     Case: 19-60163       Document: 00515244420        Page: 1    Date Filed: 12/19/2019




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                                            FILED
                                                                      December 19, 2019
                                      No. 19-60163
                                                                         Lyle W. Cayce
                                                                              Clerk
In the Matter of: VCR I, L.L.C.

              Debtor

DR. PRADEEP RAI,

              Appellant

v.

DEREK A. HENDERSON,

              Appellee



                   Appeal from the United States District Court
                     for the Southern District of Mississippi
                             USDC No. 3:18-CV-420


Before OWEN, Chief Judge, and HAYNES and COSTA, Circuit Judges.
PER CURIAM: *
       To encourage the sale of estate property, the Bankruptcy Code bars
appellate review of a sale approved by the bankruptcy court if the purchaser
acted in good faith and no one obtained a stay pending appeal. 11 U.S.C.



       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                   No. 19-60163

§ 363(m); see also In re Sneed Shipbuilding, Inc., 916 F.3d 405, 409–10 (5th
Cir. 2019). Because that is what happened here, we AFFIRM the district
court’s dismissal of the appeal.
                                        I.
      VCR I, LLC filed for Chapter 11 bankruptcy. After filing, VCR agreed to
sell 7.65 of 44 acres of land in Madison County, Mississippi—a parcel identified
as Tract 4—for $612,500 and a 30-year restrictive easement on an adjacent
parcel to one of its creditors, Gluckstadt Holdings, LLC. The bankruptcy court
never authorized the sale, however, and later converted the case to a Chapter
7 bankruptcy.
      With the conversion, the task of selling property fell to the Chapter 7
trustee. The trustee eventually asked the bankruptcy court to allow an auction
of real estate, including Tract 4. The motion proposed an opening bid of
$612,500 for Tract 4, the price the debtor had negotiated before the Chapter 7
conversion. The court granted the motion and approved the trustee’s request
to hire Taylor Auction and Realty, Inc.
      Benny Taylor, the auctioneer, marketed the sale.             Among other
marketing techniques, he mailed an informational brochure to prospective
bidders; ran advertisements in local and national newspapers; posted a sign at
each tract and on a fence along a nearby highway; emailed brochures to
members of a popular real estate website; and ran advertisements on
commercial real estate websites. Although some of the online advertising did
not generate user “clicks,” 24 bidders attended the auction. The “room was
full, all seats were filled,” and there was “standing room only in the back.”
      Taylor used a two-round bidding process to maximize the price. May-
Hawkins, LLC and Phoenix Development Company, LLC submitted the
highest bid—$6.75 million—for four tracts: $1.425 million for Tract 1; $1.05



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million for Tract 2; $1.95 million for Tract 3; and $2.325 million for Tract 4.
The final sale price averaged $5.99 per square foot, one-and-a-half times higher
than the trustee’s presale estimate of $4.00 per square foot. Tract 4’s closing
price of $2.375 million was almost four times greater than its opening bid of
$612,500, the price at which the debtor had previously agreed to sell.
      Dr. Pradeep Rai, the manager and a member of VCR, objected to the sale.
He argued that Taylor’s auction fee was unreasonably high, the property sold
for an unreasonably low price, and that Taylor failed to make reasonable
efforts to market the property.
      The bankruptcy court held a hearing on Rai’s objections. Taylor testified
that his marketing efforts were successful, the bidding was “competitive” and
“strong,” and the auction was “effective.”      Taylor admitted, however, that
advertisements on two commercial real estate websites were deficient and that
all 24 registered bidders were from Madison County or the Jackson area.
      Jerry Lee Hawkins, a broker representing May-Hawk and Phoenix
Development, also testified that the bidding was competitive and that each
bidder was “knowledgeable” about the local real estate market.           Hawkins
denied colluding with any of the other bidders, Taylor, or the trustee. And he
denied “do[ing] anything at all to stop the other bidders from bidding in a
competitive fashion.”
      On cross-examination, Hawkins conceded that one of his company’s
realtors jointly represented KRM Properties, Inc.—another bidder—with an
agent from an independent firm. Hawkins testified that had KRM Properties
successfully bid, his company would have shared the commission.               But
Hawkins denied talking to the owner of KRM Properties or to his agent about
the bidding process.        On redirect, Taylor confirmed that the joint
representation did not “chill the bidding in any way.”



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      After closing arguments, the court made the following findings of fact
and conclusions of law:
   • The auction “was properly . . . and adequately marketed”;
   • the auction had “adequate participation”;
   • the auction encouraged competitive bidding that increased the sale price;
   • there was “no collusion” even though one firm represented different
      auction bidders;
   • the sale was “an arm’s length transaction”;
   • “the price was adequate under the circumstances”; and
   • May-Hawk and Phoenix Development were good-faith purchasers under
      11 U.S.C. § 363(m).
      Overruling Rai’s objections, the court approved the sale. Rai did not
obtain a stay of the sale. So, in August 2018, the trustee conveyed the property
by special warranty deed to the winning bidders.
      Rai appealed to the district court. Noting uncertainty about whether a
bankruptcy court’s good-faith finding under section 363(m) is reviewed de novo
or for clear error, the court held that the bankruptcy court’s conclusion was
“correct under either standard.” The district court reasoned that the broker’s
dual representation did “not, in and of itself, suggest collusion,” because “the
bidding was active and competitive.” It also emphasized that Tract 4’s final
sale price was “nearly four times” greater than Gluckstadt’s opening bid and
that the entire property’s average price of $5.99 per square foot was much
higher than the trustee’s presale estimate of $4.00 per square foot. Moreover,
the district court found that Rai’s marketing challenge based on failed online
advertising “completely ignore[d] the other marketing channels Taylor Auction
used.” Concluding that the bankruptcy court correctly determined that the




