Prеsently before the Court is the motion of the United States of America, on behalf of the Department of the Navy (Navy), for relief from the automatic stay provisions of section 362(a) of the Bankruptсy Code. 11 U.S.C. § 362(a).
The relationship between the debtor, Ontario Locomotive and Industrial Railway Supplies (U.S.) Inc. (Ontario), and the Navy, had its genesis in the award of a contract by the Navy to Ontario. The contract, awarded September 13, 1988, called for the “remanufacture” of three Navy locomotives by Ontario. Many of the details of the contract are summarized in the affidavit supporting the motion. Also annexed to the moving papers are the affidavits of two officers of the Navy. One Walter G. Hilsabeck is Manager of Railway Programs, the other, John T. Smith, is the Head of the Contracts Department. Their affidavits contain a summary of the contract and of the important part the locomotives play in Navy operations. They also advise that on review of financial data and on other information received, they are of the opinion that Ontario will not be able to handle the contract. The officers conclude that they should be able to terminate the contract for the “convenience of the Government” and that it is in the Government’s interest to do so.
While the supporting papers seem to argue that, under the contract and applicable law, сause exists to terminate the contract, there is no real, demonstrable evidence to that effect. Most of the statements made are conclusory and based, in part at least, on infоrmation and belief. In any event, this is clearly not the basis for the relief requested. It is clear from the tenor of the affidavit of the Assistant United States Attorney, that the “cause” upon which the motion is based, is thаt under section 365(c) of the Code and the provisions of 41 U.S.C. § 15, barring transfer of public contracts, and absent the consent of the Navy, the contract cannot be assumed. The Court does not agree.
The argument of the United States is, for the most part, premised on the decision of the Third Circuit Court of Appeals in
In re West Electronics, Inc.,
The Anti-Assignment Act, at sеction 15, provides in pertinent part:
*147 No [government] contract or order or any interest therein, shall be transferred by the party to whom such contract or order is given to any other party, and аny such transfer shall cause the annulment of the contract or order transferred, so far as the United States are concerned.
In general, the Bankruptcy Code, section 365 at subsection (a) еnacts that the trustee (debtor in possession), “subject to the court’s approval, may assume or reject any executory contract or lease of the debtor.” Subsection (c), however, provides that:
The trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment оf rights or delegation of duties, if—
(1)(A) Applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering perfоrmance to an entity other than the debtor or the debtor in possession ... and (B) Such party does not consent to such assumption or assignment.
The Third Circuit’s decision in West Electronics and the “separate entity” theory there manifest, has not been lacking for hostile critics. First and forеmost of these was Judge Higginbotham. In a separate opinion in the same case, at p. 84, he stated:
... I do not believe that a ‘solvent contractor and an insolvent debtor in possession going through bankruptcy,’ at 83, are different entities for the purposes of the Non-Assignment Clause. The interpretation of the Adana court notwithstanding, I think that that provision really meant to avoid having the U.S. government contractually bound to a wholly separate entity that received an assignment from the actual contracting party. I do not believe that when it enacted Section 15 of Title 41, Congress considered the issue оf whether a debtor in possession should be viewed as a party different than the debtor.
The United States Supreme Court, in reconciling conflicting provisions of the National Labor Relations Act and thе Bankruptcy Code, also found the theory unrealistic. In
National Labor Relations Board v. Bildisco & Bildisco, Debtor-In-Possession, et al.
For our purposes, it is sensible to view the debtor-in-possession as the same “entity” which existed before the filing of the bankruptcy petition, but empowered by virtue of the Bankruptcy Code to deal with its contracts and property in a manner it could not have done absent the bankruptcy filing.
Justice Brennan, author of the dissenting opinion, concurs, however, that the Court properly rejected the “new entity” theory.
Further disagreement with the Third Circuit’s rationale expressed in
West Electronics,
is evident in those cases which hold that subsection (c) of section 365 is not even applicable to exeсutory contracts of the nature of that before the Court. In the case of
In the matter of Terrace Apartments, Ltd.,
*148
In his earlier decision in
Fulton Air Service,
Judge Kahn comments on the lack of substance in the legislative history and the absence of any reference to personal service contracts. The decision continues “The drafters did state, however, that ‘ex-ecutory contracts requiring the debtor to perform duties
non delegable
under applicablе non-bankruptcy law, should not be subject to assumption against the interest of the non-debtor party.’ ” Commission Report. H.R.Doc. 137, 93d Cong. 1st Sess. at 199 (1973) (emphasis added.) The
Fulton
ease was more concerned with thе debtor’s authority to “assign” rather than with the right to assume. In that context, commenting on the Fifth Circuit holding in
In re Braniff Airways, Inc.,
Under the Braniff holding, any exec-utory contract or unexpired lease would be unassignable if ‘applicable law’ еxcused acceptance of performance. The question then becomes what does the language ‘notwithstanding a provision in ... applicable law, that prohibits, restricts, or conditiоns the assignment of such contract or lease, the trustee may assign such contract or lease under paragraph (2) of this subsection,’ which appears in § 365(f), mean? The Fifth Circuit’s interpretation renders this portion of § 365(f) meaningless.
Fulton Air Service at 572.
This Court is convinced, as was Judge Kahn, that section 365(c) was meant to be narrowly confined to personal service contracts which calls for the performance of non-delegable duties.
The genesis of this “applicable law which excuses a party ... from accepting performance from or rendering performance to” one other than the contracting party is expounded at some length in
In the matter of Noonan,
As recently as July, 1990, yet another Court has refused to follow the doctrine set forth in
West Electronics.
In the case of
In re Hartec Enterprises, Inc.,
The Hartec decision then analyzes section 365 of the Code and the linguistic changes wrought by the 1984 and 1986 amendments to section 365(c)(1). The Court finds persuasive Judge Clark’s conclusion that “[a] fair reading of the statute [as amended] suggests that, so long as the dеbtor or debtor in possession were to continue performance under the contract, the prohibition on assumption or assignment would not apply.” Hartec p. 870.
For the purposes of the matter subjudice, a question of assumption only, this Court concludes, as does
Hartec,
that Congress did not intend to bar assumption of any contract as long as it will be performed by the debtor or debtor in possession.
See also: Thompson v. Commissioner of Internal Revenue.
The motion of the United States is denied.
SO ORDERED.