CCT Communications, Inc. v. Zone Telecom, Inc. , 327 Conn. 114 ( 2017 )

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CCT COMMUNICATIONS, INC. v.
ZONE TELECOM, INC.*
(SC 19574)
Rogers, C. J., and Palmer, Eveleigh, McDonald,
Espinosa, Robinson, and D’Auria, Js.**
Syllabus
The plaintiff, a telecommunications company, sought to recover damages
for, inter alia, breach of contract in connection with the provision of
certain equipment, software and services to the defendant for the opera-
tion of a telecommunications switch room. The parties had executed
an agreement in 2006 pursuant to which the defendant purchased a
digital signal circuit from the plaintiff and agreed to pay certain enumer-
ated rates for long-distance telephone service, subject to a minimum
monthly usage charge. In order to fulfill its duties under the agreement,
the plaintiff purchased certain long-distance telephone service from G
Co., which the plaintiff then resold to the defendant. Subsequently, a
dispute developed between the plaintiff and G Co. over the plaintiff’s
failure to stay current with its payments and certain service problems.
In January, 2007, G Co. notified the plaintiff that, if these problems were
not resolved, it would terminate the plaintiff’s service. Thereafter, the
defendant requested the plaintiff’s assistance in resolving certain service
issues and, on January 26, 2007, G Co. terminated the plaintiff’s service.
The plaintiff then filed a voluntary bankruptcy petition and, following the
issuance of certain automatic stays in connection with the bankruptcy
proceeding, G Co. restored service to the plaintiff. On February 5, 2007,
the defendant notified the plaintiff that it was terminating their
agreement pursuant to an ipso facto clause in the agreement, which
purported to allow termination in the event that either party filed a
voluntary bankruptcy petition. The plaintiff claimed that, because the
bankruptcy proceeding had stayed the termination of service by G Co.,
the defendant continued to be obligated under the agreement to either
use the plaintiff’s services or to pay the minimum monthly usage charge.
Ultimately, the circuit used to route the defendant’s long-distance calls
under the agreement was rendered inoperable. The bankruptcy court
subsequently dismissed the plaintiff’s bankruptcy petition and, in doing
so, declined to retain jurisdiction over the adversarial claims between
the plaintiff and the defendant, noting, inter alia, that those claims
primarily involved questions of state law. The plaintiff subsequently
brought the present action, alleging breach of contract for the defen-
dant’s failure to pay certain amounts owed under the parties’ agreement.
The defendant filed a counterclaim alleging breach of contract based
on the plaintiff’s failure to provide certain services and seeking, inter
alia, a judgment declaring that the defendant’s termination of the
agreement on February 5, 2007, was valid and effective. The trial court
rendered judgment for the defendant on the plaintiff’s complaint and
on the defendant’s breach of contract and declaratory judgment counter-
claims. The trial court concluded that federal law did not preclude the
defendant from exercising its right to terminate the agreement under
the ipso facto clause and that the plaintiff had breached the agreement
when it filed for bankruptcy. On appeal, the plaintiff claimed, inter alia,
that the trial court incorrectly determined that the plaintiff had breached
the agreement when it filed for bankruptcy and that the defendant had
effectively exercised its right to terminate the agreement. Held:
1. This court declined to affirm the trial court’s judgment on the alternative
ground that that the plaintiff had breached the parties’ agreement by
failing to provide adequate service prior to the receipt of the defendant’s
notice of termination; the trial court’s memorandum of decision, without
additional findings, was insufficient to support a finding of breach on
the basis of the plaintiff’s failure to provide adequate service, in light
of the court’s repeated finding of breach based on the bankruptcy filing,
the court’s avoidance of any express finding of breach on the basis of the
failure to provide adequate service, certain provisions in the agreement
requiring the defendant to provide notice and an opportunity to cure
service issues, and certain testimony by the defendant’s chief finan-
cial officer.
2. The trial court incorrectly concluded that the plaintiff’s act of filing for
bankruptcy constituted a material breach that permitted the defendant
to terminate the agreement: the plain language of the ipso facto clause
in the parties’ agreement provided only an option for the nondebtor
party to terminate the agreement following a bankruptcy petition if it
so desired; furthermore, the trial court incorrectly determined that the
defendant’s termination of the agreement under the ipso facto clause
was valid on the ground that the common-law ride-through doctrine
provided an exception to the federal statute (11 U.S.C. § 365 [e]) barring
enforcement of ipso facto clauses, this court having concluded that the
ride-through doctrine did not apply because the plaintiff’s bankruptcy
petition was dismissed before confirmation of a reorganization plan, a
debtor that seeks reorganization under the federal bankruptcy statutes
need not assume an executory contract in order to avail itself of the
protections afforded by 11 U.S.C. § 365 (e), and the ride-through doctrine
does not operate to retroactively validate a previous, ineffective termina-
tion that had been initiated during bankruptcy proceedings; moreover,
the defendant could not prevail on its claim that the trial court’s judgment
should be affirmed on the alternative ground that the parties’ agreement
fell within a statutory (11 U.S.C. § 556) exception to 11 U.S.C. § 365
(e) for commodity forward contracts, the trial court having correctly
determined that the agreement was not subject to that exception because
the defendant had failed to demonstrate that telecommunication services
are actively traded or resold like other commodities, there was no
indication that the defendant had entered into the agreement primarily
as a hedge against fluctuations in the price of long-distance telephone
services, the agreement did not specify a particular quantity of goods
to be delivered on a particular date, it was not clear that the services
at issue were truly fungible, and the agreement involved, inter alia, the
sale of noncommodities to the defendant, namely, equipment.
Argued November 7, 2016—officially released November 21, 2017
Procedural History
Action to recover damages for, inter alia, breach of
contract, and for other relief, brought to the Superior
Court in the judicial district of Danbury, where the
defendant filed a counterclaim; thereafter, the case was
transferred to the judicial district of Waterbury, Com-
plex Litigation Docket, and tried to the court, Agati,
J.; judgment for the defendant on the complaint and in
part for the defendant on the counterclaim, from which
the plaintiff appealed; subsequently, the court granted
the defendant’s application for attorney’s fees and
costs, and the plaintiff filed an amended appeal.
Reversed; further proceedings.
Joseph K. Scully, with whom was Jeffrey P. Mueller,
for the appellant (plaintiff).
William M. Murphy, for the appellee (defendant).
Opinion
EVELEIGH, J. The plaintiff, CCT Communications,
Inc., appeals from the judgment of the trial court ren-
dered in favor of the defendant, Zone Telecom, Inc.,1
on the plaintiff’s complaint and the defendant’s counter-
claim for damages and declaratory judgment. The case
arises from a purchase agreement entered into by the
parties in which the plaintiff was to provide various
equipment, software, and services to the defendant for
a telecommunications switch room located in Los
Angeles, California. On appeal, the plaintiff claims that
the trial court incorrectly rendered judgment in favor
of the defendant on the plaintiff’s complaint and the
defendant’s counterclaim. Specifically, the plaintiff
asserts that the trial court incorrectly (1) concluded
that it breached the purchase agreement by filing a
petition for bankruptcy protection under chapter 11 of
the United States Bankruptcy Code (bankruptcy code);
see 11 U.S.C. § 1101 et seq. (2012); (2) determined that
a letter from the defendant dated February 5, 2007,
was an effective exercise of the defendant’s right to
terminate the purchase agreement, (3) failed to award
the plaintiff certain damages on count one of its com-
plaint, and (4) awarded the defendant damages, costs,
and attorney’s fees in excess of a limitation of liability
clause in the purchase agreement. We agree that the
trial court incorrectly concluded that the plaintiff’s
bankruptcy petition constituted a breach of the pur-
chase agreement and permitted the defendant to termi-
nate that agreement.2 We therefore reverse the
judgment of the trial court.
The following facts and procedural history, as found
by the trial court and supplemented by the undisputed
facts contained within the record, are relevant to our
resolution of this appeal. The defendant provides long-
distance telephone and other telecommunications ser-
vices to independent local exchange carriers, which in
turn sell the services to commercial and residential end
users. In 2005, the plaintiff began providing various
equipment, software, and services for use in the defen-
dant’s switch room.
By September, 2006, the relationship between the
parties had begun to deteriorate. Following a heated
meeting and further communications, the plaintiff, rep-
resented by its president, Dean Vlahos, and the defen-
dant, represented by its senior vice president, Daniel
Boynton, and its then vice president and chief legal
counsel, Eamon Egan, ultimately agreed to continue to
do business together on a restructured basis. The par-
ties’ new relationship was memorialized in the purchase
agreement, which became effective on November 1,
2006. This is the operative legal document governing
the present dispute.
A third, nonparty entity, Global Crossing Telecommu-
nication, Inc. (Global), also was involved in the activi-
ties that underlie this case. Global supplies long-
distance telephone service, including national and inter-
national long-distance calling as well as toll-free service,
to commercial resellers. When a customer contracts for
Global’s services, calls made under that contract are
run through a level three digital signal circuit (circuit),
which is capable of carrying a large volume of telephone
calls. The consumer normally purchases a circuit as
part of an agreement to use Global’s long-distance ser-
vices and rates.
Under the purchase agreement, the plaintiff essen-
tially acted as a middle man, buying Global’s long-dis-
tance services and reselling them to the defendant. Prior
to the purchase agreement, the plaintiff owned a circuit
that was located in the defendant’s switch room. Under
the purchase agreement, the plaintiff sold that circuit
to the defendant.3 This circuit enabled clients of the
defendant to place calls through Global’s long-distance
network. In return, the defendant agreed to purchase
long-distance service from the plaintiff at rates enumer-
ated in the purchase agreement for certain specified
geographical areas. Ultimately, Global was to sell long-
distance service to the plaintiff at a fixed rate per
minute, and the plaintiff was to resell that service to
the defendant at a marked up rate. The defendant, in
turn, would provide long-distance service to its own
customers at a further markup.
The purchase agreement included a minimum usage
guarantee, pursuant to which the defendant obtained
long-distance services from the plaintiff on a ‘‘ ‘take or
pay’ ’’ basis. This meant that the defendant was required
to pay a minimum amount each month for the plaintiff’s
services, even if it did not run any calls through the
circuit. Any usage exceeding the minimum would be
billed to the defendant at an agreed upon rate per
minute. This clause of the purchase agreement was to
have run through December, 2009.
As we have indicated, the purchase agreement
became effective on November 1, 2006. Long-distance
service under the purchase agreement commenced on
December 1, 2006, and the defendant ran enough long-
distance service through the circuit in the month of
December, 2006, to meet its minimum usage require-
ment. During that month, the plaintiff and Global also
amended their retail customer agreement. After execu-
tion of this amendment, the plaintiff began to run a
higher volume of long-distance service through Global.
By mid-January, 2007, a dispute had arisen between
Global and the plaintiff about the terms of their
amended retail customer agreement and, specifically,
about the amount and scope of the long-distance service
that the plaintiff was sending through Global’s network.
See generally In re CCT Communications, Inc., United
States Bankruptcy Court, Docket No. 07-10210 (SMB)
(S.D.N.Y. July 2, 2008). Global was of the opinion that
the plaintiff was violating the amended retail customer
agreement and taking unfair advantage of Global by
reselling certain services.4 Id.
In any event, the result of the plaintiff’s routing so
many long-distance calls through Global was that the
defendant’s clients and their customers encountered an
increasing number of service problems. Calls would not
complete, would continue to ring, or would result in a
fast busy signal or dead air. These issues were brought
to Global’s attention by way of trouble tickets filed by
the defendant. The purchase agreement authorized the
defendant to open such trouble tickets directly with
Global if the defendant had service problems. During
January, 2007, the defendant filed a number of trouble
tickets with Global because of service problems with
calls being routed through the circuit.
In addition to the service problems that arose after
the plaintiff attempted to run an increasing number of
calls through Global’s network, Global grew concerned
by January, 2007, because the plaintiff was not current
with its payments. By that time, the plaintiff owed
Global approximately $2 million and had exceeded its
credit limits with Global. These issues were memorial-
ized in a letter from Global to Vlahos on January 11,
2007. At that time, Global put the plaintiff on notice
that, if a resolution of these problems was not achieved,
Global would terminate all services to the plaintiff on
January 25, 2007.
Between January 11, 2007, and January 25, 2007, the
plaintiff continued to increase international and domes-
tic long-distance traffic through Global, which resulted
in additional service problems. In response, Global
began to throttle down the plaintiff’s access to its ser-
vice. By January 17, 2007, Global had blocked interna-
tional long-distance calling service to the plaintiff. After
that date, the plaintiff continued to push through
domestic, long-distance calls at what the trial court
characterized as ‘‘an excessive rate.’’ But see footnote
4 of this opinion. This influx of domestic, long-distance
calls caused major service issues for Global. For exam-
ple, 192,000 calls would not complete on January 19,
2007, and 142,000 calls would not complete on January
20 and 21, 2007.
