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In re Provider Meds, LLC

United States District Court, N.D. Texas, Dallas Division

August 31, 2017

IN RE PROVIDER MEDS, LLC, Debtor.
v.
RPD HOLDINGS, LLC, Defendant-Appellant. TECH PHARMACY SERVICES, INC., Plaintiff-Appellee, Adversary No. 15-03101-BJH

         APPEAL FROM THE UNITED STATES BANKRUPTCY COURT Bankr. Ct. No. 13-30678-BJH FOR THE NORTHERN DISTRICT OF TEXAS

          ORDER

          SIDNEY A. FITZWATERUNITED STATES DISTRICT JUDGE

         In this appeal from a final judgment in an adversary proceeding, the court must decide whether the bankruptcy court erred in concluding that a patent license was an executory contract that was deemed rejected under 11 U.S.C. § 365(d)(1), and that bankruptcy trustees could not therefore have assigned, sold, or otherwise transferred as a part of an asset purchase/settlement agreement. Concluding that the bankruptcy court did not err, its judgment is AFFIRMED.

         I

         Plaintiff-appellee Tech Pharmacy Services, LLC (“Tech Pharm”) holds United States Patent No. 7, 698, 019 (the “Patent”).[1] On April 26, 2012 Tech Pharm entered into a Compromise, Settlement, Release and License Agreement (“License”) with Provider Meds, LP, ProvideRx of Waco, LLC (“Waco”), ProvideRx of Grapevine, LLC (“Grapevine”), ProvideRx of San Antonio, LLC, W PA OnSiteRx, LLC (“W. Pa.”) (collectively, “Debtors”), and various other individuals and entities (collectively, “Licensees”) that resolved patent litigation involving Tech Pharm and the Licensees and granted the Licensees a perpetual license to use Tech Pharm's Patent. In this adversary proceeding between Tech Pharm and defendant-appellant RPD Holdings, LLC (“RPD”), the sole issue to be decided is “whether RPD took assignment of, or otherwise acquired any rights in, the [License].” R. 23.

         Although the bankruptcy court made extensive findings and conclusions that dealt with other issues in this case, its judgment can be affirmed on a narrower basis, without addressing all of the issues the bankruptcy court reached. The bankruptcy court concluded, in pertinent part, that the License is an executory contract that cannot be sold in accordance with 11 U.S.C. § 363(b), but must instead be assumed and assigned in accordance with 11 U.S.C. § 365(a) and (f); that because no trustee assumed and assigned the License within 60 days from the order for relief or sought to extend the time period for doing so, the License was deemed rejected in each Debtor's bankruptcy case; and that because the License was deemed rejected before any of the pertinent sale motions was filed, “as it pertains to the License, there was nothing for the applicable trustee to attempt to assign, sell or otherwise transfer, ” and “[t]hus, RPD obtained no rights in the License pursuant to any of the [bankruptcy] [c]ourt's sale orders.” Id. at 38. If the bankruptcy did not err in these conclusions, its final judgment must be affirmed.

         II

         “The court reviews the bankruptcy court's conclusions of law de novo[.]” In re Nary, 253 B.R. 752, 756 (N.D. Tex. 2000) (Fitzwater, J.) (quoting In re ICH Corp., 230 B.R. 88, 91 n.10 (N.D. Tex. 1999) (Fitzwater, J.)). For the reasons explained, the court holds that the bankruptcy court did not err in concluding that the License was an executory contract; that, notwithstanding the Debtors' failure to schedule the License, it was “deemed rejected” under 11 U.S.C. § 365(d)(1); and that because the License was “deemed rejected, ” the Debtors' bankruptcy trustees could not have later assigned, sold, or otherwise transferred it.

         A

         Section 365 of the Bankruptcy Code provides for the assumption and assignment by the bankruptcy trustee of any executory contract of the debtor. See 11 U.S.C. § 365(a), (f). Courts have repeatedly held, and the parties in this appeal do not dispute, that “section 365 is the exclusive means of effectuating assumption and assignment of executory contracts in bankruptcy.” In re MPF Holding U.S. LLC, 2013 WL 3197658, at *10 (Bankr.S.D.Tex. June 21, 2013) (emphasis added).

         The Bankruptcy Code does not define the term “executory contract.” Under the “Countryman” definition, which the Fifth Circuit has adopted, “an agreement is executory [for purposes of § 365] if at the time of the bankruptcy filing, the failure of either party to complete performance would constitute a material breach of the contract, thereby excusing the performance of the other party.” In re Murexco Petroleum, Inc., 15 F.3d 60, 62-63 (5th Cir. 1994) (per curiam). In other words, an executory contract is “a contract ‘on which performance remains due to some extent on both sides.'” In re DeVries, 2014 WL 4294540, at *8 (Bankr. N.D. Tex. Aug. 27, 2014) (D.M. Lynn, J.) (proposed findings of fact and conclusions of law) (quoting In re Robert L. Helms Constr. & Dev. Co., 139 F.3d 702, 705 (9th Cir. 1998)).

         The bankruptcy court did not err in concluding that, under the License, Tech Pharm owed a material obligation to the Licensees to forbear from suing them for infringement of the Patent related to machines placed into service after execution of the License; that the Licensees also owed material obligations to Tech Pharm; and that the License was therefore an executory contract governed by 11 U.S.C. § 365.

         B

         It is undisputed that no trustee in any of the Debtors' bankruptcy cases assumed and assigned the License within 60 days of the order for relief (here, the date the bankruptcies were converted from Chapter 11 to Chapter 7), or moved to extend the deadline by which the trustee would have been obligated to assume the License. Accordingly, under 11 U.S.C. ...


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