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Validity of an Avoidance Claim Sale
The U.S. Court of Appeals for the Third Circuit recently dismissed an appeal from “the sale of legal claims” as “statutorily moot” under Bankruptcy Code (“Code”) § 363(m) because the appellants “had not obtained a stay” of the effectiveness of the sale order pending appeal. In re Pursuit Capital Mgmt., LLC, 2017 U.S. App. Lexis 20889 (3d Cir. Oct. 24, 2017). According to the court, “we cannot give [the appellants] the remedy they seek without affecting the validity of the sale.” Id. at *37.
Relevance
The issue dodged by the Third Circuit in Pursuit was whether the trustee could sell the estate's avoidance power claims to a third party. Other circuits have addressed the issue directly or indirectly. Mellon Bank v. Dick Corp., 351 F.3d 290,292-93(7th Cir. 2003) (avoidance actions constituted additional collateral for debtor-in-possession loan; secured lenders entitled to preference actions; lenders had benefited estate and had standing to sue; in dicta, court said that preference claims could be sold by court order); In re P.R.T.C., Inc., 177 F.3d 774, 782 (9th Cir. 1999) (trustee assigned to largest creditor avoidance power claims because estate lacked funds to pursue, but creditor required to remit to estate 50% of net proceeds); In re Housecraft Indus. USA, Inc., 310 F.3d 64 (2d Cir.2002) (secured creditor had standing to join with trustee in bringing fraudulent transfer suit on behalf of estate); In re Lahijani, 325 B.R. 282 (9th Cir. BAP 2005) (avoidance actions may be sold for sum certain; do not have to be pursued on behalf of all creditors).
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