License Assumed While Related Agreements Rejected

Reno F.R. Fernandez III

In In re Physiotherapy Holdings, Inc., 506 B.R. 619 (Bankr. D. Del. 2014), the bankruptcy court permitted the debtor to assume a license agreement but reject other related agreements.

In Physiotherapy Holdings, the debtor licensed software under several agreements.  Pursuant to Bankruptcy Code Section 365(a), the debtor moved to assume the software license and reject the other agreements, including the master agreement under which the debtor is to indemnify the licensor for post-confirmation litigation.

The licensor opposed and argued that the agreements together formed an integrated contract and must be assumed together.

On the contrary, the court ruled that the agreements were not a single contract because:  (1) the agreements were executed at different times; (2) they provided the license agreement controlled in the event of conflicting language;, and (3) the integration clause only dealt with parol evidence and did not render the license agreement a component of the master agreement.  Moreover, the court held that the license agreement contained a more limited indemnity clause than the master agreement, which would have been unnecessary if the agreements were one.

On the basis of these differences, the court ruled that the agreements were independent.

About the author:

Reno-fernandezReno F.R. Fernandez III is a partner with Macdonald Fernandez LLP, a bankruptcy, turnaround and insolvency litigation firm with offices in San Francisco and Modesto, California.  Mr. Fernandez is also the chair of BASF’s Commercial Law & Bankruptcy Section. Follow him on Twitter at @CalBKAttorneys