Mission Product Holdings, Inc. v. Tempnology, LLC

(Slip Opinion) OCTOBER TERM, 2018 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
MISSION PRODUCT HOLDINGS, INC. v.
TEMPNOLOGY, LLC, NKA OLD COLD LLC
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE FIRST CIRCUIT
No. 17–1657. Argued February 20, 2019—Decided May 20, 2019
Petitioner Mission Product Holdings, Inc., entered into a contract with
Respondent Tempnology, LLC, which gave Mission a license to use
Tempnology’s trademarks in connection with the distribution of cer-
tain clothing and accessories. Tempnology filed for Chapter 11 bank-
ruptcy and sought to reject its agreement with Mission. Section 365
of the Bankruptcy Code enables a debtor to “reject any executory con-
tract”—meaning a contract that neither party has finished perform-
ing. 11 U. S. C. §365(a). It further provides that rejection “consti-
tutes a breach of such contract.” §365(g). The Bankruptcy Court
approved Tempnology’s rejection and further held that the rejection
terminated Mission’s rights to use Tempnology’s trademarks. The
Bankruptcy Appellate Panel reversed, relying on Section 365(g)’s
statement that rejection “constitutes a breach” to hold that rejection
does not terminate rights that would survive a breach of contract
outside bankruptcy. The First Circuit rejected the Panel’s judgment
and reinstated the Bankruptcy Court’s decision.
Held:
1. This case is not moot. Mission presents a plausible claim for
money damages arising from its inability to use Tempnology’s trade-
marks, which is sufficient to preserve a live controversy. See Chafin
v. Chafin, 568 U. S. 165, 172. Tempnology’s various arguments that
Mission is not entitled to damages do not so clearly preclude recovery
as to render this case moot. Pp. 6–7.
2. A debtor’s rejection of an executory contract under Section 365 of
the Bankruptcy Code has the same effect as a breach of that contract
outside bankruptcy. Such an act cannot rescind rights that the con-
tract previously granted. Pp. 7–16.
2 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Syllabus
(a) Section 365(g) provides that rejection “constitutes a breach.”
And “breach” is neither a defined nor a specialized bankruptcy
term—it means in the Code what it means in contract law outside
bankruptcy. See Field v. Mans, 516 U. S. 59, 69. Outside bankrupt-
cy, a licensor’s breach cannot revoke continuing rights given to a
counterparty under a contract (assuming no special contract term or
state law). And because rejection “constitutes a breach,” the same re-
sult must follow from rejection in bankruptcy. In preserving a coun-
terparty’s rights, Section 365 reflects the general bankruptcy rule
that the estate cannot possess anything more than the debtor did
outside bankruptcy. See Board of Trade of Chicago v. Johnson, 264
U. S. 1, 15. And conversely, allowing rejection to rescind a counter-
party’s rights would circumvent the Code’s stringent limits on
“avoidance” actions—the exceptional cases in which debtors may un-
wind pre-bankruptcy transfers that undermine the bankruptcy pro-
cess. See, e.g., §548(a). Pp. 8–12.
(b) Tempnology’s principal counterargument rests on a negative
inference drawn from provisions of Section 365 identifying categories
of contracts under which a counterparty may retain specified rights
after rejection. See §§365(h), (i), (n). Tempnology argues that these
provisions indicate that the ordinary consequence of rejection must
be something different—i.e., the termination of contractual rights
previously granted. But that argument offers no account of how to
read Section 365(g) (rejection “constitutes a breach”) to say essential-
ly its opposite. And the provisions Tempnology treats as a reticulat-
ed scheme of exceptions each emerged at a different time and re-
sponded to a discrete problem—as often as not, correcting a judicial
ruling of just the kind Tempnology urges.
Tempnology’s remaining argument turns on how the special fea-
tures of trademark law may affect the fulfillment of the Code’s goals.
Unless rejection terminates a licensee’s right to use a trademark,
Tempnology argues, a debtor must choose between monitoring the
goods sold under a license or risking the loss of its trademark, either
of which would impede a debtor’s ability to reorganize. But the dis-
tinctive features of trademarks do not persuade this Court to adopt a
construction of Section 365 that will govern much more than trade-
mark licenses. And Tempnology’s plea to facilitate reorganizations
cannot overcome what Section 365(a) and (g) direct. In delineating
the burdens a debtor may and may not escape, Section 365’s edict
that rejection is breach expresses a more complex set of aims than
Tempnology acknowledges. Pp. 12–16.
879 F. 3d 389, reversed and remanded.
KAGAN, J., delivered the opinion of the Court, in which ROBERTS, C. J.,
Cite as: 587 U. S. ____ (2019) 3
Syllabus
and THOMAS, GINSBURG, BREYER, ALITO, SOTOMAYOR, and KAVANAUGH,
JJ., joined. SOTOMAYOR, J., filed a concurring opinion. GORSUCH, J.,
filed a dissenting opinion.
Cite as: 587 U. S. ____ (2019) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash-
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 17–1657
_________________
MISSION PRODUCT HOLDINGS, INC., PETITIONER v.
TEMPNOLOGY, LLC, NKA OLD COLD LLC
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIRST CIRCUIT
[May 20, 2019]
JUSTICE KAGAN delivered the opinion of the Court.
