Court Opinion

ID: 9387458
Source: CourtListenerOpinion
Date Created: 2023-04-18 00:00:33.806162+00
Date Added: 2024-06-11T17:18:13.533065
License: Public Domain

Case: 21-11244   Document: 00516714660      Page: 1   Date Filed: 04/17/2023

          United States Court of Appeals
               for the Fifth Circuit
                                                              United States Court of Appeals
                                                                       Fifth Circuit

                                                                     FILED
                                                                 April 17, 2023
                             No. 21-11244                       Lyle W. Cayce
                                                                     Clerk

   In the Matter of: RE Palm Springs II, L.L.C.

                                                                   Debtor,

   SR Construction, Incorporated,

                                                              Appellant,

                                versus

   Hall Palm Springs, L.L.C.; RE Palm Springs II, L.L.C.,

                                                               Appellees,
   ______________________________

   In the Matter of: RE Palm Springs II, L.L.C.

                                                                   Debtor,

   SR Construction, Incorporated,

                                                              Appellant,

                                versus

   RE Palm Springs, L.L.C.; Hall Palm Springs, L.L.C.,

                                                               Appellees.
Case: 21-11244          Document: 00516714660             Page: 2     Date Filed: 04/17/2023

                                           No. 21-11244

                       Appeal from the United States District Court
                           for the Northern District of Texas
                        USDC Nos. 3:20-CV-3486, 3:20-CV-3487

   Before Higginbotham, Southwick, and Higginson, Circuit
   Judges.
   Patrick E. Higginbotham, Circuit Judge:
           Federal bankruptcy provisions date to the Founding, embedded into
   our Constitution as a core tenet of the country’s economic vitality. 1 And with
   good reason: “[d]ebt was an inescapable fact of life in early America . . . [that]
   cut across regional, class, and occupational lines,” 2 and debtor’s prisons
   were antithetical to the new democratic ideal. So, in parallel with the
   industrialization and modernization of our markets, the Bankruptcy Code
   matured, its execution shifting to an independent court staffed by an array of
   able judges selected by merit and expert in the field, 3 giving bankruptcy
   courts with their new status a crucial role in freeing the entrepreneurial
   energy indispensable to our nation’s economy. It is on this stage that the
   current action arrives, an effort to salvage the building of a hotel in the face
   of market demands shrunk by the covid virus and other difficulties.
                                                I.
           SR Construction held a lien on real property owned by RE Palm
   Springs II. 4 The property owner is a corporate affiliate of Hall Palm Springs

           1
              See U.S. Const. Art. I, § 8, cl. 4 (endowing Congress with the power “[t]o
   establish . . . uniform Laws on the subject of Bankruptcies throughout the United States”).
           2
           BRUCE MANN, REPUBLIC OF DEBTORS: BANKRUPTCY IN THE AGE OF
   AMERICAN INDEPENDENCE 3 (2002).
           3
            See generally Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.
   L. No. 98-353, 98 Stat. 333 (1984).
           4
               RE Palm Springs II was initially named Hall Palm Springs II LLC.

                                                2
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                                         No. 21-11244

   LLC, who had financed the original undertaking for a separate real estate
   developer. The latter requested leave of the bankruptcy court to submit a
   credit bid to purchase the property from its affiliate, which the bankruptcy
   court granted. The bankruptcy court later approved the sale and discharged
   all liens. The construction company appealed the bankruptcy court’s credit-
   bid and sale orders. Finding that the lender was a good faith purchaser, the
   district court affirmed the bankruptcy court and dismissed the appeal as moot
   under Bankruptcy Code § 363(m). Now, “[a]cting as a second review
   court,” 5 we AFFIRM.
                                              II.
                                              A.
           In November 2016, Palm Springs, LLC, a commercial real estate
   developer and the original owner of real property in Palm Springs, California,
   contracted with SR Construction to develop its Property and build a hotel,
   but it did not go well. Approximately a year later, the developer financed the
   construction with Hall Palm Springs LLC, 6 securing its loan with a deed of
   trust. At the same time, it entered into a separate Subordination Agreement
   with the construction company, giving the lender priority of repayment over
   the construction company.
           The developer terminated the construction company on October 22,
   2019, owing it $14,151,000 for the work completed. Nine days later, the
   developer and owner defaulted on loan obligations owed to the lender, and
   the lender gave notice that it was accelerating the debt. The construction

           5
            Matter of Lopez, 897 F.3d 663, 668 (5th Cir. 2018) (quoting Official Comm. of
   Unsecured Creditors v. Moeller (In re Age Ref., Inc.), 801 F.3d 530, 538 (5th Cir. 2015)).
           6
           Note that the developer (Palm Springs, LLC) and the lender (Hall Palm Springs,
   LLC) are unrelated, and the record does not reveal any overlap in ownership.

