United States Court of Appeals

for the Fifth Circuit

No. 21-30668

In the Matter of Falcon V, L.L.C., 

Debtor,

Argonaut Insurance Company, 

Appellant,

versus

Falcon V, L.L.C., 

Appellee.

Appeal from the United States District Court 

for the Middle District of Louisiana

USDC No. 3:20-CV-702

Before Higginbotham, Higginson, and Oldham, Circuit Judges.

Stephen A. Higginson, Circuit Judge:

This appeal arises out of the bankruptcy of Falcon V, LLC and its 

affiliates. After the bankruptcy court confirmed Falcon V’s reorganization 

plan, Argonaut Insurance Company asked the court to interpret the plan, 

arguing primarily that a $10.5 million suretyship agreement was an 

“executory contract” and that the reorganized Falcon V had therefore 

United States Court of Appeals

Fifth Circuit

FILED

August 11, 2022

Lyle W. Cayce

Clerk

Case: 21-30668 Document: 00516429246 Page: 1 Date Filed: 08/11/2022
No. 21-30668

2

assumed the agreement under the reorganization plan’s express terms. The 

bankruptcy court concluded that Falcon V had not assumed the agreement 

and disallowed Argonaut’s $7.3 million unsecured claim against Falcon V. 

The district court affirmed the judgment of the bankruptcy court. We 

AFFIRM.

I.

The relevant facts are uncontested. Appellee Falcon V, LLC and its 

affiliates ORX Resources, LLC and Falcon V Holdings, LLC (collectively 

“Falcon V”) engage in oil and gas exploration and development. Appellant 

Argonaut Insurance Company (“Argonaut”) provides surety bonds.1 Falcon 

V and Argonaut entered into an arrangement that the parties refer to as the

“Surety Bond Program.” Under the Surety Bond Program, Argonaut posted 

four irrevocable performance bonds (the “Bonds”) guaranteeing Falcon V’s 

obligations to various third-party obligees. These obligations related 

primarily to the plugging, abandonment, and restoration of oil and gas wells. 

The largest bond was in favor of Hilcorp Energy I LP, in the amount of 

$10,000,000. The other three bonds were in favor of Chevron Corporation, 

the Louisiana Office of Conservation, and the United States, in the amounts 

of $300,000, $250,000, and $25,000, respectively. The Bonds provide that 

if Falcon V fails to perform its obligations, Argonaut must either pay the 

obligee an amount equal to the obligation or perform the obligation itself, up 

to the amount of the bond. The Bonds further provide that “regardless of the 

payment or nonpayment by [Falcon V] of any premiums owing with respect 

to this Bond, [Argonaut’s] obligations under this Bond are continuing 

obligations and shall not be affected or discharged by any failure by [Falcon 

1 “A surety bond creates a three-party relationship, in which the surety becomes 

liable for the principal’s debt or duty to the third party obligee.” Ins. Co. of the W. v. United 

States, 243 F.3d 1367, 1370 (Fed. Cir. 2001).

Case: 21-30668 Document: 00516429246 Page: 2 Date Filed: 08/11/2022
No. 21-30668

3

V] to pay any such premiums.” In exchange, Falcon V agreed to pay 

premiums to Argonaut and to indemnify Argonaut for any payments that 

Argonaut makes under the Bonds (the “Indemnity Agreement”).

In May 2019, Falcon V filed for Chapter 11 bankruptcy. On Falcon V’s 

motion, the bankruptcy court authorized (but did not require) Falcon V to 

continue performing the obligations that it owed Argonaut as part of the 

Surety Bond Program.2 Argonaut subsequently filed a proof of claim against 

Falcon V in the amount of $10,575,000 (the combined value of the Bonds). 

Argonaut stated that $3.2 million of the claim was secured and the rest was 

unsecured. Argonaut further stated its position that the Surety Bond 

Program “may not be assumed and assigned, for among other reasons, 

because such agreement constitutes a ‘financial accommodation,’” although 

it reserved its rights in case the Bonds and Indemnity Agreement were 

deemed “executory contracts.” On October 10, 2019, the bankruptcy court 

confirmed Falcon V’s Second Amended Plan of Reorganization (the 

“Plan”), which stated that, with certain exceptions not relevant here, each

reorganized Falcon V entity “shall be deemed to have assumed each 

executory contract . . . to which it is a party.”

