MEMORANDUM AND ORDER
This bankruptcy appeal requires the Court to address a question that has not been resolved by the courts in this Circuit, but has been addressed by courts in several other circuits: whether a bankruptcy sale order, pursuant to Section 363 of the Bankruptcy Code (the “Code”), 11 U.S.C. § 363, can extinguish the state law claims of third parties based on conduct by the debtor before the bankruptcy, where no injury was caused until after the bankruptcy closed. Because these claimants could not have received notice or an opportunity to participate in the bankruptcy proceedings, the Court holds that enforcing the bankruptcy court’s orders to take away their right to bring a claim would violate bankruptcy procedure and due process.
Presently before the Court is an appeal pursuant to 28 U.S.C. § 158(a) from an order of the Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) granting a motion for summary judgment by Appellees Denise Frederico and John Frederico (collectively, the “Frederieos”), denying a motion for summary judgment by Appellant Morgan Olson L.L.C. (“Morgan”), and dismissing the adversary action brought by Morgan in the Bankruptcy Court.
See In re Grumman Olson Indus.,
I. Background
The material facts in this case, as set forth in the Bankruptcy Court’s opinion, are not in dispute.
A. The Parties
Appellant, Morgan, is a corporation engaged in the manufacture of products for the truck body industry. Morgan purchased certain assets of Grumman Olson Industries, Inc. (“Grumman” or the “Debt- or”) after Grumman declared bankruptcy.
Appellees, the Fredericos, initiated an action in New Jersey Superior Court against (inter alia) Morgan for personal injury and products liability after Denise Frederico was injured after the bankruptcy while driving a truck that was manufactured by Grumman prior to the bankruptcy.
B. The Bankruptcy and Sale Order
On December 9, 2002, Grumman, a company that designed, manufactured, and sold products for the truck body industry, filed a petition for Chapter 11 bankruptcy. On July 1, 2003, the Bankruptcy Court entered an Order approving the sale of certain of the Debtor’s assets (the “Lot 2 Assets”) to MS Truck Body Corp., a predecessor of Morgan (collectively, “Morgan”), pursuant to Bankruptcy Code §§ 363 and 365. (See Order Pursuant to Sections 363 and 365 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004 and 6006 (I) Approving the Sale by the Debtor of Certain of its Operating Assets, Free and Clear of Liens, Claims and Encumbrances, (II) Approving the Assumption and Assignment by the Debtor of Certain Associated Executory Contracts and Unexpired Leases, and (III) Granting Other Related Relief, Appellant’s Memorandum of Law in Support of Its Appeal (“Appellant Mem.”), Ex. A (Dkt. No. 9) (the “Sale Order”).)
The Sale Order contained several provisions that purported to limit Morgan’s potential liability arising from the sale of the assets for tort claims based on allegedly defective products manufactured and sold by Grumman prior to the sale. In particular, the sale of the Lot 2 Assets was ordered “free and clear of all ... claims ... and other interests ... and all debts arising in any way in connection with any acts of the Debtor.” (Sale Order ¶ Q; accord id. ¶¶ 4, 14.) In addition, the Sale Order provided that the purchase of the assets by Morgan would not subject Morgan to “any liability for claims against the Debtor or the Lot 2 Assets, including, but not limited to, claims for successor or vicarious liability, by reason of such transfer under the laws of the United States, any state, territory or possession thereof or the District of Columbia applicable to such transactions.” (Sale Order ¶ 19; accord ¶ S (providing that the purchaser “shall not by virtue of this Order or the Lot 2 [Asset Purchase Agreement (“APA”) ] or the transactions contemplated hereunder or thereunder, be deemed to have ‘successor’ liability or responsibility for claims against or obligations of the Debtor arising prior to or as a result of the purchase and sale of the Lot 2 Assets hereunder”)). 1
On October 31, 2005, the Debtor and the Official Committee of Unsecured Creditors confirmed a joint liquidating plan. The Court signed the Final Order and Decree on December 29, 2006, thereby closing the bankruptcy proceedings.
