Section 363 Bankruptcy Order Bowflexes Its Strength for Distressed Buyers

Reprinted with permission from the November 5, 2026 issue of Delaware Business Court Insider© 2026 ALM Global Properties LLC, trading as Centellic. Further duplication without permission is prohibited contact 877-256-2472 or asset-and-logo-licensing@alm.com. All rights reserved.

The case underscores the importance of robust deal documentation, adequate notice procedures, and retained bankruptcy court jurisdiction in preserving the value of “free and clear” protections for distressed asset purchasers.

Commentary on the New Jersey Bankruptcy Court’s Bowflex decision—and the district court’s affirmance thereof—has focused on the deal documents: tight definitions of assumed liabilities, robust “free and clear” language, and a defensible notice record. But the case offers a broader lesson for distressed buyers. The litigation at issue was not triggered by a pre-bankruptcy defect disclosure, but rather by a voluntary product recall that the buyer announced more than a year after closing. Bowflex shows that even when a purchaser’s own post-closing conduct brings legacy issues back into view, a well-built sale order, backed by a defensible notice record and the bankruptcy court’s retained jurisdiction, can keep pre-closing liabilities with the estate. That durability is precisely what makes a Section 363 sale attractive to distressed buyers.

BowFlex Inc. and an affiliate filed for Chapter 11 in the District of New Jersey on March 4, 2024. Johnson Health Tech served as the stalking horse, prevailed at auction, and closed its purchase of substantially all of the debtors’ assets for $37.5 million on April 22, 2024. Under the asset purchase agreement, Johnson assumed only liabilities arising on and after closing. The sale order transferred the assets free and clear of claims, declared that no purchaser party was a successor, de facto merger partner, or mere continuation of the debtors, and barred liability against the buyer “based upon any theory of … products liability, whether known or unknown as of the closing.” It permanently enjoined claimants from asserting such claims against the buyer and reserved the bankruptcy court’s exclusive jurisdiction to enforce the order. A liquidating plan, confirmed in August 2024, added a plan injunction and a gatekeeper provision requiring court leave before suing the debtors or the liquidating trust.

On June 5, 2025—more than a year after closing on the debtors’ assets and nearly a year after the debtors emerged from Chapter 11—Johnson issued a recall of certain Bowflex adjustable dumbbells, a product line the debtors had sold since 2004. Four plaintiffs then filed putative class actions in three different jurisdictions, seeking to hold Johnson liable for dumbbells sold before closing, including on successor liability theories.

Rather than litigate motions to dismiss in three courts, Johnson and the debtors’ liquidating trust filed a joint motion in the bankruptcy court to enforce the sale order, plan, and confirmation order. Judge Andrew Altenburg granted the motion on Aug. 11, 2025.

The plaintiffs argued that they never received adequate notice of the sale or its free and clear provisions. Judge Altenburg disagreed. He found that the plaintiffs were “unknown creditors”: they were four of more than 1.8 million customers, the record contained no evidence that the debtors knew of their claims, and roughly 337 pre-petition product complaints, “without more,” did not establish a defect or claim of which the debtors should have known. Publication of the sale notice in well-known and far-reaching journals was sufficient. Alternatively, even if the plaintiffs were known creditors, court-approved email service on more than 1.8 million customers provided adequate notice; the lead plaintiff’s bare denial of receipt could not overcome the claims agent’s testimony that the notice was sent to her address and never bounced back. The court also held that the sale notice satisfied Bankruptcy Rule 2002(c)(1), which does not require disclosure of an alleged defect or a specific warning that defect claims would be extinguished. The court declared the plaintiffs’ suits void ab initio, ordered dismissal with prejudice, and enjoined further similar actions.

The plaintiffs appealed, and on July 30, 2026, following oral argument, the U.S. District Court for the District of New Jersey (Judge Christine O’Hearn) affirmed in full. The district court held, inter alia, that the bankruptcy court properly exercised jurisdiction; that the sale order plainly barred the claims against Johnson; and that notice was constitutionally sufficient.

Bowflex teaches an important lesson about the post-closing life of a distressed acquisition. First, it shows that a properly constructed sale order continues to protect the buyer against legacy claims even after the buyer’s own post-closing conduct draws attention to them. Here, the plaintiffs hoped the buyer’s recall would turn legacy exposure into the buyer’s problem. But the courts focused on when the products were sold and on the plain terms of the sale order, not on the buyer’s later recall. That matters: a buyer that takes a responsible post-closing step should not, on that basis alone, lose the free and clear protection it bargained for.

It also suggests that pre-petition complaint data is now a deal and diligence issue. The plaintiffs’ strongest argument here relied on Motors Liquidation, where GM’s documented knowledge of a certain defect made affected owners “known creditors” entitled to actual notice. But the Bowflex courts distinguished that decision. The record there included years of complaints, a federal safety investigation, news reports, and fatalities. The record in Bowflex showed only 337 pre-petition consumer complaints, with no evidence of what they said, whether they described the same defect, or who submitted them. A different record, though, such as engineering reports, regulatory inquiries, or a pattern of injury claims, could have produced a different result. Before a sale, debtors and buyers should evaluate the entire universe of possible claims, such as informal complaints, any available warranty data, and regulatory correspondence, with the same rigor the team would apply in litigation, and decide deliberately whether targeted actual notice is warranted. Doing so could lead to the difference between an enjoined claim and successor liability.

Lastly, Bowflex exhibits that enforcing bankruptcy court orders can be an effective procedural move. Indeed, the most efficient move here was consolidating the disputes before the bankruptcy court, under the jurisdiction-retention provision in the sale order entered more than a year earlier, instead of fighting class certification and the merits across multiple districts. The result was dismissal with prejudice and a forward-looking injunction covering “subsequent actions.”

The district court’s affirmance reinforces the strength of a free and clear sale under the Bankruptcy Code. Drafting sale orders that expressly bar products, successor, and vicarious liability claims, known or unknown, and that enjoin those claims and retain the bankruptcy court’s exclusive jurisdiction to enforce is key to ultimate protection. Pairing that sale order with a confirmed plan injunction and gatekeeper provision, which protect the debtors and any liquidating trust, and a strong notice record makes a free and clear sale even more attractive to distressed buyers. Buyers should also note what the case did not decide: the plaintiffs’ argument on appeal that undisclosed defect claims are not “interests” that can be stripped under Section 363(f) was deemed waived because they had conceded the point below, so that question remains open for a future challenger.

For acquirers of consumer-facing businesses, the decision is a reminder that the value of Section 363 “free and clear” order is realized not at closing, but years later, when claims surface and they are confirmed to be discharged by the bankruptcy court.