First Marblehead Corporation et al v. The Education Resources Institute, et al

Filing 17

Judge Douglas P. Woodlock: MEMORANDUM AND ORDER entered affirming Bankruptcy Court Order of December 14, 2010. (Woodlock, Douglas)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
FIRST MARBLEHEAD CORPORATION,
FIRST MARBLEHEAD EDUCATION
RESOURCES, INC., and FIRST
MARBLEHEAD DATA SERVICES,
INC.,
Appellants,
v.
THE EDUCATION RESOURCES
INSTITUTE, INC.,
Appellee.

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Civil Action NO.
11-10241-DPW

MEMORANDUM AND ORDER
December 8, 2011
First Marblehead Corporation, First Marblehead Education
Resources, Inc., and First Marblehead Data Services, Inc.
(collectively “FMC”) appeal a Bankruptcy Court order interpreting
an agreement between FMC and The Education Resources Institute,
Inc. (“TERI”).

FMC argues that the Bankruptcy Court did not have

subject matter jurisdiction to decide the meaning and effect of
the agreement, and that even if it did, its interpretation was
erroneous.

Concluding that the Bankruptcy Court properly

retained jurisdiction over the dispute and that its resolution on
the merits was appropriate, I affirm.
I.
A.

BACKGROUND

Factual Background
TERI is a nonprofit organization that promotes access to

education.

Since its inception in 1985, TERI has been in the

business of processing and guaranteeing education loans
originated by private lenders.

In 2001, TERI entered into a

series of transactions with FMC.

FMC offers “outsourcing

services to national and regional financial institutions and
educational institutions in the United States for designing and
implementing private education loan programs.”
Pursuant to the agreements between the parties, TERI paid
FMC a fee to undertake risk management, administrative, and
support functions for TERI, and to provide origination services
and securitization of loans guaranteed by TERI.

The agreements

between TERI and FMC included the Master Servicing Agreement, the
Master Loan Guaranty Agreement, the Marketing Services Agreement,
and the Database Sale and Supplemental Agreement (the “Database
Agreement”).
Under the Database Agreement, the only agreement at issue in
this appeal, TERI agreed to transfer a database of information it
had collected regarding loans and default rates to FMC and to
support FMC’s maintenance of the database.

Database Agreement,

art. III, June 20, 2001, Record 95, Ex. 2.

In exchange, FMC

agreed to tender up-front and monthly payments.

Id. art. IV.

The transferred information - the “Delivered Database” - is a
subset of the “Loan Database,” which is defined in the agreement
as consisting “of any and all data now or hereafter obtained,
generated, recorded, or otherwise received by TERI in connection

2

with its business as a loan guarantor . . . .”

Id. art. 1, §§

3.01, 3.02.
The Database Agreement placed restrictions on FMC’s use of
the Delivered Database and TERI’s use of both the Delivered
Database and the Loan Database.

Id. §§ 2.02, 2.03.

Under §

2.03, TERI agreed that
during the term of this Agreement it will use the Loan
Database, and/or its retained copy of the Delivered
Database only for the Retained Uses. Specifically, but
not by way of limitation, TERI will not sell, license
or transfer, the Loan Database or any substantial
portion thereof to any person nor will it disclose the
same except in furtherance of the Retained Uses.
The “Retained Uses” are defined as “the right retained by TERI to
utilize the original version of the Loan Database . . . for its
own use for purposes of designing, underwriting, implementing,
evaluating and managing education loan guarantee programs.”
art. I.

Id.

These provisions essentially allowed TERI to use the

Loan Database in furtherance of its own loan guarantee activities
but prohibited it from selling or licensing it to third parties.
Under § 10.01 of the Database Agreement, the restrictions in
§§ 2.02 and 2.03, as well as § 2.01 and Articles VIII, IX and X,
which are defined as the “Surviving Obligations,” “survive
termination of [the Database] Agreement for a period of two years
after the termination date.”

Id. art. I, § 10.01.

The Database

Agreement was to last up to ten years, terminating June 20, 2011.
Id. § 5.02.

3

After entering into the agreements with FMC, TERI continued
to guarantee and securitize student loans and earn fees for those
activities.

However, by the spring of 2008, the financial crisis

had dried up the market for securities backed by student loans,
and TERI’s revenue dropped significantly.

