Lewis Brothers Bakeries Inc. v. Interstate Brands Corp. (In Re Interstate Bakeries Corp.)
751 F.3d 955
8th Cir.2014Background
- IBC and LBB pursued declaratory relief in bankruptcy court to classify the License Agreement as executory under 11 U.S.C. § 365(a).
- The 1996 antitrust final judgment required divestiture of IBC’s bread labels and included a perpetual, royalty-free license with related assets (the “Bread Assets”).
- December 1996 agreements separated into an Asset Purchase Agreement and a License Agreement, with the license tied to the sale of Butternut and Sunbeam operations to LBB.
- The Asset Purchase Agreement and License Agreement treated as an integrated transaction, with the license asset listed and the overall consideration allocated between tangible assets and intangible assets (including the license).
- IBC, in bankruptcy since 2004, sought to assume the License Agreement; LBB sought a declaration that it is not executory; courts below held it is executory; the panel majority reversed, concluding the integrated agreement was not executory due to substantial performance by IBC.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the case is moot. | IBC argues mootness since it no longer owns the major trademarks. | LBB contends live controversy as rights persist for four remaining marks and relief affects valuation. | Not moot; live controversy remains despite some trademark transfers. |
| Whether the integrated Asset Purchase and License Agreement is a single contract for § 365 purposes. | IBC contends the License Agreement is separable and not integral to the sale. | LBB asserts the two agreements are interdependent and constitute one integrated contract. | Integrated agreement; must be analyzed together under Countryman framework. |
| Whether the integrated agreement is executory under § 365(a) due to substantial performance. | IBC performed substantially; remaining obligations are minor and not material breaches. | Ongoing license obligations (forbearance, quality, indemnification) create continuing duties that would be material breaches if not performed. | Not executory; IBC substantially performed and remaining obligations do not constitute a material breach. |
Key Cases Cited
- In re Craig, 144 F.3d 593 (8th Cir.1998) (defining executory contract under Countryman; substantial performance analysis)
- Cameron v. Pfaff Plumbing & Heating, Inc., 966 F.2d 414 (8th Cir.1992) (federal law governs executory contract question; substantial performance recognized)
- Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir.1985) (continuing obligations can render contract executory)
- Already, LLC v. Nike, Inc., 133 S. Ct. 721 (2013) (covenant not to sue not necessarily moot; relevance to recurrence of unlawful activity)
- In re Qintex Entm’t, Inc., 950 F.2d 1492 (9th Cir.1991) (ongoing indemnification/defense obligations can be material to executory status)
- In re Select-A-Seat Corp., 625 F.2d 290 (9th Cir.1980) (exclusive license obligations can create continuing duties impacting executory analysis)