Klairmont Korners, L.L.C., 50 F.4th 532

Klairmont Korners, L.L.C. held a sublease from J.C. Penney Properties, Inc. (JCP) at below‑market rent; JCP acted as a pass‑through to the landowner.
JCP filed Chapter 11 in 2020 and elected to reject or assume executory contracts under 11 U.S.C. § 365.
A real‑estate agent negotiating on behalf of the landowner provided false information that impeded Klairmont and attempted to spark a bidding war; Klairmont later submitted higher bids.
At the purchaser’s direction, JCP rejected Klairmont’s sublease; the bankruptcy court applied the deferential business‑judgment rule and approved rejection, despite criticizing the negotiation process.
The district court affirmed; Klairmont appealed to the Fifth Circuit, arguing (1) third‑party bad faith in negotiations should overcome business‑judgment deference and (2) JCP’s acting at the purchaser’s direction affects that analysis (the court declined to address the second issue after resolving the first).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether third‑party bad faith, whim, or caprice in negotiations over a § 365 rejection overcomes the business‑judgment rule	Klairmont: any bad faith in the rejection process should negate deference to the debtor’s § 365 decision	JCP: court’s review is whether the rejection appears to enhance the estate; third‑party misconduct does not negate that business‑judgment analysis	The Fifth Circuit held deference remains; Klairmont failed to show the rejection was clearly erroneous, speculative, or contrary to the Code, and the proposed bad‑faith test was misapplied by Klairmont
Whether JCP’s action at the purchaser’s direction insulates it from a bad‑faith standard	Klairmont: direction by the purchaser should factor into denying deference	JCP: purchaser direction does not change the § 365 business‑judgment inquiry	The court did not reach this issue because Klairmont’s primary argument failed

Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303 (5th Cir. 1985) (articulates business‑judgment standard for lease assumption/rejection)
Mission Prod. Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652 (2019) (deferential review of debtors’ § 365 decisions)
Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985) (bad‑faith/manifestly unreasonable formulation for rejecting deference)
In re Krueger, 812 F.3d 365 (5th Cir. 2016) (bad faith as basis to dismiss a bankruptcy filing under § 707)
In re SI Restructuring, Inc., 542 F.3d 131 (5th Cir. 2008) (appellate standard of review for bankruptcy appeals)
Matter of Berryman Prods., Inc., 159 F.3d 941 (5th Cir. 1998) (standards for reviewing bankruptcy court findings)
Matter of Falcon V, L.L.C., 44 F.4th 348 (5th Cir. 2022) (definition and treatment of executory contracts)
In re Weinstein Co. Holdings LLC, 997 F.3d 497 (3d Cir. 2021) (discussion of executory‑contract scope)