In February 2020, Argonaut sent Falcon V a letter requesting that, in 

accordance with section 12 of the Indemnity Agreement, Falcon V provide 

Argonaut with an additional $7.3 million of collateral in order to fully secure 

the Bonds. Falcon V refused, stating that Argonaut’s claims against it had 

been discharged under the Plan. Argonaut then filed in the bankruptcy court 

a Motion to Interpret and Affirm the Terms of the Confirmed Chapter 11 

Plan, arguing that the reorganized Falcon V had assumed the Surety Bond 

2 The bankruptcy court made clear that “nothing in this order or the Motion shall 

be deemed to constitute post-petition assumption or adoption of any agreement.”

Case: 21-30668 Document: 00516429246 Page: 3 Date Filed: 08/11/2022
No. 21-30668

4

Program under the provision in the Plan stating that Falcon V assumed the 

executory contracts to which it was a party. Argonaut also argued that even 

if the Surety Bond Program had not been assumed, it had “passed-through” 

the bankruptcy.

The bankruptcy court issued an order concluding that the Surety 

Bond Program was not assumed under the Plan. The court reasoned that

“because Argonaut owed no continuing performance to Falcon V, the surety 

bond program is not an executory contract,” and it alternatively determined 

that even “if the surety bond program were executory, it is a non-assumable 

financial accommodation.” The court ultimately ordered that Argonaut’s 

unsecured claim against Falcon V (totaling over $7.3 million) was disallowed

under 11 U.S.C. § 502(e)(1)(B), though it did note that Argonaut also held an 

allowed secured claim for $3.2 million. The bankruptcy court did not 

expressly address Argonaut’s argument that if the Surety Bond Program had 

not been assumed it had nonetheless passed through the bankruptcy.

Argonaut appealed to the district court, which affirmed the 

bankruptcy court’s judgment. The district court determined that “the 

parties’ surety bond contracts are not executory contracts, and therefore 

cannot be assumed or enforced against [Falcon V].” The district court 

further stated that the bankruptcy court did not err by declining to expressly 

address whether the Surety Bond Program passed through the bankruptcy, 

explaining that “the pass-through (or ‘ride-through’) doctrine applies 

exclusively to executory contracts that are ‘neither assumed nor rejected at 

bankruptcy.’”

Argonaut then appealed to this court.

II.

“In reviewing a decision of the district court affirming the bankruptcy 

court, we apply ‘the same standard of review to the bankruptcy court that the 

Case: 21-30668 Document: 00516429246 Page: 4 Date Filed: 08/11/2022
No. 21-30668

5

district court applied,’ reviewing [conclusions] of law de novo and findings of 

fact for clear error.” In re Provider Meds, L.L.C., 907 F.3d 845, 850 (5th Cir. 

2018). Argonaut raises two issues on appeal. Argonaut primarily argues that 

the bankruptcy and district courts erred in determining that the Surety Bond 

Program was not assumed under the Plan. Alternatively, Argonaut argues 

that even if the Surety Bond Program were not assumed, the district court 

erred by determining that the Surety Bond Program did not “pass through”

the bankruptcy.

A.

We first consider whether Falcon V “assumed” the Surety Bond 

Program under the Plan. Subject to court approval, a debtor “may assume or 

reject any executory contract,” 11 U.S.C. § 365(a); see also id. § 1107(a), and,

as explained above, Falcon V’s Second Amended Plan of Reorganization 

states that, with certain exceptions not relevant here, each of the reorganized 

Falcon V entities “shall be deemed to have assumed each executory 

contract . . . to which it is a party.” Accordingly, the bankruptcy court 

ordered that “all executory contracts . . . of [Falcon V] shall be deemed 

assumed to the extent assumable under Bankruptcy Code section 365.” 

Argonaut argues that the Surety Bond Program qualifies as an executory 

contract under Section 365 and that the bankruptcy and district courts 

therefore erred in determining that the Program was not assumed under the 

Plan.3

3 Argonaut further argues that the bankruptcy court erred in concluding that even 

if the Surety Bond Program were an executory contract, it is unassumable because it is a 

financial accommodation. See 11 U.S.C. § 365(c)(2) (“The trustee may not assume or 

assign any executory contract . . . of the debtor . . . if . . . such contract is a contract to make 

a loan[] or extend other debt financing or financial accommodations.”). Argonaut 

maintains that financial accommodations are assumable with the consent of the party 

Case: 21-30668 Document: 00516429246 Page: 5 Date Filed: 08/11/2022
No. 21-30668

6

“The Bankruptcy Code does not define the term ‘executory 

contract,’ but we have concluded that a contract is executory if ‘performance 

remains due to some extent on both sides’ and if ‘at the time of the 

bankruptcy filing, the failure of either party to complete performance would 

constitute a material breach of the contract, thereby excusing the 

performance of the other party.’” In re Provider Meds, 907 F.3d at 851

(citations omitted). In other words, “the test for an executory contract is 

whether, under the relevant state law governing the contract, each side has 

at least one material unperformed obligation as of the bankruptcy petition 

date.” In re Weinstein Co. Holdings LLC, 997 F.3d 497, 504 (3d Cir. 2021). 