On March 26, 2008,

TERI’s issuer rating was downgraded, causing a lender to demand
the segregation of reserves to its loans guaranteed by TERI.
¶ 17.

Id.

TERI could not meet the reserve requirement without

jeopardizing its ability to meet other obligations and decided to
file a Chapter 11 petition on April 7, 2008.
B.

Bankruptcy Proceedings and Transition Services Agreement
Two months after initiating the bankruptcy proceeding, TERI

requested an order from the Bankruptcy Court authorizing it to
reject the agreements with FMC and enter into a Transition
Services Agreement (“TSA”).

In its motion, TERI explained that

it could no longer operate under the fee structure of its various
agreements for outsourcing services to FMC.

In order to allow

TERI to transition away from reliance on FMC, the parties
negotiated the TSA, pursuant to which FMC would supply certain
essential services at a reduced cost for up to four months.
On June 23, 2008, the Bankruptcy Court issued an order (the
“June 2008 Order”) granting the motion.

The June 2008 Order

provided:
ORDERED, that the Debtor the FMC Contracts [sic] are
rejected effective of May 31, 2008; and it is further

4

ORDERED, that each of the FMC Entities may treat each
of the FMC Contracts as terminated as of May 31, 2008,
and it is further
ORDERED, that the Debtor is authorized to enter into
the Transition Services Agreement, as amended, between
the Debtor and the FMC Entities, which Transition
Services Agreement will govern the relationship of the
Parties from June 1, 2008 forward, and its further
. . .
ORDERED, that this Court will retain jurisdiction to
construe and enforce the terms of this Order.
Id.
In addition to providing for FMC’s provision of certain
transitional services, the TSA required that FMC transfer to TERI
“the data comprising the Loan Database (as defined in the Loan
Database),” Transition Services Agreement, § 2.1, which was still
owned by TERI, but was being maintained by FMC.
The TSA authorized FMC to continue to possess and use the
Delivered Database it had received pursuant to the Database
Agreement and maintained the restrictions on FMC and TERI’s use
of data as follows:
Notwithstanding the rejection or other termination of
the Database Agreement, (I) FMER [an FMC entity First
Marblehead Education Resources, Inc.] shall continue to
possess all right, title and interest in and to the
Delivered Database (as defined in the Database
Agreement), including the right to use and possess the
Delivered Database and the right to share the data with
FMC, to disclose the data to others, to copy and
manipulate the data and generally to exercise ownership
of the Delivered Database and all modifications and
enhancements thereof and (ii) the Loan Database
transferred from FMER to TERI pursuant to Section 2.1
of this Agreement shall remain subject to sections 2.01
(Grant), 2.02 (FMER Restrictions) and 2.03 (TERI
Restrictions) of such Database Agreement and any and
5

all additional terms of the Database Agreement that
pursuant to section 10.01 of the Database Agreement
survive termination of such agreement and remain in
full force and effect.
Id. § 2.1.

Section 3.13 provides that Article II, which includes

§ 2.1, “shall survive termination of this Agreement.”
Over two years later, on October 29, 2010, the Bankruptcy
Court approved a Reorganization Plan for TERI to emerge from
bankruptcy proceedings and continue operations.
C.

The Database Dispute
On October 7, 2010, prior to approval of the Reorganization

Plan, FMC, TERI, and the Official Committee of Unsecured
Creditors entered into a joint motion for approval of a
stipulation resolving FMC’s claims against TERI.

The motion

noted that a “Database Dispute” between FMC and TERI remained
unresolved.

In an October 18, 2010 hearing regarding the

stipulation and other matters before the Bankruptcy Court, TERI
referenced the Database Dispute and TERI’s intention to file a
motion for the resolution of the issue.
In summary, the Database Dispute concerns whether the TSA
imposes a permanent restriction on TERI’s use of the Loan
Database, rather than the two-year restriction described in the
Database Agreement.

FMC argues that §§ 2.1 and 3.13 of the TSA

permanently limit TERI’s use of the database to the “Retained
Uses” described in the Database Agreement at § 2.03.

