Team P27

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 PETITIONER

Team P27

Counsel for Petitioner

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i

QUESTIONS PRESENTED

I. Whether rejection of an executory contract for a trademark license under 11 U.S.C. § 365

terminates the licensee’s right to use the trademark.

II. Whether the presumption against extraterritorial application of statutes prevents the

application of 11 U.S.C. S 365 to a trademark licensing agreement in which the licensor is a

U.S. company, the licensee is a foreign citizen, and the license of for use of the trademark in

the licensee's home nation.

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TABLE OF CONTENTS

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

TABLE OF CONTENTS ............................................................................................................. ii

TABLE OF AUTHORITIES ...................................................................................................... iv

OPINIONS BELOW ................................................................................................................... vii

STATEMENT OF JURISDICTION ......................................................................................... vii

RELEVANT STATUTORY PROVISIONS ............................................................................ vii

STATEMENT OF THE CASE .................................................................................................... 1

SUMMARY OF THE ARGUMENT .......................................................................................... 2

ARGUMENT ................................................................................................................................. 3

I. THIS COURT SHOULD REVERSE THE THRITEENTH CIRCUIT BECAUSE

REJECTION OF AN EXECUTORY CONTRACT FOR A TRADEMARK

LICENSE UNDER 11 U.S.C. § 365 NECESSARILY RELIEVES BOTH PARTIES

OF PERFORMANCE OF THE CONTRACT PROVISIONS. .................................... 4

A. The plain meaning of rejection is more than just a breach of contract and

therefore rejection terminates the licensee’s right to use the trademark. ............... 6

B. Congress intended rejection to terminate all parties’ rights and obligations under

rejected executory contracts. ........................................................................................ 8

i. Congress’ contextual use of “rejection” and the remaining text of the Bankruptcy

Code indicate that Congress intended rejection to terminate the licensee’s use rights.

..................................................................................................................................... 8

ii. Committee reports clearly reflect Congress’ intended rejection to terminate the

licensee’s use rights. .................................................................................................. 10

C. The overarching policies behind bankruptcy law require termination of the

licensee’s right to use trademarks after contract rejection. .................................... 11

II. APPLICATION OF THE BANKRUPTCY CODE TO THE LICENSING

AGREEMENT DOES NOT VIOLATE THE PRESUMPTION AGAINST

EXTRATERRIORIAL APPLICATION OF STATUTES. ........................................ 13

A. The evidence that Congress intended the Bankruptcy Code to apply

extraterritorially is sufficient to overcome the presumption against

extraterritoriality ........................................................................................................ 14

i. The Bankruptcy Code and the context surrounding its passage demonstrate

Congress’s intent to apply the Code extraterritorially ............................................... 14

ii. Declining to apply the Bankruptcy Code extraterritorially would undermine the

policies of the Code and encourage the type of devious behavior the Code strives to

avoid .......................................................................................................................... 19

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B. Applying the rejection power to Foodstar’s licensing agreement with Vohra does

not violate international comity ................................................................................. 21

i. Allowing rejection of the licensing agreement to apply in Eastlandia does not create

a true conflict and does not violate international comity .......................................... 22

ii. The UNCITRAL Model Law on Cross-Border Insolvency promotes cooperation

between foreign proceedings and reduces concerns over comity and extraterritorial

application ................................................................................................................. 24

CONCLUSION ........................................................................................................................... 27

APPENDIX A: Selected Sections from Title 11 of the United States Code. ............................. I

APPENDIX B: Selected Section from Title 28 of the United States Code. ............................ VI

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TABLE OF AUTHORITIES

United States Statutes:

11 U.S.C. § 1506 (2012) ............................................................................................................................. 25

11 U.S.C. § 1522(a) (2012) ......................................................................................................................... 25

11 U.S.C. § 365 (2012) ................................................................................................................................. 3

11 U.S.C. § 365(a) (2012) ......................................................................................................................... 4, 8

11 U.S.C. § 365(g) (2012) ............................................................................................................................ 9

11 U.S.C. § 541(a) (2012) ............................................................................................................... 14, 16, 18

11 U.S.C. § 70(a) (repealed 1978) .............................................................................................................. 16

28 U.S.C. 1334(e)(1) (2012) ................................................................................................................. 14, 16

United States Supreme Court Cases:

Bilski v. Kappos, 130 S. Ct. 3218 (2010) ...................................................................................................... 6

EEOC v. Arabian American Oil Co. (Aramco), 499 U.S. 244 (1991) .................................................. 13, 15

FDIC v. Meyer, 510 U.S. 471 (1994) ............................................................................................................ 5

Grogan v. Garner, 498 U.S. 279 (1991) ..................................................................................................... 12

Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993) ......................................................................... 23

Hilton v. Guyot, 159 U.S. 113 (1895) ......................................................................................................... 22

Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) ............................................................. 6

Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013) .................................................................. 15

Kokoszka v. Belford, 417 U.S. 642 (1974) .................................................................................................. 20

Morrison v. Natl. Australia Bank Ltd., 130 S.Ct. 2869 (2010) ....................................................... 14, 15, 16

N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513 (1984) ............................................................................ 9, 11

Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012) .................................................................... 5

Otte v. U. S., 419 U.S. 43 (1974) ................................................................................................................ 20

RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (2012) ............................................ 5

Roberts v. Sea-Land Servs., Inc., 132 S. Ct. 1350 (2012) ............................................................................. 5

Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Ct. for S. Dist. of Iowa, 482 U.S. 522 (1987) ... 23

Stone v. I.N.S., 514 U.S. 386 (1995) ......................................................................................................... 6, 9

The Delaware, 161 U.S. 459 (1896) ........................................................................................................... 10

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Toibb v. Radloff, 501 U.S. 157 (1991) ........................................................................................................ 12

U.S. v. American Trucking Ass’ns, 310 U.S. 534 (1940) .............................................................................. 5

United States v. Ron Pair Enters., Inc., 489 U.S. 235 (1989) ....................................................................... 5

United States v. Smith, 499 U.S. 160 (1991) ................................................................................................. 5

Wirtz v. Bottle Blowers Ass’n, 389 U.S. 463 (1968) ................................................................................... 10

Young v. Higbee Co., 324 U.S. 204 (1945) ........................................................................................... 12, 21

Zuni Pub. Sch. Dist. No. 89 v. Department of Educ., 127 S. Ct. 1534 (2007) .............................................. 5

United States Court of Appeals Cases:

Barcamerica Int'l USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002) .............................. 12

Eva's Bridal Ltd. v. Halanick Enterprises, Inc., 639 F.3d 788 (7th Cir. 2011) ........................................... 13

In re Exide Technologies, 607 F.3d 957 (3d Cir. 2010) ................................................................................ 4

In re French, 440 F.3d 145 (4th Cir. 2006) ................................................................................................ 18

In re Maxwell, 93 F.3d 1036 (2nd Cir. 1996) ....................................................................................... 23, 24

In re Simon, 153 F.3d 991 (9th Cir. 1998) ............................................................................................ 17, 23

In re XMH Corp., 647 F.3d 690 (7th Cir. 2011) ......................................................................................... 13

Jaffe v. Samsung Electronics Co., Ltd., 737 F.3d 14 (4th Cir. 2013) ......................................................... 25

Lubrizol Enters, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985) ............................ 5

Matter of Rimsat, Ltd., 98 F.3d 956 (7th Cir. 1996) ................................................................................... 17

Sunbeam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012) ............................. 4, 7, 8

United States District Court Cases:

In re Globo Comunicacoes e Participacoes S.A., 317 B.R. 235 (S.D.N.Y. 2004) ..................................... 16

In re United Pan-Europe Communications N.V., No. 03 Civ. 1060 (DC), 2004 WL 48873 (S.D.N.Y. Jan.