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purchasers acted in good faith and that Rai failed to obtain a stay of the sale,
the district court dismissed Rai’s appeal as moot under section 363(m).
      Rai appealed again.
                                         II.
      Section 363(m) provides:
      The reversal or modification on appeal of an authorization under
      subsection (b) or (c) of this section 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.

11 U.S.C. § 363(m). This so-called “statutory mootness” provision “assures
purchasers that once the bankruptcy court approves the sale and it is
consummated (that is, the order is not stayed), then no appellate court can
later second-guess the deal.” Sneed Shipbuilding, 916 F.3d at 408–10. That
“blunt finality” might be harsh, but it “attracts investors and helps effectuate
debtor rehabilitation.” Cinicola v. Scharffenberger, 248 F.3d 110, 122 (3d Cir.
2001).
      A bankruptcy appeal is moot under section 363(m)—and must be
dismissed—if the challenging party failed to obtain a stay of a sale order and
the purchaser bought the debtor’s assets in good faith. Matter of VCR I, L.L.C.,
922 F.3d 323, 326 n.2 (5th Cir. 2019). Rai did not obtain a stay, so the only
issue is whether the winning bidders were good-faith purchasers.
      A good faith purchaser is “one who purchases the assets for value, in
good faith, and without notice of adverse claims.” In re TMT Procurement
Corp., 764 F.3d 512, 521 (5th Cir. 2014) (quoting Hardage v. Herring Nat’l
Bank, 837 F.2d 1319, 1323 (5th Cir. 1988)). “[T]he misconduct that would
destroy a purchaser’s good faith status . . . involves fraud, collusion between



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                                 No. 19-60163

the purchaser and other bidders or the trustee, or an attempt to take grossly
unfair advantage of other bidders.” Id. (ellipses in original) (quoting In re
Bleaufontaine, Inc., 634 F.2d 1383, 1388 n.7 (5th Cir. 1981)).
      The trustee bears the burden of establishing a good faith purchase. Id.
at 520. Like the district court, we need not resolve the appellate standard of
review for the bankruptcy court’s finding of good faith because we would affirm
whether our review is de novo or for clear error.
                                      III.
      Overwhelming evidence shows this was a good faith purchase. Taylor
extensively marketed the auction for two months; 24 registered bidders
attended the sale; two rounds of bidding increased the sale price; Tract 4’s
closing price was nearly four times greater than its opening bid; and the $6.75
million final sale price for all tracts was higher than the trustee anticipated.
Rai challenges the bankruptcy court’s good-faith finding on three grounds.
None gives us serious pause.
      Rai primarily argues that Hawkins, the real estate broker, violated
ethical and fiduciary duties, which Rai believes precludes a finding of good
faith. This allegation is based on Hawkins’s representing the purchasers and,
through an agent of his firm, another bidder, meaning that Hawkins would
have earned a commission if either bidder bought the property. But Rai does
not show that Hawkins failed to disclose this conflict or to obtain consent to
represent both parties. More fundamentally, as the district court observed,
that Hawkins’s firm represented two bidders does not show collusion. Because
Hawkins would receive a commission from the sale to either of these bidders,
he had no incentive to collude and depress the price; a reduction in the sales
price would have adversely affected his pocketbook. Neither evidence nor
common sense supports Rai’s collusion allegation.



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      Rai next argues that Taylor inadequately marketed the auction,
resulting in suppression of the bidding.        It is true that some ads were
ineffective, but that is typically true of marketing efforts; some strategies work
better than others. That is why marketeers try different approaches, which
Taylor did. The result was a well-attended and competitive auction. Rai
complains that only bidders from Mississippi attended. But a host of reasons
might explain why there was only local interest despite national marketing
efforts. None of this undermines the compelling evidence that the real estate
sold for a market price. It is brazen for Rai to contend otherwise when the
company he helped run tried to sell Tract 4 just a couple years earlier for less
than 1/3 of what it sold for at auction.
      Lastly, Rai argues that Taylor might not have been a disinterested
auctioneer because the trustee’s son works for him “[f]rom time to time.” It is
unclear how this additional conjecture amounts to fraud that undermines the
competitive nature of the auction or otherwise casts doubt on the economic
evidence that the land was sold for value at a competitive auction.
                                      ***
      There was a good faith purchase of the land. Because no one obtained a
stay of the sale, the finality interest section 363(m) promotes kicked in. No
appeal could disrupt the purchase.         We thus AFFIRM the district court’s
dismissal of the appeal.




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