Unanimous Supreme Court Rules Bankruptcy Sale Statute Is Not Jurisdictional

Unanimous Supreme Court Rules Bankruptcy Sale Statute Is Not Jurisdictional

Legal Sidebari

Unanimous Supreme Court Rules Bankruptcy
Sale Statute Is Not Jurisdictional
June 20, 2023
On April 19, 2023, the Supreme Court unanimously held in MOAC Mall Holdings LLC v. Transform
Holdco LLC (MOAC) that 11 U.S.C. § 363(m)—a Bankruptcy Code provision that limits the scope of
relief an appellate court may order regarding certain sales or leases of estate property—is not
jurisdictional. This means that a party may be barred from invoking the statute’s limitations if it fails to do
so at the earliest appropriate time in the appellate process. This decision marks the second instance in the
Supreme Court’s 2022-23 term—the first being Wilkins v. United States—in which the Court held that a
statute is not jurisdictional.
This Sidebar recounts the MOAC decision and analyzes how this holding impacts bankruptcy
proceedings. The Sidebar also offers considerations for Congress as to how this decision, along with
Wilkins, may affect the drafting of jurisdictional and nonjurisdictional statutes.
Background of MOAC
A previous Legal Sidebar explains in detail the parameters of § 363(m) and summarizes the factual and
procedural history of MOAC. Briefly, Sears Holding Corporation (Sears) filed for Chapter 11 bankruptcy
in the U.S. Bankruptcy Court for the Southern District of New York. The bankruptcy court approved an
agreement to sell most of the bankruptcy estate’s assets to Transform Holdco LLC (Transform), the
respondent in this case (the Sale Order). Among the assets conveyed to Transform was the right to
designate entities to which Sears’ leases on certain property should be assigned. Transform exercised this
right by designating Sears’ lease with petitioner MOAC Mall Holdings LLC (MOAC) in the Mall of
America (the MOAC Lease) for assignment to Transform’s wholly owned subsidiary under Bankruptcy
Code § 365, which governs assignments. MOAC objected to this assignment on the ground that Sears
failed to provide assurance of Transform’s ability to perform under the lease, as required by § 365. The
bankruptcy court rejected that argument and approved the assignment (the Assignment Order).
MOAC wished to appeal the Assignment Order to the district court, but feared that Transform would
argue that § 363(m) limited or barred the appeal. Section 363(m) provides that
[t]he reversal or modification on appeal of an authorization under [11 U.S.C. § 363(b) or
(c)] of a sale or lease of property does not affect the validity of a sale or lease under such
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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.
MOAC thus moved in the bankruptcy court for a stay pending appeal of the Assignment Order, in the
hope that a stay would prevent Transform from arguing on appeal that under § 363(m), no appellate court
could undo the Assignment Order. Transform “explicitly represented” that it would not invoke the
limitations of § 363(m) on appeal to the district court. The bankruptcy court denied MOAC’s stay motion,
and MOAC then appealed the Assignment Order to the United States District Court for the Southern
District of New York.
Consistent with its representation to the bankruptcy court, Transform did not rely on § 363(m) to oppose
MOAC’s appeal, and the district court initially ruled in favor of MOAC, vacating the Assignment Order
to the extent it approved assignment of the MOAC Lease to Transform. Transform then sought a
rehearing, arguing for the first time that § 363(m) deprived the district court of jurisdiction to grant the
relief sought by MOAC. Despite Transform’s late assertion of this argument, the district court concluded
that it could not rule that Transform had waived or should be judicially estopped from raising it. This was
because a prior decision of the United States Court of Appeals for the Second Circuit had held that
§ 363(m) was jurisdictional, meaning that the district court lacked power to hear the appeal absent a stay
or argument that the assignment had been executed in bad faith. The district court therefore dismissed
MOAC’s appeal.
The Second Circuit affirmed the district court’s decision. The court relied on circuit precedent in holding
that § 363(m) creates a jurisdictional bar to appellate review of a sale order so long as the sale was made
to a good-faith purchaser and was not stayed pending appeal.
The Supreme Court granted MOAC’s petition for a writ of certiorari to resolve a circuit split over whether
§ 363(m) is jurisdictional.
The Supreme Court’s Holding in MOAC
The Supreme Court held that § 363(m) is not jurisdictional. In so holding, the Court relied on the “clear
statement” rule, which dictates that courts will treat a statutory provision as jurisdictional only if
Congress “clearly states” it should be construed as such. This rule derives from the Court’s recognition of
the “unique and sometimes severe consequences” that follow from finding a statute to be jurisdictional.
Among these are that “[a]n unmet jurisdictional precondition deprives courts of power to hear the case,
thus requiring immediate dismissal,” and that “jurisdictional rules are impervious to excuses like waiver
or forfeiture.” The Court explained that, while Congress need not use “magic words” to state clearly its
intent that a statutory precondition be deemed jurisdictional, “the statement must indeed be clear.” It is not
sufficient, the Court explained, for a jurisdictional reading of a statute to be “‘plausible,’ or even ‘better,’
than nonjurisdictional alternatives.”
Applying the clear statement rule to § 363(m), the Court held that, rather than exhibit a clear intent to
limit a court’s “adjudicatory capacity,” § 363(m)’s “statutory traits” point towards nonjurisdictional status.
For one thing, the statute itself assumes appellate courts’ jurisdiction to “revers[e] or modif[y]” a sale or
lease authorization. The Court explained that the statute simply adds the “caveat” that a reversal or
modification will not affect the validity of a sale or lease made to a party who acted in good faith. No
constraints apply to the appeals court’s action when the sale or lease was made to a bad-faith purchaser or
was stayed pending appeal, or when the appellate court does something other than reverse or modify the
sale or lease authorization.
The Court further reasoned that § 363(m)’s context points to a nonjurisdictional interpretation. The Court
noted that the U.S. Code has multiple provisions dealing with federal courts’ jurisdiction over bankruptcy

