The Honor able L aura Taylor Swain of the United States D istrict Court for the * Southern District of Ne w York, sitting by desig nation. 07-1854-bk In re: The Penn Traf

fic Company , et al., Reorg anized Debtors 

### U NI TED 

### S TA TE S 

### C O U R T O F 

### A PP E A LS F OR THE S EC OND C IR C U IT

______________________ August Term 2007 (Submitt ed: September

27, 2007 Dec ided: April 29, 2008)

Docke t No. 07-1854-bk I N RE : T HE P EN N T RAFFI C C OMPANY , E T AL ., R EO R GANI Z ED D EBT O RS

_______________________ COR R OUT E 5 C OMPANY , L L C,

Ap pe lla nt,
— v. — T HE P EN N T RAFFI C C OMPANY , Debtor-Appe llee
.

________________________

Be fore : M I N ER and W ES L EY , Circ uit J ud ge s, S W A IN , District Judge
. *

________________________The pa rties re fer to the bankruptc y

court orde r in some of their pa pers a s the 1 “B ankruptc y

Court Rejection Orde r.” We do likewise be low. Appea l from orde r of United States D istrict Court for the Southern District of New Y ork (B uchwa ld, J .) af firming order

of United States B ankruptc y Court for the Southern District of Ne w York ( Har din, B.J.) authorizing debtor’ s rejec tion of an executory contra ct. Affir med.

_____________________________

C. M AC N EIL M I T CH ELL , Wins ton & Strawn L L P (J ustin E. Rawlins and Sarah L
. Trum, on the brie f), Ne w York, N Y, and R OB E R T KEN NE TH W EI L ER , Gre en & Seifer, A ttorney s, PL L C, Sy rac use, NY, for Appellant
. KEL L Y A. C O RN I SH , Paul, Weiss, R ifkind, Wharton & Ga rrison L L P (Allan Arf

fa and Ross B. Rosenf

elt, on the brief

), Ne w York, N Y, for Debtor-Appellee
.

_______________________________ SW AI N, District J udg e: T h i s m at t e r

c o m e s b e f

o r e u s o nth e a

p p e a l o f C O R R o u t e 5 C o mp an y , LLC (“COR” or

“Appe llant”), fr om a conse nt order of the United States District Court for the Southern District of Ne w York ( Buc hwald, J.), affirminga stipulated bankr uptcy court orde r authorizing the r ejec tion of a super marke t construction, land sale and lea sebac k contra ct. An 1
ear lier appe al of Judge B uchwa ld’s 2005 order aff irming in pa

rt, reve rsing in part and r emanding a 2005 orde r of the United States Ba nkruptcy Court for the Southern D istrict of NewYork (Ha rdin, B.J.) in which the B ankruptc y Court, finding that the contra ct was non- executory as of the time the debtor ha d moved to reje ct it and for that rea son denying the motion to reject, wa s dismiss ed by

this Court i n 2006 for lac k of jurisdiction. See COR Route 5 Co., L L C v. The Penn Traf fic Co. (In re The Penn Traf fic Co.), 466 F .3d 75 (2d Cir. 2006) (“ Penn Traf fic I I I ”). The consent orde r fr om which COR appea ls ex plicitly provided for

the pre servation in thi s appea l ofthe issues raise d in the initial appeal, by “re stat[i ng ] and reissu[i ng ]” the District Court’s opinion in The Penn Tra ffic Co. v. COR Route 5 Co., L L C (In re The Penn Traf fic Co.), No. 05 Civ. 3755 (NRB ), 2005 WL2276879 (S.D.N.Y. Sept. 16, 2005) ( “Penn Tra ffic I I ”) “ as the Memorandum a

nd Orde r of this Court on the Second District Court Appe al from the B ankruptc y Court Rejection Orde r,” a nd aff irming the Ba

nkruptcy Court Rejection Orde r without prejudice to t he pa rt ie s’ ri g hts to a

pp e a l. ( Me m. a

nd Or de r D e c idi ngAp pe a l f ro m O rd e r o f B ank

ru ptc y Ct. at 3, Apr. 9, 2007.) BACK GR OUND I
. Under lying T ransa ction and Initial Proceeding s on Motion to R ejec t

