Team R 28

Docket No. 13-628

______________________________________

In The

Supreme Court of the United States

January Term, 2014

______________________________________

IN RE FOODSTAR, INC.,

Debtor

FOODSTAR, INC.,

Petitioner

v.

RAVI VOHRA,

Respondent

______________________________________

On Writ of Certiorari to the United States

Court of Appeals for the Thirteenth Circuit ______________________________________________________________________________

BRIEF FOR RESPONDENT

______________________________________________________________________________

Team R28

Counsel for Petitioner

Oral Argument Requested

Team R 28

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QUESTIONS PRESENTED

1. Whether rejection of a trademark licensing agreement under 11 U.S.C. section 365

terminates the licensee’s right to continue to use the trademark?

2. Whether the resumption against extraterritorial application of statues prevents the

application of 11 U.S.C. section 365 to a foreign licensing agreement?

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TABLE OF CONTENTS

QUESTIONS PRESENTED ......................................................................................................... i

TABLE OF AUTHORITIES ...................................................................................................... iii

OPINIONS BELOW .................................................................................................................. viii

STATEMENT OF JURISDICTION ........................................................................................ viii

STATEMENT OF CONSTITUTIONAL AND STATUTORY PROVISIONS ................... viii

STATEMENT OF THE FACTS ................................................................................................. 1

SUMMARY OF THE ARGUMENT .......................................................................................... 3

ARGUMENTS AND AUTHORITIES ........................................................................................ 6

I. FOODSTAR SHOULD NOT BE ALLOWED TO REJECT THE VOHRA

LICENSING AGREEMENT. ...................................................................................................... 6

A. Stipulating that Respondent Vohra’s trademark license is an executory contract is

improper because it is a conclusion of law. Vohra’s trademark license is not executory thus

cannot be rejected. ....................................................................................................................... 7

B. This court should use the balancing equities test to determine that Foodstar cannot reject

Vohra’s trademark license because doing so would disproportionately damage Vohra’s

business in contrast to the minimal benefit Foodstar would enjoy from rejection. .................... 9

C. Even if this court allows Petitioner Foodstar to reject Respondent Vohra’s trademark

license, Vohra’s rights to use the Burger Bites trademark remain ............................................ 13

1. Trademarks are so similar to trade secrets, copyrights, and other intellectual property

that trademarks licenses should not be subject to rejection under section 365(a). ................ 13

D. Rejection of an executory contract constitutes a breach by the debtor but does not

terminate the rights of the non-debtor party. ............................................................................. 16

II. THE PRESUMPTION AGAINST EXTRATERRITORIAL APPLICATION OF

STATUTES PREVENTS THE APPLICATION OF 11 U.S.C. SECTION 365 TO A

FOREIGN LICENSING AGREEMENT HAVING NO CONNECTION TO THE UNITED

STATES. ...................................................................................................................................... 19

A. Presumption Against Extraterritoriality in General ........................................................... 20

1. Extraterritorial Application of Bankruptcy Laws........................................................... 22

2. International Comity and Applicable Foreign Law........................................................ 26

B. Chapter 15 Procedures for Foreign Bankruptcy Proceedings. ........................................... 29

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iii

TABLE OF AUTHORITIES

STATUTES

11 U.S.C. § 101(35A) ………………………………………………………………..….14, 15, 16

11 U.S.C. § 365……………………2, 4, 5, 8, 10, 13, 14, 15, 16, 17, 18, 19, 22, 23, 25, 28, 31, 32

11 U.S.C. § 541…………………………………………………………..24, 25, 28, 29, 30, 31, 32

11 U.S.C. § 548………………………………………………………………………………26, 28

11 U.S.C. § 1501…………………………………………………………………………29, 30, 31

11 U.S.C. § 1505……………………………………………………………..………29, 30, 31, 32

11 U.S.C. §1526…………………………………………………………………...……………..30

28 U.S.C. § 1334…………………………………………………………………..…………24, 25

28 U.S.C. § 959………………………………………………………………………………..…30

Uniform Commercial Code § 2–711………………………………………………………4, 17, 18

U.S. SUPREME COURT CASES

Benz v. Compania Naviera Hidalgo,

S.A., 253 U.S. 138, 147, 77 S.Ct. 699, 1L. Ed. 2d 709 (1957)…………………......……………22

E.E.O.C. v. Arabian-American Oil Co.,

499 U.S. 244, 248, 113 L. Ed. 2d 274, 111 S. Ct. 1227 (1991)…………………..….20, 21, 22, 25

Foley Bros., Inc. v. Filardo,

336 U.S. 281, 285, 93 L. Ed. 680, 69 S. Ct. 575 (1949)…………………………………………20

Hilton v. Guyot,

159 U.S. 113, 164, 16 S.Ct. 139, 40 L.Ed. 95 (1895)……………………………………………27

Kiobel v. Royal Dutch Petro. Co.,

133 S. Ct. 1659, 1664; 185 L. Ed. 2d 671, 680 (2013)……………………..………………..22, 24

Morrison v. Nat’l Austl. Bank Ltd.,

130 S. Ct. 2869, 2878 (2010) ………………………………………..…………..19, 20, 21, 22, 24

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iv

NLRB v. Bildisco & Bildisco,

465 U.S. 513 (1984) …………………………………………………………………..………4, 17

Sanford's Estate v. Comm'r of Internal Revenue,

308 U.S. 39 (1939) ………………………………………………………………..…………3, 6, 7

Steele v. Bulova Watch Co.,

344 U.S. 280, 97 L. Ed. 319, 73 S. Ct. 252 (1952)……………………………………..………..21

United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Ass.

