Television Production Contract is not Personal Service for Purposes of Assumption and Assignment Under Section 365(a) of the Bankruptcy Code

Declan Considine

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff

Title 11 of the United States Code (the “Bankruptcy Code”) provides under section 365(a) that a debtor in possession may, “subject to the court’s approval… assume or reject any executory contract or unexpired lease of the debtor.”[1]An exception to the debtor-in-possession’s ability to assume or assign executory contracts is outlined in section 365(c).  Under section 365(c), a debtor-in-possession may not assume and assign contracts where applicable non-bankruptcy law excuses performance.  One form of excused performance exists in personal service contracts, where “the performing party is specialized or unique such that no replacement performance could satisfy the contractual requirements."[2] In In re Vice Group Holding, Inc., the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) held that an executory contract between the media-company debtor (“Vice Media”) and television network Showtime Networks Inc. (“Showtime”) was not a “personal services” contract under California law, and thus did not fall under the exception to the debtor-in-possession’s power of assignment.[3] As a result, the Bankruptcy Court approved the assignment of the contract to Vice Media’s successors-in-interest over Showtime’s objections.[4]

Vice Media and Showtime entered into an agreement (“Showtime Contract”) for Vice Media to produce up to eight seasons of a documentary series to air on the Showtime network.[5] Showtime was to make periodic payments for each season, and was given “approval rights over creative  elements and key personnel involved” while Vice Media agreed to write the show, supply the necessary staff and production equipment, and administer “licenses, releases, and contracts.”[6] Vice Media produced several award-winning seasons for Showtime before filing for bankruptcy. During its bankruptcy proceeding, Vice Media entered an agreement to sell its assets to three asset management companies: Fortress Credit Advisors, Monroe Capital LLC, and Soros Fund Management (collectively, the “Purchaser”).[7] As part of this sale, Vice Media moved the court to approve the assumption of various contracts and assign them to the Purchaser’s acquisition vehicle, Vice Acquisition Holdco, LLC. Showtime objected to the assignment of its contract with Vice Media to the Purchaser.  Showtime contended that the Showtime Contract was a “personal services” contract under California law and thus could not be assigned pursuant to section 365(c)(1) of the Bankruptcy Code.

The Bankruptcy Court evaluated the contract under California law, defining a “personal services” contract as “one in which a special relationship exists between the parties or the skill possessed by the performing party is specialized or unique such that no replacement performance could satisfy the contractual requirements.”[8]  A typical example of a personal services contract is one for a recording artist, whereas agreements for franchising and licensing are not.[9]   Showtime argued that the documentary productions were “quintessentially” personal services in that they bargained for highly specialized, award-winning video content, as well as oversight over key personnel.[10] Vice Media contended that it was not a personal services contract, as the agreement does not specify any specific individuals to be in the show. The Bankruptcy Court concluded that Showtime contracted with a “corporate entity,” rather than an individual person, and that it would still retain the benefits of the agreement upon assignment to the Purchaser, which emphasized that they planned on retaining the current staff.[11] The Bankruptcy Court also found the fact that Showtime’s approval rights over key personnel indicated that they had anticipated at least some change in staff, which also weighed against a finding of a personal services contract. 

Accordingly, the court ruled that the Showtime Contract was not one for personal services, that Showtime was not excepted from the assignment of its contract to the Purchaser, and approved the motion of assignment.