Court Shields Bowflex Buyer From Successor Liability in 363 Sale

A New Jersey District Court affirmed a bankruptcy court order shielding the purchaser of Bowflex's assets from successor liability for pre-closing product liability claims. In In re Bowflex Inc., the court enforced the "free and clear" provisions of a Section 363 sale order, permanently enjoining a putative class action against asset-buyer Johnson Health Tech for economic damages related to products sold by the debtor before the sale. The decision reinforces a primary strategic benefit of acquiring assets through a bankruptcy proceeding. For sophisticated counsel, the case is a critical reminder that these protections are not automatic. The court’s analysis hinged on the sale order's explicit language barring legacy claims and the adequacy of notice provided to potential claimants. It notably found that over 300 prior generic consumer complaints did not render the future class members "known creditors" who would be entitled to actual notice, meaning notice by publication was sufficient. Acquirers of distressed assets and their lenders should ensure that sale orders and asset purchase agreements are meticulously drafted and that the notice process is robust enough to withstand future challenges.