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owned a warehouse that leases space to tenants. The warehouse has a large specialized racking system (the "Racking System") that some of the tenants use under the terms of their leases. Prepetition, Keltic had loaned the Debtor around $3 million dollars and acquired a first priority lien in the Racking System subject only to the tenant's rights to use it under their leases. The Debtor defaulted, Keltic foreclosed on the Racking System and sold it at auction at which American Surplus, Inc. ("ASI") bought the collateral. Thereafter, the Debtor declared bankruptcy and entered into negotiations to buy the Racking System. Ultimately, Chittenden bought the Racking System and the Debtor purchased it from Chittenden with money borrowed from Chittenden. The Debtor also agreed to alter the lease it had with one of its tenants. The bankruptcy court approved the deal and entered an order allowing the transactions to be consummated. Keltic appealed the order but failed to seek or obtain a stay of the order pending appeal.
Issues: Whether the appeal is moot under § 364(e).
Rules: "Generally, orders authorizing postpetition financing pursuant to § 364 are final orders." Section 364(e) provides that the "reversal or modification on appeal of an authorization under this section to obtain credit and incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt, or the granting of such priority of lien, were stayed pending appeal." "Courts should 'presume the post-bankruptcy creditor's good faith and then inquire to see whether the presumption can be overcome.'"
Holding: The appeal is moot under § 364(e).
Reasoning: The purpose of § 364(e) is "to encourage lenders to extend credit to debtors in bankruptcy by eliminating the risk that any lien securing the loan will be modified on appeal." The protection afforded under § 364(e) is substantial. "A lender that extends credit in reliance on a financing order is entitled to the benefit of that order, even if it turns out to be legally or factually erroneous." Thus, absent a stay pending the appeal, an appellate court cannot reverse a financing order unless the lender acted in bad faith. Although some courts believe that bankruptcy courts must make a finding of good faith in the financing order, this court believes that those cases "are not persuasive where, as here, there is no evidence of bad faith or improper motive on the part of the lender." The record of this case supports an inference that Chittenden acted in good faith. Thus, the appeal is moot under § 364(e).
Facts: The chapter 11 trustee (the "Trustee") in the chapter 11 case of National Gas Distributors, LLC (the "Debtor"), a distributor of natural gas filed an adversary proceeding under 11 U.S.C. §§ 548(a) and 550(a) against three of the Debtor's customers to avoid a number of natural gas supply contracts that were entered into the year before the bankruptcy petition was filed. The crux of the Trustee's argument was that the contracts and the transfers that took place under those contracts were fraudulent conveyances because they were made for less than market value at a time when the Debtor was insolvent. The three customers (the "Customers") filed motions to dismiss the adversary proceeding and claimed that the contracts were really swap agreements, which would provide them with a complete defense to the Trustee's complaint. More specifically, the Customers argued that "the contracts were 'commodity forward agreements,' which are included in the definition of 'swap agreements.' See 11 U.S.C. § 101(53B)(A)(i)(VII)." They also argued that they took the transfers in
