Concerto Software, Inc. v. Vitaquest Intern., Inc.

• Decision Date: 04 March 2003
• Docket Number: No. 02-CV-168.,02-CV-168.
• Citation: 290 B.R. 448
• Parties: CONCERTO SOFTWARE, INC., Appellant, v. VITAQUEST INTERNATIONAL, INC., Appellee.
• Court: U.S. District Court — District of Maine

290 B.R. 448

CONCERTO SOFTWARE, INC., Appellant, v. VITAQUEST INTERNATIONAL, INC., Appellee.

No. 02-CV-168.

United States District Court, D. Maine.

March 4, 2003.

COPYRIGHT MATERIAL OMITTED

Kevin T. Lamb, Testa, Hurwitz & Thibeault, LLP, Boston, MA, Michael D. Traister, Murray, Plumb & Murray, Portland, ME, Peter S. Plumb, Murray, Plumb & Murray, Portland, ME, for Concerto Software Inc.

Alex Kress, Riker, Danzig, Scherer, Hyland & Perretti, LLP, Morristown, NJ, Andrew A. Cadot, Perkins, Thompson, Hinckley & Keddy, Portland, ME, for Vitaquest International Inc.

Benjamin E. Marcus, Drummond, Woodsum & MacMahon, Portland, ME, for Danmark Inc.

Robert Checkoway, Portland, ME, U.S. Trustee.

ORDER

SINGAL, Chief Judge.

Appellant Concerto Software, Inc. appeals from an order entered by the United States Bankruptcy Court, District of Maine denying Appellant's motion to compel enforcement of the court's November 21, 2001 Sale Order. For the reasons discussed below, the Court AFFIRMS the bankruptcy court's decision.

I. STANDARD OF REVIEW

In reviewing a bankruptcy court's decision, a district court reviews rulings of law de novo and findings of fact only for clear error. Tex. Instrument Fed. Credit Union v. DelBonis, 72 F.3d 921, 928 (1st Cir.1995). Subject matter jurisdiction is a legal issue, and, thus, is reviewed de novo. See Balzotti v. RAD Invs., 273 B.R. 327, 329 (D.N.H.2002) (citing Durkin v. Benedor Corp. (In re G.I. Indus.), 204 F.3d 1276, 1279 (9th Cir.2000)).

II. BACKGROUND

On September 7, 2001, Danmark, Inc. d/b/a/ DMI and Beacon Marketing Services, Inc. (collectively "Debtors") each filed a voluntary petition for reorganization under Chapter 11 in the United States Bankruptcy Court for the District of Maine. Prior to and during bankruptcy, an essential aspect of the Debtors' business was telemarketing. In their telemarketing business, the Debtors used software developed by Cellit, Inc. ("Cellit") pursuant to a Maintenance Agreement dated March 29, 1999, and a Master Sales and Software License Agreement dated March 30, 1999 (collectively "Cellit Agreement").

On October 10, 2001, Debtors and Cellit, among others, entered into an agreement entitled Term Sheet Regarding Assumption and Partial Assignment of License, Assumption of Maintenance Agreement and Related Transactions ("Term Sheet"). Pursuant to the Term Sheet, Cellit agreed that Debtors may assume and assign the Cellit Agreement "provided that all prepetition arrearages are paid in full, and any post-petition payment defaults are cured and provided that the assignee provides adequate assurances of future performance and subject to Bankruptcy Court approval." (See Mot. of Debtors to Assume Master Sales and Software License Agreement at Ex. A). The payment schedule set forth in the Term Sheet required payments on the first of every month in the amount of $14,985.35 for a period of one year.

On October 31, 2001, the Debtors filed a motion to assume, inter alia, the Master Sales and Software License Agreement. On November 13, 2001, the Debtors entered into a letter agreement with Vitaquest ("Vitaquest Agreement") regarding the sale of Debtors' assets to Vitaquest. The same day, Debtors filed a motion to sell substantially all its assets to Vitaquest International, Inc. ("Appellee" or "Vitaquest"), or Vitaquest's assigns. On November 21, 2001, the bankruptcy court entered an Order ("Sale Order") granting the Debtors' motions.

In numbered paragraph seven ("Paragraph Seven") of the Sale Order, the court stated: "In connection with the assumption of the Cellit Agreement, Vitaquest or the Buyer¹ shall pay to Cellit the sum of $211,538.05 (the `Cellit Cure Amount') which shall be paid in accordance with the ... Term Sheet." (See Sale Order at 12). Despite the bankruptcy court's Order, neither Vitaquest nor its designee have made any payments. As a result, Concerto Software, Inc. ("Concerto" or "Appellant"), Cellit's successor-in-interest, filed a Motion to Compel Enforcement of the Sale Order ("Motion to Compel") on June 17, 2002.