TERI

disputes this interpretation, arguing that the TSA did not

6

permanently restrict its use of the Loan Database but rather
confirmed the two-year post-termination survival of § 2.03 found
in § 10.01 of the Database Agreement.
On November 2, 2010, TERI filed a “Motion for Interpretation
of Order” requesting that the Bankruptcy Court interpret its June
2008 Order approving the TSA, in order “to preclude the First
Marblehead Entities from asserting that restrictions on TERI’s
use of Data and TERI’s obligations to indemnify the First
Marblehead Entities have not expired and that the Court otherwise
enforce the Contracts Order.”

FMC objected to the motion,

disputing TERI’s interpretation and arguing that the Bankruptcy
Court lacked subject matter jurisdiction because it had already
issued its confirmation order for the reorganization plan.
On December 14, 2010, the Bankruptcy Court issued a
Memorandum of Law addressing TERI’s motion.

As to jurisdiction,

it found that it had subject matter jurisdiction over the motion
because it retained jurisdiction over the interpretation of the
TSA through its June 2008 Order.

As to the merits, it concluded

that, under the plain reading of the TSA, § 2.1 incorporates the
Database Agreement’s two-year survival of the use restrictions
and did not make such restrictions permanent.
II.

STANDARD OF REVIEW

Appellate review of conclusions of law by a bankruptcy Court
are de novo.

See Stornawaye Fin. Corp. v. Hill (In re Hill), 562

F.3d 29, 32 (1st Cir. 2009) (noting that the Bankruptcy appellate
7

panel, the district court, and the court of appeals all review a
bankruptcy court’s conclusions of law de novo).

Both of the

issues on appeal – the presence of subject matter jurisdiction
and the interpretation of the TSA to the degree it is unambiguous
– involve conclusions of law.

Bankruptcy courts, however, are

entitled to substantial deference in the interpretation of their
own arguably ambiguous orders.

See Travelers Indemnity Co. v.

Bailey, 129 S.Ct. 2195, 2204 n.4 (2009).
III.
A.

ANALYSIS

Subject Matter Jurisdiction1
By statute, district courts2 have “original and exclusive

jurisdiction of all cases under title 11” and “original but not
exclusive jurisdiction of all civil proceedings arising under
title 11, or arising in or related to cases under title 11.”
U.S.C. § 1334(a)-(b).

28

“A case under title 11,” subject to the

exclusive jurisdiction of the district courts “is the bankruptcy
petition itself, such as a Chapter 11 reorganization.”

New

1

The Supreme Court has recently decided a sequence of
cases addressing the subject matter jurisdiction of bankruptcy
courts. See Stern v. Marshall, 131 S. Ct. 2594, 2620 (2011);
(holding that bankruptcy courts lack “the constitutional
authority to render a final judgment on a state law counterclaim
that is not resolved in the process of ruling on a creditor’s
proof of claim”); Marshall v. Marshall, 597 U.S. 293 (2006).
Although instructive, none of the recent decisions are on point
for the issues in this case.
2

District courts may refer bankruptcy proceedings to
bankruptcy judges under 28 U.S.C. § 157, as the District of
Massachusetts has by general reference. D. Mass. Local R. 201.
8

England Power & Marine, Inc. v. Town of Tyngsborough (In re
Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61, 66 (1st Cir.
2002).

“Arising under” proceedings are “those cases in which the

cause of action is created by title 11,” while “‘arising in’
proceedings generally are ‘those that are not based on any right
expressly created by title 11, but nevertheless would have no
existence outside of the bankruptcy;” Id. at 68 (quoting Wood v.
Wood (In re Wood), 825 F.2d 90, 96 (5th Cir. 1987)).

The First

Circuit has defined the last category of cases over which 28
U.S.C. § 1334(c) grants jurisdiction - “related to” proceedings as those “which ‘potentially have some effect on the bankruptcy
estate, such as altering debtor’s rights, liabilities, options,
or freedom of action, or otherwise have an impact on the handling
and administration of the bankrupt estate.’”

Id. (quoting In re

G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir. 1991) (internal
quotation omitted)).
Rather than rely on the grant of jurisdiction in 28 U.S.C. §
1334, the Bankruptcy Court and TERI both primarily contend that
the June 2008 Order, which states that the Bankruptcy Court “will
retain jurisdiction to construe and enforce the terms of this
Order,” is sufficient to confer subject matter jurisdiction over
TERI’s motion requesting an interpretation of the TSA.3

3

The Bankruptcy Court distinguished the instant case from
those where no “related to” jurisdiction was found, implying that
“related to” jurisdiction is present here as well. The
Bankruptcy Court found it “unnecessary to wade into the murky
9

The resolution of the question whether the Bankruptcy Court
retained jurisdiction over the interpretation of the TSA requires
the application of two principles – first, that a court’s
interpretation of its own order is afforded deference by a
reviewing court, and second, that in order to retain jurisdiction
over an agreement, a court’s order must either incorporate the
terms of the agreement or include a provision retaining
jurisdiction over the approved agreement.