C. The New Jersey Action
Prior to the bankruptcy filing, the Debt- or manufactured and sold truck chassis to various companies, including FedEx. On October 8, 2009, the Fredericos brought a personal injury action against Morgan and others in New Jersey Superior Court. The complaint alleges that Ms. Frederico, an employee of FedEx, sustained injuries when the FedEx truck she was driving struck a telephone pole on October 15, 2008. {See Appellant Mem. Ex. B.) The complaint also alleges that the truck she was driving was manufactured, designed, and/or sold by Grumman in 1994 and was defective for several reasons. On April 28, 2010, the Fredericos filed an amended complaint that alleged that Morgan continued Grumman’s product line, and was therefore liable to the Fredericos under New Jersey successor liability law.
D. This Adversary Proceeding
On March 24, 2010, Morgan brought this adversary proceeding in the Bankruptcy Court seeking declaratory and in-junctive relief barring the Fredericos from bringing their claims against Mor
II. Discussion
A. Jurisdiction and Standard of Review
The Bankruptcy Court assumed jurisdiction to hear this adversary action pursuant to its power to interpret and enforce its own prior orders, specifically the Sale Order.
BR Ct. Op.,
Under Rule 8013 of the Federal Rules of Bankruptcy Procedure,
On an appeal the district court ... may affirm, modify, or reverse a bankruptcy judge’s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.
Fed. R. Bankr.P. 8013. “A bankruptcy court’s conclusions of law, by contrast, are reviewed de novo.”
In re Adelphia Comm. Corp.,
The Bankruptcy Court’s decision here granted the Fredericos’ motion for summary judgment and denied Morgan’s motion for summary judgment. Under the Federal Rules of Civil Procedure, a court “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). 2
The material facts in this case are not in dispute, and the Bankruptcy Court did not make any factual findings. Instead, the appeal presents a pure question of law as to the interpretation and enforcement of the Sale Order. Thus, the Court reviews the Bankruptcy Court’s decision de novo.
It is undisputed that Grumman, not Morgan, manufactured the truck involved in the accident that injured Denise Freder-ico. 3 The Fredericos brought suit against Morgan under a theory of successor liability.
Under traditional common law, including the law of this state, “a corporation that purchases the assets of another corporation is generally not liable for the seller’s liabilities.”
New York v. Nat’l Serv. Indus., Inc.,
The New Jersey Supreme Court has also applied a “product-line” exception to the general rule against successor liability. Under this exception, “by purchasing a substantial part of [a] manufacturer’s assets and continuing to market goods in the same product line,” the purchasing company can be held liable as a successor for defects in the predecessor’s products.
Lefever,
In
Lefever v. K.P. Hovnanian Enterprises, Inc.,
the New Jersey Supreme Court held that the product-line exception first set forth in
Ramirez,
The Fredericos argue that Morgan is liable under New Jersey successor liability law because it continued to manufacture and market the same product line and
C. Preemption
Morgan argues that this case turns on whether the New Jersey Supreme Court had the power to rule as it did in Lefever, given federal preemption in the field of bankruptcy.
Under the Constitution, federal law “shall be the supreme Law of the Land ... any Thing in the Constitutions or Laws of any State to the contrary notwithstanding.” U.S. Const. Art. VI, cl. 2. Article I of the Constitution reserves for Congress the power to establish “uniform Laws on the subject of Bankruptcies throughout the United States.” U.S. Const. Art. I, § 8.
Courts have long recognized “[t]he exclusive authority of Congress and the federal courts to pass and enforce the bankruptcy laws.”
In re Old Carco LLC,
Morgan argues that the type of successor liability authorized by the New Jersey Supreme Court in
Lefever
tramples on the supremacy of federal bankruptcy law. In particular, Morgan argues that imposing successor liability here is in direct conflict with the Sale Order — an order from a federal bankruptcy court — which provided that Morgan would not be subject to successor liability under the laws of any state.
(See
Sale Order ¶ 19.) Moreover, the imposition of successor liability in this context would effectively defeat the possibility of selling debtor assets “free and clear” of the liabilities of the debtor, which would inevitably result in purchasers’ being unwilling to pay as much for those assets. This would run counter to one of the core policies of the Code in general, and Section 363 of the Code in particular, of “maximizing the value of the bankruptcy estate.”
