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In re Hernandez

United States Bankruptcy Court for the District of Arizona

December 12, 2002, Decided ; December 12, 2002, Filed

Chapter 11, Case No. 99-01192-YUM-EWH

Opinion

 [*796] MEMORANDUM DECISION

In this case, the court must determine whether it must issue an order directing  [*797]  the Debtors to reject an unassumable executory contract pursuant to 11 U.S.C. § 365(d)(2) upon the request of the non-debtor party to the contract. For the reasons set forth below, the court holds that: (1) the Debtors are not required to reject the contract, but may instead elect not to address the contract in their Chapter 11 plan; (2) the contract may ride-through the bankruptcy; and (3) the automatic stay is lifted with respect to the contract.

PROCEDURAL HISTORY

On September 9, 2002, the court issued a Memorandum Decision holding that the Debtors, Andres and Dorothy Hernandez could not assume a License Agreement dated January 17, 1997 (the Agreement). The Agreement granted Andres Hernandez, Steve Wolfe and Andrew Smith "exclusive" licenses to use [**2]  a patented technology which extends the shelf life of lettuce. 1 The September 9, 2002, decision sets forth, the factual history surrounding the execution of the Agreement and the court will not repeat that history in this decision. However, a brief review of the proceedings in this case is warranted:

In November of 1999, involuntary petitions under Chapter 11 were filed against the Debtors, Andres and Dorothy Hernandez. Orders for relief in both cases were entered in January of 2000, and the cases were consolidated shortly thereafter. In February of 2001, the Debtors filed a Plan of Reorganization which provided for the assumption of the Agreement. Both the Monterey Leaf Creditors as well as the licensor under the Agreement, Great Northern Equipment Company (Great Northern), opposed confirmation of the Debtors' Plan. 2

 [**3]  In their Objections to the Debtors' Plan, the Objectors contended that the Ninth Circuit's holding in In re Catapult Entertainment, Inc., 165 F 3d 747 (9th Cir. 1999) bars the Debtors from assuming the Agreement. In Catapult, a case involving a non-exclusive software license, the Ninth Circuit held that ] a debtor cannot assume a contract which falls under the provisions of 11 U.S.C. § 365(c)(1) unless it can be demonstrated that the contract could be assigned to a hypothetical third party, even if the debtor has no intention of assigning the contract. 3 The Objectors further asserted that, if the Agreement could not be assumed, it must be deemed rejected.

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287 B.R. 795 *; 2002 Bankr. LEXIS 1692 **

In re: ANDRES HERNANDEZ and DOROTHY HERNANDEZ, Debtors.

Prior History: In re Hernandez, 2002 Bankr. LEXIS 1701 (Bankr. D. Ariz., Sept. 9, 2002)

Disposition: Memorandum decision; stay lifted.

CORE TERMS

executory contract, ride-through, confirmation, ride, rights, lease, non-debtor, cases, reorganization, unaffected, automatic stay, lifted, parties, amended plan, unassumable, courts, contracts, provisions, terminate, license, statutory language, unexpired lease, state court, continues, benefits

Bankruptcy Law, Administrative Powers, Executory Contracts & Unexpired Leases, Unassumable Contracts, Business & Corporate Compliance, Contracts Law, Standards of Performance, Creditors & Debtors, General Overview, Types of Contracts, Executory Contracts, Contracts Law, Lease Agreements, Breach, Rejections, Civil Procedure, Judgments, Relief From Judgments, Plans, Plan Contents, Discretionary Provisions, Existing Defaults, Powers to Assume & Reject, Procedural Matters, Bankruptcy, Discharge & Dischargeability, Reorganizations, Automatic Stay, Time Limitations, Governments, Legislation, Interpretation, Real Property Law, Landlord & Tenant, Residential Leases, Leases, Commercial Leases, Reorganizations, Eligible Plan Proponents