

                  UNITED STATES COURT OF APPEALS
                      FOR THE FIRST CIRCUIT
                                                                                                

No. 93-2244
                  IN RE SAVAGE INDUSTRIES, INC.,
                             Debtor,

                                                                                    

                   WESTERN AUTO SUPPLY COMPANY,

                       Defendant, Appellee,

                                v.

                        SAVAGE ARMS, INC.,

                      Plaintiff, Appellant.

                                                                                                

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF MASSACHUSETTS

       [Hon. Frank H. Freedman, Senior U.S. District Judge]                                                                    

                                                                                                

                              Before

                    Torruella, Cyr and Boudin,

                         Circuit Judges.                                                 

                                                                                                

   Paul H.  Rothschild, with  whom Michael  B. Katz,  Susan Luttrell                                                                              
Burns and Bacon &amp; Wilson, P.C. were on brief for appellant.                                      
   Mark G. DeGiacomo, with whom James P. Rooney, Edward J. Rozmiarek                                                                              
and Roche, Carens &amp; DeGiacomo were on brief for appellee.                                     

                                                                                                
                        December 14, 1994
                                                                                                

          CYR, Circuit  Judge.  The question  presented on appeal                    CYR, Circuit  Judge.                                       

is  whether the  bankruptcy court  properly enjoined  a state-law

based  "successor  product-line liability"  action  in  an Alaska

court against an entity which had acquired a corporate chapter 11

debtor's assets by purchase and subject to an explicit disclaimer

of  liability   on  all  unfiled  claims   relating  to  products

manufactured by the chapter  11 debtor.  On  intermediate appeal,

the district court vacated  the injunction.  As we  conclude that

injunctive  relief  was  improvidently  granted,  we  affirm  the

district court order.

                                I                                          I

                            BACKGROUND                                      BACKGROUND                                                

A.   The "Successor Liability" Claim          A.   The "Successor Liability" Claim                                              

          In  February  1988,  Savage Industries,  Inc.  ("Debtor

Industries"),  a  Massachusetts firearms  manufacturer, commenced

voluntary chapter 11 proceedings  in the United States Bankruptcy

Court   for   the   District   of   Massachusetts  and   obtained

authorization to operate its business as a debtor in  possession.

One month later, appellant Savage  Arms, Inc. ("Arms") was incor-

porated.   In May 1989, Debtor Industries submitted a proposal to

sell substantially  all  its  corporate assets  to  Arms.1    The

bankruptcy  court  approved  the  proposed  sale  in  July  1989.

                                                  

     1The assets  included  all Debtor  Industries' real  estate,
manufacturing  equipment,  leases, contracts,  corporate records,
patents,  trademarks, cash,  accounts receivable,  and inventory.
The assets were sold subject to all liens.

                                2

Although the court order prescribed safeguards for interests held

by objecting creditors, it neither required court approval of the                      

asset-transfer  terms  subsequently  negotiated   between  Debtor                                                                           

Industries  and Arms,  nor made  provision for  the  interests of                              

holders  of contingent  product  liability claims  against Debtor

Industries.2

          On November 1, 1989,  Debtor Industries and Arms closed

their asset  transfer agreement,  wherein Arms  assumed liability

for  certain  pending  product liability  claims  against  Debtor                               

Industries, but explicitly disclaimed all liability for any other                                               

product liability  claims  relating to  firearms manufactured  by

Debtor Industries prior to the closing date.3   Debtor Industries
                                                  

     2The order approving the sale provided as follows:

          ORDERED,  that [DEBTOR] INDUSTRIES  . .  . is
          hereby authorized to  enter into and conclude
          within sixty (60) days of this Order becoming
          final   and   non-appealable   a   Definitive
          Agreement (the "Agreement") with SAVAGE ARMS,
          INC. ("Purchaser") providing for the sale and
          transfer of  its real property and certain of
          its   tangible   and  intangible   assets  to
          Purchaser and the assumption by  Purchaser of
          certain secured and  priority liabilities  as
          set forth in this Order . . . .

     3Section  2(b) of  the Asset  Transfer Agreement  states, in
pertinent part:

     Arms  does not  assume, and  [Debtor Industries]  shall
     pay, perform and discharge:
          . . . .
          (iv)   any  liability or  obligation resulting  from or
          arising out  of claims for personal  injury or property
          damage  based  on the  malfunction  or  failure of  any
          product manufactured  or  distributed, in  whole or  in
          part, by  [Debtor Industries], arising out  of any act,
          omission,  event,  occurrence   or  circumstance   that
          existed  on or  before  Closing, except  to the  extent

                                3

ceased  to  operate  immediately  after the  asset  transfer  was

consummated.   Thereupon, without interruption, Arms  took up the

manufacture  of  the  identical  lines   of  firearms  previously

produced by Debtor Industries.

