Supreme Court Decides MOAC Holdings LLC v. Transform Holdco LLC, et al.

On April 19, 2023, the United States Supreme Court issued a unanimous decision in MOAC Mall Holdings LLC v. Transform Holdco LLC et al., No. 21–1270, holding 11 U.S.C. § 363(m) of the Bankruptcy Code is not a jurisdictional provision because it does not satisfy the clear-statement principle, which provides that a jurisdictional provision be clearly articulated as such. 

This appeal arises out of the Chapter 11 bankruptcy proceedings of Sears Roebuck & Company. In 2019, Sears disposed of certain assets of the bankruptcy estate in its capacity as debtor-in-possession, pursuant to 11 U.S.C. § 363(b)(1). Sears had previously sold most of its pre-bankruptcy assets to respondent Transform Holdco LLC, including the right to designate an assignee to a lease between Sears and the petitioner, MOAC Mall Holdings LLC. 

Transform subsequently assigned the Sears-MOAC lease to its subsidiary. MOAC objected, arguing before the bankruptcy court that Sears failed to show “adequate assurance of future performance by the assignee” pursuant to 11 U.S.C. § 365(f)(2)(B). The bankruptcy court rejected MOAC’s adequate-assurance argument and entered an assignment order authorizing Transform’s assignment of the Sears-MOAC lease to Transform’s subsidiary. 

MOAC appealed the entry of the assignment order to the district court pursuant to 11 U.S.C. § 363(m). Section 363(m) provides:

[t]he 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.

Transform argued the district court lacked jurisdiction to hear MOAC’s appeal. The district court agreed. The Second Circuit affirmed, based on its own precedent, that Section 363(m) is a jurisdictional provision. 

The Supreme Court vacated the ruling below, holding Section 363(m) is not a jurisdictional provision because it does not satisfy the Court’s clear-statements rule, which evaluates whether Congress likely intended for “noncompliance with a precondition [to] govern[] a court’s adjudicatory capacity.” The Court clarified that Congress was not required to use “magic words,” but the language of Section 363(m) was not clearly jurisdictional based on application of “traditional tools of statutory construction.”

The Supreme Court observed that its ruling is confirmed by the statutory text. Section 363(m) lacks any “clear tie” to the Bankruptcy Code’s other, “plainly jurisdictional” provisions and is not contained among the remaining federal jurisdictional provisions, e.g., 28 U.S.C. §§ 1334 (a)–(b), (e). 

The Supreme Court also disagreed the matter was moot despite the fact the petitioner’s ultimate relief hinged on a speculative, merits-based evaluation of the bankruptcy court’s treatment of the leasehold estate. The Supreme Court observed it “disfavor[ed] these kinds of mootness arguments” that “confuse[] mootness with the merits.” The Supreme Court “decline[d] to act as a court of first view,” and observed it could not conclude MOAC had no concrete interest in the outcome of the appeal, namely, reversal of the district court’s jurisdictional ruling. The Court therefore vacated the judgment of the Second Circuit and remanded for further proceedings. 

Justice Jackson delivered the opinion for a unanimous Court.