Clear Channel Outdoor, Inc. v. Knupfer (In Re PW, LLC)

OPINION

This appeal presents a simple issue: outside a plan of reorganization, does § 363(f) of the Bankruptcy Code permit a secured creditor to credit bid its debt and purchase estate property, taking title free and clear of valid, nonconsenting junior liens? We hold that it does not.

In reaching this conclusion, we reject the contention that once the sale is consummated, the appeal from the order stripping the junior creditor’s liens is moot and immune from scrutiny, and we hold that, in the circumstances of this case, the junior lienholder’s rights are preserved.

The debtor in this case, PW, LLC (“PW’), owned prime real estate in Burbank, California. DB Burbank, LLC (“DB”), an affiliate of a large public hedge fund, held a claim of more than $40 million secured by PW’s property. But problems large and small plagued PW’s development plan. These problems ultimately led to *30 PW’s chapter 11 bankruptcy and to the appointment of Nancy Knupfer as PW’s chapter 11 trustee (“Trustee”).

DB, working with the Trustee, organized a campaign to consolidate all of PW’s property and development rights and to sell this package, free and clear of all claims and encumbrances, at a sale supervised by the bankruptcy court. 1 At the sale, DB was the highest bidder, paying its consideration by credit-bidding the entire amount of its debt.

The only problem was the existence of a consensual lien securing a claim of approximately $2.5 million in favor of a junior creditor, Clear Channel Outdoor, Inc. (“Clear Channel”). Relying solely on § 363(f)(5), the bankruptcy court confirmed the sale to DB free and clear of Clear Channel’s lien. The bankruptcy court then denied a stay of the sale pending appeal, as did our motions panel.

The first issue presented is whether the appeal is moot. We conclude that while any relief related to the transfer of title to DB is moot, stripping Clear Channel’s lien and related state law rights present an issue that is discrete and separable from title transfer. That part- of Clear Channel’s appeal is not moot.

After reviewing applicable law, we conclude that § 363(f)(5) cannot support transfer of PW’s property free and clear of Clear Channel’s lien based on the existing record. We thus reverse that portion of the bankruptcy court’s order authorizing the sale to DB free and clear of Clear Channel’s lien, and we remand the matter to the bankruptcy court for further proceedings.

Finally, Clear Channel contends that a separate payment obligation from DB to the Trustee was subject to Clear Channel’s lien, and that the bankruptcy court improperly stripped its lien rights in that payment obligation. We hold that the payment obligation was not subject to Clear Channel’s lien, and we affirm on this point.

I. FACTS

Before filing for bankruptcy, PW owned and was attempting to develop real property in Burbank, California. It had a development agreement with the City of Burbank (“Development Agreement”) that provided entitlements for a mixed-use complex of luxury condominiums and retail space. In order to realize the value of the entitlements, however, PW had to acquire an assemblage of eighteen parcels of real estate by February 2009. When it filed bankruptcy, PW owned only fourteen of the necessary parcels. It had, however, entered into an agreement to acquire the final four parcels, which were occupied by a church (“Church Property”). Closing this agreement and the final purchase of the Church Property was conditioned on *31 the church’s finding another suitable location for its activities.

DB held a first-priority lien on substantially all of PW’s assets. It began foreclosure proceedings in July 2006 and sought the appointment of a state court receiver. After the receiver was appointed, DB lent the receiver more money to buy additional parcels.

During this time, DB and PW tried to negotiate a chapter 11 plan. They had not reached an agreement when, on November 20, 2006, on the eve of a scheduled foreclosure sale, PW filed a chapter 11 case. DB immediately moved for, and the bankruptcy court granted, the appointment of a trustee, which was done on December 27. The receiver turned over all of PW’s assets to the Trustee in January 2007.

