In re Grumman

A recent decision by the United States District Court for the Southern District of New York explores the tension between the duty to maximize the value of the estate in bankruptcy and the due process rights afforded to future claimants in the context of a sale under ' 363 of the Bankruptcy Code. In Morgan Olson L.L.C. v. Frederico (In re Grumman Olson Indus., Inc.), 2012 WL 1038672 (S.D.N.Y. March 29, 2012), the U.S. District Court affirmed the bankruptcy court's ruling that a ' 363 sale order purporting to extinguish all claims for successor liability could not be enforced to enjoin a state law successor liability claim brought by claimants who, at the time of the sale, had not yet been injured and who had no way of knowing that such claims would arise. By limiting the reach of the ' 363 sale order, the court held the due process rights of future claimants outweighed the benefit to the bankruptcy estate and potential increase in value that a more broadly read ' 363 sale order might confer.