Section 365 of the Bankruptcy Code enables a debtor to
“reject any executory contract”—meaning a contract that
neither party has finished performing. 11 U. S. C. §365(a).
The section further provides that a debtor’s rejection of a
contract under that authority “constitutes a breach of such
contract.” §365(g).
Today we consider the meaning of those provisions in
the context of a trademark licensing agreement. The
question is whether the debtor-licensor’s rejection of that
contract deprives the licensee of its rights to use the
trademark. We hold it does not. A rejection breaches a
contract but does not rescind it. And that means all the
rights that would ordinarily survive a contract breach,
including those conveyed here, remain in place.
I
This case arises from a licensing agreement gone wrong.
Respondent Tempnology, LLC, manufactured clothing and
accessories designed to stay cool when used in exercise. It
marketed those products under the brand name
“Coolcore,” using trademarks (e.g., logos and labels) to
2 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Opinion of the Court
distinguish the gear from other athletic apparel. In 2012,
Tempnology entered into a contract with petitioner Mis-
sion Product Holdings, Inc. See App. 203–255. The
agreement gave Mission an exclusive license to distribute
certain Coolcore products in the United States. And more
important here, it granted Mission a non-exclusive license
to use the Coolcore trademarks, both in the United States
and around the world. The agreement was set to expire in
July 2016. But in September 2015, Tempnology filed a
petition for Chapter 11 bankruptcy. And it soon afterward
asked the Bankruptcy Court to allow it to “reject” the
licensing agreement. §365(a).
Chapter 11 of the Bankruptcy Code sets out a frame-
work for reorganizing a bankrupt business. See §§1101–
1174. The filing of a petition creates a bankruptcy estate
consisting of all the debtor’s assets and rights. See §541.
The estate is the pot out of which creditors’ claims are
paid. It is administered by either a trustee or, as in this
case, the debtor itself. See §§1101, 1107.
Section 365(a) of the Code provides that a “trustee [or
debtor], subject to the court’s approval, may assume or
reject any executory contract.” §365(a). A contract is
executory if “performance remains due to some extent on
both sides.” NLRB v. Bildisco & Bildisco, 465 U. S. 513,
522, n. 6 (1984) (internal quotation marks omitted). Such
an agreement represents both an asset (the debtor’s right
to the counterparty’s future performance) and a liability
(the debtor’s own obligations to perform). Section 365(a)
enables the debtor (or its trustee), upon entering bank-
ruptcy, to decide whether the contract is a good deal for
the estate going forward. If so, the debtor will want to
assume the contract, fulfilling its obligations while bene-
fiting from the counterparty’s performance. But if not, the
debtor will want to reject the contract, repudiating any
further performance of its duties. The bankruptcy court
will generally approve that choice, under the deferential
Cite as: 587 U. S. ____ (2019) 3
Opinion of the Court
“business judgment” rule. Id., at 523.
According to Section 365(g), “the rejection of an execu-
tory contract[ ] constitutes a breach of such contract.” As
both parties here agree, the counterparty thus has a claim
against the estate for damages resulting from the debtor’s
nonperformance. See Brief for Petitioner 17, 19; Brief for
Respondent 30–31. But such a claim is unlikely to ever be
paid in full. That is because the debtor’s breach is deemed
to occur “immediately before the date of the filing of the
[bankruptcy] petition,” rather than on the actual post-
petition rejection date. §365(g)(1). By thus giving the
counterparty a pre-petition claim, Section 365(g) places
that party in the same boat as the debtor’s unsecured
creditors, who in a typical bankruptcy may receive only
cents on the dollar. See Bildisco, 465 U. S., at 531–532
(noting the higher priority of post-petition claims).
In this case, the Bankruptcy Court (per usual) approved
Tempnology’s proposed rejection of its executory licensing
agreement with Mission. See App. to Pet. for Cert. 83–84.
That meant, as laid out above, two things on which the
parties agree. First, Tempnology could stop performing
under the contract. And second, Mission could assert (for
whatever it might be worth) a pre-petition claim in the
bankruptcy proceeding for damages resulting from Temp-
nology’s nonperformance.
But Tempnology thought still another consequence
ensued, and it returned to the Bankruptcy Court for a
declaratory judgment confirming its view. According to
Tempnology, its rejection of the contract also terminated
the rights it had granted Mission to use the Coolcore
trademarks. Tempnology based its argument on a nega-
tive inference. See Motion in No. 15–11400 (Bkrtcy. Ct.
NH), pp. 9–14. Several provisions in Section 365 state
that a counterparty to specific kinds of agreements may
keep exercising contractual rights after a debtor’s rejec-
tion. For example, Section 365(h) provides that if a bank-
4 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Opinion of the Court
rupt landlord rejects a lease, the tenant need not move
out; instead, she may stay and pay rent (just as she did
before) until the lease term expires. And still closer to
home, Section 365(n) sets out a similar rule for some types
of intellectual property licenses: If the debtor-licensor
rejects the agreement, the licensee can continue to use the
property (typically, a patent), so long as it makes whatever
payments the contract demands. But Tempnology pointed
out that neither Section 365(n) nor any similar provision
covers trademark licenses. So, it reasoned, in that sort of
contract a different rule must apply: The debtor’s rejection
must extinguish the rights that the agreement had con-
ferred on the trademark licensee. The Bankruptcy Court
agreed. See In re Tempnology, LLC, 541 B. R. 1 (Bkrtcy.
