R. Ray Fulmer, II v. Fifth Third Equipment Finance Company, et al.

11 U.S.C. §363(m) moots claims against good faith purchasers at bankruptcy auctions if the claims invalidate the sale. In this case, the court’s nonappealable approval of a §363 sale of the debtor’s assets transferred $106 million in priority-violating distributions to preferred creditors and nonpurchasers. The 6,000 non-preferred creditors received nothing. The court converted the proceeding to Chapter 7 and appointed a trustee four months post-sale. Petitioner sued the debtor’s fiduciaries, Creditor Committee members and other non-purchasers for damages arising from their pre- and post-petition concealment of false asset valuations and breach of contractual and fiduciary duties owed to the debtor. Some of the false valuations were used to score the auction bids. The court dismissed the entire damages suit as an impermissible collateral attack on a final sale order. The Eighth Circuit affirmed, holding in part that the priority violations were non-jurisdictional errors. Two related questions are presented: Whether a final 11 U.S.C. §363 sale order that distributes assets in violation of priority is unenforceable due to jurisdictional error; and Whether §363(m) bars damages claims against nonpurchasers arising from duties existing and breached independent of a §363 sale, and which would not overturn the sale result or the sale approval order.