I find that the

Bankruptcy Court had subject matter jurisdiction over TERI’s
motion because both principles are applicable here.
1.

The Bankruptcy Court’s Interpretation of its Order
The Supreme Court indicated in Travelers that bankruptcy

waters of post-confirmation jurisdiction jurisprudence” since it
had reserved jurisdiction in the June 2008 Order. Because I too
find that the Bankruptcy Court’s June 2008 Order retained
jurisdiction over the interpretation of the TSA, I will not
comprehensively analyze the existence of “related to”
jurisdiction. However, I must note my reservation that it is
unlikely that “related to” jurisdiction exists here because it
does not appear that the interpretation of the TSA would have an
impact on the administration of the bankrupt estate. The dispute
was resolved after the plan of reorganization had been approved
and “courts sometimes have found a need to curtail the reach of
related to jurisdiction . . . so that bankruptcy court
jurisdiction does not continue indefinitely.” Boston Reg’l Med.
Ctr. Inc. v. Reynolds (In re Boston Reg’l Med. Ctr., Inc.), 410
F.3d 100, 106 (1st Cir. 2005). Although in certain
circumstances, such as liquidation proceedings, a broader view of
post-confirmation “related to” jurisdiction may be appropriate,
id. at 106-107, TERI has presented no such justification here.
Furthermore, after Stern v. Marshall, 131 S. Ct. 2594 (2011),
there is some question whether the bankruptcy court could make a
final determination using “related to” jurisdiction absent
consent of the parties. As noted above, however, I need not
address that issue because the June 2008 Order was sufficient to
confer jurisdiction on the bankruptcy court.
10

courts are entitled to substantial deference in the
interpretation of their own orders.

There, a bankruptcy court

issued an “Insurance Settlement Order” enjoining potential
claimants from bringing suits against Travelers Indemnity Co.
(“Travelers”), and other of the Debtor’s insurers, for “any and
all claims, demands, allegations, duties, liabilities and
obligations . . . which have been or could have been, or might
be, asserted . . . against [insurers] based upon, arising out of
or relating to any or all of the Policies.”
at 2199.

Travelers, 129 S.Ct.

The Insurance Settlement Order was incorporated into

the Confirmation Order, collectively the “1986 Orders.”

Id. at

2199-2200.
Over a decade after confirmation, a number of claims were
made directly against Travelers for its own conduct on behalf of
the Debtor insured.

Id. at 2200.

Travelers sought declaratory

relief from the bankruptcy court under the 1986 Orders, and the
bankruptcy court concluded that the claims against Travelers were
barred by the 1986 Orders.

Id. at 2201.

On review, the Supreme

Court held that the bankruptcy court had continuing jurisdiction
to interpret its own orders and agreed with its interpretation,
finding the terms of the 1986 Orders unambiguous and noting “that
a court should enforce a court order, a public governmental act,
according to its unambiguous terms.”

Id. at 2204; see also

Negrón-Almeda v. Santiago, 528 F.3d 15, 23 (1st Cir. 2008) (“[A]

11

court must carry out and enforce an order that is clear and
unambiguous on its face.”).
Although it held that the terms of the 1986 Orders were
unambiguous, the Court also observed that:
Even if we found the 1986 Orders to be ambiguous as
applied to the [claims at issue], and even if we
concluded that it would be proper to look to the
parties’ communications to resolve that ambiguity, it
is far from clear that respondents would be entitled to
upset the Bankruptcy Court’s interpretation of the 1986
Orders. Numerous Courts of Appeals have held that a
bankruptcy court’s interpretation of its own
confirmation order is entitled to substantial
deference. . . . Because the 1986 Orders clearly cover
the [claims], we need not determine the proper standard
of review.
Travelers, 129 S.Ct. at 2204 n.4 (collecting cases).4
In summary, the Supreme Court in Travelers described a twostep process for the review of a bankruptcy court’s suggested
interpretation of its own order.