          Meanwhile,  in   May   1989,  shortly   before   Debtor                                                                  

Industries submitted its proposal to transfer its assets to Arms,

Kevin  Taylor had been injured by a "Stevens" .22 caliber firearm

manufactured by Debtor Industries.  One year after the chapter 11                                                            

asset  transfer  was  consummated,   Taylor  brought  a  products

liability  action against  Debtor Industries  in an  Alaska state

court.  Later, Western Auto  Supply Company ("Western Auto"), the

retail  distributor which  sold  Taylor the  allegedly  defective

firearm, was added as a party defendant.  Although Taylor did not

name  Arms as a  defendant, in  due course  Western Auto  filed a

third-party complaint alleging that  Arms had incurred "successor

product-line  liability"  under  Alaska   law  by  continuing  to

manufacture  the identical  firearms theretofore  manufactured by

Debtor Industries.  Western Auto demanded  either indemnification                              

or an apportionment of  damages from Arms as successor  to Debtor

                                                  

          expressly  set  forth in  Schedule  2  or Section  4(f)
          hereof . . . . 

Debtor  Industries  warranted,  in  Section 6(e),  that  only  44
product  liability claims were pending  at the time  of the asset
transfer.    In  Section  4(f),  Arms  conditioned  its  purchase
agreement  on the  bankruptcy  court's estimate  that 24  pending
prepetition  product liability  claims against  Debtor Industries
did not exceed $400,000 in aggregate value. 

                                4

Industries.4 

          In  June  1991,  the  bankruptcy  court  confirmed  the

chapter  11  liquidation  plan,   which  made  no  provision  for

contingent product liability claims  disclaimed by Arms under its

November 1989  asset transfer agreement  with Debtor  Industries.

The  asset-transfer  proceeds began  to  be  disbursed under  the

confirmed chapter 11 plan in February 1992. 

          Thereafter,  Arms  commenced this  adversary proceeding

against Western  Auto in the  United States Bankruptcy  Court for

the  District  of   Massachusetts,  requesting  declaratory   and

injunctive  relief against further  prosecution of Western Auto's
                                                  

     4As  a general  rule, a  corporation which  acquires another
corporate  entity's   assets  does   not   assume  the   seller's
liabilities  unless  (1)   the  buyer  expressly  assumes   those
liabilities;  (2)  the  transaction   constitutes  a  merger   or
consolidation; (3) the buyer  is a mere extension of  the seller;
or  (4) the  transaction  amounts to  a  fraudulent or  collusive
attempt to avoid the  seller's liabilities.  See Conway  v. White                                                                           
Trucks, 885  F.2d 90, 93 (3d  Cir. 1989); Ray v.  Alad Corp., 560                                                                      
P.2d 3, 7 (Cal. 1977).   Several states, including California and
New Jersey, have adopted a "hybrid" exception to the general rule
precluding implied successor  liability, known as  "product-line"
liability.   Its  elements  commonly include:  (1)  the total  or
virtual extinguishment of tort remedies  against the seller as  a
consequence  of  an all-asset  sale;  (2)  the buyer's  continued
manufacture of  the same  product lines  under  the same  product
names; (3)  the buyer's continued  use of the  seller's corporate
name  or identity, and trading on the seller's good will; and (4)
the buyer's representation (e.g., advertising) to the public that                                          
it is  an ongoing enterprise.  See, e.g., Conway, 885 F.2d at 93;                                                          
Ray, 560 P.2d at 11.               
     A three-part  policy underlies the  "product-line" liability
doctrine:   (1) such  all-asset acquisitions  virtually eliminate
the tort  plaintiff's remedies against the  seller, which usually
dissolves  after  the  sale;  (2)  the  buyer  becomes  the  most
efficient conduit for effecting  the cost-spreading policy at the
root  of strict tort liability; and (3) fairness demands that the
buyer      the  party  enjoying  the  economic  benefits  of  its
predecessor's good will     bear the initial financial  burden of
its predecessor's contingent product liability.  Id. at 8-9.                                                              

                                5

third-party complaint in Alaska state court.  Arms asserted  that

it acquired  Debtor Industries'  assets "free  and clear"  of all

product liability claims against Debtor  Industries, except those

disclosed  to Arms by Debtor  Industries prior to  the chapter 11

asset transfer.  See supra notes 2 &amp; 3.                                    

