Partner Richard Levy, Jr., and Counsel Robert M. Fleischer, members of Pryor Cashman’s Bankruptcy, Reorganization and Creditors’ Rights Group, successfully represented QuesTech Financial Services, LLC (“QuesTech”) as amicus curiae in an appeal to the U.S. Court of Appeals for the Second Circuit. The appeal arose from a $9.2 million judgment entered in 2009 against Matrix Realty Group Inc. by the U.S. Bankruptcy Court for the Southern District of New York in the Chapter 11 bankruptcy case for Food Management LLC and related debtors.  

QuesTech is a secured creditor of the Food Management debtors, holding the largest claim allowed against the bankruptcy estate. Under a settlement agreement with the Chapter 11 Trustee for the debtors, QuesTech is entitled to receive one-half of the proceeds of certain recoveries by the bankruptcy estate, including the Matrix judgment, up to a capped amount.  

The Trustee obtained the judgment against Matrix following a trial in the Bankruptcy Court on claims that Matrix anticipatorily repudiated an agreement under which it had agreed to purchase substantially all of the assets of the debtors. The District Court affirmed the judgment in 2010. Matrix then appealed to the Court of Appeals.

A central issue in the appeal involved the question of whether the debtors were ready, willing and able to perform their obligations under the purchase agreement following Matrix’s repudiation. Because QuesTech was not a direct party in the lawsuit below or in the appeal, it was required by governing rules of procedure to seek permission from the Court of Appeals to file a brief as a “friend of the court” in support of the judgment, and was required to submit the full text of its brief along with the motion. The Court of Appeals granted the motion after having received opposition from Matrix’s counsel and a reply from Pryor Cashman in further support of the motion.  The Court granted QuesTech’s motion and accepted its amicus curiae brief, something which is not ordinarily done in an appeal involving a commercial dispute.

Among other points raised in the amicus curiae brief, Pryor Cashman argued that certain precedents of the Court of Appeals amply supported the determinations below by both the Bankruptcy Court and the District Court that the debtors had demonstrated that they were ready, willing and able to perform their obligations as of the relevant time. In particular, the brief discussed the importance of language in the Court of Appeals’ 1960 decision in Scholle v. Cuban-Venezuelan Oil Voting Trust, 285 F.2d 318, 322 (2d Cir. 1960), which held that, for purposes of testing whether a party is ready, willing and able to perform a repudiated contract, “the proof needed to show ability varies with the nature of the contract and all the surrounding circumstances.” Neither of the briefs filed by Matrix and the Trustee addressed this flexible standard of proof.

In a summary order issued on June 30, 2011, as amended on August 21, 2011, the Court of Appeals affirmed the judgment.  On the specific question of whether the Food Management debtors were ready, willing and able to perform, the Court determined that:

"[T]he Debtors were ready, willing and able to substantially perform the bulk of the agreement at the time of repudiation.  Generally, “the severability of a contract is a question of the parties’ intent, to be determined from the language employed by the parties, viewed in the light of the circumstances surrounding them at the time they contracted.” In re Balfour MacLaine Int’l Ltd., 85 F.3d 68, 81 (2d Cir. 1996) (internal quotation omitted). “As a general rule, the contract is considered severable and divisible when by its terms, nature, and purpose, it is susceptible of division and apportionment.” Id. Here, there were separate pieces of property, each able to be separately valued, rendering the agreement between the parties divisible."

The Court further stated:

"In analyzing whether a party is ready, willing and able to perform, we have held that the “proof needed to show ability varies with the nature of the contract and all the surrounding circumstances.” Scholle v. Cuban-Venezeulan Oil Voting Trust, 285 F.2d 318, 322 (2d Cir. 1960). This was a complex transaction, involving sophisticated parties, multiple assets in multiple locations, and a bankruptcy estate where the Debtors were tainted with allegations of fraud and misconduct. The agreement between the parties expressly states that both the “tangible and intangible assets” were to be delivered “as is where is,” without any representations or warranties expressly made elsewhere in the contract. The courts below properly determined the Debtors were ready, willing and able to substantially perform." (emphasis supplied).

To read the Second Circuit’s Order, please click here.