SR Construction, Inc. v. RE Palm Springs II, LLC, et al.

Bankruptcy Code section 363(m) provides that, unless stayed pending appeal, a sale or lease of property under section 363(b) or (c) cannot be reversed on appeal if the purchaser acted “in good faith.” The Bankruptcy Code does not define “good faith,” and the circuits have taken different approaches to determining whether a purchaser acted in good faith. Some circuits consider only evidence of bad faith conduct. Others also consider whether the purchaser had notice of adverse claims. Still others are unclear about whether notice of adverse claims can defeat good-faith status. And the Fifth Circuit here imposed a requirement that no other circuit has imposed: the adverse claim must be a claim of ownership of the property at issue. The question presented is whether a purchaser with notice of adverse claims that the property is not part of the bankruptcy estate and is subject to foreclosure based on a superior lien can be a “good faith purchaser” for purposes of section 363(m). (i)