Supreme Court Strikes Blow for Deciding Cases and Explains What Is J...


Author's Note: I started writing this post in April. My life has been a bit busy this year so I haven't blogged as much as in prior years. If you are already familiar with the holding of Moac Mall Holdings, you may want to skip to the end to the What It Means section.

In Justice Ketanji Brown Jackson's first major opinion, the Supreme Court ruled that 11 U.S.C. Sec. 363(m) is not a jurisdictional bar and batted away an appellate mootness argument. The ruling means that Mall of the Americas may continue to challenge the assignment of a lease to a subsidiary of a purchaser in the Sears bankruptcy case. However, in a larger sense, the opinion is a challenge to the rulings that have shielded many bankruptcy court rulings from appellate review. The case is No. 21-1270, MOAC Mall Holdings, LLC v. Transform Holdco, LLC, 508 U.S. ___ (U.S. 4/19/23). You can find the opinion here

What Happened

When Sears filed bankruptcy, it sold most of its assets to Transform Holdco, LLC. One of the assets it purchased was the right to designate who leases would be assumed and assigned to. It formed a subsidiary to assume a lease at Mall of the Americas. Mall of the Americas objected that Transform Holdco could not prove that its newly formed entity could not provide adequate assurance of future performance under 11 U.S.C. Sec. 365(f)(2)(B). The Bankruptcy Court overruled the objection. MOAC requested a stay pending appeal. The Bankruptcy Court denied the stay on the basis that Sec. 363(m) did not apply. Transform insisted that it would not rely on Sec. 363(m).

MOAC appealed to the District Court which reversed the order approving the assignment. Transform then moved for reconsideration on the basis that Sec. 363(m) deprived the Court of jurisdiction to hear the appeal (the very position it had told the Bankruptcy Court it would not assert). The District Court was not happy and said some choice things about Transform. Nevertheless, it held that it lacked jurisdiction and dismissed the appeal. MOAC appealed to the Second Circuit which affirmed in an unpublished order.

The Issue at the Supreme Court 

Section 363(m) states that:

The reversal or modification on appeal of an authorization under [§363(b) or §363(c)] of a sale or lease of
property does not affect the validity of a sale or lease
under such authorization to an entity that purchased
or leased such property in good faith, whether or not
such entity knew of the pendency of the appeal, unless
such authorization and such sale or lease were stayed
pending appeal.

The Second Circuit had previously held that Sec. 363(m) was jurisdictional, meaning that an appellate court had no power to review an order falling within its power while the Third and Eleventh Circuits said that it was not. Justice Jackson framed the issue this way:

In this case, we are called upon to decide whether
§363(m)’s strictures are jurisdictional. If so, a party may
invoke that provision at any time—without fear of waiver,
forfeiture, or similar doctrines interposing. If not, courts
can apply such doctrines when evaluating §363(m) issues,
where appropriate. 

Opinion, p. 2. 

It's Not Jurisdictional

Justice Jackson and the unanimous Court concluded that Sec. 363(m) was not jurisdictional. 

Congressional statutes are replete with directions to litigants that serve as “preconditions to relief.” Filing deadlines are classic examples. So are preconditions to suit, like exhaustion requirements.  So, too, are “statutory limitation[s] on coverage,” or“on a statute’s scope,” such as the “element[s] of a plaintiff ’s claim for relief.” Congress can, if it chooses, make compliance with such rules “important and mandatory.” But knowing that much does not, in itself, make such rules jurisdictional.

The “jurisdictional” label is significant because it carries with it unique and sometimes severe consequences. An unmet jurisdictional precondition deprives courts of power to hear the case, thus requiring immediate dismissal. And jurisdictional rules are impervious to excuses like waiver or forfeiture. Courts must also raise and enforce them sua sponte.

This case exemplifies why the distinction between nonjurisdictional and jurisdictional preconditions matters. In light of Transform’s belated invocation of §363(m), the District Court stated that, “if ever there were an appropriate situation for the application of judicial estoppel, this would be it.”  But not even such egregious conduct by a litigant could permit the application of judicial estoppel as against a jurisdictional rule. 

In view of these consequences and our past sometimes-loose use of the word “jurisdiction,” we have endeavored “to bring some discipline” to this area.  We have clarified that jurisdictional rules pertain to “ ‘ “the power of the court rather than to the rights or obligations of the parties.” ’ ” And we only treat a provision as jurisdictional if Congress “ ‘clearly states’ ” as much. 

This clear-statement rule implements “Congress’ likely intent” regarding whether noncompliance with a precondition “governs a court’s adjudicatory capacity.”  We have reasoned that Congress ordinarily enacts preconditions to facilitate the fair and orderly disposition of litigation and would not heedlessly give those same rules an unusual character that threatens to upend that orderly progress.

Opinion, pp. 7-8 (cleaned up). To sum up, jurisdictional limitations are limitations on the power of the court, not the parties and Congress must clearly state when it is imposing a jurisdictional limit. First, there must be an express jurisdictional grant, such as diversity jurisdiction or bankruptcy jurisdiction under 28 U.S.C. Sec. 1334 or appellate jurisdiction under 28 U.S.C. Sec. 1291. If there is not an affirmative grant of jurisdiction, the court has no power to proceed. However, even if there is an affirmative grant of jurisdiction, there may be cases in which Congress has taken that jurisdiction away. Transform was arguing that Sec. 363(m) fell into this second category, that it took the power to adjudicate certain disputes regarding sales or leases away from the appellate courts if a stay pending appeal was not granted. 

Supremes Say No to Equitable Mootness

In keeping with the focus on deciding cases on the merits, the Court also rejected an equitable mootness argument. This was not a hard call. None of the lower courts applied equitable mootness. As a result, there was not a factual record for the court to rule on. To apply equitable mootness at the Supreme Court level, the Court would have to find that application of the doctrine was required under the undisputed facts of the case. Justice Brown dispatched this argument as easily as she rejected the jurisdictional argument. (Note: The Court's opinion addressed mootness first. Because it was a secondary issue to me, I addressed it in order of importance). 

Justice Brown explained equitable mootness using these words:

A “case becomes moot only when it is impossible for a court to grant
any effectual relief whatever to the prevailing party.”  The case remains live “‘[a]s long as
the parties have a concrete interest, however small, in the
outcome of the litigation.’” 

Opinion, p. 5. Justice Brown noted that mootness is disfavored, which must have come as a surprise to all of the hundreds of courts that have used it as a means to clear their dockets. In the end, she found that that the Supreme Court was not going to not going to act as a court of first review where it was not clear that no relief could be granted. She wrote:

Here, as elsewhere, we decline to act as a court of “‘first view,’” plumbing the Code’s complex depths in “‘the first instance’” to assure ourselves that Transform is correct about its
contention that no relief remains legally available.

Opinion, p. 6. Under this formulation, mootness is a doctrine of last resort. For example, if a criminal defendant passes away while a case is on appeal, the correctness of the sentence becomes moot since the defendant has already been granted release. 

The Post-Script 

On November 6, 2023, the Second Circuit vacated the decision of the District Court and remanded the case for further proceedings. MOAC Mall Holdings, LLC v. Transform Holdco (In re Sears), 2023 U.S. App. LEXIS 29477 (2nd Cir. 2023). It found that because Sec. 363(m) was not jurisdictional, the District Court should not have dismissed the appeal.