Ct. NH 2015). It held, relying on the same “negative
inference,” that Tempnology’s rejection of the licensing
agreement revoked Mission’s right to use the Coolcore
marks. Id., at 7.
The Bankruptcy Appellate Panel reversed, relying
heavily on a decision of the Court of Appeals for the Sev-
enth Circuit about the effects of rejection on trademark
licensing agreements. See In re Tempnology, LLC, 559
B. R. 809, 820–823 (Bkrtcy. App. Panel CA1 2016); Sun-
beam Products, Inc. v. Chicago Am. Mfg., LLC, 686 F. 3d
372, 376–377 (CA7 2012). Rather than reason backward
from Section 365(n) or similar provisions, the Panel fo-
cused on Section 365(g)’s statement that rejection of a
contract “constitutes a breach.” Outside bankruptcy, the
court explained, the breach of an agreement does not
eliminate rights the contract had already conferred on the
non-breaching party. See 559 B. R., at 820. So neither
could a rejection of an agreement in bankruptcy have that
effect. A rejection “convert[s]” a “debtor’s unfulfilled obli-
gations” to a pre-petition damages claim. Id., at 822 (quot-
ing Sunbeam, 686 F. 3d, at 377). But it does not “termi-
nate the contract” or “vaporize[ ]” the counterparty’s
Cite as: 587 U. S. ____ (2019) 5
Opinion of the Court
rights. 559 B. R., at 820, 822 (quoting Sunbeam, 686
F. 3d, at 377). Mission could thus continue to use the
Coolcore trademarks.
But the Court of Appeals for the First Circuit rejected
the Panel’s and Seventh Circuit’s view, and reinstated the
Bankruptcy Court decision terminating Mission’s license.
See In re Tempnology, LLC, 879 F. 3d 389 (2018). The
majority first endorsed that court’s inference from Section
365(n) and similar provisions. It next reasoned that spe-
cial features of trademark law counsel against allowing a
licensee to retain rights to a mark after the licensing
agreement’s rejection. Under that body of law, the major-
ity stated, the trademark owner’s “[f]ailure to monitor and
exercise [quality] control” over goods associated with a
trademark “jeopardiz[es] the continued validity of [its]
own trademark rights.” Id., at 402. So if (the majority
continued) a licensee can keep using a mark after an
agreement’s rejection, the licensor will need to carry on its
monitoring activities. And according to the majority, that
would frustrate “Congress’s principal aim in providing for
rejection”: to “release the debtor’s estate from burdensome
obligations.” Ibid. (internal quotation marks omitted).
Judge Torruella dissented, mainly for the Seventh Cir-
cuit’s reasons. See id., at 405–407.
We granted certiorari to resolve the division between
the First and Seventh Circuits. 586 U. S. ___ (2018). We
now affirm the Seventh’s reasoning and reverse the deci-
sion below.1
——————
1 In its briefing before this Court, Mission contends that its exclusive
distribution rights survived the licensing agreement’s rejection for the
same reason as its trademark rights did. See Brief for Petitioner 40–
44; supra, at 2. But the First Circuit held that Mission had waived that
argument, see 879 F. 3d, at 401, and we have no reason to doubt that
conclusion. Our decision thus affects only Mission’s trademark rights.
6 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Opinion of the Court
II
Before reaching the merits, we pause to consider Temp-
nology’s claim that this case is moot. Under settled law,
we may dismiss the case for that reason only if “it is im-
possible for a court to grant any effectual relief whatever”
to Mission assuming it prevails. Chafin v. Chafin, 568
U. S. 165, 172 (2013) (internal quotation marks omitted).
That demanding standard is not met here.
Mission has presented a claim for money damages—
essentially lost profits—arising from its inability to use
the Coolcore trademarks between the time Tempnology
rejected the licensing agreement and its scheduled expira-
tion date. See Reply Brief 22, and n. 8. Such claims, if at
all plausible, ensure a live controversy. See Memphis
Light, Gas & Water Div. v. Craft, 436 U. S. 1, 8–9 (1978).
For better or worse, nothing so shows a continuing stake
in a dispute’s outcome as a demand for dollars and cents.
See 13C C. Wright, A. Miller & E. Cooper, Federal Prac-
tice and Procedure §3533.3, p. 2 (3d ed. 2008) (Wright &
Miller) (“[A] case is not moot so long as a claim for mone-
tary relief survives”). Ultimate recovery on that demand
may be uncertain or even unlikely for any number of
reasons, in this case as in others. But that is of no mo-
ment. If there is any chance of money changing hands,
Mission’s suit remains live. See Chafin, 568 U. S., at 172.
