Court Opinion

ID: 4689050
Source: CourtListenerOpinion
Date Created: 2021-05-21 17:00:44.954573+00
Date Added: 2024-06-11T09:02:08.165867
License: Public Domain

PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT

            Nos. 20-1750 and 20-1751

In re: WEINSTEIN COMPANY HOLDINGS LLC, et al.,

                                   Debtors

   SPYGLASS MEDIA GROUP, LLC, f/k/a Lantern
             Entertainment LLC

                       v.

 BRUCE COHEN PRODUCTIONS; BRUCE COHEN,
                       Appellants in 20-1751

BRADLEY COOPER; 22ND & INDIANA, INC.; BRUCE
COHEN; BRUCE COHEN PRODUCTIONS; ROBERT DE
   NIRO; CANAL PRODUCTIONS, INC.; DAVID O.
  RUSSELL; KANZEON CORP.; JON GORDON; JON
          GORDON PRODUCTIONS, INC.,

                             Appellants in 20-1750
                    ________________

       Appeal from the United States District Court
                 for the District of Delaware
(D.C. Civil Action Nos. 1-19-cv-00242 and 1-19-cv-00243)
       District Judge: Honorable Maryellen Noreika
                     ________________

                 Argued January 13, 2021

  Before: AMBRO, KRAUSE, and PHIPPS, Circuit Judges

               (Opinion filed: May 21, 2021)

Angela M. Butcher (Argued)
Michael I. Gottfried
Roye Zur
Elkins, Kalt, Weintraub, Reuben, Gartside
10345 West Olympic Boulevard
Los Angeles, CA 90064

Kevin S. Mann
Christopher P. Simon
Cross & Simon
1105 North Market Street
Suite 901, P.O. Box 1380
Wilmington, DE 19899

                    Counsel for Appellants

                             2
Thomas R. Califano (Argued)
Sidley Austin
787 Seventh Avenue
New York, NY 10019

R. Craig Martin, Esq.
DLA Piper
1201 North Market Street
Suite 2100
Wilmington, DE 19801

                   Counsel for Appellee

Anne M. Collart
William P. Deni, Jr.
Lawrence S. Lustberg
Gibbons
One Gateway Center
Newark, NJ 07102

                   Counsel for Amicus Appellant Producers
                   Guild of America Inc.

                              3
                OPINION OF THE COURT

AMBRO, Circuit Judge

       The Chapter 11 bankruptcy process gives a debtor many
means to rehabilitate its business, including several to manage
contractual obligations. Chief amongst them is the flexibility
to assume (i.e., continue) or reject (i.e., breach) executory
contracts, which are contracts where the debtor and the
nonbankrupt counterparty each has material obligations left to
perform as of the bankruptcy filing.

        With great power comes great responsibility. To
assume an executory contract, a debtor must cure existing
defaults and put the contract in the same place as if the
bankruptcy never happened. See 11 U.S.C. § 365(b)(1)(A).
This scheme interacts with the Bankruptcy Code’s sale
provision, 11 U.S.C. § 363, which allows a purchaser to buy
substantially all the debtor’s property “free and clear of any
interest in such property.” Id. § 363(f). In practice, an
executory contract can be “assumed” and then “assigned” to a
buyer under § 365 of the Bankruptcy Code provided all
existing defaults are cured. A non-executory contract, on the
other hand, can be sold under § 363 to a buyer, who must
satisfy post-closing obligations but need not worry about pre-
closing breaches or defaults, which typically remain unsecured
claims against the debtor’s estate. Thus, whether a contract is
classified as executory or non-executory has significant
implications for its treatment in a bankruptcy sale.

                              4
        This case is about whether a work-made-for-hire
contract between a producer and a bankrupt movie company is
an executory contract. The Weinstein Company and its
affiliates (“TWC” or the “Debtors”) filed bankruptcy petitions
to facilitate the sale of substantially all their assets to Spyglass
Media Group, LLC (a/k/a Lantern Entertainment LLC) under
§ 363. Spyglass wished to buy TWC’s contract with Bruce
Cohen (the “Cohen Agreement”) for producing the critically
acclaimed 2012 film Silver Linings Playbook. At stake is
whether Spyglass must cure existing defaults and pay around
$400,000 owed to Cohen before the sale’s closing. In re
Weinstein Co. Holdings, LLC, No. 18-10601, 2020 WL
1320821, at *5 (D. Del. Mar. 20, 2020). As discussed below,
because Cohen’s remaining obligations under the Cohen
Agreement are not material and the parties did not clearly avoid
New York’s substantial performance rule, we affirm the
District Court’s affirmance of the Bankruptcy Court’s decision
and hold the Cohen Agreement is not an executory contract.

                                 I.