484 U.S. 365, 371; 108 S.Ct. 626, 630 (1988)……………………………………………….23, 30

U.S. CIRCUIT COURTS OF APPEALS CASES

Commodity Future Trading Comm’n v. Co. Petro Marketing Group, Inc.,

700 F.2d 1279, 1282 (9th Cir. 1983)……………………………………………………….…….24

Environmental Defense Fund, Inc. v. Massey,

300 U.S. App. D.C. 65, 986 F.2d 528, 531 (D.C. Cir. 1993)……………………………...…….21

In re French,

440 F.3d 145, 149 (4th Cir. 2006)………………………………………………………...…26, 27

Laker Airways, Ltd. V. Sabena Belgian World Airlines,

235 U.S. App. D.C. 207, 731 F.2d 909, 925 (D.C. Cir. 1982)………………………...………..21

Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc.,

756 F.2d 1043 (4th Cir. 1985) …………………………………..………3, 6, 9, 10, 13, 15, 18, 19

Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

885 F.2d 1149 (3d Cir. 1989) ……………………………………………………………..………7

In re Chi-Feng Huang,

23 B.R. 798 (B.A.P. 9th Cir. 1982) ……………………………………………………………4, 7

In re Exide Technologies,

607 F.3d 957 (3d Cir. 2010) ……………………………………………………7, 8, 9, 15, 18, 19

In re Huang,

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v

23 B.R. 798 (9th Cir. 1982) …………………………………………………………………10, 11

In re Minges,

602 F.2d 38 (2d Cir.1979) ………………………………………………………………………10

In re Simon,

153 F.3d 991, 995 (9th Cir. 1998)………………………………………….………..21, 24, 25, 26

Jenson v. Continental Financial Corp.,

591 F.2d 477 (8th Cir.1979) …………………………………………………………..…………7

Lewis v. Anderson,

615 F.2d 778 (9th Cir.1979) ……………………………………………………………….……10

Lipsky v. Commonwealth United Corp.,

551 F.2d 887 (2d Cir.1976) …………………………………………………………….…………8

Matter of Chicago, Rock Island & Pacific R. Co.,

604 F.2d 1002 (7th Cir.1979) ……………………………………………………….…………7, 8

Midway Motor Lodge of Elk Grove v. Innkeepers' Telemanagement & Equipment Corp.,

54 F.3d 406 (7th Cir.1995) ………………………………………………………...…………4, 17

Polin v. Conductron Corp.,

552 F.2d 797 (8th Cir.1977) …………………………………………………………….………10

Polymer Tech. Corp. v. Mimran,

37 F.3d 74 (2d Cir. 1994) ………………………………………………………………..……9, 14

Stegeman v. United States,

425 F.2d 984, 986 (9th Cir. 1970) …………………………………………………………...…..20

Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC,

686 F.3d 372 (7th Cir. 2012) cert. denied, 133 S. Ct. 790 L. Ed. 2d 596 (U.S. 2012)

……………………………………………………………………………………...4, 9, 14, 17, 18

Thompkins v. Lil' Joe Records, Inc.,

476 F.3d 1294 (11th Cir. 2007) ………………………………………………………...……4, 17

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vi

U.S. DISTRICT COURT CASES

Infosystems Tech., Inc. v. Logical Software, Inc.,

CIV.A. 87-0042, (D. Mass. June 25, 1987) ………………………………………………..……11

SEC v. Berger,

322 F.3d 187, 192-193 (CA2 2003)…………………………………………………...…………21

U.S. BANKRUPTCY COURT CASES

In re AJW Offshore, Ltd.,

488 B.R. 551, 564 (Bankr. E.D.N.Y. 2013)…………………………………...…………………30

In re Bachinski,

393 B.R. 522 (Bankr. S.D. Ohio 2008) …………………………………….…………………4, 17

In re By-Rite Distributing, Inc.,

47 B.R. 660 (Bankr.Utah 1985) …………………………………………………………………10

In re Chipwich,

54 B.R. 427 (S.D.N.Y. 1985) ……………………………………………………………………11

In re G Survivor Corp.,

171 B.R. 755 (Bankr. S.D.N.Y. 1994) …………………………………………..………………11

In re Meehan,

59 B.R. 380 (E.D.N.Y. 1986) ………………………………………………………...…………11

In re Matusalem,

158 B.R. 514 (Bankr.S.D.Fla.1993)…………………………………………………..…………11

In re Midwest Polychem Ltd.,

61 B.R. 559 (Bankr.N.D.Ill.1986) ………………………………………………………………11

In re Monarch Tool & Mfg. Co.,

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114 B.R. 134 (Bankr.S.D.Ohio 1990) …………………………………………………...………11

In re Petur U.S.A. Instrument Co., Inc.,

35 B.R. 561 (Bankr. W.D. Wash. 1983) …………………………….…………………3, 6, 11, 12

In re Photo Promotion Assoc.,

45 B.R. 878 (S.D.N.Y.1985) …………………………………….………………………………15

In re Turbowind,

42 B.R. 579 (S.D.Calif. 1984) ………………………………………………………..…………11

In re Sun City Investments Inc.,

89 B.R. 245 (Bankr.M.D.Fla.1988) ……………………………………………………..………10

OTHER AUTHORITIES

10 Norton Bankr. L. & Prac. 3d 11 U.S.C. § 1505………………………………………………29

David M. Jenkins, Licenses, Trademarks, and Bankruptcy, Oh My!: Trademark Licensing and

the Perils of Licensor Bankruptcy, 25 J. Marshall L. Rev. 143 (1991) …………………....……16

H.R. REP. 95-595, 347, 1978 U.S.C.C.A.N. 5963…………………………..……………………8

Jesse M. Fried, Executory Contracts and Performance Decisions,

46 Duke L.J. 517 (1996) ………………………………………………………………….…10, 13

S. REP. 100-505, 5, 1988 U.S.C.C.A.N. 3200. ………………………..……………………14, 15

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viii

OPINIONS BELOW

The decisions and orders of the U.S. Bankruptcy Court for the District of Moot are

unreported and are therefore unavailable. The decision for the U.S. Court of Appeals for the

Thirteenth Circuit is also unreported. This opinion is set forth in the Decision of the U.S. Court

of Appeals for the Thirteenth Circuit in Case No. 13-4080, decided on October 14, 2013, and is

incorporated in the record on appeal (hereinafter “R”).

STATEMENT OF JURISDICTION

The formal statement of jurisdiction is waived pursuant to Competition Rule VIII.

STATEMENT OF CONSTITUTIONAL AND STATUTORY PROVISIONS

The constitutional and statutory provisions and evidentiary rules listed below are relevant

to determine the present case.

U.S. Const. art. I, § 8, cl. 4;

11 U.S.C. §§ 365, 541, 548, 1501, 1505, 1526 (2013)

28 U.S.C. §§ 1334, 959

Team R 28

Docket No. 13-628

______________________________________

In The

Supreme Court of the United States

January Term, 2014

______________________________________

IN RE FOODSTAR, INC.,

Debtor

FOODSTAR, INC.,

Petitioner

v.

RAVI VOHRA,

Respondent

______________________________________

On Writ of Certiorari to the United States

Court of Appeals for the Thirteenth Circuit ______________________________________________________________________________

BRIEF FOR RESPONDENT

______________________________________________________________________________

TO THE SUPREME COURT OF THE UNITED STATES:

Respondent, Ravi Vohra, appellant in Docket No. 13-4080 before the U.S. Court of

Appeals for the Thirteenth Circuit, respectfully submits this brief on the merits and asks this

Court to affirm the decision of the Thirteenth Circuit Court of Appeals.

Team R 28

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STATEMENT OF THE FACTS

The Parties. This case involves an insolvent restaurant franchisor of miniature foods attempting

terminated the rights of a successful foreign franchisee. Foodstar Systems, Inc. is the franchisor

of the popular Burger Bites fast food restaurant chain. (R. at 3). Burger Bites trademark has

been registered to Foodstar in the trademark offices of twenty-six nations. (R. at 4). Ravi Vohra

is an Eastlandian citizen who operates thirty-two Burger Bites restaurants in Eastlandia. (R. at

4).

The Agreement. Foodstar acquired worldwide rights to the Burger Bites trademark and

including the rights under licensing agreements from the developer, Viraj Deshmukh. (R. at 4).

Prior to Foodstar’s acquisition, Deshmukh granted a 20-year exclusive license to Vohra to use

the Burger bites trademark in the territory of Eastlandia. (R. at 4). The Eastlandian license

agreement was similar to standard United States trademark licenses. (R. at 4).

The Dispute. The very small burgers sold by the Burger Bites franchise flourished in a niche

market where competitors focused on extremely large burgers. (R. at 3). Hoping to continue the

success in this niche market, Foodstar acquired Minicakes. (R. at 3). Minicakes was a

successful miniature cupcake chain. (R. at 3). However, Foodstar’s attempt to merge miniature

hamburgers and miniature cupcake products was a dismal failure. (R. at 3). The Minicakes

venture left Foodstar without sufficient operating capital which left Foodstar with no choice but

to file for chapter 11 bankruptcy. (R. at 3). Foodstar’s primary asset is the Burger Bites

trademark. (R. at 3). In preparation for the sale of the trademark, Foodstar filed a motion to

reject Vohra’s license. (R. at 5). The dispute falls in an area of the Bankruptcy Code where

courts are split as to the effect of rejecting a trademark license.

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The Bankruptcy Filing. At the bankruptcy court Foodstar motioned to reject Vohra’s

trademark license. (R. at 5). No evidence was presented at the hearing on the motion to reject

the license agreement but the parties stipulated that: 1) the license was an executory contract; 2)

rejecting the license would increase the sale price of the Burger Bites trademark by ten to fifteen

percent; 3)Eastlandian bankruptcy law permits rejection of trademark licenses but; 4) rejection

under Eastlandian bankrupctcy law does not terminate the licensee’s rights to use the trademark;

and 5) Eastlandia adopted the UNICTRAL Model Law on cross border insolvency—the same

model used for Chapter 15 of the U.S. Bankruptcy Code. (R. at 5).

Subsequent Appeals. The bankruptcy court granted Foodstar’s motion to reject Vohra’s

license. (R. at 5). Vohra timely appealed the order to district court and wrote Foodstar to inform

the licensor that Vohra intended to continue to use the Burger Bites trademark in Eastlandia. (R.

at 5-6). Foodstar replied with an adversary proceeding requesting an injunction against Vohra’s

continued use of the trademark and further, moved for summary judgment declaring Vohra’s

rights terminated. (R. at 6). The District Court of Moot affirmed the rejection Vohra’s and

termination of his rights to use the Burger Bites trademark. (R. at 6). The Thirteenth Circuit

reversed, holding that upon rejection the licensee may continue to use the licensed trademark and

the presumption against extraterritoriality prohibits application of section 365 to an executory

contract that has no connection to the United States. (R. at 6-7). This appeal followed. (R. at 1).

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SUMMARY OF THE ARGUMENT

This court should affirm the Thirteenth Circuit’s decision that there are no grounds to authorize

rejection of Respondent Vohra’s trademark license for Burger Bites. This court should find two

reasons to reach this conclusion.

First, Petitioner and Respondent improperly stipulated that Vohra’s license is an

executory contract. (R. at 5). Concluding that a contract is executory is a conclusion of law.

