## Facts

- Automation Solutions International, LLC, as debtor-in-possession in a Chapter 11 case, obtained approval to sell its operating business to Danaher Corporation under 11 U.S.C. § 363.
- The approved sale was “free and clear” of five liens and included assumption and assignment of six equipment leases.
- After sale approval, Danaher submitted a detailed proposed sale order for entry.
- The proposed order included provisions purporting to resolve or bar prospective disputes and “improper” future claims against Danaher, including claims of entities not before the court and not served with process.
- The proposed order also sought to exempt the transaction from taxation under 11 U.S.C. § 1146(c) (now § 1146(a)), without targeted notice to the relevant taxing authority.
- The court addressed the permissible scope and form of the implementing sale order, not the validity of the already-approved sale terms.

## Issues

1. Whether a § 363 sale order may include provisions adjudicating or barring prospective claims affecting nonparties who were not given notice and an opportunity to be heard.
2. Whether including broad injunctive or declaratory relief in a sale order, without service and adversary-proceeding procedures, satisfies due process and the Bankruptcy Rules.
3. Whether a pre-confirmation § 363 sale order may grant a tax exemption under § 1146(c), especially absent specific notice to taxing authorities.

## Decision

- The court refused to enter Danaher’s proposed order as drafted.
- The court held that sale-order language attempting to determine or bar prospective disputes and claims of non-served entities was improper.
- The court rejected the proposed § 1146(c) tax-exemption provision in this context and on these procedures.
- The court required substantial narrowing of the proposed order before entry, while leaving the approved “free and clear” sale and the specified lease assumptions/assignments intact.

## Legal Principles

- A § 363 sale order cannot function as a substitute for an adversary proceeding to obtain broad declaratory or injunctive relief affecting rights of persons who were not properly noticed and served.
- Due process requires notice reasonably calculated to inform affected parties and provide an opportunity to object before their rights are adjudicated or impaired.
- “Free and clear” authority under § 363(f) and assumption/assignment authority under § 365 do not authorize forward-looking releases or adjudications untethered to properly presented, noticed disputes.
- Section 1146(c) tax relief is limited to qualifying transfers “under a plan confirmed” under Chapter 11 and cannot be expanded through sale-order language, particularly without specific notice to governmental taxing units.

## Conclusion

The court policed the boundaries of § 363 sale orders by refusing to enter an overbroad proposed order that would have bound nonparties and granted pre-confirmation tax relief without proper notice and procedure, permitting only an order consistent with the relief noticed and authorized by the Bankruptcy Code and Rules.


In re Automation Solutions Int’l, LLC, 274 B.R. 527 (Bankr. N.D. Cal. 2002)