In re WestPoint Stevens, Inc., No. 07-4772 (2d Cir. 2010)

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07-4772-bk (L) In re WestPoint Stevens, Inc. 1 2 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 3 August Term 2008 4 5 6 Docket Nos. 07-4772-bk (L); 07-4843-bk (CON); 07-4845-bk (CON); 07-4865bk (XAP); 07-4872-bk (CON); 07-4874-bk (CON); 07-4964-bk (XAP); 07-5018bk (XAP); 07-5019-bk (CON); 07-5043-bk (CON); 07-5049-bk (CON) 7 Argued: November 14, 2008 Decided: March 26, 2010 8 _____________________________________________________________________________ 9 10 11 IN RE: WESTPOINT STEVENS, INC., 12 ************************************************************** 13 14 15 CONTRARIAN FUNDS LLC, SATELLITE SENIOR INCOME FUND, LLC, CP CAPITAL INVESTMENTS, LLC, WAYLAND DISTRESSED OPPORTUNITIES FUND I-B, LLC, WAYLAND DISTRESSED OPPORTUNITIES FUND I-C, LLC, BEAL BANK, S.S.B., Debtor. Appellees-Cross-Appellants, 16 17 - v.- 18 19 ARETEX LLC, WESTPOINT INTERNATIONAL, INC., WESTPOINT HOME, INC., WILMINGTON TRUST COMPANY, as Agent for the Second Lien Lenders, 20 Appellants-Cross-Appellees, 21 PERRY PRINCIPALS LLC, GSC PARTNERS, PEQUOT CAPITAL MANAGEMENT, Appellees. 22 23 _____________________________________________________________________________ 24 Before: MINER, HALL, and LIVINGSTON, Circuit Judges.* * Two of the members of the original panel have been replaced. Honorable Robert A. Katzmann recused himself prior to the oral argument, and Honorable Sonia Sotomayor was elevated to the United States Supreme Court on August 8, 2009. Accordingly, Honorable Peter W. Hall and Honorable Debra Ann Livingston have been designated as members of the panel. See Second Circuit Internal Operating Procedure E(b). 1 1 2 3 4 5 6 7 8 Appeal and cross-appeal from orders entered on November 16, 2005, and October 9, 2007, in the United States District Court for the Southern District of New York (Swain, J.), (1) reversing orders of the Bankruptcy Court (Drain, J.) (a) approving the distribution of unregistered securities and subscription rights in satisfaction of liens held by senior secured creditors; and (b) permitting the distribution of the remaining subscription rights to junior secured creditors; and (2) affirming the order of the Bankruptcy Court releasing certain escrowed adequate protection payments to the junior secured creditors. Reversed in part and affirmed in part. 9 10 11 12 13 14 15 16 17 18 19 20 BRUCE BENNETT , SIDNEY P. LEVINSON , and Joshua M. Mester, Hennigan, Bennett & Dorman LLP, Los Angeles, California, for appellees-cross-appellants Contrarian Funds LLC, Satellite Senior Income Fund LLC, CP Capital Investments, LLC, Wayland Distressed Opportunities Fund I-B, LLC, Wayland Distressed Opportunities Fund I-C, LLC. 21 22 23 24 25 26 27 28 PHILIP A. LACOVARA , Andrew H. Schapiro, Kenneth E. Noble, and Daniel B. Kirschner, Mayer Brown LLP, New York, New York, (Peter D. Wolfson, Richard M. Zuckerman, Jo Christine Reed, Sonnenschein Nath & Rosenthal LLP, New York, New York), for appellants-cross-appellees Aretex LLC, WestPoint International, Inc., WestPoint Home, Inc. 29 30 31 32 33 P. BRADLEY O NEILL and Thomas M. Mayer, Kramer Levin Naftalis & Frankel LLP, New York, New York, for appellant-cross-appellee Wilmington Trust Company, as agent to the Second Lien Lenders. 34 Gregory G. Hesse, Hunton & Williams, Dallas, Texas, (Richard P. Meth, Day Pitney LLP, Florham Park, New Jersey), for appellee-cross-appellant Beal Bank, S.S.B. MINER, Circuit Judge: 35 In this bankruptcy proceeding, secured creditor, Aretex LLC ( Aretex ), and its affiliates, 36 WestPoint International, Inc. ( WestPoint International ) and WestPoint Home, Inc. ( WestPoint 37 Home ), collectively, Aretex Group, and Wilmington Trust Co. ( Wilmington Trust ), the 38 administrative agent for the junior secured creditors, appellants-cross-appellees in this matter, 39 appeal principally from orders entered on November 16, 2005, and October 9, 2007, in the 40 United States District Court for the Southern District of New York (Swain, J.). The District 2 1 Court reversed the orders of the Bankruptcy Court (Drain, J.) permitting (1) the distribution of 2 unregistered securities and subscription rights to satisfy the liens held by senior secured creditors 3 and (2) the distribution of the remaining subscription rights to junior secured creditors. 4 Objecting senior secured creditors, Contrarian Funds, LLC ( Contrarian Funds ), Satellite Senior 5 Income Fund, LLC ( Satellite Fund ), CP Capital Investments, LLC ( Capital Investments ), 6 Wayland Distressed Opportunities Fund 1-B, LLC ( Distressed Funds I ), Wayland Distressed 7 Opportunities Fund 1-C, LLC ( Distressed Funds II ), collectively, the Contrarians, and Beal 8 Bank, S.S.B. ( Beal Bank ), the administrative agent and collateral trustee for the senior secured 9 creditors, appellees-cross-appellants in this matter, cross-appeal, inter alia, from the orders of the 10 District Court to the extent that they affirm the Bankruptcy Court s order of adequate protection 11 payments to the junior secured creditors. 12 I. 13 BACKGROUND WestPoint Stevens, Inc. (the Debtor ) is a domestic company engaged in the 14 manufacture and distribution of textiles.1 Beginning in or about 2000, due to an overleveraged 15 debt structure and an increase in foreign competition, the Debtor faced financial difficulties that 16 required substantial sacrifices in regard to its operations and workforce. Over the next several 17 years, the Debtor initiated business strategies to improve its ailing financial health but to no 18 avail. By 2003, the Debtor concluded that it would be in the best interests of its creditors and 19 shareholders to effectuate a consensual reorganization under the Bankruptcy Code. Accordingly, 20 on June 1, 2003, the Debtor commenced bankruptcy proceedings by filing a petition pursuant to 21 Chapter 11 of the Bankruptcy Code. 22 Shortly after the commencement of bankruptcy proceedings, the Debtor, with the 1 In addition to WestPoint Stevens, Inc., the debtors in this bankruptcy case are comprised of several affiliated entities, namely, WestPoint Stevens Inc. I, WestPoint Stevens Stores, Inc., J.P. Stevens Enterprises, Inc., and J.P. Stevens & Co., Inc. See generally In re WestPoint Stevens, Inc., 333 B.R. 30, 33 (S.D.N.Y. 2005). We will refer to the debtors in this case as one entity in the singular form, the Debtor. 3 1 approval of the Bankruptcy Court, obtained further financing from post-petition creditors to 2 preserve its business as a going concern. As a condition for obtaining the post-petition financing, 3 the Bankruptcy Court ordered the Debtor to make adequate protection payments to both the 4 senior and junior secured creditors as protection from the diminishing value of their collateral. 5 While plans for reorganization were being discussed, however, the Bankruptcy Court s adequate 6 protection order was challenged by a majority of the senior secured creditors who sought to end 7 the adequate protection payments to the junior secured creditors. The matter was temporarily 8 resolved by a stipulation, requiring the placement of further distributions of adequate protection 9 payments to the junior secured creditors into an escrow account until the occurrence of certain 10 11 events relating to the reorganization or sale of the Debtor s business. Eventually, it became apparent to the Debtor that reorganization was not a realistic 12 solution to its financial woes. According to the Debtor, the proposed plans for reorganization 13 were rejected because the Contrarians and Aretex creditors of the Debtor and holders of the 14 majority of the secured liens each insist[ed] on controlling the restructured Debtor[] and 15 [were] unable to reach a compromise on such issue. The principal investor in the Contrarians 16 was Wilbur L. Ross Jr., and the principal investor in Aretex was Carl C. Icahn. See In re 17 WestPoint Stevens, Inc., 333 B.R. 30, 34 (S.D.N.Y. 2005). After almost two years of failed 18 attempts at reaching a consensus on a plan for reorganization, the Debtor and its advisors 19 concluded that a sale of its assets pursuant to 11 U.S.C. § 363(b) [was] the only viable option 20 available to preserve [its] business operations and provide a meaningful recovery to [its] secured 21 creditor constituencies. Accordingly, an auction was held on June 23, 2005, for substantially all 22 of the Debtor s assets, and Aretex emerged as the winning bidder following a heated competition 23 with the Contrarians. Despite their initial objections, the Contrarians stipulated to allow the sale 24 to close. Thereafter, pursuant to the terms of the sale and the Bankruptcy Court s accompanying 25 sale order, the Debtor s assets were transferred, free and clear of liens, to WestPoint Home and in 26 effect to WestPoint International Aretex s vehicle corporations for the acquisition of the 4 1 Debtor s business and WestPoint International s securities were distributed to the Debtor s 2 secured creditors for the purpose of satisfying their liens. The terms of the sale also required 3 other distributions and the purchase of additional stocks, permitting Aretex to become the 4 majority shareholder of WestPoint International. Aretex used its majority ownership to elect 5 WestPoint International s board of directors, and WestPoint International has since been 6 operating the Debtor s business for several years. Subsequent to the closing, the Bankruptcy 7 Court also ordered the adequate protection payments held in escrow to be released to the junior 8 secured creditors. 9 Acting in its capacity as an appellate court in this bankruptcy proceeding, the District 10 Court affirmed the Bankruptcy Court s release of adequate protection payments to the junior 11 secured creditors; however, notwithstanding the closing of the sale, the District Court reversed 12 the Bankruptcy Court s orders in certain respects affecting Aretex s control of the Debtor s 13 business. This appeal presents two principal issues: (1) whether the District Court had authority 14 to modify portions of the terms of the sale affecting Aretex s control of the Debtor s business 15 where (a) acquisition of control was the primary purpose of the sale, (b) the sale between Aretex 16 and the Debtor had already closed, (c) there is no order in place staying the closing of the sale, 17 and (d) the parties do not contest that the sale was completed in good faith; and (2) whether the 18 adequate protection payments held in escrow were properly released to the junior secured 19 creditors. For the reasons that follow, we reverse the orders of the District Court as it relates to 20 the first issue and affirm as it relates to the second. The following subsections, Part I(A) (G), 21 present in further detail the essential facts of this case. 22 A. The Debtor s Secured Creditors 23 The Debtor s creditors consist of, among others, the First Lien Lenders and the Second 24 Lien Lenders. The First Lien Lenders are senior secured creditors who have liens on the 25 Debtor s assets having a value of approximately $488 million. The Second Lien Lenders are 26 junior secured creditors who have liens on the same assets having a value of approximately $165 5 1 million. The Contrarians hold a majority share of the liens held by the First Lien Lenders, 2 approximately 54%, but hold none of the liens held by the Second Lien Lenders. Aretex holds a 3 minority share of the liens held by the First Lien Lenders, approximately 40%, and also holds a 4 majority of the liens held by the Second Lien Lenders, approximately 51%. Beal Bank is the 5 administrative agent and collateral trustee of the First Lien Lenders, and Wilmington Trust is the 6 administrative agent for the Second Lien Lenders. 7 Before the commencement of bankruptcy proceedings, on June 29, 2001, the First and 8 Second Lien Lenders entered into an Intercreditor and Lien Subordination Agreement (the 9 Intercreditor Agreement ), which provided, inter alia, that [u]ntil all First Lien Indebtedness 10 has been paid in full in cash . . . the Second Lien Lenders shall not be entitled to . . . exercise any 11 rights or remedies with respect to the Second Priority Liens or the Collateral . . . . The 12 Intercreditor Agreement provided for several exceptions, two of which were that the Second Lien 13 Lenders might receive (1) adequate protection payments and (2) permitted mandatory 14 prepayments. In particular, the Intercreditor Agreement defined permitted mandatory 15 prepayments as including payments to the Second Lien Lenders occurring as a result of [the 16 Debtor s] sale . . . of the Collateral . . . to the extent that . . . any net proceeds of such sale . . . 17 remain after application to the First Lien Indebtedness to the extent required by the Senior Credit 18 Agreement. 