The Supreme Court has long held, “we are not bound to accept, as controlling, stipulations as to

questions of law.” Sanford's Estate v. Comm'r of Internal Revenue, 308 U.S. 39, 51, (1939).

Vorah’s Eastlandian trademark license agreement was standard, similar to U.S. licenses. (R. at

4). The lower courts did not establish what Vohra’s duties were in the license agreement, but it

is fair to assume Vohra simply used the trademark and paid royalties. The Fourth Circuit has

held, “that a contract is not executory as to a party simply because the party is obligated to make

payments of money to the other party. Lubrizol Enterprises, Inc. v. Richmond Metal Finishers,

Inc., 756 F.2d 1043, 1046 (4th Cir. 1985). Even if this court disagrees that Vohra’s trademark

license is an executory contract, then this court should prohibit rejection on equitable grounds.

Second, this court should utilize the balancing of equities approach used in, In re Petur,

35 B.R. 561 (W.D. Wash. 1983), to disallow Petitioner Foodstar from rejecting Vohra’s

trademark license. The balancing of equities test holds that, “it is proper for the court to refuse to

authorize rejection of a lease or executory contract where the party whose contract is to be

rejected would be damaged disproportionately to any benefit to be derived by the general

creditors of the estate as for example where most of the “benefit” of rejection of the contract

would be captured by a third party at the expense of the unsecured creditors.” In re Chi-Feng

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Huang, 23 B.R. 798, 801 (B.A.P. 9th Cir. 1982). Here, where Vohra’s business relies almost

exclusively on the Burger Bites trademark to generate profit, Vohra will surely be forced into

bankruptcy if his rights to Burger Bites trademark are terminated.

The “rejection of an executory contract or unexpired lease of the debtor constitutes a

breach of such contract.” 11 U.S.C.A. § 365(g). The Eleventh Circuit has determined that

rejection of an executory contract in bankruptcy does not put the parties in position they

occupied before the contract, or the effective equivalent of rescission. Thompkins v. Lil' Joe

Records, Inc., 476 F.3d 1294, 1306 (11th Cir. 2007). Section 365 merely frees the estate from

the obligation to perform and has absolutely no effect upon the contract's continued existence.

Id.

Pursuant to the U.C.C., Foodstar can treat its breach as ending its obligation to perform

under the contract. Uniform Commercial Code § 2–711(1). Rejection of an executory contract

is a beach. §365(g). Therefore, “rejection does not nullify, rescind, or vaporize the contract or

terminate the rights of the parites.” In re Bachinski, 393 B.R. 522, 544 (Bankr. S.D. Ohio 2008).

“What section 365(g) does by classifying rejection as breach is establish that in bankruptcy, as

outside of it, the other party's rights remain in place. After rejecting a contract, a debtor is not

subject to an order of specific performance.” Sunbeam Products, 686 F.3d at 377; referencing

NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984); Midway Motor Lodge of Elk Grove v.

Innkeepers' Telemanagement & Equipment Corp., 54 F.3d 406, 407 (7th Cir.1995). Requiring

specific performance of a debtor would be a direct contrast of the policy to give the debtor a

fresh start.

The second question presented in Petitioner’s writ of certiorari is whether the

presumption against extraterritorial application of statutes prevents the application of 11 U.S.C. §

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365 to a foreign licensing agreement. The Thirteenth Circuit correctly held that the presumption

against extraterritoriality bars application of Section 365 to the Vohra license agreement. The

Respondent asks that the court agree with and affirm the Thirteenth Circuit’s decision finding

that the presumption against extraterritoriality operates to preclude application of Section 365 to

a trademark licensing agreement which has no connection to the United States other than the

bankruptcy case.

As discussed below, the presumption against extraterritorial application of a statute is a

canon of construction which applies in this case, only a clear and affirmative intent by Congress

to give section 365 extraterritorial effect may rebut the presumption against extraterritoriality.

The doctrine of international comity and the threat of conflicts with applicable foreign law

preclude a bankruptcy court injunction from marshalling the power of foreign courts to restrain a

foreign creditor who has no other connection to the United States except for this bankruptcy.

Finally, Chapter 15 of the Bankruptcy Code provides guidance on how an entity acting on behalf

of a bankruptcy estate should engage foreign insolvency courts to obtain relief under this title,

instructing trustees to cooperate with foreign courts and to act according to applicable foreign

law.

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ARGUMENTS AND AUTHORITIES

I. FOODSTAR SHOULD NOT BE ALLOWED TO REJECT THE VOHRA

LICENSING AGREEMENT.

This court should affirm the Thirteenth Circuit’s decision that there are no grounds to

authorize rejection of Respondent Vohra’s trademark license for Burger Bites. This court should

find two reasons to reach this conclusion.

First, Petitioner and Respondent improperly stipulated that Vohra’s license is an

executory contract. (R. at 5). Concluding that a contract is executory is a conclusion of law.

The Supreme Court has long held, “we are not bound to accept, as controlling, stipulations as to

questions of law.” Sanford's Estate v. Comm'r of Internal Revenue, 308 U.S. 39, 51, (1939).

Vorah’s Eastlandian trademark license agreement was standard, similar to U.S. licenses. (R. at

4). The lower courts did not establish what Vohra’s duties were in the license agreement, but it

is fair to assume Vohra simply used the trademark and paid royalties. The Fourth Circuit has

held, “that a contract is not executory as to a party simply because the party is obligated to make

payments of money to the other party. Lubrizol Enterprises, Inc. v. Richmond Metal Finishers,

Inc., 756 F.2d 1043, 1046 (4th Cir. 1985). Even if this court disagrees that Vohra’s trademark

license is an executory contract, then this court should prohibit rejection on equitable grounds.

Second, this court should utilize the balancing of equities approach used in, In re Petur,

35 B.R. 561 (W.D. Wash. 1983), to disallow Petitioner Foodstar from rejecting Vohra’s

trademark license. The balancing of equities test holds that, “it is proper for the court to refuse to

authorize rejection of a lease or executory contract where the party whose contract is to be

rejected would be damaged disproportionately to any benefit to be derived by the general

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creditors of the estate as for example where most of the “benefit” of rejection of the contract

would be captured by a third party at the expense of the unsecured creditors.” In re Chi-Feng

Huang, 23 B.R. 798, 801 (B.A.P. 9th Cir. 1982). Here, where Vohra’s business relies almost

exclusively on the Burger Bites trademark to generate profit, Vohra will surely be forced into

bankruptcy if his rights to Burger Bites trademark are terminated.

A. Stipulating that Respondent Vohra’s trademark license is an executory contract is

improper because it is a conclusion of law. Vohra’s trademark license is not

executory thus cannot be rejected.

To have the option to reject Vohra’s trademark license, it must be established that

Vohra’s license is an executory contract. Both parties stipulated that Vohra’s license is an

executory contract. (R. at 5). Respondent believes that the stipulation made in the Bankruptcy

Court was improper because it was a conclusion of law. As the Supreme Court has long held,

“we are not bound to accept, as controlling, stipulations as to questions of law.” Sanford's

Estate, 308 U.S. at 51. The bankruptcy code does not provide a definition for executory

contract, so it is nearly impossible to determine as a fact that a contract is executory. Further, the

crux of the decision of In re Exide Technologies, 607 F.3d 957, 966 (3d Cir. 2010), was whether

or not the contract at issue was executory. Certainly each case has different facts, but if

determining that a contract was executory was conclusion of fact, the In re Exide case would not

have made it all th way to the Third Circuit.

Multiple circuits have determined that a debtor-in-possession is bound by non-executory

contracts. See Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153

(3d Cir. 1989); Jenson v. Continental Financial Corp., 591 F.2d 477, 482 (8th Cir.1979); Matter

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of Chicago, Rock Island & Pacific R. Co., 604 F.2d 1002 (7th Cir.1979). However, executory

contracts are subject to rejection by the trustee with court approval under 11 U.S.C. §365.

Precedent cases have established criteria to determine whether a contract is executory. This

court should determine that Vohra’s trademark license is not executory according to these factors

and hold that Foodstar is bound by the licensing agreement with Vohra.

Vohra’s trademark license for Burger Bites is not executory. The bankruptcy code does

not provide a definition of executory contract but the legislative history provides that, “an

executory contract generally includes contracts on which performance remains due to some

extent on both sides. H.R. REP. 95-595, 347, 1978 U.S.C.C.A.N. 5963, 6303-04. Further, “a

note is not usually an executory contract is the only performance that remains is repayment.” Id.

