Pinnacle Foods of California LLC

• Court: United States Bankruptcy Court, E.D. California
• Decided: December 19, 2024
• Docket: 24-11015
• Status: Unknown

Opinion

1 UNITED STATES BANKRUPTCY COURT

2 EASTERN DISTRICT OF CALIFORNIA

3 FRESNO DIVISION

5 In re ) Case No. 24-11015-B-11 ) 6 PINNACLE FOODS OF CALIFORNIA LLC, ) Docket Control No. KCO-5 ) 7 ) Debtor. ) 8 ) ) 9

10 MEMORANDUM ON DEBTOR’S MOTION TO RECONSIDER ORDER DENYING MOTION TO ASSUME FRANCHISE AGREEMENTS 11 ————————————————————————————— 12 Michael J. Berger, Law Offices of Michael J. Berger, Beverly 13 Hills, CA, for Pinnacle Foods of California, LLC, Craig R. Tractenberg, FOX ROTHSCHILD LLP, for Pinnacle Foods of 14 California LLC, Movant/Debtor.

15 Glenn D. Moses, VENABLE, LLP, for Popeyes Louisiana Kitchen, Inc., franchisor. 16 Walter R. Dahl, Subchapter V Trustee. 17 ————————————————————————————— 18 RENÉ LASTRETO II, Bankruptcy Judge: 19 20 21 INTRODUCTION 22 The bankruptcy trustee or debtor-in-possession has a 23 powerful tool to assume or assume and assign executory contracts 24 or unexpired leases even if the contract or governing law 25 precludes or conditions assignments. But the tool has limited 26 usefulness in this circuit. If the identity of the non-debtor 27 party to the contract is material, then applicable law permits 28 the non-debtor party to withhold consent to the trustee’s or 1 debtor-in-possession’s assumption of the contract even though the 2 debtor has no plans to assign the contract. 3 That applicable law, if interpreted as it is in this 4 circuit, can be a roadblock on a formidable path for a debtor who 5 wants to reorganize. 6 A quick service restaurant franchisee here reached that 7 roadblock and chose to crash through by both disputing its 8 existence or claiming it allowed passage anyway. But the wall 9 held when this court denied its motion to assume franchise 10 contracts. Rather than bypassing the roadblock, the franchisee 11 now tries to smash it once again, by asking the court to 12 reconsider its prior ruling. But there is no basis to change the 13 ruling since it is not legal error for a court to apply the 14 controlling law. The court DENIES the motion for 15 reconsideration. 16 17 I. 18 A. 19 Pinnacle Foods of California, LLC (“Pinnacle”) is a 20 franchisee of Popeyes Louisiana Kitchens (“PLK”). Pinnacle 21 operates six Popeyes fast food restaurants - five in Fresno, 22 California and one in Turlock, California. Separate franchise 23 agreements between Pinnacle and PLK for the various restaurants 24 were entered into. Doc. #228. 25 Beset by a number of problems faced by the quick service 26 restaurant industry in California, Pinnacle filed a voluntary 27 Chapter 11 proceeding in April 2024 and elected to proceed under 28 Subchapter V. 1 Pinnacle has proposed a plan, but it has not been pursued. 2 A significant issue about the relationship between Pinnacle and 3 PLK needs resolution. The issue: Whether under 11 U.S.C. § 365 4 of the Bankruptcy Code, Pinnacle can assume PLK’s franchise 5 agreements without PLK’s consent.1 In order to resolve the 6 issue, in September 2024, Pinnacle filed a motion to assume the 7 franchise agreements (KCO-4). 8 9 B. 10 Pinnacle proposed to assume PLK’s franchise agreements and 11 provide for a prompt cure of any pre-petition defaults. Pinnacle 12 claimed that its obligation to provide adequate assurance of 13 future performance was based on its ability to reorganize. 14 PLK opposed. From the beginning of the case, PLK has 15 maintained that it would not consent to Pinnacle assuming the 16 franchise agreements. Doc. #245. PLK relied on § 365(c)(1) 17 which, as interpreted by the Ninth Circuit in Perlman v. Catapult 18 Entertainment, Inc. (In Re Catapult Entertainment)(“Catapult”), 19 excuses PLK from accepting performance from or rendering 20 performance to a hypothetical third party. See 165 F.3d 747 (9th 21 Cir. 1999). 22 PLK goes on to contend that Pinnacle cannot assign franchise 23 agreements without PLK’s consent due to provisions of the Lanham 24 Act (15 U.S.C. §§ 1051 et seq.) and the California Franchise 25 Relations Act (“the CFRA”) (Cal. Bus. & Prof. Code §§ 20000 et 26