       In September 2011, Cohen and his production company
entered into the Cohen Agreement with SLP Films, Inc., a non-
debtor special purpose entity formed by TWC to make Silver
Linings Playbook (the “Picture”). The parties structured the
Cohen Agreement as a “work-made-for-hire” contract,
meaning Cohen owned none of the intellectual property in the
Picture.1 App. 2331, Cohen Agreement ¶ 9; see Cmty. for

1
 Producers can be thought of as project managers for a movie,
overseeing various aspects of production such as developing a
script, ensuring a film is delivered on time and within budget,
and marketing the finished product.

                                 5
Creative Non-Violence v. Reid, 490 U.S. 730, 737 (1989)
(explaining that the employer exclusively owns all the
intellectual property in works made for hire). In exchange,
SLP Films agreed to pay Cohen $250,000 in fixed initial
compensation, as well as contingent future compensation equal
to roughly 5% of the Picture’s net profits. App. 2328–29,
Cohen Agreement ¶¶ 2–3. The contingent compensation
provision provides that

      [i]f the Picture is produced with [Cohen] as the producer
      thereof and [Cohen] fully perform[s] all required
      services and obligations hereunder and in relation to the
      Picture, and [is] not otherwise in breach or default
      hereof, [Cohen] shall be entitled to receive [Contingent
      Compensation].

App. 2329, Cohen Agreement ¶ 3. The Picture was
successfully released in November 2012 and resulted in an
Academy Award for Best Actress for Jennifer Lawrence. After
some corporate maneuvers, TWC purports to own all the rights
pertaining to the Picture, including the Cohen Agreement.2

2
  A complex web of agreements governed the relationship
between TWC and the special purpose vehicles it created for
the Picture. App. 2028. According to a former TWC
executive, SLP Films transferred its rights in the Picture to
SLPTWC Films, LLC, another special-purpose entity. App.
2092–93, 2194–95. SLPTWC dissolved in October 2013 and
SLP Films dissolved in April 2016. App. 2195. TWC, as the
sole member of SLPTWC, believes it or its affiliates received
all the rights in the Picture, including the Cohen Agreement.
App. 2029, 2196.

                              6
       In 2017, TWC’s business cratered following a flood of
credible sexual misconduct allegations against its co-founder,
Harvey Weinstein. Left with few options, TWC tried to sell its
business and ultimately found Spyglass as the only interested
buyer. In March 2018, TWC filed for Chapter 11 bankruptcy
in the District of Delaware and asked the Bankruptcy Court to
approve the sale to Spyglass under § 363 of the Bankruptcy
Code. The parties documented the sale’s terms in an Asset
Purchase Agreement (the “Purchase Agreement”).

       The sale closed in July 2018, though the Purchase
Agreement gave Spyglass until November 2018 to designate
which of TWC’s executory contracts it wanted to assume as
part of the sale. App. 691, Purchase Agreement § 2.8(a)
(defining “Assumed Contracts”); App. 694, 741. However,
Spyglass believed the Cohen Agreement was not executory at
all. In October 2018, it filed a declaratory judgment action
against Cohen seeking a determination that the Cohen
Agreement “is not executory and therefore was already [sold]
to [Spyglass] pursuant to Bankruptcy Code section 363.” App.
1152. As noted above, if the Cohen Agreement is an executory
contract and therefore assumed and assigned under § 365,
Spyglass would be responsible for approximately $400,000 in
previously unpaid contingent compensation.3 If Spyglass
instead purchased the Cohen Agreement as a non-executory

3
  11 U.S.C. § 365(b)(1)(A) requires the debtor to cure or
provide adequate assurance that it will cure all defaults under
an assumed executory contract. Here, that responsibility lies
with Spyglass, who agreed to “pay all Cure Amounts required
to assume the Assumed Contracts.” App. 692, Purchase
Agreement § 2.8(b).

                              7
contract under § 363, Spyglass would be responsible only for
obligations on a go-forward basis after the sale closed.4

       The stakes became even higher. In November 2018,
writers, producers, and actors with similar works-made-for-
hire contracts (the “Talent Party Agreements”) hitched their
wagon to the Cohen dispute and argued that their contracts are
also executory, the implication being that Spyglass has to pay
them millions of dollars in contingent compensation. App.
894; Cohen Br. at 6–7; Dist. Ct. Op. at 1, n.1 (“The parties
stipulated to joint briefing of these appeals.”).