B.   The Injunction            B.   The Injunction                             

          Notwithstanding the contention that it lacked jurisdic-

tion once the asset transfer had been consummated, the bankruptcy

court enjoined further prosecution  of Western Auto's third-party

action  against Arms in Alaska state court.  The bankruptcy court

concluded that  it retained the requisite  jurisdiction to enjoin

any  hostile "claim"  which  contravened the  terms of  the asset

transfer  agreement  approved  by  the bankruptcy  court  in  the

pending chapter 11 proceeding.   Savage Arms, Inc. v.  Taylor (In                                                                           

re  Savage Arms, Inc.), No. 88-40046-JFQ, slip op. at 4-5 (Bankr.                               

D. Mass. Oct. 5, 1992).  But cf. Mooney Aircraft v. Foster (In re                                                                           

Mooney  Aircraft), 730 F.2d 367 (5th Cir. 1984) (bankruptcy court                          

lacks  jurisdiction to enjoin  successor liability claims arising

one year after close of bankruptcy proceedings).                               

          The bankruptcy  court reasoned  that     even  assuming

Alaska  were  to  adopt  a  common  law  "successor  product-line

liability" doctrine,  see, e.g., Dawejko v.  Jorgensen Steel Co.,                                                                          

434 A.2d 106 (Pa. Super.  Ct. 1981); supra note 4     the Western                                                    

Auto claim against Arms would be preempted by the Bankruptcy Code

insofar  as   it  constituted  a  tort   "claim"  against  Debtor

Industries  which  arose  before  either  the  chapter  11  asset                                          

                                6

transfer or the  order confirming  the chapter 11  plan.   Savage                                                                           

Arms, Inc., slip op.  at 2-3 (citing Volvo  White Truck Corp.  v.                                                                       

Chambersburg  Beverage, Inc. (In re White  Motor Truck Corp.), 75                                                                      

B.R.  944, 950 (Bankr. N.D. Ohio 1987); American Living Systs. v.                                                                        

Bonapfel (In re All American of  Ashburn, Inc.), 56 B.R. 186, 190                                                        

(Bankr. N.D. Ga.  1986)).   Since the confirmed  chapter 11  plan

restricted  claimants to their pro rata share of the net proceeds                                                 

realized  from  the  all-assets transfer,  the  bankruptcy  court

considered injunctive  relief essential  to prevent  Western Auto

from  circumventing  the  Bankruptcy  Code   priority  scheme  by

obtaining  full  recovery  from  Arms, the  chapter  11  debtor's

successor.  Because Taylor and Western Auto held "claims" against

Debtor Industries that  could be dealt  with under the  confirmed                                                      

chapter 11 plan, and since asset transfers  under Bankruptcy Code

  363(f)  are effected "free  and clear of  any interest" in  the

transferred  assets,5    the  bankruptcy  court  ruled  that  the
                                                  

     5Section 363(f) provides:

     (f)  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   property  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.

                                7

explicit disclaimer in the asset transfer agreement must be given

full effect, at least  in the absence of collusion.  Savage Arms,                                                                           

Inc., slip op. at 3.   Finally, the court expressed concern  that              

such  successor liability actions  might "chill"  all-asset sales

under chapter 11 by prompting potential purchasers to hedge their

bids against unquantifiable future  product liability costs.  Id.                                                                           

at 5.   See  also Paris Mfg.  Corp v.  Ace Hardware Corp.  (In re                                                                           

Paris Indus. Corp.), 132 B.R. 504, 508 n.7 (D. Me. 1991).                            

          Western  Auto  took  an   intermediate  appeal  to  the

district court, which concluded  that the bankruptcy court lacked

jurisdiction  to enjoin  prosecution  of the  Alaska state  court

action.  This appeal followed.6

                                II                                          II

                            DISCUSSION                                      DISCUSSION                                                
                                                  

Bankruptcy Code   363(f), 11 U.S.C.   363(f).

