## Facts

- Trans World Airlines, Inc. (TWA) operated an airline business and later filed for Chapter 11 bankruptcy in the District of Delaware.
- In the 1970s, TWA’s maternity-leave policy for flight attendants required immediate leave upon pregnancy, leading to Title VII sex-discrimination litigation brought by the EEOC and a class of female flight attendants.
- The discrimination actions were resolved by a court-approved settlement creating a Travel Voucher Program requiring TWA to provide ten travel vouchers per covered pregnancy to eligible class members who timely filed claims.
- While in bankruptcy, TWA sought to sell substantially all assets to American Airlines, Inc. (American).
- TWA faced (1) obligations under the Travel Voucher Program and (2) pending EEOC discrimination charges and related employment-discrimination claims.
- American sought a sale order under 11 U.S.C. § 363(f) authorizing a sale “free and clear” of claims that could otherwise be asserted against American under successor-liability doctrines.

## Issues

1. Whether the Travel Voucher Program obligations and employment-discrimination claims constituted an “interest in such property” under 11 U.S.C. § 363(f).
2. Whether a § 363(f) “free and clear” sale may extinguish successor liability that would otherwise attach to the purchaser for the debtor’s employment-discrimination liabilities.
3. Whether the affected claimants must be limited to asserting unsecured claims against the debtor’s estate rather than pursuing the purchaser as a successor.

## Decision

- The Third Circuit affirmed the district court, which had affirmed the bankruptcy court’s sale order.
- The court held that the employment-discrimination claims and Travel Voucher Program obligations were “interests in property” under § 363(f) because they were connected to, or arose from, the assets sold.
- The court concluded that § 363(f) authorized approval of the sale “free and clear” of those interests, thereby cutting off successor liability against American.
- The claimants’ remedy was to pursue their rights through the bankruptcy claims process as unsecured creditors of TWA’s estate.

## Legal Principles

- “Interest in such property” under 11 U.S.C. § 363(f) may extend beyond traditional in rem interests (e.g., liens) to certain claims and obligations sufficiently connected to the assets being sold.
- A bankruptcy court may approve a § 363(f) sale that transfers assets free and clear of interests that could otherwise support successor-liability claims against the purchaser.
- Extinguishing successor liability in a free-and-clear sale is consistent with bankruptcy objectives of facilitating asset sales and maximizing estate value, so long as claimants have recourse through the claims-allowance process.
- Settlement-based obligations tied to the debtor’s business operations (such as travel-voucher commitments) may be treated as unsecured claims in bankruptcy rather than obligations that follow sold assets to a purchaser.

## Conclusion

The Third Circuit held that § 363(f) permitted TWA’s assets to be sold to American free and clear of successor liability for both pending employment-discrimination claims and the Travel Voucher Program obligations, leaving affected parties to seek recovery as unsecured creditors in TWA’s bankruptcy case.


In re Trans World Airlines, Inc., 322 F.3d 283 (3d Cir. 2003)