9, 2004) ................................................................................................................................................... 19

Polish v. Johnson Serv. Co., 173 F. Supp. 776 (E.D. Pa. 1959) ................................................................. 19

United States Bankruptcy Court Cases

In re B.W. Dev. Co., 49 B.R. 129 (Bankr. W.D. Ky. 1985) ........................................................................ 19

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In re Bankr. Est. of Midland Euro Exch. Inc., 347 B.R. 708 (Bankr. C.D. Cal. 2006) ................... 18, 20, 21

In re Centura Software Corp., 281 B.R. 660 (Bankr. N.D. Cal. 2002) ........................................................ 9

In re Rajapakse, 346 B.R. 233 (Bankr. N.D. Ga. 2005) ............................................................................. 16

In re Sieger, 200 B.R. 636 (Bankr. N.D. Ind. 1996) ................................................................................... 11

Other Authorities

Assume Antonym, THESAURUS.COM, http://thesaurus.com/browse/assume (accessed 1/4/2014) ................ 9

BLACK’S LAW DICTIONARY (9th ed., West 2009) .................................................................................... 7, 9

H.R. DOC. NO. 93-137 (1973) ..................................................................................................................... 12

H.R. REP. NO. 82-2320 (1952) .................................................................................................................... 16

H.R. REP. NO. 95-595 (1977)...................................................................................................................... 11

H.R. REP. NO. 95-989 (1977) ...................................................................................................................... 17

James M. Wilton, Andrew G. Devore, Trademark Licensing in the Shadow of Bankruptcy, 68 Bus. Law.

739 (2013) ............................................................................................................................................... 12

Kelly Gould, Don't Rely on Plain Meaning, Trust Your Intuition: Trustees Are Not "Individuals" Eligible

to Recover Punitive Damages Under S 362(k), 29 Emory Bankr. Dev. J. 465 (2013) ............................. 5

Oxford English Dictionary (2d ed. 1989) ................................................................................................. 6, 8

Restatement (Second) of Contracts § 237 (1981) ................................................................................. 12, 13

Restatement (Third) of Foreign Relations Law § 403 (1987) ..................................................................... 22

S. REP. NO 100-505 (1998) ................................................................................................................... 10, 13

S. REP. NO. 95-989 (1978) .................................................................................................................... 11, 17

UNCITRAL Legislative Guide on Insolvency Law, U.N. Sales No. E.05.V.10 (2005) ...................... 25, 26

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OPINIONS BELOW

The opinions of the United States Bankruptcy Court for the District of Moot and United

States District Court for the District of Moot are unreported and therefore are unavailable. The

opinion of the United States Court of Appeals for the Thirteenth Circuit reversing the decision of

the United States Bankruptcy Court for the District of Moot is unreported and found at page 2 in

the Record.

STATEMENT OF JURISDICTION

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

RELEVANT STATUTORY PROVISIONS

The statutory provisions listed below are relevant to determine the present case, and

selected statutes are reproduced in Appendices A and B.

11 U.S.C. §§ 101(35A), 365, 541, 1506, 1522 (2012);

28 U.S.C. § 1334.

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STATEMENT OF THE CASE

This case involves the rejection of a contract licensing Foodstar’s “Burger Bites”

trademark to Ravi Vohra. (R. at 3). Foodstar is the franchisor for the Burger Bites fast food

chain. (R. at 3). Desiring to boost revenue, the company acquired Minicakes, a successful

miniature cupcake chain. (R. at 3). Foodstar wanted its Burger Bites restaurants to sell both its

miniature burger, and the miniature cupcakes, but the project failed leaving Foodstar in debt and

without the necessary funds to operate its franchises. (R. at 3). Foodstar filed for chapter 11

bankruptcy in an attempt to reorganize, but was forced to liquidate after failing to acquire

funding. (R. at 3).

Foodstar originally obtained the worldwide rights to the Burger Bites trademark from

Viraj Deshmukh, and Eastlandian citizen. (R. at 4). Deshmukh developed the Burger Bites

concept in Eastlandia. (R. at 4) Prior to selling the trademark to Foodstar, he licensed the Burger

Bites trademark for exclusive use in Eastlandia to Ravi Vohra for a 20-year period. (R.at 4). As

part of the agreement, Foodstar acquired all of Deshmukh’s rights from the agreement with

Vohra. (R. at 4). Foodstar has the Burger Bites trademark registered in 27 nations, including the

United States and Eastlandia. (R. at 4). Foodstar advanced the Burger Bites trademark,

establishing restaurants in the United States and other nations, except for Eastlandia. (R. at 5).

In order to advance the settlement of its estate, Foodstar planned to sell its Burger Bites

trademark. (R. at 5). The trademark without the right to use it in Eastlandia would sell for 10-15

percent less than the true world-wide trademark. (R. at 5). Foodstar moved to reject its licensing

agreement with Vohra in order to create a larger estate for the benefit of its creditors. (R. at 5).

Vohra appeared in court and objected to the motion, arguing that rejection would not terminate

his license, and even if it did, the rejection power did not apply extraterritorially. (R. at 5).

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The United States Bankruptcy Court for the District of Moot entered an order granting

rejection of the contract as the higher sale price of the trademark was in the best interest of the

estate. (R. at 5). Vohra appealed to the district court, but refused to follow the order of the

bankruptcy court and asserted his intentions to continue to use to trademark in Eastlandia despite

the order. (R. at 5-6). Foodstar sought a declaration from the bankruptcy court terminating

Vohra’s rights to the trademark, and an injunction against Vohra’s use of the trademark. (R. at

6). The bankruptcy court granted the declaration and injunction upon summary judgment, which

Vohra also appealed. (R. at 6). The district court affirmed both orders, and Vohra appealed to the

Thirteenth Circuit. (R. at 6). The Thirteenth Circuit reversed the lower court’s decision. (R. at 7).

SUMMARY OF THE ARGUMENT

The cannons of statutory construction require that “rejection” under 11 U.S.C. § 365

carry a different meaning than mere breach. The plain meaning of “reject” suggests that the

rights of both parties are terminated under the agreement, and neither party can continue to

perform. Section 365 provides that a trustee may reject a contract, and for certain types of

contracts, provides that the non-debtor party maintain some rights after rejection. An example of

this is lessees of real property, or licensees of intellectual property. Section 365(n) permits a

licensee to maintain the rights to intellectual property after rejection. In order for this section to

have any meaning, any licensee of non-intellectual property, such as a trademark, must not be

allowed to retain the rights after rejection.

Had Congress intended for the licensee of a trademark to retain the right to use the

trademark after rejection, it could have included trademarks in the definition of intellectual

property making §365(n) applicable. Congress chose not to. As a result, the only workable

meaning of rejection as applied to a trademark licensing agreement is termination of the rights of

both parties in the contract.

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While the presumption against extraterritorial application is difficult to rebut, there is

sufficient evidence in the language of the Bankruptcy Code, the context of its enactment, and its

overarching policies to allow for extraterritorial application. The language of 11 U.S.C. § 541(a)

and 28 U.S.C. § 1334(e)(1) defines the estate as including property outside of the United States,

and gives courts jurisdiction over that property. The legislative history behind this language

indicates that Congress intended the Code to have an extraterritorial reach. In addition, failing to

apply the code outside the United States would encourage unscrupulous debtors to hide assets

outside the U.S. and the reach of the courts.

Application of the Bankruptcy Code extraterritorially in this case does not violate the

ideals of international comity. Certain situations, such as a true conflict of law or a foreign

insolvency proceeding, would require a court to show restraint in extraterritorial application of

the Bankruptcy code. This is not one of those situations. The rejection applies to Vohra, and does

not conflict with any foreign proceedings. Moreover, Eastlandia has adopted the UNCITRAL

Model Law on Cross-Border Insolvency, requiring application of U.S. law for this matter.

ARGUMENT

In a bankruptcy proceeding, a trustee may reject a debtor's executory contract for the

benefit of the estate, relieving all parties of their duties and rights. 11 U.S.C. § 365 (2012). The

power to reject furthers the purpose of the Bankruptcy Code by providing a larger estate, and

thus providing larger equitable share for the creditors. Congress carved out several exceptions in

S 365, allowing lessees of real property or licensees of intellectual property to retain some rights

and obligations. 11 U.S.C. SS 365(h); 365(n). Trademarks do not fall under this exception. As

such, rejection of a trademark licensing agreement terminates the licensee's rights to use the

trademark. Any other interpretation of rejection as applied to trademark licensing would render

the exception sections of § 365 redundant, harm the efficacy of bankruptcy proceedings by

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reducing the value of the estate, and force a licensor in bankruptcy to fund the maintenance of a

trademark to the detriment of the estate.

The rejection power itself is an action of the property of the estate, which consists of

property held outside the United States. As such, the presumption against extraterritoriality does

not bar application of contract rejection outside the U.S. There is sufficient evidence in the

language of the Bankruptcy Code, and in the context of its passage that indicate Congress

intended courts to have jurisdiction over a debtor's property residing outside the U.S. and the

power to act on that property for the benefit of the estate. In addition, international comity

concerns do not bar application of the rejection power to a contract concerning the use of a

trademark in Eastlandia.

