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Netflix’s Rights to Stream Limited by Plan Feasibility

By: Gabriella Labita

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

          In In Re Relativity Fashion, LLC, the United States Bankruptcy Court for the Southern District of New York held that Netflix was not permitted to stream certain films before they were  theatrically released.[1] RML Distribution Domestic, LLC, DR Productions, and Armored Car Productions, LLC (collectively, the “Debtors”) filed for bankruptcy in July 2015 and proposed a Chapter 11 plan of reorganization (the “Plan”), which contemplated the theatrical release of certain movies before Netflix streams them.[2] The Debtors’ release of the films yielded specific financial projections and was a critical factor in the court’s determination that the Plan was feasible as required by the United States Bankruptcy Code.[3] The Debtors petitioned the court to compel Netflix to comply with proposed amendments to Notices of Assignment that were issued under a license agreement between Netflix and the Debtors.[4] The judge’s confirmation order of the Plan approved these amendments, dictating that the payments owed by Netflix under the license agreement were to be assigned to the lenders.[5] Netflix conceded the amendments because the license agreement required compliance as long as the terms did not change Netflix’s rights.[6]  Netflix asserted, however, that accordingly to the license agreement it had the right to distribute the films prior to theatrical release.

          Notwithstanding the terms of the license agreement, the judge confirmed contrary schedules for certain films to ensure financial viability of the Plan.[7] According to the bankruptcy court, Netflix streaming the movies prior to a theatrical release would destroy the Debtors’ ability to implement the Plan and it was clear that the Plan required the release of the films in theaters prior to Netflix streaming.[8]  Because the bankruptcy court previously approved the Debtors’ Plan, Netflix was unable to assert a right to stream the films prior to the films being released in theaters.[9]  The court noted that section 1142(b) of the Bankruptcy Code permits a bankruptcy court to compel a party to cooperate to the extent needed to carry out the reorganization plan.[10] The court concluded that the provisions of a confirmed reorganization plan are binding on debtors and creditors, restraining Netflix from releasing the films.[11]

          In upholding the prior confirmed plan, the court chose to protect the integrity of the confirmation process and reorganization plans by binding the debtors and creditors to the provisions of the plan.[12] In re Relativity Fashion, LLC illustrates the bankruptcy court’s inclination to enforce reorganization plans that have been previously confirmed by the court and also acknowledges a judge’s duty to determine whether a reorganization plan is feasible.[13]

 



[1] In re Relativity Fashion, LLC, No. 15-11989, 2016 WL 3212493, at *12 (S.D.N.Y. June 1, 2016).

[2] Id. at *2.

[3] In re Relativity Fashion, LLC, No. 15-11989, 2016 WL 3212493, at *3 (S.D.N.Y. June 1, 2016).

[4] Id. at *1.

[5] Id. at *12.

[6] Id. at *13.

[7] Id. at *1.

[8] Id. at *6.

[9] Id. at *9.

[10] Id. at *16.

[11] Id. at *9.

[12] In re Relativity Fashion, LLC, No. 15-11989, 2016 WL 3212493, at *10 (S.D.N.Y. June 1, 2016).

[13] Id. at *5.