UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF TENNESSEE (NASHVILLE) IN RE: DAVID DARNELL BROWN aka YOUNG BUCK, ) ) ) ) Debtor. ) ) ) ) ) ___________________________________ ) Case No. 3:10-bk-11399-GP3-11 Chapter 11 OBJECTION DATE: April 19, 2012 HEARING DATE: May 8, 2012 TIME : 9:00 a.m. CTRM.: 1, 2nd Floor Customs House JUDGE: Judge Mashburn 701 Broadway Nashville, TN 37203 LIMITED OBJECTION AND RESERVATION OF RIGHTS OF UNIVERSAL MUSIC CORP. TO TRUSTEE'S MOTION TO SELL THE PROPERTY Universal Music Corp. ("Universal") hereby submits its conditional objection and reservation of rights in response to the Motion to Sell Property ("Motion") proposed by the Chapter 7 Trustee ("Trustee") for David Brown p/k/a "Young Buck" ("Debtor"), and respectfully represents as follows: I. BACKGROUND Universal is counterparty to that certain "Exclusive Songwriter & Co-Publishing Agreement" dated July 30, 2003, and amended from time to time ("Universal Contract"), whereby Debtor made certain agreements with, and conveyed certain rights (including intellectual property rights) to, Universal.1 The Universal Contract and related documentation are in Universal's possession and available to be submitted to the Court, but are not attached hereto because Universal does not presently know whether Debtor objects to revelation of the Universal Contract and its terms in a public filing. Debtor previously acknowledged the Universal Contract in connection with plan and disclosure statement filings in this case, prior to conversion. 1 Universal does not concede that the Universal Contract is executory for purposes of 11 U.S.C. ? 365. 1 Case 3:10-bk-11399 Doc 341 Filed 04/19/12 Entered 04/19/12 12:32:04 Document Page 1 of 6 Desc Main II. UNIVERSAL RESERVES ITS RIGHTS IN CONNECTION WITH ASSIGNMENTS UNDER THE COPYRIGHT ACT AND UNDER 11 U.S.C. ?365 The Motion recites that the Trustee intends to auction: All intellectual property owned by Debtor including, but not limited to, trademarks and copyrights, all masters, compositions, royalties, rights and licenses owned by Debtor and all rights of publicly owned by Debtor (the "Property"). Motion, p. 1. The entire Motion is one page long, and the Trustee submits no declaration, documents or other evidence regarding what is being sold, other than the description excerpted above. Title 17 of the United States Code (the "Copyright Act") and cases construing it provide that a license of all or a portion of a copyright constitutes an assignment and alienation of all rights in the licensed property for the term of the license. The same is true as to outright assignments. In other words, the Debtor previously assigned assets in the categories the Trustee purports to sell, the rights and related assets having been conveyed to Universal before the bankruptcy case was filed. As to any rights, property, assets or proceeds conveyed to Universal under the Universal Contract, the Trustee may not sell or purport to sell them, since she has no right to do so. Purported sale to any entity, which then utilizes whatever it acquires to infringe Universal's rights, will result in infringement liability. Likewise, to the extent that the estate purports to reject the Universal Contract on the theory that such rejection would somehow unwind the prior assignment -- it would not -Universal asserts its rights under 11 U.S.C. ? 365(n), which provides: (n)(1) If the trustee rejects an executory contract under which the debtor is a licensor of a right to intellectual property, the licensee under such contract may elect-(A) to treat such contract as terminated by such rejection if such rejection by the trustee amounts to such a breach as would entitle the licensee to treat such contract as terminated by virtue of its own terms, applicable nonbankruptcy law, or an agreement made by the licensee with another entity; or 2 Case 3:10-bk-11399 Doc 341 Filed 04/19/12 Entered 04/19/12 12:32:04 Document Page 2 of 6 Desc Main (B) to retain its rights (including a right to enforce any exclusivity provision of such contract, but excluding any other right under applicable nonbankruptcy law to specific performance of such contract) under such contract and under any agreement supplementary to such contract, to such intellectual property (including any embodiment of such intellectual property to the extent protected by applicable nonbankruptcy law), as such rights existed immediately before the case commenced, for-(i) the duration of such contract; and (ii) any period for which such contract may be extended by the licensee as of right under applicable nonbankruptcy law. (2) If the licensee elects to retain its rights, as described in paragraph (1)(B) of this subsection, under such contract-(A) the trustee shall allow the licensee to exercise such rights; (B) the licensee shall make all royalty payments due under such contract for the duration of such contract and for any period described in paragraph (1)(B) of this subsection for which the licensee extends such contract; and (C) the licensee shall be deemed to waive-(i) any right of setoff it may have with respect to such contract under this title or applicable nonbankruptcy law; and (ii) any claim allowable under section 503(b) of this title arising from the performance of such contract. (3) If the licensee elects to retain its rights, as described in paragraph (1)(B) of this subsection, then on the written request of the licensee the trustee shall-(A) to the extent provided in such contract, or any agreement supplementary to such contract, provide to the licensee any intellectual property (including such embodiment) held by the trustee; and (B) not interfere with the rights of the licensee as provided in such contract, or any agreement supplementary to such contract, to such intellectual property (including such embodiment) including any right to obtain such intellectual property (or such embodiment) from another entity. (4) Unless and until the trustee rejects such contract, on the written request of the licensee the trustee shall-(A) to the extent provided in such contract or any agreement supplementary to such contract-(i) perform such contract; or (ii) provide to the licensee such intellectual property (including any embodiment of such intellectual property to the extent protected by applicable nonbankruptcy law) held by the trustee; and (B) not interfere with the rights of the licensee as provided in such contract, or any agreement supplementary to such contract, to such intellectual property (including such embodiment), including any right to obtain such intellectual property (or such embodiment) from another entity. Under Section 365(n), so long as Universal accounts to whoever owns the Debtor's claim to future net payments (if any), Universal by statute may retain and exploit all intellectual property rights conveyed to it in connection with the Universal Contract. Universal asserts and reserves all rights under the Universal Contract, including without limitation all rights arising 3 Case 3:10-bk-11399 Doc 341 Filed 04/19/12 Entered 04/19/12 12:32:04 Document Page 3 of 6 Desc Main under, related to, or affected by Title 17 of the United States Code and 11 U.S.C. ? 