I. THIS COURT SHOULD REVERSE THE THRITEENTH CIRCUIT BECAUSE

REJECTION OF AN EXECUTORY CONTRACT FOR A TRADEMARK

LICENSE UNDER 11 U.S.C. § 365 NECESSARILY RELIEVES BOTH PARTIES

OF PERFORMANCE OF THE CONTRACT PROVISIONS.

11 U.S.C. § 365(a) states “…the trustee, subject to the court's approval, may assume or

reject any executory contract or unexpired lease of the debtor.” An executory contract is one

where material performance obligations remain for both parties at the time bankruptcy is filed. In

re Exide Technologies, 607 F.3d 957, 962 (3d Cir. 2010). What remains unclarified is the

definition of “reject.” It is undisputed that rejection relieves the debtor of the executory

contract’s performance obligations, constitutes a breach of the contract, and provides the non-

debtor party to a pre-petition claim for damages arising from that breach. E.g., Sunbeam

Products, Inc. v. Chicago Am. Mfg., LLC, 686 F.3d 372, 377 (7th Cir. 2012). However, the

circuits are split as to what effect rejection has on the non-debtor’s rights and obligations under

the contract. Compare, e.g., id., (“What 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.”), with, e.g.,

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Lubrizol Enters, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1048 (4th Cir. 1985)

(“Lubrizol…could not seek to retain its contract rights in the technology…”).

The Court has adopted several rules of statutory interpretation for discerning a statute’s

meaning. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065, 2073 (2012).

Use of these “canons” may promote consistency in the law, and our economy depends upon

consistent interpretation of the Bankruptcy Code. Kelly Gould, Don't Rely on Plain Meaning,

Trust Your Intuition: Trustees Are Not "Individuals" Eligible to Recover Punitive Damages

Under S 362(k), 29 Emory Bankr. Dev. J. 465, 486 (2013).

First and foremost, the plain meaning of the statutory text should be followed unless it

yields an absurd result. Zuni Pub. Sch. Dist. No. 89 v. Department of Educ., 127 S. Ct. 1534,

1549-50 (2007) (Stevens, J., concurring). A statute’s plain meaning can be discerned through

statutory definitions of terms or through dictionary definitions. See FDIC v. Meyer, 510 U.S.

471, 476 (1994).

Where the text is ambiguous or yields an absurd result, courts should look to the intent of

the drafters. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989). Intent is derived

from context; therefore the surrounding text provides guidance. See U.S. v. American Trucking

Ass’ns, 310 U.S. 534, 542-43 (1940). Thus, statutory provisions must not be construed in a

“vacuum,” but must be considered in context with the “overall statutory scheme.” Roberts v.

Sea-Land Servs., Inc., 132 S. Ct. 1350, 1357 (2012) (internal quotations omitted). Furthermore,

there is a presumption that different words mean different things. Nat’l Fed’n of Indep. Bus. v.

Sebelius, 132 S. Ct. 2566, 2583 (2012). Where Congress has created exceptions within a statute,

additional exceptions should not be created absent congressional intent. United States v. Smith,

499 U.S. 160, 167 (1991). Moreover, provisions should be interpreted in such a way as not to

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render other provisions of the statute superfluous or unnecessary. Bilski v. Kappos, 130 S. Ct.

3218, 3228 (2010). There is also a presumption that Congress intends for statutes to have “real

and substantial effect.” Stone v. I.N.S., 514 U.S. 386, 397 (1995). Finally, in addition to context,

this Court has looked to committee reports to assist in determining congressional intent. Intel

Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241, 249 (2004).

Upon applying the canons of interpretation, rejection should only be seen as a bankruptcy

provision that terminates both the debtor’s and the non-debtor’s remaining rights and obligations

under an executory contract. The plain meaning of “rejection,” the contextual inferences the

remaining statutory text contribute, the intent of Congress, and the overarching policies of

bankruptcy law together prohibit allowing a non-debtor to retain rights provided in an executory

contract post-rejection.

A. The plain meaning of rejection is more than just a breach of contract and therefore

rejection terminates the licensee’s right to use the trademark.

Ascertaining the meaning of rejection requires more than just a review of the statute’s

text. Dictionary definitions and a review of the United States Circuit Court of Appeals decisions

support defining rejection as termination of both the debtor’s and the non-debtor’s rights and

obligations under the rejected contract.

For example, a common definition of the word “reject” is “a thing rejected as

unsatisfactory.” Oxford English Dictionary (2d ed. 1989). Furthermore, Black’s Law Dictionary

defines “rejection” as the following:

1. A refusal to accept a contractual offer.

2. A refusal to accept tendered goods as contractual performance.

3. Parliamentary law. Failure of adoption or ratification.

4. Patents. A patent examiner’s finding in an office action that a claim in an

application is unpatentable.

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BLACK’S LAW DICTIONARY 1400 (9th ed., West 2009). Although the legal definition applies to

contract law, parliamentary law, and patent law, both the common and the legal definitions

provide insight. To reject is to refuse. Thus, in rejecting a contract with provisions not yet

performed, the debtor is refusing the terms of the contract that have not yet been performed.

Furthermore, the effect of rejection on executory contracts has been settled for nearly

twenty years by the Fourth Circuit Court of Appeals. Lubrizol Enters. Inc., 756 F.2d 1043. In

Lubrizol, Richmond Metal Finishers (“RMF”) licensed its metal coating process technology to

Lubrizol Enterprises, Inc. 756 F.2d at 1045. After filing a petition for bankruptcy under Chapter

11 of the Bankruptcy Code, RMF obtained the bankruptcy court’s approval to reject the licensing

agreement with Lubrizol. Id. at 1044. Lubrizol appealed, and the district court reversed on the

grounds that the licensing agreement was not executory, or in the alternative, that rejection

would not benefit RMF. Id. RMF appealed, and the Fourth Circuit reversed. Id. The court found

that the agreement was executory, id. at 1046, and more importantly, that rejection would benefit

RMF because rejection relieved RMF of all obligations under the agreement, including the

obligation to allow Lubrizol continued use of the license post-rejection, id. at 1048. Looking to

the legislative history to determine the purpose of rejection, the court there found that rejection

entitled Lubrizol to a money damages remedy only, with no right to continue using he license.

Id. at 1048.

However, the Seventh Circuit Court of Appeals declined to follow the Lubrizol holding in

Sunbeam Products v. Chi. Am. Mfg. 686 F.3d at 378. In Sunbeam, Lakewood Engineering &

Manufacturing Co. licensed patents and trademarks for box fans to Chicago American

Manufacturing. Id. at 374. After Lakewood’s creditors filed an involuntary bankruptcy petition

against it, the court-appointed trustee sold Lakewood’s assets, including the patents and

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trademarks, to Sunbeam Products. Id. The trustee also rejected the agreement with Chicago

American Manufacturing Co. under 11 U.S.C. § 365(a). Id. Chicago American Manufacturing

Co. continued to use the trademarks, and Sunbeam sought relief from the bankruptcy court. Id. at

375. Upon appeal, the Seventh Circuit found that although rejection relieves the debtor’s

obligations, id. at 377, rejection has no effect upon the non-debtor’s rights, id. at 378. That court

looked to the Bankruptcy Code’s exception for rejection of lease agreements, where the non-

debtor’s use rights are protected, and applied that reasoning to the rejection of trademark license

agreements. Id. at 377.

The Seventh Circuit erred in this analysis, however. Rejection only allows lessees of real

property to maintain use rights because Congress created this statutory exception in § 365(h).

There is no statutory exception for trademarks, and following the Seventh Circuit’s reasoning

would render the statutory exceptions under §§ 365(h) and 365(n) redundant.

B. Congress intended rejection to terminate all parties’ rights and obligations under

rejected executory contracts.

i. Congress’ contextual use of “rejection” and the remaining text of the Bankruptcy

Code indicate that Congress intended rejection to terminate the licensee’s use rights.