Tempnology makes a flurry of arguments about why
Mission is not entitled to damages, but none so clearly
precludes recovery as to make this case moot. First,
Tempnology contends that Mission suffered no injury
because it “never used the trademark[s] during [the post-
rejection] period.” Brief for Respondent 24; see Tr. of Oral
Arg. 33. But that gets things backward. Mission’s non-
use of the marks during that time is precisely what gives
rise to its damages claim; had it employed the marks, it
would not have lost any profits. So next, Tempnology
argues that Mission’s non-use was its own “choice,” for
Cite as: 587 U. S. ____ (2019) 7
Opinion of the Court
which damages cannot lie. See id., at 26. But recall that
the Bankruptcy Court held that Mission could not use the
marks after rejection (and its decision remained in effect
through the agreement’s expiration). See supra, at 4. And
although (as Tempnology counters) the court issued “no
injunction,” Brief for Respondent 26, that difference does
not matter: Mission need not have flouted a crystal-clear
ruling and courted yet more legal trouble to preserve its
claim. Cf. 13B Wright & Miller §3533.2.2, at 852
(“[C]ompliance [with a judicial decision] does not moot [a
case] if it remains possible to undo the effects of compli-
ance,” as through compensation). So last, Tempnology
claims that it bears no blame (and thus should not have to
pay) for Mission’s injury because all it did was “ask[ ] the
court to make a ruling.” Tr. of Oral Arg. 34–35. But
whether Tempnology did anything to Mission amounting
to a legal wrong is a prototypical merits question, which
no court has addressed and which has no obvious answer.
That means it is no reason to find this case moot.
And so too for Tempnology’s further argument that
Mission will be unable to convert any judgment in its favor
to hard cash. Here, Tempnology notes that the bankruptcy
estate has recently distributed all of its assets, leaving
nothing to satisfy Mission’s judgment. See Brief for Re-
spondent 27. But courts often adjudicate disputes whose
“practical impact” is unsure at best, as when “a defendant
is insolvent.” Chafin, 568 U. S., at 175. And Mission
notes that if it prevails, it can seek the unwinding of prior
distributions to get its fair share of the estate. See Reply
Brief 23. So although this suit “may not make [Mission]
rich,” or even better off, it remains a live controversy—
allowing us to proceed. Chafin, 568 U. S., at 176.
III
What is the effect of a debtor’s (or trustee’s) rejection of
a contract under Section 365 of the Bankruptcy Code?
8 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Opinion of the Court
The parties and courts of appeals have offered us two
starkly different answers. According to one view, a rejec-
tion has the same consequence as a contract breach out-
side bankruptcy: It gives the counterparty a claim for
damages, while leaving intact the rights the counterparty
has received under the contract. According to the other
view, a rejection (except in a few spheres) has more the
effect of a contract rescission in the non-bankruptcy world:
Though also allowing a damages claim, the rejection ter-
minates the whole agreement along with all rights it
conferred. Today, we hold that both Section 365’s text and
fundamental principles of bankruptcy law command the
first, rejection-as-breach approach. We reject the compet-
ing claim that by specifically enabling the counterparties
in some contracts to retain rights after rejection, Congress
showed that it wanted the counterparties in all other
contracts to lose their rights. And we reject an argument
for the rescission approach turning on the distinctive
features of trademark licenses. Rejection of a contract—
any contract—in bankruptcy operates not as a rescission
but as a breach.
A
We start with the text of the Code’s principal provisions
on rejection—and find that it does much of the work. As
noted earlier, Section 365(a) gives a debtor the option,
subject to court approval, to “assume or reject any execu-
tory contract.” See supra, at 2. And Section 365(g) de-
scribes what rejection means. Rejection “constitutes a
breach of [an executory] contract,” deemed to occur “im-
mediately before the date of the filing of the petition.” See
supra, at 3. Or said more pithily for current purposes, a
rejection is a breach. And “breach” is neither a defined
nor a specialized bankruptcy term. It means in the Code
what it means in contract law outside bankruptcy. See
Field v. Mans, 516 U. S. 59, 69 (1995) (Congress generally
Cite as: 587 U. S. ____ (2019) 9
Opinion of the Court
meant for the Bankruptcy Code to “incorporate the estab-
lished meaning” of “terms that have accumulated settled
meaning” (internal quotation marks omitted)). So the first
place to go in divining the effects of rejection is to non-
bankruptcy contract law, which can tell us the effects of
breach.
Consider a made-up executory contract to see how the
law of breach works outside bankruptcy. A dealer leases a
photocopier to a law firm, while agreeing to service it
every month; in exchange, the firm commits to pay a
monthly fee. During the lease term, the dealer decides to
stop servicing the machine, thus breaching the agreement
in a material way. The law firm now has a choice (assum-
ing no special contract term or state law). The firm can
keep up its side of the bargain, continuing to pay for use of
the copier, while suing the dealer for damages from the
service breach. Or the firm can call the whole deal off,
halting its own payments and returning the copier, while
suing for any damages incurred. See 13 R. Lord, Williston
on Contracts §39:32, pp. 701–702 (4th ed. 2013) (“[W]hen a
contract is breached in the course of performance, the
injured party may elect to continue the contract or refuse
to perform further”). But to repeat: The choice to termi-
nate the agreement and send back the copier is for the law
firm. By contrast, the dealer has no ability, based on its
own breach, to terminate the agreement. Or otherwise
said, the dealer cannot get back the copier just by refusing
to show up for a service appointment. The contract gave
the law firm continuing rights in the copier, which the
dealer cannot unilaterally revoke.