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                                     No. 21-11244

   company then filed its mechanic’s lien on the Property on November 25,
   2019.
                                         B.
           In January 2020, the construction company filed suit in California
   state court against myriad parties, including both the developer and the
   lender, seeking to foreclose on its mechanic’s lien as superior to other liens
   and the lender’s deed of trust.
           On February 12, 2020, the lender’s president formed an affiliated
   corporate entity (the “affiliate”) and became its sole manager and organizer.
   Following the lender’s acceleration of the debt, the developer conveyed the
   Property to the affiliate pursuant to a conveyance agreement “as an
   alternative to foreclosure.” By its terms, the developer would be “released
   from [its] obligations with respect to the [l]oan and [the developer] shall be
   entitled to a net profits interest in the Property” in the amount of 50 percent.
   The affiliate intended to finish construction and develop the hotel, but more
   trouble came; “with the impact of the novel coronavirus COVID-19 on the
   hospitality industry, coupled with the filing of numerous lawsuits . . . [the
   lender] concluded that the sale of the Hotel to a strategic buyer would yield
   the maximum value for all parties.”
           Within the ensuing six months, the lender and its affiliate undertook
   several discrete actions to prepare for bankruptcy. In June 2020, the affiliate
   changed its name, and around the same time, the lender retained r2 Advisors
   (“r2”), a third-party with relevant experience, to oversee the affiliate’s
   restructuring. To ensure arm’s-length objectivity, as represented to the
   bankruptcy court, the lender “caused . . . to convey ownership of [the
   affiliate] to r2” such that “the entire sales process [wa]s under the control
   and supervision of r2.”

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                                           No. 21-11244

           Then, on July 22, 2020, the affiliate filed for bankruptcy in the
   Northern District of Texas and filed motions for leave to hire a pre-selected
   real estate agent, to authorize the affiliate to borrow funds from the lender
   (its corporate affiliate), and to approve specific bankruptcy sales and bidding
   procedures.
                                                C.
           The bankruptcy court held multiple hearings and on August 24, 2020
   approved the retention of r2 as the restructuring organization and the bidding
   and sales procedures, complimenting the Parties for presenting “a game plan
   that could . . . get creditors paid in full quite soon,” observing it “not an
   unusual game plan” in high stakes financing. The bankruptcy court then
   approved a proposed real estate broker, finding the firm “well qualified” and
   lacking any conflicts or impairments. And, finally, it approved the debtor-in-
   possession loan from the lender as “the only game in town” with
   substantively “reasonable” conditions in light of the circumstances. This left
   the lender, as the debtor-in-possession, with the power to veto any sale. The
   bankruptcy judge followed with related orders formally approving the needed
   processes and personnel.
           One of the orders approved an auction and bidding process requiring
   a “stalking horse,” 7 McWhinney Real Estate Services, Inc., to submit its bid
   on August 28, 2020, alongside a nonrefundable $2.5 million deposit. Other

           7
             “A stalking horse refers to an entity that is willing to place a bid on a debtor’s
   asset in order to either set a baseline bid from which the true value of the estate can be
   assessed or serve as a catalyst to inspire other bidders.” In re Energy Future Holdings Corp.,
   990 F.3d 728, 744 (3d Cir. 2021) (citations omitted); see also Matter of Walker Cnty. Hosp.
   Corp., 3 F.4th 229, 232 n.2 (5th Cir. 2021) (“‘An initial bidder’ in a bankruptcy proceeding
   may serve as a so-called ‘stalking horse,’ whose initial research, due diligence, and bid may
   encourage later bidders.” (alteration and quotation marks omitted)).

