Schwinn Cycling & Fitness v. Benonis

Schwinn Cycling & Fitness, Inc. (Schwinn) (debtor) manufactured bicycles and fitness equipment. Schwinn filed for bankruptcy. Schwinn Bicycle Limited Partnership (New Schwinn) agreed to purchase most of Schwinn’s assets. As partial consideration for the purchase, New Schwinn agreed to assume some of Schwinn’s liabilities. The liabilities New Schwinn assumed did not include product-liability claims arising from Schwinn’s conduct prior to the sale. The sale order stated that New Schwinn was not a successor in interest to Schwinn. The sale order was approved by the bankruptcy court. After the sale, the court confirmed a liquidation plan that included provisions for potential claims. The plan also included an injunction barring claims against Schwinn’s successors in interest, except as provided by the plan. A few years after the plan confirmation, Daniel Benonis, a minor, injured himself on a Schwinn exercise bicycle. Daniel’s parents filed suit in state court against Schwinn and New Schwinn, seeking to impose successor liability on New Schwinn. Benonis had no notice of Schwinn’s bankruptcy prior to the claim, and nothing in the bankruptcy plan addressed the issue of notice for potential future claimants. New Schwinn filed an adversary proceeding in bankruptcy court to enjoin Benonis from asserting successor liability against New Schwinn, citing the sale order. The bankruptcy court dismissed the adversary proceeding, and New Schwinn appealed.