Midea, a manufacturer of Instapot appliances, and Corelle Brands, a seller of those appliances, operated under a 2016 Master Supply Agreement (MSA) that established a framework for ongoing transactions. Under this arrangement, Corelle issued individual purchase orders (POs) for specific quantities, prices, and specifications, which Midea would then invoice and fulfill. The MSA included indemnification provisions requiring Midea to cover product liability claims and obtain insurance. In 2023, Corelle filed for Chapter 11 bankruptcy and sought to sell its appliance business. As part of its reorganization plan, Corelle assigned the MSA to the purchaser but retained the indemnification rights associated with the specific purchase orders that had already been completed prior to the sale. Midea objected to this plan, arguing that the MSA was a single, indivisible agreement and that the indemnification rights for completed orders should have been assigned along with the master contract. The bankruptcy court and the district court both denied Midea's objection, finding that the purchase orders were severable contracts separate from the MSA. Midea appealed to the Fifth Circuit, challenging the divisibility finding and the application of bankruptcy assignment statutes.
The Fifth Circuit addressed three primary arguments raised by Midea. First, regarding the standard of review, the court rejected Midea's claim that the divisibility finding should be reviewed de novo. Instead, the court applied the clear-error standard because the bankruptcy court's determination relied on extrinsic evidence of the parties' course of performance to resolve contract ambiguities. The court found the bankruptcy court's findings were sufficiently detailed to support this standard of review. Second, the court analyzed whether the Master Supply Agreement and the individual purchase orders were divisible. Under Texas law, a contract is divisible if the parties intended to treat separate promises as distinct, such that a failure to perform one does not breach the entire agreement. The court examined the intent of the parties, the subject matter, and their conduct. The court found the MSA did not unambiguously mandate indivisibility; while it included a clause allowing assignment of the agreement 'in its entirety,' this did not prove the purchase orders were inseparable. The court noted that the MSA was an open-ended framework that did not obligate Corelle to purchase a specific quantity or set a fixed price, leaving these terms to be negotiated for each purchase order. Unlike a similar case involving oilfield services where work orders were strictly limited, the MSA here allowed for variable terms on every transaction. Evidence showed the parties assented separately to each PO, with Corelle regularly attaching its own terms and altering specifications, price, and delivery details for each order. This course of performance demonstrated that each PO was a unique transaction, supporting the conclusion that they were divisible from the MSA. Third, the court addressed whether Corelle's retention of indemnification rights violated 11 U.S.C. § 365(f), which governs the assignment of executory contracts. Section 365(f) requires that an executory contract be assigned in its entirety. Midea argued that retaining rights for completed orders constituted a partial assignment. The court disagreed, reasoning that because the purchase orders were found to be divisible and nonexecutory (as performance was complete), they were not part of the executory contract being assigned. Therefore, Corelle's retention of rights under the completed orders did not violate the statute.
This decision clarifies that debtors in Chapter 11 can retain indemnification rights for completed transactions even when assigning the underlying master supply agreement, provided the individual orders are demonstrably divisible. It reinforces that the divisibility of contracts in bankruptcy depends heavily on the specific language of the agreement and the actual course of performance between the parties. The ruling limits the ability of suppliers to argue that all rights under a master framework must be transferred with the agreement, potentially affecting how bankruptcy plans are structured for ongoing commercial relationships. The case was affirmed with no remand instructions, finalizing the lower courts' denial of Midea's objection.
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