                                                 5
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                                          No. 21-11244

   bidders in the auction were required to submit bids and deposits by October
   5, 2020, the sale hearing to be held eleven days later.
           The marketing and sale of the Property garnered substantial interest.
   The real estate brokerage engaged in an aggressive marketing campaign,
   hosting site visits from “8 potential buyer groups” and executing
   approximately 268 confidentiality agreements from potential buyers seeking
   to perform due diligence. Several bids were proposed, though none
   conformed to the specified format, timing, or financial arrangements
   approved by the bankruptcy court. The stalking horse also submitted a
   proposal for $35,450,000, though it ultimately declined to make the deposit
   by the deadline and backed out entirely.
           Prior to the auction deadline but after the stalking horse had dropped
   out, with no outstanding bids, the lender sought leave to submit a credit bid
   for the Property pursuant to 11 U.S.C. § 363(k), which confers secured
   creditors a right to credit bid their allowed claims. 8 The construction
   company opposed, urging that the bid was “premature.” While the
   construction company contested the credit bid, the auction proceeded apace,
   ultimately garnering only the lender’s credit bid of $37,279,365.74—almost
   $2 million more than the floor set by the stalking horse’s proposal.
           The bankruptcy court held evidentiary hearings on November 3, 5,
   and 6, 2020 regarding the lender’s ability to submit a credit bid and on the
   free and clear sale of the Property. In broad strokes, the construction
   company argued—as it does here—the sale should not proceed because: 1)
   the lender (and intended purchaser) was aware of adverse claims to the

           8
            See 11 U.S.C. § 363(k) (“At a sale . . . of property that is subject to a lien that
   secures an allowed claim, unless the court for cause orders otherwise the holder of such
   claim may bid at such sale, and, if the holder of such claim purchases such property, such
   holder may offset such claim against the purchase price of such property.”).

                                                6
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                                    No. 21-11244

   Property, namely the construction company’s adversary proceeding as well
   as its action in California state court; and 2) because the lender had
   fraudulently manipulated the bankruptcy proceedings, including rigging the
   bankruptcy sale process, to acquire the Property free and clear of all liens at
   the lienholders’ expense, including the construction company’s.
          At the culmination of the final hearing, the bankruptcy court approved
   the sale. Shortly before the hearing concluded, the construction company
   moved for a stay pending appeal, which the bankruptcy court denied. Three
   days later, the bankruptcy court issued its formal order granting the lender’s
   Motion to submit a bid, and on November 18, 2020, a formal order approving
   the sale free and clear of all liens, claims, encumbrances, and interests and,
   in so doing, denying the construction company’s motion to stay the sale.
   These orders gave rise to this appeal.
          Parallel to its objection, the construction company sought to bar the
   developer from conveying the Property to the affiliate or another non-party
   entity. It filed an adversary proceeding in the bankruptcy court against the
   lender, the affiliate, and the developer. The construction company also
   brought a separate action in California seeking a determination that its lien
   on the Property is senior to the lender’s deed of trust.
                                         D.
          The construction company timely filed notices of appeal of the
   bankruptcy court’s orders to the district court, which consolidated the
   appeals, affirmed the bankruptcy court’s finding that the lender was a good-
   faith purchaser, and dismissed the appeal as moot. The construction
   company timely appealed.

                                            7
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                                              No. 21-11244

                                                  III.
           A purchaser bears the burden of establishing good faith under 11
   U.S.C. § 363(m) 9 and a district court’s dismissal of an appeal from
   bankruptcy court as moot is reviewed de novo. 10 The standard of review for a
   good-faith determination by the bankruptcy court that renders the appeal
   moot “is a matter of some confusion in our circuit.” 11 No published opinion
   in this Court has weighed in conclusively on the choice between de novo or
   clear error review, and one unpublished opinion filed years ago reviewed such
   a finding for clear error but with no analysis of the standard. 12 More recently,
   this Court declined to reach the question because a determination of good
   faith failed “under either standard of review.” 13 We take this path again. As
   the lender prevails under de novo review, we need not and hence do not
   address the less rigorous clear error standard.
                                                  IV.
           The Bankruptcy Code makes clear that “[t]he reversal or
   modification on appeal of an authorization . . . of a sale . . . of property does
   not affect the validity of a sale . . . under such authorization to an entity that
   purchased . . . such property in good faith . . . unless such authorization and

           9
                In re TMT Procurement Corp., 764 F.3d 512, 520 (5th Cir. 2014).
           10
                See In re Ginther Trusts, 238 F.3d 686, 688 (5th Cir. 2001) (per curiam).
           11
                In re TMT, 764 F.3d at 521.
           12
             See In re Beach Dev., LP, No. 07-20350, 2008 WL 2325647, at *1–3 (5th Cir. June
   6, 2008) (unpublished) (per curiam) (referencing repeatedly the fact that the parties failed
   to show clear error absent analysis as to the correct standard of review).
           13
                In re TMT, 764 F.3d at 521.