     6After  the  district  court  decision, but  prior  to  oral
argument  in this  appeal, the  Alaska court  severed  the Taylor
claim  against  Western  Auto  from  the  third-party  "successor
liability" claim against Arms, allowing the former  to proceed to
trial.   Judgment eventually entered for Western  Auto.  Although
it is not known  whether Taylor appealed the adverse  state court
judgment,  failure to  do so  would not  moot the  present appeal
since Western  Auto represents that it  will seek indemnification
for  its litigation  costs  from Arms,  based  on its  "successor                                    
liability" theory.  See, e.g., Anderson v. United States Dep't of                                                                           
Health  and Human Servs., 3  F.3d 1383, 1384-85  (10th Cir. 1993)                                  
(noting that although "'a claim of entitlement to attorney's fees
does not preserve  a moot cause of action,  the expiration of the
underlying  cause  of action  does  not moot  a  controversy over
attorney's fees already  incurred'") (citation omitted) (emphasis                                           
added); Heritage  v. Pioneer  Brokerage &amp;  Sales, 604  P.2d 1059,                                                          
1065-67  (Alaska 1979) (once  retailer establishes an implied-at-
law right  to indemnification  from product manufacturer,  it may
recover its  litigation costs  and attorney fees  in successfully                                                                           
defending against customer's tort action).  

                                8

          The   bankruptcy  court  reasoned  that  the  requisite

jurisdiction  to enjoin  further prosecution  of the  state court

"successor liability"  action summoned from its  power to enforce

its own order approving  the all-assets transfer,7 in furtherance

of  two fundamental Bankruptcy  Code themes:   the  Code priority

scheme and  maximization of creditor recoveries.  For the reasons

hereinafter discussed,  we believe the rationale undergirding the

bankruptcy court decision is flawed.8
                                                  

     7Even  though the bankruptcy court  did not do  so, Arms has
devoted considerable attention to the precise statutory source of
the bankruptcy  court's "jurisdiction"  to enjoin prosecution  of
the Alaska state court  action.  See, e.g., 28  U.S.C.    157(a),                                                    
1334;  Bankruptcy Code    105(a), 11  U.S.C.   105(a).   Further,
Arms  suggests that it  may opt to  rescind the chapter  11 asset
transfer  if found liable as Debtor Industries' "successor."  But                                                                           
see Zerand-Bernal Group v.  Cox, 23 F.3d 159, 164 (7th Cir. 1994)                                         
(rescission of all-asset sale which  formed "core and premise" of
chapter 11  plan  is precluded  180  days after  confirmation  of
plan).  Western  Auto responds that  the bankruptcy court  lacked
jurisdiction because by the  time Savage sought injunctive relief
the reorganization plan had  been confirmed and substantially all
chapter  11  estate assets  had  been  distributed to  creditors.
Therefore, the  Alaska  state  court  action could  have  had  no
conceivable  effect on the administration of the chapter 11 case.                             
See, e.g.,  In re  G.S.F. Corp., 938  F.2d 1467,  1475 (1st  Cir.                                         
1991).  We need not address these jurisdictional questions, as we
conclude that  the bankruptcy court misapprehended  the effect of
its July  1989 order approving the  asset transfer to Arms.   See                                                                           
infra Section II.B.               

     8"[We] undertake[] an  independent review of the  bankruptcy
court order, utilizing the same appellate standards governing the
district court review." Laroche v. Amoskeag Bank (In re Laroche),                                                                         
969  F.2d 1299,  1301  (1st Cir.  1992).   Rulings  on  permanent
injunctive relief  are reviewed for  "abuse of discretion."   See                                                                           
Caroline T. v. Hudson Sch. Dist., 915 F.2d 752, 754-55 (1st  Cir.                                          
1990); Sturge v. Smouha (In re Petition of Smouha), 136 B.R. 921,                                                           
925  (S.D.N.Y.   1992).    Four  principal   factors  govern  the
appropriateness of permanent injunctive  relief:  (1) whether the
plaintiff has prevailed on the merits;  (2) whether the plaintiff
will  suffer irreparable  injury  absent  injunctive relief;  (3)
whether the harm  to the plaintiff outweighs any  harm threatened
by  the injunction; and (4)  whether the public  interest will be

                                9

A.   The Code Priority Scheme          A.   The Code Priority Scheme                                       

          The bankruptcy court expressed concern that unless such

successor  liability  actions  are  enjoined,  claimants will  be

encouraged  to forego their chapter  11 remedies in  favor of the

more  lucrative  state-court  recoveries   conceivably  available

against the chapter 11 debtor's successor.  

