Current Month (August 2026)
The following pieces are part of a series of summaries of the leading cases related to bankruptcy decided in the last two years.
Rooker-Feldman Doctrine: T. M. v. University of Maryland Medical System Corp., 146 S. Ct. 1739 (2026)
By Mingxian (Felix) Bao, Columbia Law School
The Rooker-Feldman doctrine bars federal suits seeking review and rejection of state court judgments. The doctrine derives from a pair of cases. Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), held that a federal district court could not declare a state court judgment null and void under the U.S. Constitution because doing so required an exercise of appellate jurisdiction over state courts, a power belonging only to the Supreme Court. District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983), held that a federal district court lacked jurisdiction to review a final judgment issued by a state high court because such review could only be obtained in the Supreme Court. Ambiguity remained as to whether the doctrine applied only to final judgments rendered by the highest court of a state—in other words, after the plaintiff had exhausted all avenues of appeal in state court—or to final judgments issued by any state court, including those judgments by a state trial court pending appeal in state appellate courts. In T. M. v. University of Maryland Medical System Corp., 146 S. Ct. 1739 (2026), the Supreme Court eliminated this ambiguity by holding that the Rooker-Feldman doctrine would prevent federal district courts from reviewing a final judgment issued by state courts, regardless of whether such judgment is issued by the highest court of a state.
Petitioner T. M. (“Petitioner”) was involuntarily committed to a psychiatric care facility under the management of the University of Maryland Medical System Corporation et al. (“Respondents”), where she was subjected to antipsychotic medication by injection. After a flurry of litigation in Maryland state trial court, the Petitioner and Respondents reached a settlement and obtained a consent order that provided for the Petitioner’s immediate release subject to various conditions, including continuing treatment under a new psychiatrist, continuing taking prescribed medications, and the dismissal with prejudice of all pending action against the Respondents. Ten days after the state trial court entered the consent order, the Petitioner filed a federal habeas suit in the District of Maryland, arguing that the consent order should be nullified because it violated her state and federal due process rights and was obtained under duress. In the meantime, the Petitioner appealed the consent order in a state appellate court, raising substantively the same arguments. The district court dismissed the Petitioner’s complaint sua sponte for lack of subject matter jurisdiction under the Rooker-Feldman doctrine. The U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal. The U.S. Supreme Court granted certiorari.
The Court affirmed, holding that the Rooker-Feldman doctrine bars plaintiffs from seeking review of state court judgments in federal district courts, regardless of whether such judgments are final judgments rendered by the highest court of a state. Writing for the majority, Justice Sotomayor explained that the Rooker and Feldman holdings rely on two essential and closely related rationales: first, “when plaintiffs ‘essentially invit[e] federal courts of first instance to review and reverse unfavorable state court judgments,’ they are seeking an exercise of appellate jurisdiction”; and second, such “appellate jurisdiction to reverse or modify a state-court judgment” rests exclusively within the Supreme Court by virtue of 28 U.S.C. § 1257, while federal district courts have only original jurisdiction. T. M., 146 S. Ct. at 1748 (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 283–84 (2005)).
Justice Sotomayor offered several reasons for rejecting T. M. and the dissent’s proposition that Rooker-Feldman should be limited to only final judgments “rendered by the highest court of a State in which a decision could be had.” Id. (internal citations omitted). The Court was not persuaded by the Petitioner’s argument that “an action commenced in federal district court ‘seeking the adjudication of a freestanding [federal-question] cause of action’ always technically ‘invok[es] the district court’s original jurisdiction.’” Id. at 1749. The Court’s Rooker-Feldman precedents, contrary to the Petitioner’s argument, “plainly adopt[ed] a different, more functional view of original and appellate jurisdiction.” Id. The Court criticized the Petitioner and the dissent’s theory as relying solely on a “strict negative inference” from 28 U.S.C. § 1257, which offers the Supreme Court limited appellate jurisdiction over final judgments made by a state high court. Id. The Court noted that Feldman overtly rejected such reasoning because “the fact that [the Supreme Court] may not have jurisdiction to review a final state-court judgment . . . does not mean that a United States district court should have jurisdiction [to review a final state-court judgment] over the claims.” Id. at 1750 (quoting Feldman, 460 U.S. at 490 n.16). In response to the dissent’s argument that Exxon restricted the application of the Rooker-Feldman doctrine to cases with the same specific procedural circumstances, the Court emphasized that Exxon also read Rooker and Feldman from a functional perspective as “essentially invit[ing] federal courts of first instance to review and reverse unfavorable state-court judgments.” Id. at 1747 (quoting Exxon, 544 U.S. at 283–84).