The Trustee faced several immediate problems. These included obtaining and paying the cure amounts related to the contract to acquire the Church Property, and otherwise implementing the terms of the Development Agreement. In addition, as a “single asset real estate” case, see 11 U.S.C. § 101(51B), it was likely that DB would be granted relief from stay under § 362(d)(3). 2

In response, the Trustee proposed to sell PW’s property and began discussions with DB to that end. With bankruptcy court authorization, the Trustee hired a real estate broker to market PW’s property to others. In addition, to facilitate acquisition of the Church Property, the broker agreed to help the Trustee find a new location for the church. 3

After negotiation, the Trustee and DB entered into an agreement they called a “Binding Term Sheet,” which established detailed sale procedures for an auction and sale of PW’s assets. Under its terms, the Trustee gained time to market and sell PW’s property and to resolve disputes that had arisen regarding the Church Property.

The Binding Term Sheet also provided that DB would serve as a stalking horse bidder for a sale of PW’s property. If there were no qualified overbidders, DB would buy PW’s property for $41,434,465, which the parties called the “Strike Price.” 4 In addition, DB agreed to pay the Trustee a “Carve-Out Amount” of up to $800,000 for certain administrative fees and other expenses. 5 DB also agreed not to seek relief from the automatic stay and to refrain from communicating with third parties regarding the sale of PW’s assets.

On March 20, 2007, the bankruptcy court entered an order establishing a pro *32 cedure for the sale of PW’s property. Two days later, the Trustee moved to approve the sale free and clear of liens under § 363(f)(3) and (f)(5).

Clear Channel opposed the motion, asserting that § 363(f) was not applicable. Over Clear Channel’s objection, on April 26, 2007, the bankruptcy court entered a separate order authorizing the sale free and clear of Clear Channel’s lien under § 363(f)(5) (“Sale Order”).

The March 20 order set May 7 as the deadline for submitting written bids, and the same order set the minimum overbid at $43,618,048, plus whatever amount was necessary to cure defaults related to acquiring the Church Property. Only three bids were timely received, and none qualified. The highest was a nonconforming contingent bid of only $25.25 million.

With no qualified overbidders, the Binding Term Sheet required the Trustee to sell PW’s property to DB at the Strike Price, DB to pay the Trustee the Carve-Out Amount, and DB to pay certain administrative fees, including the receiver’s fees and other expenses.

On May 31, 2007, the bankruptcy court confirmed the sale to DB and found that DB was a purchaser in good faith. The court entered an order to this effect (“Confirmation Order”), and declined to stay that order pending appeal, as did a prior motions panel of this court.

The sale closed on June 15, 2007. Clear Channel received no payment under the terms of the sale because DB’s credit bid meant that there were no proceeds to which Clear Channel’s lien could attach. Since closing, DB has paid out more than $1.5 million, including $250,000 in final payment to the receiver for fees and expenses, $550,000 to the estate as the remaining Carve-Out Amount, $750,000 to a senior lienholder, and other amounts necessary to pay outstanding real estate taxes and other costs of closing. For her part, the Trustee has made payments out of the Carve-Out Amount to herself and her professionals on an interim basis.

Clear Channel filed a timely appeal on May 1, 2007, and seeks reversal of both the Sale Order and the Confirmation Order. Clear Channel also asserts that its lien extends to the Carve-Out Amount and seeks reversal of the bankruptcy court’s order that it does not. 6

II. STANDARDS OF REVIEW

“We review the bankruptcy court’s conclusions of law and questions of statutory interpretation de novo, and factual findings for clear error.” Village Nurseries v. Gould (In re Baldwin Builders), 232 B.R. 406, 410 (9th Cir. BAP 1999) (citations omitted). See also Ritter Ranch Dev., L.L.C., v. City of Palmdale (In re Ritter Ranch Dev., L.L.C.), 255 B.R. 760, 763 (9th Cir. BAP 2000).

