Summary Judgment Affirmed in Favor of Successor Premises Owner Where Bankruptcy Code Extinguished Claims Superior Court of Pennsylvania, January 26, 2017

Jacqueline and Thomas Wagner filed suit against Standard Steel LLC for Ms. Wagner’s alleged development of mesothelioma as a result of take home exposure from the work clothes of her husband. Mr. Wagner worked as a laborer and crane operator at Freedom Forge from 1970-72. Freedom Forge filed for Chapter 11 protection in 2001. Appellee Standard Steel LLC purchased the sale of Freedom Forge’s assets in 2002. The bankruptcy court confirmed the sale and found: 1) the sale price was fair and reasonable at an arm’s length transaction, 2) The sale agreement and transactions were done in good faith without collusion, 3) Except for assumed liabilities expressly outlined in the sale, the assets purchase was effectuated “free and clear” of all interests and claims, 4) “A sale of the purchased assets other than one free and clear of all claims or interests would materially and adversely impact Debtor’s estates, and yield substantially less value for the…, estates with less certainty than the available alternatives,” 5) Sufficient due notice of the sale confirmation hearing was provided in accordance with the Code and all Bankruptcy Rules.

Appellants argued that liability for claims that had not yet arisen at the time of the sale were not barred by bankruptcy code. The court started with the standard for summary judgment and stated that summary judgment is appropriate when there is no dispute as to any material fact. Relying on Section 363 (f) of the Code and its decision in In re Trans World Airlines, Inc., the court affirmed summary judgment. Specifically, the court found that the Code permits a sale of the “interest in property” and that although not expressly defined by Congress, “the phrase should be broadly read” to permit a bankruptcy court to bar potential liability that could follow the property. The appellants contended that Matter of Frenville Co., Inc. applied and that claims that had not yet arisen were not barred. The court in Frenville allowed suit after bankruptcy protection had been sought. However, the court stated that Frenville stood for a “discharge of legal claims against a debtor, not successor liability following an asset purchase sale.” Additionally, the court discussed the Grossman case where Frenville was overruled. In Grossman, the claim was filed after the injury manifested, which was years after the reorganization. The appellants attempted to argue that Ms. Wagner’s injury also manifested after the reorganization of Freedom Forge. The court was not persuaded and stated the Appellant was not a debtor and “Appellant was not exposed to Appellee’s product or conduct.” The court refused to apply the Frenville line of cases under those circumstances. Therefore, summary judgment was affirmed.

Read the full decision here.


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