The Court further argued that adopting T. M. and the dissent’s theory would compromise the “cooperation and comity” between federal and state courts, a principle that undergirds the federal system. Id. at 1751 (internal citation omitted). The Court cautioned that the proposed theory limiting the scope of Rooker-Feldman would “produce arbitrarily different results depending on when, exactly, a federal suit seeking review of a state-court judgment is filed” and result in duplicate efforts “even though the state [appeals] process may well resolve the dispute in [the plaintiff’s] favor.” Id. at 1752. The Court was also concerned that preclusion and abstention doctrines would not adequately protect federalism principles if the Rooker-Feldman doctrine were constrained, for “it is unclear . . . if [preclusion and abstention] doctrines even apply in cases . . . where a plaintiff does not attempt to relitigate the same claims in state and federal forums but rather complains of injuries that stem directly from a state-court judgment.” Id. Finally, the Court argued that T. M. and the dissent’s theory would complicate, as opposed to simplify, a federal district court’s Rooker-Feldman analysis because “whether a given state-court judgment is a reviewable final judgment under § 1257(a)” and whether a particular state proceeding has functionally ended are by no means clear-cut. Id. at 1753.
Writing for the dissent, Justice Barrett argued that the majority erred in treating the Supreme Court’s exercise of appellate jurisdiction as functionally equivalent to a federal district court’s exercise of original jurisdiction over a state court plaintiff’s collateral attack. Id. at 1762. Justice Barrett criticized the majority for returning to 28 U.S.C. § 1331 as a statutory basis for the Rooker-Feldman doctrine, a line of reasoning from which the Exxon court explicitly retreated. Section 1331, which offers federal district courts original subject matter jurisdiction over civil actions arising from federal questions, neither contains “a carveout for collateral attacks” nor specifically proscribes against collateral attacks on state court judgments while permitting collateral attacks on federal ones. Id. at 1763. Instead, Justice Barrett contended that Rooker-Feldman should be justified primarily by § 1257, which as applied to the instant case would produce the opposite result. Section 1257, which grants the Supreme Court appellate jurisdiction over state court judgments only when they are rendered by a state high court, does not necessarily “‘preclud[e]’ district courts from exercising the jurisdiction [district courts] would ‘otherwise’ have.” Id. at 1764 (quoting Exxon, 544 U.S. at 291). Accordingly, the dissent argued that a faithful reading of Exxon would conclude that T. M.’s complaint did not fall within the proscription of Rooker-Feldman, as the petitioner had a pending appeal in state court.
Furthermore, the dissent faulted the majority for grounding the Rooker-Feldman doctrine within federalism principles. Not only is the word federalism absent from the Rooker and Feldman decisions, Justice Barrett observed, but the Exxon court also dismissed federalism as the main animus behind Rooker-Feldman. Id. at 1766. The Exxon court acknowledged Exxon’s litigation strategy as a “clear affront to federalism,” yet it still held that the doctrine did not apply to the company’s complaint in federal district court. Id. (citing Exxon, 544 U.S. at 294 n.9). Moreover, as applied to T. M.’s case, the dissent argued that Maryland’s existing preclusion rules, aided by abstention doctrines in general, provided adequate protection against potential conflicts between federal and state courts. Id. Lastly, the dissent highlighted the paradox in the majority’s dismissal of T. M.’s complaint—which partly arose under 42 U.S.C. § 1983—on federalism grounds. Id. at 1767.
Dismissal/Conversion: In re O’Hara, 167 F.4th 358 (6th Cir. 2026)
By Mingxian (Felix) Bao, Columbia Law School
A bankruptcy court’s decision to deny a Chapter 13 debtor’s motion for voluntary dismissal filed after the case has been converted to Chapter 7 may be reviewed by the court of appeals. A counsel’s misjudgment as to the promptness of the bankruptcy court’s entering of a conversion order does not constitute excusable neglect such that relief from that judgment is warranted under Federal Rules of Civil Procedure 60(b)(1).