First, if a bankruptcy court’s

order is unambiguous, the plain meaning must be given effect.
Second, if the reviewing court finds that the order is ambiguous,
the court must undertake an additional step of review, giving the
bankruptcy court’s interpretation substantial deference.
The Supreme Court in Travelers relied in part on Monarch
Life Ins. Co. v. Ropes & Gray, 65 F.3d 973 (1st Cir. 1995), where

4

Although the Supreme Court referred specifically to
confirmation orders, two of the circuit court cases it cited
involved orders of dismissal. See Casse v. Key Bank Nat’l Ass’n
(In re Casse), 198 F.3d 327 (2d Cir. 1999); Colonial Auto Center
v. Tomlin (In re Tomlin), 105 F.3d 933 (4th Cir. 1997). As a
result, I find no reason to limit the Court’s observations to
confirmation orders.
12

the First Circuit held that “customary appellate deference is
appropriate” when the bankruptcy court is “interpreting its own
order of confirmation.”

Id. at 983.

Several other circuits

reviewing bankruptcy courts’ interpretations have applied an
abuse of discretion standard.

See, e.g., In re Shenango, 501

F.3d 338, 345-46 (3d Cir. 2007); Official Comm. of Unsecured
Creditors v. Dow Corning Corp. (In re Dow Corning Corp.), 456
F.3d 668, 675 (6th Cir. 2006); Finova Capital Corp. v. Larson
Pharmacy Inc. (In re Optical Techs., Inc.), 425 F.3d 1294, 1300
(11th Cir. 2005); Enodis Corp. v. Emp’rs Ins. of Wausau (In re
Consol. Indus.), 360 F.3d 712, 716 (7th Cir. 2004); Gen. Elec.
Capital Corp. v. Dial Bus. Forms (In re Dial Bus. Forms, Inc.),
341 F.3d 738, 744 (8th Cir. 2003).
The First Circuit has not explicitly addressed the precise
standard of deference applicable in these circumstances, but in
Monarch Life, it cited cases affording “full deference,” In the
Matter of Weber, 25 F.3d 413, 416 (7th Cir. 1994) (internal
quotation omitted), “substantial deference,” William B. Schnach
Ret. Trust v. Unified Capital Corp. (In re Bono Development,
Inc.), 8 F.3d 720, 722 (10th Cir. 1993), and reviewing for “abuse
of discretion,” Texas N. W. Ry. Co. v. Diamond Shamrock Refining
& Mktg. Co. (In the Matter of Chicago, Rock Island & Pacific R.
Co.), 865 F.2d 807, 810 (7th Cir. 1988) (internal quotation
omitted).

Monarch Life, 65 F.3d at 983 n.12.

Although it is

unclear which articulation of the standard the First Circuit will
13

ultimately embrace, any distinctions among them are immaterial to
my review of the Bankruptcy Court’s interpretation of the June
2008 Order because the same outcome would result no matter which
I apply.
FMC argues that the Bankruptcy Court improperly interpreted
the TSA, and not its own June 2008 Order.

The Bankruptcy Court

actually undertook two layers of interpretation grounded in the
June 2008 Order.

First, it construed its June 2008 Order as

retaining jurisdiction over the interpretation of the TSA, and
second, it interpreted the relevant terms of the TSA.
apply the two-step analysis.

I too will

I address the first layer of the

Bankruptcy Court’s interpretation in this section and address the
second layer in Section III.B.
As an initial matter, I do not find the June 2008 Order to
be ambiguous.

The Bankruptcy Court “ORDERED, that the Debtor is

authorized to enter into the Transition Services Agreement, as
amended, between the Debtor and the FMC Entities, which
Transition Services Agreement will govern the relationship of the
Parties from June 1, 2008 forward,” and retained “jurisdiction to
construe and enforce the terms of this Order.”

The plain reading

of “the terms of this Order” must include the TSA, which is
specifically referenced in the June 2008 Order and which TERI
attached to the motion requesting the authorization.

This

specific reference to the TSA is sufficient to satisfy me that

14

the agreement must be interpreted as part of the terms of the
June 2008 Order in which the Bankruptcy Court retained
jurisdiction.
Even were I to find the June 2008 Order ambiguous, I would
defer to the Bankruptcy Court’s interpretation.

