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United States v. Techdyn Sys. Corp. (In re Techdyn Sys. Corp.)

United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division

July 7, 1999, Decided

Case No. 99-11706-SSM, Chapter 11, Contested Matter No. 99-0818

Opinion

 [*858] MEMORANDUM OPINION

Before the court is the motion of the United States of America for relief from the automatic stay in order to terminate certain government contracts with the  [*859]  debtor. A preliminary hearing was held on June 16, 1999, at which the debtor in possession consented to relief with respect to certain of the contracts it did not desire to assume but opposed relief with respect to the remaining contracts. 1 [**3]  The sole issue presently before the court is whether the debtor, as debtor in possession, is barred under Bankruptcy Code § 365(c) from assuming, without the government's consent, a contract which the debtor is statutorily barred from assigning [**2]  under the Anti-Assignment Act. The resolution of this issue requires the court to determine whether it should follow those courts that have adopted the "hypothetical" rather than the "actual" test for the assumption of nonassignable executory contracts. 2

Background

TechDyn Systems Corporation ("TechDyn"), whose primary business is furnishing telephone systems and support to military bases, filed a voluntary petition for reorganization under chapter 11 of the Bankruptcy Code in this court on April 2, 1999. It has continued since that date in control of its business as a debtor in possession. Prior to bankruptcy, TechDyn had entered into six contracts with the United States Army, each requiring the debtor to maintain [**4]  and repair the telecommunication networks at specific Army installations. It is undisputed that TechDyn, shortly after filing its petition, failed to meet its payroll, thereby prompting its employees to cease working. Consequently, the government asserts, the affected installations have been required to make interim, emergency arrangements with other contractors to sustain the telecommunication networks. Termination of the debtor's contracts would free up funds obligated for those contracts for use in establishing long-term replacement contracts.

On May 18, 1999, the present motion was filed seeking to terminate the contracts with the debtor. The government relies on § 362(d)(1), Bankruptcy Code, which provides that the court may terminate the automatic stay "for cause." The United States maintains that reliable, long-term telecommunication capabilities at each installation affected by the debtor's bankruptcy is vital to the completion of ongoing military missions. Fort Benning, for example, is said to be involved in supporting contingency operations in Kosovo. In light of the continued post-petition defaults, the government questions whether the debtor will ever be able to perform [**5]  its duties under the contracts. In sum, it is the United States' position that the national security interests at stake outweigh any  [*860]  benefit to the debtor and its estate from assumption of the contracts. Additionally -- and that is the issue immediately before the court -- the government argues that the debtor's legal inability to assume the contracts over the government's objection provides more than sufficient "cause" for relief from stay to terminate the contracts. 3

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235 B.R. 857 *; 1999 Bankr. LEXIS 840 **; 34 Bankr. Ct. Dec. 825

In re: TECHDYN SYSTEMS CORP., Debtor; UNITED STATES OF AMERICA, Plaintiff vs. TECHDYN SYSTEMS CORP., Defendant

CORE TERMS

contracts, debtor in possession, terminate, lease, assign, executory contract, prohibits, courts, automatic stay, plain language, hypothetical, separate entity, reorganization, nonassignable, prepetition, provisions, entity

Bankruptcy Law, Administrative Powers, Executory Contracts & Unexpired Leases, Unassumable Contracts, Business & Corporate Compliance, Contracts Law, Types of Contracts, Executory Contracts, Contracts Law, Lease Agreements, General Overview, Governments, Legislation, Interpretation