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Food King, Inc. v. Norkus Enterprises, Inc.

2006 WL 3674997 (U.S. Dist. Ct. D. N.J. 2006) (Unpublished)

BANKRUPTCY; LIENS—When a Bankruptcy Court’s Sale Order transfers assets free and clear from all liens of any kind or nature whatsoever, those assets are sold free of any causes of actions or claims, including claims from disappointed bidders that a successful bidder has tortiously interfered with the unsuccessful bidder’s prospective economic advantage.

One member of a supermarket wholesaler’s cooperative sued another member the cooperative concerning a transaction that took place in the Bankruptcy Court. A third member of the cooperative filed for bankruptcy and solicited bids for the purchase of its business as a going concern. It had received various offers, including from two of the other members of the cooperative. One of those offers was the highest. Therefore, the bankrupt company entered into an asset purchase agreement and submitted the transaction to the Bankruptcy Court for a sale auction whereat higher or better offers might be submitted. At that bankruptcy sale auction, the second member of the cooperative made the highest offer and was awarded the purchase contract for the bankrupt supermarket’s assets. The Bankruptcy Court approved the sale without objection from any of the other bidders or from any other parties. Its Order stated that the Asset Purchase Agreement constituted “a legal, valid and effective transfer of the acquired assets free and clear from all liens of any kind or nature whatsoever.” The Order defined “Liens” as including, “among other things, any and all security interests, encumbrances, claims, mortgages, deeds of trust, pledges, covenants, restrictions, contracts, rights of recovery, judgments, orders, debts, and causes of action to the fullest extent of the law.”

The supermarket owner who had negotiated the original contract, but who had lost the purchase at the “highest and best” hearing, then sued the successful bidder. In that suit, it alleged that even though it did not object to the sale, and did not ask for a stay of the Sale Order, as it could have done, it was still entitled to pursue certain claims against the successful bidder. One of the claims was that the successful bidder had “unlawfully traded on the information he received as a member of [the supermarket wholesaler’s cooperative’s] executive committee and board of directors and also that the successful bidder violated a long standing cooperative policy that prohibited one member store “from seeking to acquire a supermarket that another ... member’s store is pursuing if that member is ‘has advanced the acquisition process to the application stage.’” Essentially, the unsuccessful bidder asserted “that its tortious interference with prospective economic advantage claim should not be dismissed because it [could] establish that it had a reasonable expectation of economic advantage that was lost as a direct result of the [successful bidder’s] malicious interference with its attempt to purchase [the bankrupt owner’s store].” The Court rejected that claim, noting that the Sale Order barred “any entity holding a lien arising out of [the sale of the store] from asserting such Lien.” The Court pointed out that the definition of “Liens” included causes of actions and claims. “Thus, [according to the Court] the Sale Order, which [the unsuccessful bidder] did not appeal, clearly prohibit[ed] the assertion of any causes of action or claims relating to or arising from [the sale of the store to the successful bidder], including but not limited to claims for damages.”

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