19 Shortly after the commencement of bankruptcy proceedings, on June 18, 2003, the 20 Bankruptcy Court entered an order granting adequate protection payments to both the First and 21 Second Lien Lenders (the Adequate Protection Order ). This order was entered 22 contemporaneously with the Bankruptcy Court s authorization to permit post-petition lenders, 23 who are unrelated to either the First or Second Lien Lenders or any other pre-petition creditors, to 24 obtain priming liens on the Debtor s assets.2 In return for the priming liens, the Debtor received 2 A priming lien is a new lien on property that is given priority over existing liens. Alvin L. Arnold, The Arnold Encyclopedia of Real Estate 438 (2d ed. 1993). Thus, here, the 6 1 financing from the post-petition lenders, thus allowing the Debtor to maintain its business as a 2 going concern and avoid an imminent dissolution before a plan of reorganization could be 3 confirmed. The Adequate Protection Order sought to provide protection to the pre-petition 4 secured creditors by ordering the Debtor to pay them amounts relating to the diminution in value 5 of the collateral being used by the Debtor to maintain its business as a going concern. Neither 6 the First nor the Second Lien Lenders initially objected to the Adequate Protection Order, which 7 provided protection for both classes of pre-petition secured creditors. 8 9 In a motion dated July 22, 2004, however, a member of the First Lien Lenders group, supported by the Contrarians and therefore representing a substantial majority of the First Lien 10 Lenders (the Objecting First Lien Lenders ), moved for a grant of additional adequate protection 11 to the First Lien Lenders through the termination of the adequate protection payments to the 12 Second Lien Lenders. The Objecting First Lien Lenders claimed that they had been misinformed 13 about the Debtor s value at the time the Adequate Protection Order was entered and argued that, 14 having been properly informed of the status of the Debtor s business, there was insufficient value 15 in the Debtor to justify adequate protection payments to the Second Lien Lenders. 16 On August 18, 2004, the Objecting First Lien Lenders and the Second Lien Lenders 17 entered into a stipulation providing for the deposit of the Second Lien Lenders adequate 18 protection payments into an escrow account until the occurrence of certain events relating to the 19 reorganization or sale of the Debtor s business (the Escrow Stipulation ). In return, the 20 Objecting First Lien Lenders agreed to withdraw their motion to terminate adequate protection 21 payments to the Second Lien Lenders. The Escrow Stipulation expressly provided, [f]or 22 avoidance of doubt, that the adequate protection payments held in escrow shall not constitute 23 . . . payments made . . . as adequate protection to the Second Lien Lenders . . . unless and until 24 [the court] authorizes the release of funds . . . to the Second Lien Agent for application to claims priming liens would have priority over the liens of both pre-petition secured creditors, namely, the First and Second Lien Lenders. 7 1 held by the Second Lien Lenders. (quotation marks omitted). 2 B. Initial Skirmishes Relating to the Sale 3 On March 9, 2005, the Debtor filed a motion with the Bankruptcy Court requesting 4 authorization to sell substantially all of its assets free and clear of liens, claims, encumbrances, 5 and other interests through an auction. The Debtor explained that it had attempted to reach a 6 consensus among its creditors on the terms of a Chapter 11 plan of reorganization but that such 7 efforts were blocked by either the Contrarians or Aretex. According to the Debtor, both [the 8 Contrarians] and [Aretex] demand control of the restructured Company and they have been 9 unable to reach a compromise, even with the assistance of the Debtor[]. The Debtor also stated 10 that, in light of the impasse, both the Contrarians and Aretex had informed the Debtor that it 11 should consider pursuing a sale pursuant to section 363(b) of the Bankruptcy Code. The 12 Debtor asserted in its motion that, [a]fter an extensive review of the available options, a sale of 13 its assets was the only viable option available to preserve [its] business operations and provide a 14 meaningful recovery to [its] secured creditor constituencies. 15 The Debtor informed the Bankruptcy Court that it had solicited bids to enter into a 16 stalking horse contract in preparation for the auction.3 Both Aretex and the Contrarians had 17 competed to become the stalking horse, and the Debtor eventually selected the Contrarians as the 18 winning bidder. Under the terms of the stalking horse contract, the Contrarians, as majority 19 members of the First Lien Lenders group, would direct Beal Bank to make a credit bid to 20 purchase the Debtor s assets free and clear of encumbrances. That is, the entire value of the First 21 Liens, approximately $488 million, would be used as credit to purchase the Debtor s assets. 22 Thereafter, the Contrarians would exchange securities in New Textile Co., a corporation the 23 Contrarians created for purposes of acquiring the Debtor s business, for the assets purchased 24 through Beal Bank. The securities of New Textile Co. would then be distributed to the First Lien 3 A stalking horse contract is a first, favorable bid strategically solicited by the bankrupt company to prevent low-ball offers. 8 1 2 Lenders as consideration. Of course, the stalking horse contract was not a binding contract of sale and only served 3 to fix the minimum bid at the auction. The Debtor explained in its motion to proceed with the 4 auction sale that the Contrarians bid represented the most attractive alternative available . . . at 5 this time. The Contrarians filed a separate response, asserting that (1) its credit bid was 6 equivalent to a cash bid, and (2) any competing bids therefore were required to offer a sufficient 7 amount of cash to pay the First Lien Lenders in full. 8 9 On April 7, 2005, following a hearing on the Debtor s motion, the Bankruptcy Court denied the Debtor s motion on several grounds, including the unreasonableness of the breakup 10 fees. The Debtor filed a subsequent motion on April 15, 2005, purporting to address the 11 Bankruptcy Court s concerns by removing references to the stalking horse contract and breakup 12 fees. The Contrarians opposed the Debtor s modified motion to proceed with the sale because, 13 among other reasons, the proposed timetable for the auction was insufficient for any potential 14 third parties to obtain financing. The Contrarians asserted that, pursuant to 11 U.S.C. § 363(k) 15 and the Intercreditor Agreement, only they and not any other party, including, specifically, 16 Aretex could purchase the Debtor s assets with stock rather than cash without first 17 satisfying the First Lien Lenders in cash. Notwithstanding the Contrarians objections, the 18 Bankruptcy Court, on April 22, 2005, granted the Debtor s motion and authorized the auction of 19 the Debtor s assets to proceed. The Bankruptcy Court did not rule prior to the auction on the 20 superiority of the Contrarians credit bid or on the issue of whether any other bid must first 21 satisfy the First Lien Lenders in cash. 22 In response to the Bankruptcy Court s order approving the auction of the Debtor s assets 23 to proceed, Wilmington Trust, as agent of the Second Lien Lenders, on May 10, 2005, filed a 24 motion to release the adequate protection payments held in escrow pursuant to the Escrow 25 Stipulation so that it could distribute the escrowed funds to the Second Lien Lenders. Aretex 26 joined Wilmington Trust s motion to release the escrowed adequate protection payments to the 9 1 Second Lien Lenders. Beal Bank, as collateral trustee of the First Lien Lenders, objected to 2 Wilmington Trust s motion on the grounds that the motion was premature because the auction of 3 the Debtor s assets had not yet even occurred. The Contrarians also objected to Wilmington 4 Trust s motion, arguing that the Second Lien Lenders were not entitled to the escrowed funds 5 because the funds were not adequate protection payments at all and therefore were subject to the 6 subordination clauses of the Intercreditor Agreement. The ensuing reply and subsequent hearing 7 in regard to that dispute occurred after the auction and the entry of the Bankruptcy Court s sale 8 order. 9 10 C. The Bid for Control of the Debtor s Business The auction was held on June 23, 2005. To solicit bids, the Debtor contacted 111 11 potential bidders and published a notice of sale in the Wall Street Journal and The New York 12 Times. At the auction, however, the Contrarians and Aretex were the only two parties present. 13 The auction commenced with Aretex s bid being the baseline bid, which, applying a 14 control premium of 25.8%, was valued at approximately $617.1 million.4 Aretex s bid structure 15 essentially was composed of securities of WestPoint International for consideration, with an 16 additional payment of $165 million cash for a 17.5% interest in WestPoint International. In 17 response to Aretex s bid, the Contrarians submitted a provisional bid valued at approximately 18 $621.6 million.5 The Contrarians provisional bid structure differed from Aretex s, in that it was 19 composed of a credit bid by Beal Bank and a subsequent exchange of securities in New Textile 20 Co. the vehicle corporation created by the Contrarians to acquire the Debtor s business for 21 the assets purchased by the credit bid. This bid structure was generally identical to the 4 The control premium is the rate at which the value of the bid is discounted to account for the bidder s purchase of control of the business. Thus, for instance, Aretex s initial bid may have yielded a total value of approximately $940 million, but, with the application of the 25.8% control premium as part of the assessment of the bid, Aretex s bid was valued at $617.1 million. 5 The Contrarians credit bid was provisional because, at the time of the auction, Beal Bank had not yet agreed to credit bid for the Debtor s assets. Beal Bank had indicated, however, that it had no reason to believe that it would not follow the Contrarians direction to credit bid. 10 1 Contrarians stalking horse proposal. The Contrarians indicated that, upon their taking control of 2 New Textile Co., they were prepared to provide minority [shareholder] protections. 3 After some disagreement about whether a provisional bid should be permitted to compete 4 with Aretex s unconditional bid, Aretex submitted a new bid raising its purchase price for a 5 17.5% interest in WestPoint International to $170 million an increase of $5 million. This new 6 bid was valued, applying the control premium of 25.8%, at approximately $639.8 million. 7 Unlike the Contrarians, Aretex indicated that its bid would not provide minority [shareholder] 8 protections other than what is required by law. Thereafter, the Contrarians asserted that they 9 would continue to bid; however, in the event they did not emerge the winning bidder, they 10 reserved the right to argue that their initial provisional bid was higher and better. The 11 Contrarians accordingly set aside their credit bid and bid in a structure identical to that proposed 12 by Aretex, except that the Contrarians would purchase 7.75% of the stock of New Textile Co., 13 the Contrarians vehicle company (as opposed to Aretex s purchase of 17.5% of WestPoint 14 International, Aretex s vehicle company), to secure control of the Debtor s business; the 15 Contrarians new bid was valued at approximately $650.1 million. Aretex then submitted a bid 16 that increased its purchase price for 17.5% interest in WestPoint International to $180 million, 17 raising the value of its entire bid to approximately $677.3 million. 18 The Contrarians responded by raising their bid but emphasizing that when [the] dust all 19 settles, we must end up with 50.1 [percent;] that is obviously incorporated into our proposal. 20 The Debtor rejected the bid because it was not able to confirm that it could meet the condition 21 that the [Contrarians] would retain 50.1 percent of the ownership of [New Textile Co.]. The 22 Contrarians protested that obtaining a controlling interest in the vehicle company acquiring the 23 Debtor s business was one of [Aretex s] conditions for their bid. The Debtor explained that 24 Aretex can meet the condition based on their [bid] structure. . . . [However,] based on how we 25 evaluated your [(the Contrarians )] bid, we cannot meet the 50.1 [percent] minimum condition. 26 The Contrarians then ceased to bid. 11 1 Aretex responded by increasing its bid once more, raising its purchase price for 17.5% 2 interest in WestPoint International to $187 million and thus raising the value of its entire bid to 3 approximately $703.5 million. Apparently dissatisfied with lawyers placing unnecessary 4 provisions in the bids, Carl Icahn, on behalf of Aretex, indicated that the provision protecting 5 any right [of Aretex] to buy additional shares [to guarantee control over WestPoint 6 International] would be stricken. As explained in a subsequent hearing, Aretex stated that it 7 was comfortable with the math [that it would own more than 50% of WestPoint International]. 