The United States Bankruptcy Court for the District of Delaware recently held that the Trademark License Agreement between Trump AC Casino Marks, LLC (“Trump AC”) and Trump Entertainment Resorts, Inc. and certain of its affiliates (“Trump Entertainment”) was not assignable without Trump AC’s consent, and that cause existed to allow Trump AC to lift the automatic stay to proceed with its state court breach action. In In re Trump Entm’t Resorts, Inc., 526 B.R. 116 (Bankr. D. Del. 2015), Trump AC entered into a Trademark License Agreement with Trump Entertainment under which, in connection with the operation of three hotel casinos located in Atlantic City, Trump Entertainment was granted a royalty-free license to use Donald and Ivanka Trump’s names, likenesses, and other marks. The Trademark License Agreement was not assignable without the consent of Trump AC. Trump AC entered into a Consent and Agreement (“Consent Agreement”) with Trump Entertainment’s pre-petition lender under which Trump AC consented to the transfer of Trump Entertainment’s rights under the Trademark License Agreement after an “Enforcement Action.” In August 2014, Trump AC filed a state court lawsuit seeking to terminate the Trademark License Agreement for breaches of the agreement by Trump Entertainment. On September 9, 2014, Trump Entertainment filed for relief under Chapter 11 of the Bankruptcy Code. This resulted in a stay of Trump AC’s state court action. Trump AC filed a motion seeking relief from the automatic stay to allow it to proceed with the state court action. While the Court found that the Trademark License Agreement was an executory contract, its assumption was subject to the limitation contained in Section 365(c)(1) of the Bankruptcy Code. Under this section, a contract may not be assumed if “applicable law excuses a party, other than the debtor, to such contract . . . from accepting performance from or rendering performance to an entity other than the debtor.” The Court found that the applicable law was federal trademark law, and that under federal trademark law, “trademark licenses are not assignable in the absence of some express authorization from the licensor.” Because the Trademark License Agreement expressly prohibited assignment, Trump AC was entitled to relief from the automatic stay under Section 362(d)(1) of the Bankruptcy Code. The Court further found that because Trump Entertainment’s lender had not commenced an “Enforcement Action” before the bankruptcy filing, the lender was not entitled to the benefits of the Consent Agreement entered into with Trump AC, and actions taken by the lender in the bankruptcy proceedings were not tantamount to an “Enforcement Action” as defined in the Consent Agreement.
