## Facts

- Swedeland Development Group, Inc. (Swedeland) was a real-estate developer building a golf course and residential-unit project known as Crystal Springs in New Jersey.
- Before bankruptcy, Swedeland borrowed substantial sums from Carteret Federal Savings Bank (Carteret), which received mortgages and related security; the collateral did not fully secure Carteret’s debt.
- Swedeland later filed Chapter 11 and operated as a debtor in possession while the automatic stay prevented Carteret from foreclosing.
- To continue the project, Swedeland sought postpetition financing that would take priority over Carteret’s prepetition liens and interests in cash collateral.
- The bankruptcy court entered financing orders authorizing postpetition loans, including (1) an earlier loan from Haylex, Inc., and (2) a later, larger loan from First Fidelity Bank, N.A., each granted priority over Carteret’s interests to varying degrees.
- In connection with the First Fidelity financing, Swedeland argued that Carteret would be protected because continued construction would increase the property’s value; Swedeland also relied on prepetition guarantees and proposed altering payments to Carteret as protection.
- Carteret (through the Resolution Trust Corporation as conservator) appealed, contending that the priming financing lacked the “adequate protection” required by 11 U.S.C. § 364(d)(1), and also sought relief from the automatic stay to pursue foreclosure.
- The district court reversed the bankruptcy court’s financing orders and reversed the denial of stay relief.
- Swedeland appealed to the Third Circuit, arguing that 11 U.S.C. § 364(e) made the financing-order appeals moot because Carteret did not obtain a stay pending appeal.

## Issues

1. Whether 11 U.S.C. § 364(e) required dismissal as moot of Carteret’s appeals from the bankruptcy court’s postpetition financing orders when Carteret did not obtain a stay pending appeal.
2. Whether the bankruptcy court properly authorized the First Fidelity priming/superpriority financing under 11 U.S.C. § 364(d)(1), including whether Carteret’s interest was “adequately protected.”
3. Whether Carteret was entitled to relief from the automatic stay under 11 U.S.C. § 362(d) based on lack of adequate protection and the debtor’s reorganization prospects.

## Decision

- The Third Circuit held that the appeal from one financing order (the Haylex order) was moot under § 364(e) because the loan had been funded and effective relief could not be granted without impairing the good-faith lender’s protected position; that appeal should have been dismissed.
- The court held that the appeal from the other financing order (the First Fidelity order) was not moot and could be reviewed on the merits.
- On the merits, the court affirmed the district court’s reversal of the First Fidelity priming order because Swedeland did not provide Carteret with adequate protection as required by § 364(d)(1).
- The court affirmed the district court’s ruling that Carteret was entitled to relief from the automatic stay under § 362(d).
- The court vacated the district court’s order only to the extent it failed to dismiss the moot financing appeal, and otherwise affirmed.

## Legal Principles

- Section 364(e) protects good-faith postpetition lenders from having their debt, lien, or priority invalidated on appeal absent a stay; it does not automatically bar appellate review, but it can prevent effective relief and thereby require dismissal as moot.
- A priming lien under § 364(d)(1) is permitted only if (i) the debtor cannot obtain credit otherwise and (ii) the existing lienholder whose priority is displaced receives adequate protection of its interest.
- Adequate protection for a primed secured creditor must be based on concrete safeguards that preserve the value of the creditor’s position; predicted increases in collateral value from continued development, without reliable support, are generally too uncertain to qualify.
- Prepetition guarantees and proposed payment adjustments, without more, may fail to compensate a secured creditor for the loss of priority and the added risk created by a priming facility.
- Under § 362(d), a secured creditor is entitled to stay relief for lack of adequate protection, particularly where the debtor’s plan depends on uncertain projections and does not provide a reliable means to protect the creditor’s interest while reorganization is attempted.

## Conclusion

In Resolution Trust Corp. v. Swedeland Development Group, Inc. (In re Swedeland Development Group, Inc.), the Third Circuit held that § 364(e) mooted only the appeal of a consummated, good-faith postpetition financing order, but allowed review of a later priming order and affirmed its reversal because the debtor failed to provide adequate protection to the displaced secured creditor; the court also affirmed granting the secured creditor relief from the automatic stay.


Resolution Trust Corp. v. Swedeland Development Group, Inc. (In Re Swedeland Development Group, Inc.), 16 F.3d 552 (1994)