8 The auction accordingly concluded with Aretex emerging as the winning bidder. The Debtor and 9 Aretex thereafter prepared an Asset Purchase Agreement incorporating the terms of the sale in 10 11 accordance with the bid. In the subsequent hearings held on June 24, 2005, and June 29, 2005, the Debtor sought 12 to have the Asset Purchase Agreement approved by the Bankruptcy Court. After hearing 13 testimony from witnesses and observing that the auction was well-publicized, open, fair, and 14 between sophisticated parties, each with their own professional advisors, the Bankruptcy Court 15 approved Aretex s purchase of substantially all the [Debtor s] assets, in effect of the [Debtor s] 16 business. 17 18 19 20 D. The Bankruptcy Court s Sale Order and the Contrarians Appeal to the District Court On July 8, 2005, the Bankruptcy Court entered its Order Authorizing Sale of 21 Substantially All of the Sellers Assets Free and Clear of Liens, Claims, Encumbrances and 22 Interests, the Assumption of Certain Liabilities, Approval of Successful Bidder and Certain 23 Related Matters (the Sale Order ). The Sale Order confirmed that the winning bid presented 24 the highest and best bid at the Auction and that the auction was conducted lawfully and in a 25 noncollusive, fair, and good faith manner. 26 27 The Sale Order approved the Asset Purchase Agreement, which provided a two-step process in the sale of the Debtor s assets. First, the Debtor s assets would be acquired by 12 1 WestPoint Home, a wholly owned subsidiary of WestPoint International, free and clear of liens 2 and encumbrances; however, replacement liens would be placed on WestPoint International s 3 securities to account for the secured creditors interests. Second, at closing, WestPoint 4 International s securities would be directly distributed to the secured creditors, thereby 5 extinguishing the replacement liens. This second step, in conjunction with Aretex s purchase of 6 a 17.5% interest, worked to guarantee Aretex control of WestPoint International and, by 7 extension, the Debtor s business. Because these steps would occur simultaneously at closing, 8 however, although it might be a two step process, it can only be metaphysically a two step 9 process. In re WestPoint Stevens, Inc., 333 B.R. at 51 (quoting the Bankruptcy Court). The 10 securities to be distributed to the First Lien Lenders were parent shares and subscription rights to 11 WestPoint International (the First Securities ). The remaining subscription rights, the value of 12 which were calculated at the time of closing and found to be worth approximately $95 million 13 (the Second Securities ), were to be distributed to the Second Lien Lenders. 14 The Contrarians appealed the Sale Order to the District Court.6 After filing the notice of 15 appeal, the Contrarians moved to stay the Sale Order in the Bankruptcy Court. The Bankruptcy 16 Court denied the stay motion, and the Contrarians, joined by Beal Bank, thereafter filed a stay 17 motion with the District Court. The Contrarians submitted their brief arguing the merits of the 18 appeal to the District Court, but the parties then agreed to a stipulation (the Stay Stipulation ), 19 which narrowed the issues on appeal. Specifically, the Stay Stipulation provided for the 20 withdrawal of the Contrarians stay motion, with prejudice, as to that portion of the [stay 21 motion] seeking a stay of the closing of the sale by [the Debtor] to Purchasers approved by the 22 [Sale Order]. The Contrarians also agreed that it would seek no other stay of the closing of the 23 sale under the Sale Order or otherwise. 6 The Contrarians did not challenge the value of the distributed Securities as determined by the Bankruptcy Court. See generally In re WestPoint Stevens, Inc., 333 B.R. 30 (S.D.N.Y. 2005). Those findings remain uncontested in this appeal. 13 1 The Stay Stipulation expressly provided, however, for a stay of the distribution of the 2 [Second Securities] allocable to the Second Lien Lenders. In particular, the Stay Stipulation 3 required that the Second Securities be distributed to the Second Lien Lenders but that such 4 distribution be held in escrow until a subsequent court order resolved the proper allocation, if 5 any, of the Second Securities to the First Lien Lenders. The Stay Stipulation provided that [i]n 6 all other respects, the distribution of the Second Securities shall be in accordance with the Sale 7 Order and terms of the Asset Purchase Agreement. The Stay Stipulation also provided that, 8 except as set forth in the Stay Stipulation, the rights of all parties . . . as to the appeal and all 9 other disputes and matters . . . including without limitation rights under Paragraph R of the Sale 10 Order, are expressly preserved and are not affected by this stipulation. Paragraph R of the Sale 11 Order included the Bankruptcy Court s conclusion that the exceptions to the subordination 12 clauses of the Intercreditor Agreement, i.e., the permitted mandatory prepayments and adequate 13 protection, authorized the Second Lien Lenders to receive the Second Securities.7 The Stay 14 Stipulation recited that the minority members of the Second Lien Lenders group did not favor the 15 stipulation and that it was being entered over their objection. 16 Several days after the Stay Stipulation was so ordered by the District Court, on August 17 8, 2005, the Debtor and Aretex Group closed the sale. Accordingly, the Debtor s assets were 18 transferred, free and clear of liens, to WestPoint International; the securities allocated to the First 19 Lien Lenders were distributed to the First Lien Lenders in satisfaction of their liens; and the 20 Second Securities allocated to the Second Lien Lenders were placed in escrow pursuant to the 21 Stay Stipulation. Thereafter, Aretex purchased 17.5% of WestPoint International s shares for 7 To prevent confusion, we note at this juncture that adequate protection makes two distinct appearances in this case. First, there are the adequate protection payments held in escrow pursuant to the Escrow Agreement. That adequate protection compensated for the diminishing value of the secured collateral resulting from the Debtor s use of the collateral in maintaining its business as a going concern. Second, there is the adequate protection that the Bankruptcy Court uses as a justification to distribute the First Securities to the First Lien Lenders in satisfaction of their claims and thus permit the distribution of the Second Securities to the Second Lien Lenders. We discuss the validity of each infra Part II(D)(2), (E). 14 1 $187 million pursuant to its bid and also exercised the subscription rights distributed to it as a 2 First Lien Lender, paying $32.8 million for additional common stock in WestPoint International. 3 Thus, in addition to the stock distributed to it pursuant to the Asset Purchase Agreement and Sale 4 Order, Aretex s purchase of stock and exercise of subscription rights rendered it the controlling 5 shareholder of WestPoint International. As the controlling shareholder, Aretex elected 6 WestPoint International s board of directors. 7 8 E. The District Court s November 16, 2005 Decision and Order Remanding The Case To The Bankruptcy Court 9 In a published decision and order dated November 16, 2005, the District Court reversed, 10 in part, the Bankruptcy Court s Sale Order and remanded the case for further proceedings. See In 11 re WestPoint Stevens, Inc., 333 B.R. at 54 55. The District Court initially dismissed as moot, 12 pursuant to 11 U.S.C. § 363(m), any claims that it believed challenged the validity of the closed 13 sale. Id. at 40. The District Court rejected, inter alia, the Contrarians argument that the First 14 Securities should have been distributed to Beal Bank (as the collateral trustee of the First Lien 15 Lenders) and not directly to the First Lien Lenders. Id. The District Court reasoned that such a 16 distribution would vitiate the purpose of the Aretex . . . Group bid because, if the First 17 Securities were distributed to Beal Bank which is controlled by the Contrarians that 18 would be tantamount to declaring the [Contrarians] the winner of the auction. Id. (quoting the 19 Bankruptcy Court). 20 The District Court concluded, however, that the Stay Stipulation staying the allocation of 21 the Second Securities had in fact stayed the claim satisfaction and lien release provisions of [the 22 Sale Order] and, accordingly, the question of whether the distribution of the First Securities to 23 the First Lien Lenders had satisfied their liens remained open for adjudication, unobstructed by 24 the mandatory mootness provision of 11 U.S.C. § 363(m). See id. at 40, 51. Inasmuch as Aretex 25 Group argued, in the alternative, that any challenge that would unwind the lien release and claim- 26 satisfaction provisions of the Sale Order should be equitably moot because those provisions were 15 1 necessary for Aretex to maintain control over WestPoint International, the District Court found 2 that equity did not favor Aretex. Id. at 41. [S]uch [a] result is not inequitable as Aretex and its 3 affiliates retain the ability to acquire more equity by purchase and . . . they chose to close the 4 transaction [despite the Stay Stipulation staying the distribution of the Second Securities and] . . . 5 the Objecting First Lien Lenders consistent argument that non cash consideration would be 6 insufficient to satisfy the Debtor[ s] obligations to them. Id. 7 Having set the parameters for its review of the Bankruptcy Court s decision, the District 8 Court rejected, as without merit, the remaining preliminary arguments raised by Aretex Group. 9 See id. at 41 43. In particular, the District Court noted that the Contrarians were not estopped 10 from challenging Aretex s bid structure despite the Contrarians having submitted bids that were 11 purportedly identical in structure to Aretex s bid during the auction. Id. According to the 12 District Court, this disparity in treatment was proper because the Contrarians, as majority holders 13 of the First Liens, were in a position to forego having the First Lien Lenders claims satisfied in 14 cash while Aretex, as only a minority holder of the First Liens, did not have this option to act on 15 behalf of the First Lien Lenders. Id. 16 The District Court then concluded that there was no contractual basis for authorizing the 17 distribution of the Second Securities to the Second Lien Lenders. Specifically, it concluded that 18 none of the exceptions to the subordination clauses of the Intercreditor Agreement, namely, the 19 payment of adequate protection or permitted mandatory prepayments, justified the Second Lien 20 Lenders receiving the Second Securities without the First Lien Lenders having been satisfied 21 first in full and in cash. See id. at 45 49. 22 The District Court also concluded that there was no statutory basis for authorizing the lien 23 release and claim-satisfaction provisions of the Sale Order. Id. at 50 54. The District Court 24 noted that such provisions were beyond the scope of 11 U.S.C. § 363(b) and found that the 25 Bankruptcy Court s determinations circumvented the procedural safeguards of a Chapter 11 26 reorganization. Id. at 52. The District Court stated that the reserved equitable powers of the 16 1 Bankruptcy Court under 11 U.S.C. § 105(a) could not justify the lien release and claim- 2 satisfaction provisions of the Sale Order because the Bankruptcy Court s equitable powers could 3 not be used in contravention to the Bankruptcy Code. Id. at 53 54. Accordingly, the District 4 Court remanded the case to the Bankruptcy Court. Id. at 54 55. Aretex Group thereafter moved 5 in the District Court for certification of an interlocutory appeal to this Court, but that motion was 6 denied on January 25, 2006. In re WestPoint Stevens, Inc., No. 05 Civ. 6860, motion denied 7 (S.D.N.Y. Jan. 25, 2006). Aretex Group then filed a petition for a writ of mandamus in this 8 Court to direct the District Court to vacate its decision, but we denied that petition on March 16, 9 2006. In re Aretex, LLC, et al., No. 06-0483, petition denied (2d Cir. Mar. 16, 2006). 10 F. 11 On remand from the District Court, the Bankruptcy Court issued two orders, one 12 implementing the District Court s decision, and one releasing the adequate protection payments 13 held in escrow pursuant to the Escrow Stipulation to the Second Lien Lenders. Both orders were 14 entered on April 13, 2006. 15 16 The Bankruptcy Court s Orders on Remand 1. Order Implementing Decision After submission of briefs and oral argument, the Bankruptcy Court issued its Order on 17 Remand implementing the District Court s decision. The Bankruptcy Court ordered that the 18 Securities, i.e., the First Securities and the Second Securities, including those securities and 19 subscription rights already distributed to Aretex, be distributed instead to the collateral trustee of 20 the First Lien Lenders, Beal Bank. The Bankruptcy Court noted, however, that the 17.5% of 21 WestPoint International s securities purchased by Aretex do not constitute Replacement 22 Collateral [(the Securities)] and are not subject to any liens of the First Lien Lenders or the 23 Second Lien Lenders. The Bankruptcy Court further ordered, inter alia, that Aretex, inasmuch 24 as it was a First Lien Lender, would share in the proceeds realized from the disposition of the 25 Securities with the Objecting First Lien Lenders on a pro rata basis. Likewise, Aretex, inasmuch 26 as it was also a Second Lien Lender, would share in the proceeds realized from the disposition of 17 1 the Securities with the Second Lien Lenders on a pro rata basis. The Bankruptcy Court denied 2 Aretex Group s request to supervise the sale of the Securities. 