In addition, we review orders to sell property under 11 U.S.C. § 363(b) and (f) for an abuse of discretion. Darby v. Zimmerman (In re Popp), 323 B.R. 260, 265 (9th Cir. BAP 2005). We find an abuse of discretion if we have a definite and firm conviction that the bankruptcy court committed a clear error of judgment, Mendez v. Salven (In re Mendez), 367 B.R. 109, 113 (9th Cir. BAP 2007), or if the court incorrectly interpreted the law. In re Popp, 323 B.R. at 265; United States v. *33 Sprague, 135 F.3d 1301, 1304 (9th Cir.1998).

III. DISCUSSION

Before reaching the merits of Clear Channel’s appeal, we must first determine whether it is moot. That determination requires us to examine what it means for an appeal from a sale order to be moot.

A. Mootness

In bankruptcy, mootness comes in a variety of flavors: constitutional, equitable, and statutory.

1. Constitutional Mootness

Constitutional mootness derives from constitutional limitations on the federal court to adjudicate only actual cases and live controversies. DeFunis v. Odegaard, 416 U.S. 312, 316, 94 S.Ct. 1704, 40 L.Ed.2d 164 (1974); In re Popp, 323 B.R. at 270-271 (citing Luckie v. EPA, 752 F.2d 454, 457 (9th Cir.1985)). A five case or controversy exists only if the parties have an interest in the outcome of the litigation. Ellis v. Bhd. of Ry., Airline & S.S. Clerks, Freight Handlers, Exp. & Station Employees, 466 U.S. 435, 442, 104 S.Ct. 1883, 80 L.Ed.2d 428 (1984). But that interest in the outcome of the case dissolves, and an appeal is constitutionally moot, only if it is impossible to grant relief. Church of Scientology of Cal. v. United States, 506 U.S. 9, 12, 113 S.Ct. 447, 121 L.Ed.2d 313 (1992).

Here, although the sale has been completed, there is still a live case or controversy because it is still possible to fashion some relief. The sale under both § 363(b) and § 363(f) may be reversed in full, or the sale itself under § 363(b) could be preserved while stripping liens under § 363(f) could be reversed. Such relief might be difficult or inequitable, but it is not impossible. Therefore, the appeal is not constitutionally moot.

2. Equitable Mootness

Equitable mootness requires the court to look beyond impossibility of a remedy to “the consequences of the remedy and the number of third parties who have changed their position in reliance on the order that is being appealed.” 7 In re Popp, 323 B.R. at 271. As we further stated in Popp, “[c]ourts have applied the doctrine of equitable mootness when the appellant has failed to obtain a stay and [although relief is possible] the ensuing transactions are too ‘complex and difficult to unwind.’ ” Id. at 271 (citations omitted). “Ultimately, the decision whether to unscramble the eggs turns on what is practical and equitable.” Baker & Drake, Inc. v. Pub. Serv. Comm’n (In re Baker & Drake, Inc.), 35 F.3d 1348, 1352 (9th Cir.1994).

The changes that have taken place in connection with and since the closing of the sale are numerous and complex, which calls into question whether this appeal is equitably moot. Title to PW’s property has been transferred to DB, and the Trustee has relinquished control over the development of PW’s property to DB. DB has *34 assumed the executory contracts and unexpired leases. DB has also executed and recorded a number of documents necessary to effectuate the sale. All of these have required significant expenditures.

As the Ninth Circuit recently noted:

“Bankruptcy’s mootness rule ‘developed from the general rule that the occurrence of events which prevent an appellate court from granting effective relief renders an appeal moot, and the particular need for finality in orders regarding stays in bankruptcy.’ ” ... The policy behind mootness is “to protect the interest of a good faith purchaser ... of the property.”

Suter v. Goedert, 504 F.3d 982, 986 (9th Cir.2007) (quoting Onouli-Kona Land Co. v. Estate of Richards (In re Onouli-Kona Land Co.), 846 F.2d 1170, 1172 (9th Cir.1988)).

Although the sale of the property was to a party to this appeal, there have been many subsequent actions that were relied on by third parties that are not party to this appeal. Although DB was aware of the risks of going forward with the sale, third parties were not and have since acted in reliance on the bankruptcy court’s orders.