On January 25, 2007, Egan, who had since become
the defendant’s chief financial officer, sent a letter to
the plaintiff advising it of multiple service issues for
long-distance calls being transmitted through the cir-
cuit. The defendant requested assistance from the plain-
tiff to resolve these issues. The defendant stated that
if assistance was not forthcoming, the defendant would
not be committed by the purchase agreement to pay
the minimum usage charge for January, 2007, due to
unacceptable service quality.
The following day, on January 26, 2007, Global
blocked all calls generated through the plaintiff. Global
also sent a letter to the plaintiff on that date terminating
their relationship and claiming that the plaintiff was in
breach of contract because it was reselling the services
in alleged contravention of the amended retail customer
agreement. A copy of this termination notice was inad-
vertently faxed to the defendant’s switch room by
Global, making the defendant aware of the seriousness
of the dispute between Global and the plaintiff.
As a result of the termination of service by Global,
which shut down all of the Global circuits operated by
the plaintiff, on January 29, 2007, the plaintiff filed its
bankruptcy petition in the United States Bankruptcy
Court for the Southern District of New York. Because
of the automatic stay provisions that come into effect
upon filing of a bankruptcy petition; see 11 U.S.C. § 362
(a) (3) (2012); Global concluded that it was compelled
to reconnect the circuits.
Although service was restored to the Global circuit
by January 31, 2007, on February 5, 2007, the defendant
notified the plaintiff by letter that it was exercising its
right to terminate their contractual relationship. The
defendant purported to terminate pursuant to § 7 (b) of
the purchase agreement, which provides, among other
things, that either party may terminate upon thirty days
written notice if the other party files a voluntary bank-
ruptcy petition.5
Between February 5, 2007, and March 24, 2007, Vlahos
and Egan exchanged a series of letters about their posi-
tions vis-a`-vis the bankruptcy and the continuation of
the purchase agreement. The plaintiff’s position was
that the bankruptcy proceedings stayed the shut off of
service by Global and, therefore, that the defendant
remained obligated to use the circuit or to pay the
minimum monthly usage charge. The defendant’s posi-
tion was that it had notified the plaintiff of service
problems prior to the shut off of service by Global and
that the shut off jeopardized service to the defendant’s
clients. Because of the instability of the relationship
between the plaintiff and Global, the defendant took
the position that it could not continue to use the circuit
unless it was given adequate assurance from Global
that it could rely on the service being operational and
not subject to further shutdown. The plaintiff insisted
that it was not obligated by law to provide any such
adequate assurance and declined to do so.
Meanwhile, on March 15, 2007, the circuit went into
alarm, which precipitated an inquiry from Global. Upon
confirmation by the defendant that it was not running
any traffic through the circuit, Global removed the cir-
cuit from service. This meant that the circuit was not
operational and could no longer provide long-distance
service. The circuit was never restored to working
order. The trial court found that to do so would have
required a request to Global by the plaintiff,6 which
Global never received. Consequently, as of March 15,
2007, the circuit that would have run the defendant’s
long-distance calls under the purchase agreement
was inoperable.
Although the parties continued to correspond sporadi-
cally between March 24, 2007, and November 25, 2009,
the dispute between the plaintiff and the defendant pri-
marily played out in the proceedings before the United
States Bankruptcy Court for the Southern District of
New York. Specifically, on January 27, 2009, the plaintiff
commenced an adversary proceeding against the defen-
dant, alleging breach of the purchase agreement. See In
re CCT Communications, Inc., 420 B.R. 160, 177–78
(Bankr. S.D.N.Y. 2009).
The bankruptcy petition was dismissed on November
25, 2009. Id., 178. The Bankruptcy Court dismissed the
petition because the plaintiff, having filed a plan of
reorganization on November 26, 2007, failed to timely
confirm the plan as required by 11 U.S.C. § 1129. Id.,
166, 168, 178. The court retained jurisdiction over the
ongoing dispute between the plaintiff and Global, but
declined to retain jurisdiction over the adversary pro-
ceeding between the plaintiff and the defendant, noting
that the latter dispute had not advanced beyond the
pleading stage and primarily involved questions of state
contract law.7 Id., 178.
The plaintiff then filed the present action in Decem-
ber, 2009, upon the dismissal of the bankruptcy petition.
In its two count complaint, the plaintiff claimed (1)
breach of contract for the defendant’s failure to pay the
monthly amounts owed under the purchase agreement,
and (2) account stated. In response, the defendant filed
an answer and counterclaim. In its three count counter-
claim, the defendant (1) alleged breach of contract for
the plaintiff’s failure to provide services under the pur-
chase agreement, (2) sought a declaratory judgment
that the defendant’s obligations to the plaintiff were
terminated no later than thirty days after the defen-
dant’s letter to the plaintiff dated February 5, 2007,
and (3) sought a judgment declaring that, among other
things, the plaintiff had no right to continue its utiliza-
tion of the defendant’s switch room.
The case was tried to the trial court, Agati, J., which
rendered judgment for the defendant on the plaintiff’s
complaint and on count one of the defendant’s counter-
claim in the amount of $694,000. In addition, the trial
court awarded statutory costs in the amount of $655
and attorney’s fees in the amount of $936,441.18. The
trial court also rendered declaratory judgment as
requested in count two of the defendant’s counterclaim.
On appeal,8 the parties disagreed as to the basis for
the trial court’s conclusion that the plaintiff, rather than
the defendant, had breached the purchase agreement.
The plaintiff took the position that the trial court had
determined, as a matter of law, that (1) the plaintiff
breached the purchase agreement by filing for bank-
ruptcy, (2) under the circumstances of the present case,
federal bankruptcy law does not invalidate § 7 (b) of
the purchase agreement, which allows a party to termi-
nate the contract when the other party files a bank-
ruptcy petition and, therefore, (3) the defendant’s letter
of February 5, 2007, was a valid and effective termina-
tion of the purchase agreement and did not constitute
a breach of contract by the defendant. The plaintiff
took issue with all three of these conclusions. In the
alternative, the plaintiff argued that, even if the trial
court had correctly construed and applied federal bank-
ruptcy law, the trial court had incorrectly (1) failed to
hold the defendant liable for financial obligations it
incurred both before and after the defendant’s pur-
ported termination, and (2) awarded damages in excess
of the limitation of liability clause of the purchase
agreement.
For its part, the defendant argued that, although the
trial court correctly construed federal bankruptcy law,
this court need not resolve the bankruptcy questions
because the trial court also found, largely as a matter
of fact, that the plaintiff had breached the purchase
agreement by providing inadequate service. The defen-
dant urged us to decide the appeal on the basis of that
alternative ground for affirmance.
Following oral argument, this court, sua sponte,
ordered the trial court to issue an articulation pursuant
to Practice Book § 60-5. After receiving the trial court’s
articulation, we affirmed the judgment of the trial court
on the basis of the defendant’s alternative ground for
affirmance. See CCT Communications, Inc. v. Zone
Telecom, Inc., 324 Conn. 654, 658 and n.2, 153 A.3d 1249
(2017). Subsequently, we granted the plaintiff’s timely
motion for reconsideration en banc.9 Additional facts
and procedural history will be set forth as necessary.
I
Because we initially decided this case on the basis
of the defendant’s alternative ground for affirmance;
see id., 658 n.2; we first address the plaintiff’s argument
in its motion for reconsideration en banc that the record
is not sufficient to permit us to affirm the judgment of
the trial court on that ground. On further review of the
trial record, we now are persuaded that the plaintiff is
correct in this regard and that the trial court did not
find that the plaintiff breached the purchase agreement
by providing inadequate service.
A
The following additional procedural history is rele-
vant to our consideration of this issue. Count one of
the defendant’s counterclaim, which stated a breach of
contract claim, alleged that the plaintiff, ‘‘by failing to
provide the service it contracted to provide to [the
defendant through the] circuit, breached its obligations
. . . under the terms of the [purchase] [a]greement.’’
Nowhere in the counterclaim did the defendant allege
that the plaintiff had breached the purchase agreement
by filing for bankruptcy protection. Rather, the defen-
dant raised the issue of the bankruptcy petition as a
defense to the plaintiff’s breach of contract claim and
with respect to count two of the counterclaim, which
sought a declaratory judgment that the defendant’s own
obligations under the purchase agreement had termi-
nated no later than thirty days after the defendant exer-
cised its right to terminate under § 7 (b).
In its memorandum of decision, however, the trial
court appeared to misunderstand the nature of the
defendant’s breach of contract counterclaim, constru-
ing it as alleging that the plaintiff had breached the
purchase agreement by filing for bankruptcy protection.
In summarizing the action, the trial court characterized
the counterclaim as follows: ‘‘[The defendant] counter-
claimed . . . alleging that [the plaintiff] breached the
[purchase] agreement by, inter alia, filing a voluntary
bankruptcy petition on January 29, 2007. [The defen-
dant] also seeks a declaratory judgment concerning the
rights of the parties under the [purchase] agreement.’’
Later in the decision, in its legal analysis of the compet-
ing breach of contract claims, the trial court never
directly addressed the defendant’s allegations that the
plaintiff breached the purchase agreement by failing to
provide the services that it had contracted to provide.
Rather, the court began its analysis by stating that,
‘‘[a]lthough this is a breach of contract action, the key
legal issue before the court is the impact of [the plain-
tiff’s] voluntary bankruptcy petition.’’ The court then
spent seventeen pages parsing the bankruptcy code,
ultimately concluding that the relevant provisions did
not preclude the defendant from exercising its contrac-
tual right to terminate the purchase agreement.
Immediately following its analysis of the bankruptcy
issues, the court concluded as follows: ‘‘The court finds
that [the defendant] has presented ample evidence to
establish each of the elements in support of its claim
that [the plaintiff] breached its obligations under the
purchase agreement of November 1, 2006. The breach
took place when [the plaintiff] filed its voluntary bank-
ruptcy petition of January 29, 2007. Pursuant to [§] 7
(b), [the defendant] exercised its right to terminate the
purchase agreement on February 5, 2007. The court
finds for [the defendant] on count [one] of its counter-
claim for breach of contract.’’ In other words, the trial
court appeared to treat the bankruptcy questions as
dispositive not only of the defendant’s defense to the
plaintiff’s breach of contract claim—the defendant had
argued that the plaintiff’s bankruptcy excused it from
further performance—but also of the defendant’s own
breach of contract counterclaim.
On appeal, the plaintiff interpreted the memorandum
of decision to mean that the trial court resolved the
competing breach of contract claims solely on the basis
of the bankruptcy arguments and, accordingly, the
plaintiff focused its appellate argument on those ques-
tions. The defendant, by contrast, was of the view that
the trial court also made an independent finding that
the plaintiff breached the purchase agreement by failing
to provide adequate service. In support of this alterna-
tive ground for affirmance, the defendant directed our
attention to three aspects of the record.
First, the defendant noted that the trial court made a
number of factual findings indicating that the defendant
encountered serious service problems in January, 2007,
culminating in the total cessation of service for several
days, and implied that the plaintiff was responsible for
those service problems. The trial court also expressly
found that the defendant’s principal witness testified
credibly whereas the plaintiff’s did not. The defendant
emphasized that the trial court prefaced its factual find-
ings and credibility determinations by stating that it
was setting forth ‘‘the salient facts [that the court] finds
relevant and pertinent to the final decision in this case.’’
The defendant argued that there would have been no
reason for the court to make such extensive factual
findings, and that such findings would not have been
legally relevant, had the court in fact found that the
plaintiff’s bankruptcy was the sole ground on which it
breached the purchase agreement.10
Second, the defendant noted that the trial court found
that the defendant ‘‘presented ample evidence to estab-
lish each of the elements in support of its claim that [the
plaintiff] breached its obligations under the purchase
agreement of November 1, 2006.’’ Because the counter-
claim actually alleged a failure to provide service, the
defendant argued, the trial court’s finding that all of
the elements of that claim were satisfied necessarily
implied that the court found a breach of contract on
that basis.11
Third, the defendant argued that the trial court’s judg-
ment and the judgment file resolve any ambiguity as to
whether the court found a breach of contract for failure
to provide service. The defendant emphasized that the
court rendered judgment on the counterclaim in its
favor with respect to both count one, which alleged
breach of contract, and count two, which sought a
declaratory judgment, but had referenced the bank-
ruptcy petition only in relation to the latter. From this
fact, the defendant deduced that the court must have
decided count one in its favor on a different basis,
namely, the plaintiff’s alleged failure to provide ade-
quate service.12
The defendant found further support for this theory in
the judgment file, wherein the trial court characterized
count one of the counterclaim as alleging ‘‘claims of
breach of contract based on [the plaintiff’s] alleged
failure to provide the contracted service . . . .’’ The
defendant posited that the fact that the court rendered
judgment for the defendant on count one, after having
accurately characterized the nature of that count,
means that the court must have found that the plaintiff
breached the purchase agreement by failing to provide
adequate service.13
To resolve these ambiguities, following oral argu-
ment, this court, sua sponte, ordered the trial court
to issue an articulation addressing the following two
questions: (1) ‘‘In addition to finding in favor of [the
defendant] on its declaratory judgment claim in count
[two] of its counterclaim, did the trial court find that
[the plaintiff] had breached [the purchase agreement
by failing] to provide telecommunication services as
alleged in count [one] of [the defendant’s] counterclaim
when it stated [that] ‘[t]he court finds that [the defen-
dant] has presented ample evidence to establish each
of the elements in support of its claim that [the plaintiff]
breached its obligations under the purchase agreement
. . . ?’ ’’ (2) ‘‘If the answer to question one is in the
affirmative, then were the damages awarded by the trial
court based upon the breach of contract as found by the
court in count [one] of [the defendant’s] counterclaim?’’