3 4 5 In a separate order entered the same day, the Bankruptcy Court granted Aretex Group s motion to stay the court s Order on Remand. 2. Order Releasing Adequate Protection Payments 6 In its Release Order, the Bankruptcy Court granted Wilmington Trust s motion to release 7 the adequate protection payments, in the amount of approximately $29 million, held pursuant to 8 the Escrow Stipulation. The Bankruptcy Court found that the First Lien Lenders had received 9 their adequate protection payments but that the Second Lien Lenders, on account of the Escrow 10 Stipulation, had been deprived of adequate protection payments to which they were entitled. 11 The Bankruptcy Court observed that the Adequate Protection Order was entered in light 12 of uncontested evidence that there was sufficient value in the Debtor s assets to secure both the 13 First and Second Lien Lenders. In addition, the Bankruptcy Court noted that the Adequate 14 Protection Order reserved the right of the First Lien Lenders to file an adversary proceeding to 15 alter the Second Lien Lenders right to adequate protection payments and, further, reserved the 16 right of all secured creditors to seek additional adequate protection, but that the Objecting First 17 Lien Lenders had not filed any action to challenge the Second Lien Lenders right to receive 18 adequate protection payments. Even if the Objecting First Lien Lenders had successfully 19 challenged the Second Lien Lenders right to adequate protection, the Bankruptcy Court noted 20 that any such challenge would only have resulted in the accumulated adequate protection 21 payments being allocated to satisfy the principal, rather than the interest, on the Second Lien 22 debt. Insofar as the Objecting First Lien Lenders argued for additional adequate protection by 23 terminating the adequate protection afforded to the Second Lien Lenders, the Bankruptcy Court 24 rejected this argument as inconsistent with the law and the Adequate Protection Order. 25 26 The Bankruptcy Court also rejected the Objecting First Lien Lenders argument that the funds held pursuant to the Escrow Stipulation were subject to the subordination clauses of the 18 1 Intercreditor Agreement. The Bankruptcy Court stated that the Escrow Stipulation did not 2 terminate the Second Lien Lenders rights to adequate protection payments; rather, the Escrow 3 Stipulation simply deferred and conditioned the delivery of the [adequate protection payments] 4 on the entry of a further Court order. The Bankruptcy Court also stated that the Intercreditor 5 Agreement, which it concluded remained binding, expressly provided for the Second Lien 6 Lenders right to receive adequate protection payments and that the entry of this Order suffices 7 to qualify the [adequate protection payments held in escrow] for the exception in the Intercreditor 8 Agreement. Accordingly, finding no merit to the objections made to Wilmington Trust s 9 motion, the Bankruptcy Court entered the Release Order permitting Wilmington Trust to receive 10 the adequate protection payments held in escrow. 11 12 G. The District Court s October 9, 2007 Decision and Order Affirming The Bankruptcy Court s Order on Remand and Release Order 13 In an unpublished decision and order dated October 9, 2007, the District Court affirmed 14 the Bankruptcy Court s Order on Remand and Release Order. See In re WestPoint Stevens, Inc., 15 Nos. 06 Civ. 4128/4129/4130/4164; M-47, 2007 WL 2936212 (S.D.N.Y. Oct. 9, 2007). The 16 District Court rejected the Contrarians challenge to the Order on Remand that Aretex, as a 17 member of the First Lien Lenders group, should not share pro rata in the proceeds from the 18 disposition of the Securities. Id. at *1 *2. 19 The District Court also rejected Aretex Group s challenge to the Order on Remand that 20 the Bankruptcy Court erred when it (1) refused to limit the order to permit Aretex to maintain 21 control of WestPoint International; (2) determined that the First Securities distributed to Aretex 22 were among the securities subject to sale toward satisfaction of the claims of the First Lien 23 Lenders; (3) refused to condition any sale involving control of WestPoint International on 24 repayment of the $187 million Aretex paid for 17.5% interest of WestPoint International; and (4) 25 directed the release of the Securities to Beal Bank. Id. at *2 *4. To the extent Aretex argued for 26 repayment of the $32.8 million paid in connection with the exercise of the subscription rights that 19 1 were previously distributed to it, the District Court generally agreed with Aretex and modified 2 the Bankruptcy Court s order accordingly. Id. at *4. 3 Inasmuch as the Contrarians also raised objections to the Release Order, the District 4 Court affirmed the Release Order for substantially the same reasons stated by the Bankruptcy 5 Court. Id. at *1, *4. This timely appeal followed. 6 II. DISCUSSION 7 A. Standard of Review 8 In appeals from district court orders relating to bankruptcy court decisions, we review 9 the decision of the bankruptcy court independently, examining its conclusions of law de novo 10 and its factual findings for clear error. In re Wireless Data, Inc., 547 F.3d 484, 492 (2d Cir. 11 2008) (quoting Adelphia Bus. Solutions, Inc. v. Abnos, 482 F.3d 602, 607 (2d Cir. 2007)) 12 (internal quotation marks omitted). With limited exceptions, we review questions of textual 13 construction de novo. See In re Duplan Corp., 212 F.3d 144, 151 (2d Cir. 2000) (stating that this 14 Court reviews de novo questions of pure textual construction . . . , whatever the procedural 15 posture of the case (quoting Bellefonte Reinsurance Co. v. Aetna Cas. and Sur. Co., 903 F.2d 16 910, 912 (2d Cir. 1990)) (internal quotation marks omitted)); see, e.g., Truskoski v. ESPN, Inc., 17 60 F.3d 74, 77 (2d Cir. 1995) (according deference to the district court s interpretation of its own 18 order). Whether an appeal is moot is also a legal question that is reviewed de novo. N.Y. Civil 19 Liberties Union v. Grandeau, 528 F.3d 122, 128 (2d Cir. 2008). 20 B. 21 Section 363(m) of the Bankruptcy Code provides: 22 23 24 25 26 27 The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal. 28 This section creates a rule of statutory mootness, see Weingarten Nostat, Inc. v. Serv. 29 Section 363(m) Mootness Merch. Co., 396 F.3d 737, 744 (6th Cir. 2005), which bars appellate review of any sale 20 1 authorized by 11 U.S.C. § 363(b) or (c) so long as the sale was made to a good faith purchaser 2 and was not stayed pending appeal, see In re Gucci, 105 F.3d 837, 839 40 (2d Cir. 1997) ( Gucci 3 I ); see also In re Gucci, 126 F.3d 380, 392 (2d Cir. 1997) ( Gucci II ). By restricting the 4 exceptions to the application of section 363(m) to an entry of a stay or a challenge to the good 5 faith aspect of the sale, section 363(m) moots a broader range of cases than are barred under 6 traditional doctrines of mootness. See Weingarten Nostat, Inc., 396 F.3d at 742 ( Even if the 7 appeal is not moot as a constitutional matter because a court could provide a remedy, . . . 8 § 363(m) requires that certain appeals nonetheless be treated as moot absent a stay. ). Indeed, we 9 have equated section 363(m) to an imposed jurisdictional limit on our authority to review the 10 Bankruptcy Court s sale order. See Gucci I, 105 F.3d at 838 ( We hold that . . . we have no 11 jurisdiction to review an unstayed sale order once the sale occurs, except on the limited issue of 12 whether the sale was made to a good faith purchaser. ). 13 In this appeal, there is no issue with respect to the good faith aspect of the sale of the 14 Debtor s assets. See In re WestPoint Stevens, 333 B.R. 30, 40 (S.D.N.Y. 2005). Instead, the 15 Contrarians make two principal arguments: (1) the Stay Stipulation stayed the lien release and 16 claim-satisfaction provisions of the Sale Order, and, therefore, any challenge to those provisions 17 are not mooted under section 363(m), and (2) even if the lien release and claim-satisfaction 18 provisions were not stayed, a ruling on those provisions of the Sale Order does not affect the 19 validity of the sale between the actual entities involved in the purchase of the Debtor s assets, 20 namely, WestPoint Home, WestPoint International, and the Debtor, and, therefore, any 21 challenges to those provisions of the Sale Order are not mooted by section 363(m). We conclude 22 that the Contrarians first argument is unsupported by the terms of the Stay Stipulation and that 23 their second argument lacks merit in light of the integral nature of the lien release and claim- 24 satisfaction provisions to the sale. We address these arguments in reverse order. 25 26 1. Review of the Sale Order We have held in no ambiguous terms that section 363(m) is a limit on our jurisdiction and 21 1 that, absent an entry of a stay of the Sale Order, we only retain authority to review challenges to 2 the good faith aspect of the sale. See Gucci I, 105 F.3d at 838, 840. Specifically, we held in 3 Gucci I that we lack jurisdiction to review the unstayed sale order, id. at 838 (emphasis added), 4 of a sale subject to the protections of section 363(m) and concluded that we may neither reverse 5 nor modify the judicially-authorized sale, id. at 839 40 (emphasis added). We noted that it was 6 unclear why an appellate court . . . could not order some form of relief other than invalidation of 7 the sale, but accepted our place in the statutory scheme and observed that whatever other relief 8 might be available could presumably be pursued in the bankruptcy court by those entitled to such 9 relief. Id. at 840 n.1 (emphasis added). We adhere to our holding in Gucci I that, under section 10 363(m), we lack jurisdiction to review the entire Sale Order not just the actual sale 11 transaction. See id. at 838; United States v. Salerno, 932 F.2d 117, 122 23 (2d Cir. 1991); see 12 also In re Parker, 499 F.3d at 621 (observing that the First, Second, Fifth, Seventh, Eleventh, and 13 the D.C. Circuits have adopted a per se rule automatically mooting appeals for failure to obtain 14 a stay of the sale at issue (citations omitted)); cf. In re Parker, 499 F.3d 616, 620 (6th Cir. 2007) 15 ( [W]e begin by dispelling any notion that we sit in review of the bankruptcy court s Order of 16 Sale. Defendant s attempts to assail the validity of the bankruptcy court s Order of Sale, 17 however indirectly, are statutorily moot. ). 18 This holding is consistent with the uniquely important interest in assuring the finality of a 19 sale that is completed pursuant to 11 U.S.C. § 363(b) or (c) in bankruptcy proceedings.8 See 20 Gucci II, 126 F.3d at 387 (stating that without this assurance of finality [under section 363(m)], 8 Section 363(b) allows for the debtor to sell its property, other than in the ordinary course of business, after notice and a hearing. See 11 U.S.C. § 363(b). Because a sale pursuant to section 363(b) may deprive creditors of the safeguards of a Chapter 11 reorganization, see In re Lionel Corp., 722 F.2d 1063, 1066, 1069 (2d Cir. 1983), this Court has restricted the Bankruptcy Court s exercise of discretion in permitting a sale under section 363(b) by requiring the Bankruptcy Court to find from the evidence presented before [it] a good business reason to grant . . . [the] application [to sell property under section 363(b)], id. at 1071. It is uncontested in this case that the Bankruptcy Court authorized the sale of the Debtor s assets pursuant to section 363(b). Section 363(c), which allows for the sale of property in the ordinary course of business without notice or hearing, is not applicable here. 22 1 purchasers could demand a large discount for investing in a property that is laden with the risk of 2 endless litigation as to who has rights to estate property ); see also In re Rare Earth Minerals, 445 3 F.3d 359, 363 (4th Cir. 2006) ( Section 363(m) codifies Congress s strong preference for finality 4 and efficiency in the bankruptcy context, particularly where third parties are involved. ). Similar 5 to the logic that the sale price of the debtor s assets will be driven down if the purchaser is not 6 guaranteed ownership of those assets upon closing of the sale, see Gucci II, 126 F.3d at 387, a 7 purchaser will demand a discount for the purchase of assets in which the terms and conditions of 8 the sale cannot be protected from challenge even after closing the sale, cf. In re Trism, Inc., 328 9 F.3d 1003, 1007 (8th Cir. 2003) ( [A] challenge to a related provision of an order authorizing the 10 sale of the debtor s assets affects the validity of the sale [and therefore falls under section 11 363(m)] when the related provision is integral to the sale of the estate s assets. ). 