Spyglass Media Grp., LLC v. Bruce Cohen Prods. (In re Weinstein Co.)

• Decision Date: 21 May 2021
• Docket Number: 20-1751,Nos. 20-1750,s. 20-1750
• Citation: 997 F.3d 497
• Court: U.S. Court of Appeals — Third Circuit
• Parties: IN RE: WEINSTEIN COMPANY HOLDINGS LLC, et al., Debtors Spyglass Media Group, LLC, f/k/a Lantern Entertainment LLC v. Bruce Cohen Productions ; Bruce Cohen, Appellants in 20-1751 Bradley Cooper; 22nd & Indiana, Inc.; Bruce Cohen ; Bruce Cohen Productions ; Robert De Niro; Canal Productions, Inc.; David O. Russell; Kanzeon Corp.; Jon Gordon; Jon Gordon Productions, Inc., Appellants in 20-1750

997 F.3d 497

IN RE: WEINSTEIN COMPANY HOLDINGS LLC, et al., DebtorsSpyglass Media Group, LLC, f/k/a Lantern Entertainment LLC

v. Bruce Cohen Productions ; Bruce Cohen, Appellants in 20-1751Bradley Cooper; 22nd & Indiana, Inc.; Bruce Cohen ; Bruce Cohen Productions ; Robert De Niro; Canal Productions, Inc.; David O. Russell; Kanzeon Corp.; Jon Gordon; Jon Gordon Productions, Inc., Appellants in 20-1750

Nos. 20-1750

20-1751

United States Court of Appeals, Third Circuit.

Argued January 13, 2021

Opinion filed: May 21, 2021

Angela M. Butcher (Argued), Michael I. Gottfried, Roye Zur, Elkins, Kalt, Weintraub, Reuben, Gartside, 10345 West Olympic Boulevard, Los Angeles, CA 90064, Kevin S. Mann, Christopher P. Simon, Cross & Simon, 1105 North Market Street, Suite 901, P.O. Box 1380, Wilmington, DE 19899, Counsel for Appellants

Thomas R. Califano (Argued), Sidley Austin, 787 Seventh Avenue, New York, NY 10019, R. Craig Martin, Esq., DLA Piper, 1201 North Market Street, Suite 2100, Wilmington, DE 19801, Counsel for Appellee

Anne M. Collart, William P. Deni, Jr., Lawrence S. Lustberg, Gibbons, One Gateway Center, Newark, NJ 07102, Counsel for Amicus Appellant Producers Guild of America Inc.

Before: AMBRO, KRAUSE, and PHIPPS, Circuit Judges

OPINION OF THE COURT

AMBRO, Circuit Judge The Chapter 11 bankruptcy process gives a debtor many means to rehabilitate its business, including several to manage contractual obligations. Chief amongst them is the flexibility to assume (i.e. , continue) or reject (i.e. , breach) executory contracts, which are contracts where the debtor and the nonbankrupt counterparty each has material obligations left to perform as of the bankruptcy filing.

With great power comes great responsibility. To assume an executory contract, a debtor must cure existing defaults and put the contract in the same place as if the bankruptcy never happened. See 11 U.S.C. § 365(b)(1)(A). This scheme interacts with the Bankruptcy Code's sale provision, 11 U.S.C. § 363, which allows a purchaser to buy substantially all the debtor's property "free and clear of any interest in such property." Id. § 363(f). In practice, an executory contract can be "assumed" and then "assigned" to a buyer under § 365 of the Bankruptcy Code provided all existing defaults are cured. A non-executory contract, on the other hand, can be sold under § 363 to a buyer, who must satisfy post-closing obligations but need not worry about pre-closing breaches or defaults, which typically remain unsecured claims against the debtor's estate. Thus, whether a contract is classified as executory or non-executory has significant implications for its treatment in a bankruptcy sale.

This case is about whether a work-made-for-hire contract between a producer and a bankrupt movie company is an executory contract. The Weinstein Company and its affiliates ("TWC" or the "Debtors") filed bankruptcy petitions to facilitate the sale of substantially all their assets to Spyglass Media Group, LLC (a/k/a Lantern Entertainment LLC) under § 363. Spyglass wished to buy TWC's contract with Bruce Cohen (the "Cohen Agreement") for producing the critically acclaimed 2012 film Silver Linings Playbook . At stake is whether Spyglass must cure existing defaults and pay around $400,000 owed to Cohen before the sale's closing. In re Weinstein Co. Holdings, LLC , No. 18-10601, 2020 WL 1320821, at *5 (D. Del. Mar. 20, 2020). As discussed below, because Cohen's remaining obligations under the Cohen Agreement are not material and the parties did not clearly avoid New York's substantial performance rule, we affirm the District Court's affirmance of the Bankruptcy Court's decision and hold the Cohen Agreement is not an executory contract.

I.