In In re O’Hara, 167 F.4th 358 (6th Cir. 2026), Thomas William O’Hara (“Debtor”) filed a motion to dismiss his Chapter 13 bankruptcy case after the bankruptcy court expressly communicated its intention to convert the case into Chapter 7 during a hearing. In that hearing, the bankruptcy court acknowledged on record that a Chapter 13 debtor had an “absolute right” to voluntarily dismiss his own case and reminded the Debtor’s counsel to “act with quickness” in filing a motion to dismiss before a conversion order was entered, should it be within his client’s intention to do so. In re O’Hara, 167 F.4th at 363 (internal citation omitted). The hearing was adjourned at 12:05 p.m. The bankruptcy court entered its conversion order (“May 8 Conversion Order”) at 5:48 p.m. The Debtor filed a motion for voluntary dismissal at 7:12 p.m., which was denied the next day. In its memorandum decision (“May 9 MTD Order”) denying the Debtor’s motion, the bankruptcy court explained that the conversion order “took effect upon its entry” and that “after the conversion of a case from chapter 13 to chapter 7 . . . the provisions of chapter 13 no longer ‘hold[] sway.’” Id. (internal citation omitted).
Nearly two months later, the Debtor filed a motion titled “Motion to Dismiss Case and or for Relief from Order Pursuant to Federal Rule of Procedure 60(b)(1)&(6),” which was again denied by the bankruptcy court (“August 7 Order”). In that motion, the Debtor’s counsel argued that “the ‘84 minute differential’ between the entry of the conversion order and the filing of the motion to dismiss ought to be considered something akin to excusable neglect.” Id. at 364. The bankruptcy court rejected the argument, viewing the untimeliness instead as a consequence of “[Counsel’s] litigation strategy decisions, not an excusable mistake.” Id. On appeal, the district court affirmed the decision. The Debtor further appealed to the U.S. Court of Appeals for the Sixth Circuit, which affirmed.
Writing for the majority, Judge Moore limited the Sixth Circuit’s analysis to the appeal of the August 7 Order because the Debtor’s other appeals were untimely. Id. at 366. However, because notices of appeal must be construed liberally, and because “the conversion order is inextricably bound up with the motion to dismiss,” the court considered the appeal of the August 7 Order as also addressing the May 8 Conversion Order, even though the appeal made express reference only to the May 9 MTD Order (but not the May 8 Conversion Order). Id. The court reasoned that “relief from the denial of the dismissal here would necessarily require relief from the conversion order,” and consequently “dismissal under Chapter 13 is possible only if the conversion to Chapter 7 is undone.” Id. The court noted additionally that case law from sister circuits, while not addressing the issue head-on, “demonstrate[d] a tacit understanding that these are circumstances in which conversion and dismissal are firmly woven together.” Id. at 368–69.
As to the merits of the Debtor’s appeal, the Sixth Circuit agreed with the lower courts that the Debtor’s untimely filing of his motion to voluntarily dismiss the Chapter 13 case did not constitute excusable neglect within the meaning of Rule 60(b)(1). The rule provides a party relief from a final judgment on the grounds of “mistake, inadvertence, surprise, or excusable neglect.” Fed. R. Civ. P. 60(b)(1). Whether relief is appropriate depends on three factors: “(1) culpability . . . or whether neglect was excusable; (2) any prejudice against the [nonmoving] party; and (3) whether the [moving] party holds a meritorious underlying claim or defense.” In re O’Hara, 167 F.4th at 371 (quoting Yeschick v. Mineta, 675 F.3d 622, 628–29 (6th Cir. 2012)). Whether neglect is excusable depends further on five factors: “the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.” Id. (quoting Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993)). Here, the court held that the Debtor’s delay in filing his motion for voluntary dismissal was not excusable because he was “on notice for months ahead of the May 8 hearing that the U.S. Trustee’s motion to dismiss could result in conversion” and therefore “could have moved to dismiss voluntarily at any time.” Id. That the Debtor committed a “strategic miscalculation” in underestimating the promptness of the bankruptcy court’s entrance of the conversion order did not provide a basis for relief under Rule 60(b)(1). Id.
In his dissent, Judge Bush argued that the circuit court lacked jurisdiction to review the bankruptcy court’s May 9 MTD Order. A bankruptcy court’s order is final and appealable if it is “entered in a proceeding” and “terminat[es] that proceeding,” the dissent noted. Id. at 372. Because the May 9 MTD Order merely denied the Debtor’s motion to voluntarily dismiss and did not terminate any proceeding in the bankruptcy court, it did not fall within the appellate jurisdiction of the Sixth Circuit. Id. The dissent also criticized the majority for implicitly relying on the pendant appellate jurisdiction doctrine and for overreading out-of-circuit authority, especially when none of the cases cited by the majority addressed the specific issue of “whether an order denying a motion to dismiss [was] appealable.” Id. at 373–74. Furthermore, the dissent argued that the majority erred in extending the Debtor’s appeal over the May 8 Conversion Order, when the Debtor had plainly waived any challenge to that order during oral argument. Id. at 374.
