ARGUMENT ANALYSIS

Justices dubious about rejecting jurisdiction of appellate courts to review bankruptcy orders

The Supreme Court heard a confusing and wide-ranging discourse yesterday in MOAC Mall Holdings LLC v. Transform Holdco LLC. For the generalist Supreme Court follower, the case is a technical one, involving the authority of a court of appeals to review a bankruptcy order authorizing a bankrupt tenant to sell its interest in a lease. To give a sense of the context, the parties to the case are the landlord at Mall of America, the largest retail shopping center in North America, and Transform Holdco, a shell entity created to purchase most of the operating assets held by Sears before it filed for bankruptcy in 2019.

The purchaser argues that it successfully has acquired the space Sears formerly occupied in the Mall of America. The court granted review of the lower court’s ruling that it had no authority to review that order, but the argument wandered through several different reasons that the purchaser has interposed to persuade the court not to decide the question on which it granted review. Although the justices commented repeatedly that they found the case and the argument confusing, it is easy to summarize the argument from the perspective of a disinterested observer. Substantially all of the discussion involved one of two threads.

The first thread, consuming most of the argument, involves numerous scattered points interposed by Eric Brunstad, the experienced and skilled counsel for the purchaser, all trying to persuade the court to avoid the question presented. Those points dominated the questioning of Douglas Hallward-Driemeier, representing the Mall of America landlord, who tried in vain to discuss the narrow argument that the lower court erred in thinking it had no jurisdiction to consider his challenges to the trial court’s order disposing of the Sears space at Mall of America.

In that diversionary portion of the argument, the central focus was the hypothetical question whether a good-faith purchaser of an asset from the estate of a bankrupt should be exposed to a suit years later that would pull the asset back into the estate of the bankrupt. One concern was that the statute states that the court should not, and might not even have the power to, pull such an asset back into the estate. Justice Neil Gorsuch, for example, commented that “it’s a little unusual to say a good-faith purchaser of a bankruptcy estate might have to disgorge it … some years later after perhaps the bankruptcy estate has been eliminated and the bankruptcy’s discharged.”

Another concern was that the court might as a matter of constitutional law lack power to consider the case – because federal courts under the Constitution generally hold themselves powerless to consider cases where it is clear they can issue no effective relief. On the latter point, Justice Elena Kagan offered Hallward-Driemeier a lifeline, asking if he could resolve Gorsuch’s concerns by asking whether Gorsuch’s assumptions necessarily would “make this [case] constitutionally moot, or is there some other form of relief that the court could provide to resolve this dispute?” Try as he would to bring the court back to the actual state of facts before the court, Hallward-Driemeier seemed unable to resolve the court’s concerns on that topic during his time.

The argument of Colleen Sinzdak (on behalf of the federal government) seemed to make a bit more progress on that point, as she particularly emphasized that Gorsuch’s concerns about remote “good-faith purchasers,” unaware of “the monkey business of the parties,” were irrelevant in a case, like this one, where the purchaser (the shell that purchased the bulk of the assets of Sears) was an affiliate of the bankrupt debtor and a party to the original litigation about the lease: Transform could have no unfair surprise that the landlord was challenging the sale as it has been a party to the litigation from the very beginning. Her explanation prompted Gorsuch to admit: “That’s helpful.”

Another response to the innocent-purchaser problem was aired in comments of Justice Sonia Sotomayor shortly after Brunstad took the podium to defend the decision of the court of appeals. Sotomayor (channeling her persona as a former trial judge) had taken the time to read the sale order approved by the bankruptcy judge and commented: “If I go to the sale order itself, [it] reserved the landlord’s right to object to any lease assignment that failed to conform to the requirements of 365” (a Bankruptcy Code provision that gives commercial landlords protections against assignments by bankrupt tenants). As Sotomayor emphasized: “The sale order itself reserved the right of objection. That’s what you bought.”

As Brunstad’s time at the podium progressed, a second thread appeared: a relatively brief discussion of the question on which the justices actually granted review. Although truncated, the questioning was compelling because no justice uttered a single word that suggests any likelihood of a vote in favor of the purchaser. The dominant comments here were from Justices Amy Coney Barret and Elena Kagan. Barrett started with the polite suggestion early in Brunstad’s presentation that “I feel like you’re taking us far afield of the question that we granted cert on. … Why can’t we just answer the jurisdictional question that we granted cert on and then send it away and you can make your arguments below?”

Kagan immediately jumped in, acknowledging that Brunstad had raised “a bunch of different jurisdictional questions,” but suggesting, “as Justice Barrett said,” that there was “usefulness to our deciding” the “one we took cert on …. And then, as to anything else, send it back and they can decide on their own jurisdiction with respect to the rest and you’ll make your arguments there.”

Several of the justices seemed sympathetic to that approach. Barrett repeatedly tried to rein in Brunstad’s far-ranging discussion, asking a few minutes later “why can’t, as Justice Kagan and I were talking about, we answer the question on which we granted cert, and you should feel real good then if you’re right about your chances below.” If Brunstad is so confident about all of his new arguments, she suggested, he should be happy to present those arguments – none of them presented to or decided by the courts below – to the court of appeals. As she commented: “Let’s imagine you lose and we say it’s not jurisdictional. All we’re saying is that this isn’t a jurisdictional bar. … Any other arguments you have, you can take them up below.”

Later in Brunstad’s presentation, during the few moments that the justices spent on the actual question before them, several justices took turns suggesting that he had no substantial argument to support the decision of the court of appeals that it had no jurisdiction to review the bankruptcy court order. Kagan, for example, interrupted Brunstad’s discussion of the context of the statute to comment that “jumping to context in a place where we’ve always said you need a clear statement in the text, where is your clear statement in 363(m)? … I think what we’ve always meant when we say a clear statement about jurisdiction is something says something like the court has no jurisdiction.” When Brunstad argued that the statue was clear enough, Gorsuch interjected that “we normally require magic words like ‘no jurisdiction,’” something this statute lacks.

The argument suggests that the only thing up for debate is whether the justices will decide the question presented is important enough to warrant their attention. But if it does, as in Wilkins v. United States last week, this looks like a good example of a case where a lower court failed to understand how clear a statute needs to be to create a jurisdictional bar that the Supreme Court will respect.