The Third Circuit determined an executory contract exists where if obligations either

party “are so far underperformed that the failure of either to complete performance would

constitute a material breach.” In re Exide, 607 F.3d at 962. The Exide court turned to the

Second Circuit to define material breach as, “a breach which is so substantial as to defeat the

purpose of the entire transaction.” Id. citing Lipsky v. Commonwealth United Corp., 551 F.2d

887, 895 (2d Cir.1976). The Exide court used the following factors to determine that if the

contract was executory:

(1) an obligation to satisfy the Quality Standards Provision, and obligations to observe (2)

the Use Restriction, (3) the Indemnity Obligations, and (4) the Further Assurances Obligations.

Id. at 963.

Pursuant to the factors established by In re Exide, this court should find that Vohra’s

license is not executory. First, Vohra’s obligation satisfy quality standards is supplanted by his

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own interests. Producing a product below trademark standards adversely affects Vohra’s

business and most importantly, “goods that do not meet the trademark owner’s quality control

standards will not be considered genuine goods and their sale will constitute a trademark

infringement. Polymer Tech. Corp. v. Mimran, 37 F.3d 74, 78 (2d Cir. 1994). Second, Vohra

has no restrictions on his trademark in Eastlandia. Third, it is assumed that Vohra must pay

Foodstar royalty payments for the use of the Burger bites trademark. However, “a contract is not

executory as to a party simply because the party is obligated to make payments of money to the

other party. Lubrizol, 756 F.2d at 1046. Lastly, the catch all factor of further obligations is not

applicable according to the facts presented by the lower courts. Therefore, pursuant to the

factors established by In re Exide, Vohra’s trademark license is not executory and thus not

subject to rejection.

B. This court should use the balancing equities test to determine that Foodstar cannot

reject Vohra’s trademark license because doing so would disproportionately

damage Vohra’s business in contrast to the minimal benefit Foodstar would enjoy

from rejection.

This court should affirm the Thirteenth Circuit’s decision prohibiting Foodstar from

rejecting Vohra’s license. To determine whether a trustee can reject an executory contract courts

generally use two tests, the business judgment rule and the balance of equities test. This court

should utilize the balancing of equities test to determine that rejecting Vohra’s license is not

equitable.

The balance of equities is more in line with contemporary precedent such as Sunbeam

Products, 686 F.3d 372. “It is proper for the court to refuse to authorize rejection of a lease or

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executory contract where the party whose contract is to be rejected would be damaged

disproportionately to any benefit to be derived by the general creditors of the estate as for

example where most of the benefit of rejection of the contract would be captured by a third party

at the expense of the unsecured creditors.” In re Chi-Feng Huang, 23 B.R. 798, 801 (B.A.P. 9th

Cir. 1982). “The balancing test doctrine…serves as a (partial) efficiency test, when it is applied,

it prevents the estate from rejecting when rejection is especially value-wasting.” Jesse M. Fried,

Executory Contracts and Performance Decisions, 46 Duke L.J. 517, 542-43 (1996).

Section 365(a) allows a trustee to “assume or reject any executory contract or unexpired

lease or the debtor,” with court approval. Courts generally allow a trustee, to reject or assume an

executory contract so long as the decision is made with sound business judgment. “As generally

formulated and applied in corporate litigation the rule is that courts should defer to-should not

interfere with-decisions of corporate directors upon matters entrusted to their business judgment

except upon a finding of bad faith or gross abuse of their business discretion.” Lubrizol

Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1047 (4th Cir. 1985). See,

e.g., Lewis v. Anderson, 615 F.2d 778, 782 (9th Cir.1979); Polin v. Conductron Corp., 552 F.2d

797, 809 (8th Cir.1977). The business judgment rule thus gives trustees, “a great amount of

deference since the decision to assume or reject an executory contract is an administrative not a

judicial matter.” In re By-Rite Distributing, Inc., 47 B.R. 660, 668 n. 10 (Bankr.Utah 1985).

Different jurisdictions have morphed the business judgment rule to consider various

factors when permitting trustees to reject executory contracts. These considerations include:

“(a) whether the contract burdens the estate financially, In re Minges, 602 F.2d 38 (2d Cir.1979);

(b) whether rejection would result in a large claim against the estate, In re Sun City Investments

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Inc., 89 B.R. 245 (Bankr.M.D.Fla.1988); (c) whether the debtor showed real economic benefit

resulting from the rejection, In re Matusalem, 158 B.R. 514 (Bankr.S.D.Fla.1993); and (d)

whether upon balancing the equities, rejection will do more harm to the other party to the

contract than to the debtor if not rejected, In re Midwest Polychem Ltd., 61 B.R. 559

(Bankr.N.D.Ill.1986); In re Monarch Tool & Mfg. Co., 114 B.R. 134 (Bankr.S.D.Ohio 1990).”

In re G Survivor Corp., 171 B.R. 755, 758 (Bankr. S.D.N.Y. 1994). These variations to the

business judgment rule (many include consideration of non-debtor parties) demonstrate that the

business judgment rule is not concrete. These factors considered by the aforementioned

jurisdictions are also considerations used in the balancing of equities test. Because courts have

adjusted the business judgment rule to consider more than whether the trustee acted in bad faith

and because bankruptcy courts are courts of equity, this court should use the balancing of

equities test to prohibit Foodstar from rejecting Vohra’s trademark license.

Multiple courts have used the balancing of equities test to determine that a trustee should

not reject an executory license. The most cited case for using the balancing of equities test is In

re Petur U.S.A. Instrument Co., Inc., 35 B.R. 561, 562 (Bankr. W.D. Wash. 1983). Other courts

that have used the balancing of equities test include: In re Huang, 23 B.R. 798, 801–02 (9th Cir.

1982); In re Meehan, 59 B.R. 380, 385 (E.D.N.Y. 1986); In re Midwest Polychem, 61 B.R. 559,

562 (N.D. Ill. 1986); In re Chipwich, 54 B.R. 427, 431 (S.D.N.Y. 1985); In re Turbowind, 42

B.R. 579 (S.D.Calif. 1984). Infosystems Tech., Inc. v. Logical Software, Inc., CIV.A. 87-0042,

(D. Mass. June 25, 1987). The Petur court looked at five factors to determine it was not

equitable to reject the executory contract on equitable grounds. The factors included: 1) where

the debtor would be able to reorganize; 2) whether the debtor have proposed a plan of

reorganization; 3) whether debtor had not experience in a foreign (Canadian) market; 4) whether

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debtor had new capital coming in; and 5) whether non-debotr part was profitable in foreign

market and whether debtor would be able to be more profitable. Petur, 35 B.R. at 564.

According the five factors in Petur, this court should prohibit rejection on equitable

grounds. First, Foodstar was unable to reorganize and is going to liquidate. (R. at 3). Second,

debtors plan to reorganize was unsuccessful and now plans to liquidate. Third, while debtor has

Burger Bites franchises in other nations there is no evidence that Foodstar has experience in

Eastlandia. Fourth, the record states that Foodstar does not have “sufficient operating capital.”

Id. Lastly, Vohra has successfully run thirty-two Burger Bites restaurants, while Foodstar has

been “a dismal failure.” Id. These five factors weight heavily in favor of not rejecting Vohra’s

license.

This court should not permit rejection of Vohra’s license on equitable grounds. The

balancing of equities test prohibits rejection of executory contracts where the non-debotr party

would be damaged disproportionately to the benefit of the estate. Rejecting Vohar’s license

would be the exact scenario the balancing of equities test intended to avoid. The benefit to the

estate would be a nominal ten-fifteen percent gain in the sale price of the Burger Bites

trademark. (R. at 5). While the terminating Vohra’s right to use the Burger Bites trademark will

inevitably ruin his business. Or as the Petur court put, “we are dealing with the actual ruination

of an otherwise profitable, successful and ongoing business and equity will not permit such a

result.” Petur, 35 B.R. at 564. A court of equity should not allow the discrepancy between

Vohra’s immense detriment and Foodstar’s insignificant benefit. Foodstar will gain fifteen

percent in the sale price of the Burger Bites trademark. (R. at 5). Allowing Foodstar to reject

Vohra’s license would leave Vohra with an unsecured claim against the estate pursuant to 11

U.S.C. §502 and §1141. So if Vorha receives “average payout promised--but not necessarily

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paid--to general unsecured creditors in reorganization cases was about thirty cents on the dollar.

Jesse M. Fried, Executory Contracts and Performance Decisions, 46 Duke L.J. 517, 574 (1996).