In its subsequent articulation, the trial court
responded to this court’s first question as follows: ‘‘The
response is in the affirmative that this court did find
that [the defendant] had proven that [the plaintiff] had
breached the purchase agreement . . . . [T]his court
noted [in] its original decision [that] [t]he breach took
place when [the plaintiff] filed its voluntary bankruptcy
petition of January 29, 2007. Pursuant to [§] 7 (b) [of
the purchase agreement], [the defendant] exercised its
right to terminate the purchase agreement on February
5, 2007. The court finds for [the defendant] on count
[one] of its counterclaim for breach of contract.’’
In its articulation, the trial court responded to this
court’s second question as follows: ‘‘[T]his court’s
award of damages to the defendant was based upon
the finding of the breach of contract by the plaintiff as
alleged in count [one] of [the defendant’s] counterclaim.
‘‘This court heard evidence on damages both from
[the] plaintiff as to its claims for breach of contract and
the defendant as to its claims for breach of contract.
This court found the supporting evidence favored the
defendant’s claim for breach of contract.
‘‘Although the defendant presented evidence of dam-
ages far in excess of what this court ordered . . . [this]
court found the liquidated damages clause [set forth in
§ 4 (c) of the purchase agreement] limited the extent
of the damages that could be awarded to the defendant
for the plaintiff’s breach of contract. [This] court’s
award of damages to the defendant was based on the
finding of the breach of the purchase agreement as
alleged in count [one] of [the defendant’s] coun-
terclaim.’’
B
Unfortunately, the trial court’s articulation did little
to clarify the basis for its decision or to dispel the
ambiguities identified by the parties. On the one hand,
the court answered our first question ‘‘in the affirma-
tive,’’ implying that it did find that the plaintiff had
breached the purchase agreement by failing to provide
telecommunication services as required under the pur-
chase agreement. On the other hand, the court took the
opportunity to reiterate that the breach occurred when
the plaintiff filed its bankruptcy petition. Notably, in
rephrasing the articulation order, the trial court omitted
our reference to a ‘‘failure to provide telecommunica-
tion services,’’ instead framing the question as: ‘‘The
first issue requiring articulation is whether this court
found that [the plaintiff] had breached its contract with
[the defendant] as alleged in count [one] of [the] coun-
terclaim.’’ In fact, the word ‘‘service’’ does not appear
anywhere in the court’s articulation.
Although one can read the tea leaves in different
ways, the fact that the trial court repeatedly has stated
that it found breach of contract on the basis of bank-
ruptcy, but studiously has avoided making any clear,
express statement that it also found a breach for failure
to provide service, strongly favors the plaintiff’s inter-
pretation of the decision. See Practice Book § 64-1 (a)
(requiring that ‘‘court’s decision shall encompass its
conclusion as to each claim of law raised by the parties
and the factual basis therefor’’). In any event, having
canvassed the full trial record and reviewed the parties’
arguments on reconsideration, we now are persuaded
that the court’s memorandum of decision, without addi-
tional findings, is simply insufficient to support a con-
clusion that the plaintiff breached the purchase
agreement by failing to provide adequate service.
We begin with the applicable legal principles and
standard of review. ‘‘The elements of a breach of con-
tract claim are the formation of an agreement, perfor-
mance by one party, breach of the agreement by the
other party, and damages.’’ Meyers v. Livingston, Adler,
Pulda, Meiklejohn & Kelly, P.C., 311 Conn. 282, 291,
87 A.3d 534 (2014). The interpretation of definitive con-
tract language is a question of law over which our
review is plenary. See Joseph General Contracting, Inc.
v. Couto, 317 Conn. 565, 575, 119 A.3d 570 (2015). By
contrast, the trial court’s factual findings as to whether
and by whom a contract has been breached are subject
to the clearly erroneous standard of review and, if sup-
ported by evidence in the record, are not to be disturbed
on appeal. See Practice Book § 60-5; see also Connecti-
cut National Bank v. Giacomi, 242 Conn. 17, 70, 699
A.2d 101 (1997).
In the present case, the trial court’s findings of fact
arguably would support the conclusions that (1) the
plaintiff was at fault for serious service problems that
occurred beginning January, 2007, and for Global’s ulti-
mate decision to shut down the circuit for several days
at the end of that month; but see footnote 4 of this
opinion; and (2) the plaintiff was obliged to ask Global
to reactivate the circuit after Global shut it off following
the March 15, 2007 alarm, but failed to do so. Neither the
trial court nor the defendant, however, has explained
exactly how those findings and conclusions, even if
true, support the ultimate legal conclusion that the
plaintiff materially breached the purchase agreement.
As the plaintiff emphasizes in its motion for reconsider-
ation en banc, various provisions of the purchase
agreement envisioned that there would be periodic ser-
vice problems that the parties would have to resolve.
For example, the purchase agreement directs the defen-
dant to submit trouble tickets when service problems
arise. Likewise, § 6 of the purchase agreement provides
that, if one party believes that the other has defaulted on
any of its obligations, the aggrieved party must provide
written notice thereof, upon which the party in default
shall have thirty days to cure the default. In order to
find a material breach of contract, then, the trial court
needed to find, among other things, that the service
problems were more significant or persistent than those
that the parties envisioned would arise in the ordinary
course of business, and also that the defendant satisfied
its obligations under § 6 to afford the plaintiff an oppor-
tunity to cure those problems. There is no indication
in the record that the court so found.
The earliest date that the trial court specifically found
service problems caused by the plaintiff that were
adversely impacting the defendant was January 11,
2007. After that, international long-distance calling was
curtailed on January 17, 2007, ‘‘major service issues’’
arose between January 19 and 21, 2007, which the defen-
dant brought to the plaintiff’s attention on January 25,
2007, and the circuit was completely shut down for
several days beginning January 26, 2007, after which
the initiation of bankruptcy proceedings compelled
Global to restore full service.
The following week, on February 5, 2007, the defen-
dant notified the plaintiff by letter that it was exercising
its right to terminate the purchase agreement pursuant
to § 7 (b). This was approximately one week after long-
distance service was shut off and then restored, eleven
days after the defendant wrote the plaintiff to complain
about serious service problems, nineteen days after
international calling was curtailed, and twenty-five days
after the first specific date on which the trial court
found that service problems had occurred. There is no
indication in the memorandum of decision that, prior
to terminating the purchase agreement, the defendant
ever provided the plaintiff with thirty days’ notice and
an opportunity to cure the service problems. In the
absence of a determination by the trial court that § 6
of the purchase agreement was satisfied or that its
requirements did not apply, it is difficult to understand
how the facts as found by the trial court could support
a conclusion that the plaintiff materially breached the
contract prior to receiving the February 5, 2017 letter.
See Weiss v. Smulders, 313 Conn. 227, 264, 96 A.3d
1175 (2014) (holding, with respect to similar contractual
provision, that failure to provide notice and thirty days
to cure precluded nonbreaching party from terminat-
ing agreement).
Nor do we understand how Global’s failure to restore
service to the circuit after it went into alarm on March
15, 2007, could have constituted a material breach of
the purchase agreement by the plaintiff. Even if we
assume, for the sake of argument, that the plaintiff was
obliged but refused to contact Global to restore service
at that point; see footnote 6 of this opinion; the defen-
dant already had announced its intention to terminate
the purchase agreement on February 5, 2017. The defen-
dant offers no explanation as to why that termination
would not have released the plaintiff from any further
contractual obligations.14
Moreover, we note that the trial court found the testi-
mony of Egan, the defendant’s chief financial officer,
to be credible. But Egan himself appeared to undercut
the defendant’s failure of service counterclaim at trial,
testifying as follows: ‘‘We terminated the [purchase]
agreement. The service interruptions in and of them-
selves were not the basis upon which we said we
couldn’t go forward. Absent . . . the complications
between Global [and the plaintiff] and their contract
and absent the bankruptcy, our expectation would have
been that the technical issues in the normal course
would have been resolved. How long it would have
taken, I don’t know, but probably not that long. These
were not insurmountable, and we would have . . .
resumed routing the traffic that was the expectation.’’
It is difficult to reconcile a conclusion that the trial
court found a breach of contract for failure to provide
service with the fact that the only witness whose testi-
mony the court expressly credited appeared to rule out
the possibility that the service interruptions that took
place in January, 2007, were serious enough to consti-
tute, or were viewed by the defendant as, a material
breach of the purchase agreement.15
For all of these reasons, we now conclude that we
must decline the defendant’s invitation to affirm the
judgment of the trial court on the alternative ground
that the court found that the plaintiff breached the
purchase agreement by failing to provide adequate ser-
vice prior to receipt of the defendant’s termination let-
ter. Accordingly, we must proceed to consider whether
the trial court properly determined that, by filing a vol-
untary bankruptcy petition, the plaintiff either (1) mate-
rially breached the purchase agreement or (2) excused
the defendant from performing its contractual obli-
gations.
II
We next turn our attention to the theory on which
the trial court undisputedly did decide the present case,
namely, that the plaintiff’s bankruptcy petition consti-
tuted a breach of the purchase agreement that justified
the defendant’s termination. The plaintiff challenges
both conclusions, arguing that (1) nothing in the con-
tractual language indicates that a party’s bankruptcy
constitutes a breach of the purchase agreement, and
(2) the bankruptcy code bars the enforcement of con-
tractual provisions, such as § 7 (b) of the purchase
agreement, that allow one party to terminate a contract
in response to another party’s bankruptcy. The proper
interpretation of both contractual and statutory lan-
guage presents questions of law over which our review
is plenary. Southeastern Connecticut Regional
Resources Recovery Authority v. Dept. of Public Utility
Control, 244 Conn. 280, 290, 709 A.2d 549 (1998).
A
We first consider the plaintiff’s argument that the
trial court improperly concluded that it breached the
purchase agreement by filing for bankruptcy protection.
Regardless of whether § 7 (b) of the purchase agreement
was enforceable under federal law; see part II B of this
opinion; the plaintiff contends that nothing in that sec-
tion, or elsewhere in the purchase agreement, specified
that a party’s bankruptcy petition would be deemed a
material breach of the contract.16 We agree.
Section 7 (b) of the purchase agreement, on which
the trial court relied, provides: ‘‘During this term, this
[a]greement may be terminated by either party upon
thirty . . . days written notice of such termination to
the other party in the event that the [nonterminating]
party hereto has made a general assignment for the
benefit of creditors, has filed a voluntary or has had
filed against it an involuntary petition in bankruptcy,
or has had a receiver or trustee appointed for substan-
tially all of its assets; provided, however, that at the
time of such termination notice the terminating party
is not then in default of any of the terms of this
[a]greement.’’ Nothing in the plain language of this pro-
vision suggests that a bankruptcy filing will constitute
a material breach of the purchase agreement, only that
a bankruptcy affords the other party the option to termi-
nate if it desires. It is well established that a contract
may allow for termination under conditions that do not
constitute a material breach. See, e.g., 3 Restatement
(Second), Contracts § 368 (1981). Nor does any other
provision of the purchase agreement state that the filing
of a bankruptcy petition constitutes a material breach.
Accordingly, the plain language of the purchase
agreement itself does not support the trial court’s con-
clusion that filing the petition constituted a breach by
the plaintiff.
We further observe that, although some early cases
held that bankruptcy constituted a breach of the execu-
tory contracts of the bankrupt; see Central Trust Co.
v. Chicago Auditorium Assn., 240 U.S. 581, 592, 36 S.
Ct. 412, 60 L. Ed. 811 (1916); the common law no longer
permits a party to a contract to treat another party’s
declaration of bankruptcy, without more, as a material
breach. Rather, the modern rule is that bankruptcy does
not constitute a per se breach of contract and does not
excuse performance by the other party in the absence
of some further indication that the party filing for bank-
ruptcy either cannot, or does not, intend to perform. See
Central States, Southeast & Southwest Areas Pension
Fund v. Basic American Industries, Inc., 252 F.3d 911,
917 (7th Cir. 2001) (‘‘Merely filing for the protection of
the bankruptcy court is not a repudiation of obligations
or a cessation of operations. . . . An insolvent firm is
not necessarily out of business, and the parties with
which it has contracts cannot automatically assume
that the firm will default . . . .’’ [Citations omitted.]),
cert. denied, 534 U.S. 1079, 122 S. Ct. 808, 151 L. Ed.
