## Facts

- Schwinn Bicycle Company and affiliates filed Chapter 11 petitions in the Northern District of Illinois in 1992.
- The bankruptcy court approved a 1993 sale of substantially all assets under a sale order and asset purchase agreement.
- The purchaser (later “New Schwinn”) did not assume product-liability claims based on the debtors’ pre-sale conduct, and the sale order stated the purchaser was not a successor in interest to the debtors.
- A liquidating Chapter 11 plan was later confirmed, with an injunction limiting actions against successors in interest as provided by the plan.
- The plan did not provide a specific mechanism for future, unknown product-injury claimants who had no notice of the bankruptcy.
- In 1995, Daniel Benonis was injured using an exercise bicycle purchased in 1979.
- The Benonis family sued in Pennsylvania state court, asserting product-liability claims and successor-liability theories against New Schwinn.
- The Benonis plaintiffs were not scheduled creditors, received no notice of the bankruptcy or sale, and their injury occurred post-confirmation.
- New Schwinn filed an adversary proceeding seeking to enjoin the Pennsylvania action to the extent it alleged successor liability.
- The bankruptcy court dismissed the amended complaint for failure to state a claim, found further amendment futile, and expressed doubt about post-confirmation “related to” jurisdiction.
- New Schwinn appealed to the district court under 28 U.S.C. § 158(a)(1).

## Issues

1. Whether New Schwinn stated a claim for injunctive relief to enforce the sale order, plan, or confirmation order against the Benonis successor-liability suit.
2. Whether bankruptcy sale and confirmation orders can bar or enjoin claims by non-parties who had no notice and whose tort claims arose post-confirmation.
3. Whether the bankruptcy court had post-confirmation “related to” jurisdiction under 28 U.S.C. § 1334(b) over a dispute between non-debtors that would not materially affect the estate.
4. Whether dismissal with prejudice was proper because amendment would be futile.

## Decision

- The district court affirmed the dismissal of New Schwinn’s adversary proceeding.
- The court held the complaint failed to state a cognizable basis for an injunction against the Pennsylvania litigation.
- The court agreed that the sale order and confirmation-related injunction could not be applied to extinguish or enjoin claims of unknown, no-notice tort claimants whose injuries occurred after confirmation.
- The court agreed that the bankruptcy court lacked, or almost certainly lacked, post-confirmation “related to” jurisdiction over the non-debtor dispute.
- The court upheld the determination that further amendment would be futile.

## Legal Principles

- Bankruptcy sale and confirmation orders generally operate among the debtor, the estate, and parties in interest; they do not, without notice and an opportunity to be heard, cut off the substantive rights of non-parties whose claims arise post-confirmation.
- A purchaser’s non-assumption of liabilities and “not a successor” language in a sale order may allocate risk between the estate and purchaser, but does not automatically preclude state-law successor-liability claims asserted by later-injured persons who were not participants in the bankruptcy.
- Post-confirmation bankruptcy jurisdiction narrows; disputes solely between non-debtors typically fall outside 28 U.S.C. § 1334(b) absent a close nexus to plan implementation or a direct, substantial effect on the estate.
- An adversary complaint that primarily seeks an injunction to litigate defenses to a state-court tort action, without jurisdiction and without power to bind absent parties, fails to state a claim; dismissal with prejudice is proper where amendment cannot cure these defects.

## Conclusion

The court affirmed dismissal of the purchaser’s effort to use bankruptcy sale and confirmation orders to halt a post-confirmation successor-liability tort suit by plaintiffs who lacked notice and were injured years later, and it emphasized that post-confirmation bankruptcy jurisdiction does not ordinarily extend to such non-debtor disputes.


Schwinn Cycling & Fitness, Inc. v. Benonis, 217 B.R. 790 (N.D. Ill. 1997)