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                                               No. 21-11244

   such sale . . . were stayed pending appeal.” 14 “The Bankruptcy Code does
   not explicitly define ‘good faith,’” but this Court has “defined the term in
   two ways”: (1) a notice-based definition, wherein a “good faith purchaser”
   is “‘one who purchases the assets for value, in good faith, and without notice
   of adverse claims’”; and (2) a conduct-based definition, meaning one who
   does not engage in “‘misconduct’” including, inter alia, “‘fraud, collusion
   between the purchaser and other bidders, or an attempt to take grossly unfair
   advantage of other bidders.’” 15 We review the construction company’s claim
   under each test in turn.
                                                   A.
           The construction company argues that the lender is not a good faith
   purchaser because there were live “adverse claims” of which the lender was
   aware. “The Bankruptcy Code does not provide a definition of ‘adverse
   claim.’” 16 It only defines a “claim”: (1) the “right to payment, whether or
   not such right is reduced to judgment, liquidated, unliquidated, fixed,
   contingent, matured, unmatured, disputed, undisputed, legal, equitable,
   secured, or unsecured;” or (2) the “right to an equitable remedy for breach
   of performance if such breach gives rise to a right to payment, whether or not
   such right to an equitable remedy is reduced to judgment, fixed, contingent,

           14
             11 U.S.C. § 363(m). Here, the authorization and sale of the Property were not
   stayed pending appeal. Accordingly, a determination that the lender acted in good faith
   moots this appeal. In re TMT, 764 F.3d at 519.
           15
             In re TMT, 764 F.3d at 521 (citations and footnotes omitted) (first quoting
   Hardage v. Herring Nat’l Bank, 837 F.2d 1319, 1323 (5th Cir. 1988); and then quoting In re
   Bleaufontaine, Inc., 634 F.2d 1383, 1388 n.7 (5th Cir. 1981)).
           16
                Id. at 522 (emphasis added).

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                                             No. 21-11244

   matured, unmatured, disputed, undisputed, secured, or unsecured.” 17 We
   have described this definition of “claim” as “broad[].” 18
          The Parties dispute the breadth of this definition when “claim” is
   read in conjunction with the word “adverse,” as this Court has not yet
   precisely defined “adverse claims.” In In re TMT, we stated only that
   “knowledge that there are objections to the transaction is not enough to
   constitute bad faith.” 19 In other words, an adverse claim “requires more”
   than simply “some creditor . . . objecting to the transaction and . . . trying to
   get the district court or the court of appeals to reverse the bankruptcy
   judge.” 20
          Citing Black’s Law Dictionary, the construction company contends
   both that “a claim can be adverse even if it does not arise from a color or
   claim of title,” and that its adversary proceedings in the bankruptcy court,
   which would “avoid the transfer of the [P]roperty to [the affiliate]” and
   “thus remov[e] the [P]roperty from the bankruptcy estate,” are adverse. The
   construction company also points to its “pre-petition California state-court
   suit asserting that [its] liens are senior in priority to the lender’s deed of trust
   and seeking to foreclose on the [P]roperty” as an adverse claim satisfying this
   threshold. Finally, the construction company contends that the bankruptcy
   and district courts improperly considered the merits of its adversary
   proceedings and California suit to influence their findings rather than the
   lender’s knowledge of such actions. By contrast, the lender, citing Ballentine’s
   Law Dictionary, argues that the term “adverse claim” “connotes an ‘element

          17
               11 U.S.C. § 101(5).
          18
               In re TMT, 764 F.3d at 522.
          19
               Id. (quoting In re EDC Holding Co., 676 F.2d 945, 947 (7th Cir. 1982)).
          20
               Id. (emphasis added) (quoting In re EDC Holding Co., 676 F.2d at 947).

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                                             No. 21-11244