The ba ckg round fa cts of this matter ar e deta iled extensively in the opinions below, familiarity

with which is assumed. See I n re The Penn Traf

fic Co., 322 B .R. 63 (Ba

nkr. S.D.N.Y. 2005) (“ Penn Traf fic I ”); Penn Tr aff

ic I I . For the instant purposes, re petition of the ba c kg ro un d s umm ary

fr om P e nn

Tr a ff ic I I Iwi ll s uf

fi c e . CO R is a

c omm e rc ia l r e a l e state develope r whose holding s include ce rtain trac ts of land nea r a shoppingmall known as Towne Center, in F ay etteville, New York. De btor-Appe llee The Penn Traf fic Company

(“Penn Tr aff

ic” or “D ebtor-A

ppellee” ), the de btor-in-possession in the under lying c hapter 11 reor g anization proce eding , is one of the lea ding f ood reta ilers in the United States. Penn Tra ffic owned land with a building, a djace nt to the Towne Center , that could not have be en deve loped into a modern suburban supe rmarke t as part of the Towne Center without the inclusion of contiguous and
connec ting r eal pr operty

owned by

COR. Prior to the commence ment of Penn Tra ffic’ s bankruptcy case , COR and Penn Tr a ff ic e nte re d into a

“ Pr oje c t A g re e me nt” pr ov idi ngfo r, int e r a lia , th e e xch ang e of c e rt a inTog ether , §§ 365(a) (re lating to e x ecutor y contra cts and une x pired lea ses) a nd 2 1 1 0 7 ( a ) ( p r o v i d i n g th ata

d e b t o r - i n - p o s s e s s i o ng e n e r a l l y h a s th e r i g h t s o f a tr u s t e e i nb an kr

u p t c y) of the Code g ener ally

permit a c hapter

11 debtor-in- possession to assume or re ject, subjec t to the court’s a pproval, a ny executory

contra ct or une x pired lea se of the de btor. See 11 U.S.C. §§ 365(a) , 1107(a)
. 4 parc els of land, the site pr epar ation and construc tion of a modern supe rmarke t, reimburseme nt by COR to P enn Tra ffic of

a spec ified portion of the c onstruction costs, Penn Traf fic’s c onvey ance to COR of the parc el of land on which the super marke t is sit uated, a

nd Penn Traf

fic’s le aseba ck
o f t h e i mp ro v eds u

p erm ark etp ar ce l fr o mC OR
. At th e t i m e o f P en nT ra ff i c’ s b an krup t cy

fi l i n g, COR had perf

ormed a ll of its obli g ations under the Proje ct Ag ree ment except for the reimburse ment of the c onstruction costs (amountingto approxim ately $3.5 milli on) and the te nd e r o f a

le a se to P e nn

Tr a ff ic . Pe nn Tr a ff ic ha d n ot c onve y e d th e su pe rm ark e t pa

rc e l to CO R. Severa l months after Penn Tr aff ic filed its bankruptc y

petition, COR wrote a letter to Penn Traf

fic in which, the Ba

nkruptcy Court found, COR tendere d reimburse ment of the $3.5 milli on in construction costs, as we ll as a sig ned lea se, as c alled for by the Project Agree ment. Pe nn Tr a ff ic de c lin e d to a c c e pt C OR ’s te nd e r a nd , s e ve ra l mo nth s th e re a ft e r, mov e d p ur su ant t o § 365 of the B ankruptc y

Code (the “ Code”) to rejec t the Project Ag ree ment. 2 The B ankruptc y

Court held that, while the Projec t Ag ree ment was e x ecutor y on the petition date (in that both sides had subsisting, unpe rfor med obligations at that tim e), COR’s post-petition tender of the pay ment and the lea se had r ender ed the Projec t Ag ree ment nonexecutory and thus incapa

ble of re jection. The B ankruptc y

Court, acc ording ly , denied Penn Traf fic’s motion to rejec t the Project Ag ree ment on the g round that the Projec t Ag ree ment was non-executory . Noting br iefly the def ere ntial standard a

pplied to debtors’ business judg ments as to whe the r t o a ssume or

re je c t e xec uto ry

c on tr a c ts, the B ank

ru ptc y Court ob se rv e d th a t:5 [ t ] h e d e b t o r ’ s d e c i s i o nt o r e j e c tth e P r o