The bankruptcy court held a telephonic hearing on August 13, 2002. At the hearing, the court expressed reservations about its jurisdiction to hear Concerto's Motion to Compel and asked that the parties submit memoranda regarding the court's jurisdiction. After Concerto and Vitaquest filed timely memoranda, the bankruptcy court held another telephonic hearing on September 10, 2002. Following argument by counsel, the bankruptcy court concluded orally that it lacked jurisdiction for the following reasons:

The order incorporated an agreement of the parties then before the Court that the cure, the immediate cash cure, would be waived and that the cure would take place over time and that the parties also agreed that there was adequate assurance to their mutual satisfaction that both the cure amount, meaning the arrearages, and the going forward obligations under the contract would be paid. This Court's order was reflective of that agreement and nothing more. If there is a dispute under that agreement which was assumed as a condition of assignment, meaning sale, then that dispute should be resolved before another forum with appropriate jurisdiction of the parties.

(See Tr. of Sept. 10, 2002 Telephonic Hr'g at 20). Accordingly, on September 11, 2002, the bankruptcy court entered an Order denying Appellant's Motion to Compel Presently before this Court is Concerto's appeal from the bankruptcy court's September 11 Order.

III. DISCUSSION

A. "Core" and "Related To" Jurisdiction

Congress defines the scope of bankruptcy jurisdiction in 28 U.S.C. § 1334 (2003). See New Eng. Power and Marine, Inc. v. Town of Tyngsborough (In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61, 66 (1st Cir.2002). Section 1334 provides that the district courts shall have original but not exclusive jurisdiction of all civil proceedings "arising under" title 11, "arising in" title 11, and "related to" cases under title 11. 28 U.S.C. 1334(b). The district courts may, in turn, refer any or all of such proceedings to the bankruptcy judges for the district. 28 U.S.C. § 157(a) (2003); Middlesex Power Equip., 292 F.3d at 66 n. 2.

Proceedings "arise under" title 11 if they involve a "cause of action created or determined by a statutory provision of title 11." Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir.1987). In contrast, proceedings "arising in" a bankruptcy case "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 97. Together, proceedings that "arise in" and "arise under" title 11 constitute the bankruptcy court's "core" jurisdiction. See 28 U.S.C. § 157(b); Id., at 96-97.²

On the other hand, "related to" proceedings fall within the bankruptcy court's "non-core" jurisdiction. See 28 U.S.C. 157(c).³ The test for determining whether a civil proceeding is "related to" title 11 is "whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." In re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir.1991) (internal quotations and citations omitted). Thus, the proceeding need not be against the debtor or against the debtor's property. Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984). Rather, an action is "related to" bankruptcy if the outcome could "alter[ ][the] debtor's rights, liabilities, options, or freedom of action, or otherwise have an impact upon the handling and administration of the bankrupt estate." G.S.F. Corp., 938 F.2d at 1475 (internal quotations and citations omitted).

1. "Core" Jurisdiction

Appellant argues that the Sale Order imposes cure obligations on Vitaquest for payment of the Cellit Cure Amount as a condition of Debtors' right to assume the Cellit Agreement. As the right to cure arises under 11 U.S.C. §§ 365(b) and (f), Appellant argues its Motion to Compel is a "core" matter within the bankruptcy court's continuing jurisdiction. See 11 U.S.C. §§ 365(b), (f) (2003).⁴ The Court disagrees.

As a threshold matter, the Court finds that Appellant adheres to an incorrect interpretation of the bankruptcy court's Sale Order. A bankruptcy court retains jurisdiction to interpret its own orders. Luan Inv. S.E. v. Franklin 145 Corp. (In re Petrie Retail, Inc.), 304 F.3d 223, 230 (2d Cir.2002) (internal citations omitted). Here, contrary to Appellant's argued interpretation, the bankruptcy court clearly stated during the September 10, 2002 telephonic hearing that the Sale Order does not create any new rights or obligations. The Court does not find any reason to question the bankruptcy court's interpretation of its own Sale Order.

Furthermore, the statutory language of section 365(b) allows a debtor in possession time to cure defaults on an executory contract, so long as the cure is prompt and there is "adequate assurance" of payment. 11 U.S.C. § 365(b); In re Mushroom Transp. Co., 78 B.R. 754, 761 (Bankr.E.D.Pa.1987). Providing "adequate assurance" of a prompt cure "`is a substitute for the taking of the action.'" Id. (quoting 3 Collier on Bankruptcy ¶ 365.05[2], at 365-48 (Alan N. Resnick & Henry J. Sommer eds., 15th ed.2002)). If any party-in-interest is dissatisfied with the proposed cure, it is free to object to the debtor's motion to assume the executory contract. Mushroom, 78 B.R. at 761.

Here, the parties agreed that the "immediate cash cure[ ] would be waived and that the cure would take place over time." (See Tr. of Sept. 10, 2002 Telephonic Hr'g at 20). Since Appellant was satisfied with the debtor's offer, it was within the discretion of the bankruptcy court to ratify the agreement upon notice and hearing. Thereafter, any dispute under the agreement is simply an action for breach of contract. Mushroom, 78 B.R. at 761 (finding that the debtor's failure to perform on its adequate assurance of a prompt cure represents a post-assumption breach of the assumed lease)....