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Showing 5 posts in Contract Interpretation.

Battle Between Prepetition Lender and Consignor Over Inventory Continues – Bankruptcy Court Holds Parties Cannot Contract to Subject Relationship to UCC

TSA Stores, Inc. v. M J Soffe, LLC (In re TSAWD Holdings, Inc.), No. 16-50364 (MFW), 2017 WL 892329 (Bankr. D. Del. Mar. 6, 2017)

Prior to the petition date, consignment vendor M J Soffe, LLC (“Soffe”) sold approximately $5.4 million of goods to the Sports Authority debtors (the “Debtors”) pursuant to a Pay by Scan Agreement.  That agreement expressly provided that the arrangement between Soffe and the Debtors qualified as a “consignment” as such term is defined in section 9-102(a)(20) of the Uniform Commercial Code (“UCC”).  During the bankruptcy proceedings the Debtors sold the Disputed Goods, and litigation arose between Soffe and the Debtors’ prepetition secured creditor, Wilmington Savings Fund Society, FSB (“WSFS”), over entitlement to the proceeds.  On one hand, WSFS asserted that it had a superior security interest in the Disputed Goods under Article 9 of the UCC because Soffe failed to properly perfect a security interest.  On the other, Soffe argued that Article 9 of the UCC was inapplicable because the facts underlying the relationship between itself and the Debtors did not satisfy the definition of a “consignment” under section 9-102(a)(20) of the UCC and, in the absence of a governing UCC, applicable state law entitled it to the superior interest.  WSFS moved for partial judgment on the pleadings, relying in part on the express language of the Pay by Scan Agreement, but the Bankruptcy Court denied its motion, finding that a disputed issue existed as to the applicability of Article 9.  According to the Bankruptcy Court, the UCC expressly permits parties to opt-out of the UCC and vary the effect of its provisions by agreement but it does not permit parties to contract around defined terms.  Parties may limit their legal relationship but such limitations are not without their boundaries.  Changing the UCC’s definitions – i.e. changing the meaning of the statute’s terms – is only appropriate for legislatures.  And while WSFS argued that Soffe’s arguments should be estopped and that the Court’s holding would render the Pay by Scan Agreement’s UCC provision superfluous and thus inconsistent with contractual interpretation canons, the Court was not persuaded, noting that it cannot enforce a contractual term inconsistent with or prohibited by the UCC. Read More ›

Delaware Bankruptcy Court Refuses to Enforce an Employee Arbitration Agreement with a Class Action Waiver Despite Its Opt-out Provision

Chan v. Fresh & Easy, LLC (In Fresh & Easy, LLC), No. 15-51897 (BLS), 2016 WL 5922292 (Bankr. D. Del. Oct. 11, 2016)

In this motion to compel arbitration Opinion, the Bankruptcy Court for the District of Delaware ruled on two issues of first impression in Delaware:  (i) whether a class action waiver provision in an arbitration agreement violates the National Labor Relations Act (the “NLRA”); and if so, (ii) whether the agreement remains enforceable if it allows an employee to opt-out.  The Court found that the class action waiver was unenforceable because it violated the NLRA.  The Court then held that the opt-out provision in the agreement did not save the class action waiver. Read More ›

Executoriness for Purposes of Kiwi Defense to Preference Action Determined on a Contract by Contract Basis; Purchase Orders Issued under Master Agreement Were Separate Divisible Contracts

PIRINATE Consulting Grp., LLC v. C.R. Meyer & Sons Co. (In re NewPage Corp.), No. 13-52429 (KG), 2017 WL 571478 (Bankr. D. Del. Feb. 13, 2017)

The Litigation Trustee (“Trustee”) of the NP Creditor Litigation Trust brought this adversary proceeding against C.R. Meyer & Sons Co. (“CRM”) seeking to avoid and recover over $2.3 million in alleged preferential transfers.  NewPage Corporation (“NewPage”) and its affiliates (collectively, “Debtors”) operated paper mills throughout the United States, and CRM handled maintenance and construction at the Escanaba, Michigan and Duluth, Minnesota mills.  Prior to the Debtors’ bankruptcy filing, the parties entered into a Master Construction Agreement (“Master Agreement”) pursuant to which CRM would provide services and items necessary to complete the work described in purchase orders to be issued from time to time under the agreement.  The Master Agreement refers to each purchase order issued by NewPage as a separate contract, and the purchase orders either reference the Master Agreement directly or through another purchase order.  In the course of the parties’ dealing, the purchase orders served to document work and facilitate payment. Read More ›

Delaware Bankruptcy Court Finds Debtor Did Not Properly Terminate Contract, Faces Significant Breach of Contract Damages

In re Outer Harbor Terminal, LLC, No. 16-10283 (LSS), 2017 WL 696676 (Bankr. D. Del. Feb. 21, 2017)

In the context of a claims objection, the Court adhered to unambiguous contract language in determining that the presence of a termination triggering event did not automatically terminate a contract, opening the door for potentially significant damages.  This matter will now proceed to the damages phase, where the non-debtor contract counterparty has alleged in its proof of claim an approximate $13.3 million in, among other things, breach of contract damages. Read More ›

Purchaser Cannot Escape Tax Lien Under Terms of Sale Order Despite Court’s Narrow Interpretation of “Permitted Encumbrances”

In re Joan Fabrics Corporation, No. 07-10479 (CSS) (Bankr. D. Del. May 5, 2014)

On May 5, 2014, the Honorable Christopher S. Sontchi issued an Opinion denying a purchaser’s motion to enforce a sale order and hold a North Carolina county in contempt for pursuing unpaid taxes.  In doing so, the Court considered specific circumstances of the sale and interpreted the terms of the asset purchase agreement under North Carolina law to conclude that the county’s actions did not violate the sale order. Read More ›