ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY. (D.C. Civil Nos. 92-01083; 92-01321; 92-01796).
Before: Greenberg, Nygaard and Lewis, Circuit Judges.
The Swedeland Development Group, Inc., a Chapter 11 debtor, appeals from an order of the district court reversing three orders of the bankruptcy court. Those three orders authorized post-petition financing for Swedeland under the Bankruptcy Code, 11 U.S.C. § 364(d), granted seniority to the post-petition lenders over the pre-petition creditor Carteret Federal Savings Bank, F.A., and denied Carteret's motion to lift the automatic stay. The primary issue before us is whether Carteret's appeal to the district court from post-petition financing orders was rendered statutorily moot when Carteret failed to obtain a stay pending its appeal of those orders. We hold that Carteret's appeal to the district court was rendered moot under the Bankruptcy Code, 11 U.S.C. § 364(e). The second issue is whether the bankruptcy court clearly erred when it found that Carteret, the pre-petition creditor, was adequately protected. We conclude that the bankruptcy court was correct and will reverse and remand for the district court to reinstate the vacated orders of the bankruptcy court.
In April 1989, Swedeland acquired property to construct Crystal Springs, a 500 acre residential development which would include a golf course. Carteret financed Swedeland's acquisition and development costs for Crystal Springs through a series of loans. Carteret secured the loans with a first lien on all of Swedeland's property including a collateral assignment of leases. Under the loan agreements, the first $42,000 from the sale of each lot would be paid to Carteret as a release price, of which $12,000 would be applied to the loan for the golf course, and the balance would be applied to the acquisition and construction loans. Carteret refused Swedeland's request for additional financing, but allowed Swedeland to use $2.25 million which had been placed in escrow as an interest reserve. Swedeland eventually filed a Chapter 11 petition which triggered the automatic stay under 11 U.S.C. § 362(a).
The bankruptcy court granted Swedeland use of Carteret's cash collateral,*fn1 in the form of proceeds realized from the sale of housing units, thereby allowing the construction and development of Crystal Springs to continue. As of October 31, 1991, Swedeland's debt to Carteret was $38,395,760. Carteret filed a motion to vacate the automatic stay, and Swedeland filed a motion under the Bankruptcy Code, 11 U.S.C. § 364(d), to obtain working capital and construction financing from Haylex Acquisition Company, Ltd. The section 364(d) post-petition financing from Haylex was to be secured by a lien senior to Carteret's. Later, Swedeland filed another motion to obtain a post-petition revolving construction loan from First Fidelity Bank, N.A. ("FFB"), thus replacing Haylex on the construction portion of the original application.
On March 6, 1992, the bankruptcy court authorized Swedeland to borrow $840,000 from Haylex. On March 9, 1992, the bankruptcy court denied Carteret's motion to vacate the automatic stay because Carteret was adequately protected in light of the reasonable possibility that Swedeland would successfully reorganize. On April 10, 1992, the bankruptcy court authorized Swedeland to borrow up to $3.16 million from FFB on a revolving basis. The March 6 and April 10 orders granted seniority to Haylex's and FFB's liens over Carteret's lien.
Carteret moved for a stay pending appeal of the March 6 order authorizing post-petition financing from Haylex. The bankruptcy court denied the motion, and the district court affirmed the denial. Carteret did not appeal from the district court's order or move for a stay of the April 10 order authorizing post-petition financing from FFB. Instead, it appealed the bankruptcy court's three orders to the district court.
The district court reversed the three orders. It held that (1) Carteret's appeal was not moot under the Bankruptcy Code, 11 U.S.C. § 364(e), and (2) the bankruptcy court's finding that Carteret's lien was adequately protected was clearly erroneous. Swedeland appeals and asks that the bankruptcy court's orders be reinstated. We will consider two issues: first, whether Carteret's failure to obtain a stay pending appeal from the section 364(d) post-petition financing orders statutorily renders its appeal moot; and second, whether the bankruptcy court clearly erred by finding that the pre-petition creditor, Carteret, was adequately protected.
The bankruptcy court granted Swedeland's application for post-petition financing under section 364(d), which provides:
(1) The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if --
(A) the trustee is unable to obtain such credit otherwise; and
(B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted.
(2) In any hearing under this subsection, the trustee has the burden of proof on the issue of adequate protection.
11 U.S.C. § 364(d) (1988). Swedeland contends that absent a stay pending an appeal or bad faith, an appeal from a post-petition financing order under section 364(d) is ...