          We believe  this concern  to be unwarranted.   For  one

thing, it is  more illusory than  real, given the  nature of  the

successor product-line liability doctrine itself.  See supra note                                                                      

4.  As a general rule, a successor to the chapter 11 debtor would

be  absolved of strict tort  liability if the  claimant failed to

pursue any available  chapter 11  remedy.  See,  e.g., Conway  v.                                                                       

White  Trucks,  885  F.2d  90,   95  (3d  Cir.  1989)   (applying                       

Pennsylvania  law). Yet  more  conclusively, the  "circumvention"

concern  relied upon by the bankruptcy court is inapposite to the

present  context since  there is  no  record indication  that any

attempt was  made to afford notice  to Taylor or  Western Auto as                 

holders of contingent postpetition product liability claims,  see                                                                           

Bankruptcy Code    502(c), 11 U.S.C.    502(c).  We  enlarge upon

the latter point. 

          Notice  is the cornerstone underpinning Bankruptcy Code

procedure.   Under  the Bankruptcy  Reform  Act of  1978     in a
                                                  

adversely affected by the  injunction.  Caroline T., 915  F.2d at                                                             
754-55.  Although its  conclusions of law are subject  to plenary
review, the  bankruptcy court's findings of  fact, "whether based
on  oral or documentary evidence," are not to be set aside unless
"clearly erroneous."  Fed. R. Bankr. P. 8013.

                                10

deliberate  departure  from  its  forerunners      virtually  all

administrative responsibilities were removed from  the bankruptcy

judge.  See, e.g., In re  Sullivan Ford Sales, 2 B.R. 350, 353-54                                                       

&amp; n.10  (Bankr. D. Me. 1980)  (citing Report of the  Comm. on the

Judiciary, House of Representatives, To Accompany H.R. 8200, H.R.

Rep. No. 95-595, 95th Cong., 1st Sess. 4, 89-91, 99, 107 (1977)).

Under the Code,  therefore, the debtor  in possession or  trustee

must ensure "parties in interest" adequate notice and opportunity

to be  heard before  their interests  may be  adversely affected.                             

See, e.g.,  Bankruptcy Code   363(b) ("The  Trustee, after notice                                                                           

and  a  hearing, may  use,  sell,  or lease,  other  than  in the                                                                           

ordinary course of business,  property of the estate.") (emphasis                                     

added);  Fed. R. Bankr. P.  6004(a) (mandating notice of proposed

sale);  2002(a)(2)  (20  days'  notice  by  mail to  "parties  in

interest"); see  also, e.g., Bankruptcy Code   1109(b), 11 U.S.C.                                     

   1109(b) ("parties  in interest"  have "right  to be  heard" in

chapter  11 case).    The term "parties  in interest" encompasses

not only  entities holding "claims"  against the debtor,  but any

entity whose pecuniary interests  might be directly and adversely

affected by the proposed action.  See, e.g., Yadkin Valley Bank &amp;                                                                           

Trust Co. v. McGee (In re  Hutchinson), 5 F.3d 750, 756 (4th Cir.                                               

1994);  In  re Athos  Steel &amp;  Aluminum, Inc.,  69 B.R.  515, 519                                                       

(Bankr. E.D. Pa. 1987).  "[N]otice .  . . means . . . such notice

as  is appropriate  in the  particular   circumstances .  .  . ."                                                                

Bankruptcy Code    102(1), 11 U.S.C.    102(1) (emphasis  added);

Fed.  R. Bankr. P  2002(k) (empowering court to order publication

                                11

of notice to "parties in interest" where "desirable" or notice by

mail is "impracticable").   Thus, in the first instance  the Code

consigns to the proponents, rather than to the  bankruptcy court,

the  preliminary determination whether  a proposed disposition of

estate assets adversely affects "parties in interest."  See In re                                                                           

Sullivan Ford, 2 B.R. at 353-54 ("appropriate" notice to "parties                       

in interest" is  indispensable); cf., e.g.,  In re Northern  Star                                                                           

Indus.,  Inc.,  38  B.R.  1019,  1021  (E.D.N.Y.  1984)  (hearing                                                                           

dispensable if parties in interest are afforded proper notice and                        

interpose no timely objection); In re Robert L. Hallamore  Corp.,                                                                          

40 B.R. 181,  183 (Bankr. Mass. 1984)  (same); Fed. R. Bankr.  P.

6004, advisory committee note, subsection (e).9

          Bankruptcy  Code    102(1)  is  founded in  fundamental

notions  of procedural due process.   See In  re Center Wholesale                                                                           

                                                  

