In re Supernatural Foods, LLC
| Decision Date | 17 October 2001 |
| Docket Number | Bankruptcy No. 01-10403. Adversary No. 01-1014. |
| Citation | 268 BR 759 |
| Parties | In re SUPERNATURAL FOODS, LLC, Debtor. Dwayne Murray, Chapter 7 Trustee for the Estate of Supernatural Foods, LLC, Plaintiff, v. Franke-Misal Technologies Group, LLC, et al., Defendants. |
| Court | U.S. Bankruptcy Court — Middle District of Louisiana |
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Paul Douglas Stewart, Jr., Baton Rouge, Louisiana, for Dwayne M. Murray, Trustee.
Edna A. Latchem, Baton Rouge, Louisiana, Howard C. Meyers, Phoenix, Arizona, for defendants.
REASONS FOR PARTIAL SUMMARY JUDGMENT
Before the Court are cross-motions for summary judgment filed on behalf of the Plaintiff, Dwayne Murray ("Trustee"), Chapter 7 Trustee for the bankruptcy estate of SuperNatural Foods, LLC ("SNF"),1 and on behalf of the Defendants, Franke-Misal Technologies Group, LLC ("Franke-Misal") and Henry L. Franke ("Franke"). After considering the applicable law, extensive briefing of the parties, and the arguments set forth at oral argument, the Court, for the reasons that follow (which incorporate and supplement the oral reasons given in open court), grants the Trustee's Motion for Summary Judgment, and denies Franke-Misal's Motion for Summary Judgment.2 As a result, the Court determines that the exclusive license agreement of certain patented technology between Franke-Misal and SNF did not expire prior to the filing of the bankruptcy case, and thus is assumable. And further, that the Trustee is not prevented from assuming and assigning the Agreement by 11 U.S.C. § 365(c)(1), should the Trustee be practically able to assume the Agreement.
Henry Franke is the inventor of several processes utilized in the extraction of fats and oils from various foods. As a result of these inventions, Franke applied for, and received, patents issued by the United States Patent and Trademark Office.3
After receiving the various patents, Franke assigned his interests in the patents to University Research and Marketing, Inc. ("URM"). URM is a closely held corporation owned, at least in part, by Franke. URM then entered into an agreement with Franke-Misal, whereby URM granted Franke-Misal "the exclusive right to make, market, and sell products using the patented processes."4
Thereafter, Franke-Misal attempted to commercialize the patented processes, and entered into an agreement with SNF, whereby Franke-Misal granted SNF "an exclusive license of the patented processes to make, have made, use, sell and import licensed products in the Territory."5 In return, SNF agreed to put the processes to commercial use and to pay an agreed upon royalty to Franke-Misal.6 The Agreement was restricted to certain defined categories of foods, specifically "snack foods" and "cheese."7 The Agreement purported to extend, territorially, to all of the United States, the European Union, Canada, and Mexico.8
As promising as the non-fat snack food and cheese market appears, SNF has, to this point, been unsuccessful in commercializing the patented processes. As a result, SNF encountered difficulties in paying the amounts due Franke-Misal and Franke under the Agreement. On December 11, 2000, Franke, on behalf of Franke-Misal, sent a letter, via facsimile and Federal Express, to Arthur Cooper, CEO of SNF, detailing defaults under the Agreement.9 Apparently SNF did not address the issues raised in the December 11, 2000 letter because on January 31, 2001, Franke again sent a letter to Mr. Cooper, and again by facsimile and Federal Express, detailing not only the previous defaults but listing other perceived defaults as well.10 In the letter, Franke-Misal declared the Agreement had terminated pursuant to its provisions — specifically the failure to cure defaults within thirty days of notice.11
In addition to sending the January 31, 2001 letter by facsimile and Federal Express, Franke-Misal also sent a copy of the letter via certified mail, return receipt requested. SNF received the copy sent via certified mail on February 5, 2001.
After receiving the default letter via certified mail, SNF apparently did not cure the purported defaults. As a result, on March 5, 2001, several minority members of SNF filed an involuntary petition against SNF under Chapter 7 of the Bankruptcy Code.12 The Court issued an Order for Relief on May 2, 2001.
Contemporaneous with the filing of the involuntary petition, the petitioning creditors (minority members of SNF) also filed a complaint seeking a declaratory judgment that the Agreement had not terminated pre-petition.13 After the Trustee was substituted as a party plaintiff, the Trustee and Franke-Misal filed cross-motions for summary judgment on the issue of whether the Agreement terminated pre-petition.
At the hearing on the motions, the Court intimated that § 365(c) may have some bearing on the ultimate outcome of the suit, i.e., if applicable non-bankruptcy law prohibited assumption and/or assignment of the Agreement, the declaratory judgment requested by the present suit would be moot. Thus, the Court requested supplemental briefing on the matter, and rescheduled the hearing.
After considering the pleadings, memoranda, and argument of the parties, and the applicable law, the Court determines that it has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334 and that it has final authority jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(A), (O). For the reasons that follow, the Court finds: (1) the Agreement did not terminate pre-petition; and (2) applicable non-bankruptcy law does not prohibit the assumption and assignment of the Agreement by the Trustee, and that Partial Summary Judgment in favor of the Trustee is appropriate.14
Summary judgment is appropriate if the pleadings, affidavits, depositions, and other documents within the record disclose that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law.15 An issue of material fact is genuine only if resolution requires a trier of fact to weigh evidence, witness credibility and draw inferences therefrom.16 In this instance, the parties have not submitted a dispute regarding issues of material fact. The Court determines that there are no genuine issues of material fact and that the questions presented by the pleadings raise only legal issues. Since disposition of the legal issues will necessarily decide the case, partial summary judgment is appropriate.
The legal issue at the core of the instant dispute is one purely of contractual interpretation. That is, the Court must construe the relevant termination provisions in the Agreement.
In the absence of controlling federal bankruptcy law, interests of the debtor in property are determined by reference to state law.17 In this case, the interest of the debtor in property as of the commencement of this bankruptcy case is placed squarely before the Court through the request by the Trustee to declare that the debtor's rights under the Agreement had not terminated and the request by Franke-Misal that it had terminated, as of the moment of the commencement of the case.18 Therefore, the Court must construe the Agreement according to Louisiana law in determining whether the Agreement terminated prior to the filing of the involuntary petition, and thus, whether the estate obtained any interest in the Agreement as of the petition date.
Under Louisiana law, "interpretation of a contract is the determination of the common intent of the parties."19 Further, "when the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent."20 Moreover, Louisiana law requires that "each provision in a contract must be interpreted in light of the other provisions so that each is given the meaning suggested by the contract as a whole."21 Finally, "a contract provision is not ambiguous where only one of two competing interpretations is reasonable or merely because one party can create a dispute in hindsight."22
Against the backdrop of these interpretative principles, we look at the contract. The undisputed facts establish, generally, that Franke-Misal attempted, pre-petition, to cancel or terminate the Agreement due to purported defaults on the part of SNF, pursuant to the contract's termination clause. The termination provision is located in Paragraph 8.1 of the Agreement, and states:
Both parties, in pleadings and at oral argument, assumed that the Agreement would have been terminated automatically upon the passage of thirty days after the receipt of notice. The issue as framed by the parties, therefore, was whether the thirty days began to run from the date of the first notice, or from the date of the receipt of the letter sent via certified mail, return receipt requested. The Court, however, interprets the contract differently from the construction given by the parties.
The termination provision of the Agreement states that the contract "may be terminated" by a party if the other party is in default and fails to cure the default within thirty days of notice.24 On the issue of notice, the...
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