2d 694 (2002); see also 2 E. Farnsworth, Contracts (3d
Ed. 2004) § 8.21, p. 564 n.20; 15 R. Lord, Williston on
Contracts (4th Ed. 2000) § 43.29; 2 Restatement (Sec-
ond), Contracts § 252, comment (a) (1981). In the pres
-ent case, the trial court did not find that the plaintiff
either could not or did not intend to perform its obliga-
tions as a result of its bankruptcy filing. We therefore
conclude that the trial court incorrectly determined that
the plaintiff breached the purchase agreement by filing
for bankruptcy protection.
B
We next turn our attention to the question of whether
the trial court properly determined that § 7 (b) of the
purchase agreement was enforceable and, therefore,
that the defendant was within its rights to terminate
the purchase agreement upon the plaintiff’s initiation
of bankruptcy proceedings. As discussed in part II A
of this opinion, § 7 (b) provides that either party has
the right to terminate the purchase agreement if the
other party files a voluntary bankruptcy petition. Con-
tractual provisions of this sort are frequently referred
to as ipso facto clauses. See In re Dumont, 581 F.3d
1104, 1107 (9th Cir. 2009). As a general rule, the bank-
ruptcy code bars the enforcement of ipso facto clauses,
providing that an executory contract of a debtor may
not be terminated solely as a result thereof. See 11
U.S.C. § 365 (e) (2012).17 Although there are a number
of possible exceptions to this rule, only two are at issue
in the present appeal.
First, the trial court found that § 7 (b) of the purchase
agreement was enforceable and, therefore, that the
defendant had validly exercised its right to terminate
the purchase agreement, because the so-called ‘‘ride-
through’’ doctrine provided an exception to 11 U.S.C.
§ 365 (e). On appeal, the plaintiff contends that the trial
court misconstrued federal bankruptcy law and that
the defendant’s termination of the purchase agreement
was not sanctioned by the ride-through doctrine.
Second, the trial court rejected the defendant’s alter-
native theory that § 7 (b) of the purchase agreement
was enforceable because it constituted a commodity
forward contract and, therefore, was exempt from 11
U.S.C. § 365 (e). As an alternative ground for affirmance,
the defendant challenges that determination on appeal.
Because these questions require that we interpret a
federal statute, we begin by setting forth the rules and
principles that govern our interpretation of federal law.
‘‘With respect to the construction and application of
federal statutes, principles of comity and consistency
require us to follow the plain meaning rule . . . . More-
over, it is well settled that the decisions of [t]he [United
States Court of Appeals for the] Second Circuit . . .
carry particularly persuasive weight in the interpreta-
tion of federal statutes by Connecticut state courts.’’
(Citation omitted; footnote omitted; internal quotation
marks omitted.) Szewczyk v. Dept. of Social Services,
275 Conn. 464, 474–75, 881 A.2d 259 (2005).
1
We first consider the plaintiff’s claim that the trial
court improperly concluded that § 7 (b) of the purchase
agreement was enforceable, despite the fact that the
bankruptcy code generally bars the enforcement of ipso
facto provisions, because the ride-through doctrine pro-
vides an exception to 11 U.S.C. § 365 (e). We begin by
describing the relevant statutory framework.
Prior to the adoption of the bankruptcy code, federal
law permitted the enforcement of contractual clauses
that modify the relationships of contracting parties due
to the filing of a bankruptcy petition. See, e.g., Summit
Investment & Development Corp. v. Leroux, 69 F.3d
608, 610 (1st Cir. 1995); Days Inn of America, Inc. v.
161 Hotel Group, Inc., 55 Conn. App. 118, 124–25, 739
A.2d 280 (1999). When Congress enacted the bank-
ruptcy code in 1978, however, it changed this long-
standing rule. Specifically, 11 U.S.C. § 365 (e) (1) pro-
vides: ‘‘Notwithstanding a provision in an executory
contract or unexpired lease, or in applicable law, an
executory contract or unexpired lease of the debtor
may not be terminated or modified, and any right or
obligation under such contract or lease may not be
terminated or modified, at any time after the com-
mencement of the case solely because of a provision
in such contract or lease that is conditioned on . . .
(A) the insolvency or financial condition of the debtor
at any time before the closing of the case; (B) the com-
mencement of a case under this title; or (C) the appoint-
ment of or taking possession by a trustee in a case
under this title or a custodian before such commence-
ment.’’ The principal rationale behind this prohibition
on the exercise of ipso facto clauses is that allowing
the debtor to retain advantageous contracts enhances
the likelihood of successful reorganization while also
increasing the assets available to creditors should the
bankruptcy estate ultimately enter liquidation. See In
re Cochise College Park, Inc., 703 F.2d 1339, 1355 (9th
Cir. 1983); Days Inn of America, Inc. v. 161 Hotel
Group, Inc., supra, 125; see also Summit Investment &
Development Corp. v. Leroux, supra, 610 (‘‘automatic
termination of a debtor’s contractual rights frequently
hampers rehabilitation efforts by depriving the chapter
11 estate of valuable property interests at the very time
the debtor and the estate need them most’’ [internal
quotation marks omitted]).
As the trial court recognized, however, 11 U.S.C. § 365
(e) must be read in conjunction with the other provi-
sions of that statute. Of particular relevance for present
purposes are subsections (a) and (d), which set forth
the rules governing the assumption or rejection of an
executory contract by the bankruptcy trustee.18 Title 11
of the United States Code, § 365 (a) provides in relevant
part that ‘‘the trustee, subject to the court’s approval,
may assume or reject any executory contract or unex-
pired lease of the debtor.’’ Section 365 (d) further pro-
vides in relevant part: ‘‘(1) In a case under chapter 7
of this title, if the trustee does not assume or reject an
executory contract or unexpired lease of residential
real property or of personal property of the debtor
within [sixty] days after the order for relief . . . then
such contract or lease is deemed rejected. (2) In a case
under chapter 9, 11, 12, or 13 of this title, the trustee
may assume or reject an executory contract or unex-
pired lease of residential real property or of personal
property of the debtor at any time before the confirma-
tion of a plan but the court, on the request of any party
to such contract or lease, may order the trustee to
determine within a specified period of time whether to
assume or reject such contract or lease.’’
Courts and commentators have recognized two
important implications of these provisions. First,
assumption or rejection of an executory contract is
discretionary; the trustee may accept or reject an exec-
utory contract of the debtor, but need not do either.
See 3 A. Resnick & H. Sommer, Collier on Bankruptcy
(16th Ed. 2009) § 365.03 [6], p. 365-33. Second, whereas
executory contracts that are not expressly assumed or
rejected within sixty days are deemed rejected in a
chapter 7 bankruptcy, that default rule does not apply
to chapter 11 proceedings. Rather, the bankruptcy code
allows a chapter 11 trustee to assume or reject an execu-
tory contract at any time prior to the confirmation of
a reorganization plan, unless the bankruptcy court
requires that a decision be made prior to that time.
‘‘[T]his difference between the two types of proceedings
reflects the considered judgment of Congress that a
[debtor in possession] seeking to reorganize should be
granted more latitude in deciding whether to reject a
contract than should a trustee in liquidation.’’ National
Labor Relations Board v. Bildisco & Bildisco, 465 U.S.
513, 529, 104 S. Ct. 1188, 79 L. Ed. 2d 482 (1984).
Notably, the bankruptcy code does not specify the
legal status of an executory contract that is never
expressly assumed or rejected during a chapter 11 pro-
ceeding. To address this statutory lacuna, courts gener-
ally have applied a rule predating adoption of the
bankruptcy code, namely, the ride-through doctrine.
See generally M. Campbell & R. Hastie, ‘‘Executory Con-
tracts: Ride-Through Revisited,’’ 19 Amer. Bankr. Inst.
J. 33 (2000). Generally stated, the ride-through doctrine
provides that executory contracts that are neither
affirmatively assumed nor rejected in the context of a
chapter 11 proceeding pass through the reorganization
unaffected and become obligations of the reorganized
debtor. See In re Nevada Emergency Services, Inc., 39
B.R. 859, 861 n.1 (Bankr. D. Nev. 1984). The legal status
of ride-through contracts, thus, differs not only from
contracts that are formally rejected by the trustee,
which are treated as breached, giving the nondebtor
party a right to claim as an unsecured creditor against
the bankruptcy estate; see 11 U.S.C. § 365 (g) (2012);
In re National Gypsum Co., 208 F.3d 498, 505 (5th Cir.),
cert. denied, 531 U.S. 871, 121 S. Ct. 172, 148 L. Ed. 2d
117 (2000); but also from contracts that are formally
assumed, which the debtor is permitted to assign but
for which the debtor must cure any defaults and provide
adequate assurance of future performance. See 11
U.S.C. § 365 (b) (1) and (f) (1) (2012); In re JZ L.L.C.,
371 B.R. 412, 422 (B.A.P. 9th Cir. 2007). The question
before us is whether the trial court properly concluded
that ride-through doctrine (1) is applicable to the pre-
sent case, and (2) applies so as to circumvent the protec-
tions embodied in 11 U.S.C. § 365 (e).
The following additional undisputed facts and proce-
dural history are relevant to this question. When the
plaintiff filed its bankruptcy petition on January 29,
2007, the purchase agreement was executory for pur-
poses of the bankruptcy code—material duties were
yet to be performed by both parties. See In re Boates,
551 B.R. 428, 434 (B.A.P. 9th Cir. 2016). The bankruptcy
petition was dismissed on November 25, 2009, without
the plaintiff ever having confirmed a plan of reorganiza-
tion. During the nearly three years that passed between
the filing of the bankruptcy petition and its dismissal,
the plaintiff neither assumed nor rejected the purchase
agreement. During that time, the defendant also never
requested that the bankruptcy court order the plaintiff
to make such a selection, as was its right under 11
U.S.C. § 365 (d) (2). See In re CCT Communications,
Inc., supra, 420 B.R. 178.
In its memorandum of decision, the trial court recog-
nized that the ride-through doctrine is a judicially cre-
ated rule that predated adoption of the bankruptcy
code. See Consolidated Gas Electric Light & Power
Co. v. United Railways & Electric Co., 85 F.2d 799, 805
(4th Cir. 1936), cert. denied, 300 U.S. 663, 57 S. Ct. 493,
81 L. Ed. 871 (1937). The trial court further noted that,
although the ride-through doctrine has not been codi-
fied, it continues to be widely applied by the federal
courts, including the Second Circuit.19 See In re Boston
Post Road Ltd. Partnership, 21 F.3d 477, 484 (2d Cir.
1994), cert. denied, 513 U.S. 1109, 115 S. Ct. 897, 130
L. Ed. 2d 782 (1995). The trial court concluded that (1)
the doctrine applies to the present case, insofar as the
plaintiff never expressly assumed or rejected the pur-
chase agreement prior to the dismissal of its bankruptcy
petition, and (2) the fact that the purchase agreement
was ‘‘unaffected’’ by the bankruptcy meant that the
defendant’s purported termination pursuant to § 7 (b)
of the purchase agreement became valid upon dismissal
of the petition. On appeal, the plaintiff challenges
both conclusions.20
a
We first consider the plaintiff’s argument that the
ride-through doctrine, as typically articulated, does not
apply to the present case. The ride-through doctrine
generally has been applied when a plan of reorganiza-
tion is confirmed without specifying whether a particu-
lar executory contract is assumed or rejected. See In
re Dehon, Inc., 352 B.R. 546, 560 (Bankr. D. Mass. 2006)
(doctrine has ‘‘arisen largely in cases where, through
presumed oversight, the debtor neglected to appropri-
ately assume or reject a contract prior to confirmation
of the [c]hapter 11 plan’’). Under those circumstances,
in which the legal status of the contract with respect
to the reorganized entity is uncertain, the doctrine pro-
vides that contracts neither assumed nor rejected ride
through to the reorganized entity. See Consolidated
Gas Electric Light & Power Co. v. United Railways &
Electric Co., supra, 85 F.2d 805; In re Polysat, Inc., 152
B.R. 886, 890 (Bankr. E.D. Pa.1993). We are not aware
of, and the defendant has failed to identify, any cases
in which a court has applied the doctrine when a bank-
ruptcy petition is dismissed prior to the confirmation
of a reorganization plan.21 Under those circumstances,
at least one federal court has suggested that, because
‘‘there is no reorganized debtor, there is no [new] entity
for the contract to ride-through to.’’ (Emphasis omit-
ted.) In re Dehon, Inc., supra, 565 n.20. Rather, 11 U.S.C.