     9The Code "notice" requirements have even greater force in a
case like  the present, where  the order  approving the  proposed
sale authorized a transfer of substantially all chapter 11 estate                                                         
assets     for present purposes,  the functional equivalent of an
order  confirming a conventional  chapter 11 reorganization plan.
As such,  the  order confirming  a  chapter 11  liquidation  sale
warrants especial  bankruptcy court scrutiny.  See  In re Abbotts                                                                           
Dairies,  788 F.2d  143,  150 (3d  Cir.  1986) (noting  that  "[                  
363(b)(1)]  mirrors  the requirement  of  section  1129 that  the
bankruptcy   court   independently   scrutinize    the   debtor's
reorganization plan"); In re Wilde Horses Enters., 136  B.R. 830,                                                           
841  (Bankr. C.D.  Cal. 1991)  ("'The  key to  the reorganization                                                                           
Chapter  . .  .  is  disclosure.  .  .  .'")  (citation  omitted)                                         
(emphasis added);  In re George  Walsh Chevrolet, Inc.,  118 B.R.                                                                
99, 101 (Bankr. E.D. Mo. 1990); In re Channel One Communications,                                                                           
Inc., 117  B.R. 493, 496 (Bankr. E.D. Mo. 1990); In re Industrial                                                                           
Valley Refrigeration and Air Conditioning Supplies, Inc., 77 B.R.                                                                  
15, 17 (Bankr. E.D. Pa. 1987);  see generally David A. Skeel, The                                                                           
Nature  and  Effect  of  Corporate  Voting   in  Chapter  11  Re-                                                                           
organization Cases,  78 Va. L.  Rev. 461, 496  (1992) (collecting                            
cases   advocating  "enhanced  scrutiny"   of  liquidation  sales                                                 
preceding chapter 11 plan confirmation).

                                12

Inc., 759 F.2d 1440, 1449 (9th Cir. 1985); In re Garland Corp., 6                                                                        

B.R. 456, 459 (Bankr. 1st Cir. 1980) ("The right to be heard 'has

little reality or worth unless one is informed that the matter is

pending  and can choose for himself whether to appear or default,

acquiesce or contest.'") (quoting Mullane v. Central Hanover Bank                                                                           

and  Trust Co.,  339  U.S. 306,  314 (1950)).   Since  Taylor and                        

Western  Auto,  as "parties  in  interest,"  were never  afforded

"appropriate" notice of the chapter 11 proceeding, the chapter 11

plan, or  the privately  negotiated terms  of the  asset transfer

agreement, not only do  their state-law based successor liability

claims against Arms  survive the chapter 11  proceeding but their

claims against Debtor Industries as well.  See, e.g., Dalton Dev.                                                                           

Project v.  Unsecured Creditors  Comm. (In  re Unioil), 948  F.2d                                                               

678,  683 (10th Cir.  1991) (Bankruptcy  Code) (chapter  11 claim

whose holder was afforded no notice is not subject to discharge);

2  Lawrence P. King, Collier  on Bankruptcy,    363.13, at 363-43                                                     

(15th ed. 1992)  (noting that  the Code concern  for finality  in                                                                       

bankruptcy sales "will not, however,  protect a party buying from

the trustee  in a sale free and clear of liens where no notice is

given to the lienholder [and] [s]uch a purchaser will be  held to

have  purchased   subject  to   the  lien");     Bankruptcy  Code

   727(a)(1), 1141(a),  (d)(3), 11  U.S.C     727(a)(1), 1141(a),

(d)(3);  see  also City  of New  York v.  New  York, New  Haven &amp;                                                                           

Hartford R.R., 344 U.S. 293, 296-97 (1953) (Bankruptcy Act).                         

          Thus, even  assuming  that the  Western Auto  successor

liability  claim   constituted  an  "interest"   in  the   Debtor

                                13

Industries chapter  11 assets  transferred  to Arms  and that  it

would be extinguishable under section  363(f) "after notice and a

hearing,"  Bankruptcy Code   102(1), 11 U.S.C.    102(1); but cf.                                                                           

Zerand-Bernal  Group v.  Cox, 23  F.3d 159,  164 (7th  Cir. 1994)                                      

(Posner,  C.J.) (suggesting that    363(f) cannot  be employed to

extinguish successor product-line liability claims), there can be

no question that  its claim  could not be  extinguished absent  a

showing  that Western Auto was afforded appropriate notice in the

particular  circumstances.   See  Bankruptcy Code    1109(a),  11                                          

U.S.C.    1109(a); Fed.  R. Bankr. 2002(a)(2),  2002(k), 6004(a);

see  also Hoffman v. Hoffman,  157 B.R. 580,  584 (E.D.N.C. 1992)                                      

