640 B.R. 758
Bankr. E.D. Wash.2022Background
- Astria Health (debtor) had a Cerner Business Agreement (CBA) for EHR services and a separate RevWorks Agreement for billing services; CBA contained a broad limitation-of-liability clause (Section 5.7).
- Astria filed Chapter 11 in May 2019; disputes with Cerner arose including alleged prepetition misrepresentations tied to both agreements.
- Debtors moved to assume the CBA and reject the RevWorks Agreement during the plan process; Cerner objected and sought administrative claims.
- The confirmed plan/order provided for assumption of the CBA but contained extensive "notwithstanding" reservations preserving all prepetition and postpetition claims (including avoidance actions) defined as "Vendor Claims."
- Astria later brought an adversary complaint asserting fraud, negligent misrepresentation, and avoidance claims; Cerner moved for partial summary judgment arguing assumption ratified the CBA and bars indirect/consequential damages under §5.7.
- The court denied summary judgment on that issue, holding assumption did not automatically bind Astria to the limitation clause given the reservations of rights and unresolved avoidance/fraud claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does assumption of the CBA bind Astria to the CBA's limitation-of-liability clause (§5.7) and preclude recovery of indirect/consequential damages? | Assumption does not bar Astria from pursuing state-law claims or avoidance actions that could void the CBA. | Assumption (cum onere) ratified the contract and waived rescission/attacks, so §5.7 caps/limits damages. | Court: No summary judgment for Cerner; assumption alone does not automatically enforce §5.7 when reservations and live avoidance/fraud claims exist. |
| Can assumption be treated as state-law ratification/waiver of right to rescind for fraud? | Astria reserved rights and did not unequivocally renounce rescission; conduct was equivocal. | Assumption effected ratification under state law, precluding rescission claims. | Court: Under Washington law ratification requires unequivocal intent; the record shows equivocation and express reservations, so ratification not proved. |
| Does the cum onere principle transform assumption into an absolute bar to nonbankruptcy defenses or invalidation of contractual terms? | Cum onere limits cherry-picking but does not supplant nonbankruptcy law that forms part of the contract. | Cum onere makes assumption a wholesale acceptance of all contract terms, including enforceability of limitation clauses. | Court: Cum onere prevents selective assumption/rejection but does not override generally applicable nonbankruptcy law or debtor's later avoidance/fraud claims. |
| Does assumption extinguish fraudulent-transfer avoidance claims or estop the debtor from pursuing them? | The confirmation order expressly preserved avoidance/Vendor Claims; assumption with that reservation does not preclude avoidance suits. | Assumption can, in some contexts, preclude avoidance claims (estoppel/law-of-the-case). | Court: Because of explicit plan/order reservations and unresolved factual issues, assumption did not as a matter of law extinguish avoidance claims; summary judgment denied. |
Key Cases Cited
- Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (U.S. 2019) (explains executory-contract assumption/rejection framework)
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (U.S. 1984) (discusses debtor's power to assume or reject contracts in reorganization)
- Wickre v. Allen, 58 Wash. 2d 770 (Wash. 1961) (Washington requires unequivocal intent to ratify and forfeit rescission rights)
- Am. Safety Cas. Ins. Co. v. City of Olympia, 162 Wash. 2d 762 (Wash. 2007) (implied waiver requires unequivocal acts; equivocal conduct preserves rights)
- United States v. Sims (In re Feiler), 218 F.3d 948 (9th Cir. 2000) (avoided transfers are nullities; avoidance retroactively undoes transactions)
- Durkin v. Benedor Corp. (In re G.I. Indus.), 204 F.3d 1276 (9th Cir. 2000) (motions to assume/reject are summary proceedings; underlying disputes reserved for plenary litigation)