   of hostility under a color or claim of title’” such that neither the objection
   nor the state court action nor the federal bankruptcy adversary proceeding
   rise to an “adverse claim” required to nullify the sale.
           In In re TMT, this Court invalidated a bankruptcy sale because “[t]he
   [debtor-in-possession] Lender had knowledge that a third-party, entirely
   unrelated to the bankruptcy proceeding, had an adverse claim to the
   [property]” in the form of an ownership interest. 21 Given such a claim, this
   Court concluded that the lender “d[id] not qualify as a good faith
   purchaser,” 22 citing to the Seventh Circuit case Rock Industries, which
   connects a “good faith purchaser” to ownership because the “purchaser
   [wa]s seeking to extinguish adverse claims to title.” 23 Darby v. Zimmerman
   (In re Popp),24 a Ninth Circuit Bankruptcy Appeals Panel took the same
   course, reversing a sale order approved by the bankruptcy court because
   “[t]he parties dispute[d] title to the [p]roperty” sold. 25 Finally, the Supreme
   Court explains that “adverse claims” with regard to good faith purchasers
   implies ownership must be disputed, stating that the knowledge required to
   vitiate such a label is of “defect in [title], or adverse claim to it.” 26 These
   cases make clear that, under the notice-definition of a good faith purchaser,
   the threshold for an “adverse claim” is a dispute in ownership interest. The

           21
                Id.
           22
                Id.
           23
                In re Rock Indus. Mach. Corp., 572 F.2d 1195, 1198 (7th Cir. 1978).
           24
                323 B.R. 260 (B.A.P. 9th Cir. 2005).
           25
                Id. at 262.
           26
               Boone v. Chiles, 35 U.S. 177, 210 (1836) (emphasis added) (“Strong as a plaintiff’s
   equity may be, it can in no case be stronger than that of a purchaser, who has put himself in
   peril by purchasing a title, and paying a valuable consideration, without notice of any defect
   in it, or adverse claim to it.”). Truly, a longstanding precedent.

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   district court here held that the construction company “has not asserted an
   ownership interest,” “only a mechanic’s lien,” the claims filed by the
   construction company do not rise to the level of an “adverse claim” so as to
   vitiate the lender’s status as a “good faith purchaser.”
           The construction company cites language from Rock Industries that
   notice of adverse claims “usually becomes an issue when an alleged good faith
   purchaser is seeking to extinguish adverse claims to title of which he had no
   actual or constructive notice at the time of sale.” 27 It argues this language
   implied that the concern “could also arise in other circumstances” beyond
   concerns as to defects in title, such as the one here. But it is equally plausible
   that the Seventh Circuit’s inclusion of the qualifier “usually” speaks to the
   frequency of title claims or notice thereof, not to the elements of an adverse
   claim. Adopting the construction company’s reasoning arguendo, Rock
   Industries did not articulate such a scenario, 28 that is even if this lone 44-year-
   old out-of-circuit precedent were binding, 29 the inclusion of “usually” is
   dicta. 30 A greater concern forecloses lowering the standard to claims below
   questions of ownership interests: doing so, as the lender points out, would
   open the proverbial floodgates and “countless sales under [S]ection 363 of
   the Bankruptcy Code would be invalid,” which, this Court has held, stands

           27
                In re Rock Indus., 572 F.2d at 1198 (emphases added).
           28
                See id.
           29
             See, e.g., United States v. Penaloza-Carlon, 842 F.3d 863, 864 & n.1 (5th Cir. 2016)
   (holding that other circuits’ decisions are persuasive only).
           30
              See United States v. Wallace, 964 F.3d 386, 389 (5th Cir.) (stating that where
   “discussion” is “established . . . as dicta, [it is] therefore not binding”), cert. denied, 141 S.
   Ct. 910 (2020); United States v. Stracener, 959 F.2d 31, 32 (5th Cir. 1992) (“As pure dicta,
   the Court’s parenthetical comment does not have binding force.”); Carpenter Paper Co. v.
   Calcasieu Paper Co., 164 F.2d 653, 655 (5th Cir. 1947) (“These statements, however, as the
   opinion itself shows, were dicta not necessary to the decision of the case and not intended
   to have the force of a binding adjudication.”).

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   antithetical to “Congress’s strong preference for finality and efficiency in the
   bankruptcy context.” 31
           The construction company also points to two separate actions as
   adverse claims. First, the construction company relies on its state court
   action filed prior to the bankruptcy petition, which asserts that the
   construction company’s lien is superior to the lender’s deed of trust and that
   the construction company has the right to foreclose on the Property to
   enforce its security interest. But a lien does not confer ownership rights, and
   the construction company does not suggest otherwise. The transfer of the
   Property by the developer to the affiliate, subject to the encumbrances against
   the Property—including the construction company’s—does not implicate
   ownership rights or give rise to a distinct ownership dispute, meaning that it
   does not constitute an “adverse claim.”
           Second, the construction company asserts that the adversary
   proceedings in the bankruptcy court brought under California law constitute
   “adverse claims,” even under the ownership interest standard. They do not.
   Several of the provisions to which the construction company points this
   Court, California Civil Code §§ 3439.04–05, make transfers voidable as to
   the specific creditor involved in that transaction, not to all creditors. 32 Thus,
   under these provisions, that a third party—here, the construction company
   —believes the conveyance between two other parties is fraudulent does not
   confer to that third party the right to void the transfer.