1 Unless otherwise indicated, all references to code sections will be to the 27 United States Bankruptcy Code (11 U.S.C. § 101 et seq.). “Civ. Rule” will be references to the Federal Rules of Civil Procedures. Citations to “Rule” 28 1 seq.), and so Pinnacle is also barred from assuming the franchise 2 agreements. Id. This is because the Ninth Circuit, along with 3 the majority of circuit courts that have taken up the issue, 4 apply the “hypothetical test” to determine if a contract can be 5 assumed or assigned under § 365(c)(1). 6 PLK also argued that Pinnacle has committed uncurable non- 7 monetary defaults under the franchise agreements. Pinnacle 8 disputed that there is any non-monetary default at all and 9 contends that it does not need to cure all monetary defaults. 10 In reply to PLK’s opposition, Pinnacle relied on arguments 11 that the CFRA contains provisions which defeat PLK’s arguments 12 under the hypothetical test. Pinnacle also argued that it is in 13 the process of curing the various monetary defaults. Pinnacle 14 did not substantially discuss the application of the Lanham Act’s 15 trademark protections. 16 The court held a hearing on the motion on October 8, 2024. 17 Two days later, it issued a 20-page memorandum on the motion and 18 an order denying the Debtor’s motion to assume the franchise 19 agreements. Docs. ##275 – 276. 20 In its decision, the court began by discussing § 365(c)(1) 21 and the two different theories of application of that section: 22 the “hypothetical test” and the “actual test.” Under the 23 “hypothetical test,” if the debtor merely wishes to assume an 24 executory contract or an unexpired lease and not assign its 25 contract rights to a third party, the counter-party may still 26 withhold its consent and block assumption if there is a 27 hypothetical third party to whom the debtor might assign its 28 contract rights but as to whom the counter-party would be excused 1 from performing for under applicable law. City of Jamestown v. 2 James Cable Partners, L.P. (In re James Cable Partners), 27 F.3d 3 534, 537 (11th Cir. 1994) 4 Under the “actual test,” the counter-party would only be 5 able to block assumption if there were an actual third party from 6 whom the counter-party would be forced to accept performance 7 other than the debtor with whom the counter-party had contracted, 8 and the counter-party would be excused from performing for under 9 applicable law. Institut Pasteur v. Cambridge Biotech Corp., 104 10 F.3d 489, 493 (1st Cir. 1997). The court noted in its decision 11 that the “applicable law” means any law applicable to the 12 contract other than bankruptcy law. In Re XMH Corp., 647 F.3d 13 690, 695 (7th Cir. 2011). 14 The court then applied the Catapult hypothetical test and 15 noted that both the Lanham Act and the provisions of CFRA 16 constitute “applicable law” that would excuse PLK from accepting 17 performance from or giving performance to a “hypothetical third- 18 party.” 19 The Lanham Act provides remedies for misuse of the trademark 20 such as the one owned by PLK. The court noted the authorities 21 under the Lanham Act giving the trademark holder the right to 22 assign a trademark but also giving a holder the right and duty to 23 control the quality of goods sold under the mark. 15 U.S.C. 24 § 1060; N.C.P. Mktg. Group v. Blanks (In Re N.C.P. Mktg. Group), 25 337 B.R. 230, 235-37 (D.Nev. 2005), aff’d N.C.P. Mktg. Group, 26 Inc. v. Blanks (In Re N.C.P. Mktg. Group, Inc.) 279 Fed. Appx. 27 561 (9th Cir. 2008), cert. den. 556 U.S. 1145 (2009). 28 /// 1 As to the CFRA, the court considered Pinnacle’s argument 2 that the CFRA is the only “applicable law” that matters and it 3 encourages assignment. However, the court pointed to provisions 4 of the CFRA giving franchisors authority to withhold consent to 5 franchise transfers if the proposed transferee does not meet 6 franchisor’s standards for new or renewing franchisees. Cal. 7 Bus. & Prof. Code § 20028. 8 The court disagreed with Pinnacle’s interpretation that CFRA 9 compels PLK to consent. The “hypothetical test” as espoused in 10 Catapult looks to whether the applicable law excuses PLK’s 11 performance to a hypothetical transferee. The answer is it does. 12 If a hypothetical transferee fails to meet PLK’s standards, PLK 13 is excused from performing. That is the only question that the 14 Ninth Circuit requires to be asked. The identity of the 15 transferee is critical in the franchise relationship. 16 Pinnacle did argue that there are cases such as In Re Van 17 Ness Auto Plaza, Inc. where a franchisor had to justify its lack 18 of consent as reasonable. 120 B.R. 545 (Bankr. N.D. Cal. 1990). 19 But the court in its earlier decision distinguished those cases 20 on several grounds, not the least of which is the fact that the 21 statute involved in the auto franchise cases, Cal. Veh. Code 22 § 11713.3(e), has entirely different provisions than the Lanham 23 Act or the CFRA. The court ultimately ruled that the franchise 24 agreements could not be assumed by Pinnacle absent PLK’s consent. 25 Fourteen days after entry of the order, this motion for 26 reconsideration was filed. 27 /// 28 /// 1 C. 2 In the motion to reconsider, Pinnacle reargues two primary 3 contentions the court dealt with in the original Decision. 