
USCA1 Opinion

	




                            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 & Wilson, P.C. were on brief for appellant.        _____     ____________________             Mark G. DeGiacomo, with whom James P. Rooney, Edward J. Rozmiarek             _________________            _______________  ___________________        and Roche, Carens & 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 & 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 &  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                  ___  ____  __________________________          & 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 &                                            ___  ____  ____________________          Trust Co. v. McGee (In re  Hutchinson), 5 F.3d 750, 756 (4th Cir.          _________    _____  _________________          1994);  In  re Athos  Steel &  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 &                   ___  ____ __________________     _______________________          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 & 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  & 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  & 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
