In re Crumbs Bake Shop, Inc.
522 B.R. 766
Bankr. D.N.J.2014Background
- Debtors Crumbs Bake Shop, Inc. and affiliates entered Chapter 11 with LFAC seeking sale of assets under a July 2014 Asset Purchase Agreement.
- LFAC’s sale sought to convey substantially all assets free and clear of liens, claims, encumbrances, and interests to LFAC.
- License Agreements with third-party licensees (Coastal Foods, Pelican Bay, White Coffee, Uncle Harry’s, Mystic Apparel, POP! Gourmet) were at issue due to post-sale treatment of trademark licenses.
- Debtors sought to reject licenses but Licensees argued § 365(n) protected their rights to use licensed IP after rejection.
- The court approved the sale (Sale Order) on August 27, 2014, and later excluded Licensees from rejection, prompting a dispute regarding § 365(n) rights.
- The APA and Seller Disclosure Schedule created a complex definitional framework for what was sold and what rights Licensees retained or lost.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether trademark licenses fall under § 365(n). | LFAC: § 365(n) not applicable to trademarks since defined IP omits trademarks. | Licensees: § 365(n) protects trademark licenses upon rejection. | Trademark licenses are protected by § 365(n). |
| Whether the § 363 sale trumps or extinguishes Licensees' § 365(n) rights without consent. | LFAC: sale clears Licensees' rights. | Licensees did not consent; rights survive sale. | Sale under § 363(f) does not extinguish § 365(n) rights absent consent. |
| Who is entitled to post-closing royalties for continued use of licensed IP. | LFAC would receive royalties as purchaser of IP. | Debtors retain license contracts and royalties for continued use unless assigned. | Royalties after closing belong to Debtors for licenses not assumed or assigned to LFAC. |
Key Cases Cited
- Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985) (rejection of IP licenses can occur without extinguishing all license rights in equity)
- In re Exide Technologies, 607 F.3d 957 (3d Cir. 2010) (court confirms § 365(n) protects IP licensees; Lubrizol criticized)
- Sunbeam Products, Inc. v. Chicago American Mfg., LLC, 686 F.3d 372 (7th Cir. 2012) (rejection does not terminate licensee’s right to use IP; § 365(g) damages concept)
- In re Churchill Properties III, Ltd. P’ship, 197 B.R. 283 (Bankr.N.D. Ill. 1996) (specific rights in § 365(h) protect lessees; general § 363(f) cannot override)
- In re CellNet Data Sys., Inc., 327 F.3d 242 (3d Cir. 2003) (royalties flow to primary contract source when IP is sold but licenses excluded)
- In re Lower Bucks Hosp., 571 Fed.Appx. 139 (3d Cir. 2014) (adequate disclosure required for third-party releases; disclosure failures void)
- Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537 (7th Cir. 2003) (seeks to illustrate limits of § 363(f) overruling specific rights under § 365)