4 First, Pinnacle argues the trademark protections of the Lanham 5 Act do not apply to franchises that are to be assumed and 6 assigned in bankruptcy in California since the exclusive 7 “applicable law” under § 365(c)(1) is the CFRA. Second, Pinnacle 8 urges that, though Catapult is binding authority on this court, 9 application of CFRA here requires this court to determine the 10 reasonableness of PLK’s decision not to consent to a transfer in 11 this case. 12 PLK urges that, as a matter of law, Pinnacle’s rehash of the 13 previous arguments made in the assumption motion does not support 14 reconsideration under either Civ. Rule 59(e)(Rule 9023) or Civ. 15 Rule 60(b)(Rule 9024). Also, PLK contends that under Catapult, 16 as applied by this court, either the Lanham Act or the CFRA would 17 excuse PLK from accepting performance from a non-debtor third 18 party. Thus, under the “hypothetical test,” PLK prevails since 19 it can be excused under either law from accepting performance 20 from or performing under the franchise agreements under PLK’s 21 existing standards. Further, PLK urges that nothing in § 365(c) 22 or the Bankruptcy Code limits the “applicable law” inquiry to 23 just one law. The Lanham Act protects trademarks nationwide and 24 provides remedies for unauthorized use of a mark. PLK argues 25 that the Lanham Act and the CFRA can and do co-exist. 26 In reply, Pinnacle argues the Lanham Act and CFRA are 27 inconsistent and that the court in its decision gave the 28 franchisor veto power in every case where a trademark is 1 involved. Pinnacle claims the court erred by not asking why the 2 identity of a “hypothetical transferee” is essential to the 3 contract if the law excuses assignment. 4 5 D. 6 Jurisdiction is conferred upon this court under 28 U.S.C. 7 § 1334(b) and 28 U.S.C. § 157(a). This is a proceeding that this 8 court can hear and finally determine. 28 U.S.C. § 157(b)(2)(A), 9 (M), and (O). 10 11 II 12 A. 13 Pinnacle rests its motion on Civ. Rule 60(b) arguing that 14 this court’s ruling denying the motion to assume was a mistake of 15 law. See Kemp v. United States, 596 U.S. 528, 533-34 (2022) 16 (“[A]‘mistake’ under Rule 60(b)(1) includes a judge’s mistake of 17 law.”) Nevertheless, “re-litigation of the legal or factual 18 claims underlying the original judgment is not permitted in a 19 60(b) motion or an appeal therefrom.” Agostini v. Felton, 521 20 U.S.C. 203, 257 (1997). Civ. Rule 60(b) provides for 21 extraordinary relief and may be invoked only upon a showing of 22 exceptional circumstances. Engleson v. Burlington N.R. Co., 972 23 F.2d 1038, 1044 (9th Cir. 1992). A party must show the court 24 committed a specific error. Straw v. Bowen, 866 F.23 1167, 1172 25 (9th Cir. 1989). A ruling on this motion is addressed to the 26 sound discretion of the court. Casey v. Albertson’s Inc., 362 27 F.3d 1254, 1257 (9th Cir. 2004). 28 /// 1 In a footnote, Pinnacle also claims this motion should be 2 considered a motion to alter or amend a judgment under Civ. Rule 3 59(e) (Rule 9023). A motion for reconsideration should not be 4 granted absent highly unusual circumstances. Beaver v. Tarsadia 5 Hotels, 29 F.Supp.3d 1294, 1301-2 (S.D. Cal. 2014) aff’d 816 F.3d 6 1170 (9th Cir. 2016)(citing 389 Orange St. Partners v. Arnold, 7 179 F.3d 656, 665 (9th Cir. 1999)). These motions should not be 8 used to ask the court to re-think what the court has already 9 thought through merely because the party disagrees with the 10 court’s decision. Id.; Collins v. D. R. Horton, Inc., 252 11 F.Supp.2d 936, 938 (D. Ariz. 2003)(citing U.S. v. Rezzonico, 32 12 F.Supp.2d 1112, 1116 (D. Ariz. 1998)). 13 Although Civ. Rule 59(e) permits a bankruptcy court to 14 reconsider and amend a previous order, the rule offers an 15 “extraordinary remedy, to be used sparingly in the interest of 16 finality and conservation of judicial resources.” Kona Enters., 17 Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000). 18 “Indeed, a motion for reconsideration should not be granted 19 absent highly unusual circumstances, unless the court is 20 presented with newly discovered evidence, committed clear error, 21 or if there is an intervening change in the controlling law.´ Id. 22 Under either Civ. Rule 60(b)(1) (Rule 9024) or Civ. Rule 23 59(e)(Rule 9023), no mistake of law or “clear error” of law was 24 committed here. As set forth below, Pinnacle’s merely rehashes 25 the same arguments that have already been dealt with by the 26 court, and there is nothing in support of Pinnacle’s motion 27 establishing that the court’s previous ruling was erroneous under 28 controlling Ninth Circuit law. 1 B. 2 The Lanham Act (15 U.S.C. § 1051 et seq.) does not conflict 3 with the CFRA. The court did not err in holding that, under the 4 hypothetical test, the Lanham Act was an independent basis for 5 PLK to be excused from accepting performance from or rendering 6 performance to a hypothetical third-party. Pinnacle could only 7 assume the franchise agreements with PLK’s consent. 8 The general authority of a debtor-in-possession to assume 9 and/or assign an executory contract lies in § 365. The general 10 rule is that the debtor in possession may assign a contract or 11 lease upon assumption and the establishment of adequate assurance 12 of future performance notwithstanding a provision in the 13 executory contract or an applicable law that prohibits, 14 restricts, or conditions the assignment § 365(f). 