Mark Broude and George Royle V on Al Perry Enterprises, Inc.

Mark Broude and George Royle V on Al Perry Enterprises, Inc.

 
The scope of Code section 363(f) remains unclear thirty years after its enactment. The section authorizes a trustee to sell estate assets "free and clear of any interest in such property," but courts do not agree on whether "interests" includes non-in rem interests, such as claims against the estate. The Sixth Circuit's decision in Al Perry Enterprises v. Appalachian Fuels is the latest in a series of cases applying section 363(f) to a debtor's prepetition liabilities. In their Expert Commentary, Mark Broude and George Royle V explain that, although the decision muddies the waters, it does offer some lessons that counsel in a section 363(f) sale would do well to keep in mind.
 
The authors write: Despite the apparently narrow view taken by the courts of section 363(f)’s predecessor statutes, courts have increasingly read the Bankruptcy Code to authorize more than a sale of estate property free and clear of merely in rem interests. Although a minority of courts have asserted the traditional view that the section applies only to specific interests in property, the majority have taken a broader view of the statute and held that some—but not all—claims (as defined by section 101(5)(A) of the Bankruptcy Code) are also covered by section 363(f). The Fourth and Third Circuits’ decisions in United Mine Workers of America v. Leckie Smokeless Coal Co (In re Leckie Smokeless Coal Co.), 99 F.3d 573 (4th Cir. 1996), and In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir. 2003), respectively, are among the most often cited cases for this proposition. Both hold that the phrasing of section 363(f), which explicitly mentions ‘liens’ as but one form of ‘interest in … property’ subject to a ‘free and clear’ sale, indicates that the term ‘interest’ must also encompass certain bankruptcy claims that have a ‘relationship’ with, or ‘are connected to, or arise from, the estate property being sold.’ In addition to this textual analysis, courts endorsing a broad reading of section 363(f) have also cited two policy-based reasons for it: (1) maximizing the value of estate property; and (2) adhering to the Bankruptcy Code’s priority scheme.” [footnotes omitted]