Turnover/Contempt: McGann v. Jagow (In re McGann), Nos. 25-1065, 25-1066 (B.A.P. Nos. 24-007-CO, 24-004-CO), 2025 WL 3470372 (10th Cir. 2025)
By Mingxian (Felix) Bao, Columbia Law School
A pro se debtor who fails to comply with a bankruptcy court’s turnover order can be found in civil contempt. A bankruptcy court’s judgment holding a debtor in contempt is subject to review under the abuse-of-discretion standard.
In December 2020, Sherry Ann McGann (“Debtor”) filed a voluntary petition for relief under Chapter 7, and Jeanne Y. Jagow (“Trustee”) was appointed as the Chapter 7 case trustee. At the time, the Debtor owned real property and improvements but listed four liens on her property (“Property”). In March 2021, the Debtor received a discharge. In August 2023, with the intention to sell the Property, the Trustee filed a motion (“Turnover Motion”) seeking access to the Property. In October 2023, the bankruptcy court granted the Turnover Motion and ordered that the Debtor provide the Trustee with a copy of the keys and reasonable access to the Property before November 14, 2023 (“Turnover Order”). The Debtor subsequently filed a motion requesting that the bankruptcy court reconsider the Turnover Order and a motion for voluntary dismissal, in which she stated her intent to pay the two remaining liens on the Property but refused to pay the Trustee’s fees and other administrative expenses.
Contrary to the Turnover Order, the Debtor failed to provide the Trustee with a key to the Property by November 13, 2023. In its November 20, 2023, memorandum decision denying the Debtor’s motion to reconsider, the bankruptcy court cautioned the Debtor that her failure to comply with the Turnover Order could be punishable by civil contempt. In January 2024, the Trustee filed a motion (“Contempt Motion”) requesting an order to show cause why the Debtor should not be found in contempt for her failure to comply with the Turnover Order. On January 31, 2024, the Debtor mailed a key to the U.S. Trustee instead of to the Chapter 7 case trustee. The bankruptcy court denied the Debtor’s motion to dismiss around the same time. After a hearing on the Contempt Motion, the bankruptcy court found the Debtor in contempt of the Turnover Order and awarded the Trustee relevant attorney fees as a sanction against the Debtor (“Contempt Order”). The Debtor appealed the Contempt Order and the order denying voluntary dismissal before the Bankruptcy Appellate Panel for the Tenth Circuit, which affirmed both orders. The Debtor further appealed to the U.S. Court of Appeals for the Tenth Circuit.
The Tenth Circuit affirmed both orders in McGann v. Jagow (In re McGann), Nos. 25-1065, 25-1066 (B.A.P. Nos. 24-007-CO, 24-004-CO), 2025 WL 3470372 (10th Cir. 2025). As to the Contempt Order, the court held that the Debtor failed to show that the bankruptcy court abused its discretion—“a clear error of judgment or exceed[ing] the bounds of permissible choice in the circumstances”—in so ordering. In re McGann, 2025 WL 3470372, at *2 (quoting Mid-Continent Cas. Co. v. Vill. at Deer Creek Homeowners Ass’n, Inc., 685 F.3d 977, 981 (10th Cir. 2012)). On appeal, the Debtor conceded that her mailing of the key to the U.S. Trustee’s Office after a two-month delay was plainly inconsistent with the requirements of the Turnover Order. Id. at *3. The Debtor also conceded that she failed to respond to the Trustee’s motion detailing the number of hours and amount of fees spent in relation to enforcing the Turnover Order. Id. With regard to the Debtor’s allegation on appeal that the bankruptcy court failed to consider her post-traumatic stress disorder, the court held that the Debtor did not sufficiently connect these circumstances to her own noncompliance with the Turnover Order. Id. The Debtor’s argument that the Trustee brought the Contempt Motion with “unclean hands” similarly faltered because the Debtor did not cite record evidence in support of her argument. Id. Therefore, the Tenth Circuit concluded that the bankruptcy court did not abuse its discretion in issuing the Contempt Order.