       In January 2019, the Bankruptcy Court held a hearing
on Spyglass’s motion for summary judgment in the Cohen
dispute, recognizing that its ruling might serve as a bellwether
for the Talent Party Agreements. It issued a bench ruling
granting Spyglass’s motion for summary judgment,
concluding that the Cohen Agreement was not an executory
contract and thus could be sold under § 363 to Spyglass. App.
2268, Bankr. Hr’g Tr. 135:16–25.5 Further, the Bankruptcy

4
   While Spyglass’s motivations for buying the Cohen
Agreement are irrelevant for the legal question before us, we
note for context that Spyglass claims it wanted to purchase the
Cohen Agreement as “evidence of [the transfer of intellectual
property] and the rights that came with it.” Oral Arg. Tr. 29:6–
10. We are skeptical this is the only reason, as Cohen cannot
interfere with the Picture’s intellectual property even if TWC
breaches the Cohen Agreement. App. 2331, Cohen Agreement
¶ 9.
5
  The Bankruptcy Court determined that, based on Spyglass’s
actions, it could no longer deem the Cohen Agreement
excluded from the sale. If it is executory, then it was assumed

                               8
Court concluded that TWC owned the Cohen Agreement, and
could sell it, after hearing testimony from TWC’s former
Executive Vice President, Irwin Reiter, who testified about the
chain-of-title for the Cohen Agreement. Id. at 135:16–25,
136:1–3. The District Court affirmed the Bankruptcy Court’s
decision, and Cohen timely appealed to us.6

                              II.

      The District Court had jurisdiction under 28 U.S.C.
§ 158(a)(1) over the appeal from the final judgment of the
Bankruptcy Court, which had jurisdiction under 28 U.S.C.
§§ 157(b) and 1334. We have appellate jurisdiction under 28
U.S.C. §§ 158(d)(1) and 1291.

       We stand in the shoes of the District Court and exercise
plenary review of the Bankruptcy Court’s decision granting
summary judgment in favor of Spyglass. In re AE Liquidation,
Inc., 866 F.3d 515, 522 (3d Cir. 2017). We may affirm the
grant of summary judgment only if “there is no genuine dispute
as to any material fact and the movant is entitled to judgment
as a matter of law.” Id. (quoting Fed. R. Civ. P. 56(a)). We
view all facts in the light most favorable to Cohen, who, as the
non-moving party, is entitled to every reasonable inference that
can be drawn from the record. Id. at 522–23. “We do not

and then assigned to Spyglass. If it is non-executory, then
Spyglass purchased the rights under it under § 363. App. 2173,
Bankr. Hr’g Tr. 40:22–23 (“I think they lost the right to call
them an excluded asset.”). The parties do not dispute this
ruling on appeal.
6
  The Producers Guild of America filed a short amicus brief
in support of Cohen.

                               9
weigh the evidence; rather, we assess whether [it] is such that
a reasonable jury could return a verdict for the nonmoving
party.” Id. at 523 (internal quotation marks and citation
omitted). In short, summary judgment in favor of Spyglass is
appropriate if no reasonable jury could conclude the Cohen
Agreement is an executory contract.

                              III.

       Section 365(a) of the Bankruptcy Code governs the
treatment of executory contracts, but it does not define that
term. Rather it provides that “[e]xcept as provided in sections
765 and 766 of this title [involving customer instructions and
property not relevant here] and in subsections (b), (c), and (d)
of this section, the trustee [or a debtor-in-possession, see 11
U.S.C. § 1107(a)], subject to the court’s approval, may assume
or reject any executory contract or unexpired lease of the
debtor.” 11 U.S.C. § 365(a). Without a definition of the word
“executory,” the Supreme Court recognized that legislative
history generally “indicates that Congress intended the term to
mean a contract ‘on which performance is due to some extent
on both sides.’” NLRB v. Bildisco & Bildisco, 465 U.S. 513,
522 n.6 (1984) (quoting H.R. Rep. No. 95-595, 95th Cong., 1st
Sess. 347 (1977); S. Rep. No. 95-989, 95th Cong., 2d Sess. 58
(1978)).

       However, this reading “would cut too broadly,” as
almost all contracts involve some unperformed obligations on
both sides. In re Columbia Gas Sys. Inc., 50 F.3d 233, 238 (3d
Cir. 1995). Thus, our Circuit (and several others) adopted the
following definition proposed by Professor Vern Countryman:
“[An executory contract is] a contract under which the
obligation of both the bankrupt and the other party to the

                              10
contract are so far unperformed that the failure of either to
complete performance would constitute a material breach
excusing performance of the other.” Vern Countryman,
Executory Contracts in Bankruptcy: Part I, 57 Minn. L. Rev.
439, 460 (1973); see also In re Gen. DataComm Indus., Inc.,
407 F.3d 616, 623 (3d Cir. 2005) (quoting Countryman and
citing to Sharon Steel Corp. v. Nat’l Fuel Gas Distrib. Corp.,
872 F.2d 36, 39 (3d Cir. 1989)); 3 Collier on Bankruptcy ¶
365.02[2](a) n.10 (16th ed. 2020) (collecting cases). “Thus,
unless both parties have unperformed obligations that would
constitute a material breach if not performed, the contract is not
executory under § 365.” Columbia Gas, 50 F.3d at 239. “The
time for testing whether there are material unperformed
obligations on both sides is when the bankruptcy petition is
filed.” Id. at 240. What constitutes a material unperformed
obligation is governed by relevant state law. See id. at 239
n.10. Putting all this together, the test for an executory contract
is whether, under the relevant state law governing the contract,
each side has at least one material unperformed obligation as
of the bankruptcy petition date.