This definition of executory contracts was first proposed by Professor Vern 

Countryman and is known as the “Countryman test.” Id.; see Vern 

Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn. L. Rev.

439, 460 (1973).

4

extending the accommodation. Because we ultimately hold that the Surety Bond Program 

is not an executory contract, we do not address this issue.

4 The vast majority of circuits have adopted the Countryman test. See Gallivan v. 

Springfield Post Rd. Corp., 110 F.3d 848, 851 (1st Cir. 1997); Sharon Steel Corp. v. Nat’l Fuel 

Gas Distrib. Corp., 872 F.2d 36, 39 (3d Cir. 1989); Lubrizol Enters., Inc. v. Richmond Metal 

Finishers, Inc., 756 F.2d 1043, 1045 (4th Cir. 1985); In re Chi., Rock Island & Pac. R.R. Co., 

604 F.2d 1002, 1004 (7th Cir. 1979); In re Interstate Bakeries Corp., 751 F.3d 955, 962 (8th 

Cir. 2014); In re Pac. Express, Inc., 780 F.2d 1482, 1487 (9th Cir. 1986); In re Baird, 567 F.3d 

1207, 1211 (10th Cir. 2009). However, both the Sixth and Eleventh Circuits have endorsed 

the “functional approach,” under which “the question of whether a contract is executory 

is determined by the benefits that assumption or rejection would produce for the estate.” 

In re Gen. Dev. Corp., 84 F.3d 1364, 1375 (11th Cir. 1996) (quoting In re Gen. Dev. Corp., 177 

B.R. 1000, 1012 (S.D. Fla. 1995)); see also Thompkins v. Lil’ Joe Recs., Inc., 476 F.3d 1294, 

1305 n.13 (11th Cir. 2007); In re Jolly, 574 F.2d 349, 351 (6th Cir. 1978). See generally 3 

Collier on Bankruptcy ¶ 365.02 (16th ed. 2020) (discussing the Countryman test 

and the functional approach); 2 Norton Bankruptcy Law & Practice 3d 

§§ 46:6, 46:7 (same).

Case: 21-30668 Document: 00516429246 Page: 6 Date Filed: 08/11/2022
No. 21-30668

7

The Third Circuit has explained the logic behind the Countryman test

as follows:

To facilitate the debtor’s rehabilitation, the Countryman test 

attempts to foolproof the debtor’s choice to assume or reject 

contracts; thus, the debtor only has that flexibility for 

executory contracts—those contracts where there could be 

uncertainty about whether they are valuable or burdensome. A 

helpful perspective is to view executory contracts as a 

combination of assets and liabilities to the bankruptcy estate; 

the performance the nonbankrupt owes the debtor constitutes 

an asset, and the performance the debtor owes the nonbankrupt 

is a liability. Under this framework, a contract where the debtor 

fully performed all material obligations, but the nonbankrupt 

counterparty has not, cannot be executory; that contract can be 

viewed as just an asset of the estate with no liability. Treating 

it as an executory contract risks inadvertent rejection because 

the debtor would in effect be giving up an asset by rejecting it.

On the other extreme, where the counterparty performed but 

the debtor has not, the contract is also not executory because it 

is only a liability for the estate. Treating it as an executory 

contract risks inadvertent assumption, for the debtor would 

effectively be agreeing to pay the liability in full when the 

counterparty should instead pursue the claim against the estate 

like other (typically unsecured) creditors. . . . Only where a 

contract has at least one material unperformed obligation on 

each side—that is, where there can be uncertainty if the 

contract is a net asset or liability for the debtor—do we invite 

the debtor’s business judgment on whether the contract should 

be assumed or rejected. 

In re Weinstein Co. Holdings, 997 F.3d at 504–05 (cleaned up).