Under equitable mootness, when a trustee has already sold assets, “a court may be powerless to ‘undo what has already been done.’ ” Focus Media, 378 F.3d at 922-23 (citation omitted). Here, even though all parties to the sale are present before this panel, complexities that cannot be easily undone arise with respect to the sale. These complexities and the impact on third parties make review of the sale (but only the sale) to DB equitably moot.

But the same cannot be said about reinstating Clear Channel’s liens. An appeal is not equitably moot as to lien-stripping under § 363(f) if reversing the lien-stripping raises neither the issue of complexity nor the issue of negative impact on third parties. That is the case here, and we hold that the lien-stripping aspect of the Sale Order is not equitably moot. See In re Popp, 323 B.R. at 271-72.

As an initial matter, reattaching Clear Channel’s lien to PW’s former property is not theoretically or practically difficult. Both parties are before the court, and no third-party action is required to reestablish Clear Channel’s position: Moreover, DB has not identified any third party who would be prejudiced because it relied on the bankruptcy court’s orders. See Suter, 504 F.3d at 986 (party asserting mootness has heavy burden to establish a lack of effective relief); Focus Media, 378 F.3d at 923 (same). As a result, while the appeal related to the sale itself may be equitably moot, the panel could reverse the transfer of Clear Channel’s lien to the nonexistent sale proceeds and hold .that it remains attached to property transferred to DB. In re Popp, 323 B.R. at 272. See also Beneficial Cal. Inc. v. Villar (In re Villar), 317 B.R. 88 (9th Cir. BAP 2004) (finding avoidance of lien was ineffective as to property that may have been sold even though third-party buyer was not a party to the appeal). 8

By similar reasoning, our motions panel segregated the sale portion of the Sale Order from the lien-stripping portion of *35 the order. Given the relative ease with which Clear Channel can receive the relief it requests (if it is entitled to that relief), and the relative lack of prejudice to anyone other than the parties to this appeal, we hold that Clear Channel’s appeal of the stripping of its lien is not equitably moot.

3. Statutory Mootness Under § 363(m)

Sales of property of the estate under § 363(b) and (c) are protected by § 363(m), which states:

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.

11 U.S.C. § 363(m).

Section 363(m) is a codification of some aspects of equitable mootness with respect to sales. Unlike equitable mootness, however, § 363(m) provides for specific procedures and findings in order to provide certainty for sales.

DB contends that this section deprives this court of the ability to affect the sale. It argues that Clear Channel did not obtain a stay pending appeal, and the bankruptcy court made findings that DB acted in good faith. These facts reinforce our decision not to tamper with transfer of title to DB. The appeal for that part of the transaction is equitably moot, as we noted above, and the facts establish that it is also protected by § 363(m).

But the Confirmation Order authorized both a sale of PW’s property and lien-stripping. While the lack of a stay and a transfer of the property would be relevant to whether § 363(m) applies to a sale authorized by § 363(b), these facts continue to be relevant only if § 363(m) applies to lien-stripping authorizations under § 363(f). We do not consider these facts, however, because we conclude that § 363(m) does not apply to lien-stripping under'§ 363(f).

First, § 363(m) by its terms applies only to “an authorization under subsection (b) or (c) of this section_” Here, the remaining challenge is to the authorization under subsection (f) to sell the property free of Clear Channel’s lien. Section 363(m) thus cleaves a distinction between authorizations to “use, sell or lease ... property of the estate” as set forth in § 363(b) and authorizations under § 363(f) to “sell property under subsection (b) or (c) of this section free and clear of any interest in such property....” Section 363(m) thus protects the court’s authorization of a sale, in this case, out of the ordinary course of business, again making a distinction between the authorization of a sale and the terms under which the sale is to be made.