        To facilitate the debtor’s rehabilitation, the Countryman
test attempts to foolproof the debtor’s choice to assume or
reject contracts; thus, the debtor only has that flexibility for
executory contracts—those contracts where there could be
uncertainty about whether they are valuable or burdensome. A
helpful perspective is to view executory contracts “as a
combination of assets and liabilities to the bankruptcy estate;
the performance the nonbankrupt owes the debtor constitutes
an asset, and the performance the debtor owes the nonbankrupt
is a liability.” Columbia Gas, 50 F.3d at 238 (citing Thomas
H. Jackson, The Logic and Limits of Bankruptcy Law 106–07
(1986)). Under this framework, a contract where the debtor

                                11
fully performed all material obligations, but the nonbankrupt
counterparty has not, cannot be executory; that contract can be
viewed as just an asset of the estate with no liability. See 3
Collier, supra ¶ 365.02[2](a). Treating it as an executory
contract risks inadvertent rejection because the debtor would
in effect be giving up an asset by rejecting it. Id. On the other
extreme, where the counterparty performed but the debtor has
not, the contract is also not executory because it is only a
liability for the estate. Id. Treating it as an executory contract
risks inadvertent assumption, for the debtor would effectively
be agreeing to pay the liability in full when the counterparty
should instead pursue the claim against the estate like other
(typically unsecured) creditors. It logically follows that where
“the only remaining obligation is the [debtor’s] duty to pay”—
the contract is not executory. See In re Teligent, Inc., 268 B.R.
723, 732 (Bankr. S.D.N.Y. 2001); see also Lubrizol Enter., Inc.
v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1046 (4th
Cir. 1985). Thus, only where a contract has at least one
material unperformed obligation on each side—that is, where
there can be uncertainty if the contract is a net asset or liability
for the debtor—do we invite the debtor’s business judgment on
whether the contract should be assumed or rejected. See
Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct.
1652, 1658 (2019); In re Penn Traffic Co., 524 F.3d 373, 382
(2d Cir. 2008).

       This context meshes with how a buyer can purchase the
debtor’s contracts as part of a § 363 sale. If the buyer wants to
buy an executory contract, the debtor must assume and then
assign that contract to the buyer. In re CellNet Data Sys., Inc.,
327 F.3d 242, 251 (3d Cir. 2003) (explaining that typically “the
debtor must first assume [a contract] in order to transfer it”)
(citing In re Access Beyond Techs., Inc., 237 B.R. 32, 47

                                12
(Bankr. D. Del. 1999)). To assume a contract, the debtor or the
buyer must cure all existing defaults (or provide adequate
assurance of a cure), basically putting the contract in the same
place as if the bankruptcy did not happen. See 11 U.S.C.
§ 365(b); Columbia Gas, 50 F.3d at 238 (noting that, for an
assumed executory contract, the Bankruptcy Code “mandates
that the debtor accept the liability with the asset and fully
perform his end of the bargain”).7 The requirement to cure
existing defaults before assuming a contract is motivated by
fairness to the nonbankrupt counterparty, as assuming the
contract essentially provides a “means whereby a debtor can
force others to continue to do business with it when the
bankruptcy filing might otherwise make them reluctant to do
so.” Penn Traffic, 524 F.3d at 382 (internal citation omitted).

        However, if the contract is not executory, it can be sold
to a § 363 buyer like any other liability or asset. Cf. In re Am.
Home Mortg. Holdings, Inc., 402 B.R. 87, 94 (Bankr. D. Del.
2009) (explaining that § 363 “permits a debtor to transfer its
rights and obligations under a non-executory contract”). In the
case of a non-executory contract where only the debtor has
material obligations left to perform, the contract is a liability of
the estate, and if the buyer wants to buy it, the buyer is
voluntarily assuming that liability.8 Under the terms of the

7
  If the executory contract is rejected, that would “relegate the
non-breaching party to an unsecured creditor.” CellNet Data,
327 F.3d at 249.
8
  One might wonder why a § 363 buyer would ever voluntarily
assume liabilities. Often the issue is negotiated between the
debtor and the buyer. The buyer can receive a discount on the
purchase price for taking on the debtor’s liabilities. The buyer

