RPD Holdings LLC et al v. Tech Pharmacy Services

Filing 20

OPINION. The final judgment of the bankruptcy court is AFFIRMED. (Ordered by Judge Sidney A Fitzwater on 8/31/2017) (Judge Sidney A Fitzwater)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE PROVIDER MEDS, LLC,
Debtor.
TECH PHARMACY SERVICES, INC.,
Plaintiff-Appellee,
VS.
RPD HOLDINGS, LLC,
Defendant-Appellant.

§
§
§
§
§
§ Civil Action No. 3:17-CV-0441-D
§ (Bankr. Ct. No. 13-30678-BJH;
§ Adversary No. 15-03101-BJH)
§
§
§
§
§

APPEAL FROM THE
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
FITZWATER, 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

1

The parties stipulated to most of the underlying facts in the Joint Pretrial Order.
-2-

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
-3-

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. §
365(d)(1),2 in each Debtor’s bankruptcy case, the License was “deemed rejected.”

2

11 U.S.C. § 365(d)(1) provides:
In a case under chapter 7 of this title, if the trustee does not
assume or reject an executory contract or unexpired lease of
-4-

RPD argues that an unscheduled executory contract is not deemed rejected under §
365(d)(1) if not assumed and assigned within 60 days. The bankruptcy court rightly rejected
this contention. RPD has cited no case that supports this novel argument, and the Bankruptcy
Code is clear: if the trustee fails to assume an executory contract within the 60-day period
(or extend the time to assume or reject), the executory contract is deemed rejected. 11 U.S.C.
§ 365(d)(1).
C
An executory contract that is “deemed rejected” ceases to be property of the
bankruptcy estate. See In re Garfinkle, 577 F.2d 901, 904 (5th Cir. 1978) (“[T]he Trustee’s
rejection of the lease [, an executory contract], did not destroy the leasehold estate. That
action merely placed the leasehold outside of the bankruptcy administration.”).3

residential real property or of personal property of the debtor
within 60 days after the order for relief, or within such
additional time as the court, for cause, within such 60-day
period, fixes, then such contract or lease is deemed rejected.
3

See also, e.g., In re Stoltz, 315 F.3d 80, 86 (2d Cir. 2002) (“If a Chapter 7 trustee
does not assume or reject an unexpired lease within sixty days of the order for relief, then the
lease is deemed rejected under section 365(d)(1). Upon rejection, the lease is no longer part
of the bankruptcy estate, and the non-debtor party to the contract may generally pursue state
law remedies for breach of contract, including eviction for breach of lease.”); In re Yelverton,
2015 WL 4761193, at *2 (Bankr. D.D.C. Aug. 12, 2015) (“[W]here an executory contract
is deemed rejected by a Chapter 7 trustee, the rejection is tantamount to an abandonment,
with the contract vesting in the debtor”); In re Scharp, 463 B.R. 123, 129 (Bankr. C.D. Ill.
2011) (“The primary effect of rejection is to abandon the lease from the estate so that it
reverts back to the debtor’s control outside of bankruptcy. Assumption and rejection are
bankruptcy concepts that determine whether the estate will administer the lease; rejection
merely removes it from property of the estate.” (citing cases)).
-5-

Accordingly, the bankruptcy court did not err in concluding that the deemed rejection of the
License under § 365(d)(1) precluded the trustees from later attempting—through the
sale/settlement motions or asset purchase/settlement agreements—to assign, sell, or
otherwise transfer the License, and that RPD therefore obtained no rights in the License
pursuant to any of the bankruptcy court’s sale orders.4
*

*

*

Accordingly, the bankruptcy court’s final judgment is AFFIRMED.
August 31, 2017.

_________________________________
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE

4

RPD relies on language in the Master Settlement Agreement that “RPD is entitled to
all remaining available Tech Pharm licenses (such as those otherwise acquired from
[Grapevine]; [W. Pa.]; and [Waco]),” R. 1068, and on the bankruptcy court’s statement in
the Master Sale and Settlement Order that “ALL terms of the [Master Settlement Agreement]
are incorporated herein by reference,” R. 306 (bold font omitted), to argue that “the
Bankruptcy Court, by final and non-appealable order, found that RPD ‘otherwise acquired’
the License from Waco, Grapevine, and W[.] Pa.” Appellant Br. 24. The court rejects this
argument, at least for the reason that, because none of the bankruptcy trustees could have
assigned, sold, or otherwise transferred the License after it ceased to be property of the
bankruptcy estates pursuant to § 365(d)(1), the License was never “otherwise acquired” from
Grapevine, W. Pa., or Waco.
-6-