Jenner & Block

"Debtor Permitted To Assume License Agreement But Reject Other Related Agreements," Jenner & Block Spotlight Newsletter

By: Andrew J. Olejnik and Abraham M. Salander

In In re Physiotherapy Holdings, Inc., 506 B.R. 619 (Bankr. D. Del. 2014) (No. 13-12965), the debtor had entered into several agreements with a consulting company to license certain software.  Pursuant to Section 365(a) of the Bankruptcy Code, the debtor sought to assume one of those agreements – the software license – but reject the other agreements, including the master agreement.  The master agreement required the debtor to indemnify the consulting company for a wide range of liability including significant post-confirmation litigation.  The consulting company argued that the debtor could not assume the license agreement without assuming the other agreements because the agreements together formed a single, integrated contract.  The court disagreed and held that the agreements were not a single, integrated contract because (1) the parties executed the agreements at different times, (2) the agreements provided that in the event of a conflict, the license agreement trumped the master agreement, and (3) the integration clause in the master agreement simply eliminated parol evidence and did not render the license agreement a “mere component” of the master agreement.  The court also noted that even though the master agreement contained a broad indemnity clause, the license agreement contained a limited one––something that would have been unnecessary had the agreements been integrated.  In light of these provisions, the court concluded that the agreements were independent agreements.  In re Physiotherapy Holdings, Inc. is a reminder that when entering into multi-agreement relationships, parties should consider whether they want the agreements to be integrated and steps that can be taken to obtain that treatment.