§ 349 (b) (3) automatically revests the property of the
estate, including contract rights, in the debtor upon
dismissal. Accordingly, we agree that the ride-through
doctrine does not apply in the context of the present
case.
b
Even if the ride-through doctrine did apply, however,
we do not agree with the trial court’s conclusion that
the doctrine created an exception to the prohibition
against ipso facto clauses contained in 11 U.S.C. § 365
(e) and, thus, validated the defendant’s purported termi-
nation of the purchase agreement.22 Although the trial
court did not expressly connect the dots, it appears to
have relied on two distinct theories in concluding that
§ 7 (b) of the purchase agreement was enforceable
under the circumstances of the present case, notwith-
standing 11 U.S.C. § 365 (e). We consider each theory
in turn.
First, the trial court relied on In re Hernandez, 287
B.R. 795 (Bankr. D. Ariz. 2002), for the proposition that
a chapter 11 debtor may not avail itself of any of the
protections of 11 U.S.C. § 365, including those relating
to ipso facto clauses, until it formally assumes an execu-
tory contract. According to Hernandez, ‘‘ride-through is
not a de facto assumption [that contracts not expressly
rejected are deemed to be assumed]. . . . A contract
that is not assumed is not entitled to the benefits
afforded by 11 U.S.C. § 365 such as insulation from
ipso facto provisions . . . . Unless and until an execu-
tory contract is assumed, the debtor is not afforded any
of the rights granted under [11 U.S.C.] § 365 (e). The
ride-through theory allows the debtor to retain the bene-
fits as well as the burdens of the contract, not the
benefits of assumption.’’ (Emphasis altered.) Id., 800–
801. Although this statement was dictum in Hernandez,
at least with respect to ipso facto clauses, the theory
appears to be that a nondebtor party to an executory
contract remains free to exercise its right to terminate
under an ipso facto clause at any time until the debtor
invokes the protection of 11 U.S.C. § 365 (e) by formally
assuming the contract.
We decline the defendant’s invitation to adopt this
more extreme version of the ride-through doctrine.
Nothing in the plain language of the bankruptcy code
indicates that the protections afforded by 11 U.S.C.
§ 365 (e) (1) are available to the debtor only upon the
assumption of an executory contract. By contrast, vari-
ous other subsections of 11 U.S.C. § 365 expressly refer
to the rights, duties, and implications that flow from
assuming or rejecting a contract. See, e.g., 11 U.S.C.
§ 365 (b) (2012) (assumption requires cure or adequate
assurance); 11 U.S.C. § 365 (g) (2012) (rejection consti-
tutes breach); 11 U.S.C. § 365 (i) (2012) (rejection of
contract for sale of real property). It is well established
that ‘‘Congress’ use of explicit language in one provision
cautions against inferring the same limitation in another
provision.’’ (Internal quotation marks omitted.) State
Farm Fire & Casualty Co. v. Rigsby, U.S. , 137
S. Ct. 436, 442, 196 L. Ed. 2d 340 (2016). Moreover, 11
U.S.C. § 365 (e) (2) lists various conditions under which
11 U.S.C. § 365 (e) (1) does not apply, but makes no
mention of the need to assume the contract. When ‘‘Con-
gress explicitly enumerates certain exceptions to a gen-
eral prohibition, additional exceptions are not to be
implied, in the absence of evidence of a contrary legisla-
tive intent.’’ (Internal quotation marks omitted.) Hill-
man v. Maretta, U.S. , 133 S. Ct. 1943, 1953, 186
L. Ed. 2d 43 (2013). Both of these canons of statutory
construction, thus, counsel against adopting the inter-
pretation of the relevant statutory language set forth
in Hernandez.
Further, the court in Hernandez was seeking to craft
an equitable solution to what it twice characterized
as ‘‘unusual’’ factual circumstances; In re Hernandez,
supra, 287 B.R. 798–99; and its interpretation of 11
U.S.C. § 365 (e) does not represent the majority rule.
Hernandez did not cite to any authority for the proposi-
tion that a chapter 11 debtor may not avail itself of
the protections afforded by 11 U.S.C. § 365 (e) until it
formally assumes an executory contract. Although at
least one other bankruptcy court has since followed
Hernandez; see In re Taylor Investment Partners II,
LLC, 533 B.R. 837, 843 (Bankr. N.D. Ga. 2015);23 most
courts have, at least implicitly, rejected that rule,
affording protection from ipso facto clauses even when
the trustee or debtor in possession has not yet assumed
the contract at issue. See, e.g., In re Public Service
Co., 884 F.2d 11, 15 (1st Cir. 1989); see also Summit
Investment & Development Corp. v. Leroux, supra, 69
F.3d 610; Milford Power Co., LLC v. PDC Milford Power,
LLC, 866 A.2d 738, 758 (Del. Ch. 2004). Although the
Second Circuit has not spoken to this question, we find
it noteworthy that the court in which the plaintiff’s
bankruptcy petition was adjudicated has construed 11
U.S.C. § 365 (e) broadly to protect the interests of debt-
ors, explaining that ‘‘[i]t is now axiomatic that ipso
facto clauses are, as a general matter, unenforceable.’’
In re Lehman Bros. Holdings, Inc., 422 B.R. 407, 415
(Bankr. S.D.N.Y. 2010).
We are persuaded that the rule articulated in Hernan-
dez is both impracticable and at odds with the principles
that animate the bankruptcy code. Unlike with a chapter
7 bankruptcy, in which the bankruptcy code deems any
executory contract not assumed within sixty days to
have been rejected, the bankruptcy code permits a
chapter 11 debtor in possession to wait to formally
declare its intentions up to the time that the plan of
reorganization is confirmed. The United States Court
of Appeals for the Seventh Circuit has discussed the
rationales for this scheme: ‘‘Since a debtor is in limbo
until confirmation of a plan, it is understandably diffi-
cult to commit itself to assuming or rejecting a contract
much before the time for confirmation of a plan. . . .
This procedure [e]nsures that the debtor is not in the
precarious position of having assumed a contract rely-
ing on confirmation of a particular plan, only to find
the plan to have been rejected. . . . Finally, the pur-
pose behind chapter 11 is to permit successful rehabili-
tation of debtors and to prevent a debtor from going
into liquidation. . . . Debtors must be permitted a cer-
tain amount of flexibility in determining whether to
assume or to reject a contract. Specific provisions of
the [bankruptcy code] should be interpreted with this
goal in mind. To interpret the [bankruptcy code] so as
to minimize flexibility and rush the debtor into what
may be an improvident decision does not further the
purposes of the reorganization provisions.’’ (Citations
omitted; internal quotation marks omitted.) Moody v.
Amoco Oil Co., 734 F.2d 1200, 1215–16 (7th Cir.), cert.
denied, 469 U.S. 982, 105 S. Ct. 386, 83 L. Ed. 2d 321
(1984). The Second Circuit has likewise emphasized the
debtor’s ‘‘paramount’’ right to a reasonable period of
time ‘‘to appraise its financial situation and the potential
value of its assets in terms of the formulation of a plan’’
before having to assume or reject executory contracts
and leases. (Internal quotation marks omitted.) Theatre
Holding Corp. v. Mauro, 681 F.2d 102, 106 (2d Cir. 1982);
see also National Labor Relations Board v. Bildisco &
Bildisco, supra, 465 U.S. 532 (bankruptcy code must
be construed to give debtor in possession ‘‘flexibility
and breathing space’’); 3 A. Resnick & H. Sommer,
supra, § 365.05 [5], p. 365-52 (‘‘decision[s] to assume
a long-term contract usually should be delayed until
confirmation’’).
Consistent with these principles, it is well established
that, ‘‘[o]nce the bankruptcy case is filed, the [non-
debtor] is required to perform its obligations. This is
true even though the debtor’s performance obligation
is suspended and the [nondebtor] is stayed from exer-
cising its remedies and rights, as the debtor decides
whether to assume or reject the contract.’’ J. Daniel,
‘‘Lawyering on Behalf of the Non-Debtor Party in Antici-
pation, and During the Course, of an Executory Con-
tract Counterparty’s Chapter 11 Bankruptcy Case,’’ 14
Hous. Bus. & Tax L.J. 230, 238 (2014); see also P. Mar-
chetti, ‘‘Amending the Flaws in the Safe Harbors of the
Bankruptcy Code: Guarding Against Systemic Risk in
the Financial Markets and Adding Stability to the Sys-
tem,’’ 31 Emory Bankr. Dev. J. 305, 337–38 (2015).
The rule articulated in Hernandez would render the
debtor’s freedoms illusory. If the bankruptcy code’s
protections from ipso facto clauses do not kick in until
a contract has been formally assumed, then, as was
the case here, a nondebtor party can circumvent those
protections by simply terminating the contract immedi-
ately upon the filing of the petition, before the debtor
has had an opportunity to decide whether assumption
or rejection will best serve the interests of reorganiza-
tion and of the debtor’s creditors. As one author has
explained, ‘‘[t]he statutory framework . . . evidences
a congressional intention to accord the chapter 11
[debtor in possession] a ‘reasonable time’ within which
to decide whether to assume or reject an executory
contract. It would be inconsistent with this intention
to permit the [nondebtor] party to terminate the con-
tract in the interim because of the debtor’s inaction
. . . .’’ (Footnote omitted.) D. Bordewieck, ‘‘The Post-
petition, Pre-Rejection, Pre-Assumption Status of an
Executory Contract,’’ 59 Am. Bankr. L.J. 197, 205 (1985).
Furthermore, the Hernandez rule is in tension, if not
outright incompatible, with rule 6003 of the Federal
Rules of Bankruptcy Procedure. That rule provides in
relevant part that, ‘‘[e]xcept to the extent that relief is
necessary to avoid immediate and irreparable harm, the
court shall not, within [twenty-one] days after the filing
of the petition, issue an order granting . . . a motion
to assume or assign an executory contract or unexpired
lease in accordance with [11 U.S.C.] § 365.’’ Fed. R.
Bankr. P. 6003. If a nondebtor party were free to invoke
an ipso facto clause at any time until the debtor assumed
its executory contracts, then there would essentially
be a three-week window at the commencement of every
chapter 11 proceeding during which 11 U.S.C. § 365 (e)
would not apply, rendering the statutory protections
largely toothless. We doubt that Congress so intended.
See In re Whitcomb & Keller Mortgage Co., 715 F.2d
375, 378 (7th Cir. 1983) (noting that reorganization
trustee ‘‘is entitled to a reasonable time to make a care-
ful and informed evaluation as to possible burdens and
benefits of an executory contract’’ and that court has
authority to preserve status quo until such decision is
made [internal quotation marks omitted]).
The trial court’s second rationale for its conclusion
that the ride-through doctrine rendered the defendant’s
termination of the purchase agreement effective, not-
withstanding the bankruptcy code’s prohibition against
ipso facto clauses, was that a contract that rides through
a chapter 11 proceeding has been characterized as being
‘‘unaffected by the bankruptcy filing.’’ In re Polysat,
Inc., supra, 152 B.R. 890. The fact that a ride-through
contract is unaffected by bankruptcy has been taken
to mean that ‘‘[nondebtor] contracting parties may then
seek redress for defaults under the contract outside
the bankruptcy proceedings.’’ (Emphasis added.) In re
Dehon, Inc., supra, 352 B.R. 561.
We agree with that statement of the law, insofar as
(1) a contract that rides through bankruptcy remains
binding on all parties, and (2) following the completion
of the bankruptcy proceedings, redress for any alleged
defaults may be pursued in state court if such remedy
is not otherwise precluded by law. Some courts also
have held that, after a bankruptcy proceeding has con-
cluded, a nondebtor party may exercise its right to
terminate under an ipso facto clause with respect to a
ride-through contract, on the theory that the rationales
that led Congress to bar the enforcement of such
clauses cease to apply after the reorganization process
has been completed.24 The same is presumably true of
a contract that does not ride through but that, instead,
revests in the debtor upon dismissal of a bankruptcy
petition pursuant to 11 U.S.C. § 349 (b) (3).
The trial court went a step further, however, conclud-
ing that, when a contract rides through a chapter 11
proceeding or revests in the debtor, a previous pur-
ported termination that was initiated during the bank-
ruptcy becomes effective, nunc pro tunc, upon the
dismissal of the petition. The court appears to have
reasoned that, because the purchase agreement was
unaffected by the bankruptcy and the dismissal of the
petition put the parties back in the positions that they
occupied before the plaintiff’s bankruptcy, the defen-
dant’s prior termination was effectively resurrected.
There are a number of problems with this theory.
First, we are not aware of any case in which a court
has retroactively revived a termination in this manner,
ruling that a termination that was barred by 11 U.S.C.
§ 365 (e) during a bankruptcy proceeding was somehow
validated and reinstated following the completion or
dismissal of the action.
