whenthe debtor in possession has no
intention of assigning the contract
in question to any such third party.”
See, e.g., In re Catapult Entertainment,
Inc., 165 F.3d 747 (9th Cir. 1998).
Jurisdictions that have adopted this
hypothetical test include the 9th U.S.
Circuit Court of Appeals, which covers
California, Arizona, and a number of
other Western states; the 3d U.S. Circuit
Court of Appeals, which includes
Delaware; the 4th U.S. Circuit Court
of Appeals, covering Virginia, West
Virginia, Maryland, and North and South
Carolina; and numerous lower courts.
The 1st U.S. Circuit Court of Appeals,
which includes Massachusetts, and
numerous other lower courts have
adopted an alternative interpretation
of Section 365(c)( 1). Known as the
“actual test,” it prohibits assumption
of an executory contract only if the
non-debtor party is actually being
forced to accept performance from
someone other than the debtor.
See, e.g., Institut Pasteur, et al. v.
Cambridge Biotech Corporation, 104
F.3d 489 (1st Cir. 1997). Understanding
which test is applicable in a specific
jurisdiction therefore is essential.
Eric W. Anderson (top) is a partner, and Joshua J. Lewis
(bottom) is an associate with Parker Hudson Rainer
& Dobbs LLP in Atlanta. Anderson’s practice includes
bankruptcy, financial restructuring, and creditors’
rights. He represents creditors, debtors, trustees, and
asset buyers in commercial bankruptcy cases, state
court litigation, and out-of-court restructuring and
turnaround activities. He is a Fellow in the American
College of Bankruptcy and holds a bachelor’s degree
from the University of Wisconsin and a law degree
from the University of Wisconsin Law School. Lewis’
practice includes bankruptcy, commercial litigation,
and creditors’ rights. He represents creditors, debtors,
trustees, and other parties in bankruptcy cases and
state court litigation, and advises on related financial
restructuring matters. He is currently the Atlanta
Chapter’s NexGen Events Committee chair. He holds
a bachelor’s degree from the University of Georgia
and a law degree from Louisiana State University.
The geographic location of a franchise
business (or legal jurisdiction governing
its franchise agreements), the status
of the company’s performance of
its obligations under its franchise
agreements, the ability of the company
or its assignee to remedy past defaults
promptly, and the company’s desire
to assume or assume and assign
a franchise agreement all have
important implications in a prospective
bankruptcy case of a franchise
company. As a result, understanding
and carefully analyzing issues arising
under Section 365 of the Bankruptcy
Code is essential when formulating a
turnaround strategy for a franchisee. J
7th Annual TMA Southeast Regional Conference May 31 - June 1, 2012 Omni Hotel Hilton Head Island, South Carolina
Featuring keynote speaker Stephen Moore of The Wall Street Journal and a presentation
by Rick Kaglic, economist, Federal Reserve Bank of Richmond, Charlotte Branch.
Register and learn more at turnaround.org/southeast.