365(n). Universal additionally reserves the right to treat the Universal Contract as breached by rejection, 11 U.S.C. ? 365(g)(1), and to have and pursue its remedies in light of such breach insofar as such remedies do not conflict with the strict requirements of Title 11 of the United States Code. Most trustees under similar circumstances take the position that they "are only selling whatever the debtor owns," without identifying exactly what that is or warranting the quality or enforceability of title. This appears to be what the Trustee is doing, to the extent the Motion explains the Trustee's intention at all. The Trustee is quite free to sell "whatever the debtor owns" so long as the order on sale makes clear that the Court is not attempting to terminate Universal's rights, impact or limit its ability to use the intellectual property assigned to it under the Universal Contract, or otherwise determine the extent and nature of Universal's interests. III. UNIVERSAL HAS RIGHT OF FIRST REFUSAL AS TO ANY COMPOSITIONS ASSOCIATED WITH THE UNIVERSAL CONTRACT Section 21 of the Universal Contract provides: 21. OPTION TO PURCHASE. In the event that Grantor desires to grant, sell assign, license or otherwise transfer any right, title or interest in or to any of the Compositions, Grantor hereby agrees, for a period of sixty (60) days, to negotiate exclusively with Publisher, in good faith, and to exert best efforts to reach an agreement with Publisher for Publisher's acquisition of such copyrights and/or other rights in and to the applicable Compositions. In the event that Publisher and Grantor fail to finalize the material terms of such agreement by the end of such sixty (60) day period, then Grantor shall thereafter (subject to the remaining provisions of this paragraph) be free to negotiate with any third party for the grant, sale, assignment, license or other transfer of such copyrights and/or other rights, but only on terms and conditions that are no less favorable to Grantor than those last offered by Publisher. Furthermore, if Grantor receives a bona fide offer from a third-party at any time (the "Third Party Offer") to purchase all or any portion of Grantor's interest in the Compositions, or any one of them, and Grantor desires to sell such interest, Grantor agrees to first offer in writing to sell such interest to Publisher (the "First Offer"). The First Offer must specify all of the terms and conditions of the Third Party Offer. In the event Publisher does not agree to match the First Offer within thirty (30) days after its receipt thereof, then Grantor will have the right to accept the Third Party Offer. However, any sale to such third party must be consummated within one hundred twenty (120) days after receipt of the First Offer by Publisher and the sale to such Third Party may only be consummated upon terms and conditions no less favorable to Grantor as those contained in the First Offer. If such sale is not so consummated, Grantor will not sell all or any portion of Grantor's interest in the Composition(s) or any 4 Case 3:10-bk-11399 Doc 341 Filed 04/19/12 Entered 04/19/12 12:32:04 Document Page 4 of 6 Desc Main one of them without again offering such interest to Publisher as provided hereinabove. Publisher shall not be required, as a condition of accepting any First Offer, to agree to any terms or conditions which cannot be fulfilled by Publisher as readily as by any other major music publisher in the United States. Pursuant to the Universal Contract, without limitation, and as to Compositions associated with that contract, Universal must be afforded the opportunity to match any offer made for the Compositions by a third party. Since the Motion does not specify what specific Compositions (or other rights) are being auctioned, it is impossible to tell what portion of the sale property is subject to Universal's right of first refusal. Universal reserves and asserts its right to match a purchase offer for any assets (including Compositions) which relate to the Universal Contract. IV. CONCLUSION The Court's order approving the sale (if the Court concludes that the Trustee may have the relief requested in the Motion) should make absolutely clear that: the Trustee may only sell or assign that which the Debtor in fact owned as of the date of the bankruptcy case; Universal retains whatever rights were assigned to it under the Universal Contract and those rights are unaffected by the sale or the order approving the sale; Universal retains and may assert any right of first refusal; and Universal retains and may assert its rights under Section 365(n) to the extent the Universal Contract is executory and any rejection is effectuated by statute or election. Respectfully submitted, s/Gregory S. Reynolds GREGORY S. REYNOLDS (#018204) SETH M. MCINTEER (#026471) Riley Warnock & Jacobson, PLC 1906 West End Avenue Nashville, TN 37203 Telephone: (615) 320-3700 Facsimile: (615) 320-3737 5 Case 3:10-bk-11399 Doc 341 Filed 04/19/12 Entered 04/19/12 12:32:04 Document Page 5 of 6 Desc Main CERTIFICATE OF SERVICE I hereby certify that on this day, April 19, 2012, a true and correct copy of the foregoing document has been sent to Jeanne Ann Burton, Trustee, Jeanne Ann Burton, PLLC, P.O. Box 90181, Nashville, TN 37209 and U.S. Trustee, 318 Customs House, 701 Broadway, Nashville, TN 37203 via United States Postal Service and to all parties of interest via the Court's Electronic Filing System. s/Gregory S. Reynolds 6 Case 3:10-bk-11399 Doc 341 Filed 04/19/12 Entered 04/19/12 12:32:04 Document Page 6 of 6 Desc Main