Thompkins v. Lil’ Joe Records, 05-10143 (11th Cir. Feb. 5 2007):
“This appeal requires us to consider what happens when a debtor-in-
possession in a Chapter 11 bankruptcy case, who negotiated the purchase of
copyrights prior to the bankruptcy proceeding, later uses the bankruptcy code to
reject those contracts that transferred ownership of the copyrights to the debtor.
Our resolution of that question determines the outcome of much of this suit by a
rap artist who created the works giving rise to the copyrights in question. The
artist sold copyrights in his works to a music recording company in exchange for a
recording contract that entitled the artist to future royalties. The recording
company later went bankrupt, becoming the debtor-in-possession. In confirming
the debtor’s reorganization plan, the bankruptcy court ordered that all of the
debtor’s contracts with the artist be rejected under the bankruptcy code and the
copyrights sold to a rival recording company and its owner, two of the defendants
in the instant case.
Years later, the artist sued the defendants, alleging that they did not actually
gain ownership of the copyrights through the bankruptcy, or if they did, they now
owe him royalties. Based on that premise, the artist asserts numerous claims
sounding in federal and state law. The district court granted summary judgment in
favor of the defendants on all claims, and for the reasons set forth below, we
affirm. ”
Rationale: Pre-bankruptcy rejection of the copyright assignment by the debtor as an ‘executory contract’ (one that had not been completely executed) does not act as a recission of the contract (which would have returned ownership of the copyright to the creditor), but instead is merely a breach by the debtor, and the payments owing under the assignment, become an unsecured claim.
UPDATE: Prof Patry: 2 Live Bankrupt.