                                13
sale, the buyer must typically fulfill obligations under the
contract it bought after the sale closes, just as it would with any
other asset or liability. But unless the parties agreed otherwise,
no one is required to cure existing defaults, as the nonbankrupt
counterparty is already in at least as good a position as without
the sale. See 11 U.S.C. § 363(f) (allowing the debtor, after
notice and a hearing, to sell its property “free and clear of any
interest in such property,” subject to certain conditions and
applicable non-bankruptcy law); In re Trans World Airlines,
Inc., 322 F.3d 283, 289 (3d Cir. 2003) (explaining that
successor liability is often extinguished in a § 363 sale). If no
buyer came forward, the nonbankrupt counterparty would only
have an unsecured claim against the debtor, on which it can
typically expect to recover merely cents on the dollar. Put
differently, there are no fairness concerns, as the counterparty
with nothing material left to do on the contract should simply
be grateful that someone agreed to buy its contract and assume
obligations after the sale’s closing.

                               IV.

       This context sets the stage for the dispute before us. Is
the Cohen Agreement an executory contract? If so, the
contract was assumed and assigned to Spyglass, so it must cure
existing defaults and pay approximately $400,000 in
contingent compensation to Cohen. If not, Spyglass only needs
to comply with post-closing obligations coming due under the
Cohen Agreement, see Weinstein, 2020 WL 1320821, at *5
(noting the Bankruptcy Court’s determination, not challenged
by either party on appeal, that Spyglass is obligated to purchase

may have additional considerations, such as wanting to start
things on the right foot with vendors, suppliers, and the like.

                                14
the Cohen Agreement as either an executory or non-executory
contract), and the $400,000 owed to Cohen pre-closing need
not be paid, as it is simply an unsecured claim against the
Debtors.

        New York law governs the Cohen Agreement. App.
2336, Cohen Agreement ¶ 23. Thus, we analyze whether the
Agreement “contained at least one obligation for both [TWC]
and [Cohen] that would constitute a material breach under New
York law if not performed.” In re Exide Techs., 607 F.3d 957,
962 (3d Cir. 2010). In New York, “[a] material breach is a
failure to do something that is so fundamental to a contract that
the failure to perform that obligation defeats the essential
purpose of the contract.” Feldmann v. Scepter Grp., Pte. Ltd.,
185 A.D.3d 449, 450 (N.Y. App. Div. 2020) (quoting O & G
Indus., Inc. v. Nat’l R.R. Passenger Corp., 537 F.3d 153, 163
(2d Cir. 2008)).

       New York also follows the substantial performance
doctrine, meaning “[i]f the party in default has substantially
performed, the other party’s performance is not excused.”
Hadden v. Consol. Edison Co., 312 N.E.2d 445, 449 (N.Y.
1974). These are two sides of the same coin, as “[s]ubstantial
performance and material breach are interrelated
concepts[;] . . . if it is determined that a breach is material, or
goes to the root or essence of the contract, it follows that
substantial performance has not been rendered, and further
performance by the other party is excused.” In re Interstate
Bakeries Corp., 751 F.3d 955, 962 (8th Cir. 2014) (internal
quotation marks and citation omitted).

     On TWC’s side, its obligation to pay contingent
compensation to Cohen is clearly material. Here, the amount

                                15
of contingent compensation far exceeded that of fixed
compensation, reflecting the market reality that producers
often try to work on films that will become hits so they can
share in the profits. See Awards.com, LLC v. Kinko’s, Inc., 42
A.D.3d 178, 187 (N.Y. App. Div. 2007) (explaining that failure
to pay the “primary consideration” under an agreement is a
material breach). Having concluded that TWC had at least one
material obligation left to perform under the Cohen
Agreement, we do not need to analyze whether other
obligations, such as TWC’s obligation to give Cohen the right
of first refusal to produce any sequels, are also material. See
App. 2332, Cohen Agreement ¶ 13.

       Cohen’s remaining obligations, however, are a different
story. At a high level, the essence of the Cohen Agreement
was for Cohen to produce the Picture in exchange for money.
Thus, he contributed almost all his value when he produced the
movie. At the time of TWC’s bankruptcy, the Picture had been
released for six years and Cohen had not done any further work
on it. Indeed, other courts agree that the employee in a work-
made-for-hire contract usually does not have material
obligations after the work is completed despite ancillary
negative covenants or indemnification obligations. See In re
Qintex Ent., Inc., 950 F.2d 1492, 1497 (9th Cir. 1991) (holding
that contract between an actor and a production company was
not executory after the movies were made because the actor
“substantially completed [his] duties under the contracts”); In
re Stein & Day Inc., 81 B.R. 263, 266 (Bankr. S.D.N.Y. 1988)
(holding that a publishing contract is not executory where the
author wrote two books and assigned to the debtor-publisher
the “full term of the copyright for the books”).

