Morgan Olson, LLC v. Frederico (In Re Grumman Olson Indus., Inc.)
445 B.R. 243
Bankr. S.D.N.Y.2011Background
- Grumman Olson Industries filed Chapter 11; Morgan purchased the Lot 2 assets under a sale order free and clear of liens and claims.
- Sale order provided in rem relief and released purchaser from certain in personam liabilities, including successor liability arising from pre-sale assets, subject to its terms in the APA.
- Fredericos sued Morgan in New Jersey state court for post-sale injuries allegedly caused by a pre-petition Grumman product and Morgan purportedly as successor.
- Morgan filed an adversary proceeding seeking declaratory and injunctive relief to bar the Fredericos from proceeding in state court.
- The court granted the Fredericos’ motion for summary judgment and denied Morgan’s motion, dismissing the complaint.
- Key issue is whether the sale order exonerates Morgan from successor liability for post-sale tort claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the court have subject matter jurisdiction to interpret the Sale Order? | Fredericos contend the court lacks jurisdiction over Morgan’s request. | Morgan argues post-confirmation jurisdiction extends to enforce the order against non-debtors. | Court has jurisdiction to interpret and enforce the Sale Order. |
| Does § 363(f) authorize in personam exoneration from successor liability for future tort claims? | Fredericos argue the sale frees Morgan from all successor liability. | Morgan asserts broad free-and-clear effect including future claims. | Sale order cannot exonerate Morgan from future tort claims; not applicable to Fredericos’ claims. |
| Are Fredericos' claims a 'claim' under § 101(5)(A) for purposes of the Sale Order? | Fredericos allege a pre-petition relation via Morgan’s post-sale conduct. | Morgan contends Fredericos’ post-sale injury does not constitute a pre-petition claim. | Fredericos do not hold a 'claim' under § 101(5)(A); Chateaugay and Piper framework applies. |
| Did due process and notice issues preclude binding Fredericos to the Sale Order? | Fredericos had no meaningful notice or opportunity to object. | Morgan argues adequate notice was given via the bankruptcy process. | Due process concerns preclude treating Fredericos as bound by the Sale Order. |
| Should the court resolve state-law successor liability or defer to state court? | Court should discharge or shield Morgan from successor liability under NJ law. | Court should not adjudicate state-law liability; leave to state court. | Court declines to determine state-law liability; leaves it to state court. |
Key Cases Cited
- In re Chrysler LLC, 576 F.3d 108 (2d Cir. 2009) (free and clear includes in rem and limited in personam relief; context for 363(f))
- In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir. 2003) (interpretation of 363(f) in sale orders and third-party claims)
- Luan Inv. S.E. v. Franklin 145 Corp., 304 F.3d 223 (2d Cir. 2002) (post-confirmation jurisdiction and enforcement against non-debtors)
- Piper Aircraft Corp., 58 F.3d 1573 (11th Cir. 1995) (Piper test for pre-petition conduct and pre-petition relationship to create a claim)
- Chateaugay Corp., 944 F.2d 997 (2d Cir. 1991) (fair contemplation test to distinguish contingent claims from future tort claims)
- Grossman's, Inc., 607 F.3d 114 (3d Cir. 2010) (expands 'claim' concept for future exposure in mass torts)
- Schwinn Bicycle Co. v. Benonis, 217 B.R. 2177 (N.D. Ill. 1997) (due process and post-sale injury claims not discharged)
- In re Johns-Manville Corp., 600 F.3d 135 (2d Cir. 2010) (notice and boundaries of sale orders with respect to non-parties)
- Douglas v. Stamco, 6:08 CV 747 (N.D.N.Y. unknown year) (fact pattern involving post-sale injury and successor liability)