Second, the approach the trial court adopted would
undermine the predictability and respect for parties’
expectations that animate the law of contract. See Gen-
eral Accident Ins. Co. v. Mortara, 314 Conn. 339, 350–51,
101 A.3d 942 (2014); 1 E. Farnsworth, supra, § 1.3, p. 10.
Under the trial court’s theory, parties to an executory
contract that is purportedly terminated at the com-
mencement of a bankruptcy proceeding have no way
of knowing whether the bankruptcy court ultimately
will dismiss the case, retroactively validating the termi-
nation and excusing them from performance, or
whether they must continue to perform pursuant to 11
U.S.C. § 365 (e) until the trustee elects to assume or
reject the contract at the time of confirmation, as the
law ordinarily requires. We perceive no benefit or
advantage that would offset the apparent shortcomings
of such a rule.
Third, the trial court’s reasoning strikes us as some-
what incongruous. The court reasoned that, because
the ride-through doctrine treats the purchase agreement
as being unaffected by the bankruptcy, § 7 (b) continued
in effect, as if the petition had never been filed. But,
of course, the defendant could not have invoked § 7
(b) and terminated the purchase agreement unless and
until the plaintiff initiated bankruptcy proceedings. We
fail to understand, then, in what sense the contractual
rights and status of the parties are unaffected by the
bankruptcy under the trial court’s resolution of the case.
How can the defendant terminate the purchase
agreement on the basis of the plaintiff’s bankruptcy
petition and simultaneously contend that the agreement
should be applied as if the petition had never been
filed? See First Security Bank of Utah v. Creech, 858
P.2d 958, 965 (Utah 1993).
Fourth, we hesitate to apply the ride-through doc-
trine—a judicially made rule that predates adoption of
the bankruptcy code—in such a manner as to alter the
balancing of interests and circumvent the remedies and
procedural rules intended by Congress. On the one
hand, the bankruptcy code’s automatic stay provisions
and protection from ipso facto clauses afford significant
advantages to debtors and can place nondebtor parties
such as the defendant in the unenviable position of
having to continue to perform under a contract that the
debtor need not honor and ultimately may repudiate.
On the other hand, Congress was not unsympathetic
to the plight of parties in such a limbo. Nondebtor
parties may petition to have the automatic stay lifted
with respect to a particular executory contract. 11
U.S.C. § 362 (d) and (f) (2012); In re Taylor Investment
Partners II, LLC, supra, 533 B.R. 843. They may petition
the court to set a deadline by which the debtor must
either assume or reject the contract. 11 U.S.C. § 365 (d)
(2) (2012). Should the equities favor it, they even may
petition the bankruptcy court to issue an annulment,
terminating the parties’ contractual obligations retroac-
tive to an earlier date. See In re Johnson, 346 B.R.
190, 193–94 (B.A.P. 9th Cir. 2006) (although action in
violation of automatic stay is void ab initio, even if
petition is later dismissed for bad faith, after dismissal,
bankruptcy court may annul stay and retroactively rat-
ify act otherwise violative of stay); In re Govola, 306 B.R.
733, 737–38 (Bankr. D. Conn. 2004) (annulling automatic
stay in order to validate state court order entered while
stay was in effect).25 All of these remedies are designed
to mitigate, if not alleviate, the burdens on, and potential
unfairness to, nondebtor parties. See J. Daniel, supra,
14 Hous. Bus. & Tax L.J. 241.
In the present case, the defendant opted not to pursue
any of these statutory remedies in the bankruptcy court.
Instead, it chose to unilaterally terminate the purchase
agreement. That decision, as the commentators have
observed, was ‘‘fraught with peril,’’ because ‘‘[a]n
injured party that chooses to exercise a right of self-
help . . . by electing to terminate takes the risk that
a court may later regard the exercise as precipitous.’’
(Internal quotation marks omitted.) 2 E. Farnsworth,
supra, § 8.15, p. 511; see also id., § 8.19a, p. 548 (party
may inadvertently repudiate contract by demanding
assurance when not justified in doing so). As the United
States Court of Appeals for the Ninth Circuit explained
in a related context, ‘‘[a]ll parties benefit from the fair
and orderly process contemplated by the automatic stay
and judicial relief procedure. Judicial toleration of an
alternative procedure of self-help and post hoc justifica-
tion would defeat the purpose of the automatic stay.’’
In re Computer Communications, Inc., 824 F.2d 725,
731 (9th Cir. 1987). For all of these reasons, we conclude
that 11 U.S.C. § 365 (e) rendered the defendant’s pur-
ported termination of the purchase agreement ineffec-
tive, and that the trial court incorrectly concluded that
the ride-through doctrine applied so as to retroactively
validate the termination.
2
Lastly, we consider the defendant’s argument that,
regardless of whether the ride-through doctrine applies,
§ 7 (b) of the purchase agreement is an enforceable
ipso facto clause because it falls under the auspices of
11 U.S.C. § 556, which carves out an exception to 11
U.S.C. § 365 (e) for commodity forward contracts. We
conclude that the trial court properly rejected this
argument.
As we discussed in part II B 1 of this opinion, 11 U.S.C.
§ 365 (e) generally bars the enforcement of contractual
ipso facto clauses, on the theory that both the party
seeking to reorganize under the protection of the bank-
ruptcy code and its creditors ultimately will benefit if
that party is permitted to retain and make full use of
its contractual assets. Congress carved out an exception
to this rule, however, with respect to ‘‘forward contract
merchant[s],’’ who, for countervailing reasons of public
policy, are not barred from terminating a ‘‘forward con-
tract’’ agreement with a debtor who petitions for bank-
ruptcy protection. 11 U.S.C. § 556 (2012). The present
dispute requires that we define the scope of the statu-
tory terms ‘‘forward contract’’ and ‘‘forward contract
merchant,’’ and, more generally, of the exception at
issue.
The exception to the ban on enforcing ipso facto
clauses is contained in 11 U.S.C. § 556, which provides
in relevant part: ‘‘The contractual right of a commodity
broker, financial participant, or forward contract mer-
chant to cause the liquidation, termination, or accelera-
tion of a commodity contract, as defined in section 761
of this title, or forward contract because of a condition
of the kind specified in section 365 (e) (1) of this title
. . . shall not be stayed, avoided, or otherwise limited
by operation of any provision of this title or by the
order of a court in any proceeding under this title. . . .’’
(Emphasis added.) The parties appear to agree that
the defendant is not a commodity broker or financial
participant26 for purposes of the statute, and also that
the purchase agreement is not a ‘‘commodity contract’’
as defined in 11 U.S.C. § 761. Their dispute concerns
whether the purchase agreement is a forward contract
and whether the defendant qualifies as a forward con-
tract merchant, so as to bring the present dispute within
the purview of 11 U.S.C. § 556.
The bankruptcy code defines a ‘‘forward contract,’’
in relevant part, as ‘‘a contract . . . for the purchase,
sale, or transfer of a commodity, as defined in section
761 (8) of this title,27 or any similar good, article, service,
right, or interest which is presently or in the future
becomes the subject of dealing in the forward contract
trade, or product or byproduct thereof, with a maturity
date more than two days after the date the contract is
entered into, including, but not limited to, a repurchase
or reverse repurchase transaction . . . consignment,
lease, swap, hedge transaction, deposit, loan, option,
allocated transaction, unallocated transaction, or any
other similar agreement . . . .’’ (Footnotes altered.) 11
U.S.C. § 101 (25) (A) (2012). To qualify as a forward
contract for purposes of the exception, then, an
agreement must (1) involve the sale of a commodity or
something akin to a commodity, (2) be the subject of
dealing in the forward contract trade, and (3) have a
maturity date more than two days in the future. The
bankruptcy code further defines a ‘‘forward contract
merchant’’ as ‘‘a Federal reserve bank, or an entity the
business of which consists in whole or in part of enter-
ing into forward contracts as or with merchants in a
commodity . . . or any similar good, article, service,
right, or interest which is presently or in the future
becomes the subject of dealing in the forward contract
trade.’’ 11 U.S.C. § 101 (26) (2012). Accordingly, to qual-
ify for the safe harbor provision of 11 U.S.C. § 556, the
defendant must establish that it is a forward contract
merchant and that the purchase agreement met each
of the three elements of a forward contract.
The defendant contends that, under the plain lan-
guage of the statute, the purchase agreement qualifies
as a forward contract. It further contends that, because
part of its business involved entering into such con-
tracts, the defendant is a forward contract merchant.
The argument proceeds in three steps. First, the defen-
dant argues that the long-distance telephone services
that are the subject of the purchase agreement are com-
modities or, at the very least, services that are similar
to commodities for purposes of 11 U.S.C. § 101 (25)
(A). This is so, the defendant contends, because, like
other commodities, the services are fungible, they are
available from numerous suppliers, and they are sold
primarily on the basis of price.
Second, the defendant notes that the purchase
agreement, which was executed on October 31, 2006,
did not require the defendant to begin purchasing the
plaintiff’s long-distance services until December, 2006,
and the minimum monthly purchase requirement ran
through December, 2009. Therefore, the defendant
argues, the purchase agreement had a future maturity
date more than two days after the date of execution,
regardless of whether the maturity date is understood
to be the date on which the sale of services commenced
or terminated. Compare In re Mirant Corp., 310 B.R.
548, 565 n.26 (Bankr. N.D. Tex. 2004) (with respect to
contract for ongoing sale of goods, maturity date for
purposes of 11 U.S.C. § 101 [25] [A] is date of com-
mencement of performance), with In re Renew Energy
LLC, 463 B.R. 475, 480–81 (Bankr. W.D. Wis. 2011)
(maturity date is date on which final delivery is com-
pleted).
Third, the defendant argues that the concept of a
‘‘forward contract merchant,’’ as defined by 11 U.S.C.
§ 101 (26), should be construed broadly to include any
person that has entered into a forward contract: ‘‘The
language ‘in whole or in part’ in this definition substan-
tially broadens its coverage to include any person [who]
enters into forward contracts as or with merchants in
a commodity business context. Thus, arguably any per-
son that is in need of protection with respect to a for-
ward contract in a business setting should be covered
. . . .’’ 5 A. Resnick & H. Sommer, supra, § 556.03 [3],
p. 556-13. Because the defendant’s business involved
the use of forward contracts such as the purchase
agreement, it argues, it qualifies as a forward con-
tract merchant.
Notably, the defendant fails to address the statutory
requirement that a contract be the subject of dealing
in the ‘‘forward contract trade,’’28 a term that is not
defined in the bankruptcy code. The plaintiff’s count-
erargument centers on this deficiency in the defendant’s
theory. The plaintiff contends that Congress included
the forward contract trade requirement in both 11
U.S.C. § 101 (25) (A) and 11 U.S.C. § 101 (26) to specify
that the exception to 11 U.S.C. § 365 (e) does not extend
to run-of-the-mill contracts for the purchase of goods
but, instead, only to contracts that are similar to and
traded in the same manner as those that are governed
by the Commodity Exchange Act, 7 U.S.C. § 1 et seq.,
and regulated by the United States Commodity Futures
Trading Commission. The plaintiff finds support for this
view in other subdivisions of 11 U.S.C. § 101, which
define various technical financial trading terms with
reference to the forward contract trade. See, e.g., 11
U.S.C. § 101 (38) (2012) (‘‘[t]he term ‘margin payment’
means, for purposes of the forward contract provisions
of this title, payment or deposit of cash, a security or
other property, that is commonly known in the forward
contract trade as original margin, initial margin, mainte-
nance margin, or variation margin, including mark-to-
market payments, or variation payments’’); 11 U.S.C.
§ 101 (51A) (2012) (‘‘[t]he term ‘settlement payment’
means, for purposes of the forward contract provisions
of this title, a preliminary settlement payment, a partial
settlement payment, an interim settlement payment, a
settlement payment on account, a final settlement pay-
ment, a net settlement payment, or any other similar
payment commonly used in the forward contract
trade’’). Essentially, the plaintiff’s argument is that ‘‘for-
ward contract trade’’ is a technical term of art that can
only be understood in the context of exchange traded
or similar over-the-counter commodity contracts.
Because the term ‘‘forward contract trade’’ is not
defined by statute and the plain language of the bank-
ruptcy code is susceptible to more than one reasonable
interpretation, we seek guidance from the legislative
history and purposes underlying the provisions at issue.