If Vohra is lucky, he will get 30% of his business while Foodstar will only benefit fifteen percent

at most. This court should not allow this discrepancy to occur. Therefor, respondent Vohra

respectfully asks that this court affirm the Thirteenth Circuit in allowing Vohra to maintain his

rights to the Burger Bites trademark.

C. Even if this court allows Petitioner Foodstar to reject Respondent Vohra’s

trademark license, Vohra’s rights to use the Burger Bites trademark remain.

1. Trademarks are so similar to trade secrets, copyrights, and other intellectual

property that trademarks licenses should not be subject to rejection under

section 365(a).

Congress created 11 U.S.C.A. § 365(n) to protect non-debtor parties from losing their

rights to intellectual property in the event their licensor files for bankruptcy. In the case of

Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1048 (4th Cir.

1985) a non-debtor party Lubrizol lost its licensee rights to intellectual property when debtor

RMF rejected their licensing agreement pursuant to section 365. The Fourth Circuit noted that

their holding may have a chilling effect on businesses with potential for financial distress, but

their hands were tied by the Bankruptcy Statues. Lubrizol, 756 F.2d at 1043. Shortly after

Lubrizol, Congress enacted section 365(n) which states:

“when a licensor elects to reject an executory contract, the licensee has two options:

1) treat the contract as terminated or

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2) retain rights under such contract including intellectual property.”

11 U.S.C. §365(n)(1)(B).

The issue for Respondent Vohra is that 11 U.S.C.A. §101(35A) left trademarks out of the

definition of intellectual property. The senate notes state that trademarks were left out of the

definition of intellectual property because more time was needed research the unique nature of

the trademarks. S. REP. 100-505, 5, 1988 U.S.C.C.A.N. 3200, 3204. Such unique factors

include the licensor’s duties and rights to maintain quality and brand name of the trademark. Id.

Congress’ concern that Trademarks “depend to a large extent on control of the quality of

the products or services sold by the licensee,” is not sufficient to treat trademarks different than

copyrights, patents, or trade secrets. Id. The amount of quality control that a licensor must

afford its licensee is minimal. Moreover, as the second circuit established, “goods that do not

meet the trademark owner’s quality control standards will not be considered genuine goods and

their sale will constitute a trademark infringement. Polymer Tech. Corp. v. Mimran, 37 F.3d 74,

78 (2d Cir. 1994). Therefore, if Vohra allows his Burger Bites to fall below the quality standards

expected of the trademark, his customers will be upset and his business will certainly suffer. For

these reasons Respondent argues that trademarks should not be viewed differently than other

intellectual property listed in 11 U.S.C. §101(35A).

Congress’ omission of trademark in the definition of section 101(35A) is simply an

omission, demonstrating that congress did not intend to effect trademarks one way or another.

Sunbeam Products, 686 F.3d at 375 (7th Cir. 2012). Congress decided to “postpone

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congressional action in this area” of trademark licenses and “allow the development of equitable

treatment of this situation by bankruptcy courts.” S. REP. 100-505, at 5.

Petitioner argues that the omission of trademarks in section 101(35A) is a codification of

Lubrizol—this is not the case. As noted above congress specifically omitted trademarks to allow

courts of equity to determine whether trademark license should be rejected pursuant to 11 U.S.C.

§365(a). Moreover, bankruptcy courts as courts of equity, should look with disfavor on contract

forfeitures. In re Photo Promotion Assoc., 45 B.R. 878, 882 (S.D.N.Y.1985). It would not be

logical to ignore clear congressional intent in favor a negative inference of statutory

interpretation. Especially when the Senate report explicitly stated, “Nor does the bill address or

intend any inference to be drawn concerning the treatment of executory contracts which are

unrelated to intellectual property.” In re Exide Technologies, 607 F.3d 957, 967 (3d Cir. 2010);

citing S. REP. 100-505, 5.

This court should affirm the lower court decision in preventing Foodstar from rejecting

respondent Vohra’s trademark license. Congress regrettably left trademarks out of the definition

of intellectual property in context of section 365(a), admittedly to research the unique traits

trademarks present that differentiate trademarks from other forms of intellectual property.

However, congress never returned to the issue or revised section 101(35A). Nonetheless, when

congress enacted section 365(n), congress established an elaborate process for non-debtor parties

to maintain their rights to intellectual property of licensor-debtors. Section 365(n)(1)(B) gives

non-debtor parties two options when their licensor is bankrupt, treat the contract as terminated or

retain rights and pay royalties for the remainder of the contract. Section 365(n)(4) further states

that the licensor will perform under that contract and not interfere with the license. Trademarks

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are so similar to other intellectual property that they should be afforded the same protection on

equitable grounds as suggested by Congress.

“Trademarks and trademark licenses serve a valuable economic function, while rejection,

on the other hand, creates no measurable benefit and only hinders economic development.”

David M. Jenkins, Licenses, Trademarks, and Bankruptcy, Oh My!: Trademark Licensing and

the Perils of Licensor Bankruptcy, 25 J. Marshall L. Rev. 143, 155 (1991). Here the parties

agreed there is some benefit—ten to fifteen percent increase in the sale price. (R. at 5).

Nonetheless, the minimal benefit enjoyed by Foodstar would destroy all thirty-two restaurants

operated by Vohra. Congress included copyrights and patents in the definition of section

101(35A) because they promote commerce and innovation—trademarks accomplish the same

policy goals and should thus be treated as intellectual property under section 365. Rejecting

Vohra’s license would set a diminish a significant amount of commerce produced by Vohra’s

restaurants and insignificantly benefit Foodstar’s estate.

Trademarks should be treated the same as other intellectual property under section 365.

Congress left trademarks out of the definition of section 101(35A) so courts of equity would

determine on a case-by-case the most equitable treatment of trademark licenses. Rejecting

Voha’s license would be the antithesis of equitable treatment. Congress established a complex

procedure for how courts should treat executory contracts for intellectual property. This court

should affirm the Thirteenth Circuit and prohibit rejection of Vohra’s trademark license.

D. Rejection of an executory contract constitutes a breach by the debtor but does not

terminate the rights of the non-debtor party.

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The “rejection of an executory contract or unexpired lease of the debtor constitutes a

breach of such contract.” 11 U.S.C.A. § 365(g). The Eleventh Circuit has determined that

rejection of an executory contract in bankruptcy does not put the parties in position they

occupied before the contract, or the effective equivalent of rescission. Thompkins v. Lil' Joe

Records, Inc., 476 F.3d 1294, 1306 (11th Cir. 2007). Section 365 merely frees the estate from

the obligation to perform and has absolutely no effect upon the contract's continued existence.

Id.

Pursuant to the U.C.C., Foodstar can treat its breach as ending its obligation to perform

under the contract. Uniform Commercial Code § 2–711(1). Rejection of an executory contract

is a beach. §365(g). Therefore, “rejection does not nullify, rescind, or vaporize the contract or

terminate the rights of the parites.” In re Bachinski, 393 B.R. 522, 544 (Bankr. S.D. Ohio 2008).

“What section 365(g) does by classifying rejection as breach is establish that in bankruptcy, as

outside of it, the other party's rights remain in place. After rejecting a contract, a debtor is not

subject to an order of specific performance.” Sunbeam Products, 686 F.3d at 377; referencing

NLRB v. Bildisco & Bildisco, 465 U.S. 513 (1984); Midway Motor Lodge of Elk Grove v.

Innkeepers' Telemanagement & Equipment Corp., 54 F.3d 406, 407 (7th Cir.1995). Requiring

specific performance of a debtor would be a direct contrast of the policy to give the debtor a

fresh start.

Permitting Foodstar to reject Vohra’s license effectively mutates section 365 into an

avoiding power.1 Judge Ambro described this process as using, “bankruptcy more a sword than

1 “Bankruptcy law does provide means for eliminating rights under some contracts. For example, contracts that

entitle creditors to preferential transfers (that is, to payments exceeding the value of goods and services provided to

the debtor) can be avoided under 11 U.S.C. § 547, and recent payments can be recouped. A trustee has several

avoiding powers. See 11 U.S.C. §§ 544–51.” Sunbeam Products, 686 F.3d 372, 377.

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a shield.” Exide, 607 F.3d at 967-68. In his concurring opinion Judge Ambro further stated,

“courts may use section 365 to free a bankrupt trademark licensor from burdensome duties that

hinder its reorganization” but courts should not “let a licensor take back trademark rights it

bargained away.” Id. at 67.

