Opinion ID: 659
Heading Depth: 3
Heading Rank: 2

Heading: The Stay Stipulation

Text: According to the District Court, review of the lien release and claim-satisfaction provisions of the Sale Order were not mooted by section 363(m) because the application of those provisions were stayed pursuant to the Stay Stipulation. See In re WestPoint Stevens, Inc., 333 B.R. at 40, 54-55. The District Court reasoned that because the parties had agreed to stay the allocation of the Second Securities, it necessarily stayed the lien release and claim-satisfaction provisions of the Sale Order. Id. at 40. Although we understand the District Court's concern with the merits of the contention that the Sale Order violated the several credit agreements and arguably effected a circumvention of the safeguards of a Chapter 11 reorganization proceeding, see id. at 45-54; infra Part II(D)(2), the District Court in effect read a stay of the Sale Order into the Stay Stipulation despite the lack of any basis for such a reading. See Gucci I, 105 F.3d at 840 ([R]egardless of the merit of an appellant's challenge to a sale order, we may neither reverse nor modify the judicially-authorized sale if the entity that purchased or leased the property did so in good faith and if no stay was granted.). As an initial matter, the Contrarians argue that we must give deference to the District Court's interpretation of the Stay Stipulation because the court so ordered the Stay Stipulation after considering the parties' motions and nearly two hours of oral argument. To be sure, deference is owed to a court's interpretation of its own orders, see In re Blackwood Assocs., L.P., 153 F.3d 61, 66 (2d Cir.1998); however, such deference is only appropriate where the court drafts the order, see United States v. Spallone, 399 F.3d 415, 423 (2d Cir.2005) (explaining the reason for deferring to a court interpreting its own order as premised on the truism that the draftsman of a document is uniquely situated to understand the intended meaning of that document (citation and internal quotation marks omitted) (emphasis added)). Accordingly, because the Stay Stipulation was drafted by the parties and not by the District Court, we accord no deference to the District Court's interpretation of the Stay Stipulation. We review the Stay Stipulation de novo. The Stay Stipulation provides for the withdrawal of the Contrarian and Beal Bank motion seeking a stay of the closing of the sale by [the Debtor] to Purchasers approved by the [Sale Order]. The Stay Stipulation further recites that the parties shall seek no other stay of the closing of the sale under the Sale Order or otherwise. The Stay Stipulation does provide for a stay limited to a single event: the distribution of the [Second Securities] allocable to the Second Lien Lenders pursuant to the Sale Order. To this end, the Stay Stipulation provides that the distribution of the Second Securities to the Second Lien Lenders  shall be made at the closing [of the sale], but shall be held in escrow until, inter alia, the escrowed funds are ordered to be disbursed to the Second Lien Lenders [or further held in escrow]... in accordance with [a subsequent court order]. (emphasis added). In all other respects, the distributions [of the Second Securities] shall be in accordance with the Sale Order and terms of the Asset Purchase Agreement. In short, the Stay Stipulation accomplishes two goals: it (1) permits the closing of the sale and (2) defers the allocation of the Second Securities until a proper distribution of those rights has been determined. Significantly, nothing within the four corners of the Stay Stipulation stays the lien release and claim-satisfaction provisions of the Sale Order. This omission, however, is consistent with the purpose of the Stay Stipulation to permit the closing of the sale of the Debtor's assets. As noted above, see supra Part II(B)(1), the lien release, claim satisfaction, and distribution provisions were indispensable conditions of the sale. Thus, it is clear that in withdrawing the motion for a stay of the closing of the sale, the Stay Stipulation permitted the transfer of assets and the lien release, claim satisfaction, and distribution to occur as a single integrated transaction. Given the centrality of the lien release and claim-satisfaction provisions to the sale, it is implausible that the Stay Stipulation would stay those portions of the sale without any explicit mention of them. Not only does the omission of language staying the lien release and claim-satisfaction provisions of the Sale Order strongly suggest that such provisions were not stayed, but the fact that the Stay Stipulation specifies the agreed