15 An exception to that general rule is the essence of the 16 legal dispute here. Section 365(c)(1) provides: 17 (c) the trustee [or debtor-in-possession] may not assume or assign any executory contract or unexpired lease of 18 the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or 19 delegation of duties if – 20 (1) 21 (A) applicable law excuses a party, other than the debtor, to such contract or lease from 22 accepting performance from or rendering performance to an entity other than the debtor 23 or the debtor-in-possession, whether or not such contract or lease prohibits or restricts 24 assignment of rights or delegation of duties; and 25 (B) such party does not consent to such 26 assumption or assignment… 27 /// 28 /// 1 The application of this subsection has divided the courts 2 into two camps: the “hypothetical test” camp and the “actual 3 test” camp. 4 The “hypothetical test” approaches the assumption question 5 by strictly reading the limitations on a trustee or debtor-in- 6 possession’s power to assume under § 365(c)(1). 3 COLLIER ON 7 BANKRUPTCY ¶ 365.07 (16th Edition). If PLK would be excused from 8 accepting performance from or rendering performance to an entity 9 other than Pinnacle under applicable law, then Pinnacle as 10 debtor-in-possession may not assume the contract even though 11 Pinnacle would be the one performing under a franchise agreement. 12 That approach was adopted by the Ninth Circuit in Catapult. 13 The “actual test” differs in that the non-debtor party is 14 excused in accepting performance from or rendering performance to 15 an entity other than the debtor-in-possession only if the debtor- 16 in-possession wished to assume and assign the franchise agreement 17 to another entity that actually existed. This approach is 18 adopted in the minority of circuits. See, Summit Inv. & Dev. 19 Corp. v. Leroux (In Re Leroux), 69 F.3d 608 (1st Cir. 1995); 20 Bonneville Power Admin. v. Mirant Corp. (In Re Mirant Corp.), 440 21 F.3d 238 (5th Cir. 2006). 22 Thus, in the majority of circuits, a debtor may only assume 23 an executory contract if the debtor has the hypothetical 24 authority to assign the contract (the “hypothetical test”), while 25 other circuits permit a debtor to assume an executory contract if 26 the debtor does not intend to assign it (the “actual test”). 27 In Catapult, Perlman, a licensor, granted several non- 28 exclusive patent licenses to exploit technologies including 1 patent applications to Catapult, which was in the business of 2 creating an online gaming network. After going through a reverse 3 triangular merger and bankruptcy reorganization, Catapult sought 4 to assume the licenses. The bankruptcy court granted the 5 assumption motion and confirmed the plan. The district court 6 affirmed, and Perlman appealed to the Ninth Circuit. 7 The court of appeals analyzed both the “hypothetical test” 8 and the “actual test” and acknowledged the split among the 9 circuits. The Catapult court wrestled with the apparent conflict 10 between § 365(f) and (c)(1). It resolved the conflict by noting 11 that “only if the law prohibits assignment on the rationale that 12 the identity of the contracting party is material to the 13 agreement will subsection (c)(1) rescue it.” Catapult, 165 F.3d 14 at 752. The Catapult court held: 15 Accordingly, we hold that where applicable non- bankruptcy law makes an executory contract non- 16 assignable because the identity of a non-debtor party is material, a debtor-in-possession may not assume the 17 contract absent consent of the non-debtor party. 18 Id. at 754. 19 In the decision on Pinnacle’s motion to assume the 20 contracts, the court examined the ability of the trademark holder 21 to control the quality of goods sold under the mark. 15 U.S.C. 22 § 1060. The court also cited numerous authorities including 23 N.C.P. Mktg. Grp. v. Blanks (In re N.C.P. Mktg. Grp.), 337 B.R. 24 230 (D. Nev. 2005), aff’d 279 Fed. Appx. 561 (9th Cir. 2008), 25 cert. denied, 556 U.S. 1145 (2009) and Miller v. Glenn Miller 26 Production, 318 F.Supp.2d 923, 928 (C.D. Cal. 2004) and In Re XMH 27 Corp., 647 F.3d 690, 695 (7th Cir., 2011)(“[T]he universal rule 28 is that trademark licenses are not assignable in the absence of a 1 clause in the contract expressly authorizing the assignment.”) 2 Accord J. Thomas McCarthy, 4 MCCARTHY ON TRADEMARKS AND UNFAIR 3 COMPETITION, § 1422 (4th Edition 2005) (“Since the licensor- 4 trademark owner has the duty to control the quality of goods sold 5 under its mark, it must have the right to pass upon the abilities 6 of a new potential licensees.”) Other courts agree. See In 7 Trump Entertainment Resorts, 526 B.R. 116, 124, 127 (Bankr. D. 8 Del. 2015); In Re AJRANC Ins. Agency, Inc., 8:20-bk-06493-CED; 9 2021 Bankr. LEXIS 1772 (Bankr. M. D. Fla., July 2, 2021). 10 Pinnacle argues that the Lanham Act is not applicable law 11 and instead urges that the “California amendments” (Doc. #230 12 (Exh. G)) attached to the franchise agreements applies California 13 law with respect to transfers. Pinnacle thus argues that the 14 CFRA is the controlling law notwithstanding federal trademark 15 protection. 16 The “California Amendments” do reference the CFRA regarding 17 transfers, but the contract amendment does not supersede federal 18 law under the Lanham Act.2 The franchise agreements also state 19 that Georgia law will control even though the “California 20 Amendments” note that Georgia law may not be enforceable. (Doc. 21 #130 Exh. G.) 22 Pinnacle’s argument assumes the Lanham Act eliminates 23 transfer rights. It does not. Trademarks are valuable property 24 rights, and the owner controls the right to control the quality 25 of goods sold with the mark. An owner of a mark controls the 26 transfer because the owner has an interest in the use of the mark 27 2 The court noted in its decision that the Lanham Act does not preempt all 28 1 and the identity of the mark attached to a product or service. 