Beyond the implications of the plain meaning of rejection, the surrounding statutory text

and the policy behind the Bankruptcy Code further illuminate the drafters’ intentions regarding

the effects of rejection under § 365(a). The surrounding text of § 365 suggests that “reject” is the

antithesis of “assume.” Section 365(a) requires the trustee to do one of two things: “assume” or

“reject” executory contracts. 11 U.S.C. § 365(a) (2012). The Bankruptcy Code does not

expressly define either “assume” or “reject.” A common definition for “assume” is “to take unto

(oneself), receive, accept, adopt.” OXFORD ENGLISH DICTIONARY (2d ed. 1989). Further, Black’s

Law Dictionary defines “assumption” as:

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(1) A fact or statement taken as true or correct; a supposition. <a logical

assumption>.

(2) The act of taking (esp. someone else’s debt or other obligation) for or on

oneself; the agreement to so take. <assumption of a debt>. –assume, vb.

BLACK’S LAW DICTIONARY 143.

When these definitions are applied to § 365, they imply that both parties retain their

rights and obligations under an assumed contract. See In re Centura Software Corp., 281 B.R.

660, 668 (Bankr. N.D. Cal. 2002). Moreover, “reject” is an antonym for “assume.” Assume

Antonym, THESAURUS.COM, http://thesaurus.com/browse/assume (accessed 1/4/2014). Thus, if

parties to an assumed contract retain their rights and obligations under the contract, and “reject”

is an antonym for “assume,” then parties to a rejected contract must lose their rights and

obligations under the contract, unless the Bankruptcy Code specifies otherwise. In fact, the Code

does specify that rejection of an executory contract constitutes a breach of that contract. 11

U.S.C. § 365(g) (2012). It is well-settled that this breach of contract entitles the non-debtor to a

money damages claim and relieves the debtor of the performance obligations of the contract. See

N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513, 530 (1984). The only other exceptions in § 365 to

the non-debtor’s loss of rights and obligations in rejected contracts applies specifically to

executory contracts for real estate, time share interests, and intellectual property as defined in §

101(35)(A).

Because Congress must be presumed to have enacted § 365(a) for a specific purpose, it is

unreasonable to consider “rejection” as just another word for “breach.” Statutes must have “real

and substantial effect.” Stone, 514 U.S. at 397. As noted by the dissent below, debtors already

possess the power to breach a contract. (R. at 15). Moreover, interpreting “rejection” as simply a

contract breach that leaves the non-debtor licensee’s use rights intact renders subsections 365(h),

365(i), and 365(n) redundant. If Congress intended for the non-debtor party to retain contract

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rights post-rejection, there would be no reason to enumerate specific exceptions to the automatic

termination of rights in executory contracts for real estate, timeshare interests, or intellectual

property. These exceptions “prove the rule,” and indicate that Congress intended rejection to

terminate both parties’ rights and obligations under executory contracts.

ii. Committee reports clearly reflect Congress’ intended rejection to terminate the

licensee’s use rights.

Courts may look to extrinsic sources to determine congressional intent and meaning of

statutes. See Wirtz v. Bottle Blowers Ass’n, 389 U.S. 463, 468 (1968). Committee reports are

often superior sources for clarifying the intent of statutory provisions. See The Delaware, 161

U.S. 459, 472 (1896). The Senate Judiciary Committee report for the Intellectual Property

Bankruptcy Protection Act of 1987 sheds light on Congress’ intentions regarding rejection of

executory contracts for trademark licenses as well as executory contracts in general. See S. REP.

NO 100-505 (1998). The report describes the exception created for intellectual property licenses,

which provides the licensee an option to retain use rights post-rejection. Id.

Although the report specifically excludes the “…the rejection of executory trademark,

trade name or service mark licenses by debtor-licensors,” id. at *5, the discussion of what the bill

does accomplish conceptualizes the effect of rejection where Congress has not created an

exception. In the overview of the bill, the report describes the exception Congress created for

real property under § 365(h). Id. at *4. Subsequently, the report goes on to state “…that it does

not accord special treatment for intellectual property or the interests of its licensors or licensees

beyond that which Congress has recognized in the past is required for these other unique

property rights.” Id. If Congress perceived a need to create an exception to § 365 to allow non-

debtor parties to real estate executory contracts and intellectual property executory contracts to

retain rights post-rejection, that must mean that without the exception there would be no use

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rights post-rejection. This conclusion, combined with the fact that trademarks are not included in

any stated exception, further concludes that a trademark licensee has no use rights post-rejection.

Additionally, both the House and Senate Judiciary Committee reports to accompany the

Bankruptcy Reform Act of 1978 discuss the new Bankruptcy Code, and explain the purpose of

many of the provisions. The explanation for § 365(g) states the following:

Subsection (g) defines the time as of which rejection of an executory contract or

unexpired lease constitutes a breach of the contract or lease. Generally, the breach

is as of the date immediately preceding the date of the petition. The purpose is to

treat rejection claims as prepetition claims. The remainder of the subsection

specifies different times for cases that are converted from one chapter to another.

The provisions of the subsection are not a substantive authorization to breach or

reject an assumed contract. Rather, they prescribe the rules for the allowance of

claims in case an assumed contract is breached, or if a case under Chapter 11 in

which a contract has been assumed is converted to a case under Chapter 7 in

which the contract is rejected.

H.R. REP.NO. 95-595, at 349 (1977); S. REP. NO. 95-989, at 60 (1978) (emphasis added). These

reports make clear that Congress intended § 365(g) not to reduce rejection to merely a breach of

contract suitable to contract law remedies, but to use rejection as a timing mechanism that

transforms the non-debtor’s claim to a pre-petition claim. Moreover, the reports use both

“breach” and “reject” in the same sentence, indicating different meanings for each term.

C. The overarching policies behind bankruptcy law require termination of the

licensee’s right to use trademarks after contract rejection.

The Bankruptcy Code was created with two overarching policies serving as a foundation

for all bankruptcy provisions: “the financial fresh start policy” and the policy of “equitable

distribution of the estate.” In re Sieger, 200 B.R. 636, 638 (Bankr. N.D. Ind. 1996); see also

Thomas H. Jackson, The Logic and Limits of Bankruptcy Law 4 (Harvard University Press 1986,

Beard Books 2001). These policy interests must be considered when interpreting any bankruptcy

provision. See Bildisco & Bildisco, 465 U.S. at 527. This Court has stated that a “central

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purpose” of the Bankruptcy Code is to provide unfortunate debtors with a financial fresh start,

“unhampered by the pressure and discouragement of preexisting debt.” Grogan v. Garner, 498

U.S. 279, 286 (1991). Additionally, the Bankruptcy Code provides for the equitable distribution

of the estate to the creditors. See Young v. Higbee Co., 324 U.S. 204, 210 (1945). Generally, pre-

petition claims are equally prioritized. H.R. DOC. NO. 93-137, pt. 1, at 69 (1973). Moreover,

because the Bankruptcy Code calls for equitable distribution of the estate, the trustee is required

to manage assets to maximize the value of the estate. Toibb v. Radloff, 501 U.S. 157, 163 (1991).

Allowing licensees to retain trademark use rights after rejection frustrates the Bankruptcy

Code’s policies. Post-rejection use rights may reduce the value of the trademark. (R. at 5).

Additionally, post-rejection use may risk loss of trademark ownership through naked licensing.

James M. Wilton, Andrew G. Devore, Trademark Licensing in the Shadow of Bankruptcy, 68

Bus. Law. 739, 770 (2013); see Barcamerica Int'l USA Trust v. Tyfield Importers, Inc., 289 F.3d

589, 595 (9th Cir. 2002). Reducing the value of the estate results in harm to all creditors, and the

burdens associated with avoiding naked licensing are not conducive to a fresh start for the

debtor.

In the present case, the trademark in question would be valued 10-15% higher were

Vohra’s license rights terminated. (R. at 5). Moreover, regardless of whether Vohra is currently

paying royalties to Foodstar’s estate, the record does not reflect any post-rejection requirement or

process for Vohra to compensate Foodstar’s estate for use of the trademark. Basic contract law

prohibits a breaching party from enforcing contract terms while in breach. Restatement (Second)

of Contracts § 237 (1981). Because rejection places Foodstar’s estate in breach, should Vohra

not pay royalties to the estate, the estate has no legal remedy. Essentially, allowing Vohra to

continue to exercise use rights post-rejection gives Vohra free use of the trademark with no

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responsibilities attached. This is clearly not in the best interest of the estate, and will surely result

in harm to all of Foodstar’s creditors in the end.