12 A narrow exception may lie for challenges to the Sale Order that are so divorced from the 13 overall transaction that the challenged provision would have affected none of the considerations 14 on which the purchaser relied. Cf. Krebs Chrysler-Plymouth, Inc. v. Valley Motors, Inc., 141 15 F.3d 490, 499 (3d Cir. 1998) (stating that an appeal is not moot under § 363(m) unless the party 16 failed to obtain a stay and reviewing courts can fashion a remedy that will not affect the validity 17 of the sale ). But see George W. Kuney, Slipping Into Mootness, 2007 Ann. Surv. of Bankr. L. 18 Part I § 9, subpart III(A)(i) ( [I]t does not appear that [the Third Circuit s] exception to 19 mootness is found in many fact patterns and one is left to wonder what remedy an objecting party 20 to a section 363 sale would be seeking that did not distort the validity of the section 363 21 sale. . . . Given the narrowness of this exception, for most practical purposes the Third Circuit 22 should be viewed as having adopted a de facto per se rule. ). We need not here address the 23 potential for such an exception in this case, however, because the Contrarians clearly challenge 24 an integral provision of the Sale Order. 25 26 The lien release and claim-satisfaction provisions, in conjunction with the pro rata distribution provision and Aretex s purchase of a 17.5% interest, were essential to Aretex s 23 1 acquiring control of the Debtor s business because: (1) the distribution provision guaranteed that 2 the Securities would be distributed pro rata to the First and Second Lien Lenders; (2) the lien 3 release and claim-satisfaction provisions guaranteed that the Securities received by the individual 4 First and Second Lien Lenders would be unencumbered by other liens; and (3) Aretex s holding 5 of approximately 40% of the First Liens and 51% of the Second Liens guaranteed it a substantial 6 distribution of the unencumbered Securities. In accordance with its bid, Aretex was required to 7 purchase an additional 17.5% interest in WestPoint International, which then guaranteed it a 8 holding of 55.5% ownership in that corporation. Even under the terms of the subsequent Stay 9 Stipulation, which permitted the closing of the sale, the scenario least favorable to Aretex, i.e., 10 distribution of the entirety of the Second Securities to the First Lien Lenders, would still leave 11 Aretex owning a controlling 50.5% of WestPoint International. 12 Indeed, both the Sale Order and the Asset Purchase Agreement emphasize the importance 13 of the lien release, claim satisfaction, and distribution provisions of the Sale Order to occur as a 14 condition to the closing of the sale. For example, the Sale Order provides that the purchasers 15 would not have entered into the Agreement and would not consummate the transactions 16 contemplated thereby, . . . if the . . . Securities were not free and clear of all Interests, Interests 17 being defined as Liens, claims, encumbrances, and other interests. Further, under the Sale 18 Order, effective as of the Closing the transfer of assets vest[ed] . . . Aretex, the other First 19 Lien Lenders, and to the extent applicable, the other Second Lien Lenders, with their 20 proportionate share of [the Securities] . . . in satisfaction of their replacement lien. 9 Likewise, 21 the Asset Purchase Agreement required that the Sale Order find and provide, among other 9 The Sale Order also stated that at the Closing the Purchased Assets shall be transferred to the Purchaser free and clear of all Interests of any kind or nature whatsoever . . . with the Interests of the First Lien Lenders and Second Lien Lenders attaching to the Sale proceeds . . . to the same extent, validity, and priority that they attached to the Purchased Assets immediately prior to the Closing. All such Interests of any kind or nature whatsoever shall be and shall be deemed to be satisfied at the Closing upon the release (or tender of release) of such replacement collateral . . . . 24 1 things . . . that the Parent Common Stock and Subscription Rights purchased, retained by and/or 2 distributed to . . . the First Lien Lenders and Second Lien Lenders shall be received and retained 3 by each of them free and clear of all Liens, claims and encumbrances of any nature. Thus, 4 without the lien release, claim satisfaction, and distribution provisions as integral parts, there 5 simply could not be a sale. Cf. In re Stadium Mgmt. Corp., 895 F.2d 845, 849 (1st Cir. 1990) 6 (concluding that a certain condition of the sale was integral to the sale and removing it from the 7 sale would have adversely affected the terms of the sale ). 8 The Contrarians argument that control was not an essential element of Aretex s bid is 9 belied not only by the Sale Order and Asset Purchase Agreement, but also by the record. The 10 Debtor made it clear that it pursued a section 363(b) asset sale as a last resort because both the 11 Contrarians and Aretex could not agree on any plan that would permit the other to control the 12 restructured Debtor. Further, both Aretex and the Contrarians were explicit about their 13 understanding that the winner of the auction would obtain control of the Debtor s business, 14 noting throughout the auction the importance of control and referencing minority shareholder 15 protections which would apply to the losing bidder. Indeed, that the bids were assessed by 16 incorporating a control premium shows that all parties involved in the auction understood that 17 the winning bidder would acquire control of the Debtor s business. Although Aretex s final bid 18 did not explicitly condition the sale on obtaining control of WestPoint International, the 19 combination of the lien release, claim satisfaction, and distribution provisions, along with the 20 purchase of 17.5% interest, mathematically guaranteed Aretex control of WestPoint 21 International. 22 The Contrarians further argue that Aretex cannot claim any protections under section 23 363(m) because it was not the actual entity receiving the purchased assets. This argument fails, 24 however, because it conflates the issue of standing for the appealing party with the application of 25 section 363(m) by a reviewing court. We repeat that we lack jurisdiction to review the Sale 26 Order unless a stay has been entered or there is a challenge to the good faith aspect of the sale; 25 1 our jurisdiction does not depend on which entity challenges the Sale Order.10 See Gucci I, 105 2 F.3d at 839 40 (stating that section 363(m) moots the appeal); see also In re The Charter Co., 3 829 F.2d 1054, 1056 (11th Cir. 1987) ( [A]ppellant argues that the stay requirement does not 4 apply to a purchaser who challenges the authorization. . . . There is nothing in the language of 5 section 363(m) to suggest that such an exception exists. ).11 6 In sum, this case presents an unmistakable record of a sale for control of the Debtor s 7 business. Throughout its litigation history before, during, and after the auction the main 8 concern in this case with any plan of reorganization or section 363(b) sale was control. The 9 Sale Order and Asset Purchase Agreement confirm this obvious truth. The lien release, claim 10 satisfaction, and distribution provisions of the Sale Order, in conjunction with Aretex s purchase 11 of a 17.5% interest, are necessary for control to transfer from the Debtor to Aretex. 12 Accordingly, we do not hesitate to conclude that any challenges to these integral and integrated 10 Insofar as standing is concerned, Aretex has standing in this appeal. As explained above, the entire bankruptcy proceeding was a battle for control of the Debtor between Aretex and the Contrarians. Although the physical assets were transferred to WestPoint International/Home, the actual purchaser of the Debtor s assets was undeniably Aretex. Without Aretex, there would be no WestPoint International or WestPoint Home, which entities were created by Aretex to acquire the Debtor s assets; without Aretex, there would be no entity to purchase the 17.5% interest in WestPoint International for $187 million, which was an essential component of the winning bid; and without Aretex, the winning bid of $703.5 million nearly $82 million more than the Contrarians provisional bid would not have been made. In short, Aretex is the indispensable entity behind the winning $703.5 million bid. It alone was responsible for the bid s creation, presentation, advocacy, and subsequent execution. The alleged actual purchasers, i.e., WestPoint International and Home, by contrast, were empty shells with no purse, will, or judgment to pursue their own business interests. Any adverse decision with respect to the Sale Order directly inflicts injury on Aretex, which, in addition to being the bidderin-fact, has already invested over $200 million in reliance of the original Sale Order. See Pac. Capital Bank, N.A. v. Connecticut, 542 F.3d 341, 350 (2d Cir. 2008) (stating that to establish standing, the plaintiff must show, inter alia, that it has suffered an injury in fact that is . . . concrete and particularized and . . . actual or imminent, not conjectural or hypothetical ); In re Colony Hill Assocs., 111 F.3d 269, 273 (2d Cir. 1997) (stating that an aggrieved person, one who is directly and adversely affected pecuniarily, has appellate standing in an appeal of a bankruptcy case (internal quotation marks omitted)). 11 Similarly, the Contrarians argue that, while section 363(m) protects the sale transaction, it has no bearing on the distribution of the proceeds of that sale transaction. Their argument on this distinction, however, misunderstands the nature of the sale protected by section 363(m). As noted above, all distributions here were integral to the sale itself. 26 1 provisions of the Sale Order do not serve to undermine the statutory mootness of this appeal as 2 provided by section 363(m). 3 2. The Stay Stipulation 4 According to the District Court, review of the lien release and claim-satisfaction 5 provisions of the Sale Order were not mooted by section 363(m) because the application of those 6 provisions were stayed pursuant to the Stay Stipulation. See In re WestPoint Stevens, Inc., 333 7 B.R. at 40, 54 55. The District Court reasoned that because the parties had agreed to stay the 8 allocation of the Second Securities, it necessarily stayed the lien release and claim-satisfaction 9 provisions of the Sale Order. Id. at 40. Although we understand the District Court s concern 10 with the merits of the contention that the Sale Order violated the several credit agreements and 11 arguably effected a circumvention of the safeguards of a Chapter 11 reorganization proceeding, 12 see id. at 45 54; infra Part II(D)(2), the District Court in effect read a stay of the Sale Order into 13 the Stay Stipulation despite the lack of any basis for such a reading. See Gucci I, 105 F.3d at 840 14 ( [R]egardless of the merit of an appellant s challenge to a sale order, we may neither reverse nor 15 modify the judicially-authorized sale if the entity that purchased or leased the property did so in 16 good faith and if no stay was granted. ). 17 As an initial matter, the Contrarians argue that we must give deference to the District 18 Court s interpretation of the Stay Stipulation because the court so ordered the Stay Stipulation 19 after considering the parties motions and nearly two hours of oral argument. To be sure, 20 deference is owed to a court s interpretation of its own orders, see In re Blackwood Assocs., L.P., 21 153 F.3d 61, 66 (2d Cir. 1998); however, such deference is only appropriate where the court 22 drafts the order, see United States v. Spallone, 399 F.3d 415, 423 (2d Cir. 2005) (explaining the 23 reason for deferring to a court interpreting its own order as premised on the truism that the 24 draftsman of a document is uniquely situated to understand the intended meaning of that 25 document (citation and internal quotation marks omitted) (emphasis added)). Accordingly, 26 because the Stay Stipulation was drafted by the parties and not by the District Court, we accord 27 1 no deference to the District Court s interpretation of the Stay Stipulation. We review the Stay 2 Stipulation de novo. 3 The Stay Stipulation provides for the withdrawal of the Contrarian and Beal Bank motion 4 seeking a stay of the closing of the sale by [the Debtor] to Purchasers approved by the [Sale 5 Order]. The Stay Stipulation further recites that the parties shall seek no other stay of the 6 closing of the sale under the Sale Order or otherwise. The Stay Stipulation does provide for a 7 stay limited to a single event: the distribution of the [Second Securities] allocable to the Second 8 Lien Lenders pursuant to the Sale Order. To this end, the Stay Stipulation provides that the 9 distribution of the Second Securities to the Second Lien Lenders shall be made at the closing [of 10 the sale], but shall be held in escrow until, inter alia, the escrowed funds are ordered to be 11 disbursed to the Second Lien Lenders [or further held in escrow] . . . in accordance with [a 12 subsequent court order]. (emphasis added). In all other respects, the distributions [of the 13 Second Securities] shall be in accordance with the Sale Order and terms of the Asset Purchase 14 Agreement. In short, the Stay Stipulation accomplishes two goals: it (1) permits the closing of 15 the sale and (2) defers the allocation of the Second Securities until a proper distribution of those 16 rights has been determined. 