Breaching an executory contract outside of bankruptcy would not result in the

termination of the licensee’s rights; breach would simply give the non-breaching party right to a

remedy under Unif. Commercial Code § 2-711(2). It follows that allowing Foodstar to terminate

Vohra’s rights in bankruptcy would be poor policy. A breaching party should not benefit from

their own breach.

The court should affirm the Thirteenth Circuit’s holding that although Foodstar may

reject Vohra’s license, the results is a breach pursuant to section 365(g), which does not

terminate Vohra’s rights. The lower courts decision followed the reasoning in Sunbeam. The

holding in Sunbeam directly contradicted the longstanding precedent of Lubrizol, creating a split

in the circuits. Congress tried to over turn Lubrizol with section 11 U.S.C. 365(n), but did a poor

job omitting trademarks from the definition of intellectual property. Courts have had to work

around this sloppy legislation to reach a just result. The antiquated Lubrizol decision has become

bad law after Sunbeam and the concurring opinion of In re Exide.

The modern view of trademark license under section 365 is that rejection is a breach but

does not terminate a licensee’s rights. Sunbeam first established that if the trademark license was

rejected, this breach would leave the non-debtor party with nothing more than an unsecured

claim under 11. U.S.C. 502. The court went on to say, “but nothing about this process implies

that any rights of the other contracting party have been vaporized. Sunbeam Products, 686 F.3d

at 377. Further the concurring opinion of in re Exide, stated, “I disagree with that determination,

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as I believe a trademark licensor's rejection of a trademark agreement under 11 U.S.C. § 365

does not necessarily deprive the trademark licensee of its rights in the licensed mark.” In re

Exide Technologies, 607 F.3d at 965. These contemporary views were decided in 2012 and 2009

respectively, while the “oft-critized” Lubrizol is nearly three decades old. The contemporary,

equitable view is that trademark licenses can be rejected, but rejection does not terminate a non-

debtor’s rights. This court should continue this equitable trend in precedent and affirm the

Thirteenth Circuit.

II. THE PRESUMPTION AGAINST EXTRATERRITORIAL APPLICATION OF

STATUTES PREVENTS THE APPLICATION OF 11 U.S.C. SECTION 365

TO A FOREIGN LICENSING AGREEMENT HAVING NO CONNECTION

TO THE UNITED STATES.

The second question presented in Petitioner’s writ of certiorari is whether the

presumption against extraterritorial application of statutes prevents the application of 11 U.S.C. §

365 to a foreign licensing agreement. The Thirteenth Circuit correctly held that the presumption

against extraterritoriality bars application of Section 365 to the Vohra license agreement. The

Respondent asks that the court agree with and affirm the Thirteenth Circuit’s decision finding

that the presumption against extraterritoriality operates to preclude application of Section 365 to

a trademark licensing agreement which has no connection to the United States other than the

bankruptcy case.

As discussed below in (A), the presumption against extraterritorial application of a statute

is a canon of construction which applies in this case, and as discussed in (i) below, only a clear

and affirmative intent by Congress to give section 365 extraterritorial effect may rebut the

presumption against extraterritoriality. Morrison, supra at 2883. In section (ii), the doctrine of

international comity and the threat of conflicts with applicable foreign law preclude a bankruptcy

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court injunction from marshalling the power of foreign courts to restrain a foreign creditor who

has no other connection to the United States except for this bankruptcy. Finally, as discussed in

(B) below, Chapter 15 of the Bankruptcy Code provides guidance on how an entity acting on

behalf of a bankruptcy estate should engage foreign insolvency courts to obtain relief under this

title, instructing trustees to cooperate with foreign courts and to act according to applicable

foreign law.

A. Presumption Against Extraterritoriality in General

Congress unquestionably has the authority to enforce its laws outside the territorial

boundaries of the United States. E.E.O.C. v. Arabian-American Oil Co., 499 U.S. 244, 248, 113

L. Ed. 2d 274, 111 S. Ct. 1227 (1991) (“Aramco”). However, whether Congress has intended to

give a statute extraterritorial effect is a matter of statutory construction. Stegeman v. United

States, 425 F.2d 984, 986 (9th Cir. 1970)(en banc). Unless a contrary congressional intent is

apparent, a law is presumed “to apply only within the territorial jurisdiction of the United

States.” Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285, 93 L. Ed. 680, 69 S. Ct. 575 (1949).

Congressional intent is analyzed by first looking to the statutory language itself for an

intent to apply the statute beyond the territorial boundaries of the United States. Aramco, 499

U.S. at 248. “Unless there is the affirmative intention of Congress clearly expressed, we must

presume it is primarily concerned with domestic conditions.” Id. “When a statute gives no clear

indication of an extraterritorial application, it has none.” Morrison v. Nat’l Austl. Bank Ltd., 130

S. Ct. 2869, 2878 (2010). In fact, the Supreme Court has “repeatedly held that even statutes that

contain broad language in their definition of ‘commerce’ that expressly refer to ‘foreign

commerce’ do not apply abroad.” Aramco, 499 U.S. at 251.

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Prior to the Aramco line of Supreme Court cases, when a court could not determine

Congressional intent through the above statutory construction analysis, some circuit and district

courts had determined that, “intent may be discerned with reference to similarly-phrased

legislation, or the statutory scheme.” In re Simon, 153 F.3d 991, 995 (9th Cir. 1998). If this

proves inconclusive, legislative history may be consulted. Id. Then, if the legislative history is

not sufficient, administrative interpretations of the law may be considered. Id.

Even more extreme, other earlier court cases articulated at least three factors which they

have claimed warrant disregarding the presumption against extraterritoriality altogether, but the

Supreme Court has since rejected these arguments. First, they argued “the presumption is

generally not applied where the failure to extend the scope of the statute to a foreign setting will

result in adverse effects within the United States.” Environmental Defense Fund, Inc. v. Massey,

300 U.S. App. D.C. 65, 986 F.2d 528, 531 (D.C. Cir. 1993) (citing Steele v. Bulova Watch Co.,

344 U.S. 280, 97 L. Ed. 319, 73 S. Ct. 252 (1952)). Second, the presumption would not apply

when “the regulated conduct is intended to, and results in, substantial effects within the United

States.” Laker Airways, Ltd. V. Sabena Belgian World Airlines, 235 U.S. App. D.C. 207, 731

F.2d 909, 925 (D.C. Cir. 1982). Third, a court may consider “whether the wrongful conduct

occurred in the United States.” SEC v. Berger, 322 F.3d 187, 192-193 (CA2 2003). These have

been deemed the “effects test” and the “conduct test” by the Second Circuit, which others have

followed; however, the Supreme Court has since found these tests unpredictable and difficult to

administer. Morrison at 2879.

Morrison has established that while the effects and conduct in a particular case are factors

to be considered, they are too speculative in nature and thus not sufficient to disregard to the

presumption against extraterritoriality. Id at 2881. Instead, the presumption against

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extraterritoriality must be applied “in all cases, preserving a stable background against which

Congress can legislate with predictable effects.” Id. Furthermore, “when a statute provides for

some extraterritorial application, the presumption against extraterritoriality operates to limit that

provision to its terms.” Id at 2883.

Justice Breyer, in his concurrence in Morrison, called this the “transactional test”, and he

disagreed with the Court’s decision to disregard the “conduct and effects” tests, arguing that the

Court opinion renders context inapplicable. Id at 2889. The Court’s opinion, however,

acknowledged that a clear Congressional intent that a law apply extraterritorially may be

determined through context as well as a careful reading of the text itself, but simply made the

presumption against extraterritoriality applicable in all cases. Id at 2883.

The presumption against extraterritoriality operates on the principle that “judicial

interference in the conduct of foreign policy” is unwarranted. Kiobel v. Royal Dutch Petro. Co.,

133 S. Ct. 1659, 1664; 185 L. Ed. 2d 671, 680 (2013). Congress “alone has the facilities

necessary to make fairly such an important policy decision where the possibilities of

international discord are so evident and retaliative action so certain.” Benz v. Compania Naviera

Hidalgo, S.A., 253 U.S. 138, 147, 77 S.Ct. 699, 1L. Ed. 2d 709 (1957).

1. Extraterritorial Application of Bankruptcy Laws

Foodstar, the Petitioner in this case is asking the court to find that 11 U.S.C. § 365

applies extraterritorially in order to reject the trademark licensing agreement it has with the

Respondent, Vohra. According to the statutory construction analysis established above by the

Supreme Court through Aramco and its progeny, there must be a clear intent by Congress to give

Section 365 of the Bankruptcy Code extraterritorial effect. Broad language in that section will

not suffice. Kiobel v. Royal Dutch Petro. Co., 133 S. Ct. 1659, 1665; 185 L. Ed. 2d 671 (2013).