           31
            In re Energytec, Inc., 739 F.3d 215, 218–19 (5th Cir. 2013) (quoting Hazelbaker v.
   Hope Gas, Inc. (In re Rare Earth Minerals), 445 F.3d 359, 363 (4th Cir. 2006)).
           32
              The only other provision to which construction company points the court,
   California Civil Code § 3439.02, is inapposite, as it simply defines insolvency without
   creating a private right of action. See Cal. Civ. Code § 3439.02.

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           California Civil Code § 3439.07 is the lone salient provision pointed
   to by the construction company. It provides for the “[a]voidance of the
   transfer or obligation,” among other forms of equitable relief. 33 But as the
   district court correctly observed, the lender “was the senior lien holder”
   given the subordination agreements lienholders signed—including the
   construction company. This contractual agreement neuters the construction
   company’s claim to equitable relief under this provision. It follows that the
   adversary proceedings in the bankruptcy court do not constitute adverse
   claims.
           In sum, neither a mechanic’s lien nor an adversary proceeding to find
   that a transfer may be voidable (not that it is void) constitute an “adverse
   claim” affecting a purchaser’s good faith status in bankruptcy proceedings.
   We hold that the lender does not fail this Court’s notice-of-adverse-claims
   test and retains its status as a “good faith purchaser.”
                                                  B.
           The construction company also argues that the lender is not entitled
   to “good faith purchaser” status because it engaged in misconduct and fraud.
   We disagree. This Court has previously stated that “misconduct” including
   “fraud, collusion between the purchaser and other bidders, or an attempt to
   take grossly unfair advantage of other bidders” could “destroy a purchaser’s
   good faith status.” 34 The construction company argues the lender did just
   that, claiming that the lender, both “in preparation for and during the sale
   itself” engaged in conduct “specifically intended to affect the sale price or

           33
                Cal. Civ. Code § 3439.07(a)(1). Notably, the construction company only raises
   this provision in its reply brief, but “[a]n appellant abandons all issues not raised and argued
   in its initial brief on appeal.” Cinel v. Connick, 15 F.3d 1338, 1345 (5th Cir. 1994) (emphasis
   omitted) (collecting cases). Nevertheless, we address this argument on its merits.
           34
                In re Bleaufontaine, 634 F.2d at 1388 n.7.

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   control the outcome of the sale.” 35 The construction company cites multiple
   data points: (1) the lender’s control over “both the deed of trust and the
   [P]roperty encumbered by the deed of trust”; (2) the affiliate’s name change;
   (3) the arrangement between the lender and r2; (4) the lender’s engagement
   of an allegedly inadequate the real estate broker; (5) the lender’s involvement
   in securing the stalking-horse bidder (who ultimately failed to make a bid);
   and, most importantly, (6) the bidding procedures themselves. The lender,
   on the other hand, argues that the construction company’s data points are
   nothing more than “a false narrative, based upon contortions of the facts and
   misinterpretations thereof.”
          A deeper review betrays the construction company’s argument. It first
   cites the lender’s control over “both the deed of trust and the [P]roperty
   encumbered by the deed of trust.” That the lender came to obtain both
   interests, however, is not nefarious per se. To the contrary, as the district
   court found, the lender obtained the deed to secure the loan and obtained the
   Property when the developer “defaulted on its loan with [the lender],”
   prompting the lender to exercise its contractual right, accelerate the loan, and
   strike an agreement to obtain the Property via its affiliated entity in lieu of
   foreclosure. The construction company argues that the lender “convinced”
   the developer to do so “for no stated consideration.” The record shows
   otherwise. Here, the consideration given by the lender consisted of accepting
   the property subject to the existing debts as well as the promise to pay out 50
   percent of future profits to the developer. This line of inquiry fails to show
   misconduct. It rather reflects a market actor responding to market forces and
   exercising its contractual rights.