Second, the subsection limits only the ability to “affect the validity of a sale or lease under such authorization.... ” Here, the telling locution is the limitation of § 363(m) to “sale[s] or lease[s]” authorized under § 363(b) or (c). Omitted is the “use” prong of authorization. As a result, a plain-language reading of the section would not give § 363(m) protection to an out-of-the-ordinary-course use approved by a bankruptcy court. See Part III.B.l., infra.

This limitation leads us to conclude that Congress intended that § 363(m) address only changes of title or other essential attributes of a sale, together with the changes of authorized possession that occur with leases. The terms of those sales, *36 including the “free and clear” term at issue here, are not protected.

Indeed, Congress could easily have broadened the protection of § 363(m) to include lien-stripping. As an example, it could have stated that all “transfers” were to be protected, as that term is broadly defined in § 101(54). It did not. Instead, it restricted the protection of § 363(m) to sales and leases. 9

That § 363(m) is so limited can also be seen by comparing the language chosen— sales or leases — with Congress’s efforts to protect liens and security interests granted by the estate in § 364. Section 364 permits the estate to grant liens and security interests similar to those sought to be stripped here. To protect lenders’ reliance of on such grants, Congress added § 364(e) to the Code. It states:

(e) The reversal or modification on appeal of an authorization under this section to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or hen so granted, to an entity that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt, or the granting of such priority or lien, were stayed pending appeal.

In § 364(e), Congress chose words specific to the task — “debt,” “hen,” and “priority.” That these types of words are absent from § 363(m) underscores congressional intent not to insulate and immunize lien-stripping actions from appellate review.

Not surprisingly, DB argues that its agreement to purchase the property was conditioned on receiving a free and clear title. For that reason, the Confirmation Order contained language both of sale and of lien-stripping. In DB’s view, the sale language cannot be separated from the lien-stripping language because both sale and lien-stripping were integral to its decision to purchase the property. See, e.g., Official Committee of Unsecured Creditors v. Trism, Inc. (In re Trism, Inc.), 328 F.3d 1003, 1007 (8th Cir.2003). In short, DB contends that authorization for the sale also authorized the lien-stripping, and that one cannot be affected without necessarily affecting the other.

In response, we observe that in choosing the words it did in § 363(m), Congress did not intend the two types of actions to receive the same level of protection. That is, divesting the estate of property and vesting it in another is treated differently from stripping a lien. Put another way, stripping a lien is not a sale or a lease protected by the language of § 363(m), either directly or indirectly.

A more nuanced response is that a sophisticated lender such as DB knew of the risks inherent in relying solely on § 363(f)(5) to strip Clear Channel’s lien. It could not have avoided these risks by, for example, insisting that the Confirmation Order contain an explicit contractual condition that there be no appellate review. That would have been rejected out of hand, as any other express condition that similarly violated law or public policy would have been. But a party ought not be able to do indirectly what it cannot do directly, and we are reluctant to interpret § 363(m) to give DB indirectly a review-free stripping of Clear Channel’s nonbank-ruptcy property rights. DB cannot mask an improper condition of the transfer— avoiding appellate review — by cloaking it *37 as an essential and inseparable part of a sale.

The response to this argument is that all that the Code and Rules provide for creditors such as Clear Channel is the ability to seek a stay pending appeal. But in these circumstances, when a bond staying the consummation of the deal would have been far in excess of the lien that Clear Channel is trying to protect, we question whether that remedy is exclusive.

In short, DB knew or should have known all along that lien-stripping might not work. So its assertion that the sale was inseparable from the lien-stripping rings hollow, as does its argument that a stay was required to avoid mootness. See Suter, 504 F.3d at 990 (failure to obtain stay not always fatal to mootness defense). We conclude that, on these facts, lien-stripping under § 363(f)(5) is not protected under § 363(m). 10

B. Statutory Interpretation of § 363(f)

Our holding that the appeal is not moot requires us to consider whether § 363(f) permits the stripping of Clear Channel’s lien. Sales free and clear of interests are authorized under § 363(f). That subsection provides:

