Statutory Mootness Under 11 U.S.C. §363(m): The Irreversibility of Bankruptcy Asset Sales to Good-Faith Purchasers and Mootness of Eviction Appeals

Introduction

In In Re: Clean Air Car Service & Parking Branch Two, LLC, the Second Circuit confronted three consolidated appeals arising from Chapter 11 bankruptcy proceedings: two orders approving sales of real-estate assets and one order authorizing the eviction of the debtor’s former tenant. Appellant Clean Air Car Service & Parking Branch Three, LLC challenged (1) the Bankruptcy Court’s approval of public auctions under 11 U.S.C. §363(b), (2) the subsequent eviction order, and (3) the District Court’s dismissal of those appeals as moot. Central to the dispute were questions of subject-matter jurisdiction, statutory mootness under §363(m), and equitable mootness. This commentary unpacks the case background, the Second Circuit’s rulings, the precedents relied upon, the Court’s legal reasoning, and the broader impact on bankruptcy appellate practice.

Summary of the Judgment

On May 15, 2025, a three-judge panel of the Second Circuit issued a summary order dismissing all three appeals. The Court held:

Subject-Matter Jurisdiction: Appellant’s contention that the Bankruptcy Court lacked jurisdiction was rejected. There was ample record support for the debtors’ authority to file Chapter 11 petitions.
Statutory Mootness of Sale Appeals: Under 11 U.S.C. §363(m), the two sale orders were statutorily moot because each property had been sold at a public auction to good-faith purchasers for value, and no stay had been obtained.
Mootness of the Eviction Appeal: Because Appellant was physically evicted and no longer held any property interest, the eviction appeal became moot—no effective relief could be granted.
Equitable Mootness: Although not strictly necessary after finding statutory mootness, the Court noted the presumptive equitable mootness of appeals following substantial consummation of a confirmed plan.

Accordingly, the Second Circuit denied Appellant’s motion to dismiss for lack of jurisdiction and granted the Appellees’ motions to dismiss all appeals as moot.

Analysis

1. Precedents Cited

In re Kalikow, 602 F.3d 82 (2d Cir. 2010): Established plenary review of district‐court orders in bankruptcy appeals.
Bellin v. Zucker, 6 F.4th 463 (2d Cir. 2021): Held mootness is a legal question subject to de novo review.
In re Gucci, 126 F.3d 380 (2d Cir. 1997): Defined “good-faith purchaser” for §363(m) as one who pays value, acts in good faith, and lacks notice of adverse claims.
In re Colony Hill Assocs., 111 F.3d 269 (2d Cir. 1997): Auction sales generally satisfy the “value” element for good-faith purchases.
White River Amusement Pub., Inc. v. Town of Hartford, 481 F.3d 163 (2d Cir. 2007): Clarified the “effective relief” test for mootness under Article III.
In re M.A.S. 284 Parking Corp., 1997 WL 62958 (2d Cir. Jan. 28, 1997) (summary order): Held eviction appeals moot once eviction is executed.
Adams v. Standard Fed. Bank, 371 F. App’x 187 (2d Cir. 2010): Reaffirmed mootness of eviction appeals post-eviction.
In re BGI, Inc., 772 F.3d 102 (2d Cir. 2014) and In re MPM Silicones, L.L.C., 874 F.3d 787 (2d Cir. 2017): Articulated the doctrine of equitable mootness following plan consummation.

2. Legal Reasoning

A. Subject-Matter Jurisdiction. Appellant argued that post-foreclosure LLC members lacked authority to file bankruptcy petitions, thus ousting the Bankruptcy Court of jurisdiction. Citing the UCC sale record and state-court findings confirming the purchasers’ good faith, the Circuit found ample evidence of valid authorization and denied the jurisdictional challenge.

B. Statutory Mootness Under §363(m). Section 363(m) insulates a sale to a “good-faith purchaser” from reversal on appeal if the sale was not stayed. The Court applied the three-part Gucci test—value, good faith, and absence of notice of adverse claims—and held that (i) auctions establish “value,” (ii) no evidence of fraud or collusion existed, and (iii) the only purported “adverse claims” (a meritless authority challenge and a disputed lease) did not qualify. As a result, any appeal of the sale orders was statutorily moot.

C. Mootness of the Eviction Appeal. Because the eviction had been executed by the U.S. Marshal and the purchaser occupied the premises, no effective relief (reinstatement or damages) could be fashioned. Under Article III, the dispute was non-justiciable.

D. Equitable Mootness (Supplemental). Although the statutory mootness holdings were sufficient, the Court noted that the confirmed plans had been substantially consummated and that unwinding these transactions would undermine reorganization. Appellant neither obtained a stay nor fit within any exception to equitable mootness.

3. Impact

Bankruptcy Sale Appeals: This decision reaffirms the ironclad protection §363(m) affords to purchasers at non-stayed, good-faith auctions. Appellants must secure a stay to preserve appellate rights.
Eviction Order Appeals: Eviction appeals will routinely be deemed moot once eviction is executed and no tangible relief remains.
Equitable Mootness: The case underscores the presumption of equitable mootness following plan consummation and the difficulty of unsettling completed reorganizations.
Practical Takeaway: Parties challenging a §363 sale should move promptly for a stay, and prospective appellants from eviction orders must recognize the high bar for obtaining retroactive relief.

Complex Concepts Simplified

11 U.S.C. §363(b) vs. §363(m): §363(b) authorizes courts to approve asset sales outside the ordinary course of business; §363(m) protects good-faith purchasers from later appellate upset.
Good-Faith Purchaser: One who buys for value, in good faith, and without knowledge of competing claims. Auctions usually satisfy the “value” element.
Statutory Mootness: A statutory bar to appellate jurisdiction when Congress has declared that certain transactions are final despite challenges.
Equitable Mootness: A judge-made doctrine barring appeals that would unravel a reorganized debtor’s plan after substantial consummation.
Stay Pending Appeal: A court order halting the effect of a judgment until appeal is resolved—critical here to preserve appellate scrutiny of §363 sales.

Conclusion

In Re: Clean Air Car Service & Parking Branch Two, LLC crystallizes the protective reach of 11 U.S.C. §363(m) over bankruptcy asset sales and confirms that eviction appeals are swiftly mooted once possession has changed hands. The ruling underscores the imperative for appellants to obtain a stay when challenging §363 sales and serves as a cautionary tale about the finality of reorganizations post-confirmation. In the broader legal landscape, it reinforces predictability and transactional stability in Chapter 11 proceedings by minimizing appellate disruption once good-faith sales and evictions are executed.