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(The text, history, and purposes of the Alien Tort Statute were insufficient to overcome the

principles of the presumption against extraterritoriality in that case).

Beginning with a plain reading of Section 365, the reader comes up empty, so to speak.

There is no language whatsoever, not even broad suggestive language, in any of the text of

Section 365, which gives even a remote indication that Congress intended this section be given

extraterritorial effect. Instead, Section 365 merely prescribes the various means whereby a

trustee may assume or reject most types of executory contracts and unexpired leases, with no

mention of foreign contracts or procedures. As such, the presumption against extraterritoriality

cannot be rebutted by a plain reading of the text of 11 U.S.C. § 365.

The Petitioner would ask the court to infer Congressional intent for Section 365 through

other bankruptcy laws. Indeed, “statutory construction is a holistic endeavor.” United Sav.

Ass’n of Tex. v. Timbers of Inwood Forest Ass. 484 U.S. 365, 371; 108 S.Ct. 626, 630 (1988).

“A provision that may seem ambiguous in isolation is often clarified by the remainder of the

statutory scheme – because the same terminology is used elsewhere in a context that makes its

meaning clear.” Id. As will be discussed below, the Petitioner hopes that its reading will take

language from other parts of the Code purporting to give extraterritorial effect, and apply it

“holistically” to Section 365. However, as discussed in Timbers, a holistic reading uses context

to overcome ambiguity. Id. There is nothing ambiguous in the text of Section 365 about

whether it applies extraterritorially. That section simply does not address foreign application at

all. Petitioner’s argument does not overcome ambiguity, but rather creates it. At best,

Petitioner’s argument can only prove that the court can and should do something to protect the

foreign property of the estate, but it does not provide any guidance on how that should actually

occur in this case.

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First, Petitioners will likely concede, if not argue, that bankruptcy courts have in rem

jurisdiction over the debtor’s property, which some courts argue legally locates the property

within the jurisdictional boundaries of the United States. Commodity Future Trading Comm’n v.

Co. Petro Marketing Group, Inc., 700 F.2d 1279, 1282 (9th Cir. 1983) (interpreting 11 U.S.C. §

1471, the statutory precursor to 28 U.S.C. § 1334(e)). Title 28 of the United States Code

contains the jurisdictional grant of authority to U.S. bankruptcy courts. 28 U.S.C. § 1334(e) says

in pertinent part: “The district court in which a case under title 11 is commenced or is pending

shall have exclusive jurisdiction of all the property, wherever located, of the debtor as of the

commencement of such case, and of property of the estate…” Courts have determined that the

terms “all property, wherever located” in Section 1334 includes property located outside the

territorial boundaries of the United States. In re Simon, 153 F.3d 991, 996 (9th Cir. 1998).

While 28 U.S.C. § 1334 may clearly give the court jurisdiction over “all property,

wherever located”, including property outside of the territorial borders of the United States, this

Court noted in Morrison and reiterated in Kiobel that “the question of extraterritorial application

was a ‘merits question,’ and not a question of jurisdiction.” Kiobel v. Royal Dutch Petro. Co.,

133 S. Ct. 1659, 1664; 185 L. Ed. 2d 671, 680 (2013). Thus, 28 U.S.C. § 1334, while granting

courts jurisdiction over property located outside the territorial boundaries of the United States,

does not give them authority to enforce every provision of the Code extraterritorially.

Next, Petitioner would argue that 11 U.S.C. § 541 provides that authority to proceed

against property wherever located. After all, Section 541 incorporates the same language as the

jurisdictional grant found in 28 U.S.C. § 1334. Section 541 says, in pertinent part, “[the debtor’s

bankruptcy] estate is comprised of all the following property, wherever located and by

whomever held: …all legal or equitable interests of the debtor in property as of the

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commencement of the case.” 11 U.S.C. § 541(a). The 9th Circuit in 1998, applying Aramco,

held broadly that the jurisdictional grant in 28 U.S.C. § 1334 and 11 U.S.C. § 541 contained

sufficiently clear expressions to give extraterritorial application of the Code, even though they

refused to go so far as to actually do so. In re Simon, 153 F.3d 991, 995 (1998).

Simon’s specific holding, instead, was that because the creditor submitted to the

jurisdiction and proceedings of the U.S. bankruptcy court, the court did not need to give

extraterritorial effect to the Bankruptcy Code in that case. Id at 997. Due to the fact that the

discharge injunction would not restrain the courts in Hong Kong, but rather merely enjoin the

creditor who submitted to a U.S. court’s decision, that court did not ultimately apply the Code

extraterritorially. Id. Refusal by the creditor to abide by the discharge injunction would have

subjected them to sanctions in the U.S. bankruptcy court, rather than sanctions in a foreign court.

While that case goes far in its reasoning to say that Section 541 gives extraterritorial application

of the Bankruptcy Code, the court sidestepped actually doing so. It thus provides little guidance

as to whether a U.S. bankruptcy court can terminate a foreign entity’s right to use a trademark

solely within a foreign country. This would necessarily require restraining foreign courts,

something which Simon refused to do.

In this case, Vohra has not submitted to the decision of the U.S. bankruptcy as did the

creditor in Simon. Instead, Vohra only appeared in the bankruptcy case in order to object to the

court’s ability to apply Section 365 extraterritorially to an agreement having no connection to the

United States. (R. at 5). In essence, his appearance was an objection to the bankruptcy court’s

power to terminate his exclusive right to use the trademark in Eastlandia. Id. Even after the

bankruptcy court rejected Vohra’s license agreement, Vohra refused to relinquish his right to use

the trademark. Id. In order to fully enjoin Vohra from using the trademark in Eastlandia, the

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U.S. bankruptcy court must have power to restrain Eastlandian courts. This was a step the Simon

court was unwilling to make, resolving itself instead in the fact that U.S. court sanctions were

sufficient to enjoin the creditor in that case.

Similarly, the Fourth Circuit allowed for the assumption that Section 548 has

extraterritorial reach in In re French, but in that case they analyzed whether conduct was even

extraterritorial to warrant application of the presumption. In re French, 440 F.3d 145, 149 (4th

Cir. 2006). “This court has never defined when conduct is extraterritorial for purposes of the

presumption. We have recognized, however, that a similar inquiry—defining ‘foreign

conduct’—is particularly challenging in cases (like this one) that involve a ‘mixture of foreign

and domestic elements.’” Id. In that case, most of the perpetrators and conduct of the fraudulent

transfer were located in the United States. Id at 150. Also, the property dealt with in that case

was real property, and the title to it was subsumed within the property of the debtor’s estate. Id.

In this case, there is no such mixture of foreign and domestic elements. The conduct,

transactions, and person to be regulated is all located in Eastlandia. (R. at 4). Vohra does not

operate under the Burger Bites franchise outside of Eastlandia, and in fact his agreement limits

him to Eastlandia. Id. The agreement was executed in Eastlandia, by Vohra as licensee and by

Deshmukh, the founder of Burger Bites, as licensor, both of whom are Eastlandian citizens. Id.

Foodstar has only expanded the Burger Bites franchise outside of Eastlandia, while it has only

obtained Deshmukh’s rights to the Vohra license agreement in Eastlandia. Id.

2. International Comity and Applicable Foreign Law

Next, the In re French court analyzed whether to apply U.S. or Bahamian bankruptcy

law. Id at 152. In so doing, they considered the doctrine of international comity, and articulated

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situations in which applying foreign law would be required. Id. The court defined international

comity as “the recognition which one nation allows within its territory to the legislative,

executive or judicial acts of another nation, having due regard both to international duty and

convenience, and to the rights of its own citizens or of other persons who are under the

protection of its laws.” Id. citing Hilton v. Guyot, 159 U.S. 113, 164, 16 S.Ct. 139, 40 L.Ed. 95

(1895).

The court in that case looked to the Supreme Court’s reliance on the factors in the

Restatement (Third) of Foreign Relations Law § 403 (1987). In re French at 152. The

Restatement considers “the extent to which the activity takes place within the territory of the

regulating state, the connections, such as nationality, residence, or economic activity, between

the regulating state and the person principally responsible for the activity to be regulated, the

extent to which other states regulate such activities or may have an interest in regulating them,

the likelihood of conflict with regulation by another state, and the importance of regulation to the

regulating state.” Id at 153. See also Restatement (Third), supra, § 403(2).

