473 B.R. 107
Bankr. E.D. Va.2012Background
- Debtor RoomStore, Inc. filed Chapter 11 on December 12, 2011 and remains in possession.
- MDG, owned 65% by the debtor and 35% by Bojanowski, operates as a related entity with MDG managing MDG’s affairs.
- MDG and Bojanowski entered into the Buy-Sell Agreement (January 8, 2010) governing purchase options and related covenants.
- MDG filed a motion for relief from the automatic stay on March 13, 2012 to enforce the 180-day purchase option under §3.5(a) of the Buy-Sell Agreement.
- Debtor filed a rejection notice on March 16, 2012 asserting intent to reject the Buy-Sell Agreement as an executory contract; Schedule G was amended to list the Buy-Sell Agreement as executory.
- Hearing occurred April 3, 2012 and the court ultimately ruled the Buy-Sell Agreement is an executory contract that has been rejected as of March 16, 2012.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the Buy-Sell Agreement an executory contract under §365(a)? | MDG/Bojanowski contend that the agreement remains executory due to ongoing duties. | Debtor argues contingency and nonmutual obligations render it non-executory. | Yes; court holds the Buy-Sell Agreement is executory and may be rejected. |
| Should the rejection of the Buy-Sell Agreement defeat MDG’s stay-relief motion? | MDG seeks to enforce the option; rejection would not allow stay relief to proceed. | Rejecting the contract maximizes estate value by exposing sale to market. | Rejected contract negates stay-relief relief. |
| Was debtor's amendment of Schedule G to include the Buy-Sell Agreement in bad faith? | Strike of Schedule G should be granted as prejudicial and filed in bad faith. | Amendment was permissible under Rule 1009(a) and not bad faith. | No bad faith; strike denied. |
Key Cases Cited
- Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043 (4th Cir. 1985) (continual duties can render a contract executory under Countryman)
- In re Sunterra Corp., 361 F.3d 257 (4th Cir. 2004) (commencement date not always controlling; contending issues discussed)
- In re Simon Transportation Services, 292 B.R. 207 (Bankr. D. Utah 2003) (functional approach; trade-back agreements may be executory)
- In re Bergt, 241 B.R. 17 (Bankr. D. Alaska 1999) (non-debtor’s unexercised option to purchase not always executory)
- In re AbitibiBowater, Inc., 418 B.R. 815 (Bankr. D. Del. 2009) (continuing duties under contract; executory status discussed)