17 Significantly, nothing within the four corners of the Stay Stipulation stays the lien release 18 and claim-satisfaction provisions of the Sale Order. This omission, however, is consistent with 19 the purpose of the Stay Stipulation to permit the closing of the sale of the Debtor s assets. As 20 noted above, see supra Part II(B)(1), the lien release, claim satisfaction, and distribution 21 provisions were indispensable conditions of the sale. Thus, it is clear that in withdrawing the 22 motion for a stay of the closing of the sale, the Stay Stipulation permitted the transfer of assets 23 and the lien release, claim satisfaction, and distribution to occur as a single integrated transaction. 24 Given the centrality of the lien release and claim-satisfaction provisions to the sale, it is 25 implausible that the Stay Stipulation would stay those portions of the sale without any explicit 26 mention of them. 28 1 Not only does the omission of language staying the lien release and claim-satisfaction 2 provisions of the Sale Order strongly suggest that such provisions were not stayed, but the fact 3 that the Stay Stipulation specifies the agreed upon stay as the stay relating to the Second Lien 4 Distribution also convinces us that the lien release and claim-satisfaction provisions could not 5 have been stayed. In addition to the Second Securities, the Sale Order and Asset Purchase 6 Agreement required the lien release and claim-satisfaction provisions to apply to all Securities, 7 including those First Securities distributed to the First Lien Lenders. The Stay Stipulation, 8 however, only stayed the distribution of the Second Securities. If the parties intended to stay the 9 lien release and claim-satisfaction provisions of the Sale Order, it is unimaginable that they 10 would have done so by agreeing to stay only the distribution of the Second Securities. 11 The Contrarians mount a weak response by pointing to the Stay Stipulation s provision 12 that [e]xcept as specifically set forth herein, the rights of all parties to this appeal . . . as to the 13 appeal and all other disputes and matters between them . . . are expressly preserved and are not 14 affected by this stipulation. But the Stay Stipulation withdrew the stay on the closing of the sale 15 and replaced it with a much narrower stay of the distribution of the Second Securities. Thus, as 16 specifically set forth in the Stay Stipulation, the Contrarians lost the right to seek remedies that 17 roll back any element of the sale. 18 Notwithstanding the absence of support in the text of the Stay Stipulation, the Contrarians 19 argue that a stay of the distribution of the [Second Securities] is only meaningful if [the lien 20 release and claim satisfaction provisions were also stayed]. That is not true, because any 21 allocation of the Second Securities to the First Lien Lenders would result in a windfall for them. 22 This is so because the First Lien Lenders would receive the Second Securities despite the fact 23 that their claims have been satisfied by the uncontested value of the First Securities 24 (approximately $488 million) already distributed to them. The Contrarians rely on a false 25 premise that the only way the Second Securities can be allocated to the First Lien Lenders is if 26 the lien release and claim-satisfaction provisions were also stayed. The Stay Stipulation, 29 1 however, contemplates the possibility of a reviewing court allocating the Second Securities, in 2 whole or in part, to the First Lien Lenders as an independent remedy not affecting the closing of 3 the sale. 4 The Contrarians also argue that the Stay Stipulation did not limit the District Court s 5 remedial authority to allocate the Second Securities and suggest that this remedial authority 6 included the authority to stay the lien release and claim-satisfaction provisions of the Sale Order. 7 The Contrarians rely on the Stay Stipulation s provision that the District Court may order some 8 or all of the [Second Securities] . . . [to] be distributed to the First Lien Lenders under the 9 Intercreditor Agreement or otherwise to support their argument that there is an absence of any 10 limitation or restriction on the remedies available to the district court as a result of the [Stay 11 Stipulation]. If a mere reference to the District Court s remedial authority could supersede any 12 specific agreements made in the Stay Stipulation, however, then the entire Stay Stipulation would 13 not be a binding agreement between parties but merely advisory guidelines for the District 14 Court s discretion to create a remedy. That cannot be. A general reference to the District Court s 15 remedial authority cannot be read to nullify one of the primary goals of the Stay Stipulation to 16 close the sale. See Paneccasio v. Unisource Worldwide, Inc., 532 F.3d 101, 111 (2d Cir. 2008) 17 (stating that specific language in a contract will prevail over general language where there is an 18 inconsistency between two provisions (citing ABN Amro Verzekeringen BV v. Geologistics 19 Ams., Inc., 485 F.3d 85, 102 (2d Cir. 2007))). 20 Therefore, we conclude that the District Court erred when it read the Stay Stipulation to 21 have stayed the lien release and claim-satisfaction provisions of the Sale Order. Accordingly, in 22 the absence of a stay (or a challenge to the good-faith aspect of the sale), section 363(m) 23 precludes our review of the Sale Order. Because we conclude that the appeal of the Sale Order is 24 moot pursuant to 11 U.S.C. § 363(m), we need not consider Aretex s alternative argument on the 25 applicability of equitable mootness. Likewise, we need not consider Aretex s argument that 26 restitution is warranted if this Court were to affirm the District Court s decision vacating the lien 30 1 release and claim-satisfaction provisions of the Sale Order. We reject, as without merit, the 2 remaining arguments made by the Contrarians and Beal Bank in this appeal as they relate to 3 statutory mootness. 4 C. Issues Relating to the Sale Order on Cross-Appeal 5 The Contrarians argue on cross-appeal that the District Court erred in two respects. First, 6 they argue that the District Court incorrectly concluded as moot under section 363(m) the issue 7 of whether the First Securities should have been distributed to the collateral trustee of the First 8 Lien Lenders instead of having the First Securities directly distributed to the First Lien Lenders. 9 The Contrarians make this alternative argument in the event this Court rules that the lien release 10 and claim-satisfaction provisions of the Sale Order were mooted under section 363(m). Second, 11 the Contrarians argue that Aretex, as a member of the First Lien Lenders group, waived its rights 12 to share in the fruits of the Contrarians and Beal Bank s successful appeal at the district court 13 level affecting the status of the Securities. Both of these arguments are without merit. 14 The Contrarians first argument must be rejected because a distribution to the collateral 15 trustee, i.e., Beal Bank, instead of a pro rata distribution to the First Lien Lenders, directly affects 16 Aretex s obtaining control of WestPoint International. Aretex s bid for control is dependent 17 upon its receiving a pro rata share of the distributed Securities. See supra Part II(B)(1). It is its 18 status as a substantial but minority member of the First Lien Lenders group, combined with its 19 other distributions and purchase of stock, that allows Aretex to become the controlling 20 shareholder of WestPoint International. Id. Thus, the pro rata distribution of the First Securities 21 is as much essential to the sale as the lien release and claim-satisfaction provisions of the Sale 22 Order. Accordingly, because the Contrarians challenge directly affects Aretex s control of the 23 Debtor s business through WestPoint International an integral element of the sale it is 24 moot pursuant to section 363(m). Id. 25 26 The Contrarians second argument requires no consideration in light of our holding to reverse the District Court s decision pertaining to the lien release and claim-satisfaction 31 1 provisions of the Sale Order. 2 D. Remedy 3 Although section 363(m) moots any challenge to the Sale Order as it relates to the closing 4 of the sale, the Stay Stipulation explicitly stayed the allocation of the Second Securities. As we 5 will elaborate upon below, we conclude that the original distribution of the Second Securities 6 under the Sale Order violated the Intercreditor Agreement because the First Lien Lenders had the 7 right to be paid in cash. Because the First Lien Lenders withdrew their appeal with respect to 8 their right to be paid in cash, however, we find that they cannot nonetheless maintain that they 9 should receive all of the Second Securities to the total exclusion of the Second Lien Lenders. We 10 therefore look to both the Sale Order and the Stay Stipulation, as well as to the intent of the 11 parties in reaching these agreements and to equity, in fashioning an appropriate allocation. To 12 this end, three interests guide our consideration: (1) Aretex s purchase of control of WestPoint 13 International; (2) the non-Aretex members of the Second Lien Lenders group whose rights were 14 deemed expendable and were forced to accept the Stay Stipulation over their objection; and (3) 15 the entry of a Sale Order whose terms violated the First Lien Lenders rights to cash satisfaction 16 pursuant to the credit agreements. We articulate the nature of each interest below and conclude 17 that all three interests should be afforded a remedy to the extent practicable. 18 As Aretex emphasized during argument and in their briefs, any allocation of the Second 19 Securities does not affect Aretex s obtaining control of WestPoint International. If all of the 20 Second Securities had been allocated to the First Lien Lenders, Aretex would have obtained a 21 total share of 50.5% of WestPoint International; if all of the Second Securities had been allocated 22 to the Second Lien Lenders, Aretex would have obtained a total share of 55.5% of WestPoint 23 International. Any allocation of the Second Securities which split the distribution between the 24 First and Second Lien Lenders would have resulted in Aretex obtaining somewhere between 25 50.5% and 55.5% of WestPoint International s shares. Thus, Aretex expected to receive at least 26 50.5% and at most 55.5% of WestPoint International s shares as a result of the entire transaction 32 1 in light of the Stay Stipulation. At argument, Aretex did not find it strange that any Second 2 Securities the First Lien Lenders may receive would be in addition to the First Securities already 3 distributed to the First Lien Lenders in satisfaction of all of their claims. 4 Although Aretex may have little interest in whether it ends up with 50.5% or 55.5% of 5 WestPoint International s shares because it would be guaranteed control of WestPoint 6 International regardless of the allocation, the minority members of the Second Lien Lenders were 7 rightly concerned about receiving nothing in the event the Second Securities were entirely 8 allocated to the First Lien Lenders. The Stay Stipulation, which placed the allocation of the 9 Second Securities in uncertainty, was entered over the objection of the minority members of the 10 Second Lien Lenders group. Because the Stay Stipulation clearly contemplates that a subsequent 11 court order may allocate none, some, or all of the Second Securities to the First Lien Lenders 12 under the Intercreditor Agreement or otherwise, we conclude, in accordance with the Stay 13 Stipulation s boundaries, that the minority members of the Second Lien Lenders group should be 14 distributed the Second Securities promised them under the Sale Order, i.e., a pro rata distribution 15 of approximately 49% of the Second Securities. Thus, setting aside the Second Securities that 16 must be distributed to Aretex to guarantee them 50.5% of WestPoint International s interests 17 (approximately 40% of the Second Securities), approximately 11% of the Second Securities 18 remain for allocation to either the First or Second Lien Lenders. 