) “refers not to foreclosure sales, but rather o nly to situations w h e r e the o wner of the asset may , under nonbankruptcy

law, sell an asset free and clear of an interest in such a sset.” 510 B .R. a t 7 1 0 ( c itation and internal quotations omitted). W hile we acknowledg e that bankruptcy protection is often soug ht “for the very purpose of avoiding the less favorable consequences of foreclosure, ” i d

. at 709, the protection is g enerally for the debtor’s benefit. W e find it sig nificant that section 365 recog niz e s a p purtenant rig hts

c onferred by a lease “to the ex tent that such ri gh t s a r e enforceable under applicable nonbankruptcy law,” 11 U .S.C. § 365(h)(1)(A)(ii), and d iscern from that lang uag e a clear intent to protect lessees’ rig hts o u tside of bankruptcy
, not an intent to enhance them. W e see n o reason to ex clude the law
g overning foreclosure sales fro m the analog ous lang uag e in section 363(f)(1).

7 Mo n tan a law em

b o d ies t h e g en eral ru le of p ro p erty law
, ex cep t th at Mo n tan a law allo w s th e ten an t to rem ain i n p o ssessio n d u rin g an y p erio d

o f red em p tio n , w h ile u n d er t h e g e n e ral ru le th e lease term in ates im m ed iately u

po n th e sale. S

ee W i llia rd
, 1 1 P .2 d at 7 8 7

. T h e d i stin ctio n is im m aterial f o r o u r p u rp o ses.I

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Our analy sis hig hlig h t s a limitation inherent in the “majority ” a

pproach. W e ag ree that section 365 embodies a cong ressional intent to protect lessees. B ut that intent is not absolute; it ex ists along side other purposes and somet i mes

c onflicts with them. To some ex tent, protecting less e e s reduces the value of the e state—property presumably fetches

a l ower price if it is subject to a lease—and is th e r e f o r e contrary to the g o al o f “max imiz ing credit o r r e covery , ” Qualitech
, 327 F .3d at 548, another core purpose of the Code. The statutory tex t is the best a ssurance we have that we a re balancing competing purposes in the way Cong ress intended.

I I I

Section 363(f)(1) auth o riz ed the sale of SHP’s property free and clear o f the Pinnacle a nd Opticom leases. Since the
trustee did n ot reject the leases
, s e c t ion 365 was not implicated. According ly
, the judg ment of the district court is

AF F IRMED.