And now to return to bankruptcy: If the rejection of the
photocopier contract “constitutes a breach,” as the Code
says, then the same results should follow (save for one
twist as to timing). Assume here that the dealer files a
Chapter 11 petition and decides to reject its agreement
with the law firm. That means, as above, that the dealer
10 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Opinion of the Court
will stop servicing the copier. It means, too, that the law
firm has an option about how to respond—continue the
contract or walk away, while suing for whatever damages
go with its choice. (Here is where the twist comes in:
Because the rejection is deemed to occur “immediately
before” bankruptcy, the firm’s damages suit is treated as a
pre-petition claim on the estate, which will likely receive
only cents on the dollar. See supra, at 3.) And most im-
portant, it means that assuming the law firm wants to
keep using the copier, the dealer cannot take it back. A
rejection does not terminate the contract. When it occurs,
the debtor and counterparty do not go back to their pre-
contract positions. Instead, the counterparty retains the
rights it has received under the agreement. As after a
breach, so too after a rejection, those rights survive.
All of this, it will hardly surprise you to learn, is not just
about photocopier leases. Sections 365(a) and (g) speak
broadly, to “any executory contract[s].” Many licensing
agreements involving trademarks or other property are of
that kind (including, all agree, the Tempnology-Mission
contract). The licensor not only grants a license, but
provides associated goods or services during its term; the
licensee pays continuing royalties or fees. If the licensor
breaches the agreement outside bankruptcy (again, bar-
ring any special contract term or state law), everything
said above goes. In particular, the breach does not revoke
the license or stop the licensee from doing what it allows.
See, e.g., Sunbeam, 686 F. 3d, at 376 (“Outside of bank-
ruptcy, a licensor’s breach does not terminate a licensee’s
right to use [the licensed] intellectual property”). And
because rejection “constitutes a breach,” §365(g), the same
consequences follow in bankruptcy. The debtor can stop
performing its remaining obligations under the agree-
ment. But the debtor cannot rescind the license already
conveyed. So the licensee can continue to do whatever the
license authorizes.
Cite as: 587 U. S. ____ (2019) 11
Opinion of the Court
In preserving those rights, Section 365 reflects a general
bankruptcy rule: The estate cannot possess anything more
than the debtor itself did outside bankruptcy. See Board
of Trade of Chicago v. Johnson, 264 U. S. 1, 15 (1924)
(establishing that principle); §541(a)(1) (defining the
estate to include the “interests of the debtor in property”
(emphasis added)). As one bankruptcy scholar has put the
point: Whatever “limitation[s] on the debtor’s property
[apply] outside of bankruptcy[ ] appl[y] inside of bankruptcy
as well. A debtor’s property does not shrink by happen-
stance of bankruptcy, but it does not expand, either.” D.
Baird, Elements of Bankruptcy 97 (6th ed. 2014). So if the
not-yet debtor was subject to a counterparty’s contractual
right (say, to retain a copier or use a trademark), so too
is the trustee or debtor once the bankruptcy petition
has been filed. The rejection-as-breach rule (but not the
rejection-as-rescission rule) ensures that result. By insisting
that the same counterparty rights survive rejection as
survive breach, the rule prevents a debtor in bankruptcy
from recapturing interests it had given up.
And conversely, the rejection-as-rescission approach
would circumvent the Code’s stringent limits on “avoid-
ance” actions—the exceptional cases in which trustees (or
debtors) may indeed unwind pre-bankruptcy transfers
that undermine the bankruptcy process. The most not-
able example is for fraudulent conveyances—usually,
something-for-nothing transfers that deplete the estate (and
so cheat creditors) on the eve of bankruptcy. See §548(a). A
trustee’s avoidance powers are laid out in a discrete set of
sections in the Code, see §§544–553, far away from Section
365. And they can be invoked in only narrow circum-
stances—unlike the power of rejection, which may be
exercised for any plausible economic reason. See, e.g.,
§548(a) (describing the requirements for avoiding fraudu-
lent transfers); supra, at 2–3. If trustees (or debtors) could
use rejection to rescind previously granted interests, then
12 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Opinion of the Court
rejection would become functionally equivalent to avoid-
ance. Both, that is, would roll back a prior transfer. And
that result would subvert everything the Code does to
keep avoidances cabined—so they do not threaten the rule
that the estate can take only what the debtor possessed
before filing. Again, then, core tenets of bankruptcy law
push in the same direction as Section 365’s text: Rejection
is breach, and has only its consequences.
B
Tempnology’s main argument to the contrary, here as in
the courts below, rests on a negative inference. See Brief
for Respondent 33–41; supra, at 3–4. Several provisions of
Section 365, Tempnology notes, “identif[y] categories of
contracts under which a counterparty” may retain speci-
fied contract rights “notwithstanding rejection.” Brief for
Respondent 34. Sections 365(h) and (i) make clear that
certain purchasers and lessees of real property and
timeshare interests can continue to exercise rights after a
debtor has rejected the lease or sales contract. See
§365(h)(1) (real-property leases); §365(i) (real-property
sales contracts); §§365(h)(2), (i) (timeshare interests). And
Section 365(n) similarly provides that licensees of some
intellectual property—but not trademarks—retain con-
tractual rights after rejection. See §365(n); §101(35A);
supra, at 4. Tempnology argues from those provisions
that the ordinary consequence of rejection must be some-
thing different—i.e., the termination, rather than survival,
of contractual rights previously granted. Otherwise,
Tempnology concludes, the statute’s “general rule” would
“swallow the exceptions.” Brief for Respondent 19.
