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Controlling 9th Circuit law holds that specific performance is not available after rejection of an executory contract in a bankruptcy case.

June 7, 2014 by  
Filed under Blog

The 9th Circuit has twice explained that specific performance is NOT available after the rejection of an executory contract in a bankruptcy action. “Specific performance of a rejected executory contract cannot be required.” In Kaonohi Ohana LTD. 873 F.2d 1302,(9th Cir 1989) citing In re Pacific Express, Inc., 780 F.2d 1482, 1486 n. 3 (9th Cir.1986). Indeed the only case to allow specif performance of a rejected executory contract is In re Ground Round, 482 F.3d 15 (1st Cir. 2007). The Ground Round case has been roundly criticized. One recent opinion stated as follows: the Court finds the analysis of the First Circuit in Ground Round unpersuasive. The First Circuit acknowledged that there are cases contrary to its ruling, including an earlier First Circuit decision. Ground Round,482 F. 3d at18 n. 1 (citing Midway Motor Lodge of Elk Grove v. Innkeepers’ Telemanagement & Equip. Corp., 54 F.3d 406, 407 (7th Cir.1995) (holding that “[r]ejection avoids specific performance and results only in a claim for damages); In re Richmond Metal Finishers, Inc., 756 F.2d 1043, 1048 (4th Cir.1985) (concluding that upon rejection, other party to contract “could not seek to retain its contract rights in the technology by specific performance even if that remedy would ordinarily be available upon breach of this type of contract); Gulf Petro., S.A. v. Collazo, 316 F.2d 257, 260 (1st Cir.1963) (finding rejection of contract land sale contract precluded specific performance but finding that escrow agreement was separate and non-executory thereby entitling buyer to return of deposit held in escrow)). In re C.B.Holding Corp.,448 B.R. 684, 690 (Bcty. Del. 2012). Ground Round is poorly reasoned. Further, it is contrary to 9th Circuit precedent and should not be followed by a Court inside the 9th Circuit.

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