In analyzing these factors, the In re French court found that Bahamian law should not

apply because the activity to be regulated in that case largely took place in the United States, the

residences and economic activity of both the perpetrators of the fraud and the victims was U.S.

based, there was a low likelihood of conflict with Bahamian laws by regulating a U.S.

domiciliary, and it was important for the U.S. to regulate such domestic activity through its

bankruptcy laws. Id. The only factor favoring application of Bahamian law was the situs of the

real property in the Bahamas, though this factor was resolved with a conflicts of law analysis

which permits application of the laws of the regulating state rather than the laws of the situs in

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some situations. Id. Finally, the court in that case only permitted extraterritorial application of

Section 548, but said nothing in regards to Section 365. Id.

In this case the property at issue is not real property in a foreign country, the title of

which is held by U.S. citizens, but rather it is the legal rights under a licensing agreement

initiated by Eastlandian parties, and carried out exclusively in Eastlandia. All of the economic

activity of the agreement occurs in Eastlandia. The purposes of U.S. bankruptcy laws would not

be frustrated because the purpose of rejecting an executory contract is to absolve the debtor of a

duty of specific performance; however, Foodstar requests that the court not only reject their duty

of specific performance, but to terminate Vohra’s right to use the trademark in Eastlandia. It is a

different inquiry altogether than simply saying the debtor’s rights under that contract are

property of the estate pursuant to Section 541. Instead, Foodstar is asking a U.S. court to enjoin

Vohra, not from suing Foodstar for specific performance under the contract as would be

expected, but rather to refrain from simply conducting his own business as usual in Eastlandia.

Foodstar asks this court to declare that a U.S. bankruptcy court injunction will have

binding authority over courts in Eastlandia, requiring them to enforce the injunction. After all,

Vohra conducts no business outside of Eastlandia under the Burger Bites trademark, so a U.S.

court sanction would do little to deter him from continuing to use the trademark. Even if the

court declares today that Section 365 applies extraterritorially, and that Section 365 allows a

debtor to terminate a licensee’s rights to use a trademark, this would be a remedy without effect;

it would be moot. Foodstar would still have to take his injunction award into an Eastlandian

court and demand that they enforce the terms of the injunction.

As discussed above, the factors used by the Supreme Court, articulated by the

Restatement (Third) of Foreign Relations Law § 403(2), in determining whether international

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comity interests favor application of foreign law, weigh heavily in favor of applying Eastlandian

law in this case. However, we needn't stop there. The Bankruptcy Code itself provides explicit

guidance to do just that through Chapter 15 of the Code.

B. Chapter 15 Procedures for Foreign Bankruptcy Proceedings.

The purpose of Chapter 15 was “to incorporate the Model Law on Cross-Border

Insolvency, so as to provide is to provide effective mechanisms for dealing with cases of cross-

border insolvency with objective of cooperation between courts of the United States” and

officers and parties thereof, and “the courts … of foreign countries involved in cross-border

insolvency cases.” 11 U.S.C. § 1501(a). Chapter 15 “applies where … creditors or other

interested persons in a foreign country have an interest in … a case or proceeding under this

title.” 11 U.S.C. § 1501(b).

Much has been said about Section 541, how it creates an estate containing “all property,

wherever located”. Chapter 15 has more to say concerning management of property of the estate

in territory foreign to the United States. Section 1505 provides the authorization of a trustee or

other entity to act in a foreign country on behalf of a bankruptcy estate. 11 U.S.C. § 1505. It

says in pertinent part, “a trustee or another entity may be authorized by the court to act in a

foreign country on behalf of an estate created under section 541. An entity authorized to act

under this section may act in any way permitted by the applicable foreign law.” Id. (Emphasis

added).2 “[A] United States based trustee or examiner authorized under § 1505 to act in a

2 “[T]he language in the last sentence is meant to emphasize that the identification of the trustee or other entity

entitled to act is under United States law, while the scope of actions that may be taken by the trustee or other entity

under foreign law is limited by the foreign law.” 10 Norton Bankr. L. & Prac. 3d 11 U.S.C. § 1505

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foreign country may want broader access to the laws of the foreign country adopting the Model

Law intact or virtually intact, including having access to any rights of turnover available under

foreign law.” In re AJW Offshore, Ltd., 488 B.R. 551, 564 (Bankr. E.D.N.Y. 2013). The court

in AJW was considering a foreign representative’s application for recognition in U.S. courts, but

Chapter 15 provides similar rights of access by parties seeking recognition abroad, and in fact

compels trustees or other authorized representatives of the estate to cooperate with foreign

courts. 11 U.S.C. § 15263.

Suffice it to say, Section 1505, by clearing up an ambiguity created by Section 541,

satisfies one of the overriding objectives of Chapter 15, namely to provide greater legal certainty

by declaring foreign law should apply in situations such as this. 11 U.S.C. § 1501(a)(2).4

Furthermore, 28 U.S.C. § 959 says that a Chapter 11 trustee or debtor in possession has a duty to

manage the property of the estate “according to the requirements of the valid laws of the State in

which such property is situated.” 28 U.S.C. § 959(b). In this case, the property of the estate,

namely rights under the licensing agreement, is situated in Eastlandia, and both of the above

statutory injunctions compel the trustee, or debtor in possession as is the case here, to apply

Eastlandian law in choosing to accept or reject the licensing agreement.

As mentioned, Foodstar’s argument that Section 541 gives broad extraterritorial

application of the Bankruptcy Code is ambiguous in answering the question of which law applies

for regulating a wholly foreign agreement with no connection to the United States. Applying the

3 11 U.S.C. § 1526 says “(a) Consistent with section 1501, the trustee or other person, including an examiner,

authorized by the court, shall, subject to the supervision of the court, cooperate to the maximum extent possible with

a foreign court or a foreign representative.

(b) The trustee or other person, including an examiner, authorized by the court is entitled, subject to the supervision

of the court, to communicate directly with a foreign court or a foreign representative.”

4 11 U.S.C. § 1501(a)(2) provides in pertinent part, “(a) The purpose of this chapter is to … provide effective

mechanisms for dealing with cases of cross-border insolvency with the objectives of – (2) greater legal certainty for

trade and investment.”

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holistic reading of the Code required by Timbers leads the reader to Chapter 15 and Section 1505

which clears up any ambiguity. A plain language reading of Section 1505 is sufficient to

conclude that Eastlandian law should govern this issue. The entity representing the Foodstar

estate must first be authorized by the court to act in a foreign country, and after that authority is

obtained the entity would then be permitted to act only insofar as the applicable Eastlandian law

permits.

Chapter 15 applies to this case because Vohra is an interested person in a foreign country

having an interest in a case or proceeding under the Bankruptcy Code. In the interest of

cooperation between foreign courts, and in furtherance of the doctrine of international comity,

Congress enacted Section 1505, which authorizes an entity acting on behalf of an estate created

under Section 541 to “act in any way permitted by the applicable foreign law.” 11 U.S.C. §

1505, see also § 1501(a). The applicable foreign law in this case is Eastlandian corollary to

Section 365. Foodstar has stipulated that Eastlandian bankruptcy law “permits rejection of

trademark licenses, but that rejection under Eastlandian law does not terminate the licensee’s

rights to use the trademark pursuant to the license.” (R. at 5).

Eastlandia has, like the United States, adopted the UNCITRAL Model Law on Cross-

Border Insolvency, and would thus likely be willing to accommodate a trustee acting on behalf

of the Foodstar bankruptcy estate. Id. However, due to the fact that every aspect of the Vohra

license agreement, including Vohra himself, is located in Eastlandia, and because Chapter 15

only authorizes an entity acting on behalf of the estate to act according to applicable foreign law,

the doctrine of international comity, the Bankruptcy Code, and our common law canons of

statutory construction lead to the conclusion that Eastlandian law must be applied to this

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agreement. In applying Eastlandian law, Respondent Vohra retains his right as licensee to

continue to use the trademark pursuant to the license.

For all of the foregoing reasons, the Thirteenth Circuit was correct in holding that Section

365 cannot be applied to a license that “has no connection to the United States other than the

licensor’s pending bankruptcy case.” (R. at 3). Instead, pursuant to Section 1505, Eastlandian

bankruptcy law governs this issue. While Section 541 certainly creates a bankruptcy estate of

“all property, wherever located”, Section 1505 requires that an entity acting on behalf of that

estate in a foreign proceeding act according to applicable foreign law. Thus, the Respondent

respectfully asks this honorable court to affirm the Thirteenth Circuit’s decision below refusing

to apply Section 365 to the Vohra license.