(burden  rests with trustee or debtor  in possession to establish

appropriate notice).          Arms    concedes    that     Debtor

Industries never attempted notice  to retailers or wholesalers of

firearms manufactured by Debtor Industries.  Arms now argues that

direct notification would have  entailed exorbitant financial and

logistical burdens unwarranted in the circumstances.  There is no

suggestion, however, that either  the identity or the whereabouts

of large-volume  firearms distributors like Western  Auto did not

appear in  Debtor Industries' business records  as wholesalers or

retailers  of  its firearms.    Furthermore,  the asset  transfer

agreement  itself disclosed  that  forty-four  product  liability

claims were pending in the chapter 11  proceedings against Debtor

Industries by  the time the  asset transfer was  consummated, see                                                                           

supra note 3, which strongly suggests  that Debtor Industries may               

have  been  on notice  that  certain  types  of firearms  (hence,

                                14

particular distributors)  may have been prominent  candidates for

future   indemnification  claims.     These   unresolved  factual

determinations were for the bankruptcy court, had the  parties to

the all-asset transfer  alerted the court  to their intention  to

negotiate the "free and clear" transfer term at issue here.  Even

assuming direct notice were proven impracticable, however, Debtor

Industries  concededly  made  no  attempt to  provide  notice  by

publication, see Fed. R. Bankr. P. 2002(k); Novak v. Callahan (In                                                                           

re GAC Corp.), 681 F.2d 1295, 1300 (11th Cir. 1982)  (direct mail                      

unnecessary if class large); Trump Taj Mahal Assocs. v. Alibraham                                                                           

(In re Trump Taj  Mahal Assocs.) 156 B.R. 928, 938-41  (Bankr. D.                                         

N.J.  1993) (notice by publication may  be adequate for "unknown"

creditors).  

          As  it  was  never   determined  "appropriate  in   the

particular  circumstances"  for  Debtor Industries  and  Arms  to

dispense with all notice and opportunity  to be heard on the part

of potential  claimants like  Taylor and Western  Auto, it  would

border on the bizarre to  conclude that the third-party complaint

Western Auto filed against Arms in Alaska state court  threatened

disruption to  any legitimate  function served by  the Bankruptcy

Code priority  scheme which Debtor Industries  and Arms subverted

in  their private  negotiation of  the asset  transfer agreement.

Furthermore, it  cannot seriously be questioned  that the central

"notice  and  hearing" requirement  prescribed by  the Bankruptcy

Code would be eviscerated  were we to presume, as  Arms belatedly                                                       

suggests,  that  an  entire  class of  future  product  liability

                                15

claimants  was beyond the purview of "such  notice . . . and such

opportunity for a hearing as  [was] appropriate in the particular

circumstances .  . . ,"  Bankruptcy Code    102(1)(A), 11  U.S.C.

  102(1)(A). 

B.   "Chilling" Future Chapter 11 Liquidation Sales          B.   "Chilling" Future Chapter 11 Liquidation Sales                                                             

          As an  additional  basis  for  injunctive  relief,  the

bankruptcy  court expressed  the concern  that  permitting state-

court  successor  liability  actions  to  proceed  would  "chill"

chapter 11  asset bidding  because all-asset transfers  "free and

clear" would be seen  as unenforceable against similarly situated

product liability claimants.  Once again we must disagree.  

          We are satisfied that  this largely illusory concern is

entirely of the parties'  own making, brought on by  their mutual

arrangement for effecting an all-asset transfer without regard to

basic Bankruptcy  Code notice requirements.   Thus, even assuming

that state-law based successor  product-line liability claims may

be barred through  recourse to Bankruptcy Code   363(f),  but see                                                                           

Zerand-Bernal Group,  23 F.3d at  164, the all-asset  transfer to                             

Arms  could effect no settlement or discharge of the Western Auto

claim against Debtor Industries     let alone the state-law based                                                                     

successor liability claim against Arms    absent both appropriate

notice and court approval. See supra note 9.10                                                
                                                  

     10The procedures utilized below differed markedly from those
employed in the cases  cited by the bankruptcy court.  See, e.g.,                                                                          
Paris, 132  B.R. at  506 n.2  (order approving  sale incorporates               
extant  counteroffer by reference); In re White Motor, 75 B.R. at                                                               
947 (approval  order confirms extant  sale agreement "in  all re-                                              
spects");  see   also  Zerand-Bernal   Group,  23  F.3d   at  161                                                      
(bankruptcy  court approval  order  "reserv[ed]  jurisdiction  to