However, such

deference must be considered against the backdrop of the
requirements applicable to orders that retain jurisdiction over
an agreement where jurisdiction may not otherwise exist.

As a

result, I will canvas the jurisprudence on that topic before
reaching a conclusion on whether the Bankruptcy Court’s
interpretation of its own arguably ambiguous order should be
afforded deference.
2.

Retention of Jurisdiction Under Kokkonen
FMC challenges the retention of jurisdiction asserted by the

Bankruptcy Court under Kokkonen v. Guardian Life Ins. Co. of
America, 511 U.S. 375 (1994).

In Kokkonen, a non-bankruptcy

case, the parties to a dispute in district court came to a
settlement agreement which they recited on the record before the
court.

Id. at 376-77.

Following this resolution, the parties

executed a stipulation and order for the dismissal of the
complaint and cross-complaint.

Id. at 377.

The district court

signed the stipulation and order, which “did not reserve
jurisdiction in the District Court to enforce the settlement
agreement; indeed it did not so much as refer to the settlement

15

agreement.”

Id.

Thereafter, the parties disputed the

obligations under the agreement, and one party moved for the
district court’s enforcement of the agreement.

Id.

The district

court entered an enforcement order, purporting to rely upon its
“inherent power” to do so.

Id.

The Supreme Court found that the district court had no such
“inherent power” because (1) the facts underlying the dismissed
claim and those underlying the breach of the settlement agreement
were unrelated, and (2) the only order of the court at issue “was
that the suit be dismissed, a disposition that is in no way
flouted or imperiled by the alleged breach of the settlement
agreement.”

Id. at 380-81.

As a result, the enforcement of the

agreement was not related to the enforcement of the district
court’s order.

The Court noted that:

The situation would be quite different if the parties’
obligation to comply with the terms of the settlement
agreement had been made part of the order of dismissal
— either by separate provision (such as a provision
‘retaining jurisdiction’ over the settlement agreement)
or by incorporating the terms of the settlement
agreement in the order. In that event, a breach of the
agreement would be a violation of the order, and
ancillary jurisdiction to enforce the agreement would
therefore exist.
Id. at 381.
Under Kokkonen, “a federal court does not have inherent
jurisdiction to enforce a settlement merely because it presided
over the law suit that led to the settlement,”

F.A.C., Inc. v.

Cooperative de Seguros de Vida de Puerto Rico, 449 F.3d 185, 189
16

(1st Cir. 2006), nor does it have jurisdiction to interpret such
an agreement.

Sea Hawk Seafoods, Inc. v. State of Alaska (In re

Valdez Fisheries Dev. Ass’n, Inc.), 439 F.3d 545, 549-50 (9th
Cir. 2006).

Accordingly, FMC argues that the Bankruptcy Court’s

June 2008 Order is insufficient under Kokkonen to retain
jurisdiction over the interpretation of the TSA and that it
therefore lacks subject matter jurisdiction.
The First Circuit in F.A.C. examined a district court’s
order of dismissal to determine whether that order satisfied the
requirement in Kokkonen for the retention of jurisdiction to
adjudicate disputes related to the settlement agreement.

The

Court observed that “[h]ard and fast rules” regarding the
sufficiency of language retaining jurisdiction “may be unwise
because of variations in language and context.”

Id. at 190.

In

F.A.C., the First Circuit found the order sufficient to retain
jurisdiction because it described the district court’s
participation in settlement discussions, summarized the
settlement agreement, resolved a dispute as to its terms, and
referenced the settlement agreement with the following language:
“[a]s per the terms of the settlement agreement and Fed. R. Civ.
P. 41(a)(2), the Amended Complaint is hereby DISMISSED with
prejudice.”

Id. 189-90 (internal quotation omitted).

