997 F.3d 497
3d Cir.2021Background:
- The Weinstein Company (TWC) filed Chapter 11 in 2018 and arranged a § 363 sale of substantially all assets to Spyglass (Lantern Entertainment).
- Spyglass sought to acquire TWC’s producer contract with Bruce Cohen (the "Cohen Agreement"), a work-made-for-hire agreement tied to Silver Linings Playbook.
- The Agreement provided $250,000 fixed compensation plus contingent compensation (~5% of net profits); Cohen claimed about $400,000 pre-closing was unpaid.
- Central legal question: whether the Cohen Agreement was "executory" (requiring assumption/cure under § 365) or non-executory (transferable under § 363 without curing pre-closing defaults).
- New York law governed; lower courts (Bankruptcy and District Courts) held the Agreement non-executory because Cohen had no material ongoing obligations and the contract did not clearly override New York’s substantial performance rule.
- The Bankruptcy Court also found TWC owned the Cohen Agreement (chain-of-title supported by testimony) and could sell it to Spyglass.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Cohen Agreement an executory contract? | Cohen: Yes — parties still have mutual obligations and breach would excuse performance. | Spyglass/TWC: No — only TWC had material unperformed obligations (contingent payments); Cohen’s duties were largely completed. | Not executory; Cohen had no material obligations left, so contract is a non-executory liability of the estate. |
| Does the clause conditioning contingent pay on Cohen "not otherwise in breach or default" make all his obligations material? | Cohen: That clause shows parties treated any breach as excusing payment, so obligations are material. | Spyglass/TWC: Clause is buried, ambiguous, and functions as a condition precedent; it does not clearly contract around the substantial performance rule. | Clause not sufficiently clear and unambiguous to override New York substantial performance doctrine; therefore it does not render Cohen’s remaining duties material. |
| Should the Bankruptcy Court have permitted further discovery on substantial performance? | Cohen: Yes — substantial performance is usually a fact question and further factfinding was warranted. | Spyglass/TWC: Evidence is uncontradicted (film complete, years elapsed); court may decide as a matter of law. | No further discovery required; the court properly resolved substantial-performance issue as a matter of law on the record. |
| Did TWC own the Cohen Agreement and therefore have authority to sell it? | Cohen: Ownership/chain-of-title uncertain; sale might be improper. | Spyglass/TWC: Testimony (Irwin Reiter) showed dissolution of SPEs and transfer of rights to TWC. | Court found TWC owned the Agreement; sale authority established. |
Key Cases Cited:
- NLRB v. Bildisco & Bildisco, 465 U.S. 513 (Sup. Ct.) (discusses congressional intent for term "executory" as mutual unperformed obligations)
- In re Columbia Gas Sys. Inc., 50 F.3d 233 (3d Cir.) (adopts Countryman materiality test for executory contracts)
- In re Gen. DataComm Indus., Inc., 407 F.3d 616 (3d Cir.) (recognizes parties can contractually designate certain breaches as material)
- Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (Sup. Ct.) (context on debtor’s election to assume or reject executory contracts)
- In re Exide Techs., 607 F.3d 957 (3d Cir.) (addresses substantial performance and when courts may resolve materiality as a matter of law)