In September 2011, Cohen and his production company entered into the Cohen Agreement with SLP Films, Inc., a non-debtor special purpose entity formed by TWC to make Silver Linings Playbook (the "Picture"). The parties structured the Cohen Agreement as a "work-made-for-hire" contract, meaning Cohen owned none of the intellectual property in the Picture.¹

App. 2331, Cohen Agreement ¶ 9; see Cmty. for Creative Non-Violence v. Reid , 490 U.S. 730, 737, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989) (explaining that the employer exclusively owns all the intellectual property in works made for hire). In exchange, SLP Films agreed to pay Cohen $250,000 in fixed initial compensation, as well as contingent future compensation equal to roughly 5% of the Picture's net profits. App. 2328–29, Cohen Agreement ¶¶ 2–3. The contingent compensation provision provides that

[i]f the Picture is produced with [Cohen] as the producer thereof and [Cohen] fully perform[s] all required services and obligations hereunder and in relation to the Picture, and [is] not otherwise in breach or default hereof, [Cohen] shall be entitled to receive [Contingent Compensation].

App. 2329, Cohen Agreement ¶ 3. The Picture was successfully released in November 2012 and resulted in an Academy Award for Best Actress for Jennifer Lawrence. After some corporate maneuvers, TWC purports to own all the rights pertaining to the Picture, including the Cohen Agreement.²

In 2017, TWC's business cratered following a flood of credible sexual misconduct allegations against its co-founder, Harvey Weinstein. Left with few options, TWC tried to sell its business and ultimately found Spyglass as the only interested buyer. In March 2018, TWC filed for Chapter 11 bankruptcy in the District of Delaware and asked the Bankruptcy Court to approve the sale to Spyglass under § 363 of the Bankruptcy Code. The parties documented the sale's terms in an Asset Purchase Agreement (the "Purchase Agreement").

The sale closed in July 2018, though the Purchase Agreement gave Spyglass until November 2018 to designate which of TWC's executory contracts it wanted to assume as part of the sale. App. 691, Purchase Agreement § 2.8(a) (defining "Assumed Contracts"); App. 694, 741. However, Spyglass believed the Cohen Agreement was not executory at all. In October 2018, it filed a declaratory judgment action against Cohen seeking a determination that the Cohen Agreement "is not executory and therefore was already [sold] to [Spyglass] pursuant to Bankruptcy Code section 363." App. 1152. As noted above, if the Cohen Agreement is an executory contract and therefore assumed and assigned under § 365, Spyglass would be responsible for approximately $400,000 in previously unpaid contingent compensation.³ If Spyglass instead purchased the Cohen Agreement as a non-executory contract under § 363, Spyglass would be responsible only for obligations on a go-forward basis after the sale closed.⁴

The stakes became even higher. In November 2018, writers, producers, and actors with similar works-made-for-hire contracts (the "Talent Party Agreements") hitched their wagon to the Cohen dispute and argued that their contracts are also executory, the implication being that Spyglass has to pay them millions of dollars in contingent compensation. App. 894; Cohen Br. at 6–7; Dist. Ct. Op. at 1, n.1 ("The parties stipulated to joint briefing of these appeals.").

In January 2019, the Bankruptcy Court held a hearing on Spyglass's motion for summary judgment in the Cohen dispute, recognizing that its ruling might serve as a bellwether for the Talent Party Agreements. It issued a bench ruling granting Spyglass's motion for summary judgment, concluding that the Cohen Agreement was not an executory contract and thus could be sold under § 363 to Spyglass. App. 2268, Bankr. Hr'g Tr. 135:16–25.⁵ Further, the Bankruptcy Court concluded that TWC owned the Cohen Agreement, and could sell it, after hearing testimony from TWC's former Executive Vice President, Irwin Reiter, who testified about the chain-of-title for the Cohen Agreement. Id. at 135:16–25, 136:1–3. The District Court affirmed the Bankruptcy Court's decision, and Cohen timely appealed to us.⁶

II.

The District Court had jurisdiction under 28 U.S.C. § 158(a)(1) over the appeal from the final judgment of the Bankruptcy Court, which had jurisdiction under 28 U.S.C. §§ 157(b) and 1334. We have appellate jurisdiction under 28 U.S.C. §§ 158(d)(1) and 1291.

We stand in the shoes of the District Court and exercise plenary review of the Bankruptcy Court's decision granting summary judgment in favor of Spyglass. In re AE Liquidation, Inc. , 866 F.3d 515, 522 (3d Cir. 2017). We may affirm the grant of summary judgment only if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Id. (quoting Fed. R. Civ. P. 56(a) ). We view all facts in the light most favorable to Cohen, who, as the non-moving party, is entitled to every reasonable inference that can be drawn from the record. Id. at 522–23. "We do not weigh the evidence; rather, we assess whether [it] is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 523 (internal quotation marks and citation omitted). In short, summary judgment in favor of Spyglass is appropriate if no reasonable jury could conclude the Cohen Agreement is an executory contract.

III.

Section 365(a) of the Bankruptcy Code governs the treatment of executory contracts, but it does not define that term. Rather it provides that "[e]xcept as provided in sections 765 and 766 of this title [involving customer instructions and property not relevant here] and in subsections (b), (c), and (d) of this section, the trustee [or a debtor-in-possession, see 11 U.S.C. § 1107(a) ], subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." 11 U.S.C. § 365(a). Without a definition of the word "executory," the Supreme Court recognized that legislative history generally "indicates that Congress intended the term to mean a contract ‘on which performance is due to some extent on both sides.’ " NLRB v. Bildisco & Bildisco , 465 U.S. 513, 522 n.6, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984) (quoting H.R....