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March 10, 2025

Bankruptcy Judge Rejects a District Court’s Narrow View of Sales Free and Clear

New York’s Judge Philip Bentley interpreted Section 363(f)(5) to permit a sale free and clear whenever a creditor could conduct a foreclosure or a UCC sale.

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Opinion Link

View Opinion

https://abi-opinions.s3.us-east-1.amazonaws.com/Urban+Commond+363+Sale.pdf

Case Details

Case Citation

In re Urban Commons 2 West LLC, 22-11509 (Bankr. S.D.N.Y. March 4, 2025).

Case Name

In re Urban Commons 2 West LLC

Case Type

Business

Court

2nd Circuit

New York

New York Southern District

Bankruptcy Tags

Asset Sales

Plan Confirmation

Business Reorganization

Finance and Banking

Comments

Submitted by Jeremy Fischer on March 10, 2025

Bill - interesting article, as always. My view is that the right strategy in this situation is to seek an expedited determination of secured status under section 506 and Rule 3012. If the junior lien is clearly out of the money and the senior lien supports the sale (as was the case here), I think that there's a good argument to support Judge Bentley's view of section 363(f) - a foreclosure/UCC sale is a real possibility to facilitate the free/clear transfer under state law. Alternatively, a judge could determine, under section 506(d), that section 363(f) is not applicable because "to the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void...."

Submitted by Thomas Salerno on March 10, 2025

Bill--agree it is an interesting article. Dishi seems to me to be an offshoot of the now widely ignored 9th Circuit BAP opinion in Clear Channel Outdoor, Inc. v. Knupfer, 391 B.R. 25 (B.A.P. 9th Cir. 2008), which effectively said you couldn't sell free and clear with an objecting, out of the money junior lienholder. Other Courts have adopted the approach that the "value of the interest" of the objecting, out of the money lienholder is simply zero if there's no value to support the secured claim.

Submitted by Donald Bailey on March 10, 2025

I applaud Judge Bentley's thoughtful decision. Sales free and clear are the way we get things done in bankruptcy. They are necessary to keep out-of-the-money lenders from holding up the orderly liquidation of property. Frank Kurtz was a good judge, but his opinion for the Ninth Circuit BAP in Clear Channel was wrong, and was almost immediately not followed in In re Jolan, W.D.WA Bankr. 09-10411 Docket 73 4/30/2009 (Hon. Philip Brandt). My brief on the subject is at Docket 54.

Submitted by Walter Dahl on March 12, 2025

Judge Bentley got it right here. But the 9th Circuit BAP decision in Clear Channel is often misread. The BAP found that the bankruptcy court failed to find sufficient evidence of proceedings where the holder of the interest could be compelled to accept a money satisfaction, and remanded. 363(f)(5) sales are alive and well here in California, at least when the movant identifies proceedings available under applicable law where a money satisfaction can be compelled.