The First

Circuit concluded that the district court had retained
jurisdiction even though the order did not do so explicitly.
17

See

also Fafel v. Dipaola, 399 F.3d 403, 414 (1st Cir. 2005) (holding
that a judgment under Fed. R. Civ. P. 68 “necessarily
incorporates the terms of the underlying offer, with or without
the additional measures prescribed in Kokkonen”).
Here, in its Memorandum, the Bankruptcy Court explained
that:
The TSA, which was attached to the Contracts Motion and
carefully reviewed by this Court before it entered the
Contracts Order, provides that, as a condition precedent
to the effectiveness of the TSA, this Court ‘shall have
entered a final order in form and substance reasonably
acceptable to [First Marblehead] approving this Agreement
. . . .’ TSA, § 1.4(c) (emphasis supplied). There is no
question but that the Contracts Order did just that — it
did not merely authorize TERI to enter into the TSA, but,
as understood by the Court, TERI, and First Marblehead,
it approved the terms of the TSA and retained
jurisdiction to construe and enforce those terms.
Applying Kokkonen to the order at issue here, and
considering the fact that specific language is not required for
the retention of jurisdiction, I find the Bankruptcy Court’s
interpretation to be reasonable and entitled to substantial
deference.
FMC emphasizes that “mere awareness and approval of the
terms of the settlement agreement do not suffice to make them
part” of an order.

Kokkonen, 511 U.S. at 381; see also Sea

Hawks, 439 F.3d at 549-50 (holding that even though an agreement
required the approval of the bankruptcy court, such approval
alone was insufficient to retain of jurisdiction).

Here, the

Bankruptcy Court refers to its review and approval of the TSA, as
18

well as a requirement in the TSA that it issue an order of
approval; thus, here the approval forms both the basis and the
background for the Bankruptcy Court’s jurisdiction.
In addition to the June 2008 Order’s plain language, the
Bankruptcy Court considered the context and language of the June
2008 Order, as well as the Court’s and parties’ understanding at
the time.

The Bankruptcy Court’s approach is consistent with

Kokkonen and its application in this Circuit.

See F.A.C., 449

F.3d at 190; Municipality of San Juan v. Rullan, 318 F.3d 26, 31
(1st Cir. 2003) (finding the “mutual consent of the parties”
relevant to determination whether a district court retains
jurisdiction over an action).

In particular, and unlike the

order of the district court in Kokkonen, the June 2008 Order
explicitly referenced the TSA and retained jurisdiction.
I find that the Bankruptcy Court’s interpretation is not at
odds with Kokkonen; it did not assert inherent power to interpret
the TSA, but rather explained that it had retained jurisdiction
in the June 2008 Order.

Even if I were somehow to find the June

2008 Order somehow did not plainly incorporate the terms of the
TSA or retain jurisdiction over that agreement, I would defer to
the Bankruptcy Court’s reasonable interpretation of its own Order
that in fact it did so.
B.

Interpretation of the TSA
Having found that the Bankruptcy Court had subject matter

jurisdiction over the interpretation of the TSA, I now turn to
19

the merits of the interpretation itself.

Under Massachusetts law

a “court interprets a contract that is free from ambiguity
according to its plain meaning.”

S. Union Co. V. Dep’t of Pub.

Utils, 941 N.E.2d 633, 640 (Mass. 2011).

A contract term “is

ambiguous ‘only if it is susceptible of more than one meaning and
reasonably intelligent persons would differ as to which meaning
is the proper one.’”

Id. (quoting Citation Ins. Co. v. Gomez,

688 N.E.2d 951, 953 (Mass. 1998)).

I agree with the Bankruptcy

Court that the TSA unambiguously incorporates the two-year limit
on the Data Use Restrictions and other Surviving Obligations.
Section 2.1 of the TSA obligates FMC to transfer the Loan
Database in its possession to TERI, grants FMC certain rights in
the Delivered Database, restricts TERI’s use of the Loan
Database, and provides for certain terms in the Database
Agreement.

The interaction between the TSA and the incorporated

terms in the Database Agreement requires a close reading of the
two agreements.
As an initial matter, although FMC claims that the
distinction between the “Loan Database” and the “Delivered
Database” is immaterial to the instant dispute, that position
does not comport with the language of TSA § 2.1.

The first

paragraph of § 2.1 requires FMC to deliver to TERI the “Loan
Database (as defined in the Database Agreement,” while § 2.1(I)
confers to FMC the rights to the “Delivered Database (as defined
in the Database Agreement).”

Section 2.1(ii) states that the
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“Loan Database transferred from FMER to TERI shall remain subject
to [§§ 2.01, 2.02, and 2.03] of such Database Agreement and any
and all additional terms of the Database Agreement that pursuant
to § 10.01 of the Database Agreement survive termination of such
agreement and remain in full force and effect.”
added.)