Additionally, trademark law requires that a trademark owner exercise quality control over

its licensed trademarks in order to avoid naked licensing and maintain ownership. Eva's Bridal

Ltd. v. Halanick Enterprises, Inc., 639 F.3d 788, 791 (7th Cir. 2011). Quality control measures

include license terms providing the licensor with ultimate “decision-making authority over the

mark.” In re XMH Corp., 647 F.3d 690, 697 (7th Cir. 2011). Additionally, the licensor must take

affirmative actions to ensure the mark’s quality consistency. See id. This expense could

significantly reduce the value of the estate and therefore reduce the distribution to the creditors.

Moreover, Congress purposely left trademarks out of the Intellectual Property Bankruptcy

Protection Act of 1987 precisely because of the obligations that trademark licensing places upon

the debtor-licensors. S. REP. NO. 100-505, at 5. Moreover, Foodstar’s estate cannot enforce

quality control measures on Vohra since the estate is in material breach of the contract.

Restatement (Second) of Contracts § 237.

Because allowing Vohra to retain use rights post-rejection would leave Foodstar’s estate

with the obligations of maintaining quality control over the trademark, Foodstar’s opportunity

for a fresh start is impeded. Quality control measures often require substantial resources for

effective implementation. Consequently, the risk of loss of ownership of the trademark is

significant.

II. APPLICATION OF THE BANKRUPTCY CODE TO THE LICENSING

AGREEMENT DOES NOT VIOLATE THE PRESUMPTION AGAINST

EXTRATERRIORIAL APPLICATION OF STATUTES.

Courts interpret statutes based on the presumption that they only apply within the

territory of the United States unless Congress intended extraterritorial application. See generally

EEOC v. Arabian American Oil Co. (Aramco), 499 U.S. 244 (1991). While demonstrating

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Congress’s intent to apply a statute outside the U.S. is often difficult, there is sufficient evidence

in the language of the Bankruptcy Code, the context surrounding the passage of the Code, and

the overarching policies of the code to rebut the presumption against extraterritoriality. Even if a

statute rebuts the presumption, a court may sometimes refrain from applying the law

extraterritorially if such application violates policies of international comity. In this situation,

applying rejection of the licensing agreement in Eastlandia does not create a conflict that would

violate international comity

A. The evidence that Congress intended the Bankruptcy Code to apply

extraterritorially is sufficient to overcome the presumption against

extraterritoriality.

The Supreme Court has held that the statutory language and the context of a statute may

be used to determine whether or not a statute should apply extraterritorially, so long as the

construction is a faithful understanding of the text. Morrison v. Natl. Australia Bank Ltd., 130

S.Ct. 2869, 2883 (2010). The language of the Bankruptcy Code’s definition of property and the

statute granting courts jurisdiction over that property indicate that Congress intended the courts

to be able to act on property held outside United States for the benefit of the estate and creditors.

11 U.S.C. § 541(a) (2012); 28 U.S.C. 1334(e)(1) (2012). Declining to allow courts to exercise

bankruptcy powers extraterritorially, such as the avoidance power or contract rejection would

encourage devious debtors to hide assets outside the United States and the reach of the courts.

The result would create an inefficient bankruptcy system that awarded the dishonest and left

creditors with no remedy.

i. The Bankruptcy Code and the context surrounding its passage demonstrate

Congress’s intent to apply the Code extraterritorially.

Courts have long interpreted statutes “to apply only within the territorial jurisdiction of

the United States” unless Congress intended otherwise. Aramco, 499 U.S. at 248 (quoting Foley

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Bros., Inc. v. Filardo, 336 U.S. 281 (1949). Courts assume that “Congress legislates against the

backdrop of the presumption against extraterritoriality.” Id. In order to overcome this

presumption, a statute must have a clear indication of congressional intent to apply the statute

outside the territory of the United States. Id. A statute need not contain a “clear statement”

showing extraterritorial intent; “context can be consulted as well.” Morrison, 130 S.Ct. at 2883.

The Supreme Court has recently applied the presumption to several federal statutes. In

Aramco, the petitioner was a naturalized United States citizen working for a U.S. company,

Aramco, in Saudi Arabia. 499 U.S. at 247. After losing his job, the petitioner brought a Title VII

suit against Aramco for discrimination based on his race, religion, and national origin. Id. The

Supreme Court held that Title VII’s broad definitions of “commerce” and “employer,”

containing words such as “any,” was “ambiguous” and “boilerplate language” insufficient to

overcome the presumption against extraterritoriality. Id. at 249-251.

More recently the Court held that § 10(b) of the Securities Exchange Act of 1934 does

not apply extraterritorially. In Morrison, Australian stockholders who purchased stock in

Australia brought suit against an Australian company for violation of the Securities Exchange

Act. 130 S.Ct. at 2876. The company owned a Florida mortgage servicing company, and

intentionally inaccurate valuation of that company provided the basis for the suit. Id. at 2875.

The Supreme Court found nothing within the language or context of § 10(b) that indicated

Congressional intent to provide a cause of action to foreign stockholders who purchased stock in

a foreign company on a foreign market. Id. at 2883. See also Kiobel v. Royal Dutch Petroleum

Co., 133 S. Ct. 1659 (2013) (holding that the Alien Tort Statue did not apply to violations of the

law of nations occurring in foreign territory). The Court clarified the test for rebutting the

presumption, stating that a statute need not expressly state that it applies extraterritorially, but

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context may be considered so long as it adds to “‘the most faithful reading’ of the text”.

Morrison, 130 S.Ct. at 2883 (quoting Morrison, 130 S.Ct. at 2892) (Stevens, J., dissenting)).

In this case the Court must determine if the Bankruptcy Code overcomes the presumption

against extraterritoriality. Examining the language of the Bankruptcy Code provides several

indications that Congress intended it to have an extraterritorial reach. First, § 541(a) provides for

the creation of an estate at the commencement of a case that contains “all the following property,

wherever located.” 11 U.S.C. § 541(a) (2012); See also 11 U.S.C. § 1334(e)(1) (2012) (granting

District Courts jurisdiction over “all of the property, wherever located, of the debtor”). Courts

have interpreted that this language to mean that the estate includes property in foreign nations.

See, e.g., In re Globo Comunicacoes e Participacoes S.A., 317 B.R. 235 (S.D.N.Y. 2004)

(interpreting § 541 to grant in rem jurisdiction over all property, including foreign property, so

long as the court has in personam jurisdiction over the debtor); In re Rajapakse, 346 B.R. 233

(Bankr. N.D. Ga. 2005) (requiring a debtor to turn over to the trustee an apartment in England,

foreign bank accounts, and a retirement home in Canada). This is not ambiguous language, such

as this Court found insufficient in Aramco.

The legislative history of the Bankruptcy Code further indicates that Congress intended

the estate to include property located outside the United States. Prior to the enactment of the

Bankruptcy Reform Act of 1978, § 70(a) also included the term “wherever located” to define the

property of the estate. 11 U.S.C. § 70(a) (repealed 1978). A House Report on the bill indicated

that the language was changed to include the term “wherever located” for the purpose of

clarifying that the “trustee in bankruptcy is vested with the title of the bankrupt in property which

is located without, as well as within, the United States.” H.R. REP. NO. 82-2320, at 32 (1952). A

house report from the current § 541 indicates that the definition of property includes “property

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currently specified in §70a,” which would include property outside the United States. H.R. REP.

NO. 95-989, at 367 (1977); S. REP. NO. 95-989, at 82 (1978).

At the outset of a bankruptcy proceeding, the court has in rem jurisdiction over all the

property of the estate as defined by statute, and including property held in a foreign territory. In

re Simon, 153 F.3d 991, 996 (9th Cir. 1998). This creates “a fiction that the property – regardless

of actual location – is legally located within the jurisdictional boundaries” of the court. Id.

emphasis original. Holding jurisdiction over foreign property allows a court to use the provision

of the Bankruptcy Code in order to consolidate the estate and ensure each creditor gets its

equitable share.