In applying the Countryman test to this case, the bankruptcy and 

district courts focused on the obligations that Falcon V and Argonaut owed 

each other. They both concluded that even though Falcon V has a continuing 

obligation to pay premiums to Argonaut and to indemnify Argonaut for any 

Case: 21-30668 Document: 00516429246 Page: 7 Date Filed: 08/11/2022
No. 21-30668

8

payments that Argonaut makes under the Bonds, the Surety Bond Program 

nonetheless does not satisfy the Countryman test’s first prong because

Argonaut has already posted the Bonds and does not owe further 

performance to Falcon V. As the bankruptcy court reasoned, “Argonaut 

posted bonds prepetition and owes no further performance to Falcon V. . . . 

[B]ecause Argonaut owed no continuing performance to Falcon V, the surety 

bond program is not an executory contract.” Similarly, the district court 

stated that “as between [Falcon V] and Argonaut, the parties’ obligations 

under the Surety Bond Program flow in one direction, from [Falcon V] to

Argonaut. The Countryman test requires more for an executory contract: 

performance must remain due on both sides.”5

Argonaut argues that the bankruptcy and district courts’ application 

of the Countryman test “gives no practical effect to Argonaut’s (and [Falcon 

V’s]) unperformed duties to the obligees under the Bonds,” and it urges us 

to “apply the Countryman framework in a manner that accounts for all 

obligations in a multiparty arrangement.” At oral argument, Argonaut 

proposed that the Countryman test should be modified as follows for surety 

contracts: “Where the surety and the principal continue to owe obligations 

to the obligee, and the principal has not fulfilled its indemnity obligations to 

the surety, that is an executory contract.” In the Surety Bond Program, 

Argonaut is the surety and Falcon V is the principal,6 and Argonaut maintains 

5 While the bankruptcy court resolved this issue based solely on the Countryman 

test’s first prong, the district court further determined that because “Argonaut’s bonds are 

irrevocable,” Falcon V’s failure to perform would “not create a material breach that 

excuses Argonaut’s performance, as required by the second prong of the Countryman

test.”

6 See Balboa Ins. Co. v. United States, 775 F.2d 1158, 1160 (Fed. Cir. 1985) (“A 

suretyship is the result of a three-party agreement, whereby one party (the surety) becomes 

liable for the principal’s or obligor’s debt or duty to the third party obligee.”); supra Part I 

(describing the structure of the Surety Bond Program).

Case: 21-30668 Document: 00516429246 Page: 8 Date Filed: 08/11/2022
No. 21-30668

9

that because (1) both it and Falcon V remain obliged to the various third-party 

obligees and (2) Falcon V has not fulfilled its indemnity obligations to 

Argonaut, the Surety Bond Program qualifies as executory under this

modified test.

We decline to adopt Argonaut’s proposed modification to the

Countryman test. Argonaut offers no authority in support of the

modification, and it makes no attempt to explain how the modification would 

further the test’s goal of “facilitat[ing] the debtor’s rehabilitation” by giving 

debtors discretion to assume or reject those contracts “where there can be 

uncertainty if the contract is a net asset or liability for the debtor.” In re 

Weinstein Co. Holdings, 997 F.3d at 504–05. Rather, Argonaut’s proposed 

test seems designed simply to elevate the rights of sureties above those of 

other creditors.

However, we do agree with Argonaut that courts should apply the 

Countryman test to multiparty contracts in a flexible manner that accounts 

for the various obligations owed to all of the parties, rather than focusing 

exclusively on the flow of obligations between the debtor and the creditor. 

We can imagine cases in which, for example, a debtor might wish to assume 

a tripartite agreement under which it owes performance to a creditor, the 

creditor owes performance to a third party, and the third party owes 

performance to the debtor. Accordingly, when applying the Countryman test 

to this case, we consider not just the obligations that Falcon V and Argonaut 

owe to each other but also their respective obligations to the third-party

obligees.

Recall that the Countryman test has two prongs. First, a contract is 

executory only “if ‘performance remains due to some extent on both sides.’”

In re Provider Meds, 907 F.3d at 851 (quoting In re Murexco Petroleum, Inc., 15 

F.3d 60, 62 (5th Cir. 1994)). Falcon V has a continuing obligation to pay 

Case: 21-30668 Document: 00516429246 Page: 9 Date Filed: 08/11/2022
No. 21-30668

10

premiums to Argonaut and to indemnify Argonaut for any payments that 

Argonaut makes under the Bonds, and although Argonaut does not owe any 

further performance to Falcon V, since it has already posted the Bonds,

Argonaut does have obligations to the various third-party obligees under the 

Bonds.7

Assuming that the Surety Bond Program satisfies the first 

Countryman requirement, the Program does not satisfy the second 

requirement: that “at the time of the bankruptcy filing, the failure of either 

party to complete performance would constitute a material breach of the 

contract, thereby excusing the performance of the other party.” In re Provider 

Meds, 907 F.3d at 851 (quoting In re Murexco Petroleum, 15 F.3d at 62–63).