19 In addition to the interests of the minority members of the Second Lien Lenders group 20 and Aretex, there are here also the interests of the First Lien Lenders whose rights to cash 21 satisfaction were passed over in violation of the credit agreements. Although the First Lien 22 Lenders were not powerless as were the minority members of the Second Lien Lenders group 23 and, indeed, had contributed to their own perceived misfortune by agreeing to the Stay 24 Stipulation, we conclude that the remaining 11% of the Second Securities should be distributed 25 pro rata to the non-Aretex members of the First Lien Lenders group. It is appropriate that the 26 First Lien Lenders receive some remedy for the erroneous ruling relating to the First Lien 33 1 2 Lenders priority rights to cash payments. The Bankruptcy Court relied on two exceptions in the Intercreditor Agreement to the 3 requirement that the First Lien Lenders must be paid in full and in cash before payments are to be 4 made to the Second Lien Lenders, namely, (1) adequate protection payments and (2) permitted 5 mandatory prepayments. Neither of these exceptions apply to permit the distribution of the 6 Second Securities to the Second Lien Lenders.12 7 Before reaching the merits of these grounds for distribution to the Second Lien Lenders, 8 however, we address Aretex and Wilmington Trust s equitable-estoppel argument. They assert 9 that during the bidding period the Contrarians attempted to satisfy the First Lien Lenders with 10 equity rather than cash and, therefore, argue that the Contrarians should be estopped from 11 challenging any subsequent transaction that satisfies the First Lien Lenders in equity rather than 12 cash. This argument must be rejected. Although estoppel is an equitable doctrine that cannot 13 be reduced to a precise formula or test, its application at least requires the party against whom 14 estoppel is being asserted to have taken clearly contrary or inconsistent positions. See Zedner v. 15 United States, 547 U.S. 489, 504 (2006) (stating that estoppel only applies if a party s later 16 position [is] clearly inconsistent with its earlier position (citation and internal quotation marks 17 omitted)); see also Shepardson by Shepardson v. Town of Schodack, 195 A.D.2d 630, 632 (N.Y. 18 App. Div. 1993) (stating that estoppel applies to prevent a party from inequitably adopting a 19 position directly contrary to or inconsistent with an earlier assumed position in the same 20 proceeding or a prior proceeding ). 21 Here, the Contrarians have consistently argued throughout the bankruptcy proceedings 12 The Bankruptcy Court also referred to section 105(a) as one of the statutory grounds for permitting the distribution of the Second Securities to the Second Lien Lenders. Section 105(a) provides that the court may issue any order . . . that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]. 11 U.S.C. § 105(a). We agree with the District Court in rejecting section 105(a) as a basis for justifying distributions to the Second Lien Lenders. As discussed below, the distributions were not properly justified as adequate protection under section 361; nor were the distributions permitted mandatory prepayments as defined under the Intercreditor Agreement. Thus, it is neither necessary nor appropriate to make distributions that are contrary to the Bankruptcy Code and the Intercreditor Agreement. 34 1 that (1) their unique status as a majority holder of the First Liens entitled them to credit bid 2 through Beal Bank on behalf of the First Lien Lenders pursuant to 11 U.S.C. § 363(k); (2) 3 because neither the Second Lien Lenders nor any other third party can be a majority holder of the 4 First Liens, those parties cannot waive the First Lien Lenders right to cash satisfaction; and (3) 5 ergo, any competing bids must first satisfy the First Lien Lenders in cash. The Contrarians repeat 6 the same arguments in this appeal, emphasizing that Aretex is in a significantly different position 7 than the Contrarians vis-Ã -vis the First Lien Lenders. Indeed, the Contrarians assert and we 8 agree, as discussed below that Aretex s bid structure requiring an in-kind distribution of 9 securities in satisfaction of the First Liens was not authorized under the Intercreditor Agreement. 10 In short, although both Aretex s and the Contrarians bids involve an in-kind distribution of 11 securities in satisfaction of the First Liens, we do not agree that the Contrarians, who have argued 12 that their in-kind distribution scheme resulted after a lawful credit bid pursuant to 11 U.S.C. 13 § 363(k), should be estopped from challenging Aretex s unauthorized bid structure. 14 Insofar as the Contrarians modified their bid towards the end of the auction to imitate 15 Aretex s bid structure, they did so only after qualifying their new bid with the caveat that we 16 reserve our rights to claim in court that the credit bid that we made previously was higher and 17 better. Thus, the Contrarians gave clear notice to Aretex that they were not abandoning their 18 credit bid. See Bates v. Long Island R.R. Co., 997 F.2d 1028, 1037 (2d Cir. 1993) (explaining 19 that estoppel is designed to ensure fairness in the relationship between parties (internal 20 quotation marks omitted)). Moreover, that the Bankruptcy Court had refused to rule on the 21 superiority of the Contrarians credit bid before the auction despite the Contrarians earlier 22 pleas that the court do so also places the Contrarians modification of their bid structure 23 toward the end of the auction in a reasonable perspective. Estoppel seems especially 24 inappropriate here because the Contrarians new bid was never adopted as the winning bid at any 25 time, and the Contrarians reaped no benefits from their alleged abandonment of the original 26 credit bid. Cf. Peralta v. Vasquez, 467 F.3d 98, 105 (2d Cir. 2006) (stating that, under judicial 35 1 estoppel, the party against whom it is asserted must have advanced an inconsistent position in a 2 prior proceeding, and [] the inconsistent position must have been adopted by the court in some 3 matter ). We thus reject Aretex and Wilmington Trust s equitable-estoppel argument. 4 Turning to the first exception in the Intercreditor Agreement, we agree with the District 5 Court that adequate protection did not permit the distribution of the Second Securities to the 6 Second Lien Lenders. Adequate protection is generally defined as a method by which a secured 7 creditor may apply to the Bankruptcy Court to protect its interests against the diminution in 8 value of [its] security during a bankruptcy proceeding. Bluebird Partners, L.P. v. First Fidelity 9 Bank N.A., 85 F.3d 970, 972 (2d Cir. 1996). Such adequate protection may manifest in the form 10 of cash payments, a lien, or such other relief as will result in the realization by such entity of the 11 indubitable equivalent of such entity s interest in such property. In re Dairy Mart Convenience 12 Stores, Inc., 351 F.3d 86, 90 (2d Cir. 2003) (internal quotation marks and ellipsis omitted). 13 Thus, as was the case here, permitting the sale of the Debtor s assets free and clear of 14 encumbrances but attaching replacement liens on the proceeds of such sale to the same extent, 15 validity, and priority as the original liens was squarely within the letter and purpose of [adequate 16 protection.] See In re WestPoint Stevens, Inc., 333 B.R. at 48. 17 As recognized by the District Court, however, the distribution of the Securities in 18 satisfaction of the First Lien Lenders claims were classified as adequate protection by the 19 Bankruptcy Court without any showing that additional adequate protection was needed. Id. at 49. 20 Moreover, the accordance of adequate protection in this case resulted in the First Lien Lenders 21 satisfaction of their claims in non-cash proceeds in violation of their contractual rights to cash 22 satisfaction. Thus, given the significance of the resulting injury and the less-than-clear basis for 23 the Bankruptcy Court s distribution of the Securities as a grant of adequate protection, we 24 conclude that those distributions were not properly justified as adequate protection. 13 See In re 13 We reject the argument that the First Securities could be distributed as adequate protection because they constituted the indubitable equivalent of the debts. We agree with the District Court that adequate protection deals with the preservation of the value of a security 36 1 Swedeland Dev. Group, Inc., 16 F.3d 552, 564 (3d Cir. 1994) ( [T]he whole purpose of adequate 2 protection for a creditor is to insure that the creditor receives the value for which he bargained 3 prebankruptcy. (citation and internal quotation marks omitted)); id. ( [A] proposal depending 4 upon a pre-petition lender having adequate protection . . . should as nearly as possible under the 5 circumstances of the case provide the creditor with the value of his bargained for rights. 6 (citation and internal quotation marks omitted)). 7 With respect to the second exception in the Intercreditor Agreement, we also agree with 8 the District Court that the permitted mandatory prepayments did not authorize the distribution 9 of the Second Securities to the Second Lien Lenders. The Intercreditor Agreement defines 10 permitted mandatory prepayments as any payment upon the Second Lien Indebtedness 11 occurring as a result of [the Debtor s] sale . . . of the Collateral . . . to the extent that . . . any net 12 proceeds of such sale . . . remain after application to the First Lien Indebtedness to the extent 13 required by the Senior Credit Agreement. Section 3.15(a), (b) of the Senior Credit Agreement 14 provides for the mandatory application to the First Lien debts of payments made in currency 15 and in immediately available funds, but does not require the application of non-cash proceeds 16 to the First Lien Lenders claims. Thus, because the application of the Securities to the First Lien 17 Lenders claims is not required by the Senior Credit Agreement, there remain no net 18 proceeds that the Second Lien Lenders may claim as permitted mandatory prepayments. 19 20 To be sure, in addition to section 3.15(a), (b) of the Senior Credit Agreement requiring the payment of claims in cash, section 3.15(c) of the Senior Credit Agreement sets forth payment interest and does not empower the bankruptcy court to resolve a creditor s claim. In re WestPoint Stevens, Inc., 333 B.R. at 49 n.22. Without a showing that there is some need for adequate protection, the Bankruptcy Court cannot use adequate protection as a default provision for distributing collateral to the secured creditor. See 11 U.S.C. § 361 ( When adequate protection is required under section 362, 363, or 364 . . . such adequate protection may be provided by[, inter alia,] . . . granting such other relief . . . as will result in the realization by [the secured creditor] of the indubitable equivalent of such [secured creditor s] interest in [the] property. (emphasis added)); cf. In re Bushee, 319 B.R. 542, 551 (Bankr. E.D. Tenn. 2004) ( In order to obtain relief . . . for lack of adequate protection [under 11 U.S.C. § 362(d)(1)], [the creditor] must establish[, inter alia,] . . . that cause exists justifying relief, such as the Debtors failure to make payments or that the collateral is decreasing in value. (citation omitted)). 37 1 priorities in the event of default including the payment of the surplus, if any, to whoever may 2 be lawfully entitled to receive such surplus of all amounts . . . [n]otwithstanding any other 3 provisions of [the Senior Credit Agreement]. (emphasis added). Wilmington Trust relies on 4 this provision to argue that the all amounts language suggests that the required payments 5 need not be restricted to cash in cases where, as here, the Debtor s assets are sold in bankruptcy 6 proceedings. We reject Wilmington Trust s argument and agree with the District Court that 7 section 3.15(c) simply changes the order in which the required cash payments are to be applied 8 in the event of a default rather than permitting [the Debtor] to force the creditor to take illiquid 9 property in satisfaction of its loan payment obligations. See In re WestPoint Stevens, Inc., 333 10 B.R. at 46. As the District Court aptly observed: 11 12 13 14 15 16 17 18 It taxes the imagination to suppose that a sophisticated group of creditors, such as the original bank parties to the Credit Agreement, would enter into an agreement giving them the clear contractual right to cash payments when the borrowers are complying with their obligations under the agreement, but giving the borrowers the unilateral right to substitute property in satisfaction of their payment obligations when the borrowers are in breach of the agreement. Id. Moreover, not only is Wilmington Trust s reading of section 3.15(c) implausible, but it is 19 also inconsistent with the specific provisions within section 3.15(c), which provide for all 20 amounts to be applied to, inter alia, fees including attorneys fees and other 21 administrative costs and expenses. These references to various fees and administrative 22 costs and expenses mean cash payments, as there is nothing in section 3.15(c) that would alter 23 the plain understanding of these terms. See Bank of Boston Conn. v. Platz, 596 A.2d 31, 32 24 (Conn. Ct. Super. 