2 An owner has a right to be sure they are consistent. N.C.P. 3 Mktg. Grp. 337 B.R. at 236 (affirming a bankruptcy court order 4 compelling a rejection of a non-exclusive trademark license). 5 The N.C.P. court approved PLK’s rationale here concluding: 6 Because the owner of the trademark has an interest in the party to whom the trademark is assigned so that it 7 can maintain the goodwill, quality, and value of its products and thereby its trademark, trademark rights are 8 personal to the assignee and not freely assignable to a third party. (Cits. omitted) 9 10 Id. 11 Pinnacle cites Int’l Franchise Ass’n v. City of Seattle, 12 which held that a proposed ordinance classifying certain 13 franchisees as large employers and subject to a higher minimum 14 wage did not conflict with the Lanham Act since the act does not 15 preempt such an ordinance. 803 F.3d 389, 410 (9th Cir. 2015) 16 cert. den., 578 U.S. 959 (2016). 17 The Lanham Act protects consumers and owners of trademarks. 18 Pinnacle argues that the CFRA preempts the Lanham Act application 19 in the context of an exception to the general power to assume 20 executory contracts under the Bankruptcy Code. But the issue 21 here is not whether the Lanham Act preempts CFRA and thus gives 22 “veto power” to PLK. The issue is whether PLK as trademark owner 23 must consent to transfer of the mark to a hypothetical third 24 party. And under trademark law, it must, despite Pinnacle’s 25 efforts to establish a false dichotomy. 26 In Int’l Franchise Ass’n, the Ninth Circuit held the Lanham 27 Act was inapplicable to the issue litigated there: Application 28 of an ordinance affecting the minimum wage to be paid certain 1 employers. Id. at 409. Pinnacle argues here that the Lanham Act 2 does conflict with the CFRA so Int’l Franchise Ass’n is 3 inapposite. 4 Pinnacle next claims it “defies logic” that the terms of the 5 California Amendments to the franchise agreements incorporate the 6 CFRA and yet the Lanham Act would still apply. 7 To the contrary, Pinnacle’s premises are flawed. The first 8 premise is that only one set of laws could apply here. The 9 Lanham Act does not preempt all franchise laws, but that does not 10 mean the Lanham Act and CFRA cannot coexist. Indeed, PLK’s 11 contracts incorporate Georgia Law and CFRA. At least two “laws” 12 can apply to the contracts here except, perhaps, where the laws 13 conflict and are irreconcilable. Despite Pinnacle’s efforts, the 14 Lanham Act and CFRA are not in irreconcilable conflict here. 15 The second faulty premise is that CFRA’s franchise transfer 16 provisions fully supplant the Lanham Act. As has been argued and 17 decided, even under CFRA, PLK can hypothetically be excused from 18 accepting or rendering performance to a proposed assignee if they 19 do not meet PLK’s standards. There is no inconsistency as 20 applied here. 21 Pinnacle next encourages the court to engage in a conflict 22 of laws analysis in the application of CFRA and the Lanham Act. 23 Pinnacle cites a California Appeal Court decision 1-800-Got Junk? 24 LLC v. Superior Court, 189 Cal. App. 4th 500 (2010)(“Got Junk”). 25 Pinnacle appears to argue that, since the CFRA contains more 26 restrictive provisions relating to the consent of a franchisor to 27 an assignment of the franchise contract than under the Lanham 28 Act, conflict of laws principles support the primacy of CFRA over 1 the Lanham Act here. The argument is unsupported. In Got Junk, 2 the issues were whether there was a reasonable basis for a 3 contractual choice of law provision in a franchise contract and 4 whether the California public policy precluded application of 5 contractual choice of law. In Got Junk, a franchisor terminated 6 the franchise of a southern California franchisee for failure to 7 pay the franchisor for certain jobs performed by the franchisee. 8 After an analysis of Washington law and the CFRA, the court in 9 Got Junk held that Washington law provided greater franchisee 10 protection than the CFRA. Id. at 512. 11 The California Franchise Relations Act at Business & Professions Code § 20000 et seq. serves to protect 12 California franchisees, typically small business owners, and entrepreneurs from abuses by franchisors in 13 connection with non-renewal and termination of franchises. 14 15 Got Junk at 515 (cites omitted). 16 The case here does not implicate either of those policies. 17 PLK has not terminated the franchise nor failed to renew the 18 franchise. Rather, PLK is refusing to consent to assumption and 19 assignment in the context of a reorganization proceeding 20 implicating bankruptcy law as interpreted and applied in this 21 circuit. Nothing in Got Junk supports a contention that the 22 legislative intention of the CFRA is offended by restrictions on 23 assumption and assignment of franchise agreements in a bankruptcy 24 case. In fact, nothing in Got Junk analyzes the franchisor’s 25 consent to transfer at all. 26 Pinnacle argues that CFRA is the only applicable law for 27 purposes of § 365(c). Pinnacle goes on to divine that the 28 leverage “imbalance” this court’s decision causes will deter 1 bankruptcy filings due to a risk of franchisor nonconsent. That, 2 unfortunately for debtors, is simply a part of the calculus and 3 risk assessment in franchisees proceeding in bankruptcy cases in 4 this circuit and other “hypothetical test” jurisdictions. The 5 risk is not unlike that taken by debtors amid mass tort exposure 6 in the Ninth Circuit, which has held for thirty years that third 7 party releases are unavailable under a confirmed plan under 8 § 524(e). Resorts Int’l., Inc. v. Lowenschuss (In Re 9 Lowenschuss), 67 F.3d 1394, 1401-02 (9th Cir. 1995), cert. den. 10 517 U.S. 1243 (1996). 