Oct. 31, 2014 (Date Decided)
For crumbs bake shop, Inc., et al.: Michael D. Sirota, David M. Bass, Felice R. Yudkin (Cole, Schotz, Meisel, Forman & Leonard)
For lemonis fischer acquisition co., LLC: Mitchell Malzberg, (Law Offices of Mitchell J. Malzberg, LLC); Beauchamp M. Patterson (McAfee & Taft)
For brand squared licensing: Douglas T. Tabachnik (Law Offices of Douglas T. Tabachnik, P.C.)
For coastal foods baking, LLC:
Jeffrey A. Cooper, Barry J. Roy (Rabinowitz, Lubetkin & Tully, LLC)
For the official committee of unsecured creditors: Sharon L. Levine, Elie J. Worenklein (Lowenstein Sandler LLP)
Crumbs Bake Shop, Inc., debtors, specialized in the retail sales of cupcakes, baked goods, and beverages. Debtors sold their products through retail stores, an e-commerce division, catering services, and wholesale distribution business. In addition, debtors entered into a representation agreement with Brand Squared Licensing, which procured license agreements with several licensees allowing the licensees to utilize the Crumbs trademark and trade secrets and sell products under the Crumbs brand.
On July 11, 2014, debtors filed voluntary petitions for relief pursuant to Chapter 11 of the Bankruptcy Code and have since managed their businesses as debtors-in-possession.
On the petition date, debtors entered into a credit bid asset purchase agreement with Lemonis Fischer Acquisition Co., LLC for the sale of debtors’ assets.
Before the court is LFAC’s motion for an order in aid of the court’s prior order which approved the sale of substantially all of debtors’ assets free and clear of liens, claims, encumbrances, and interests to LFAC. The day after the approval of the sale, debtors filed a motion to reject certain executory contracts and unexpired leases, including the lLicense agreements. BSL filed a response asserting the licensees could elect, under §365(n), to retain their rights under their respective license agreements. BSL also sought entitlement to royalties if licensees elected to continue using the licensed intellectual property. Debtors withdrew the rejection motion as it related to the license agreements with licensees. The court entered an order authorizing the rejection of certain executory contracts, unexpired leases and licenses but excluding those involving licensees. Here, the parties seek a determination of the effect of the sale order on their respective rights.
The Bankruptcy Court finds the following. Trademark licensees can be protected by §365(n), notwithstanding the omission of “trademarks” from the Bankruptcy Code definition of “intellectual property.” Furthermore, the sale of the debtor’s assets under § 363(f) did not extinguish the rights afforded to licensees by § 365(n) because ;icensees did not consent to the sale. To the extent that ;icensees’ rights under § 365(n) were not vaporized by the sale, ;icensees are entitled to elect to continue using the intellectual property granted under their respective license agreements, for the duration of their terms. Royalties generated as a result of this use are payable to debtors, because the agreements themselves have not been assumed, assigned or rejected, and thus continue to be debtors’ property.
LFAC’s motion is denied.