1991) (observing that payment of debt must be in money, unless the parties 25 agree otherwise, or the obligee consents to accept some other medium of payment (citing 60 26 Am. Jur. 2d Payment § 32)); 28 Williston on Contracts § 72:31 (4th ed. 2007) ( [A]bsent the 27 agreement of the parties in advance, . . . both the tender of payment and the actual payment of a 28 debt owed must be in lawful money. ); 60 Am. Jur. 2d, Payment § 21 (providing that [t]he 29 general rule is that both the payment of and tender of payment of a debt must be in money[] 38 1 unless the parties agree otherwise ); cf. In re Shea, 308 A.D.2d 29, 30 (N.Y. App. Div. 2003) 2 (observing the ethical rule prohibiting a lawyer from receiving property or security interests that 3 are adverse to a client (citing Connecticut Rules of Professional Conduct § 1.8)); see also New 4 York Code of Professional Responsibility, DR 5-103, N.Y. Comp. Codes R. & Regs. tit. 22, 5 § 1200.22 (prohibiting lawyers from acquiring a proprietary interest in the subject of the 6 litigation); DR 5-104, N.Y. Comp. Codes R. & Regs. tit. 22, § 1200.23 (prohibiting a lawyer 7 from entering into a business transaction with a client if they have differing interests therein ).14 8 Thus, reading section 3.15 in its entirety, we conclude that section 3.15(c) does not serve to 9 override the requirement that the First Lien Lenders be satisfied in cash. Accordingly, the 10 Second Securities could not have been distributed to the Second Lien Lenders as permitted 11 mandatory prepayments. 15 12 13 **** In light of these considerations pertaining to Aretex, the minority members of the Second 14 Lien Lenders group, and the First Lien Lenders, we direct the District Court to remand to the 15 Bankruptcy Court with instructions to (1) require distribution of the Subscription Rights directly 16 to Aretex to the extent necessary to enable it to secure 50.5% of WestPoint International s 17 common stock (approximately 40% of the Second Securities); (2) require, once the total share of 18 the Second Securities to which the minority members of the Second Lien Lenders are entitled has 19 been definitely ascertained (approximately 49% of the Second Securities), distribution of those 20 Second Securities directly to the minority members in proportion to their holdings; and (3) 21 require the distribution of the remaining rights (approximately 11% of the Second Securities) to 22 the non-Aretex members of the First Lien Lenders. In all other respects, it is ordered that the 14 All references are to the former New York Code of Professional Responsibility, which was in effect prior to the April 1, 2009 enactment of the New York Rules of Professional Conduct. 15 Because we conclude that the distributions to the Second Lien Lenders were not authorized by the Intercreditor Agreement, we need not decide whether the lien release, claim satisfaction, and distribution provisions could be permitted under a section 363(b) sale. 39 1 Sale Order be reinstated consistent with this opinion. 2 E. Cross-Appeal: Release Order 3 The Contrarians and Beal Bank argue that the District Court erred in affirming the 4 Bankruptcy Court s Release Order, which released the adequate protection payments held in 5 escrow pursuant to the Escrow Stipulation to the Second Lien Lenders. Determining the validity 6 of this claim requires review of three documents: the Escrow Stipulation, Adequate Protection 7 Order, and Intercreditor Agreement. We review these documents de novo. See In re Duplan 8 Corp., 212 F.3d at 151; see also Spallone, 399 F.3d at 423; supra Part II(A). We conclude that 9 the adequate protection payments held in escrow were properly released to the Second Lien 10 11 Lenders. We begin by observing that the Second Lien Lenders are entitled to adequate protection 12 payments pursuant to the Intercreditor Agreement, Adequate Protection Order, and Escrow 13 Stipulation. In bankruptcy proceedings, a secured creditor ordinarily has a statutory right to 14 adequate protection payments to protect its interests against the diminution in value of its 15 security. See 11 U.S.C. § 363(e); Bluebird Partners, L.P., 85 F.3d at 972. Here, that statutory 16 right is referred to in the Intercreditor Agreement as an exception to the prohibition on the 17 Second Lien Lenders from receiving any cash payments before the First Lien Lenders claims are 18 satisfied. In accordance with this understanding, the Bankruptcy Court entered its Adequate 19 Protection Order implementing the rights of the Second Lien Lenders to receive adequate 20 protection payments as protection from the diminishing value of the collateral securing its 21 claims. The Escrow Stipulation, which was entered after the Intercreditor Agreement and the 22 Adequate Protection Order, specifically provides that it does not affect the substantive rights of 23 the parties to receive adequate protection: For avoidance of doubt, nothing in this [Escrow 24 Stipulation] was intended or shall be deemed to affect or alter the entitlement of the First Lien 25 Lenders or the Second Lien Lenders to adequate protection under the Adequate Protection 26 Order. In sum, the Second Lien Lenders have a statutory right to adequate protection payments; 40 1 these rights have not been restricted by the Intercreditor Agreement; the Adequate Protection 2 Order implements the Second Lien Lenders rights to adequate protection payments; and the 3 Escrow Stipulation confirms that the Second Lien Lenders rights to adequate protection 4 payments have not been altered or otherwise undermined. 5 Notwithstanding the above, Beal Bank raises several points in support of its argument 6 that the Second Lien Lenders were not entitled to the escrowed adequate-protection payments. 7 First, Beal Bank refers to the Adequate Protection Order, which includes two reservations to the 8 grant of adequate protection to the secured creditors: (1) the First Lien Lenders have a right to 9 commence an adversary proceeding to challenge the right of the Second Lien Lenders to receive 10 adequate protection payments to be applied towards interest rather than principal, and (2) either 11 the First or Second Lien Lenders may seek additional or further adequate protection. To date, 12 however, the First Lien Lenders have not commenced an adversary proceeding and, even if they 13 did, their remedy would not be to terminate the right of the Second Lien Lenders to receive 14 adequate protection but only to apply the Second Lien Lenders adequate protection payments 15 toward the Second Lien debt s principal rather than interest. Thus, the first reservation is of no 16 importance in discerning the basis upon which the First Lien Lenders may terminate the rights of 17 the Second Lien Lenders to receive adequate protection. With respect to the second reservation, 18 the First Lien Lenders have not presented to the Bankruptcy Court a diminution in value [that] 19 had occurred in the First Lien Lenders collateral that would have entitled the First Lien Lenders 20 to any form of additional or further adequate protection. Moreover, assuming arguendo that 21 the First Lien Lenders were entitled to additional adequate protection, it does not necessarily 22 follow that the form of such adequate protection would have consisted of depriving the Second 23 Lien Lenders of their right to adequate protection granted under the Adequate Protection Order. 24 See 3 Collier on Bankruptcy § 361.02 (15th ed. rev. 1999) ( [W]hen property on which the entity 25 has a lien is to be used as collateral for a loan, the entity is entitled to adequate protection as a 26 matter of right, not merely as a matter of discretion. (citing H.R. Rep. No. 595, 95th Cong., 1st 41 1 Sess. 340, 343 44 (1977))). 2 Second, Beal Bank argues that sections 2.4(g) and 2.13 of the Intercreditor Agreement 3 provide a right to the Second Lien Lenders to retain and apply cash payments for adequate 4 protection but not a right to receive adequate protection payments. Thus, according to Beal 5 Bank, where, as here, the payments are held in escrow and not yet made, there are no adequate 6 protection payments to which the Second Lien Lenders have a right to retain and apply. This 7 argument, however, must be rejected. Adequate protection is a statutory right that is taken very 8 seriously, and a secured creditor will not be found to have waived its right to adequate 9 protection unless there is more than an ambiguous waiver of that right. See, e.g., In re 10 Blackwood Assocs., L.P., 153 F.3d at 68 69 (finding that the secured creditor did not waive its 11 rights to adequate protection where the stipulation was not so clear as to constitute a waiver of 12 this right ). Here, the Intercreditor Agreement makes no specific reference that the retain and 13 apply provision is a limit on the Second Lien Lenders statutory right to receive adequate 14 protection payments. To the contrary, section 2.4(g) of the Intercreditor Agreement provides that 15 the Second Lien Lenders may assert their rights to adequate protection . . . in accordance with 16 Sections 361 through 364 of the Bankruptcy Code. Our conclusion is further supported by 17 section 2.13 of the Intercreditor Agreement, which prohibits the Second Lien Lenders from 18 receiv[ing] any payments until the First Lien Lenders are satisfied in full and in cash. 19 (emphasis added). Because the adequate protection payments are an exception to the general 20 prohibition of cash payments to the Second Lien Lenders, it follows that the Second Lien 21 Lenders would be permitted to receive adequate protection payments should the exception 22 apply. 23 Third, Beal Bank relies on its erroneous reading of the Intercreditor Agreement to argue 24 that the Escrow Stipulation placed the adequate protection payments in escrow and thus were not 25 made to the Second Lien Lenders. Because the payments were not made, Beal Bank argues, 26 the Second Lien Lenders have no right to retain and apply such payments. Although this 42 1 argument is irrelevant in light of the above, we take note that the Escrow Stipulation 2 demonstrates that the parties were capable of using language to release the escrowed funds to the 3 Second Lien Lenders only after the First Lien Lenders claims had been satisfied. Paragraph 4 5(a)(iii), (iv) of the Escrow Stipulation expressly provides that the priority claims of the priming 5 liens be satisfied before the escrowed funds are released to the Second Lien Lenders The 6 absence of a similar provision preserving the priority rights of the First Lien Lenders with respect 7 to the escrowed funds strongly suggests that the escrowed funds were in fact adequate protection 8 payments contemplated by the Intercreditor Agreement as an exception to the First Lien Lenders 9 priority rights to cash satisfaction. 10 Furthermore, the Escrow Stipulation s intent was to maintain the status quo as of the 11 date of execution of this [Escrow Stipulation]. As of the date of the execution of the Escrow 12 Stipulation, the Second Lien Lenders were receiving their statutorily authorized adequate 13 protection payments. To be sure, paragraph 3 of the Escrow Stipulation does provide that the 14 adequate protection payments deposited in escrow shall not constitute cash payments made by 15 [the Debtor] as adequate protection to the Second Lien Lenders, such that the . . . Second Lien 16 Lenders would be entitled to retain and apply such payments to indebtedness under the Second 17 Lien Credit Facility . . . . That provision, however, is immediately qualified, unless and until 18 the Release Order . . . authorizes the release of funds held [in escrow]. (emphasis added). Thus, 19 the Escrow Stipulation does not terminate the Second Lien Lenders rights to adequate protection 20 but, as the Bankruptcy Court summarized, simply deferred and conditioned the delivery of the 21 Second Lien Interest Payments on the entry of a further Court order . . . . 22 Finally, the parties make an issue of whether a lien had attached to the escrowed funds or 23 not. Given the terms of the Release Order, however, we see no significance in these arguments. 24 In our view, the lien was useful insofar as it provided a legal hook by which the escrowed funds 25 might have been distributed to the First Lien Lenders in the event that it was later determined that 26 there was a proper basis for making such a distribution. Because the subsequent court order here 43 1 released the funds to the Second Lien Lenders, however, any lien that may have attached to the 2 funds while they were in escrow would be inapplicable when those funds were released to the 3 Second Lien Lenders as adequate protection payments. This reading of the Bankruptcy Court s 4 orders is consistent with the Escrow Stipulation s unless and until provision noted above and, 5 as well, the Escrow Stipulation s purpose of maintaining the status quo with respect to the 6 Second Lien Lenders rights to adequate protection. If the liens continued to attach even after a 7 determination that the Second Lien Lenders were entitled to the adequate protection payments 8 held in escrow, then the Second Lien Lenders rights to adequate protection payments would 9 have fundamentally changed. 10 Therefore, upon review of the Intercreditor Agreement, Adequate Protection Order, and 11 the Escrow Stipulation, we find no error in the District Court s affirmance of the Bankruptcy 12 Court s Release Order. We find Beal Bank s remaining arguments to be without merit. 13 III. 14 CONCLUSION For the foregoing reasons, the orders of the District Court are REVERSED, in part, and 15 AFFIRMED, in part. We direct the District Court to REMAND this case to the Bankruptcy 16 Court for further proceedings consistent with this opinion. 44

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