          35
               In re Gucci, 126 F.3d 380, 390 (2d Cir. 1997).

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                                          No. 21-11244

           The construction company also references the affiliate’s name change
   from Hall Palm Springs II to RE Palm Springs II, asserting that this was “an
   attempt to minimize the appearance of control.” That the bankruptcy court,
   the district court, and now this Court have the details of the transactions
   belies the idea that changing a name concealed any wrongdoing. 36
           The construction company next points to the fact that the lender was
   actually financing any payments to r2, and r2 also occasionally spoke with the
   lender. Neither fact demonstrates misconduct. The content of these few
   conversations, to the extent described in testimony, does not suggest
   malfeasance or misconduct. And regarding the financing, the construction
   company identifies no other means by which to pay for an objective third-
   party like r2 to oversee the bankruptcy. In other words, as the district court
   concluded, “[a]lthough [the lender] maintained a form of control over r2 as
   the DIP Lender, [the construction company] does not point to any facts or
   evidence showing that [the lender] exerted this control to commit a fraud upon
   the bankruptcy court.” 37
           The construction company raises the lender’s role in choosing the real
   estate broker as another datapoint. Even if the lender’s authority to choose
   the broker was problematic in the abstract, the choice itself fails to evince bad
   faith, as the firm retained was “known [as a] national expert in the hospitality
   space” and staffed with “experts in California hotel sales.” And even though
   the brokerage’s managing director was not himself licensed in California, he

           36
              See, e.g., E.E.O.C. v. Boeing Servs. Int’l, 968 F.2d 549, 556 n.7 (5th Cir. 1992)
   (“We pause briefly to note that if the issue was before us, we would not hold that a cat was
   a dog simply because a defendant called the cat a dog.” (citing William Shakespeare, Romeo
   and Juliet, act II, sc. ii (“What’s in a name? That which we call a rose By any other name
   would smell as sweet.”))).
           37
                Emphasis added.

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                                    No. 21-11244

   was a licensed broker elsewhere whose practice was “100 percent dedicated
   to the hotel space” and who had nearly a decade and a half of experience in
   the field. There was no error in declining to read bad faith into the lender’s
   choice.
          The construction company points to the lender’s selection of the
   stalking horse bidder as giving rise to an inference of bad faith because “the
   stalking-horse bidder contract did not even contain a bid price.” The
   construction company’s recitation of the record omits vital details regarding
   the stalking horse, and specifically the consideration at issue. The stalking
   horse agreement reads:
          The consideration for the purchase of the Property shall be a
          purchase price to be mutually agreed upon between Purchaser
          and Seller prior to the expiration of the Due Diligence Period
          in an aggregate amount that is not less than an amount that is
          acceptable to [the lender] . . . with a specific Purchase Price
          dollar amount no later than two (2) Business Days after the
          expiration of the Due Diligence Period.
   The stalking horse submitted a proposal for $35,450,000 at the August 24,
   2020 hearing approving the sale motion, days before the deadline and above
   the amounts proposed in letters of intent by other potential bidders. While
   the stalking horse did not follow through on its proposed bid, failing to make
   the required deposit and then pulling out altogether, the credit bid was
   substantially higher than the proposed stalking horse bid—almost $2 million
   more, or 5% higher—undermining the construction company’s questions of
   the stalking horse’s failure to pony up, a question that would have purchase
   had the stalking horse’s failure to bid resulted in a substantially lower final
   purchase amount. And as for allegations of collusive conduct, the broker
   testified that he never spoke with the lender regarding the credit bid. Thus,
   the construction company fails to marshal any evidence showing collusive

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                                           No. 21-11244

   activity between the lender and the stalking horse calculated to scare off other
   bidders.
           Finally, the construction company points to several of the bid
   procedures as setting the auction up for failure. The construction company
   asserts, for example, that the bid process was too short, inhibiting investors’
   ability to inspect the Property and conduct the requisite due diligence prior
   to the bid deadline. Yet the marketing campaign produced extensive interest,
   notwithstanding        its   purported       brevity:     268     individuals     executed
   confidentiality agreements for due diligence and seven different investor
   groups took a tour of the facility—four toured it multiple times, and one
   toured it five times. The process also produced multiple letters of intent for
   concededly noncompliant bids (i.e., bids that did not conform to the timing
   and pricing requirements), though they were below the stalking horse’s bid.
   Moreover, the district court correctly notes that when no conforming bids
   were made in the initial bidding timeline, the timeline was extended further
   and “came with incentives,” namely “no Overbid Protections . . . and no
   break-up fee,” exhibiting additional good faith efforts to solicit external
   investment. These facts all support the findings of the bankruptcy and district
   courts that the lender and the affiliate worked in good faith to effectuate a
   sale to a third party. 38
           In another bidding procedure-related contention, the construction
   company argues that because “the bid procedures gave [the lender] an
   absolute veto right over any bid submitted by any party,” the lender set the
   procedures up to fail. But the bankruptcy court made clear that such an
   arrangement “is not uncommon” and is instead “just sort of the nature of

           38
               So, too, does this undermine the construction company’s argument that bad faith
   can be inferred because the bidding procedures did not require any party to market the
   facility. A lack of a duty to market bears not at all when compared to the actions undertaken.