See, e.g., Board of Education v. Mergens, 496 U.S. 226,
237–38, 110 S. Ct. 2356, 110 L. Ed. 2d 191 (1990). The
United States Court of Appeals for the Fourth Circuit
set forth much of the relevant legislative background
in In re National Gas Distributors, LLC, 556 F.3d 247
(4th Cir. 2009). ‘‘Since enactment of the [bankruptcy
code in] 1978 . . . Congress has provided safe harbors
from the destabilizing effects of bankruptcy proceed-
ings for parties to specified commodities and financial
contracts in order to protect financial markets. To do
this, Congress limited the application to these parties
of [bankruptcy code] provisions such as the automatic
stay and trustee avoidances of preferences and fraudu-
lent conveyances. It was thought that financial market
stabilization would be achieved under the following
rationale: These exceptions or safe harbors are neces-
sary, it is thought, for the protection of financial mar-
kets, including over-the-counter . . . markets on
which most derivatives contracts are executed. Without
these safe harbors, markets might suffer serious
shocks—perhaps even a systemic liquidity crisis, caus-
ing markets to collapse—when debtors enter bank-
ruptcy. Counterparties to financial contracts would find
themselves subject to the automatic stay for extended
periods. They would be unable to liquidate volatile con-
tracts and thereby limit their exposure to market move-
ments. Additionally, a debtor in bankruptcy would be
free to [cherry-pick] multiple contracts with the same
party. Instead of netting the contracts—i.e., setting-off
losses under some contracts against gains under others
with the same counterparty—the debtor could dispose
of the contracts independently. [Profitable] contracts
could be assumed; [unprofitable] contracts could be
rejected. In this way, the debtor could lock-in gains on
profitable contracts and (due to its insolvency) limit
liability for losses under unprofitable ones. The counter-
party to these contracts would find itself paying in full
on the assumed contracts and receiving only a fraction
of its claim on the rejected. Losses from indefinite expo-
sure to market movements and from cherry picking
could produce financial distress in the counterparty
itself, forcing it to default on its own contracts with
other parties. As one distressed party infects another,
a domino effect could ensue, undermining the entire
financial market. . . .
‘‘This explanation appears to be an accurate descrip-
tion of the basis on which Congress relied to justify
providing safe harbors to participants in financial deriv-
atives markets. As the House Report in connection with
the 1982 [a]mendments to the [bankruptcy code] stated:
Due to the structure of the clearing system in the com-
modities industry and the sometimes volatile nature
of the commodities market, the [bankruptcy code], as
enacted in 1978, expressly provides certain protections
to the commodities market to insure the stability of the
market. These protections are intended to prevent the
insolvency of one commodity firm from spreading to
other brokers or clearing agencies and possibly threat-
ening the collapse of the market. . . . And similarly,
in connection with the 1990 [a]mendments to the
[b]ankruptcy [c]ode, the House Report stated: [United
States] bankruptcy law has long accorded special treat-
ment to transactions involving financial markets, to
minimize volatility. Because financial markets can
change significantly in a matter of days, or even hours,
a [nonbankrupt] party to ongoing securities and other
financial transactions could face heavy losses unless the
transactions are resolved promptly and with finality.’’
(Citations omitted; emphasis in original; internal quota-
tion marks omitted.) Id., 252–53.
This legislative background makes clear that the con-
gressional purpose in carving out the exception to 11
U.S.C. § 365 (e) set forth in 11 U.S.C. § 556 was not to
protect the interests of individual parties to ordinary
contracts for the purchase and sale of goods and ser-
vices. If the exception extended so broadly, then it
would largely swallow the rule; debtors engaged in
many lines of business would be prevented from making
full use of their contractual assets, and creditors would
suffer accordingly. Moreover, we do not perceive any
reason why Congress would have afforded greater pro-
tection to companies engaged in the purchase of com-
modity type products and services than to companies
whose business involves the purchase of more special-
ized, differentiated products and services. Rather, the
clear intent of 11 U.S.C. § 556 was to protect a limited
class of future based financial transactions, of the type
most commonly associated with the use of brokers,
clearing agencies, and commodities exchanges. The
overriding legislative concern was that the bankruptcy
of a large trading company, active in a volatile market
and engaged in many such transactions, could place at
financial risk its various trading partners and, ulti-
mately, the financial markets themselves. See T. Kelch &
H. Weg, ‘‘Forward Contracts, Bankruptcy Safe Harbors
and the Electricity Industry,’’ 51 Wayne L. Rev. 49, 69
(2005); P. Marchetti, supra, 31 Emory Bankr. Dev. J.
307–309.
The defendant fails to convince us that it is that sort
of company, or that the purchase agreement is that sort
of contract. First, it is not clear that the long-distance
services at issue generally are subject to active trading
and reselling, much less that the defendant itself is
engaged in market type trading of telephone services.
A primary source of disagreement between Global and
the plaintiff, for example, seems to have been Global’s
view that the plaintiff was only permitted to use the
circuit for its own customers’ calls and was prohibited
from reselling the service to third parties.
The defendant cites to two sources for the proposi-
tion that telecommunication services are actively resold
and traded like other commodities. One source, how-
ever, is a decision of the United States Bankruptcy
Court for the Northern District of Texas that (1)
addresses an unrelated legal question, (2) references
the resale of local rather than long-distance telephone
service, and (3) does not indicate that telecommunica-
tions services are traded in the same manner as, say,
crude oil or pork bellies. See In re Comm South Compa-
nies Inc., Docket No. 03-39496 HDH-11, 2003 U.S.
Bankr. LEXIS 2314, *6–7 (Bankr. N.D. Tex. November
10, 2003). The other source is the Federal Communica-
tions Commission, which, in certain published reports
dating to the early years of this century, made passing
reference to ‘‘wireline bandwidth’’ as being ‘‘actively
traded like traditional commodities such as oil, gas and
grains.’’ In re Principles for Promoting Efficient Use
of Spectrum by Encouraging the Development of Sec-
ondary Markets, 15 F.C.C.R. 24,178, 24,185 (2000) (pol-
icy statement). The parties disagree, however, as to
whether long-distance telephone services were traded
in that manner from 2006 to 2009. The trial court made
no findings in that regard, and, in any event, there is
no suggestion that the purchase agreement itself was
ever part of such a trading market. See 5 A. Resnick &
H. Sommer, supra, § 556.01, p. 556-3 n.4 (noting that
that, unlike typical executory contracts, forward con-
tracts typically have readily ascertainable market values
that vary in relation to external market forces).
Second, the defendant posits that the purchase
agreement is akin to a commodity forward contract
insofar as such contracts are used to shift or hedge
against financial risk; see In re Borden Chemicals &
Plastics Operating Ltd. Partnership, 336 B.R. 214,
220–21 (Bankr. D. Del. 2006); and one of the reasons
why the defendant contracted for a fixed, three-year
price commitment was to protect itself against the risk
associated with changes in the price for long-distance
services. Of course, on some level, the purpose of all
contracts is to hedge against risk. See C. Fried, Contract
as Promise: A Theory of Contractual Obligation (1981)
pp. 59, 117. The legislative history makes clear, how-
ever, that 11 U.S.C. § 556 was drafted to address only
those risks associated with a particular type of financial
instrument: ‘‘The primary purpose of a forward contract
is to hedge against possible fluctuations in the price of
a commodity. This purpose is financial and risk-shifting
in nature, as opposed to the primary purpose of an
ordinary commodity contract, which is to arrange for
the purchase and sale of the commodity. If the price
of a commodity—such as crude oil or soybeans—rises
or falls on some future date, the buyer or seller can
minimize the risk involved through the use of forward
contracts to offset the fluctuation in price from the
date of the agreement to the actual date of transfer or
delivery.’’ H.R. Rep. No. 101-484, p. 4 (1990), reprinted
in 1990 U.S.C.C.A.N. 223, 226. Here, there is no indica-
tion that the defendant entered into the purchase
agreement primarily as a financial hedge, or that
wholesale long-distance rates were subject to a high
degree of market price volatility during the time period
in question. Rather, the defendant appears to have been
more concerned with simply locking in a very favorable,
below-market rate in exchange for a long-term purchase
commitment. That is not the sort of hedge—and cer-
tainly not the sort of risk—that Congress was concerned
about when it enacted 11 U.S.C. § 556 in order to insu-
late the financial markets against the effects of dom-
ino bankruptcies.29
Third, courts generally have held that, to qualify as
a forward contract, an agreement must specify a partic-
ular quantity of goods to be delivered, or at least deliver-
able, on a particular date. See, e.g., In re National Gas
Distributors, LLC, supra, 556 F.3d 260 (‘‘[When] [t]he
Wall Street Journal has used the term ‘forward
agreement’ and provided details of the transaction, it
has always described fixed quantities and prices . . . .
[Nonbankruptcy] case law also accords the same mean-
ing . . . .’’ [Footnote omitted.]); In re Borden Chemi-
cals & Plastics Operating Ltd. Partnership, supra, 336
B.R. 222 (energy industry defines forward contract to
include specified quantity of goods); see also United
States Commodity Futures Trading Commission,
‘‘CFTC Glossary: A Guide to the Language of the Futures
Industry,’’ available at http://www.cftc.gov/Consumer-
Protection/EducationCenter/CFTCGlossary/glossary f
(last visited November 9, 2017) (defining ‘‘[f]orward
contract’’ as ‘‘[a] cash transaction common in many
industries, including commodity merchandising, in
which a commercial buyer and seller agree upon deliv-
ery of a specified quality and quantity of goods at a
specified future date’’). Although the purchase
agreement committed the defendant to a minimum
monthly purchase, it did not specify how many minutes
the defendant would purchase at the agreed price and,
therefore, arguably failed to satisfy this element of a
forward contract.
Fourth, it is not clear to us that the services at issue
in the present case were truly fungible. Even those
courts that have construed the concept of a forward
contract broadly have required the commodity products
or services involved—and the vast majority of cases
have involved products rather than services—to be
essentially interchangeable. See, e.g., In re National
Gas Distributors, LLC, supra, 556 F.3d 259 (indicating
that, to qualify as commodity agreement for purposes
of code, benefits and detriments of agreement must be
attributable to price, rather than to factors such as
service quality). In the present case, by contrast, the
defendant ultimately opted to route its calls through
other, higher-cost providers, at least in part because of
problems with the quality and reliability of the plain-
tiff’s services.
Fifth, this was not a simple contract for the purchase
and sale of a commodity product or service. The pur-
chase agreement, the precise nature of which remains a
matter of dispute between the parties, is a multifaceted
instrument that involved, among other things, (1) the
plaintiff’s sale of a noncommodity, namely, level three
digital signal circuits, to the defendant; see footnote 3
of this opinion; and (2) a commitment by the defendant
to pay the plaintiff a minimum monthly fee regardless
of whether it used the plaintiff’s services. It is unclear
how, if at all, per minute pricing for long-distance ser-
vices under the purchase agreement was influenced by,
or reflective of, these unique contractual provisions, as
well as the various preexisting debts owed by the plain-
tiff to the defendant.30 For all of these reasons, we
conclude that the trial court properly determined that
the purchase agreement is not subject to 11 U.S.C. § 556
and, therefore, that the defendant’s purported termina-
tion pursuant to § 7 (b) of the purchase agreement
was invalid.
The judgment of the trial court is reversed and the
case is remanded for further proceedings according
to law.
In this opinion the other justices concurred.
* This opinion supersedes the opinion of this court in CCT Communica-
tions, Inc. v. Zone Telecom, Inc., 324 Conn. 654, 153 A.3d 1249 (2017), which
was published on February 21, 2017.
** This case was originally argued before a panel of this court consisting
of Chief Justice Rogers and Justices Palmer, Eveleigh, McDonald, Espinosa
and Robinson. Following publication of our initial decision; see CCT Com-
munications, Inc. v. Zone Telecom, Inc., 324 Conn. 654, 153 A.3d 1249
(2017); this court granted the plaintiff’s motion for reconsideration en banc.
Justice D’Auria has been added to the panel and has read the briefs and
appendices, and listened to a recording of the oral argument prior to partici-
pating in this decision. The listing of justices reflects their seniority status
on this court as of date of the plaintiff’s motion.
1
We note that, after commencement of the present action, Zone Telecom,
Inc., became ANPI Business, LLC. For the sake of clarity, references in this
opinion to the defendant are to Zone Telecom, Inc.
2
Because we agree with the plaintiff with respect to the bankruptcy
questions, we need not address its other appellate claims. On remand, we
expect that the trial court may consider, among other things, the following
questions: (1) whether the service interruptions that the defendant experi-
enced prior to the filing of the plaintiff’s bankruptcy petition constituted a
material breach of contract, in light of the contractual provisions affording
the plaintiff an opportunity to cure any defaults and the various regulatory
requirements to which the defendant was subject; (2) whether the defendant
was justified in demanding adequate assurance before continuing to perform
under the purchase agreement; and (3) whether the defendant’s termination
letter constituted a breach of the purchase agreement.
3
Although the record suggests that two or more circuits were exchanged,
our understanding is that only one was to be available for the defendant’s
use under the purchase agreement. Moreover, we note that, pursuant to
the purchase agreement, the defendant paid the plaintiff $459,000, and the
plaintiff also acknowledged that it owed the defendant a credit of $235,000
as a result of a prior equipment purchase loan and other debts. How exactly
the credits were to be applied to the defendant’s monthly purchase obliga-
tions is a subject of dispute between the parties.
4
It bears noting that, although the trial court implied in its memorandum
of decision that the plaintiff was at fault in its dispute with Global, that
dispute was not at issue before the trial court. In fact, the bankruptcy court,
which did adjudicate the dispute between Global and the plaintiff, ruled in
favor of the plaintiff. The bankruptcy court concluded that Global had
offered the plaintiff an attractive fixed price, ‘‘ ‘[a]ll [y]ou [c]an [e]at’ ’’ plan,
but almost immediately ‘‘regretted the deal’’ and refused to honor the
agreement when the plaintiff predictably took advantage of the plan by
routing a high volume of international calls through Global’s circuit. See In
re CCT Communications, Inc., supra, United States Bankruptcy Court,
Docket No. 07-10210 (SMB).