As to the bankruptcy court’s order denying the Debtor’s motion for voluntary dismissal, the Tenth Circuit observed that a debtor “has no absolute right to dismissal of a Chapter 7 case” and that “the decision whether to grant a motion to dismiss a petition in bankruptcy lies within the discretion of the bankruptcy judge.” Id. at *4 (quoting Peterson v. Atlas Supply Corp. (In re Atlas Supply Corp.), 857 F.2d 1061, 1063 (5th Cir. 1988); Smith v. Geltzer (In re Smith), 507 F.3d 64, 72 (2d Cir. 2007)). The Debtor raised three contentions in her appellate brief: (1) that, in denying her motion to voluntarily dismiss, the bankruptcy court was “relitigating matters previously resolved and failing to consider the Trustee’s misconduct”; (2) that the bankruptcy court “ignored or incorrectly decided the facts”; and (3) that the bankruptcy court “violat[ed] due process by . . . allowing continued harm to [her] through refusal to release claims, forced turnover, homelessness, mental anguish, and loss of her business.” Id. at *5 (internal quotation omitted). The Tenth Circuit held that the contentions failed to show how the bankruptcy court abused its discretion, explaining that the Debtor did not sufficiently connect her contentions to the bankruptcy court’s reasoning behind the denial of the Debtor’s motion to dismiss. The Tenth Circuit thus affirmed the bankruptcy court’s order denying the Debtor’s motion to voluntarily dismiss.
Substantial Consolidation: Smith v. Slott (In re No Rust Rebar, Inc.), 177 F.4th 1161 (11th Cir. 2026)
By Mingxian (Felix) Bao, Columbia Law School
Substantive consolidation allows a bankruptcy court to disregard the separate corporate identity of an entity that serves as a mere instrumentality or an alter ego of a bankrupt corporation with no independent existence of its own. Substantive consolidation is particularly useful when the court determines threshold issues—such as who the debtor is and what property comprises the estate—when nominally distinct entities share “substantial identity.”
Eastgroup Properties v. Southern Motel Ass’n, Ltd. held that substantive consolidation was warranted if (1) there was substantial identity between the entities to be consolidated and (2) consolidation was necessary to avoid some harm or to realize some benefit. Eastgroup, 935 F.2d 245, 249 (11th Cir. 1991) (citing In re Auto-train, 810 F.2d 270, 276 (D.C. Cir. 1987)). A party may use several factors to support consolidation, including the presence or absence of consolidated financial statements, the unity of interests and ownership between various corporate entities, the existence of parent and intercorporate guarantees on loans, the degree of difficulty in segregating and ascertaining individual assets and liabilities, the existence of transfers of assets without formal observance of corporate formalities, the commingling of assets and business functions, and the profitability of consolidation at a single physical location. Id. (citations omitted).
The party proposing consolidation may also rely on additional information, including “(1) the parent owning the majority of the subsidiary’s stock; (2) the entities having common officers or directors; (3) the subsidiary being grossly undercapitalized; (4) the subsidiary transacting business solely with the parent; and (5) both entities disregarding the legal requirements of the subsidiary as a separate organization.” Id. at 250 (citations omitted). No single factor is dispositive in the court’s consideration of substantive consolidation. Id.
Smith v. Slott (In re No Rust Rebar, Inc.), 177 F.4th 1161 (11th Cir. 2026), centers on No Rust Rebar, Inc. (“Debtor”), which is owned and operated by Donald Smith in conjunction with three other nondebtor entities as a family of businesses that produce and sell basalt fiber products. Each entity has the same principal place of business except one, which lists the address for Smith’s home. In re No Rust Rebar, 177 F.4th at 1164. In 2021, the Debtor filed a voluntary Chapter 11 bankruptcy petition that was subsequently converted to a Chapter 7 liquidation upon a creditor’s motion. During the evidentiary hearing as part of the conversion proceeding, Smith appeared as the corporate representative of the Debtor as well as the three related nondebtor entities. In its conversion order, the bankruptcy court highlighted the lack of “corporate formalities” and recordkeeping with regard to the transfer of assets among the Debtor, the related entities, and Smith himself. The bankruptcy court characterized the Debtor and the related entities as “a group of commingled entities whose responsibilities, assets, and liabilities were constantly shuffled to fit Smith’s needs or whims.” Id.