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matters—28 U.S.C. §§ 157, 158, and 1334—yet § 363(m) neither resides among those jurisdictional
provisions nor contains any “clear tie” to them.
Having thus concluded that § 363(m) is not jurisdictional, the Court vacated the Second Circuit’s
judgment and remanded the case for further proceedings consistent with the Court’s opinion.
Implications for Bankruptcy Law
The MOAC decision generates a number of uncertainties for bankruptcy courts and litigants. The
Supreme Court’s holding that § 363(m) is not jurisdictional means it is subject to waiver and forfeiture. A
purchaser or lease designee who fails to invoke § 363(m)’s limitations at the earliest possible time in an
appeal from a sale or lease authorization may be precluded from relying on the statute at a later stage of
the appeals process. Where in the appeals process it would be appropriate to invoke § 363(m) may depend
on the facts of a particular case. By contrast, per the text of § 363(m), a party challenging a sale or lease
authorization may avoid the statute’s limitations on appellate relief by seeking a stay pending appeal.
Under Federal Rule of Bankruptcy Procedure 8007, which governs stays pending appeal, a party may
either move for a stay in bankruptcy court or in the court where the appeal is pending, provided that the
party shows that moving first in bankruptcy court is or was impracticable. This increases the potential for
prolonged appellate litigation over sale and lease authorizations, which may divert more assets of the
estate to cover litigation costs, and reduce the amounts available to creditors.
Another ramification of MOAC is its future effect on parties as they negotiate the terms of sales under
§ 363 of the Bankruptcy Code. While the MOAC decision does not disturb § 363(m)’s protections for
good-faith purchasers, it may open the door to a court’s altering the terms of a sale after the fact when, for
example, the bankruptcy court stays a sale or lease authorization pending appeal.
The Court’s focus on statutory context is also noteworthy for bankruptcy purposes. The Court described
the Bankruptcy Code as having a discrete set of provisions governing federal courts’ jurisdiction over
bankruptcy matters: 28 U.S.C. §§ 157, 158, and 1334. The Court noted that the Bankruptcy Code contains
other provisions with a “clear tie” to these jurisdictional statutes. Although the Court did not expressly
label statutes with these “clear ties” as jurisdictional, its analysis might support future arguments and
judicial rulings to that effect, the consequences of which cannot currently be foreseen.
Considerations for Congress
MOAC also has implications that exceed the parameters of the Bankruptcy Code. Along with Wilkins, this
is the second time this term that the Court has applied the clear statement rule to find a statutory provision
nonjurisdictional. These holdings may prove instructive for Congress as it considers drafting both
jurisdictional and nonjurisdictional statutes in the future.
In both MOAC and Wilkins, the Court first parsed the text of the statutes at issue for a clear statement
before moving on to the statutes’ overall context. The Court also said in both cases that, in searching for a
clear statement, it is looking to implement Congress’s “judgment” or “intent.” While the Court made clear
that it does not require “magic words” to find that Congress intended a statute to be jurisdictional,
Congress might consider including an express statement of its intent whenever it wishes for a statute to
have a jurisdictional effect.
Without any clear statement, the Court may consider “statutory traits” such as preconditions to relief or
exceptions leading to alternative outcomes. Such traits may weaken the chances that a court will find a
statute to be jurisdictional. In MOAC especially, the Court emphasized § 363(m)’s lack of language
speaking to a court’s adjudicatory authority, and that the law suggested different outcomes on appeal
based on whether a purchaser acted in good faith, as grounds for holding that Congress did not intend the
statute to be jurisdictional. By contrast, the Court also suggested other statutory traits that might lead it to

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find that Congress intended a statute to have jurisdictional effect—for example, if the provision cross-
references another jurisdictional statute or is situated among other provisions governing the scope of a
court’s jurisdiction over certain subject matter. Thus, in drafting future statutes or amending existing
provisions that Congress intends to be jurisdictional, Congress not only may consider adding language
expressly stating such intent, but might also cross-reference to other jurisdictional statutes.
What then should Congress do if it intends a statute to be nonjurisdictional? The Supreme Court’s
decisions reflect a position that courts will presume a statute to be nonjurisdicitonal absent a clear
statement otherwise. It follows that Congress could draft such a nonjurisdictional statute by refraining
from making any such clear statement as well as by avoiding the other “statutory traits” of jurisdictional
status discussed above.

Author Information

Michael D. Contino

Legislative Attorney

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