                              16
        A closer look at Cohen’s remaining obligations
confirms our suspicion—they are all ancillary after-thoughts in
a production agreement. For instance, Cohen agreed to refrain
from seeking injunctive relief about the exploitation of the
Picture. But that covenant is redundant, for Cohen has no
claim to the Picture’s intellectual property rights and is already
obligated to respect that property under relevant law. App.
2331, Cohen Agreement ¶¶ 9–10; Stein & Day, 81 B.R. at 266
(explaining that the agreement not to violate intellectual
property in a work is an independent obligation already
“imposed by law”). Also immaterial is Cohen’s obligation to
indemnify TWC against third-party claims arising from the
breach of his representations, warranties or covenants, as the
statute of limitations has likely expired on most, if not all, of
the potential claims. App. 2333–34, Cohen Agreement ¶ 15;
cf. Exide, 607 F.3d at 964 (explaining that expired indemnity
obligation is not material). Finally, the restrictions on Cohen’s
ability to assign the contract are ancillary boilerplate
provisions. For instance, the Agreement requires Cohen to
comply with a set of procedures to give TWC the right of first
refusal if Cohen tries to sell or assign his right to receive
contingent compensation. App. 2350, Cohen Agreement
Sch. 1 ¶ 3.5. This obligation, however, is not a “significant
undertaking,” as Cohen “has no obligation to [TWC] if he
wants to accept more favorable terms from [others].” Stein &
Day, 81 B.R. at 267. In short, none of Cohen’s remaining
obligations go to the “root of the contract” or “defeat the
purpose of the entire transaction” if breached. Exide, 607 F.3d
at 962–63 (internal quotation marks and citations omitted).

                               17
                               V.

       However, our analysis cannot end here. Cohen argues
that where parties already agreed an obligation is material, a
court should not substitute its own judgment. Here, the
Agreement provided that TWC must pay contingent
compensation provided Cohen is “not otherwise in breach or
default.” App. 2329, Cohen Agreement ¶ 3. Based on this
provision, he argues that all his obligations are material, as
even a breach of a technical provision would excuse TWC’s
obligation to pay contingent compensation.

       Cohen is correct that parties can contract around a
default rule such as the substantial performance rule, that is,
they can agree that what to the ordinary person is immaterial is
nonetheless not so. See Jacob & Youngs v. Kent, 129 N.E. 889,
891 (N.Y. 1921) (Cardozo, J.) (explaining that parties can
avoid that rule by “apt and certain words”); see also Ian Ayres,
Regulating Opt-Out: An Economic Theory of Altering Rules,
121 Yale L.J. 2032, 2049 (2012) (describing the Jacob &
Youngs decision as a “determination that the [parties’] actions
were insufficient to contract around the substantial
performance (default) rule”). In General DataComm, we also
acknowledged that where the contract makes plain that certain
unperformed obligations are material, we can conclude the
contract is executory without further analysis. 407 F.3d at
623–24. Put another way, a breach can be considered material
if “upon a reasonable interpretation of the contract, the parties
considered the breach as vital to the existence of the contract.”
23 Richard A. Lord, Williston on Contracts § 63:3 (4th ed.
2018).

                               18
        Although Cohen’s argument is forceful, we ultimately
reject it because the parties did not clearly and unambiguously
avoid the substantial performance rule for evaluating executory
contracts. For starters, the language Cohen relies on is a nine-
word phrase buried in a long covenant provision.9 By contrast,

9
 The full provision provides as follows (with the key language
emphasized in italics). App. 2329.

       3. Contingent Compensation: If the Picture is
       produced with Artist [Bruce Cohen] as the
       producer thereof and Lender [Bruce Cohen
       Productions] and Artist fully perform all required
       services and obligations hereunder and in relation
       to the Picture, and are not otherwise in breach or
       default hereof, Artist shall be entitled to receive
       the following “Contingent Compensation”:

       (a) 5% of 100% of “Adjusted Gross Receipts” (if
       any) payable prospectively from and after “Cash
       Breakeven” (as both such terms are defined
       below) is reached, but calculated with an across-
       the board 15% distribution fee.