                                16

          The failure  to afford  appropriate notice  pursuant to

Bankruptcy Code   102(1) and  to obtain bankruptcy court approval

of  the  asset  transfer  agreement  terms  privately  negotiated

between Debtor  Industries and Arms precluded  a legitimate basis

for enjoining the  Alaska state court action.  See  In re Federal                                                                           

Shopping Way, 717 F.2d 1264, 1270 (9th Cir. 1983)  (noting that a                      

bankruptcy court has no  jurisdiction to issue "an  injunction to

enforce an  order [it] did  not make");  In re Wilde  Horses, 136                                                                      

B.R. 830,  841 (Bankr.  C.D. Cal.  1991) ("The  essential purpose

served by disclosure  [in an  all-asset sale] is  to ensure  that

parties in interest  are not left  entirely at  the mercy of  the

debtor and  others having  special influence over  the debtor.");

see also supra notes 2 &amp; 8.  Participants in chapter 11 all-asset                        

sales       parties  and   bidders  alike       can   avoid  this

jurisdictional "no  man's land" by ensuring  compliance with Code

notice requirements to "parties in interest," see Bankruptcy Code                                                           
                                                  

enforce"   extant  agreement   containing   a   provision   which                           
extinguished  product liability claims).   The  order purportedly
approving  the  asset  transfer  to  Arms  preceded  the  private                                                             
agreement  between the  parties  to transfer  Debtor  Industries'
assets  "free  and clear"  of  future  product liability  claims.
Compare,  e.g., In re G.S.F.,  938 F.2d at  1478 (indicating that                                      
the  pertinent inquiry is what the court order said, not what the                                                                  
court may  have intended to  say).  After  prescribing protective                                  
provisions  for the benefit  of objecting creditors  who had been                                                   
afforded appropriate  notice of the proposed  asset transfer, the
bankruptcy court  order pre-authorized the  asset transfer absent                                                
either notice  or substantive protections for  holders of contin-
gent product liability claims in the confirmed chapter 11 plan or
the order  approving the asset transfer agreement.  Indeed, there
is  no indication  in the  appellate record  that the  bankruptcy
court itself learned about the terms on which  the parties to the
asset transfer  agreement proposed  to deal with  such contingent
product liability  claims until after Arms  commenced the present
adversary proceeding to enjoin the Alaska state court action. 

                                17

  102,  11 U.S.C.    102, and,  in problematic  circumstances, by

securing a timely bankruptcy court determination as to the notice

and  opportunity  for  hearing  appropriate   in  the  particular

circumstances.   See In re Blehm Land  &amp; Cattle Co., 71 B.R. 818,                                                             

822-23  (D. Colo.) (noting that the bankruptcy court serves as no

mere  "rubber  stamp" under  Bankruptcy  Code    362(d),  363(b),

364(b); and "refus[ing] to assume that the unapproved contractual

Agreement would  have been  approved by [the  court]"), rev'd  on                                                                           

other grounds, 859 F.2d 137 (10th Cir. 1988).                       

                               III                                         III

                            CONCLUSION                                      CONCLUSION                                                

          We  express  no  view  as to  whether  Bankruptcy  Code

  363(f) enables  the extinguishment of state-law based successor

"product-line" liability claims.  But see Zerand-Bernal Group, 23                                                                       

F.3d  at 164.   We  hold only  that the  parties to  an all-asset

transfer conducted  under  the auspices  of  chapter 11  are  not

entitled to rely on the protective jurisdiction of the bankruptcy

court to enjoin  the prosecution of  a state-law based  successor

product-line liability  action  against an  all-asset  transferee

when the  state court plaintiff was  neither afforded appropriate

notice  of the material terms  of the all-asset  transfer, nor of

the chapter 11 plan.  Moreover, even  assuming appropriate notice

under Bankruptcy Code    102(1), prior  to dispensing  injunctive

relief  the bankruptcy  court must  ascertain, at  the threshold,

that the  particular successor  liability action poses  a genuine

                                18

threat  to  the legitimate  operation  of the  provisions  of the

Bankruptcy Code, and not  merely to the private enforcement  of a

closet term  in an agreement  negotiated between  the chapter  11

debtor and its successor.   As there was no  threshold showing in

the present case, we need not consider the other prerequisites to

permanent  injunctive relief.    See supra  notes  7  &amp; 8.    The                                                    

district court order must be affirmed.            The    district                                                            The    district                                                                           

court order vacating the bankruptcy court injunction is affirmed;          court order vacating the bankruptcy court injunction is affirmed;                                                                           

costs to defendant-appellee.           costs to defendant-appellee                                     

                                19