But that argument pays too little heed to the main
provisions governing rejection and too much to subsidiary
ones. On the one hand, it offers no account of how to read
Section 365(g) (recall, rejection “constitutes a breach”) to
say essentially its opposite (i.e., that rejection and breach
Cite as: 587 U. S. ____ (2019) 13
Opinion of the Court
have divergent consequences). On the other hand, it
treats as a neat, reticulated scheme of “narrowly tailored
exception[s],” id., at 36 (emphasis deleted), what history
reveals to be anything but. Each of the provisions Temp-
nology highlights emerged at a different time, over a span
of half a century. See, e.g., 52 Stat. 881 (1938) (real-
property leases); §1(b), 102 Stat. 2538 (1988) (intellectual
property). And each responded to a discrete problem—as
often as not, correcting a judicial ruling of just the kind
Tempnology urges. See Andrew, Executory Contracts in
Bankruptcy, 59 U. Colo. L. Rev. 845, 911–912, 916–919
(1988) (identifying judicial decisions that the provisions
overturned); compare, e.g., In re Sombrero Reef Club, Inc.,
18 B. R. 612, 618–619 (Bkrtcy. Ct. SD Fla. 1982), with,
e.g., §§365(h)(2), (i). Read as generously as possible to
Tempnology, this mash-up of legislative interventions says
nothing much of anything about the content of Section
365(g)’s general rule. Read less generously, it affirma-
tively refutes Tempnology’s rendition. As one bankruptcy
scholar noted after an exhaustive review of the history:
“What the legislative record [reflects] is that whenever
Congress has been confronted with the consequences of
the [view that rejection terminates all contractual rights],
it has expressed its disapproval.” Andrew, 59 U. Colo. L.
Rev., at 928. On that account, Congress enacted the pro-
visions, as and when needed, to reinforce or clarify the
general rule that contractual rights survive rejection.2
——————
2 At the same time, Congress took the opportunity when drafting
those provisions to fill in certain details, generally left to state law,
about the post-rejection relationship between the debtor and counter-
party. See, e.g., Andrew, Executory Contracts in Bankruptcy, 59 U.
Colo. L. Rev. 845, 903, n. 200 (1988) (describing Congress’s addition of
subsidiary rules for real property leases in Section 365(h)); Brief for
United States as Amicus Curiae 29 (noting that Congress similarly set
out detailed rules for patent licenses in Section 365(n)). The provisions
are therefore not redundant of Section 365(g): Each sets out a remedial
scheme embellishing on or tweaking the general rejection-as-breach
14 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Opinion of the Court
Consider more closely, for example, Congress’s enact-
ment of Section 365(n), which addresses certain intellec-
tual property licensing agreements. No one disputes how
that provision came about. In Lubrizol Enterprises v.
Richmond Metal Finishers, the Fourth Circuit held that a
debtor’s rejection of an executory contract worked to re-
voke its grant of a patent license. See 756 F. 2d 1043,
1045–1048 (1985). In other words, Lubrizol adopted the
same rule for patent licenses that the First Circuit an-
nounced for trademark licenses here. Congress sprang
into action, drafting Section 365(n) to reverse Lubrizol and
ensure the continuation of patent (and some other intellec-
tual property) licensees’ rights. See 102 Stat. 2538 (1988);
S. Rep. No. 100–505, pp. 2–4 (1988) (explaining that Sec-
tion 365(n) “corrects [Lubrizol’s] perception” that “Section
365 was ever intended to be a mechanism for stripping
innocent licensee[s] of rights”). As Tempnology highlights,
that provision does not cover trademark licensing agree-
ments, which continue to fall, along with most other con-
tracts, within Section 365(g)’s general rule. See Brief for
Respondent 38. But what of that? Even put aside the
claim that Section 365(n) is part of a pattern—that Con-
gress whacked Tempnology’s view of rejection wherever it
raised its head. See supra, at 13. Still, Congress’s repudi-
ation of Lubrizol for patent contracts does not show any
intent to ratify that decision’s approach for almost all
others. Which is to say that no negative inference arises.
Congress did nothing in adding Section 365(n) to alter the
natural reading of Section 365(g)—that rejection and
breach have the same results.
Tempnology’s remaining argument turns on the way
special features of trademark law may affect the fulfill-
ment of the Code’s goals. Like the First Circuit below,
Tempnology here focuses on a trademark licensor’s duty to
——————
rule.