j e c tA g r e e m e n t , i f

f o un d e x e c u t o r y, appea rs to meet the low thre shold of the business judg ment test, in that the debtor has obtained a

n appra isal of the fa ir marke t value of the Penn Traf fic Superma

rket Parce l at $9.8 milli on, contra sted with the $3.5 milli on reimburse ment of the Construction Allowance which trig g ers the de btor’s contra ctual duty to convey tit le to t he Pe nn Tr a ff ic Sup e rm ark e t Pa

rc e l to CO R. Penn Traf fic I , 322 B.R. at 68. Penn Tr aff ic appe aled the B ankruptc y Court’s order

to the District Court, which af

firmed the B ankruptc y

Court’s deter

mination that the Project Ag ree ment had bee n an executory

contra ct as of the petition date but reje cted the B ankruptc y Court’s holding that e x ecutor

y contra ct status should be deter mined as of the r ejec tion moti on date a nd take into ac count post-petition perfor mance . The District Court re verse d the latter a spect of the decision, holding that “post-petition perf ormanc e ca

nnot alter the e x ecutor iness of a c ontrac t,”
and re mand e d th e matte r “ to t he B ank ru ptc y Court fo r f ur the r p ro c e e din g s c on sis te nt w iththi s opinion.” Penn Traf

fic I I , 2005 WL2276879, at *6. I I
. Initial Appeal and Proc eeding s on Remand

COR appeale d J udg e B uchwa ld’s decision to this Court, arg uing that the Ba nkruptcy Court had cor

rec tly found that the Projec t Ag ree ment was no long er e x ecutor y and thus could not be reje cted. In Penn Traf fic I I I , we e x plained that we lacke d jurisdiction of the appea l beca

use Penn Tra ffic I I ’s re mand provision contemplated sig nificant fur ther B ankruptc y Court proce eding s and thus was not a f inal order within the meaningof 28 U.S.C. § 158(d). Followingour dismissal of the appe al for la ck of jurisdiction, the B ankruptc y Court entere d the B ankruptc y Court Rejection Orde r. Amongother thing s, the Ba nkruptcy Court Re je c tio n O rd e r h e ld t

hat r e je c tio n o f t

he Pr oje c t A g re e me nt w a s in the de bto r’ s b e st i nte re sts and provide d that COR was not, by ag ree ing to e ntry

of the orde r, wa iving its positions t hat theFor simpli city , the term “ debtor” is at times used in this di scussion to refe r to the 3 chapte r 11 debtor- in-possession. 6 Project Ag ree ment was not an e x ecutor y contra ct at all and that, in any event, the Proje ct Ag ree ment was not executory at the time Penn Tra ffic move d to rejec t it. On the appea l of the Ba nkruptcy Court Rejection Orde r to the District Court, that Court, as noted above , enter ed a stipulated Memorandum a nd Orde r De ciding Appea l from Orde r of B ankruptc y Court reinstating and re issuing its Penn Traf fic I Idecision and a ffirmingthe B ankruptc y Court Rejection Orde r without prejudice to the pa rties’ a ppellate r ights. This appe al followed. We have jurisdiction of this appea l pursuant to 28 U.S.C. § 158(d)(1), be cause the Di str ic t Co ur

t’ s Apr il 6 , 2 00 7, Me mor and um a nd Or de r c on sti tut e s a

fi na l or de r. F e d R. Ap p. P. 6(b). We re view de novo the leg al deter minations below; the fac tual deter minations of the Ba nkruptcy Court in this core proce edingare revie wed f or cle ar e rror . Fe d. R. Bankr . P. 8013. DI SCU SSIO N The princ ipal issue prese nted on this appea l is whether the non- debtor pa rty to a contra ct that is executory at the time a ba

nkruptcy case is commence d can, by post-petition tender or per formanc e of its own outstandingobligations under the contr act, de prive the de btor party of the a bility to exercise its statutory

rig ht to rejec t the contra ct as disadva ntag eous to the
e state . We ho ld t

hat it c ann ot. Section 365 of the Code ( when r ead a longside § 1107, see note 2, supra) provides that, w ithe xce pti on s n ot p e rt ine nt h e re , a tr us te e or c ha pte r 1 1 d e bto r- in- po sse ssi on may , w ith court a pproval, a ssume or re