Toibb v. Radloff,
Although the New Jersey Supreme Court’s decision in
Lefever
grappled with interesting questions about the intersection of state tort law and bankruptcy law, the validity of the New Jersey court’s holding in
Lefever
was not decided by the Bankruptcy Court and is not properly before this Court. This case does not turn on whether there will ultimately be successor liability under New Jersey law, or
At oral argument, counsel for Morgan argued that the due process problem is only created by virtue of the New Jersey Supreme Court’s erroneous decision in
Le-fever,
but this is not so. The Court would be faced with this question even if the New Jersey Court had never decided
Lefever.
The basis for successor liability here— “product-line” successor liability — was not created in
Lefever;
it dates back over thirty years to the New Jersey Supreme Court’s decision in
Ramirez,
The present case actually turns on the question whether, assuming arguendo that there is a viable basis for state successor liability based on prepetition conduct of the debtor, a bankruptcy court’s sale order may be enforced to extinguish those claims where no injury occurred to the claimant until after the bankruptcy closed, such that the claimant was not provided with notice of, or an opportunity to participate in, the bankruptcy proceedings that gave rise to that order. The Court does not address whether Lefever will ultimately be applied by New Jersey courts to find that Morgan is liable as a successor in the Fredericos’ case. Instead, the Court rules only on whether the Sale Order prevents the Fre-dericos from pursuing the case at all.
D. Applicable Law Regarding the Effect of “Free and Clear” Sale Orders
1. “Free and Clear” Provisions Generally
The Sale Order in this case provided for a sale free and clear of interests in the property, claims against the debtor, or any successor liability by virtue of the transfer of the assets. The court authorized this sale pursuant to Section 363 of the Bankruptcy Code, 11 U.S.C. § 363 (“Section 363”). That section empowers the trustee to sell the debtor’s assets “free and clear of any interest in such property of an entity other than the estate.” 11 U.S.C. § 363(f). 6 The trustee may do so only “after notice and a hearing.” 11 U.S.C. § 363(b).
Although the text of the statute expressly refers only to interests in the property itself, it is now generally agreed — including in this Circuit — that this provision may more broadly extinguish claims that “arise from the property being sold.”
In re Chrysler LLC,
The court’s power under Section 363 to authorize sales of assets “free and clear” of claims is related to the provision in the Code that the confirmation of a plan of reorganization renders the “property dealt with by the plan ... free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor.” 11 U.S.C. § 1141(c). In
Chrysler,
the parties objecting to entry of a sale order argued that the fact that Section 1141(c) contains the terms “interests” and “claims,” but Section 363 mentions only “interests,” meant that Congress “was willing to extinguish tort claims in the reorganization context, but unwilling to do so in the § 363 sale context,” particularly because “reorganization provides unsecured creditors procedural rights that are not assured in a § 363(b) sale.”
As the Bankruptcy Court explained here, the policy behind this broader reading of Section 363 is twofold. First, allowing tort claimants to sue Section 363 purchasers directly — rather than seeking relief from the estate itself — would subvert the Bankruptcy Code’s priority scheme, by allowing a low-priority, unsecured claim to leapfrog over other creditors in the bankruptcy.
See Trans World Airlines,
The Sale Order’s “free and clear” provisions are consistent with this line of cases. However, the question remains whether the order can be applied to extinguish the claims in this case.
2. Dealing With “Future Claims” in Bankruptcy Generally
This case ultimately turns on the potential reach of a Section 363 “free and clear” sale order to extinguish a claim against a purchaser that is based on pre-bankruptcy conduct of the debtor that did not cause any harm to an identifiable claimant until after the bankruptcy closed. (For the sake of simplicity, the Court will refer to this type of claim as a “future claim,” and holders of this type of claim as “future claimants.”) This requires the Court to examine the treatment of future claims in general in bankruptcy proceedings.
Many of the decisions evaluating the effect of bankruptcy court orders on future claims arise outside the Section 363 sale context, and instead turn on the scope of the term “claim” itself in the bankruptcy
The Code defines “claim” as broadly as possible, as a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” 11 U.S.C. § 101(5)(A).
See Johnson v. Home State Bank,
Despite the breadth of the term “claim” under the Code, problems arise when classifying future claims as “claims” to be dealt with in a bankruptcy. The Second Circuit aptly illustrated these difficulties with a hypothetical:
Consider, for example, a company that builds bridges around the world. It can estimate that of 10,000 bridges it builds, one will fail, causing 10 deaths. Having built 10,000 bridges, it becomes insolvent and files a petition in bankruptcy. Is there a “claim” on behalf of the 10 people who will be killed when they drive across the one bridge that will fail someday in the future? The potential victims are not only unidentified, but there is no way to identify them. Sheer fortuity will determine who will be on that one bridge when it crashes. What notice is to be given to these potential “claimants”?