An example of this extraterritorial application of the Bankruptcy Code comes from the

Ninth Circuit case In re Simon. Id. Odyssey International Holdings obtained a loan from a Hong

Kong operated bank, which Simon, the Odyssey’s major shareholder, personally guaranteed. Id.

at 994. Simon later filed for Chapter 7 bankruptcy, in which the bank filed a proof of claim for

$37 million. Id. The bankruptcy court discharged Simon’s debts, and issued an injunction barring

creditors from seeking payment of any discharged debts. Id. The bank filed for a declaratory

judgment allowing it to seek relief in a Hong Kong court. The bankruptcy court granted Simon’s

motion to dismiss for failure to state a claim upon which relief may be granted. Id. at 995. Upon

appeal, the Ninth Circuit held that the injunction issued by the bankruptcy court pursuant to 11

U.S.C § 524 protects the in rem jurisdiction of the court over property in another nation. Id. at

996. Accordingly, the injunction extended to an action commenced in a foreign court. Id.; see

also Matter of Rimsat, Ltd., 98 F.3d 956 (7th Cir. 1996) (holding that debtor’s receiver violated

the automatic stay by filing for more control over debtor’s assets in a foreign court).

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There is some dispute as to the extent of the Bankruptcy Code’s extraterritorial reach.

The United States Bankruptcy Court from the Central District of California declined to apply the

fraudulent transfer avoidance provision of the Code extraterritorially. In re Bankr. Est. of

Midland Euro Exch. Inc., 347 B.R. 708, 720 (Bankr. C.D. Cal. 2006); see contra In re French,

440 F.3d 145 (4th Cir. 2006). In Midland, the trustee wanted to avoid a transfer from a Barbados

corporation established to hold the proceeds of a Ponzi scheme to a Swiss exchange broker. In re

Bankr. Est. of Midland Euro Exch. Inc., 347 B.R. at 711. The court refused to apply the

avoidance provision extraterritorially, relying on prior holdings defining property held by

transferees as lying outside the property of the estate until it has been recovered as part of a

fraudulent transfer. Id at 717. Other courts have held that the fraudulent transfer avoidance power

from 11 U.S.C. § 548 applies to “all property that, absent a prepetition transfer, would have been

property of the estate, wherever that property is located.” In re French, 440 F.3d at 152.

The Fourth Circuit in In re French held that § 548 could be used to avoid a fraudulent

transfer of real property in a foreign nation. Id. at 152. The Circuit relied on the language of §

548 which permits the avoidance of “certain transfers of such ‘interest[s] of the debtor in

property.’” Id. at 151 (quoting 11 U.S.C. § 548 (2006)). Combined with the language from § 541

defining property, the Circuit determined that Congress intended for § 548 to apply to fraudulent

transfers made extraterritorially. Id. at 154.

Foodstar is a United States corporation incorporated in the State of Moot, with a proper

bankruptcy case in the District of Moot. (R. at 3, 5). As such, the bankruptcy court has

jurisdiction over all of Foodstar’s property “wherever located” in accordance with 28 U.S.C.

§1334. Foodstar’s bankruptcy estate consists of property “wherever located and by whomever

held” including “all legal or equitable interests of” Foodstar. 11 U.S.C. § 541(a) (2012). The

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executory contract between Vohra and Foodstar for the Burger Bites trademark in Eastlandia is

property of the estate. See Polish v. Johnson Serv. Co., 173 F. Supp. 776, 778 (E.D. Pa. 1959)

(holding that intangible property, such as a contract, is in constructive possession of the

bankruptcy court and the court has jurisdiction to determine “the rights of the parties”); In re

B.W. Dev. Co., 49 B.R. 129, 131 (Bankr. W.D. Ky. 1985) (finding that the bankruptcy court had

jurisdiction over a contract dispute as the contract was property of the debtor’s estate).

As the licensing contract is property of the estate under the jurisdiction of the bankruptcy

court, extraterritorial application of the rejection is proper in light of the presumption against

extraterritoriality. See In re United Pan-Europe Communications N.V., No. 03 Civ. 1060 (DC),

2004 WL 48873 (S.D.N.Y. Jan. 9, 2004) (affirming the rejection of a television licensing

agreement, and application of that rejection in Holland). Congress clearly intended “property of

the estate” to include property outside the United States. The bankruptcy court has power to act

on the estate in accordance with the Bankruptcy Code, as in French. The split in reasoning

between the decisions in Simon and Midland does not affect this case. At dispute in those case is

when a fraudulent transfer becomes part of the estate and can be avoided. Foodstar’s licensing

contract with Vohra became part of the estate at the filing of the Bankruptcy petition, and falls

under the jurisdiction of the bankruptcy court. As such, it is proper for this Court to reverse the

Thirteenth Circuit and permit rejection of the licensing contract to apply in Eastlandia.

ii. Declining to apply the Bankruptcy Code extraterritorially would undermine the

policies of the Code and encourage the type of devious behavior the Code strives to

avoid.

While there is clear evidence that Congress intended the Bankruptcy Code to apply

extraterritorially as to property of the estate and a trustee or court’s actions upon that property,

there is also the likelihood that failure to apply the Code outside the United States would

encourage behavior that eviscerates the power of a bankruptcy court to ensure the proper

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settlement of an estate. “There is, of course, an overriding concern in the [Bankruptcy] Act with

keeping fees and administrative expenses at a minimum so as to preserve as much of the estate as

possible for the creditors.” Otte v. U. S., 419 U.S. 43, 53 (1974). Failure to apply the code

extraterritorially would encourage parties facing inevitable bankruptcy to hide assets through

foreign transactions that a bankruptcy court could not reach, and thus decrease the size of the

estate, increase costs to the court in attempts to avoid such transactions, and further delay

settlement of an estate.

In re Bankr. Est. of Midland Euro Exch. Inc. provides a clear example of the problems

that arise when a court declines to apply the Bankruptcy Code extraterritorially. 347 B.R. 708

(Bankr. C.D. Cal. 2006). In contrast with the Circuit from In re French, the Court in Midland

held that property fraudulently transferred did not become part of the estate until that transfer had

been avoided. Id. at 718. Midland involved an involuntary Chapter 7 proceeding against the

estates of the Leichners and the various entities they utilized in a Ponzi scheme. Id. at 711.

Creditors filed proofs of claim in excess of $100 million against the estate. Id. The trustee

attempted to avoid a transfer to a Swiss exchange broker the Leichners used to trade in currency,

but the Court refused to apply the avoidance power extraterritorially. Id. at 713. As result, a

chunk of the money the Leichners stole in their scheme benefitted a Swiss bank instead of being

returned to the defrauded investors.

Congress never intended the Bankruptcy Code to function in this manner. One of the

clear purposes of the Code is “to assemble, once a bankruptcy petition is filed, all of the debtor's

assets for the benefit of his creditors.” Kokoszka v. Belford, 417 U.S. 642, 650 (1974). Refusing

to recognize the intent of Congress to apply the code extraterritorially encourages transfers such

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as the one in Midland, and denies creditors their equitable share of the estate. The Court from

Midland even recognized the possible harm its decision could cause:

The efficacy of the bankruptcy proceeding depends on the court’s ability to control and

marshal the assets of the debtor wherever located. Failure to extend application of § 548

to transfers outside the territorial borders of the United States creates a loophole for

unscrupulous debtors to freely transfer their assets to shell entities abroad and avoid the

reach of the Bankruptcy Code.

347 B.R. at 718 (emphasis original) (internal citations omitted).

While declining to apply the code extraterritorially in this case may not have the same

negative consequences as in Midland, it would deny Foodstar’s creditors their equitable share of

the estate. As Foodstar was unable to secure financing for reorganization, it now plans to

liquidate its assets. (R. at 3). By rejecting the licensing contract with Vohra, Foodstar can sell the

Burger Bites trademark at a higher price, providing a larger estate to be divided among its

creditors. (R. at 5). While this may seem unfair to Vohra, it is also unfair to force the creditors to

settle for a smaller share than what they are owed. This is the nature of bankruptcy. “Historically

one of the prime purposes of the bankruptcy law has been to bring about a ratable distribution

among creditors of a bankrupt's assets; to protect the creditors from one another” Young v.

Higbee Co., 324 U.S. 204, 210 (1945). Upon rejection of the licensing contract, Vohra has a pre-

petition claim against the estate and becomes a creditor. He will be entitled to his equitable share

of the estate. Refusing to allow rejection of the licensing agreement to apply extraterritorially

places Vohra in a more favorable position than the other creditors.

B. Applying the rejection power to Foodstar’s licensing agreement with Vohra does not

violate international comity.