ject any executory

contra ct or une x pired lea se of the de btor. 11 U.S.C. § 365(a). Assumption is in effe ct a de cision to continue perf ormanc e. It require s the 37

debtor to cur e most defa

ults and continues the par ties’ rig hts to future per formanc e under the contra ct or lea se. See 11 U .S.C. § 365(b). Rejection is in effe ct a de cision to breac h the contra ct or lea se. See 11 U .S.C.A. § 365(g) (West 2004) (“[T]he rejec tion of an executory contra ct or
un e xpir e d le a se of

the de bto r c on sti tut e s a

br e a c h o f s uc h c on tr a c t or le a se . . . imme diate ly be fo re the date of

the fi lin g of

the pe tit ion .” ). In th e e ve nt o f r e je c tio n, the no n- de bto r p art y is g e ne ra lly re le g ate d to purs uin g an uns e c ur e d p re pe tit ion c la im a g a ins t th e e state . In r e Chi ld World, I nc., 147 B .R. 847, 852 (Ba nkr. S.D.N.Y. 1992) ( “[R] ejec tion under 11 U.S.C. § 365(a) simply means that the c ourt will permit the debtor to bre ach the contra ct, with the re sult that the contra ctual oblig ations will be reduc ed to g ener al unsec ured c laims for pre petition damag es pursuant to 11 U.S.C. § 365(g )(1) .”). Where assets of the e state ar e insuffic ient to pay unsecur ed
cre ditors in full, the non-debtor pa rty to a re jected e x ecutor

y contra ct, like other unse cure d
cre ditors of the estate , may rec eive only

a fr action of the value of its claim. The plain languag e of the Code permits a c hapter 11 trustee ( and, by

extension thr ou g h § 11 07 , a

de bto r- in- po sse ssi on ) t o a ssume or re je c t th e e xec uto ry

c on tr a c t “ a t any

tim e be fo re the c on fi rm atio n o f a pla n. ” 11 U. S.C. A. § 3 65 (d )( 2) (We st 2 00 4) . Ac ounte rp art y desiringan ea

rlier de termination of the de btor’s cour se of a ction reg ardingassumption or reje ction of the a g ree ment may petition the court to order the debtor to make its determination within a specifie d period of time. I d.

Th e Cod e do e s n ot d e fi ne the te rm “ e xec uto ry

c on tr a c t.” In E a ste rn

Ai r L ine s, Inc. v. Ins. Co. of Pa. (In re I onosphere Clubs, I nc.), 85 F .3d 992 (2d Cir. 1996), we char acte rized an executory

contra ct as one “on which pe rfor mance rema ins due to some extent on both s ides,” id. at 998-99 (quotingNat’l L abor Relations Bd. v. B ildisco & B ildisco, 465 U.S. 513, 522 n.6The B ankruptc y Court used the term “ ‘substantial perf ormanc e’ te st” to descr ibe 4 the Country

man standar d. See Penn Tra ffic I , 322 B.R. at 69. 8 (1984)) (interna l quotation marks omitted), but we we re not c alled upon to addr ess the question of how much pe rfor

mance must be outstanding f or the c ontrac t to be treated as e x ecutor y under § 365. In addre ssing that que stion, most courts and sc holars look to the standar d first articulated by Professor V ernon Country man in his seminal 1973 law re view ar ticle re g ardingtreatment of contra cts under the former Ba nkruptcy Act—i.e., that a

n executory

contra ct is one “unde r which the obligation of both the bankrupt and the other pa rty to the contra ct ar e so fa

r unper formed that the fa ilure of e ither to complete pe rfor mance would constitute a mater ial brea ch excusing perf ormanc e of the other.” Ver n Country

man, Ex e c uto ry

Con tra c ts i n B an k

ru ptc y : Par t I , 57 Minn. L . Rev. 439, 460 (1973); see 3 Colli er on B ankruptc y ¶ 365.02[1] (15th ed. re v. 2007). We d o n ot h ave to d e te rm ine the pr e c ise c on tou rs of the te st f or e xec uto ri ne ss t o
re so lve the iss ue s h e re on a pp e a l be c a

us e , a s th e B ank

ru ptc y Court fo un d, the pa

rt ie s’ unperf ormed oblig ations under the Proje ct Ag ree ment satisfied the Country man standar d as of the petition filing date:

Ap ply ingwh at ma

y be re fe rr e d to
. . . a s th e “ su bs tanti a l pe rf

or manc e ” te st . . . , it

4 is clear that the Project Agree ment was a n executory

contra ct upon the date of filing of the Penn Tra ffic Cha

pter 11 pe tition, because on that date, May 30, 2003, CO R ha d n ot p a id o r t e nd e re d r e imb ur se me nt o f t he $3 .5 mil lio n r e qu ir e d o f i t un de r S e c tio n 4 .3 of

the Pr oje c t A g re e me nt a s a pr e c on dit ion

of its ri g ht t o c onve y anc e to i t of

tit le to t he Pe nn Tr a ff ic Sup e rm ark e t Pa

rc e l. Penn Traf fic I , 322 B.R. at 69. COR contends, howeve r, that the Projec t Ag ree ment should not be treate d as an executory contra ct at all. Invoking the familiar pr inciple that a c ourt proper ly looks bey ond the form or title of a

n ag ree ment to determine the true nature of the transac tion, see e.g ., L iona Corp.,9

N.V. v. PCH Assocs. (In re PCH Assocs.), 804 F .2d 193, 197 (2d Cir. 1986), COR argues that the Project Agree ment should be treated as a “fina ncinglease ,” a “ prepa id option” or a for m of
secur ed re al estate transac tion, and that any such treatment prec ludes the application of the rules g overningexecutory

contra cts to Penn Traf

fic’s r ights a

nd obligations under the Projec t Ag ree ment. The B ankruptc y Court, which ana ly

zed the Project Ag ree ment under the executory contra ct rules, se e Penn Tra ffic I , 322 B.R. at 68- 71, implicitl y reje cted COR’s attempt to take the matter outside those r ules. The District Court explicitly addre ssed and r ejec ted COR’s arguments in this reg ard. Penn Tr aff ic I I , 2005 WL2276879, at *3-4. The c ourts below prope rly rebuf fed COR’s attempt to avoid application of § 365 of the Code to the pa

rties’ rig hts and obligations under the Projec t Ag ree ment. COR’s “fina ncinglease ” ar gument focuse s on our holdings in In re PCH Assocs. a nd Int’l Trade Admin. v. Rensselae r Poly

technic I nst., 936 F.2d 744 (2d Cir. 1991), both of which addr essed the applicability

to cer tain contra ctual re lationships of special Code provisions dea ling with the treatment of unexpired lease s in bankruptcy proce eding s. See In re PCH Assocs., 804 F .2d at 194 (addr essing applicability of § 365(d) (3), ( d)(4) ); Int’l Trade Admin., 936 F.2d at 745- 46 (addr essing applicability

of § 365(d) (4)) ; see a lso 11 U.S.C. § 365(d)(5). In eac h case , the relationship at iss ue wa s denominated a s a lea sehold but was found to be something othe r than a tr ue le a se , a

nd the Cod e pr ov isi on s at is su e on a pp e a l w e re fo un d to be ina pp lic a ble . T he se decisions wer e not at all conc erne d with the construction of the term “e x ecutor y contra ct,” howeve r, and thus provide no support for COR’s ar g ument that the Project Agree ment is not
e x e c u t o r y. COR’s “pre paid option” ar g ument is equally unavailing . Whil e some c ourts have10

held that options contrac ts under which the optionee fully paid its price f

or the option to buy proper ty befor e the de btor filed for bankruptc y

are not executory

(bec ause no pe rfor

mance is due from the optionor unless the option is exercised) , see, e .g ., Unsec ured Cre ditors’ Comm. of Robert L . Helms Constr. & De v. Co. v. Sout hmark Corp. (I n re Rober

t L . Helms Constr. & De v. Co.), 139 F.3d 702, 706 ( 9th Cir. 1998) (option contrac t not ex ecutor y if optionee did not exercise option prior to petition’s filing ); Br own v. Snellen (In re G iesing ), 96 B .R. 229, 232 (B ankr. W.D. Mo. 1989) (option contr act not executory ), and othe rs treat such contra cts as executory , see, e .g ., In re Simon Transp. Ser vs., 292 B.R. 207, 219-20 ( Ba nkr. D. Uta