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                                          No. 21-11244

   the beast” in bankruptcy, cutting against an inference of bad faith. Moreover,
   there is no evidence in the record that bidders were in any way impaired or
   chilled by such a dynamic, further undermining any inference the
   construction company would ask this Court to make.
           Indeed, despite the construction company’s protests, the facts
   substantiate rather than undermine the lender’s status as a “good faith
   purchaser.” That the lender disclosed each of the salient facts to the
   bankruptcy court strongly favors a finding of good faith, as courts properly
   look to the transparency of the process as indicative of one’s intent. 39 The
   disclosures, in concert with the lender’s actions to market the Property
   (including the lender’s actions to facilitate the marketing campaign such as
   “offer[ing] to provide financing to prospective purchasers”), the extension
   of the marketing process, and the timing of the lender’s credit bid—after all
   other prospective buyers had fallen through—satisfy the lender’s burden of
   establishing itself as a good faith purchaser.
           Nor can we look away from the circumstances framing the bid process
   and the decisions of the bankruptcy and district courts, namely the carrying
   costs associated with an unfinished property and the Covid-19 pandemic.
   Testimony shows that the monthly carrying costs were approximately
   $70,000 and no alternative financing was identified to cover these costs once
   the DIP loan expired. Given the Property’s incomplete state and the expiring

           39
               See In re Xact Telesolutions, Inc., No. 05-CV-1230, 2006 WL 66665, at *6 (D. Md.
   Jan. 10, 2006) (collecting cases to demonstrate that when evaluating a party’s status as a
   good faith purchaser, “courts have considered whether the sale involved full disclosure to
   the court,” which militates strongly in favor of finding good faith); cf. Old Cold, LLC, 558
   B.R. 500, 516 n.6 (B.A.P. 1st Cir. 2016) (holding that, in some circumstances, an insider
   sale is to be encouraged “so long as the insider status is disclosed at the beginning of the
   case, and there is no evidence of collusion” (citing Hower v. Molding Sys. Eng’g Corp., 445
   F.3d 935, 939 (7th Cir. 2006)), aff’d sub nom. In re Old Cold LLC, 879 F.3d 376 (1st Cir.
   2018).

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                                           No. 21-11244

   funding, the bankruptcy court accurately described the Property as “a
   wasting asset.” This further empties the argument that the short timetable—
   itself a debated proposition—gives rise to an inference of bad faith.
           The Property was conveyed from the developer to the affiliate on
   March 13, 2020, and the Grant Deed is dated March 27, 2020, just as the
   COVID-19 pandemic—and corresponding lockdowns—began to spread
   across the country. 40 The pandemic not only destabilized the current market,
   but also created questions about how the industry would look and operate in
   a post-COVID world. Put simply, the pandemic dramatically changed not
   only the lender’s plans for the Property, but it also severely impacted the
   affiliate’s ability to market and sell a hotel, particularly an unfinished one. In
   sum, these two factors must also be weighed in considering whether any of
   the actions or procedures, particularly with regard to pricing or timing issues,
   were performed in bad faith or as a result of sub-optimal external forces
   beyond the lender’s control.
           The record facts, framed by the external context and circumstances,
   make plain that there is no error in the judgments of the able bankruptcy and
   district courts. The lender did not engage in fraud and was a “good faith
   purchaser.”
                                              ****
           We AFFIRM.

           40
              See Big Tyme Invs., L.L.C. v. Edwards, 985 F.3d 456, 460 (5th Cir. 2021) (“As all
   are painfully aware, in early 2020 our nation was gripped with an unprecedented public
   health emergency caused by COVID-19. On March 11, 2020, the World Health
   Organization (‘WHO’) declared a global pandemic in response to the spread of COVID-
   19.”); see also In re Approval of the Jud. Emergency Declared in the S. Dist. of California, 955
   F.3d 1135, 1136 (9th Cir. 2020) (“The Governor of the State of California declared a
   Proclamation of a State of Emergency to exist in California on March 4, 2020.”).

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