J.    Executory Contracts
1.    §365(a)—except as otherwise provided, w/ court approval, the trustee may assume or reject any executory K.
2.    365(a)—trustee may only assume or reject a K if it is executory.
a.    Basic requirement—need to have obligations on both side.  If one party will only be obligated if the other acts, that may not be executory.
b.    countrymen test:  A K under which the obligation of both the b/r and the counterparty are so far unperformed that the failure of either to complete performance would constitute a material breach excusing performance of the other.
c.    If only obligations going forward are negative, this probably won’t be enough.  Ex.  Agree not to do advertising for another company.  Could go back to party and agree to positive obligations so that K looks executory  and can then be rejected in b/r.  But, this looks unethical and could be thrown out as bad faith.
d.    Some courts say that owing money is not enough of obligation—they are in minority.
e.    A guarantee may or may not be an executory K.
3.    365(d)(2)—Trustee can accept or reject a K at any time before the confirmation of a plan, but the court may specify a time period in which decision has to be made upon request of any party to the K.  (This may be to a debtor’s advantage who is waiting for a key market indicator to determine whether or not it will be profitable to assume the K—unless the court forces a decision on the request of a party to the K, but that isn’t likely.)
4.    365(d)(3)—during time prior to assumption or rejection, trustee must perform all duties of debtor if K is a lease of non-residential property.
5.    Rejecting a K—party has claim for breach of K.
a.    502(g)  A claim arising from the rejection of a K pursuant to §365 shall be allowed under subsection (a), (b) or (c) or disallowed under (d) or (e), the same as if such claim had arisen b/4 the date of filing of the pet.
b.    365(g): rejection constitutes a breach of K immediately b/4 filing the pet.  So, litigate for breach.  Debtor may owe nothing if there is a defense in K law—so damages will be based on appropriate amount under state K law.
c.    502(c)(2)—there shall be allowed for purposes of allowance under this section any right to payment arising from a right to an equitable remedy for breach of performance.
d.    Ex.  Trustee rejects K where other party was to buy 100k barrels of oil for $15/barrel.  Oil now selling for $25/barrel.  Cost of cover is $10/barrel or 1 mil.  This is the amount of the unsecured claim.  If unsecured creditors are only getting 30 cents on the dollar, this creditor will only get 300k.  Note that the estate ends up being 700k better off.  If under Ch. 7, that means that there is more to go around to all the unsecured creditors.  In Ch. 11, the company gets the benefit going forward, and presumably the UC’s will end up w/ more this way.
6.    365(n)—Rejecting K where debtor is licensor of right to IP
a.    101(35)—Defines what counts as IP.  Note that Trademarks are absent from the list.
b.    365(n)(1)(A)—licensee can treat license as being terminated by the rejection if that is ok under its own terms, or other law.
c.    365(n)(1)(B)—the licensee can elect to retain its rights under a license agreement to IP as such rights existed right b/4 the case commenced—excluding rights of specific performance.  These rights will go on for duration of K, and may be extended as of right under non-b/r law.
d.    365(n)(2)–If the licensee retains, the trustee respects that and the licensee continues to pay royalties.  The licensee also waives its right to set off and any claim allowable under section 503(b) of this title arising from performance of such K.
7.    365(b)—Assuming K in default.
a.    (1) If there has been default, the trustee can’t assume unless it (A) cures or provides adequate assurance that it will cure the default, (B) compensate or provide adequate assurance that the trustee will compensate, for any pecuniary loss resulting from the debtor’s default and (C) provide adequate assurance of future performance under the K.
b.    (2)—This section doesn’t apply if default is due to (A) insolvency or financial condition of the debtor, (B) filing b/r, (C) appointment of taking possession by trustee b/4 commencement of a case or (D) the satisfaction of any penalty rate or provision relating to a default arising from any failure by the debtor to perform nonmonetary obligations under the K (ex—failure to meet schedule is failure to perform non-monetary obligation.  So, if you breach that obligation, you can assume w/out meeting requirements of (1)).
c.    (3)—to provide adequate assurance for lease of prop in a shopping center the DIP must show A) the source of the rent and other consideration (like insurance payment), (B) that any percentage rent due under such lease will not decline substantially, (C) that the leases assumed will be subject to the same terms of the old lease and that (D) assumption won’t upset the tenant mix in the center.  (Note:  if lessor wants adequate assurance of source of other consideration, and other consideration is insurance, debtor might pre-pay or have LL be a co-payee on insurance).