h 2003) (o pti on c on tr a c ts e xec uto ry

); In r e A. J. L ane & Co. , Inc ., 10 7 B .R. 43 5, 43 7 ( B ank r. D. Ma ss. 1989) (same), ther e is no fac tual basis for a pplication of the pre paid option analy sis in thi s matter beca use it is undisput ed that COR had an unsatisfied contra ctual oblig ation to pay some $3.5 milli on as of the pe tition date.

COR’s secure d rea l estate purc hase tra nsaction ar g ument focuse s on the aspec ts of the Project Agree ment that call for exchang es and tra

nsfer s of par

ticular pa rce ls of proper

ty . COR argues that the outstandingrea l property transfe r aspe ct of the Projec t Ag ree ment constitutes a provision for the r eturn or r edemption of prope rty secur ing the money

advanc ed
un de r t he a g re e me nt f

or c on str uc tio n o f t

he su pe rm ark e t, a llu din g to d e c isi on s in wh ic h c ourt s have f ound that proper

ty transac tions in which the seller re tains possession of, or title to, the proper ty until pay ment in full has been ma de may constitute secur ed tra

nsactions under applicable law outside the ba nkruptcy context. S ee, e .g ., In re Pea rson Indus., Inc., 142 B .R. 831, 838-39 (B ankr. C.D. I ll. 1992) (applying la w of sec ured tra

nsactions wher e purpose of seller ’s
re te nti on of tit le wa s to e ns ur e pa

y me nt) ; B e ard

v. Ne ws ome , 3 33 S.E .2 d 5 27 , 5 30 (N .C. Ct.11

App. 1985) (whether

proper ty rema ined in possession of seller is a f actor in determiningwhether pr op e rt y tr ans a c tio n w a s a c tua lly

a mor tg a g e ); se e 3 Co lli e r o n B ank ru ptc y ¶ 3 65 .0 2[1][a ] (1 5th ed. re v. 2007). The Proje ct Ag ree ment, howeve r, involved multiple transfer s of prope rty and money conditioned on obliga

tions to be perfor

med at var ious tim es by

the two par

ties. COR’s
a tte mpt to a na log ize thi s c omp le x ar

ra ng e me nt t o a

sim ple purc ha se of

pr op e rt y wi th t itl e
re ta ine d unti l pa

y me nt h a s b e e n ma de in f

ull , o r a sim ple loa n s e c ur e d b y

a ple dg e of pr op e rt y , is untenable. F urthermor e, the a nalog y nece ssarily

fails bec ause the supermar ket par cel that the Project Ag ree ment require s Penn Traf fic to transf

er to COR upon repa

y ment of the c onstruction costs includes prope rty

that never

belong ed to COR. See Penn Tra ffic I , 322 B.R. at 66 ( “The 7.2 acr e par cel c ontaining the [s] uperma rket a nd adjac ent par

king lots . . . consists of the land orig inally owned by

Penn Traf

fic, a ug mented by

the Deve loper’s Swa

p Parce l and construc tion of the [s] uperma

rket a nd diminis hed by

the Owne r’s Swap Par cel c onvey ed to COR.”). Acc ording ly , the cour

ts below proper ly

deter mined that the Project Agree ment
wa s an e xec uto ry

c on tr a c t w ith in t

he me anin g of

§ 3 65 of the Cod e a s o f t

he date Pe nn

Tr a ff ic
commence d its chapter 11 ba nkruptcy proce eding
. Ex ecutor iness and the de btor’s rig hts with respec t to assumption or rejection of a n executory contra ct ar e norma lly

assessed a s of the petition date ( the date on which a voluntar y bankruptc y

such as Penn Tr aff

ic’s is commenc ed). I

n re Riodizio, I nc., 204 B .R. 417, 421 (B ank r. S.D .N .Y . 1 99 7) . So me c ourt s h ave , h ow e ve r, de nie d d e bto rs ’ p os t- pe tit ion a tte mpt s to
assume or r ejec t contrac ts that were executory “as of the petition date” in lig ht of post-petition events a ffe cting those contra cts. COR relies on g ener al statements in such de cisions to the effe ct that “eve nts after