After the conversion, the bankruptcy court appointed Sonya Slott as the Chapter 7 trustee, who moved to consolidate the nondebtor entities into the Debtor. Id. All three nondebtor entities, represented by the same counsel as the Debtor, objected to Slott’s motion. The nondebtor entities based their opposition on the doctrine of issue preclusion, a lack of personal jurisdiction, and the fact that substantive consolidation required an adversary proceeding and an additional evidentiary hearing. Id. The nondebtor entities did not challenge the propriety of the consolidation under the Eastgroup factors, nor did they explain how an additional evidentiary hearing would change the outcome of that analysis. Id. The nondebtor entities repeated these arguments in their supplemental briefing and failed to meaningfully address the merits of substantive consolidation. Id. The bankruptcy court granted the trustee’s motion to consolidate, and the district court affirmed.
The U.S. Court of Appeals for the Eleventh Circuit affirmed the consolidation order. The court observed that Eastgroup recognized the bankruptcy court’s power to order substantive consolidation and provided a standard to determine whether a motion to consolidate should be granted. Id. at 1165. Where a nominally distinct entity shares a “substantial identity” with the debtor entity such that it operates as “a mere instrumentality or alter ego of the bankruptcy corporation,” the Eleventh Circuit observed, “‘equity . . . favor[s] disregarding the separate corporate entities’ via consolidation.” Id. (quoting In re Gulfco Inv. Corp., 593 F.2d 921, 928 (10th Cir. 1979)). The appellate court held that the bankruptcy court properly applied the Eastgroup factors and correctly concluded that the Debtor and the related nondebtor entities were effectively one. Id. As to the nondebtor entities’ objection on procedural grounds, the appellate court held that the bankruptcy court’s granting of substantive consolidation by motion was a harmless error, even if an adversary proceeding was required. Id. The appellate court noted that each nondebtor entity received adequate notice and an opportunity to be heard, and that the entities objected only to the extent that the filing was styled as a motion (as opposed to a complaint) and served without a summons. Id. In addition, the nondebtor entities failed to explain how a new evidentiary hearing would change the substantive consolidation analysis. Id. at 1166. The bankruptcy court’s substantive consolidation order was therefore affirmed.
Statutory Mootness: In re Roper, 674 B.R. 649 (B.A.P. 8th Cir. 2025)
By Mingxian (Felix) Bao, Columbia Law School
Section 363(m) of the Bankruptcy Code provides:
The reversal or modification on appeal of an authorization . . . of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, . . . unless such authorization and such sale or lease were stayed pending appeal.
11 U.S.C. § 363(m). The statute safeguards the finality of a sale within the bankruptcy process. A “finality rule” such as this provides valuable assurance to potential third-party purchasers of estate assets by minimizing the risk of continuing litigation within the bankruptcy process. The rule increases the value of the estate in service of the creditors. Absent a stay on an order authorizing the sale of estate property to a good faith purchaser, an appeal against such a sale is statutorily moot because § 363(m) precludes relief. Notably, statutory mootness differs from constitutional mootness in that a statute’s preclusion of relief is conceptually distinct from the impossibility or inequity of relief. The finality rule under § 363(m) reflects the inability of a bankruptcy court to supply a remedy once a property has left the bankruptcy estate.
Vanessa Roper, a codebtor in this case, In re Roper, 674 B.R. 649 (B.A.P. 8th Cir. 2025), purchased real property during her marriage to the appellant Logan Riffenburg. Under the terms of their divorce, Roper and Riffenburg agreed to transfer the property to their daughter, Claudia. However, neither party took steps to effectuate the transfer. The Chapter 7 case trustee (“Trustee”) filed an adversary proceeding to avoid the unconsummated transfer, and the bankruptcy court found in favor of the Trustee on summary judgment and voided the transfer. The Trustee then filed a motion seeking court approval of a proposed sale of Roper’s one-half interest in the property to Blue Sun Capital LLC (“Blue Sun”).
On May 15, 2025, the bankruptcy court entered an order approving the sale, finding that the sale was in good faith, for fair value, and in the best interests of the estate. The record did not reference Blue Sun or its good faith as a third-party purchaser besides the Trustee’s testimony regarding his negotiation and agreement with Blue Sun.
A week later, Logan Riffenburg filed a notice of appeal. On May 29, 2025, he filed a motion to stay the sale, which the bankruptcy court denied on June 20, 2025. On August 8, 2025, Riffenburg filed a brief with the Bankruptcy Appellate Panel of the Eighth Circuit, where he alleged that the Trustee’s conduct in facilitating the sale lacked good faith. However, in that brief, Riffenburg did not challenge the good faith of Blue Sun as the purchaser. On August 13, 2025, Riffenburg filed an “Emergency Motion to Stay Pending Appeal.” Six days later, the Trustee executed a deed conveying Roper’s interest in the property to Blue Sun. On September 5, 2025, the Trustee filed a motion to dismiss Riffenburg’s appeal on the grounds of statutory mootness because the appellant never obtained a stay of the sale. Riffenburg filed an opposition arguing that the Bankruptcy Appellate Panel for the Eighth Circuit retained jurisdiction over the determination of possible remedies, that effective relief remained possible, and that good faith was in dispute. The panel dismissed the appeal.