Id.
In Chateaugay, the Second Circuit was determining the applicability of a bankruptcy court’s discharge of “claims” to claims for the cost of cleaning up hazardous waste that had been released by the debtor before the bankruptcy proceedings, but which costs would continue to be incurred by the Environmental Protection Agency (“EPA”) after the bankruptcy closed. Id. at 1002. The court expressly declined to resolve the hypothetical it had posited:
We need not decide how the definition of “claim” applies to tort victims injured by pre-petition conduct, especially as applied to the difficult case of pre-petition conduct that has not yet resulted in detectable injury, much less the extreme case of pre-petition conduct that has not yet resulted in any tortious consequence to a victim.
Id. at 1004. Instead, the court held that the unincurred cleanup costs could be dealt with as “claims” in the bankruptcy because the relationship between the EPA and the debtor was “far closer than that existing between future tort claimants totally unaware of injury and a tortfeasor.” Id. at 1005.
Generally, courts have held that future claims cannot be considered “claims” that are dealt with and discharged by a confirmation plan. For example, in
Lemelle v. Universal Mfg. Corp.,
the Fifth Circuit held that “even the broad definition of ‘claim’ cannot be extended to include ... claimants whom the record indicates were completely unknown and unidentified at
The Eleventh Circuit has provided the clearest articulation of the test used by courts that hold that future claims cannot be adjudicated as “claims” during a bankruptcy:
[A]n individual has a § 101(5) claim against a debtor manufacturer if (i) events occurring before confirmation create a relationship, such as contact, exposure, impact, or privity, between the claimant and the debtor’s product; and (ii) the basis for liability is the debtor’s prepetition conduct in designing, manufacturing and selling the allegedly defective or dangerous product. The debtor’s prepetition conduct gives rise to a claim to be administered in a case only if there is a relationship established before confirmation between an identifiable claimant or group of claimants and that pre-petition conduct.
Epstein v. Official Committee of Unsecured Creditors of the Estate of Piper Aircraft Corp’n (In re Piper Aircraft Corp.),
As the Second Circuit suggested in
Cha-teaugay,
the concern that underlies these decisions about the scope of the term “claim” is “the enormous practical and perhaps constitutional problems [that] would arise” from treating future claims like “claims” in a bankruptcy.
Id.
at 1003. In particular, as the court noted in posing the “bridge” hypothetical, “What notice is to be given to these potential ‘claimants’?”
Id.
at 1003.
Cf. In re Kewanee Boiler Corp.,
As courts have long recognized, the requirement of “[n]otice is the cornerstone underpinning Bankruptcy Code procedure.”
Western Auto Supply Co. v. Savage Arms, Inc. (In re Savage Indus., Inc.),
Courts have held in general that, for due process reasons, a party that did not receive adequate notice of bankruptcy proceedings could not be bound by orders issued during those proceedings. In
In re Johns-Manville Corp.,
The notice requirements of bankruptcy law are “founded in fundamental notions of procedural due process.”
Savage Indus.,
Because parties holding future claims cannot possibly be identified and, thus, cannot be provided notice of the bankruptcy, courts consistently hold that, for due process reasons, their claims cannot be discharged by the bankruptcy courts’ orders.
See Lemelle,
4. Notice and Due Process for Future Claims in Section 363 Sale Context
The cases provide somewhat less guidance regarding how these principle affect future claimants in the Section 363 sale context, although the same concerns pertain regardless of when the assets are sold, whether at confirmation or after a Section 363 sale. The Second Circuit recently acknowledged these concerns, but declined to resolve them one way or the other. In
In re Chrysler LLC,
the Second Circuit addressed objections to the Bankruptcy Court’s approval of an order pursuant to Section 363. That order authorized the sale of the car manufacturer’s assets while extinguishing the right to pursue claims against the purchaser “on any theory of successor or transferee liability!,] whether known or unknown as of the Closing, now existing or hereafter arising, asserted or unasserted, fixed or contingent, liquidated or unliquidated.”