(emphasis

The unambiguous reading of § 2.1 is that the provisions

of the Database Agreement apply to the Loan Database transferred
from FMC to TERI, but not to the Delivered Database retained by
FMC.
The distinction between the two databases, with respect to
the survivability of the Database Agreement terms, comports with
the apparent understanding of both parties that FMC’s rights to
the Delivered Database are permanent while the restrictions on
the use of the Loan Database are temporary.

Due to inartful

drafting, this interpretation may render the reference to § 2.02
of the Database Agreement superfluous because that term only
restricts FMC’s use of the Delivered Database and does not
concern the Loan Database.

However, the only reasonable reading

is that FMC received all rights to the Delivered Database, while
the Loan Database remained subject to provisions of the Database
Agreement.
Given this construction of § 2.1 of the TSA, I now turn to
the question of how long the restrictions incorporated in §
2.1(ii) survive.

FMC’s position is that the plain meaning of the

reference to § 10.01 merely incorporates the “Surviving
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Obligations” and not the two-year time limit.

This argument

fails for at least three reasons.
First, although the reference to § 10.01 within § 2.1 is
vague and, standing alone, may not clearly incorporate both the
referenced surviving obligations as well as the two-year time
limit on those obligations, a close examination of the two
agreements reveals that the only reasonable understanding is that
the two-year time limit applies to the surviving obligations.
Section 2.1 (ii) provides that, in addition to §§ 2.01, 2.02, and
2.03, “any and all additional terms of the Database Agreement
that pursuant to section 10.01 of the Database Agreement survive
termination of such agreement and remain in full force and
effect.”

It may be possible through a strained reading to treat

this sentence as merely referencing the “Surviving Obligations”
subject to § 10.01 and providing that they survive indefinitely.
However, as the Bankruptcy Court pointed out, § 10.01 does not
itself define which provisions survive termination.

“Surviving

Obligations” are defined in Article I, while § 10.01 explains
that they survive for two years.

As a result, a reference to the

definition of “Surviving Obligations” would be more appropriate
if the two-year limit was not being incorporated.

Further,

regardless of whether § 2.1 incorporates the two-year time limit
directly, one of the “Surviving Obligations” is Article X, which
includes § 10.01, and to give § 10.01 “full force and effect,”

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the “Surviving Obligations” may only last for two years after the
termination of the Database Agreement.
Second, although FMC argues that the two-year time limit
would render § 3.13 superfluous, § 3.13 has meaning and effect
even in light of the incorporation of the two-year time limit.
Section 3.13 refers to the entire Article II, which includes
those provisions of § 2.1 not subject to § 10.01, i.e., the first
paragraph and § 2.1(I), as well as § 2.2.

Further, even if the

two-year limit applied to the entirety of Article II, nothing in
§ 3.13 requires that the provisions survive indefinitely, and
so the two-year limitation in § 10.01 would be consistent with §
3.13.
Third, the TSA adopts the definition of “Loan Database” set
out in the Database Agreement, which provides that the Loan
Database:
consists of any and all data now or hereafter obtained,
generated, recorded, or otherwise received by TERI in
connection with its business as a loan guarantor,
including, without limitation, borrower data such as
credit scores and other credit information, loan
payment histories and statistics, default and recovery
data, data regarding schools attended by borrowers and
students whose education was financed with TERIguaranteed loans, and underwriting criteria.
Database Agreement, art. I.

Under this definition, and FMC’s

assertion that TERI’s use of the Loan Database is restricted for
all time, TERI would not be able to sell or transfer data to a
third party even if it were to create a completely new database
of information related to its loan guarantee business.
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The plain

reading of the TSA does not contemplate such a perpetual
constriction of TERI’s future activities.
IV. CONCLUSION
For the reasons outlined above, I conclude that, acting
within its subject matter jurisdiction, the Bankruptcy Court
properly ruled that the Surviving Obligations in the Database
Agreement, incorporated by reference in the TSA, do not extend
beyond two years following the termination of the Database
Agreement.

As a result, I AFFIRM the Bankruptcy Court’s Order of

December 14, 2010.

/s/ Douglas P. Woodlock
DOUGLAS P. WOODLOCK
UNITED STATES DISTRICT JUDGE

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