Writing for the majority, Chief Judge Hastings held that Riffenburg’s appeal was statutorily moot because (1) the property sale was unstayed while pending appeal, (2) the reversal of the bankruptcy court’s order would affect the validity of the sale, and (3) the parties did not challenge the purchaser’s good faith before the bankruptcy court. In re Roper, 674 B.R. at 657. Riffenburg’s claim that the Trustee delayed the sale until after his appellate brief was filed to “manufacture mootness” was not directed at the purchaser, and the conduct alleged did not rise to the level of “fraud, collusion or unfair conduct [between a trustee and a third-party purchaser] sufficient to meet the standard [for bad faith] under § 363(m).” Id. at 655, 656 n.2. The court also rejected Riffenburg’s contention that the appeal “[was] not moot because effective relief remain[ed] possible,” noting that “[u]nlike constitutional mootness, ‘[s]tatutory mootness is not based on the impossibility or inequity of relief, but the preclusion of relief under a statute.’” Id. at 656 (quoting Humphrey v. Christopher, 146 F.4th 682, 689 (8th Cir. 2025)). As to Riffenburg’s suggestion that the court could “provide effective relief . . . by directing treatment and payment of undistributed proceeds,” Chief Judge Hastings reasoned that such issues were “specifically preserved by the bankruptcy court” and “decline[d] to act as a court of ‘first view.’” Id. (quoting MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288, 296, 143 S. Ct. 927, 935 (2023)). Without Riffenburg having obtained a stay, and without Riffenburg challenging the good faith of the third-party purchaser, the court concluded that § 363(m) preempted it from disturbing the validity of the sale.
Judge Norton dissented. While he acknowledged the U.S. Court of Appeals for the Eighth Circuit’s consistency in interpretating § 363(m) as a rule of finality and conceded that applying a simple test as the majority opinion had certain appeal, Judge Norton argued that the good faith purchaser prong under § 363(m) requires something more than a simple lack of bad faith. Judge Norton applied a narrow reading to the two main cases upon which the majority relied, Humphrey and MOAC. He argued first that, because Humphrey never reached the question of a good faith showing, the case could only inform the court to a limited extent. Id. at 659–60. While Judge Norton conceded that § 363(m) jurisprudence within the Eighth Circuit consistently followed the principle that “in the absence of any challenge, good faith is presumed, such that once the sold property has left the bankruptcy estate through any unstayed, executed sale, any appeal ipso facto must be moot,” he contended that “the Supreme Court’s recent MOAC decision now invalidates the reasoning of those cases.” Id. at 660 (emphasis in original) (internal citations omitted).
With regard to statutory mootness, Judge Norton similarly offered a different reading of MOAC. In that case, Judge Norton observed, the Supreme Court explicitly rejected the purchaser’s argument that “because the sale was complete, ‘no legal vehicle remain[ed] available for undoing the [sale] transfer.’” Id. at 661 (quoting MOAC, 598 U.S. at 295, 143 S. Ct. at 934). The Supreme Court instead held that the purchaser’s argument “sits uncomfortably with § 363(m)’s express contemplation that courts can touch—and affect the validity of—certain sales or leases . . . due to reversals or modifications of covered authorizations even though the property concerned has left the estate.” Id. (quoting MOAC, 598 U.S. at 302, 143 S. Ct. at 939 (emphasis in original)). Applying MOAC to the case at hand, Judge Norton reasoned that the majority’s test, while straightforward and dispositive, effectively disregarded the purchaser’s good faith in contradiction to a textual reading of § 363(m). Id. at 662. Even if the statutory text did support a presumption of good faith, the Eighth Circuit had long held that a good faith showing was a factual determination within the purview of a court of first view. Id. Thus, by presuming good faith, the Court inappropriately made a factual finding. Id. Furthermore, given Riffenburg’s “concrete interest” in the transferred property, the appeal should not be considered constitutionally moot because such mootness required strict “impossib[ility] for a court to grant any effectual relief whatever to the prevailing party.” Id. at 663 (quoting MOAC, 598 U.S. at 295, 143 S. Ct. at 934). In sum, the dissent concluded that Riffenburg’s appeal was not so meritless that it should have been dismissed on appeal.