5
The full text of § 7 (b) of the purchase agreement is set forth in part II
A of this opinion.
6
It is unclear whether this determination, which the plaintiff disputes,
involved a factual finding or a legal conclusion by the trial court. Our
disposition of the appeal makes it unnecessary for us to resolve that question.
7
It is unclear why the parties did not seek to resolve the questions of
federal law that now come before us during the underlying bankruptcy pro-
ceeding.
8
The plaintiff appealed from the judgment of the trial court to the Appellate
Court, and we transferred the appeal to this court pursuant to General
Statutes § 51-199 (c) and Practice Book § 65-1.
9
In addition to requesting reconsideration en banc, the plaintiff also con-
tends in its motion that, before this court issued its sua sponte articulation
order and then decided the case on the basis of the trial court’s articulation,
the parties should have been given an opportunity to be heard on the issues
raised therein. The plaintiff argues that, pursuant to Blumberg Associates
Worldwide, Inc. v. Brown & Brown of Connecticut, Inc., 311 Conn. 123, 84
A.3d 840 (2014), and its progeny, this court was required to afford the parties
an opportunity to brief and present argument on what it characterizes as
the novel issue of the proper interpretation of the trial court’s articulation.
We disagree.
Blumberg Associates Worldwide, Inc., calls for supplemental briefing
when a reviewing court raises an unpreserved issue sua sponte. See id.,
161–62. That was not the case here. In its primary brief, the plaintiff argued
that, although the defendant’s counterclaim alleged breach for failure to
provide service, the trial court found breach solely on the basis of the
bankruptcy petition. The defendant disagreed, setting forth, at some length,
its alternative ground for affirmance. The plaintiff then had an opportunity
to respond in its reply brief. Indeed, Chief Justice Rogers questioned both
parties on this very point at oral argument, expressly asking them whether
further articulation was warranted. Neither Blumberg Associates World-
wide, Inc., nor the other cases on which the plaintiff relies, stand for the
proposition that an appellate court must offer the parties an opportunity
for supplemental briefing and argument whenever the court orders an articu-
lation sua sponte pursuant to Practice Book § 60-5, particularly when the
articulation relates to an issue that already has been briefed and argued by
the parties.
10
The plaintiff explained these findings by noting that the trial court also
had to award damages, costs, and attorney’s fees, and that the court’s factual
findings and credibility determinations were potentially relevant to those
issues, as well as providing the necessary background to understand the
parties’ dispute.
11
The obvious flaw in this reasoning is that if the trial court misunderstood
the nature of the defendant’s counterclaim and thought that it alleged that
filing of the plaintiff’s bankruptcy petition constituted a breach of contract,
then the court could have found that all the elements of the counterclaim
were satisfied without finding a service-based material breach.
12
One problem with this theory is that, although it is true that the court
purported to discuss the bankruptcy with reference to count two, the court’s
actual statement with respect to count two was that ‘‘the breach of contract
by the [plaintiff] occurred when it filed a voluntary bankruptcy petition
. . . .’’ (Emphasis added.) The court’s reference to a breach of contract,
which was the gravamen of count one rather than count two, thus undercuts
the defendant’s argument.
13
The plaintiff countered that the judgment file cannot supply analysis or
conclusions that are absent from or run counter to the memorandum of
decision itself. See Wesley v. Schaller Subaru, Inc., 277 Conn. 526, 529 n.1,
893 A.2d 389 (2006) (‘‘[w]hen there is an inconsistency between the judgment
file and the oral or written decision of the trial court, it is the order of the
court that controls’’). In any event, neither the judgment nor the judgment
file expressly states that the court found that the plaintiff breached the
purchase agreement by failure to provide service.
14
We recognize that § 7 (d) of the purchase agreement provides: ‘‘In the
event of any termination of this [a]greement by either party pursuant to [§]
7, the [nonterminating] party shall not be relieved of any of its obligations
hereunder.’’ We assume, without deciding, that this provision refers only to
obligations already accrued at the time of termination, as a contrary reading
would run counter to the general rule that termination of a contract dis-
charges the remaining obligations of all parties thereto; see Weiss v. Smuld-
ers, supra, 313 Conn. 242; 2 E. Farnsworth, Contracts (3d Ed. 2004) § 8.15,
pp. 511–14; and also might constitute a disproportionate forfeiture under the
circumstances of this case. See Twenty-Four Merrill Street Condominium
Assn. v. Murray, 96 Conn. App. 616, 624, 902 A.2d 24 (2006).
15
This is not to say that, on remand, the finder of fact might not place
greater weight on the testimony of other defense witnesses, who viewed
the service interruptions as more serious impediments to the defendant’s
business, particularly in light of its regulatory obligations. Our point is simply
that there is no indication that the trial court reached such a conclusion.
16
Notably, the defendant appears to concede that it has never alleged that
the plaintiff’s bankruptcy filing constituted a breach of contract. On appeal,
the defendant neither contends that the plaintiff breached the purchase
agreement by filing for bankruptcy protection nor attempts to defend the
decision of the trial court in this respect.
17
The text of 11 U.S.C. § 365 (e) is set forth at part II B 1 of this opinion.
18
No trustee was appointed in the plaintiff’s bankruptcy case. In re CCT
Communications, Inc., supra, 420 B.R. 174. Instead, the plaintiff continued
to manage the bankruptcy estate as a debtor in possession. For the purposes
of 11 U.S.C. § 365, the same rules that govern bankruptcy trustees also apply
to debtors in possession. See 11 U.S.C. § 1107 (a) (2012); National Labor
Relations Board v. Bildisco & Bildisco, 465 U.S. 513, 517 n.2, 104 S. Ct.
1188, 79 L. Ed. 2d 482 (1984).
19
Although the trial court indicated that the United States Supreme Court
also has acknowledged the doctrine in dicta, the footnote on which the
court relied actually was written in a concurring and dissenting opinion
authored by Justice Brennan. See National Labor Relations Board v. Bil-
disco & Bildisco, supra, 465 U.S. 546 n.12.
20
Because we agree with the plaintiff that the ride-through doctrine did
not create an exception to 11 U.S.C. § 365 (e) under the circumstances of
the present case, we need not consider the plaintiff’s alternative argument
that the bankruptcy code’s automatic stay provisions; see 11 U.S.C. § 362
(2012); themselves rendered the defendant’s termination of the purchase
agreement invalid. Compare In re Computer Communications, Inc., 824
F.2d 725, 728–31 (9th Cir. 1987) (stay bars termination), with D. Bordewieck,
‘‘The Postpetition, Pre-Rejection, Pre-Assumption Status of an Executory
Contract,’’ 59 Am. Bankr. L.J. 197, 214–17 (1985) (right to terminate contract
is rendered unenforceable by 11 U.S.C. § 365, not stayed by 11 U.S.C. § 362).
21
We note that the ride-through doctrine at issue in the present case
differs from the homonymous doctrine that some federal courts have applied
with respect to consumer contracts at issue in chapter 7 bankruptcies. See,
e.g., In re Dumont, supra, 581 F.3d 1104, 1108–12.
22
We reach this question, notwithstanding our conclusion that the ride-
through doctrine is inapplicable, for two reasons. First, there is sparse
federal authority on the question whether the ride-through doctrine applies
to cases in which the bankruptcy petition is dismissed prior to the approval
of a plan, and it is possible that the Second Circuit would reach a different
conclusion. Second, and more fundamentally, regardless of whether the
moniker of ‘‘ride-through’’ fits comfortably under the procedural posture of
this case, the trial court’s underlying reasoning arguably still applies. Better
to resolve that question on the merits than on the semantics.
23
As with Hernandez, however, the court in In re Taylor Investment
Partners II, supra, 533 B.R. 843, did not apply the ride-through doctrine
under circumstances akin to those of the present case, or allow a party to
an executory contract to terminate that contract during the pendency of a
chapter 11 proceeding pursuant to an ipso facto clause.
24
The conclusion that termination can be initiated after the completion
of the chapter 11 proceedings is supported by the legislative history of 11
U.S.C. § 365 (e), which indicates that 11 U.S.C. § 365 (e) ‘‘does not limit the
application of an ipso facto or bankruptcy clause to a new insolvency or
receivership after the bankruptcy case is closed. That is, the clause is not
invalidated in toto, but merely made inapplicable during the case for the
purposes of [disposition] of the executory contract or unexpired lease.’’
(Emphasis added.) H.R. Rep. No. 95-595, p. 349 (1977), reprinted in 1978
U.S.C.C.A.N. 5963, 6305.
25
The defendant’s reliance on these cases for the proposition that an
action taken in violation of 11 U.S.C. § 362 or 11 U.S.C. § 365 (e) is retroac-
tively voidable upon dismissal of the bankruptcy petition is misplaced.
Although a federal bankruptcy court has the authority to issue such retroac-
tive relief; see 11 U.S.C. § 362 (d) (2012); we are not aware of any authority
holding that a termination in violation of 11 U.S.C. § 365 (e) is automatically
validated, nunc pro tunc, upon dismissal of the bankruptcy petition, or even
that a state court possesses the authority to grant such relief. See 28 U.S.C.
§ 1334 (a) (2012); In re Mirant Corp., 440 F.3d 238, 245 (5th Cir. 2006).
Although some courts have held that an ipso facto clause is enforceable
in state court upon the dismissal of a bankruptcy proceeding, they have so
held only with respect to terminations that were initiated after the dismissal.
See, e.g., Miller v. Parlor Furniture of Hickory, Inc., 79 N.C. App. 639, 640,
339 S.E.2d 804, appeal dismissed, 316 N.C. 732, 345 S. Ed. 2d 389 (1986);
see also Chrysler Financial Corp. v. Fruit of the Loom, Inc., Docket No.
C.A. 91C-08-108-1-CV (VAB), 1993 WL 19659, *4 (Del. Super. January 12,
1993) (explaining that goal of bankruptcy code is to give debtors chance
for fresh start and that allowing lessors to terminate debtor’s lease immedi-
ately upon filing for bankruptcy protection would defeat this purpose), aff’d
628 A.2d 83 (Del. 1993).
26
See 11 U.S.C. § 101 (6) (2012) (defining ‘‘ ‘commodity broker’ ’’); 11
U.S.C. § 101 (22A) (defining ‘‘ ‘financial participant’ ’’).
27
Section 761 (8) of title 11 of the United States Code, in turn, provides
that the term ‘‘commodity’’ has the same meaning for purposes of the bank-
ruptcy code as for purposes of the Commodity Exchange Act, 7 U.S.C. § 1
et seq. ‘‘Commodity’’ is defined therein to include ‘‘wheat, cotton, rice, corn,
oats, barley, rye, flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum
tuberosum (Irish potatoes), wool, wool tops, fats and oils (including lard,
tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils),
cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, livestock,
livestock products, and frozen concentrated orange juice, and all other goods
and articles, except onions . . . and motion picture box office receipts (or
any index, measure, value, or data related to such receipts), and all services,
rights, and interests (except motion picture box office receipts, or any index,
measure, value or data related to such receipts) in which contracts for
future delivery are presently or in the future dealt in.’’ 7 U.S.C. § 1a (9) (2012).
28
The defendant may have done so in reliance on a bankruptcy treatise,
Collier on Bankruptcy, which references a developing consensus that,
despite the clear statutory language, the forward contract protections are
available even to commodity supply contracts that are entered into outside
of the forward contract market. See 5 A. Resnick & H. Sommer, supra,
§ 556.02 [2], p. 556-8; but see In re Borden Chemicals & Plastics Operating
Ltd. Partnership, 336 B.R. 214, 220 (Bankr. D. Del. 2006) (‘‘it is clear that
Congress was concerned about protecting only contracts for the future
delivery of goods that are the subject of trading in the forward contract
market’’).
29
In addition, it is not clear from the record that the fact that the defendant
did not begin to take ‘‘delivery’’ until one month after the purchase agreement
was executed reflected anything other than pragmatic considerations associ-
ated with the need to transfer control of the circuit and switch clients over
from other providers. The price hedging aspect of a future delivery date,
by contrast, is the sine qua non of a forward contract.
30
It is noteworthy in this respect that, when a single master agreement
governs various transactions, only some of which qualify as forward con-
tracts, the protections afforded by 11 U.S.C. § 556 extend only to the forward
contract provisions of that agreement. See 5 A. Resnick & H. Sommer, supra,
§ 556.02 [2], p. 556-7 and n.11. Accordingly, even if 11 U.S.C. § 556 did apply
to the pricing components of the purchase agreement, it is by no means
clear that the defendant would have been entitled to terminate the other
provisions, such as the requirement that it make minimum monthly payments
regardless of usage.