(f) The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if—

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

11 U.S.C. § 363(f).

Of the five paragraphs that authorize a sale free and clear, three do not apply to this appeal. Paragraph (1) does not apply because applicable law — California real property law- — does not permit a sale free and clear, and indeed would preserve Clear Channel’s lien despite the transfer. Nguyen v. Calhoun, 105 Cal.App.4th 428, 438, 129 Cal.Rptr.2d 436, 445 (Cal.Ct.App.2003) (“Real property is transferable even though the title is subject to a mortgage or deed of trust, but the transfer will not eliminate the existence of that encumbrance. Thus, the grantee takes title to the property subject to all deeds of trust and other encumbrances, whether or not the. deed so provides.”) (citations omitted). Paragraph (2) is inapplicable as Clear Channel did not consent to the transfer free of its interest. Paragraph (4) applies only if the interest is in bona fide dispute, and no one disputes the validity of Clear Channel’s lien. As a result, we need only analyze the bankruptcy court’s ability to authorize a sale free and clear of Clear Channel’s lien under paragraphs (3) and (5).

1. Guidance on Interpretation

We first review case law on statutory interpretation because paragraphs (3) and *38 (5) of § 363(f) present legitimate and difficult questions of statutory interpretation. Paragraph (3), for example, uses a nonstandard term to refer to the claims held by creditors secured by the property being sold. It refers to the “aggregate value of all liens” on the property. The Code, however, tends to refer not to the economic value of the property secured by liens but to the value of claims secured by those liens. See, e.g., 11 U.S.C. §§ 506(a); 1129(b)(2). If § 363(f)(3) had been worded to refer to the “aggregate value of all claims secured by hens on such property,” it would have been in the mainstream of other provisions of the Code, and no real question would be presented. But it was not. This variant locution requires us to decide whether the unusual construction should be given special interpretive significance.

Paragraph (5) presents an even greater conundrum: the competing constructions seem either to render it so specialized as never to be invoked, or all-powerful, subsuming all the other paragraphs of § 363(f). Before launching into the task of interpreting these two paragraphs, «we should first review applicable rules of construction for federal statutes. See Thomas F. Waldron & Neil M. Berman, Principled Principles of Statutory Interpretation: A Judicial Perspective after Two Years of BAPCPA 81 Am. Bankr. L.J. 195, 202-11 (2007).

When construing any federal statute, the presumption is that the accepted and plain meaning of the words used reflects the sense in which Congress used them. As the Supreme Court has stated:

The starting point in discerning congressional intent is the existing statutory text ... and not the predecessor statutes. It is well established that “when the statute’s language is plain, the sole function of the courts — at least where the disposition required by the text is not absurd — is to enforce it according to its terms.”

Lamie v. United States Trustee, 540 U.S. 526, 534, 124 S.Ct. 1023, 157 L.Ed.2d 1024 (2004), quoting Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A, 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) (in turn quoting United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)).

But there is more. Because the words of a statute are meant to be law, the legal background of the words used, as well as a lawyer’s understanding of them, are also important. Part of the background relevant to this appeal is Congress’s promulgation of federal bankruptcy law as a separate title of the United States Code. This separate title is organized as a cohesive code. For example, it groups similar topics together through the use of chapters, and it uses common, defined terms throughout. See 11 U.S.C. § 101. To aid in consistent application, the Code’s terms are sometimes defined in ways that vary from standard English. A “custodian,” for example, is not a janitor or building superintendent, but rather a receiver or trustee for the debtor’s property. See 11 U.S.C. § 101(H). 11