11 In short, both the Lanham Act and CFRA can coexist. Pinnacle 12 has argued that CFRA should apply to a § 365(c)(1) analysis to 13 the exclusion of the Lanham Act. This is a “hypothetical test” 14 jurisdiction. The court is not faced with a proposed sale in 15 this case in either the underlying motion to assume the 16 franchises or this motion for reconsideration. Rather, the 17 question is whether, under the “hypothetical test,” does the 18 Lanham Act excuse PLK from accepting performance from or 19 rendering performance to another party other than the debtor or 20 debtor-in-possession. The authorities establish the importance 21 to a trademark owner in controlling the use of the mark. That is 22 true even in a § 365(c)(1) analysis. Under Catapult, Pinnacle 23 may not assume without PLK’s consent. 24 25 C. 26 Even if Pinnacle was correct concerning the primacy of CFRA 27 over the Lanham Act – and it is not – PLK is still excused from 28 /// 1 accepting performance from or rendering performance to a third 2 party without consent even under the CFRA. 3 The provisions of the CFRA itself authorize PLK to refuse to 4 consent under the “hypothetical test” since it could refuse to 5 consent to an assignment or transfer to a third party that does 6 not meet PLK’s franchisee standards. 7 Cal. Bus. & Prof. Code § 20028 governs the transfer or sale 8 of a franchise. Subdivision (a) provides: 9 It is unlawful for a franchisor to prevent a franchisee from selling or transferring a franchise, all or 10 substantially all of the assets of the franchise business, or a controlling or noncontrolling interest in 11 the franchise business, to another person provided that the person is qualified under the franchisor’s then – 12 existing standards for the approval of new or new or renewing franchisees, the standards to be made available 13 to the franchisee…and to be consistently applied to similarly situated franchisees operating within the 14 franchise brand and the franchisee and the buyer, transferee or assignee comply with the transfer 15 conditions specified in the franchise agreement. 16 (emphasis added). 17 So, even under CFRA, PLK can refuse to consent to a transfer 18 if the prospective franchisee does not meet its standards and the 19 franchisee and the buyer fail to comply with the transfer 20 conditions specified in the franchise agreement. Therefore, 21 “hypothetically,” PLK has a right to refuse to consent if the 22 there is a hypothetical prospective franchisee that does not meet 23 its standards. In other words, the “applicable law,” as urged by 24 Pinnacle establishes that PLK can be excused from accepting 25 performance from or rendering performance to a third party. 26 Subdivision (b) of Cal. Bus. & Prof. Code § 20028 27 establishes the need for a franchisor’s consent as a condition to 28 a transfer: 1 Notwithstanding Subdivision (a), a franchisee shall not have the right to sell, transfer, or assign the 2 franchise, all or substantially all of the assets of the franchise business, or a controlling or noncontrolling 3 interest in the franchise business, without the written consent of the franchisor, except that the consent shall 4 not be withheld unless the buyer, transferee, or assignee does not meet the standards for new or renewing 5 franchisees described in subdivision (a) or the franchisee and the buyer, transferee or assignee do not 6 comply with the transfer conditions specified in the franchise agreement. 7 8 (emphasis added). 9 Even under the CFRA, written consent from the franchisor is 10 required, but the franchisor is not to withhold consent unless 11 its standards are not met or the parties to the transfer do not 12 comply with conditions specified in the franchise agreement. Id. 13 Thus, “applicable law” excuses a franchisor who withholds consent 14 if its standards are not met or the transfer conditions specified 15 in the franchise agreement are not met. 16 These issues were discussed and analyzed in the previous 17 decision. 18 Cal. Bus. & Prof. Code § 20029(b) provides a time limit 19 within which the franchisor, after receipt of all necessary 20 documentation, is to notify the franchisee of an approval or 21 disapproval of a proposed sale, or assignment, or transfer. 22 Unless it is disapproved, the proposed sale, assignment, or 23 transfer is deemed approved. But under subdivision (2) of Cal. 24 Bus. & Prof. § 20029(b) it is provided: 25 In any action in which the franchisor’s disapproval of a sale, assignment, or transfer pursuant to this 26 subdivision is an issue, the reasonableness of the franchisor’s decision shall be a question of fact 27 requiring consideration of all existing circumstances. 28 /// 1 Pinnacle uses this provision to argue that a “reasonableness” 2 inquiry by the court is necessary to determine whether PLK’s 3 refusal to consent is justified under CFRA. That argument is a 4 “red herring.” There is no sale, assignment, or transfer before 5 the court. All that is before the court is the question of 6 whether “applicable law” permits PLK to refuse to consent to a 7 third party being assigned the franchise agreement. CFRA permits 8 such refusal. That is the only inquiry that is relevant. 