If a law rebuts the presumption against extraterritoriality, courts may still refuse to apply

the law outside the United States based on the concept of international comity. International

comity requires a nation to refrain from applying its laws to another nation if doing so would be

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unreasonable. See Restatement (Third) of Foreign Relations Law § 403 (1987). This inquiry is

both separate from and related to the presumption against extraterritoriality, but is important in

determining whether or not a court should apply a law to a party or action outside the United

States. The Thirteenth Circuit, while not directly invoking comity, suggested that Foodstar’s

proper path was to bring an ancillary proceeding in Eastlandia under that countries law, which is

based on the UNCITRAL Model Law on Cross Border Insolvency. (R. at 13). According to the

circuit, such an action would “show respect for the sovereignty of Eastlandia” and avoid conflict.

(R. at 13).

But applying the rejection power extraterritorially does not violate international comity,

and the UNCITRAL Model Law on Cross Border insolvency was not intended to promote forum

shopping in insolvency proceedings with international reach. Rather, the Model Law provides a

method of enforcing a court’s decision in another nation and complies with the doctrine of

international comity.

i. Allowing rejection of the licensing agreement to apply in Eastlandia does not create a

true conflict and does not violate international comity.

The United States Supreme Court has long recognized the importance of international

comity when considering application of law outside of the United States. Comity “is 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.” Hilton v.

Guyot, 159 U.S. 113, 164 (1895). In order to determine whether extraterritorial application

violates international comity, a court must look at the impact such application would have in that

nation, and what conflicts exist with the laws of that nation:

The threshold question in a comity analysis is whether there is in fact a true conflict

between domestic and foreign law. When there is a conflict, a court should seek a

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reasonable accommodation that reconciles the central concerns of both sets of laws. In

doing so, it should perform a tripartite analysis that considers the foreign interests, the

interests of the United States, and the mutual interests of all nations in a smoothly

functioning international legal regime.

Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Ct. for S. Dist. of Iowa, 482 U.S. 522,

555 (1987) (Blackmun, J. concurring and dissenting). See also Hartford Fire Ins. Co. v.

California, 509 U.S. 764, 798 (1993) (holding that international comity did not bar the

application of the Sherman Act to reinsurers based in London).

The Ninth Circuit applied international comity analysis to the Bankruptcy Code in the

case In re Simon. 153 F.3d 991, 997 (9th Cir. 1998). In that case a bankruptcy court issued an

injunction enjoining debtors from commencing any debt collection proceedings. Id. at 994. A

debtor from Hong Kong, who had previously filed a proof of claim in the case, sought to vacate

the injunction based on international comity. Id. at 998. The debtor argued that in international

bankruptcy proceedings, each nation’s courts were responsible for handling the debtor’s assets

within that nation. Id. The Ninth Circuit rejected that argument, citing the Bankruptcy Code’s

flexible approach to handling international insolvency proceedings. Id. There was no competing

insolvency proceeding, and the injunction did not apply to the Hong Kong courts, but rather to

the creditor who submit itself to the jurisdiction of a United State court by participating in the

bankruptcy proceeding. Id. at 999. As such, there was no conflict and international comity did

not require vacating the injunction. Id.

The Second Circuit’s ruling in In re Maxwell, 93 F.3d 1036 (2nd Cir. 1996),

demonstrates how international comity analysis can lead to a court declining to extend the

avoidance power of the Bankruptcy Code to a foreign transaction. That case involved a massive

international estate with cooperating insolvency proceedings in the United States and England.

Id. at 1041. The trustee wished to avoid pre-petition transfers that took place in England, but

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British law requires proof that the debtor intended to place the transferee in a better position. Id.

at 1043. The British Court vacated an order barring any attempt by the trustee to avoid the

transactions in the United States, and allowed the bankruptcy court to hear whether the

avoidance power could be applied to those transactions. Id. The Second Circuit upheld affirmed

dismissal of the trustee’s motion to avoid the transactions on the grounds of international comity.

Id. at 1051. The Circuit found that Congress intended for courts to consider international comity

when applying the Bankruptcy Code to cross-border insolvencies. Id at 1049. The debtor, the

creditor, and the transfers themselves were all more closely related with England than the United

States, so the British insolvency proceeding should hold jurisdiction over determining whether

the transfers should be avoided. Id. at 1051.

Foodstar’s bankruptcy case bears no resemblance to the proceedings in Maxwell, and

international comity does not mandate that rejection of the licensing contract be unenforceable in

Eastlandia. Maxwell was a “unique” case with parallel proceedings in two nations. Id. at 1054.

As such, it made sense to defer to the foreign courts for a transaction that had stronger ties to that

nation. Foodstar’s only proceeding is in the United States. (R. at 4). While the contract at

controversy was created in Eastlandia, the rights are held by Foodstar in the United States. (R. at

4). Similar to the creditor in Simon, Vohra appeared before a United States Bankruptcy Court

and is subject to its order rejecting the licensing contract, and ordering him to no longer use the

Burger Bites trademark. There is no other proceeding to defer to, as there was in Maxwell.

ii. The UNCITRAL Model Law on Cross-Border Insolvency promotes cooperation

between foreign proceedings and reduces concerns over comity and extraterritorial

application.

Eastlandia follows the UNCITRAL Model Law on Cross-Border Insolvencies (Model

Law). (R. at 5). The purpose of this law is to “promote coordination between jurisdictions and

facilitate the provision of assistance in the administration of insolvency proceedings originating

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in a foreign country.” UNCITRAL Legislative Guide on Insolvency Law, at 14, U.N. Sales No.

E.05.V.10 (2005). In essence, the law provides a means for a party involved in a cross-border

insolvency proceeding to access a foreign court to assist in the administration of the estate.

The Fourth Circuit case, Jaffe v. Samsung Electronics Co., Ltd., 737 F.3d 14 (4th Cir.

2013), provides an example of why such laws are needed. The debtor in Samsung was a German

company that manufactured various electronics and computer components. Id. at 17. The

company filed for bankruptcy in Germany, and the administrator of the estate applied for

recognition of the German proceeding as the foreign main-proceeding in the Bankruptcy Court

for the Eastern District of Virginia. Id. The Court recognized the German proceeding under

Chapter 15 of the Bankruptcy Code. Id. However, when the administrator attempted to reject

contracts licensing several thousand patents to U.S. companies, the Court held that the licensees

would be entitled to retain their rights under the license as in 11 U.S.C. § 365(n), as opposed to

losing their rights under German law. Id. at 18.

The Fourth Circuit affirmed the holding of the bankruptcy court. Id. at 31. The Circuit

relied on provisions of Chapter 15 which allows a court to refuse a request for relief “if the

action would be manifestly contrary to the public policy of the United States” or grant relief

“only if the interests of the creditors and other interested entities, including the debtor, are

sufficiently protected.” 11 U.S.C. § 1506 (2012); 11 U.S.C. § 1522(a) (2012). The Circuit found

reasonable the bankruptcy court’s determination that application of the rejection power under the

U.S. Bankruptcy Code would protect public policy and the interest of the concerned parties.

Samsung, 737 F.3d at 31.

Despite the fact that Chapter 15 of the Bankruptcy Code was based on the Model Law,

the Fourth Circuit decided not to follow the choice of law suggestions established by the

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UNCITRAL. Knowing that conflicts of law in cross-border insolvencies would be common, the

UNCITRAL stated that lex fori concurus would determine which law would apply in

proceedings under the model rule, with some exceptions. Legislative Guide, supra, at 69. The

means that the law of the state in which the proceeding commenced, Germany in Samsung and

the U.S. in this case, would be used for

…determining the debtors that may be subject to the insolvency law; the parties that may

apply for commencement of insolvency proceedings and the eligibility tests to be met;

the effects of commencement, including the scope of application of a stay; the

organization of the administration of the estate; the powers and functions of the

participants; rules on admissibility of claims; priority and ranking of claims; and rules on

distribution.

Id. Recommendation 31 from the Legislative Guide specifically states that “Treatment of

Contracts” should follow the law of the “State in which insolvency proceedings are

commenced.” Id. at 73. The court in Samsung declined to follow the UNCITRAL

recommendations by applying German law, and instead enforced the rule from 11 U.S.C. §

365(n).

