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In re West Electronics, Inc.

United States Court of Appeals for the Third Circuit

May 5, 1988, Argued ; July 19, 1988, Filed

No. 87-5782



GREENBERG, Circuit Judge.

This matter before the court on appeal from an order of the district court entered September 8, 1987 in a bankruptcy case presents the question of whether the automatic stay provisions of 11 U.S.C. § 362 should be lifted so that the government may terminate a contract entered into with a defense contractor before it sought relief under Chapter 11 of the Bankruptcy Code. ] The facts germane to the disposition of this appeal are not in dispute and thus our review is of legal precepts and is plenary. United States v. Adams, 759 F.2d 1099, 1106 (3d Cir. 1985), cert. denied, 474 U.S. 906, 971, 106 S. Ct. 275, 336, 88 L. Ed. 2d 236 (1985). For the reasons stated below, we hold that the automatic stay should have been [**2]  lifted so that the contract could be terminated.

In 1986 the United States entered into a contract with West Electronics, Inc., under which West was to supply a substantial number of AIM-9 missile launcher power supply units to the Air Force. While West expected this contract to be very profitable, it contends that its ability to perform was impaired by the government's failure to make inspectors available. Nevertheless, West did from time to time receive progress payments under the contract.

In October 1986 West suffered a computer malfunction which destroyed its accounting records, a misfortune which it does not attribute to the government. On November 14, 1986 the government suspended progress payments on the contract pending a review of West's financial status. At that time West had not made its first deliveries under the contract, though it asserts that in late November its first delivery of 60 units passed final inspection. West indicates that the suspension of the progress payments compelled it to deliver some of the power units to another customer willing to pay cash immediately.

The government's review revealed what it considered to be serious irregularities in West's accounting [**3]  procedures. Overall the contracting officer concluded that because of West's delinquency in delivering the power supply units, the failure of its accounting systems, its delinquency in paying costs attributable to the contract and the excess of unliquidated progress payments to work in progress, the contract should be suspended.

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852 F.2d 79 *; 1988 U.S. App. LEXIS 9689 **; Bankr. L. Rep. (CCH) P72,351; 18 Bankr. Ct. Dec. 287; 34 Cont. Cas. Fed. (CCH) P75,526

IN THE MATTER OF WEST ELECTRONICS INC.; United States Of America, by the United States Air Force, Appellant

Prior History:  [**1]  On Appeal from the United States District Court for the District of New Jersey, D.C. Civil No. 87-1875.


debtor in possession, lift, district court, bankruptcy court, terminate a contract, automatic stay, entities, progress payment, district judge, deny relief, contractor

Bankruptcy Law, Judicial Review, Standards of Review, De Novo Standard of Review, Administrative Powers, Automatic Stay, General Overview, Judicial Review, Relief From Stay, Procedural Matters, Civil Procedure, Appeals, De Novo Review, Jurisdiction, Appellate Jurisdiction, Final Judgment Rule, Interlocutory Orders, Judicial Officers, Judges, Entry of Judgments, Stays of Judgments, Automatic Stays, Judgments, Relief From Judgments, Executory Contracts & Unexpired Leases, Unassumable Contracts, Business & Corporate Compliance, Contracts Law, Standards of Performance, Creditors & Debtors, Types of Contracts, Executory Contracts, Assignments, Assignment of Obligations, Consent Requirements, Defenses, Novation, Public Contracts Law, Contract Performance, Assignment & Novation, Healthcare Law, Business Administration & Organization, Peer Review, Organizations, Assignments, Powers to Assume & Reject