However, the court declined to rule on whether the sale order could be enforced against “claimants who, although presently unknown and unidentified, might have claims in the future arising from Old Chrysler’s production of vehicles.”
Id.
at 123. The court affirmed the order itself “insofar as it constituted a valid exercise of authority under the Bankruptcy Code,” but “deeline[d] to delineate the scope of
Other courts, when presented with future claims in the context of Section 363 sale orders, have held that the claims cannot be extinguished without due process for the future claimants. In
Schwinn Cycling & Fitness Inc. v. Benonis,
The court concluded that the finding in the sale order that New Schwinn was not a “successor in interest” to the debtor was “directed at forcing existing pre-confirmation personal injury claimants to bring such claims against [estate assets]. It was not intended to, nor could it, preempt all possible future successor liability claims.” Id. at 796-97 (emphasis added). In any event, the court held, because the plaintiffs in the state court action did not receive notice of the sale or bankruptcy proceedings, their claim could not have been extinguished by the sale order. Id. at 797. In the court’s view, to enjoin the plaintiffs’ state court action “would, in effect, deny them of their rights to due process.” Id. The court noted that the fact “[t]hat there existed no notice reasonably calculated to reach parties like [the plaintiffs] does not lessen the due process implications of New Schwinn’s contentions in the adversary proceeding.” Id.
D. Application to this Case
The “free and clear” provisions of the Section 363 Sale Order in this case are broader than those of the confirmation plans analyzed in some of the other eases dealing with future claims. The Sale Order expressly purports to extinguish any “claims for successor or vicarious liability, by reason of [the] transfer [of the Lot 2 Assets] under the laws of the United States, any state, territory or possession thereof or the District of Columbia applicable to such transactions.” (Sale Order ¶ 19.) On its face, this would encompass the theory of successor liability set forth by New Jersey state courts. The case thus does not turn directly on how to define the term “claim” in the Bankruptcy Court’s orders. Nevertheless, the due process and notice concerns that underlie the decisions discussed above are fully applicable here.
The Fredericos did not receive adequate notice of their potential claim in the Grumman bankruptcy proceedings because, at the time of the bankruptcy, there was no way for anyone to know that the Frederi-eos ever would have a claim. Enforcing the Sale Order against the Fredericos to take away their right to seek redress under a state law theory of successor liability when they did not have notice or an opportunity to participate in the proceedings that resulted in that order would deprive them of due process.
See Schwinn,
Morgan does not grapple directly with the due process argument in its briefs, preferring instead to focus on the idea that policies underlying the bankruptcy code preempt state successor liability law. Morgan points out that under New Jersey law, a purchaser of assets in a Section 363 sale could be subject to decades of uncertainty about when some claimant may come forward, suing Morgan for conduct based on conduct by a totally different entity. As Morgan points out, the
Lefever
court acknowledged this potential unfairness, but expressed that “competent counsel” could effectively advise a “prudent purchaser” about the risks of potential successor liability down the line.
A recent summary order from the Second Circuit appears to lend support to Morgan’s argument. In
Douglas v. Stamco,
to the extent that the ‘free and clear’ nature of the sale ... was a crucial inducement in the sale’s successful transaction, it is evident that the potential chilling effect of allowing a tort claim subsequent to the sale would run counter to a core aim of the Bankruptcy Code, which is to maximize the value of the assets and thereby maximize potential recovery to the creditors.
Id. at 102-03 (citations omitted).
However, as the Bankruptcy Court in this case explained, the Second Circuit was not presented with, and did not consider, due process issues or whether the plaintiff in the case had a “claim” that could have been dealt with in the bankruptcy proceedings. Moreover, the action was not to enjoin a state lawsuit. Rather, the case had been removed to federal court and the district court held that the plaintiff had failed to plead a valid basis for successor liability under applicable law. Here, the Court is not addressing whether the Fre-dericos will ultimately be able to sustain their successor liability claim; the question is whether the Sale Order prevents them from even bringing the suit in the first place. In light of the due process problems that would result from such an interpretation, the Court holds that the Sale Order cannot be enforced in this manner.
