Recent Developments in Executory Contracts

Abstract

The past year saw signifcant developments in the field of executory contracts under the Bankruptcy Code. The developments underscore the complexity of the subject and the difficulty that courts continue to experience in interpreting what has become the longest and most unwieldy provision of the Bankruptcy Code. This article reviews the significant recent developments in the law relating to executory contracts under Section 365 of the Bankruptcy Code. In summary, the following recent developments have occurred:

The Ninth Circuit wrestled with the question of whether Section 365(c)(1) prevents a debtor from assuming a patent license over the objection of the licensor.

The Fourth Circuit considered whether to grant administrative priority to a claim for future rent on an abandoned post-petition lease.

Courts continued to disagree over the proper interpretation of Section 365(d)(3), including the questions of how to allocate certain post-petition, pre-rejection obligations of the debtor-in-possession, and whether to grant "super-priority" to Section 365(d)(3) claims.

The Ninth Circuit Bankruptcy Appellate Panel considered whether a debtor could exercise a lease's renewal option during the post-petition period in the face of post-petition defaults and a lease term prohibiting renewal in the event of default.

California and New York bankruptcy courts considered whether a debtor could separately reject a lease that was part of a larger overall transaction.

A Kentucky bankruptcy court considered a debtor's request to modify a radius restriction clause in a shopping center lease in the context of its assumption and assigment.