Further, the Supreme Court has acknowledged that even undefined words and phrases in the Bankruptcy Code should presumptively receive the same construction, even if found in different parts of the code. See Rousey v. Jacoway, 544 U.S. 320, 326-27, 125 S.Ct. 1561, 161 L.Ed.2d 563 (2005) (looking at use of “on *39 account of’ in provisions of the Bankruptcy Code other than the one at issue). See also Davis v. Mich. Dep’t of Treasury, 489 U.S. 803, 809, 109 S.Ct. 1500, 103 L.Ed.2d 891 (1989) (“[Statutory language cannot be construed in a vacuum. It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.”); Am. Bankers Ass’n v. Gould, 412 F.3d 1081, 1086 (9th Cir.2005) (“Our goal in interpreting a statute is to understand the statute ‘as a symmetrical and coherent regulatory scheme’ and to ‘fit, if possible, all parts into a ... harmonious whole.’ ”) (quoting Food & Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000)). 12

That brings us to § 363(f), and its proper interpretation.

2. Paragraph (3) and Sales for Less than the Amount of All Claims Secured by the Property

PW’s property sold for less than the amount of claims secured by PW’s property. DB and the Trustee contend that § 363(f)(3) authorizes the sale free and clear of the liens in this situation. 13 The bankruptcy court found, and we agree, that § 363(f)(3) cannot be so used.

The actual text of paragraph (3) permits a sale free and clear of an interest only if:

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;....

The Trustee asserts that the “aggregate value of all liens” in this paragraph means the economic value of such liens, rather than their face value. This argument arises from § 363(f)(3)’s variance from general Code usage; that is, whether its reference to “value of all liens” is simply an unfortunate deviation from the Code’s general preference to refer to claims, and not liens, or whether it has some other significance.

The Trustee and DB assert that, under conventional bankruptcy wisdom, supported by § 506(a), the amount of an allowed secured claim can never exceed the value of the property securing the claim. 14 *40 Since a secured claim is a form of “lien,” see 11 U.S.C. § 101(37), some courts have found that an estate representative may use § 363(f)(3) to sell free and clear of the property rights of junior lienholders whose nonbankruptcy liens are not supported by the collateral’s value. That is, there may be a sale free and clear of “out-of-the-money” liens. See, e.g., In re Beker Indus. Corp., 63 B.R. 474, 476-77 (Bankr.S.D.N.Y.1986); In re Terrace Gardens Park P’ship, 96 B.R. 707 (Bankr.W.D.Tex.1989); In re Oneida Lake Dev., Inc., 114 B.R. 352 (Bankr.N.D.N.Y.1990); In re WPRV-TV, Inc., 143 B.R. 315, 320 (D.P.R.1991); Milford Group, Inc. v. Concrete Step Units, Inc. (In re Milford Group, Inc.), 150 B.R. 904, 906 (Bankr.M.D.Pa.1992); In re Collins, 180 B.R. 447, 450-51 (Bankr.E.D.Va.1995).

We disagree. This reading expands § 363(f)(3) too far. It would essentially mean that an estate representative could sell estate property free and clear of any lien, regardless of whether the lienholder held an allowed secured claim. We think the context of paragraph (3) is inconsistent with this reading. If Congress had intended such a broad construction, it would have worded the paragraph very differently. 15 See Ron Pair Enters., 489 U.S. at 242 n. 5, 109 S.Ct. 1026 (Congress knows distinction between types of liens, and language of the Bankruptcy Code should be interpreted in a way that acknowledges that knowledge). For this reason, many courts and commentators have rejected this approach. See, e.g., Richardson v. Pitt County (In re Stroud Wholesale, Inc.), 47 B.R. 999, 1002 (E.D.N.C.1985), aff'd mem., 983 F.2d 1057 (4th Cir.1986); Scherer v. Fed. Nat’l Mortgage Ass’n (In re Terrace Chalet Apartments, Ltd.), 159 B.R. 821 (N.D.Ill.1993); In re Perroncello, 170 B.R. 189 (Bankr.D.Mass.1994); In re Feinstein Family P’ship, 247 B.R. 502 (Bankr.M.D.Fla.2000); In re Canonigo, 276 B.R. 257 (Bankr.N.D.Cal.2002); Criimi Mae Servs. Ltd. P’ship v. WDH Howell, LLC (In re WDH Howell, LLC),