Cite as: 587 U. S. ____ (2019) 15
Opinion of the Court
monitor and “exercise quality control over the goods and
services sold” under a license. Brief for Respondent 20;
see supra, at 5. Absent those efforts to keep up quality,
the mark will naturally decline in value and may eventu-
ally become altogether invalid. See 3 J. McCarthy,
Trademarks and Unfair Competition §18:48, pp. 18–129,
18–133 (5th ed. 2018). So (Tempnology argues) unless
rejection of a trademark licensing agreement terminates
the licensee’s rights to use the mark, the debtor will have
to choose between expending scarce resources on quality
control and risking the loss of a valuable asset. See Brief
for Respondent 59. “Either choice,” Tempnology con-
cludes, “would impede a [debtor’s] ability to reorganize,”
thus “undermining a fundamental purpose of the Code.”
Id., at 59–60.
To begin with, that argument is a mismatch with
Tempnology’s reading of Section 365. The argument is
trademark-specific. But Tempnology’s reading of Section
365 is not. Remember, Tempnology construes that section
to mean that a debtor’s rejection of a contract terminates
the counterparty’s rights “unless the contract falls within
an express statutory exception.” Id., at 27–28; see supra,
at 12. That construction treats trademark agreements
identically to most other contracts; the only agreements
getting different treatment are those falling within the
discrete provisions just discussed. And indeed, Tempnol-
ogy could not have discovered, however hard it looked, any
trademark-specific rule in Section 365. That section’s
special provisions, as all agree, do not mention trade-
marks; and the general provisions speak, well, generally.
So Tempnology is essentially arguing that distinctive
features of trademarks should persuade us to adopt a
construction of Section 365 that will govern not just
trademark agreements, but pretty nearly every executory
contract. However serious Tempnology’s trademark-
related concerns, that would allow the tail to wag the
16 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
Opinion of the Court
Doberman.
And even putting aside that incongruity, Tempnology’s
plea to facilitate trademark licensors’ reorganizations
cannot overcome what Sections 365(a) and (g) direct. The
Code of course aims to make reorganizations possible. But
it does not permit anything and everything that might
advance that goal. See, e.g., Florida Dept. of Revenue v.
Piccadilly Cafeterias, Inc., 554 U. S. 33, 51 (2008) (observ-
ing that in enacting Chapter 11, Congress did not have “a
single purpose,” but “str[uck] a balance” among multiple
competing interests (internal quotation marks omitted)).
Here, Section 365 provides a debtor like Tempnology with
a powerful tool: Through rejection, the debtor can escape
all of its future contract obligations, without having to pay
much of anything in return. See supra, at 3. But in allow-
ing rejection of those contractual duties, Section 365 does
not grant the debtor an exemption from all the burdens
that generally applicable law—whether involving con-
tracts or trademarks—imposes on property owners. See
28 U. S. C. §959(b) (requiring a trustee to manage the
estate in accordance with applicable law). Nor does Sec-
tion 365 relieve the debtor of the need, against the back-
drop of that law, to make economic decisions about pre-
serving the estate’s value—such as whether to invest the
resources needed to maintain a trademark. In thus delin-
eating the burdens that a debtor may and may not escape,
Congress also weighed (among other things) the legitimate
interests and expectations of the debtor’s counterparties.
The resulting balance may indeed impede some reorgani-
zations, of trademark licensors and others. But that is
only to say that Section 365’s edict that rejection is breach
expresses a more complex set of aims than Tempnology
acknowledges.
IV
For the reasons stated above, we hold that under Sec-
Cite as: 587 U. S. ____ (2019) 17
Opinion of the Court
tion 365, a debtor’s rejection of an executory contract in
bankruptcy has the same effect as a breach outside bank-
ruptcy. Such an act cannot rescind rights that the con-
tract previously granted. Here, that construction of Sec-
tion 365 means that the debtor-licensor’s rejection cannot
revoke the trademark license.
We accordingly reverse the judgment of the Court of
Appeals and remand the case for further proceedings
consistent with this opinion.
It is so ordered.
Cite as: 587 U. S. ____ (2019) 1
SOTOMAYOR, J., concurring
SUPREME COURT OF THE UNITED STATES
_________________
No. 17–1657
_________________
MISSION PRODUCT HOLDINGS, INC., PETITIONER v.
TEMPNOLOGY, LLC, NKA OLD COLD LLC
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIRST CIRCUIT
[May 20, 2019]
JUSTICE SOTOMAYOR, concurring.
I agree with the Court that a debtor’s choice to reject an
executory contact under 11 U. S. C. §365(a) functions as a
breach of the contract rather than unwinding the rejected
contract as if it never existed. Ante, at 8–10. This result
follows from traditional bankruptcy principles and from
the general rule set out in §365(g) of the Bankruptcy Code.
I also agree that no specific aspects of trademark law
compel a contrary rule that equates rejection with rescis-
sion. I therefore join the Court’s opinion in full. I write
separately to highlight two potentially significant features
of today’s holding.
First, the Court does not decide that every trademark
licensee has the unfettered right to continue using li-
censed marks postrejection. The Court granted certiorari
to decide whether rejection “terminates rights of the licen-
see that would survive the licensor’s breach under appli-
cable nonbankruptcy law.” Pet. for Cert. i. The answer is
no, for the reasons the Court explains. But the baseline
inquiry remains whether the licensee’s rights would sur-
vive a breach under applicable nonbankruptcy law. Spe-
cial terms in a licensing contract or state law could bear
on that question in individual cases. See ante, at 9–10;
Brief for American Intellectual Property Law Association
as Amicus Curiae 20–25 (discussing examples of contract
2 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
SOTOMAYOR, J., concurring
terms that could potentially lead a bankruptcy court to
limit licensee rights postrejection).