9 Undaunted, Pinnacle argues that under a First Circuit 10 decision, In Re Pioneer Ford Sales, 729 F.2d 27 (1st Cir. 1984), 11 that a ‘reasonableness inquiry” is necessary when applying a 12 consistent state law even though that law does provide for 13 consent of the franchisor. This case is inapplicable. 14 First, the court is not bound by nor persuaded by Pioneer 15 Ford Sales since it is a decision from a circuit that has since 16 adopted the “actual test.” Institut Pasteur, 104 F.3d at 493. 17 Second, Pinnacle’s argument asks the court to apply the 18 “actual test” which Catapult rejected. Even before Catapult was 19 decided, the Ninth Circuit noted the split of circuit authority 20 on the interplay between §§ 365(c) and 365(f). See Everex Sys. v. 21 Cadtrak Corp. (In Re CFLC, Inc.), 89 F.3d 673, 676-77 (9th Cir., 22 1996) In Everex, the circuit held under either circuit’s 23 interpretation, a nonexclusive patent license was personal and 24 nondelegable. 25 Third, one cannot ignore that in both Pioneer Ford and In Re 26 Van Ness Auto Plaza, 120 B.R. 545 (Bankr. N.D. Cal. 1990), also 27 cited by Pinnacle, the courts either held the auto manufacturer 28 /// 1 was reasonable in denying the assumption or affirmed a lower 2 court’s decision that it was. 3 Pinnacle also contends the court should have made factual 4 findings that PLK is being reasonable in withholding consent. 5 That assumes Pinnacle is correct that an “actual test” objective 6 reasonableness analysis should have been applied. That is not 7 the law in the Ninth Circuit, notwithstanding Pinnacle’s 8 entreaties to the contrary. 9 The “motor vehicle cases” Pinnacle repeatedly references 10 were not decided under CFRA. In California, as cited in Van Ness 11 Auto Plaza, 120 B.R. at 547 the “applicable law” was California 12 Vehicle Code § 11713.3(e) which in 1990 provided in part: 13 It is unlawful…for any manufacturer…to do any of the following: 14 (e) 15 To prevent, or attempt to prevent, a dealer 16 from receiving fair and reasonable compensation for the value of the franchised 17 business. There shall be no transfer or assignment of the dealer’s franchise without 18 the consent of the manufacturer or distributor, which consent shall not be 19 unreasonably withheld. 20 The applicable law itself provided for the application of 21 reasonable consent. In fact, in comparing cases involving 22 landlords withholding of consent as to lease assignments, the Van 23 Ness Auto Plaza court compared the lease scenario to a franchise: 24 First, it is more difficult to determine whether an automobile dealer will be a suitable franchisee than it 25 is to determine whether a lessee will perform under a lease. A lessee’s major contractual duty is to pay rent 26 timely. A franchisee’s duties are much more complex. Second, a franchise agreement involves a manufacturer and 27 dealer in a much closer business relationship than commonly exists between a lessor and lessee. Thus, the 28 1 manufacturer to enter into such relationship involuntarily. 2 3 120 B.R. at 548-549. 4 In partial support of its motion, Pinnacle cites another 5 “car dealer case.” Ford Motor Company v. Claremont Acquisition 6 Corp. (In Re Claremont Acquisition Corp.), 186 B.R. 977 (C.D. 7 Cal. 1995) aff’d Worthington v. GMC (In Re Claremont Acquisition 8 Corp.), 113 F.3d 1029 (9th Cir. 1997), superseded by statute on 9 other grounds as stated in In Re Hathaway, 401 B.R. 477, 484-5 10 (Bankr. E.D. Wash. 2009). However, Claremont Acquisition Corp. 11 is also unpersuasive. 12 First, Claremont Acquisition Corp. and Van Ness Auto Plaza 13 predate Catapult so they are largely irrelevant. 14 Second, there is no discussion or consideration of the CFRA 15 in Claremont Acquisition Corp. It only analyzed the application 16 of Cal. Veh. Code § 11713.3(e). 17 Third, in Claremont Acquisition Corp., the bankruptcy court 18 compelled two auto manufacturers to accept involuntarily the 19 assignment of the debtor’s franchise agreements to third parties. 20 On appeal, the district court applied Vehicle Code § 11713.3(e) 21 and § 365(c)(1) and found substantial evidence including low 22 customer ratings significant enough not to compel assignment as 23 to one dealer. Also, a significant issue in Claremont 24 Acquisition Corp. is whether the debtor dealerships “went dark” 25 prepetition, which was a non-curable default. These issues are 26 not before the court on this motion. 27 By the same token, Pinnacle’s protestation that the court’s 28 decision “eviscerates” Cal. Bus. & Prof. Code § 20029(b)(2) 1 (quoted above) is hyperbole. That provision cannot be viewed in 2 a vacuum. Cal. Bus. & Prof. Codes § 20028(a) and (b) provide two 3 important conditions on transfers. First the proposed assignee 4 must be qualified under the franchisors then existing standards 5 for the approval of new or renewing franchisees and franchisee 6 and the proposed successor must comply with transfer restrictions 7 specified in the transfer agreement. 8 Notwithstanding those conditions, no transfer can occur 9 without the written consent of franchisor, except that consent 10 cannot be withheld unless the buyer, transferee, or assignee does 11 not meet the standards of new or renewing franchisees or does not 12 comply with the transfer conditions in the franchise agreement. 