## Facts

- Trump Entertainment Resorts, Inc. and affiliates operated three Atlantic City hotel-casino properties and entered a royalty-free trademark license allowing use of the “Trump” name and related marks in connection with those properties.
- The licensors (Donald J. Trump and Ivanka Trump) later assigned their rights and obligations under the license to Trump AC Casino Marks LLC.
- The license restricted assignment and sublicensing by the debtors without the licensor’s prior written consent, subject to limited exceptions.
- The license included quality-control standards and a contractual enforcement mechanism permitting the licensor to sue in New Jersey Superior Court, which could ultimately result in termination for noncompliance.
- Trump AC filed a New Jersey state-court action seeking termination based on alleged deterioration in quality.
- The debtors filed Chapter 11 petitions, triggering the automatic stay that halted the state-court litigation.
- Trump AC moved for relief from the automatic stay to continue the state-court action, arguing the debtors could not assume or assign the trademark license without consent under § 365(c)(1).
- The debtors opposed stay relief, seeking to preserve the license for reorganization purposes.

## Issues

1. Whether, under 11 U.S.C. § 365(c)(1) and controlling Third Circuit precedent, the debtors could assume or assign the trademark license without the licensor’s consent when applicable nonbankruptcy law treated the license as non-assignable absent consent.
2. Whether the debtors’ inability to assume or assign the license without consent constituted “cause” under 11 U.S.C. § 362(d)(1) to modify the automatic stay to allow the licensor’s state-court termination action to proceed.

## Decision

- The court held the debtors could not assume or assign the trademark license without Trump AC’s consent, and Trump AC withheld consent.
- Applying the Third Circuit’s “hypothetical test,” the court concluded that if applicable law would excuse the licensor from accepting performance from a different entity, the debtor cannot assume the contract at all absent consent.
- The court found “cause” under § 362(d)(1) to lift the automatic stay because the license could not be preserved through assumption over the licensor’s objection.
- The court granted Trump AC’s motion and modified the automatic stay to permit continuation of the New Jersey Superior Court litigation seeking termination.

## Legal Principles

- Under 11 U.S.C. § 365(c)(1), a debtor may not assume or assign an executory contract without the nondebtor’s consent when applicable law excuses the nondebtor from accepting performance from an entity other than the debtor.
- In the Third Circuit, the “hypothetical test” bars assumption whenever applicable law would prohibit assignment without consent, regardless of whether the debtor intends to assign.
- Trademark licenses are generally treated as personal to the licensee because trademark law depends on the licensor’s ability to control quality; this supports non-assignability absent consent, especially where the contract contains express anti-assignment provisions.
- When a debtor cannot assume the relevant executory contract as a matter of § 365(c)(1), that constraint may supply “cause” under § 362(d)(1) to lift the automatic stay to allow the nondebtor to pursue contract and trademark remedies in a nonbankruptcy forum.

## Conclusion

The bankruptcy court ruled that the debtors could not assume or assign a non-assignable trademark license without the licensor’s consent under § 365(c)(1) as applied through the Third Circuit’s hypothetical test, and it lifted the automatic stay for cause to allow the licensor’s state-court termination action to proceed.


In re Trump Ent. Resorts, Inc., 526 B.R. 116 (Bankr. D. Del. 2015)