In Re: Alexander Bernard Kaspar

Background

This was an appeal from the United States Bankruptcy Court for the Southern District of New York in a Chapter 7 proceeding. The bankruptcy court approved the Chapter 7 trustee’s request to sell real property to Hudson Highlands Land Trust, Inc. for $595,000. Grace DeLibero and Citygrace Corp., together referred to as “DeLibero,” had an interest in the property and had attempted to bid for it. They objected to the sale, arguing that the sale price was significantly below the property’s market value and that Hudson Highlands Land Trust was not a good-faith purchaser because it had colluded with the Town of Putnam Valley to discourage other offers.

The bankruptcy court overruled the objections and approved the sale. DeLibero did not seek a stay—an order temporarily preventing enforcement of the sale order—from the bankruptcy court or another court. The sale was then completed. DeLibero appealed the order overruling the objections and approving the sale.

Equitable Mootness

The district court first held that the appeal was equitably moot. In this context, equitable mootness is a doctrine under which a court may decline to undo a substantially completed bankruptcy transaction when reversing it would cause serious problems, even if some relief might technically be possible.

The court explained that the Second Circuit presumes an appeal from a substantially completed sale order to be equitably moot. An appellant can overcome that presumption only by satisfying five factors, including showing that some effective relief remains available, that the relief would not disrupt the bankruptcy case or third-party transactions, that affected parties had notice and an opportunity to participate, and that the appellant diligently sought a stay of the challenged order.

The court relied on the fifth factor. DeLibero never sought a stay after the sale order was entered. Her objections to the sale, offer to purchase the property, and deposit had all occurred before entry of the sale order and therefore did not show diligence in seeking to prevent the sale from being completed. Because she failed to satisfy the fifth factor, she did not overcome the strong presumption that the appeal was equitably moot.

The court rejected DeLibero’s argument that the Supreme Court’s decision in MOAC Mall Holdings LLC v. Transform Holdco LLC eliminated equitable mootness. The court explained that MOAC concerned constitutional mootness—whether a federal court has power to hear a case—rather than equitable mootness, which concerns whether the court should grant relief after a transaction has been completed. The court also rejected the argument that equitable mootness applies only to complex reorganization plans, noting that courts in the Second Circuit have applied the doctrine to appeals from real-property sale orders. The court observed that the relief DeLibero sought could affect the rights of the Town of Putnam Valley and Hudson Highlands Land Trust, which were third parties to the appeal.

Merits

The court alternatively rejected the appeal on the merits. Under Section 363(b) of the Bankruptcy Code, a bankruptcy sale of assets is permitted when the trustee exercised sound business judgment. The district court explained that legal conclusions are reviewed independently, while factual findings are not set aside unless clearly erroneous. A clearly erroneous finding is one that leaves the reviewing court with a firm conviction that the bankruptcy court made a mistake.

The bankruptcy court had found that there was no evidence that the trustee did anything other than try to obtain the highest value for the property, that DeLibero’s claimed $1.5 million market valuation was unsupported, and that there was no evidence of bad faith, self-interest, or gross negligence connected with the proposed sale. The district court found that DeLibero offered only a self-serving declaration and did not provide additional evidence or witnesses at the hearing or cross-examine the witnesses who testified.

The district court also upheld the bankruptcy court’s reliance on the trustee’s explanation that DeLibero’s $700,000 offer was not actually higher or better than Hudson Highlands Land Trust’s offer. Among other differences, DeLibero’s offer lacked the buyer’s indemnification provision and was subject to unspecified remediation costs. The court concluded that DeLibero had not shown a basis to disturb the bankruptcy court’s factual findings or the legal conclusions based on those findings.

Disposition

The district court affirmed the bankruptcy court’s order overruling DeLibero’s objections and approving the sale. The clerk was directed to enter judgment in favor of the appellee and close the case.