In this case, the situation is reversed from that in Samsung with the main proceeding

residing in the United States. An order rejecting the licensing agreement would not violate

international comity as Eastlandia has adopted the Model Law which promotes cooperation

between bankruptcy proceedings in various nations. If Vohra still refuses to follow an order

barring his use of the Burger Bites trademark, Foodstar can follow the example of the German

administrator from Samsung and petition an Eastlandia court to recognize the U.S. proceeding as

the foreign main proceeding and enforce the order. If Eastlandia follows the UNCITRAL

recommendations (unlike the U.S. court in Samsung), rejection in Eastlandia will have the same

effect as rejection in the United States.

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CONCLUSION

The meaning of “rejection” is more than mere breach. Upon applying the canons of

statutory interpretation, the Court should conclude that rejection necessarily terminates the rights

of both parties under the agreement. The plain meaning of the word “reject” combined with

evidence of Congressional intent support this position. Additionally, the language of the

Bankruptcy Code implies the extraterritorial reach of its provisions. Furthermore, extraterritorial

application of the Bankruptcy Code in this case does not violate the ideals of international

comity because the rejection applies to Vohra and does not conflict with any foreign

proceedings, and the UNCITRAL Model Law on Cross-Border Insolvency requires application

of United States law for this matter. Finally, the fresh start policy and the policy for maximizing

the estate require rejection to terminate all rights under executory contracts and extraterritorial

reach of the Bankruptcy Code.

WHEREFORE, Petitioner respectfully prays that this Court reverse the decision of the

Thirteenth Circuit.

Respectfully Submitted,

________________________________

TEAM P27

COUNSEL FOR PETITIONER

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APPENDIX A: Selected Sections from Title 11 of the United States Code.

§ 101. Definitions

. . .

(35A). The term “intellectual property” means –

(A) trade secret;

(B) invention, process, design, or plant protected under title 35;

(C) patent application;

(D) plant variety;

(E) work of authorship protected under title 17; or

(F) mask work protected under chapter 9 of title 17.

. . . .

§ 365. Executory contracts and unexpired leases

(a) Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d) of

this section, the trustee, subject to the court's approval, may assume or reject any executory

contract or unexpired lease of the debtor.

. . .

(g) Except as provided in subsections (h)(2) and (i)(2) of this section, the rejection of an

executory contract or unexpired lease of the debtor constitutes a breach of such contract or

lease

(1) if such contract or lease has not been assumed under this section or under a plan

confirmed under chapter 9, 11, 12, or 13 of this title, immediately before the date of the

filing of the petition; or

(2) if such contract or lease has been assumed under this section or under a plan confirmed

under chapter 9, 11, 12, or 13 of this title--

(A) if before such rejection the case has not been converted under section 1112, 1208, or

1307 of this title, at the time of such rejection; or

(B) if before such rejection the case has been converted under section 1112, 1208, or

1307 of this title--

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i. immediately before the date of such conversion, if such contract or lease was

assumed before such conversion; or

ii. at the time of such rejection, if such contract or lease was assumed after such

conversion.

. . .

(h)(1)(A) If the trustee rejects an unexpired lease of real property under which the debtor is the

lessor and—

(i) if the rejection by the trustee amounts to such a breach as would entitle the lessee

to treat such lease as terminated by virtue of its terms, applicable nonbankruptcy

law, or any agreement made by the lessee, then the lessee under such lease may

treat such lease as terminated by the rejection; or

(ii) if the term of such lease has commenced, the lessee may retain its rights under

such lease (including rights such as those relating to the amount and timing of

payment of rent and other amounts payable by the lessee and any right of use,

possession, quiet enjoyment, subletting, assignment, or hypothecation) that are in

or appurtenant to the real property for the balance of the term of such lease and for

any renewal or extension of such rights to the extent that such rights are

enforceable under applicable nonbankruptcy law.

. . .

(i)(1) If the trustee rejects an executory contract of the debtor for the sale of real property or for

the sale of a timeshare interest under a timeshare plan, under which the purchaser is in

possession, such purchaser may treat such contract as terminated, or, in the alternative, may

remain in possession of such real property or timeshare interest.

. . .

(n)(1) If the trustee rejects an executory contract under which the debtor is a licensor of a right to

intellectual property, the licensee under such contract may elect--

(A) to treat such contract as terminated by such rejection if such rejection by the trustee

amounts to such a breach as would entitle the licensee to treat such contract as

terminated by virtue of its own terms, applicable nonbankruptcy law, or an agreement

made by the licensee with another entity; or

(B) to retain its rights (including a right to enforce any exclusivity provision of such

contract, but excluding any other right under applicable nonbankruptcy law to specific

performance of such contract) under such contract and under any agreement

supplementary to such contract, to such intellectual property (including any

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embodiment of such intellectual property to the extent protected by applicable

nonbankruptcy law), as such rights existed immediately before the case commenced,

for--

(i) the duration of such contract; and

(ii) any period for which such contract may be extended by the licensee as of right

under applicable nonbankruptcy law.

(2) If the licensee elects to retain its rights, as described in paragraph (1)(B) of this

subsection, under such contract--

(A) the trustee shall allow the licensee to exercise such rights;

(B) the licensee shall make all royalty payments due under such contract for the duration

of such contract and for any period described in paragraph (1)(B) of this subsection for

which the licensee extends such contract; and

(C) the licensee shall be deemed to waive--

(i) any right of setoff it may have with respect to such contract under this title or

applicable nonbankruptcy law; and

(ii) any claim allowable under section 503(b) of this title arising from the performance

of such contract.

(3) If the licensee elects to retain its rights, as described in paragraph (1)(B) of this

subsection, then on the written request of the licensee the trustee shall--

(A) to the extent provided in such contract, or any agreement supplementary to such

contract, provide to the licensee any intellectual property (including such embodiment)

held by the trustee; and

(B) not interfere with the rights of the licensee as provided in such contract, or any

agreement supplementary to such contract, to such intellectual property (including

such embodiment) including any right to obtain such intellectual property (or such

embodiment) from another entity.

(4) Unless and until the trustee rejects such contract, on the written request of the licensee the

trustee shall--

(A) to the extent provided in such contract or any agreement supplementary to such

contract--

(i) perform such contract; or

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(ii) provide to the licensee such intellectual property (including any embodiment of

such intellectual property to the extent protected by applicable nonbankruptcy law)

held by the trustee; and

(B) not interfere with the rights of the licensee as provided in such contract, or any

agreement supplementary to such contract, to such intellectual property (including

such embodiment), including any right to obtain such intellectual property (or such

embodiment) from another entity.

. . . .

§ 541. Property of the estate.

(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate.

Such estate is comprised of all the following property, wherever located and by whomever held:

(1) Except as provided in subsections (b) and (c)(2) of this section, all legal or equitable interests

of the debtor in property as of the commencement of the case.

(2) All interests of the debtor and the debtor's spouse in community property as of the

commencement of the case that is--

(A) under the sole, equal, or joint management and control of the debtor; or

(B) liable for an allowable claim against the debtor, or for both an allowable claim against the

debtor and an allowable claim against the debtor's spouse, to the extent that such interest is so

liable.

(3) Any interest in property that the trustee recovers under section 329(b), 363(n), 543, 550, 553,

or 723 of this title.

(4) Any interest in property preserved for the benefit of or ordered transferred to the estate under

section 510(c) or 551 of this title.

(5) Any interest in property that would have been property of the estate if such interest had been

an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or

becomes entitled to acquire within 180 days after such date--

(A) by bequest, devise, or inheritance;

(B) as a result of a property settlement agreement with the debtor's spouse, or of an interlocutory

or final divorce decree; or

(C) as a beneficiary of a life insurance policy or of a death benefit plan.

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(6) Proceeds, product, offspring, rents, or profits of or from property of the estate, except such as

are earnings from services performed by an individual debtor after the commencement of the

case.

(7) Any interest in property that the estate acquires after the commencement of the case.

. . .

§ 1506. Public policy exception.

Nothing in this chapter prevents the court from refusing to take an action governed by this

chapter if the action would be manifestly contrary to the public policy of the United States.

§ 1522. Protection of creditors and other interested persons.

(a) The court may grant relief under section 1519 or 1521, or may modify or terminate relief

under subsection (c), only if the interests of the creditors and other interested entities,

including the debtor, are sufficiently protected.

. . .

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APPENDIX B: Selected Section from Title 28 of the United States Code.

§ 1334

. . .

(e) The district court in which a case under title 11 is commenced or is pending shall have

exclusive jurisdiction--

(1) of all the property, wherever located, of the debtor as of the commencement of such case,

and of property of the estate;

. . .