On July 29, 2025, the United States Court of Appeals for the Eighth Circuit issued an opinion (No. 24-1854) that serves as a reminder that sales approved by a bankruptcy court receive extreme deference and will not be overturned unless the bankruptcy court stays the closing of the subject sale, even if a state court has issued a stay of related proceedings. The case, Humphrey v. Christopher, included claims of fraud and criminal activity by both the purchaser at the sale and the debtor.
Absolute Pediatric Therapy (“Absolute”), owned by Anthony Christopher, hired LaDonna Humphrey but terminated her four months later. Absolute and Christopher sued Humphrey in Arkansas state court alleging various tort claims and accusing her of stealing information and making false accusations of fraud and unethical business conduct. Humphrey counterclaimed under the False Claims Act, alleging her termination was for accurately reporting illegal activities. The litigation was “very contentious.” The state court eventually found Humphrey in contempt and liable on all counts and awarded Absolute and Christopher $3.57 million in damages.
Humphrey then filed a chapter 7 bankruptcy. In response, Absolute offered to purchase Humphrey’s counterclaim and defensive appellate rights from the bankruptcy trustee, who negotiated a sale of such rights for $12,500. Humphrey objected to the sale of her defensive appellate rights. The U.S. Bankruptcy Court for the Western District of Arkansas, applying the business judgment standard, approved the sale, finding the trustee acted reasonably and negotiated the sale at arm’s length. Notably, Humphrey did not obtain a stay of the sale but did secure a stay of the state court appeal, and the trustee closed the sale to Absolute. Unknown to the bankruptcy court, just prior to the sale hearing, the State of Arkansas had issued a warrant for the arrest of Christopher – one of the purchasers. He eventually was charged with Medicaid fraud.
Humphrey appealed the bankruptcy court’s sale order. On the same day, the Arkansas Court of Appeals entered a stay of Humphrey’s state court appeal pending resolution of the bankruptcy case. In the bankruptcy appeal, the U.S. District Court for the Western District of Arkansas initially stayed the appeal while awaiting resolution of the criminal charges against Christopher, which, if proved, could indicate the purchase of Humphrey’s appellate rights was not made in good faith. The state, however, eventually dropped the criminal charges against Humphrey, leaving the District Court free to review the case. The District Court reversed the bankruptcy court’s sale approval, holding that defensive appellate rights are not property of the bankruptcy estate under Arkansas law and finding the sale was not in the best interest of the estate. The District Court also rejected the argument that the appeal was moot under 11 U.S.C. § 363(m), noting that Humphrey had obtained a stay of the state court proceedings.
The United States Court of Appeals for the Eighth Circuit reviewed the case and concluded that the absence of a stay of the sale itself rendered the appeal statutorily moot under 11 U.S.C. § 363(m). Section 363(m) provides finality to bankruptcy sales and serves to protect purchasers under such sales “unless such sale … were stayed pending appeal.” The Eighth Circuit concluded that this language required that Humphrey must have obtained a stay of the bankruptcy court’s sale approval order to challenge the sale’s validity; because Humphrey had not obtained such a stay, her appeal was determined to be statutorily moot. The Eighth Circuit found that the state court stay was not sufficient to meet section 363’s explicit requirements.
In its decision, the Eighth Circuit noted the U.S. Supreme Court’s decision (MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288 (2023)), holding that 363(m) is not a jurisdictional provision, meaning that it is subject to waiver and forfeiture. Although the section is not jurisdictional, the Eighth Circuit found it nevertheless limits the ability to provide relief when there is no stay of the subject sale. This is consistent with the MOAC case because MOAC dealt with constitutional mootness, not statutory mootness. Because the statute itself – section 363 – precluded any relief to Humphrey, her appeal was statutorily moot even though there had been no loss of jurisdiction.
This decision reinforces the bedrock principle that any party seeking to appeal a bankruptcy court’s sale order must obtain a stay of that order from the bankruptcy court – regardless of any non-bankruptcy court stays. Otherwise, such an appeal will be moot once the sale has closed.