Opt-Out Releases: In re GOL Linhas Aéreas Inteligentes S.A., 675 B.R. 125 (S.D.N.Y. 2025)
By Mingxian (Felix) Bao, Columbia Law School
Under a Chapter 11 reorganization plan, a debtor may be released from its liability to a third-party creditor with the consent of the creditor. However, a creditor’s consent to a third-party release clause under a Chapter 11 reorganization plan cannot be inferred from the creditor’s consent to the bankruptcy court’s jurisdiction.
In In re GOL Linhas Aéreas Inteligentes S.A., 675 B.R. 125 (S.D.N.Y. 2025), GOL Linhas Aéreas Inteligentes S.A. (“GOL”), a Brazilian low-cost airline, filed along with affiliated entities (together, “Debtors”) a voluntary petition for relief under Chapter 11 in the Southern District of New York. The Debtors’ proposed reorganization plan included “provisions establishing that creditors would release all related claims against the Debtors unless they affirmatively opted out from doing so.” In re GOL, 675 B.R. at 127. The third-party release provision stated, “[E]ach Releasing Party shall be deemed to have . . . released, waived, and discharged the Released Parties from . . . any and all claims, interests, obligations . . . based on or relating to . . . the subject matter of, or the transactions or events giving rise to, any Claim or Interest dealt with in the Plan.” Id. at 127–28. The reorganization plan further provided that all creditors would be bound by the third-party release if they did not affirmatively opt out of the plan by checking the appropriate box on the ballot or the “Notice of Non-Voting Status” sent to them. Id. at 128.
Over the U.S. Trustee’s objection to the third-party release and relevant injunctions, the bankruptcy court approved GOL’s plan. In its confirmation order, the bankruptcy court explained that the Supreme Court’s decision in Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024), “bar[red] nonconsensual third-party releases from Chapter 11 Plans but [left] the door open for consensual third-party releases.” In re GOL, 675 B.R. at 129 (internal citations omitted). The court determined that federal law controlled with regard to whether a particular third-party release was consensual in this case, and the provisions at issue were consensual because “the creditors impliedly consented to the release by consenting to the bankruptcy court’s jurisdiction.” Id. at 129. The U.S. Trustee appealed on the grounds that the bankruptcy court should have applied New York state law and that, “under state law, the creditors’ failure to opt out does not imply consent.” Id.
On appeal, the district court reversed the bankruptcy court’s decision and remanded the case. The district court affirmed the bankruptcy court’s reading of Harrington, noting that while it restrained bankruptcy courts from “releas[ing] claims against a nondebtor without the consent of the affected claimants” under a Chapter 11 reorganization plan, the decision did not intend to “express a view on what qualifie[d] as a consensual release.” Id. at 130 (citing and quoting Harrington, 603 U.S. at 226). However, the district court held that the bankruptcy court’s concern with a choice-of-law analysis was unwarranted because “the same general principles of contract law apply under both federal and state law” in this case without a conflict. Id. On the issue of consent, the district court observed that both the New York State Court of Appeals and the U.S. Court of Appeals for the Second Circuit rely on the Restatement (Second) of Contracts, wherein mutual assent could not be inferred from silence except in the limited circumstances where there is a duty to respond or a contemporaneous oral agreement. Id. at 131 (internal citations omitted). The district court dismissed GOL’s contention that the provisions themselves and way they were presented to the creditors were sufficient to infer consent. In particular, the district court emphasized the disanalogy between opt-outs from a Chapter 11 reorganization plan and opt-outs in a Rule 23(b)(3) class action context, where “opt-out procedures, accompanied by sufficient notice, satisfy the Due Process Clause and establish the consent of parties to be joined to a class settlement.” Id. at 132 (quoting Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985)). While the Federal Rules outlined additional requirements for the certification of a class and provided procedural safeguards to protect the rights of individual litigants in a class, “there is no suggestion that the releasing parties in this bankruptcy are members of a defined class . . . or that the Rule 23 procedures and its safeguards have been followed.” Id. GOL’s contention that “creditors who failed to opt out of the release can be bound by the consequences of their inaction, just as default judgments can be entered against parties who fail to respond to pleadings,” was similarly rejected because it lacked case law support. Id. The bankruptcy court’s confirmation order was therefore reversed.