Second, the Court’s holding confirms that trademark
licensees’ postrejection rights and remedies are more
expansive in some respects than those possessed by licen-
sees of other types of intellectual property. Those vari-
ances stem from §365(n), one of several subject-specific
provisions in the Bankruptcy Code that “embellis[h] on or
twea[k]” the general rejection rule. Ante, at 13, n. 2.
Section 365(n)—which applies to patents, copyrights, and
four other types of intellectual property, but not to trade-
marks, §101(35A)—alters the general rejection rule in
several respects. For example, a covered licensee that
chooses to retain its rights postrejection must make all of
its royalty payments; the licensee has no right to deduct
damages from its payments even if it otherwise could have
done so under nonbankruptcy law. §365(n)(2)(C)(i). This
provision and others in §365(n) mean that the covered
intellectual property types are governed by different rules
than trademark licenses.
Although these differences may prove significant for
individual licensors and licensees, they do not alter the
outcome here. The Court rightly rejects Tempnology’s
argument that the presence of §365(n) changes what
§365(g) says. As the Senate Report accompanying §365(n)
explained, the bill did not “address or intend any inference
to be drawn concerning the treatment of executory con-
tracts” under §365’s general rule. S. Rep. No. 100–505,
p. 5 (1988); see ante, at 14. To the extent trademark
licensees are treated differently from licensees of other
forms of intellectual property, that outcome leaves Con-
gress with the option to tailor a provision for trademark
licenses, as it has repeatedly in other contexts. See ante,
at 13–14.
With these observations, I join the Court’s opinion.
Cite as: 587 U. S. ____ (2019) 1
GORSUCH, J., dissenting
SUPREME COURT OF THE UNITED STATES
_________________
No. 17–1657
_________________
MISSION PRODUCT HOLDINGS, INC., PETITIONER v.
TEMPNOLOGY, LLC, NKA OLD COLD LLC
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIRST CIRCUIT
[May 20, 2019]
JUSTICE GORSUCH, dissenting.
This Court is not in the business of deciding abstract
questions, no matter how interesting. Under the Consti-
tution, our power extends only to deciding “Cases” and
“Controversies” where the outcome matters to real parties
in the real world. Art. III, §2. Because it’s unclear whether
we have anything like that here, I would dismiss the
petition as improvidently granted.
This case began when Mission licensed the right to use
certain of Tempnology’s trademarks. After Tempnology
entered bankruptcy, it sought and won from a bankruptcy
court an order declaring that Mission could no longer use
those trademarks. On appeal and now in this Court,
Mission seeks a ruling that the bankruptcy court’s decla-
ration was wrong. But whoever is right about that, it isn’t
clear how it would make a difference: After the bank-
ruptcy court ruled, the license agreement expired by its own
terms, so nothing we might say here could restore Mis-
sion’s ability to use Tempnology’s trademarks.
Recognizing that its original case seems to have become
moot, Mission attempts an alternative theory in briefing
before us. Now Mission says that if it prevails here it will,
on remand, seek money damages from Tempnology’s
estate for the profits it lost when, out of respect for the
bankruptcy court’s order, it refrained from using the
2 MISSION PRODUCT HOLDINGS, INC. v. TEMPNOLOGY, LLC
GORSUCH, J., dissenting
trademarks while its license still existed.
But it’s far from clear whether even this theory can keep
the case alive. A damages claim “suffices to avoid moot-
ness only if viable,” which means damages must at least
be “legally available for [the alleged] wrong.” 13C C.
Wright, A. Miller, & E. Cooper, Federal Practice and
Procedure §3533.3, p. 22 (3d ed. 2008). Yet, as far as
Mission has told us, Tempnology did nothing that could
lawfully give rise to a damages claim. After all, when
Tempnology asked the bankruptcy court to issue a declar-
atory ruling on a question of law, it was exercising its
protected “First Amendment right to petition the Govern-
ment for redress of grievances.” Bill Johnson’s Restau-
rants, Inc. v. NLRB, 461 U. S. 731, 741 (1983). And peti-
tioning a court normally isn’t an actionable wrong that can
give rise to a claim for damages. Absent a claim of malice
(which Mission hasn’t suggested would have any basis
here), the ordinary rule is that “ ‘no action lies against a
party for resort to civil courts’ ” or for “the assertion of a
legal argument.” Lucsik v. Board of Ed. of Brunswick City
School Dist., 621 F. 2d 841, 842 (CA6 1980) (per curiam);
see, e.g., W. R. Grace & Co. v. Rubber Workers, 461 U. S.
757, 770, n. 14 (1983); Russell v. Farley, 105 U. S. 433,
437–438 (1882).
Maybe Mission’s able lawyers will conjure something
better on remand. But, so far at least, the company hasn’t
come close to articulating a viable legal theory on which a
claim for damages could succeed. And where our jurisdic-
tion is so much in doubt, I would decline to proceed to the
merits. If the legal questions here are of sufficient im-
portance, a live case presenting them will come along soon
enough; there is no need to press the bounds of our consti-
tutional authority to reach them today.