8.    Dealing w/ K’s that say they can’t be assumed:
a.    541(c)—debtor prop become prop of estate under 541(a).  An interest of the debtor become prop of the estate, notwithstanding a provision in an agreement or non-b/r law (A) that restricts or conditions transfer of such interest by the debtor or (B) that is conditioned on the insolvency or financial condition of the debtor or on the filing of b/r.
b.    365(e)—can’t terminate or modify rights under a K after commencement of b/r case solely based of provision that terminates or modifies leased base on (A) insolvency or financial condition of debtor at any time prior to closing of the case or (B) filing for b/r or (C) appointment of trustee or taking possession of prop by custodian b/4 commencement of case.  (Note this doesn’t apply if K can’t be assumed under applicable law, or if it is a K to make a loan or extend credit to the debtor.  Cherry picking may also come up in this context.)
9.    365(c)—The following K’s can’t be assumed:
a.    (1)(A)&(B)—If applicable law excuses the party from accepting performance from someone other than the debtor, and the party doesn’t consent to assumption or assignment.  (Local law may states that you can’t assume a K that can’t be assigned.  Ex.  A K for personal services can’t always be assigned, so under this provision, it can’t be assumed.  Note that it could still be rejected).
b.    (2)—if such a K is to make a loan, or extend credit… (ex. mobilization payment in a construction K)
c.    (3)—such lease is for non-residential prop, and it has been terminated prior to the order for relief.  (any K that has terminated b/4 b/r can’t be assumed according to Westbrook).
d.    (4)—deals w/ lessees of aircraft terminals.
e.    Cherry Picking—If one clause in a K makes it impossible to assume (ie, contains clause to make loan to debtor), then you can’t assume the rest of the K and just omit that clause.  Under Riodizio—can’t cherry pick—have to assume or reject the whole thing.  Some might argue that if it is not an integral part of the K, it can be separated off, and the rest of the K can continue.
10.    Breaching an assumed K—measure of damages based on post-b/r claim.  Admin claim under 503(b) and given priority under 507(a)(1).  (What is source on this?)
11.    365(f)—Assigning a K
a.    (1)—Provisions in K regarding assignment.  Notwithstanding a provision that prohibits or restricts assignment under a lease, the trustee can assign the K.  There is an exception involving air carriers.  Note that restriction of assignability might just be a clause requiring the debtor to turn over some profits of the assignment if he wants to assign—case in book threw such a clause out.
b.    (2)—the trustee can assign a K only if (A) the trustee assumes the K in accordance w/ this provision and (B) adequate of future performance by the assignee of such K or lease is provided, whether or not there has been a default.
c.    (3)—can assign a K notwithstanding provision in K that terminates K upon assignment.
d.    365(c)—lists K’s that can’t be assigned.
12.    Issues may arise if court thinks that you are filing for b/r solely for purpose of rejecting a K—looks like bad faith.
a.    Ch. 7—
(i)    707(a), courts can dismiss after notice and a hearing for causes.  Some say that filing in bad faith is cause, and some allow creditors to bring a claim stating as such.
(ii)    707(b) can dismiss if debts are primarily consumer debts and relief would be a substantial abuse of provisions of the chapter. this can’t be done on request of a party in interest, and there is a presumption that there is not abuse, so the burden of proof may be hard to get over.  Things to be considered are same as listed below.
b.    Ch. 11—Under 1112(b), the court can dismiss for cause on request of a party in interest.  Case law states that cause can be bad faith.
c.    In re TLC:  court will examine factors involved in filing to see if filing made in bad faith.  In this case, creditor claimed that TLC filed just to get out of K.  Court found in favor of debtors.  Factors to consider include:
(i)    Whether the debtor is financially distressed (this doesn’t necessarily mean insolvency).
(ii)    Whether the debtor is solvent.
(iii)    Whether the debtor has disguised their financial position.
(iv)    Whether the debtor has changed their lifestyle post-pet
(v)    Whether the debtor entered into b/r just to get out of the K.