       (b) “Adjusted Defined Receipts”, “Cash
       Breakeven” and “Contingent Proceeds” shall be
       defined, computed, paid and accounted for in
       accordance with the terms and conditions of
       Company’s Exhibit “DRCB” and Exhibit “CB”,
       as modified only by the Riders to such Exhibits,
       attached hereto and incorporated by reference
       (and in any event to be defined, computed, paid
       and accounted for no less favorably than Jon

                              19
the cases cited by Cohen where courts deferred to the parties’
agreement that all terms in the contract are material dealt with
the remedies or termination section. See Gen. DataComm, 407
F.3d at 623–24 (providing any breach would cause termination
of an employee’s benefits plan); In re Hawker Beechcraft, Inc.,
486 B.R. 264, 278 (Bankr. S.D.N.Y. 2013) (providing that
buyer’s “breach of any term, even an immaterial term, would
allow [seller] to terminate the [agreement] and sue for specific
performance”); Avant Guard Props., LLC v. NYC Indus. Dev.,
No. 115209/10, 2015 WL 7070066, at *5 (N.Y. Sup. Ct. Jan.
7, 2015) (explaining that the contract’s termination provision
“made it clear . . . that only complete performance will satisfy
the agreement”) (emphasis added).

        The distinction between a covenant and termination
provision is meaningful. When parties say that breach of a
provision would result in termination or rescission of the
contract, they make clear that the provision is material.
Williston on Contracts § 63:3 (stating that a breach is material
if “the parties considered the breach as vital to the existence of
the contract”) (emphasis added). By contrast, covenants
address the parties’ obligations (i.e., what they must and must
not do) and typically are not a natural place to look when

       Gordon (“Gordon”) with respect to the Picture).
       “Cash Breakeven” shall mean the point at which
       “Contingent Proceeds” are first achieved, but
       calculated utilizing the applicable distribution
       fees referred to above. Company makes no
       representation that the Picture will generate any
       Contingent Compensation, or any particular
       amount of Contingent Compensation.

                               20
determining which of those obligations the parties consider to
be material.

        Further, the requirement that Cohen not be in breach or
default may be better viewed as a condition precedent to
TWC’s payment obligation, as evidenced by the word “if” that
begins the relevant provision. See Pac. Emps. Ins. Co. v. Glob.
Reinsurance Corp. of Am., 693 F.3d 417, 430 (3d Cir. 2012)
(describing a condition precedent as an event whose
occurrence triggers an obligation). This is relevant, as “[t]here
is a distinction . . . between failure of a condition and a breach
of a duty . . . . [I]f the remaining obligations in the contract are
mere conditions, not duties, then the contract cannot be
executory for purposes of § 365.” Columbia Gas, 50 F.3d at
241. Here, the analysis is complicated by TWC having an
independent obligation not to be in breach or default even
without the condition precedent language. Still, a condition
precedent is typically not an obligation itself, nor does it inform
which obligations are material. Indeed, Cohen did not point to
any authority that held language in a condition precedent
contracted around the substantial performance rule. On the
contrary, we are persuaded by the reasoning adopted by one
court that a condition precedent should not be read so broadly.
See ShermansTravel Media, LLC v. Gen3Ventures, LLC, 152
N.E.3d 616, 624 (Ind. Ct. App. 2020). There, a settlement
agreement required “complete performance” by the defendant
for the plaintiff to dismiss a lawsuit. Id. The Indiana Court of
Appeals rejected the “overly literal reading of the term
‘complete’ which effectively relieved [the plaintiff of the
responsibility] of showing material breach.” Id. Instead, it
held that the substantial performance rule continued to apply
where “there is no express provision . . . stating that substantial
performance does not apply.” Id. at 626; see also Gen. Disc.

                                21
Corp. v. Weiss Mach. Corp., 437 N.E.2d 145, 151 (Ind. Ct.
App. 1982).

       Finally, if we accept Cohen’s argument, then the parties
also overrode protections in the Bankruptcy Code. Interstate
Bakeries, 751 F.3d at 962 (“The doctrine of substantial
performance . . . is inherent in the Countryman definition of
executory contract.”). As explained above, the Code’s
treatment of contracts facilitates the debtor’s rehabilitation by
treating non-executory contracts where only the debtor has
material obligations to perform as liabilities of the estate, so
the debtor does not accidentally assume them without good
reason. Here, the logical implication of Cohen’s position is
that the Cohen Agreement would be an executory contract
forever, no matter how much he has already performed. Oral
Arg. Tr. 23:22–25. That would be a highly unusual result and
would contravene the protections created for the Debtors by
the Bankruptcy Code.

       To be clear, we recognize that parties can contract
around a state’s default contract rule regarding substantial
performance, and by doing so they can also override the
Bankruptcy Code’s intended protections for the debtor.
However, that result can only be accomplished clearly and
unambiguously in the text of the agreement. For the reasons
explained above, we do not believe the Cohen Agreement
avoided New York’s substantial performance rule. As we
agree with the Bankruptcy and District Courts that Cohen’s
remaining obligations are immaterial and ancillary to the
purpose of the contract, we hold that the Cohen Agreement is
not executory.

