Matthew Bopp
St. John's University School of Law
American Bankruptcy Institute Law Review Staff
In In re Norrenberns Foods, Inc., a bankruptcy court in Illinois held that a sale “free and clear” under Section 363(f) of Chapter 11 of the United States Bankruptcy Code (“Bankruptcy Code”) cleanses the assets of successor liability for withdrawal from a multi-employer pension fund.[1] The debtor, Norrenberns Foods, Inc. (the “Debtor”), operated and managed several grocery stores throughout southern Illinois.[2] The United Food and Commercial Workers Unions and Employers Midwest Pension Fund’s (“the Fund”), of Norrenbern Foods’ creditors, is a multi-employer pension fund that provides retirement, disability, and death benefits to retail food employees in the Midwest who are covered by collective bargaining agreements between their employers and certain local unions.[3] On December 7, 2022, the Debtor filed a voluntary petition for relief under Subchapter V of the Bankruptcy Code. The Fund asserted an unsecured claim in the amount of $4,774,800.54 arising from the “withdrawal liability” under the federal Employee Retirement Income Security Act (“ERISA”).[4] On April 7, 2022, the debtor filed a motion seeking to sell substantially all of the debtor’s assets “free and clear of any and all liens, claims, interests and encumbrances.”[5] The purchaser intended to use the assets to rebrand and continue to run the remaining grocery store open in Mascoutah, Illinois, but would not purchase the assets if the Fund’s successor liability was not extinguished by the sale.[6] The Fund filed an objection to the motion, arguing that the bankruptcy court lacks jurisdiction to enjoin the successor liability claims and that the sale of the debtor’s assets pursuant to 363(f) of the Bankruptcy Code cannot extinguish the Fund’s successor liability claims.[7]
Section 363(f) states that “the trustee may sell property. . . free and clear of any interest in such property of an entity other than the estate.”[8] However, a sale of property free and clear of any interest can only happen if: (1) applicable nonbankruptcy law permits the sale of property free and clear of such interest; (2) such entity consents; (3) such interest is a lien and the price the property is being sold for is greater than the aggregate value of all liens on such property; (4) such interest is in a bona fide dispute; or (5) such entity can be compelled, in a legal or equitable proceeding, to accept a money satisfaction in such interest.[9] The issue the court had to answer was whether the Fund’s withdrawal and successor liability claims fell under the term “interest in such property” in section 363(f) of the Bankruptcy Code.[10] The bankruptcy court determined that the Fund’s interest in the Debtor’s assets is one which the Fund could be compelled to accept a money satisfaction.[11] While the Fund argued that its withdrawal and successor liability claims are not an interest in the property under the meaning of the section[12], the bankruptcy court interpreted the term “interest” broadly to include possessory interests, employment related claims, and withdrawal liability.[13] To support this interpretation, the bankruptcy court determined that Congress would have used the Bankruptcy Code’s defined term “lien” instead of “interest” in Section 363(f) if Congress intended for the narrow interpretation brought forth by the Fund.[14] In Section 363(f)(3), Congress uses this defined term “lien” specifying “lien” as a subcategory of “interest”.[15] This textual reading supported the conclusion that “any interest” has a broad definition under Section 363(f).[16]
The bankruptcy court found that the sale of the debtor’s assets used in the operation of their grocery business could be “free and clear” of the Funds successor liability claims under Section 363(f) because of the statute’s broad term “any interest”.[17] Since the Fund’s claim of successor liability only arose from the assets being sold with the purchaser’s intent of continuing to operate a grocery store, the claim is an “interest in such property” under Section 363(f).[18] The Fund tried to use the fact that the assets were continuing to be used for a grocery store as grounds to establish transferee liability, but the bankruptcy court found this theory flawed because following this logic would mean the assets had to be sold and used for something other than the operation of a grocery store to avoid successor liability.[19] The bankruptcy court found this theory would severely impair the asset’s value to the detriment of secured lenders and the bankruptcy estate.[20]
Accordingly, in authorizing the sale of debtor’s assets, the bankruptcy court’s decision highlights the broad authority under Section 363(f) to cleanse assets of any property interests, including successor liability claims, in a free and clear sale.[21]
[1] See In re Norrenberns Foods, Inc., No. 21-30825, 2022 Bankr. LEXIS 1896, at *17 (Bankr. S.D. Ill. July 8, 2022).
[2] Id. at 1.
[3] Id. at 1–2.
[4] Id. at 2.
[5] Id. at 2–3.
[6] Id. at 6.
[7] Id. at 3.
[8] 11 U.S.C. 363(f).
[9] See id.
[10] In re Norrenberns Foods, Inc., No. 21-30825, 2022 Bankr. LEXIS 1896, at 8.
[11] Id. at 7–8 (“The Court agrees that the interest in question is one for which the Fund could be compelled to accept a money satisfaction, as evidenced by the proof of claim filed by the Fund which indicates the monetary value of the claim).
[12] Id.
[13] Id. at 8–9 (citing Precision Industries, Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537, 545 (7th Cir. 2003) (citation omitted).
[14] Id. at 12.
[15] Id.
[16] Id. (“Congress did use the term ‘lien’ in Section 363(f)(3), which applies when ‘such an interest is a lien,’ suggesting that liens are a subcategory of ‘interest.’”).
[17] See id. at 17.
[18] See id. at 13 (“It is the buyer’s acquisition of the assets and his intent to operate a grocery store that gives rise to the Fund’s contention that the buyer will be subject to successor liability.”).
[19] See id. (“The sale of the assets to the buyer in accordance with the Asset Purchase Agreement is in the best interests of the estate and the creditors and provides the best chance for maintaining operations and jobs for the Debtor’s employees.”).
[20] Id.
[21] See id. at 17 (“The Court follows the majority trend to interpret the term ‘interest’ broadly and finds that the Fund’s successor liability claims are an ‘interest’ for purposes of Section 363(f) of the Bankruptcy Code.”).