U.S. bankruptcy law permits debtors-in-possession and trustees
to sell assets free and clear of claims, liens and other interests.
But a federal judge in New York ruled recently that a purchaser
does not necessarily buy free and clear when a product manufactured
pre-bankruptcy causes injury after a sale closes. Morgan Olson
L.L.C. v. Frederico (In re Grumman Olson Indus.,
Inc.), No. 11 Civ. 2291, 2012 U.S. Dist. LEXIS 44314 (S.D.N.Y.
Mar. 29, 2012) (JPO). In this situation, the purchaser can remain
liable for injuries caused by the asset purchased from the
debtor.
In Morgan, the debtor, Grumman Olson Industries Inc. (Grumman),
manufactured parts for trucks. In 2002, Grumman filed Chapter 11 in
the Southern District of New York and sold its assets to Morgan
Olson L.L.C. (Morgan) pursuant to Bankruptcy Code sections 363 and
365. The Bankruptcy Court's order approving the sale (Sale
Order) provided that the sale was "free and clear of all . . .
claims . . . and other