An additional point bears noting: Some courts deal with the issue of future claims by appointing a future claims representative to advocate for the interests of future claimants. The future claims representative can negotiate for the creation of special trusts where funds may be set aside to pay claims that will be asserted for injuries caused by prepetition conduct that do not occur until after the bankruptcy closes. This is often particularly useful in mass tort cases, such as those involving asbestos or medical implants, where a discernible class of potential claimants has already been exposed to the product, and it is only a question of when (and to what extent) harm will manifest itself.
See, e.g., Grady
On the other hand, courts faced with future claimants like those in this case— in essence, the unknown future claimants of the
Chateaugay
“bridge” hypothetical — often reject efforts by future claims representatives to submit those “claims” for approval. For example, in
Piper,
the Eleventh Circuit rejected the efforts of a future claims representative to set aside funds for people who would be injured after the bankruptcy by airplanes manufactured by the debtor. The representative based his calculation on “statistical assumptions regarding the number of persons likely to suffer, after the confirmation of a reorganization plan, personal injury or property damage caused by Piper’s pre-confirmation manufacture, sale, design, distribution or support of aircraft and spare parts.” 58 F.8d at 1575. The court set forth, and then applied, the
Piper
test to find that these hypothetical future claimants did not have sufficient pre-confirmation relationships with the debtor for them to hold “claims” that could be adjudicated in the bankruptcy.
See also Hoffinger,
The Fredericos point out that their due process rights would be violated because not only did they not receive notice of the bankruptcy, but there was no future claims representative or any provisions made for future claimants. Morgan pointed out at oral argument that under cases like Piper, there likely could not have been a future claims representative who could have represented claimants such as the Fredericos. The Court does not express a view on whether a future claims representative would have been appropriate or permissible in this case. Either way, the fact remains that there was not a future claims representative in this case, or any provisions made for unrepresented future claimants. Thus, the Fredericos (and other future claimants in their position) were not afforded either the notice and opportunity to participate in the proceedings or representation in the proceedings that due process would require in order for them to be bound by the Bankruptcy Court’s orders.
The Court is certainly cognizant of the inherent uncertainty that allowing successor liability claims (notwithstanding the “free and clear” provisions of a bankruptcy court’s orders) imposes upon purchasers of debtor assets in a bankruptcy. However, to whatever extent maximizing the value of the estate is an important policy of the Bankruptcy Code, it is no more fundamental than giving claimants proper notice and opportunity to be heard before their rights are affected, to say nothing of constitutional requirements of due process.
It implies, what no one believes, that by virtue of the arising-under jurisdiction a bankruptcy court enjoys a blanket power to enjoin all future lawsuits against a buyer at a bankruptcy sale in order to maximize the sale price: more, that the court could in effect immunize such buyers from all state and federal laws that might reduce the value of the assets bought from the bankrupt; in effect, that it could discharge the debts of non-debtors ... as well as of debtors even if the creditors did not consent; that it could allow the parties to bankruptcy sales to extinguish the rights of third parties, here future tort claimants, without notice to them or (as notice might well be infeasible) any consideration of their interests. If the court could do all these nice things the result would indeed be to make the property of bankrupts more valuable than other property— more valuable to the creditors, of course, but also to the debtor’s shareholders and managers to the extent that the strategic position of the debtor in possession in a reorganization enables the debtor’s owners and managers to benefit from bankruptcy. But the result would not only be harm to third parties, such as the [claimants in the case], but also a further incentive to enter bankruptcy for reasons that have nothing to do with the purposes of bankruptcy law.
Zerand-Bernal Group, Inc. v. Cox,
The Court does not decide whether or not there may be circumstances under which a Section 363 sale order could extinguish the claims of future claimants who, because they were not injured before the close of the bankruptcy, had no way to receive notice of the bankruptcy proceedings. And the Court does not reach any conclusion regarding whether use of a future claims representative can always address the due process concerns of unknown future claimants, nor whether use of such a representative would have been possible or appropriate in the bankruptcy proceedings here. Finally, as previously stated, the Court does not reach the question whether Morgan actually is liable as a successor to Grumman under New Jersey law. The Court holds only that, under the circumstances presented in this case, to enforce the Sale Order to enjoin the Fre-dericos’ state law suit would deny them due process and violate the Bankruptcy Code’s requirements of notice and opportunity to be heard for those affected by a bankruptcy court’s rulings. Thus, the Court agrees with the Bankruptcy Court that the Fredericos are entitled to judgment as a matter of law, and Morgan’s adversary complaint should be dismissed.
