In its decision in Morgan Olson v. Frederico (In re Grumman Olson Indus.), 11 Civ. 2291 (JPO), 2012 WL 1038672 (S.D.N.Y. March 29, 2012), the U.S. District Court for the Southern District of New York held that principles of due process override provisions in a bankruptcy court’s order approving a sale, pursuant to Bankruptcy Code §363, that purported to insulate a purchaser from successor liability for future tort claims.
A Cautionary Tale for Buyers
Grumman brings to light an important exception to the general rule that assets sold under the supervision of the bankruptcy court, pursuant to Bankruptcy Code §363, can be cleansed, and sold “free and clear” of all claims and interests except for those for which the purchaser explicitly bargains. Grumman illustrates the exception to this rule for potential successor liability for future tort claims, even in a situation where the bankruptcy court’s order explicitly provides otherwise.1