After all, the Bonds are irrevocable,8 meaning that even if Falcon V failed to 

perform its obligations under the Surety Bond Program, Argonaut would not 

be excused from its performance obligations to the obligees. And because 

Falcon V’s failure to perform would not excuse Argonaut from performing, 

the Surety Bond Program fails the Countryman test, even when applied in 

this flexible manner.

9

7 The Surety and Fidelity Association of America argues in an amicus brief that 

Argonaut does in fact have a continuing obligation to Falcon V, namely “the obligation to 

maintain its license and other statutory and regulatory capital, surplus, and reserve 

requirements.” However, Argonaut’s obligation to comply with surety law is owed to 

Texas (whose laws govern the Surety Bond Program), not Falcon V. See In re Coal 

Stripping, Inc., 215 B.R. 500, 502 (Bankr. W.D. Pa. 1997) (rejecting a similar argument on 

the ground that the sureties “owe their obligations to comply with West Virginia surety law 

to West Virginia, not to Debtor”).

8 As explained in supra Part I, the Bonds provide that “regardless of the payment 

or nonpayment by [Falcon V] of any premiums owing with respect to the Bond, 

[Argonaut’s] obligations under this Bond are continuing obligations and shall not be 

affected or discharged by any failure by [Falcon V] to pay any such premiums.”

9 While the existing Countryman test, flexibly applied, is sufficient to resolve the 

question of whether the Surety Bond Program is an executory contract, we recognize that 

Case: 21-30668 Document: 00516429246 Page: 10 Date Filed: 08/11/2022
No. 21-30668

11

The Surety Bond Program does not satisfy the Countryman test’s 

second requirement. Accordingly, it is not an executory contract,10 and the 

bankruptcy and district courts correctly determined that it was not assumed 

under the Plan.

B.

Argonaut alternatively argues that even if Falcon V did not assume the 

Surety Bond Program, the Program is enforceable against them because it 

passed through the bankruptcy unaffected under the “pass-through” or 

“ride-through” doctrine. This argument might have merit if the Surety Bond 

Program were an executory contract that had been neither assumed nor 

rejected. See ASARCO, L.L.C. v. Mont. Res., Inc., 858 F.3d 949, 959 (5th Cir. 

2017) (“Executory contracts that are not assumed or rejected ‘ride through’ 

the bankruptcy ‘unaffected by the bankruptcy proceedings.’” (quoting In re 

O’Connor, 258 F.3d 392, 405 (5th Cir. 2001))). However, “nonexecutory 

contracts . . . are not subject to assumption, rejection, or the ride-through 

doctrine.” Id. Because, as explained above, the Surety Bond Program is not 

an executory contract, Argonaut’s alternative argument is unavailing.

in future multiparty contracts cases, it may make sense for courts to modify the test, and

we note that because neither party asked us to apply the “functional approach,” see supra 

note 4, to this case, future courts should not consider foreclosed the possibility that the 

functional approach should be adopted for multiparty contract cases.

10 At least one district and three bankruptcy courts have also concluded that surety 

agreements similar to the Surety Bond Program do not qualify as executory contracts, 

although not necessarily under the same reasoning as ours. See In re James River Coal Co., 

No. 306-0411, 2006 WL 2548456, at *4 (M.D. Tenn. Aug. 31, 2006); In re All Phase Elec. 

Contracting, Inc., 409 B.R. 272, 275 (Bankr. D. Conn. 2009); In re Maxon Eng’g Servs., Inc., 

324 B.R. 429, 432 (Bankr. D.P.R. 2005); In re Coal Stripping, Inc., 215 B.R. at 502–03 

(Bankr. W.D. Pa. 1997). But see In re Evans Prods. Co., 91 B.R. 1003, 1005–06 (Bankr. S.D. 

Fla. 1988) (concluding without analysis that a surety agreement was “clearly executory”).

Case: 21-30668 Document: 00516429246 Page: 11 Date Filed: 08/11/2022
No. 21-30668

12

III.

For the foregoing reasons, the district court’s judgment is 

AFFIRMED.

Case: 21-30668 Document: 00516429246 Page: 12 Date Filed: 08/11/2022