Conclusion
For the foregoing reasons, this Court AFFIRMS the Bankruptcy Court’s judgment entered February 25, 2011.
SO ORDERED.
Notes
. The relevant provisions of the Sale Order provide, in full:
Paragraph Q:
The sale, conveyance, and assignment of the assets to be purchased under the Lot 2 APA (the “Lot 2 Assets”) shall be free and clear of all liens, claims, encumbrances, and other interests, including without limitation, mortgages, security interests, pledges, liens, replacement liens, judgments, demands, encumbrances, or charges of any kind or nature, if any, including, but not limited to, any restriction on the transfer, receipt of income or other exercise of any attributes of ownership (the foregoing collectively referred to as "Liens”), and all debts arising in any way in connection with any acts of the debtor, claims (including but not limited to "claims” as that term is defined in the Bankruptcy Code), obligations, demands, guaranties, interests, and matters of any kind and nature, whether arising prior to or subsequent to the commencement of this Chapter 11 case, and whether imposed by agreement, understanding, law, equity, or otherwise (the foregoing collectively referred to as "Claims”), with all such Liens and Claims, and any and all other interests to attach to the proceeds of sale of, and with the same force, effect and priority of such Liens, Claims and other interests had against, the Lot 2 Assets, and holders thereof shall be permanently enjoined from asserting against the Lot 2 Assets and the and [sic ] shall look solely to the proceeds of sale.
Paragraph S:
Except as otherwise expressly provided by the Lot 2 APA and all related instruments, the Purchaser shall not by virtue of this Order or the Lot 2 APA or the transactions contemplated hereunder or thereunder, be deemed to have "successor" liability or responsibility for claims against or obligations of the Debtor alising prior to or as a result of the purchase and sale of the Lot 2 Assets hereunder. Paragraph 19:
Except as otherwise expressly provided in the Lot 2 APA or related instruments or as otherwise provided in this Order, the Purchaser shall have no liability or responsibility for any liability or other obligation of the Debtor arising under or related to the Lot 2 Assets other than for the purchase price payable under the Lot 2 APA. Without limiting the effect of the foregoing, the transfer of the Lot 2 Assets and the assignment of the Lot 2 Contracts do not and will not subject the Purchaser to any liability for claims against the Debtor or the Lot 2 Assets, including, but not limited to, claims for successor vicarious liability, by reason of such transfer under the laws of the United States, any state, territory or possession thereof or the District of Columbia applicable to such transactions. The Purchaser shall not be deemed, as a result of SMB 7/1/03 the consummation of the transaction contemplated by the Lot 2 APA to: (a) be the successor of the Debtor; (b) have, de facto or otherwise, merged with or into the Debtor; (c) be a mere continuation or substantial continuation of the Debtor or the enterprise of the Debtor; or (d) be responsible for any liability of the Debtor or for payment of any benefit accruing to the Debtor, except as specifically provided for in the Lot 2 APA.
. Under Rule 7056 of the Federal Rules of Bankruptcy Procedure, a bankruptcy court is to apply Rule 56 of the Federal Rules of Civil Procedure in adversary proceedings.
. Although this was apparently a disputed issue on the motion for summary judgment before the bankruptcy court,
see BR Ct. Op.,
. Although this approach to successor liability was rejected as too expansive by the drafters of the
Restatement (Third) of Torts,
an academic article quoted by the New Jersey Supreme Court stated that, as of 1998, "thirteen jurisdictions, representing 43 percent of the United States’ population, follow[ed] either the product line approach or the continuity of enterprise approach.”
Lefever,
. For example, Morgan’s promotional materials list Jimmy Olson, who founded Grumman Olson, as its own founder, and state that the company has been "Building the Best ... since its inception more than 60 years ago,” a reference to the founding of Grumman Olson, and not Morgan, which was created eight years ago. (Appellee Mem. at 6.)
. Section 363(f) provides, in full, that:
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 properly 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).
. Although the
Chrysler
opinion was later vacated as moot on instruction from the Supreme Court, courts in this Circuit have continued to apply this broader conception of the “free and clear” provisions of Section 363 sales.
See In re Motors Liquidation,