Third Circuit concludes personal injury causes of action against a successor to debtor’s business are generalised claims
By Richard L Epling and Dina E Yavich
In a novel decision, the US Court of Appeals for the Third Circuit held, in its ruling In re Emoral, Inc, 740 F.3d 875 (3d Cir. 2014), that personal injury claims of individuals allegedly harmed by a bankrupt debtor’s products cannot be asserted against a pre-petition purchaser of the debtor’s assets, as they are ‘generalised claims’ that belong to the debtor’s bankruptcy estate rather than to the individuals who suffered the harm.
In August 2010, Aaroma Holdings acquired certain assets and liabilities of Emoral, which until 2006 had manufactured diacetyl, a chemical used in the food flavouring industry. Because of potential claims against Emoral arising from diacetyl exposure, the asset purchase agreement specifically provided that Aaroma was not assuming any of Emoral’s liabilities for personal injury claims based on exposure to diacetyl.
After Emoral filed for chapter 7 bankruptcy protection in the US Bankruptcy Court for the District of New Jersey in June 2011, its bankruptcy trustee challenged the validity of the sale to Aaroma as a fraudulent transfer. The trustee and Aaroma thereafter entered into a settlement agreement pursuant to which Aaroma agreed to pay $500,000 (£296,000) to the bankruptcy estate in exchange for a release from any ‘causes of action… that are property of [Emoral’s] estate’…
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