upon stay as the stay relating to the Second Lien Distribution also convinces us that the lien release and claim-satisfaction provisions could not have been stayed. In addition to the Second Securities, the Sale Order and Asset Purchase Agreement required the lien release and claim-satisfaction provisions to apply to all Securities, including those First Securities distributed to the First Lien Lenders. The Stay Stipulation, however, only stayed the distribution of the Second Securities. If the parties intended to stay the lien release and claim-satisfaction provisions of the Sale Order, it is unimaginable that they would have done so by agreeing to stay only the distribution of the Second Securities. The Contrarians mount a weak response by pointing to the Stay Stipulation's provision that [e]xcept as specifically set forth herein, the rights of all parties to this appeal ... as to the appeal and all other disputes and matters between them ... are expressly preserved and are not affected by this stipulation. But the Stay Stipulation withdrew the stay on the closing of the sale and replaced it with a much narrower stay of the distribution of the Second Securities. Thus, as specifically set forth in the Stay Stipulation, the Contrarians lost the right to seek remedies that roll back any element of the sale. Notwithstanding the absence of support in the text of the Stay Stipulation, the Contrarians argue that a stay of the distribution of the [Second Securities] is only meaningful if [the lien release and claim satisfaction provisions were also stayed]. That is not true, because any allocation of the Second Securities to the First Lien Lenders would result in a windfall for them. This is so because the First Lien Lenders would receive the Second Securities despite the fact that their claims have been satisfied by the uncontested value of the First Securities (approximately $488 million) already distributed to them. The Contrarians rely on a false premise that the only way the Second Securities can be allocated to the First Lien Lenders is if the lien release and claim-satisfaction provisions were also stayed. The Stay Stipulation, however, contemplates the possibility of a reviewing court allocating the Second Securities, in whole or in part, to the First Lien Lenders as an independent remedy not affecting the closing of the sale. The Contrarians also argue that the Stay Stipulation did not limit the District Court's remedial authority to allocate the Second Securities and suggest that this remedial authority included the authority to stay the lien release and claim-satisfaction provisions of the Sale Order. The Contrarians rely on the Stay Stipulation's provision that the District Court may order some or all of the [Second Securities]... [to] be distributed to the First Lien Lenders under the Intercreditor Agreement or otherwise to support their argument that there is an absence of any limitation or restriction on the remedies available to the district court as a result of the [Stay Stipulation]. If a mere reference to the District Court's remedial authority could supersede any specific agreements made in the Stay Stipulation, however, then the entire Stay Stipulation would not be a binding agreement between parties but merely advisory guidelines for the District Court's discretion to create a remedy. That cannot be. A general reference to the District Court's remedial authority cannot be read to nullify one of the primary goals of the Stay Stipulation  to close the sale. See Paneccasio v. Unisource Worldwide, Inc., 532 F.3d 101, 111 (2d Cir.2008) (stating that specific language in a contract will prevail over general language where there is an inconsistency between two provisions (citing ABN AMRO VERZEKERINGEN BV v. Geologistics Ams., Inc., 485 F.3d 85, 102 (2d Cir.2007))). Therefore, we conclude that the District Court erred when it read the Stay Stipulation to have stayed the lien release and claim-satisfaction provisions of the Sale Order. Accordingly, in the absence of a stay (or a challenge to the good-faith aspect of the sale), section 363(m) precludes our review of the Sale Order. Because we conclude that the appeal of the Sale Order is moot pursuant to 11 U.S.C. § 363(m), we need not consider Aretex's alternative argument on the applicability of equitable mootness. Likewise, we need not consider Aretex's argument that restitution is warranted if this Court were to affirm the District Court's decision vacating the lien release and claim-satisfaction provisions of the Sale Order. We reject, as without merit, the remaining arguments made by the Contrarians and Beal Bank in this appeal as they relate to statutory mootness.