The Supreme Court has agreed to hear a dispute between Mall of America and Transform Holdco LLC as to whether a lease Transform acquired at a bankruptcy sale can be challenged after that sale has closed. Sections 363(b)(1) and 363(m) of the Bankruptcy Code are at play here. Section 363(b)(1) generally permits a bankruptcy trustee, after notice and hearing, to use, sell, or lease property that belongs to the bankruptcy estate outside of the ordinary course of business.

Justice Stephen G. Breyer is now retired from the U.S. Supreme Court, serving from August 3, 1994, to June 30, 2022.

One of his legacies—and an exceedingly important one—is this: he has worked, successfully, to erase “public rights” from the lexicon of controlling bankruptcy law.

What follows is a summary of how “public rights” came to be part of that lexicon, and how Justice Breyer works to get it erased.

“PUBLIC RIGHTS” BEGINNING—Northern Pipeline

The case before the U.S. Supreme Court is MOAC Mall Holdings LLC v. Transform Holdco LLC, Case No. 21-1270.

The bankruptcy question upon which the U.S. Supreme Court granted certiorari is this:

Is the § 363(m) limit on appeal of a sale order “subject to waiver”?

That’s the essential question before the U.S. Supreme Court in MOAC Mall Holdings LLC v. Transform Holdco LLC, Case No. 21-1270 (certiorari granted June 27, 2022).

A deep circuit split exists on whether the § 363(m) limitation is, (i) on an appellate court’s jurisdiction, or (ii) on remedies an appellate court can provide.[Fn. 1]

In a decision rendered on June 6, 2022, Justice Sotomayor authored the Supreme Court’s unanimous decision in the case Siegel v. Fitzgerald, holding that a statutory increase in United States Trustee’s fees violated the “uniformity” requirement of the Bankruptcy Clause set forth in Article I, § 7, cl. 4 of the United States Constitution, which empowers Congress to establish “uniform Laws on the subject of Bankruptcies throughout the United States.”1  

It seems like a small thing: Chapter 11 debtors in two states paying lower quarterly fees than Chapter 11 debtors in the other 48 states.

What’s the big deal?

Alabama and North Carolina throw a political hissy fit, three or four decades ago. They want their own Bankruptcy Administrator system (not the U.S. Trustee system established everywhere else). And they are rewarded. The reward includes lower quarterly fees.

Where’s the harm in lower quarterly fees? What follows is an attempt to:

“The Congress shall have Power To . . . establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.”

–U.S. Constitution’s Bankruptcy Clause (Art. 1, Sec. 8, cl. 4).

An Old Losing Streak—Article III

On June 6, 2022, the U.S. Supreme Court issued its opinion in Siegel v. Fitzgerald, in which the Court held that the Bankruptcy Judgeship Act of 2017, Pub. L. 115-72, Div. B, 131 Stat. 1229 (the “2017 Act”) was unconstitutional.

The doctrine of equitable mootness is in the news again. The Supreme Court recently denied a cert. petition in a case where the petitioner wanted the doctrine ruled unconstitutional. KK-PB Financial LLC v. 160 Royal Palm LLC, Case No. 21-1197, 2021 WL 7247541 (petition), 2022 WL 1914118, (denying certiorari).

“No State shall . . . pass any . . . Law impairing the Obligation of Contracts.”

–Art. I, Sec. 10, U.S. Constitution

Increasingly, states are expanding their laws on debtor/creditor relationships, such as receiverships and assignments for benefit of creditors.

Some of these expansions look suspiciously like a Bankruptcy Code Lite—e.g., adding “stay” provisions.

And that can be a constitutional problem, according to long-standing (and recent) opinions of the U.S. Supreme Court.

What follows is a brief summary of three such opinions.