                               22
                               VI.

       Cohen raises two additional arguments that the
Bankruptcy Court erred by granting summary judgment. We
are unpersuaded by both.

        First, Cohen argues that, even if the Cohen Agreement
is not executory on its face, the Bankruptcy Court should have
allowed for additional discovery and factfinding. While he is
correct that under New York law “[t]he issue of whether a party
has substantially performed is usually a question of fact,” a
court can decide it as a matter of law “where the inferences are
certain.” Exide, 607 F.3d at 963 (citation omitted). Indeed, we
previously held that the contracts at issue in Exide were not
executory based on “[o]ur inspection of the record.” Id. New
York courts have also frequently resolved the materiality of
contractual provisions as a question of law. See, e.g., Wiljeff,
LLC v. United Realty Mgmt. Corp., 82 A.D.3d 1616, 1617
(N.Y. App. Div. 2011) (“[W]here the evidence concerning the
materiality is clear and substantially uncontradicted . . . [,] the
question is a matter of law for the court to decide.”) (second
alteration in original) (citation omitted). In this case, the
decisions of the Bankruptcy and District Courts were well
supported by the plain text of the Cohen Agreement, as well as
uncontradicted evidence that the Picture was made and
released nearly six years before the Debtors’ bankruptcy filing.
Cohen’s position is further undercut by the fact he chose not to
submit an affidavit or present a witness at the hearing in the
Bankruptcy Court. Further, he does not explain what evidence
the Bankruptcy Court should develop if there were a remand.
In this context, we reject his argument that the Bankruptcy
Court erred by not allowing for additional factfinding.

                                23
        Second, Cohen presses the Hail Mary argument that the
Bankruptcy Court did not have enough evidence to conclude
that TWC owned the Cohen Agreement and could sell it.
However, the Bankruptcy Court’s decision is well supported
by the testimony of Irwin Reiter, who was the Executive Vice
President for Accounting and Financial Reporting at TWC, and
later held the same role at Spyglass. After Reiter testified about
the chain-of-title for the Cohen Agreement, Cohen’s counsel
cross-examined him. The Bankruptcy Court determined that,
based on “the evidence presented . . . [,] SLPTWC Films did
dissolve . . . [and] the debtor, who was the sole member of that
LLC, acquired all of the rights to its property.” App. 2268–69,
Bankr. Hr’g Tr. 135:20–25, 136:4–6. Cohen contends that the
Bankruptcy Court neglected to draw factual inferences in his
favor, but the summary judgment standard does not require a
court to draw improbable inferences. See Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986).
We agree with the Bankruptcy Court that the evidence clearly
shows SLPTWC dissolved before TWC’s bankruptcy and
TWC, as its sole member, received all its assets and contract
rights.10 Further, Reiter testified the chain-of-title satisfied
banks, as TWC was able to “license the picture . . . [and]

10
  Cohen argues that the Bankruptcy Court incorrectly applied
New York LLC dissolution law when it should have applied
Delaware law. However, we do not see how the two laws
meaningfully differ on the question of whether the sole
member of an LLC would receive its assets upon dissolution.
The two statutes have nearly identical distribution schemes.
Compare 34 N.Y. Ltd. Liab. Co. Law § 704 with 6 Del. Code
§ 18-804. And both states also have similar provisions on who
can wind up an LLC. Compare 34 N.Y. Ltd. Liab. Co. § 703
with 6 Del. Code § 18-803.

                               24
borrow based on the picture.” App. 2225, Bankr. Hr’g Tr.
92:4–5. In any event, Cohen never names who else might own
the Cohen Agreement if not the Debtors. Hence we agree with
the Bankruptcy Court’s conclusion that TWC owned the
Cohen Agreement and could sell it.

                        *   * *     * *

         Bankruptcy often affects contract counterparties who do
business with the debtor. Here, TWC owes money to Cohen
under a work-made-for-hire production services contract, but
he has no material obligations left to perform, as he produced
and released the film several years before TWC’s bankruptcy.
No provision in the contract clearly and unambiguously
overrode New York’s default substantial performance rule that
obligations are immaterial if they do not go to the root and
purpose of the transaction. Accordingly, the Bankruptcy Code
views the Cohen Agreement as a non-executory contract that
is in essence a liability for the Debtors that can be sold to
Spyglass under Bankruptcy Code § 363 without the need to
cure existing defaults. Hence the approximately $400,000 in
contingent compensation owed to Cohen before the sale’s
closing does not need to be paid in full, though (if timely) it
can still be asserted as an unsecured claim to be paid out in the
normal course pro rata with other unsecured creditors. This
pill is bitter to swallow, but bankruptcy inevitably creates harsh
results for some players. We thus affirm the District Court’s
order affirming the Bankruptcy Court’s ruling.

                               25