United States District Court, E.D. Virginia, Richmond Division
A. Gilney, Jr., Judge
July, 2018, the United States Bankruptcy Court for the
Eastern District of Virginia ("Bankruptcy Court")
approved the assignment of a sublease held by Toys
"R" Us, Inc. ("TRU"), in a Maryland
shopping center. The owner of the shopping center, 6711 Glen
Burnie Retail, LLC ("Glen Burnie"), objects to the
Burnie owns The Centre at Glen Burnie. The Bankruptcy Court
approved the replacement of TRU with a business known as
Ollie's Bargain Outlet. Glen Burnie takes exception to
the addition of Ollie's to its mix of stores. The
developers of The Centre at Glen Burnie have high class plans
for the Centre. They plan to "de-mall,"
"redevelop," and "reposition" the Centre.
Segall Group, The Centre at Glen Burnie,
(last visited December 25, 2018). Apparently, this
refurbishment will make the Centre more upscale. In contrast
to Glen Burnie's vision, Ollie's makes no appeal to
aristocratic shoppers; it uses a simple slogan at its several
stores: "Good Stuff Cheap." Ollie's Bargain
Outlet Home Page, https://www.011ies.us/liome.html
(last visited December 25, 2018). Glen Burnie's plans
apparently do not include the like of Ollie's.
short circuit the arrival of Ollie's, Glen Burnie tried
to exercise its recapture rights under the lease to prevent
the assignment. The Bankruptcy Court overruled Glen
Burnie's objection and entered an order approving the
transfer ("Sale Order"). Glen Burnie now appeals
Glen Burnie did not seek a stay of the assignment to
Ollie's, the Court cannot disturb the Sale Order on
appeal. In any event, the recapture clause in the
parties' lease constitutes an unenforceable
anti-assignment provision under the Bankruptcy Code, so Glen
Burnie cannot use the clause to prevent the Ollie's
assignment. For these reasons, the Court will affirm the
Bankruptcy Court's Sale Order.
Burnie and TRU entered into a sublease in 1981 that allowed
TRU to put a store in Glen Burnie's shopping center. As
part of TRU's bankruptcy proceedings, TRU auctioned its
interest in the lease on June 11, 2018. Ollie's bid $2.05
million, defeating Glen Burnie's bid of $2.0 million.
After the auction, Glen Burnie sought to invoke a recapture
provision in the lease. The provision allowed Glen Burnie to
reclaim leased premises by (1) providing notice within a
specified time following the tenant's decision to assign
the lease, and (2) repaying the tenant for its capital
investments in the property.
Bankruptcy Court held a hearing on Glen Burnie's
objection to the assignment and determined that the recapture
provision in the lease constituted an impermissible
anti-assignment clause under 11 U.S.C. § 365(f)(1).
After the Bankruptcy Court made its decision, Glen Burnie
asked the court to delay entering an order deeming
Ollie's a good faith purchaser pursuant to 11 U.S.C.
§ 363(m), a provision that allows good faith purchasers
to rely on the finality of bankruptcy orders. The Bankruptcy
Court agreed to wait to enter the order so that Glen Burnie
could "seek appellate rights, including a stay."
(Hr'g Tr. 32:14-24, July 2, 2018.) The Bankruptcy Court
thus entered the Sale Order on July 9, 2018, but waited until
July 19 to issue a supplemental order characterizing the
transaction as a sale agreement and deeming Ollie's a
good faith purchaser under § 363(m). Glen Burnie did not
seek a stay during this time, but filed the instant appeal
seeking to reverse the Sale Order.
Court's reversal or modification of a sale or lease of
property will have no effect unless "such sale or lease
[is] stayed pending appeal." 11 U.S.C. § 363(m).
"[A] stay keeps the disputed property within the
jurisdiction of the bankruptcy court, and it forestalls the
transactional complexities that arise if the sale to a third
party is completed prior to a final resolution of the
claim." In re Rare Earth Minerals, 445 F.3d
359, 363 (4th Cir. 2006) (internal citation omitted). In
other words, § 363(m) "curtails the power of
appellate courts to undo the authorized sale of estate assets
to a good faith purchaser unless the sale has been stayed
pending appeal." Otherwise, the appeal becomes
statutorily moot. Id. at 361.
case, Glen Burnie failed to seek a stay of the lease
assignment pending appeal, despite contemplating a stay at
the Bankruptcy Court hearing. Without a stay, this Court
cannot "grant effective relief by reversing the Sale
Order. In re ICL Holding Co., 802 F.3d 547, 554 (3d
Cir. 2015). Glen Burnie cannot avoid this result by arguing
that the mootness provision does not apply to the lease
assignment in this case. "It is elementary that a
leasehold is personal property and possibly of value to the
debtor's estate[;] thus the assignment of a lease for a
valuable consideration is a sale of property to which §
363(m) applies." In re Adamson Co., 159 F.3d
896, 898 (4th Cir. 1998).
Bankruptcy Court found that Ollie's qualified as a good
faith purchaser pursuant to § 363(m), and Ollie's
deserves the finality that this provision provides. See
Rare Earth Minerals, 445 F.3d at 361 (affirming the
district court's dismissal for statutory mootness because
"hold[ing] otherwise would undercut § 363(m)'s
express concern with the finality of bankruptcy sales").
Thus, the Court cannot reverse the Sale Order on appeal.