13 Id. 14 Applicable law excuses PLK from consenting to a transfer or 15 assignment of a franchise if the proposed transferee or assignee 16 does not meet the standards for new or renewing franchises under 17 CFRA. Under § 365(c)(1) as applied by the Ninth Circuit, the 18 contingency precludes assumption or assignment, not assumption 19 and assignment. Catapult, 165 F.3d at 752-754. Whether actual 20 facts regarding qualification exist or not, the Ninth Circuit 21 focuses on materiality of the identity of the non-debtor party. 22 PLK’s standards are material to the franchisor/franchisee 23 relationship for obvious reasons. Thus, PLK’s consent is 24 required under the CFRA and here. 25 Nevertheless, Pinnacle maintains that the court’s reading of 26 Catapult misses a nuance. The Catapult court evidently did not 27 mean what it said when it held the plain reading of § 365(c)(1) 28 compelled the result in this case. Instead, Pinnacle maintains 1 that what Catapult really stands for is the requirement that the 2 “reasonableness” of PLK’s lack of consent must be examined 3 notwithstanding the Catapult holding. 4 Supporting this contention, Pinnacle relies on a case cited 5 by the Ninth Circuit in Catapult, In Re Antonelli, 148 B.R. 443, 6 450 (D. Md. 1992) Aff’d without opinion, 4 F.3d 984 (4th Cir. 7 1993). This reliance is unavailing for three reasons. 8 First, it should be noted that the Fourth Circuit has 9 adopted the “hypothetical test” since Antonelli. In Re Sunterra, 10 361 F.3d 257 (4th Cir. 2004). In fact, Sunterra cited Antonelli 11 for the proposition that anti-assignment laws predicated on the 12 materiality of the identity of the contracting party activate 13 § 365(c)(1)’s exception to the § 365(f) general directive to 14 ignore anti-assignment provisions and applicable law. Sunterra, 15 361 F.3d at 267. The applicable law here makes the identity of 16 the franchisee material. So, assumption or assignment requires 17 PLK’s consent. 18 Second, this court discussed the Antonelli decision in its 19 memorandum decision. See Doc. #275, pp. 16-18. Pinnacle simply 20 repeats arguments already discussed and analyzed before. 21 Third, Pinnacle completely ignores the Catapult court’s 22 discussion of Antonelli and also Rieser v. The Dayton Country 23 Club Company, (In Re Magness) 972 F.2d 689, 695 (6th Cir. 1992). 24 In Magness, the Sixth Circuit affirmed the denial of the 25 trustee’s motion to assume and assign a golf club membership in 26 which the club had a detailed process for granting a finite 27 number of golf memberships. The Magness court held the interests 28 of the other club members and the personal relationship between 1 members precluded assumption. So, both Antonelli and Magness are 2 summed up by the Ninth Circuit’s holding in Catapult that 3 § 365(c)(1)’s reference to “applicable law” refers to a law that 4 prohibits assignment when “identity of the contracting party is 5 material to the agreement.” Catapult, 165 F.3d at 752. That is 6 when assignment is precluded. Nothing in the Lanham Act or CFRA 7 requires a franchisor to be blinkered when faced with a 8 prospective new party to their franchise agreement. Section 9 365(c)(1) applies to excuse PLK from performing without their 10 consent if a new party is unqualified. 11 Though perhaps superficially appealing, Pinnacle’s arguments 12 amount to a challenge to the policy the “hypothetical test” 13 invokes. But the Catapult court has the answer: “…Congress is 14 the policy maker, not the courts.” Id. at page 754. 15 /// 16 /// 17 /// 18 /// 19 /// 20 /// 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 1 CONCLUSION 2 For the foregoing reasons, the court discerns no clear error 3 of law or highly unusual circumstance justifying reconsideration 4 of its ruling denying Pinnacle’s motion to assume franchise 5 agreements under Civ. Rule 59(e) (Rule 9023). Nor, upon 6 reconsideration, is there a mistake of law under Civ. Rule 7 60 (6b) (1) (Rule 9024). Thus, Pinnacle’s motion for reconsideration 8 is DENIED. 9 A separate order will issue.? 10 11 | pated: Dec 19, 2024 By the Court 12 13 ord ené Lastreto II, Judge 14 United States Bankruptcy Court 15 16 17 18 19 20 21 22 23 24 25 26 2 The foregoing are the court’s findings of fact and conclusions of law under 27 Civ. Rule 52 (Rule 7052). Any finding of fact that is construed as a conclusion of law is adopted as such. Any conclusion of law construed as a 28 finding of fact is adopted as such.

1 Instructions to Clerk of Court Service List - Not Part of Order/Judgment 2

3 The Clerk of Court is instructed to send the Order/Judgment or other court generated document transmitted herewith to the 4 parties below. The Clerk of Court will send the Order via the BNC or, if checked , via the U.S. mail. 5

6 Pinnacle Foods of California LLC 764 P. St., Ste. 105 7 Fresno, CA 93721

8 Walter R. Dahl 8757 Auburn Folsom Rd #2820 9 Granite Bay, CA 95746-2820

10 Office of the U.S. Trustee United States Courthouse 11 2500 Tulare Street, Room 1401 Fresno, CA 93721 12 Michael Jay Berger 13 Law Office of Michael J. Berger 9454 Wilshire Blvd 6th Fl 14 Beverly Hills, CA 90212-2929

15 Keith C. Owens Fox Rothschild LLP 16 10250 Constellation Blvd. Ste 900 17 Los Angeles, CA 90067

18 Craig R. Tractenberg Fox Rothschild LLP 19 2000 Market St. 20 Floor Philadelphia, PA 19103 20 Glenn Moses 21 Venable LLP 801 Brickell Avenue, Suite 1500 22 Miami FL 33131

23 24 25 26 27 28