the filing of the ba

nkruptcy petition may

cause the contra ct to be re g arde d as12

not executory

when the motion to assume or r ejec t was made ,” see e.g ., In re Child World, I nc., 147 B.R. 847, 852 (B ankr. S.D.N.Y . 1992), in arguing tha t where , as in this case, the non-debtor party to the contra ct has re ndere d (or at least tender ed) its re maining pe rfor mance post-petition
un d e r a c o n tr a c tth atw a s e x e c u t o r y atth e p e t i t i o nd a t e , th e c o n tr a c ti s n o l o n g e r e x e c u t o r y. The c ases in which the post-petition evaluation principle ha s been invoke d to find that f or me rl y e xec uto ry

c on tr a c ts h a d lo st the ir

e xec uto ry

status by the tim e the de bto r m a de its motion to assume or rejec t do not, however , provide support for the notion that a non-de btor party ’s unilatera l post-petition actions can vitiate the e x ecutor y status of a c ontrac t where the de bto r h a s d on e no mor e tha n e xer c ise its Cod e -gra

nte d r ig ht t o e njo y

“ br e a thi ngsp a c e ” wh ile decidingwhether

to assume or re

ject the c ontrac t. Rather, cour ts have looked to the impac t of post-petition events wher e the c ontrac t expi red post-pe tition by its terms, such that there wer e no longe r any

obligations to assume or reje ct, or whe re the debtor itself ha d taken a ffirmative action under a contra ct that af

fec ted the existence of outstandingperf ormanc e oblig ations. See e.g ., Counties Cont rac ting & Constr. Co. v. C onstitut ion L ife Ins. Co., 855 F.2d 1054, 1061 (3d Cir. 19 88 ) ( “ A c on tr a c t ma

y no t be a ssume d und e r § 36 5 if it h a s a lr e a dy

e xpir e d a c c or din g to i ts terms.”) ; I n re Spec trum Info. Tec hs., Inc., 193 B .R. 400, 404 (Ba nkr. E.D.N.Y . 1996) (f

inding employ ment ag ree ment no longe r executory wher e debtor

discharg ed employ ee a fter pe tition was filed and pr ior to motion t o reje ct ag ree ment, as employ ee “ no longe r had a ny materia l
un pe rf or me d o bli g atio ns un de r t

he
. . . [a ]g re e me nt” ); In r e To ta l T ra ns p. Se rv ., Inc ., 37 B .R. 904, 906 (B ankr. S.D. Ohio 1984) ( holding c ollective bar g aining ag ree ment no longe r executory wher e ente rprise c ease d operations post-petiti on and “the re c an be no f uture pe rfor

mance by either the employ er or

union members . . . of . . . [their] obligations”); In re Pesc e B akingCo.,13

Inc., 43 B .R. 949, 957 (Ba nkr. N.D. O hio 1984) (holding that collective ba rg aining ag ree ment that expired by

its own terms prior to hea ringon motion to reject wa s no longe r executory beca use “the re c an be no pe rfor mance by either pa rty under the terms of the a g ree ment”). I n the instant matter, by

contra st, the Project Ag ree ment had not expired at the time of Penn Tr aff ic’s reje ction motion, nor had Penn Tra ffic taken any aff irmative ac tion affe cting the exist ence of
outst and ingpe rf

or manc e ob lig atio ns . Sy mpathy fo r t he no n- de bto r t

hat ma y , thro ug h n o f

a ult of its ow n, be ar s ome signific ant burde n from the de btor’s re jection of a

n executory

contra ct due to the ha

ppenstanc e of
an unf or e se e n b ank

ru ptc y pr oc e e din g is u

nd e rs tand a

ble . T he no tio n th a t a

no n- de bto r c ou ld preve nt the exercise of

§ 365 rig hts with reg ards to an e x ecutor y contra ct throug h post-petition perf ormanc e of the non-debtor’ s contrac tual obligations is, however, inconsistent with both the plain languag e and the policy of the Code. As f

or the languag e of the statute, §§ 365 and 1107 expressly permit a c hapter

11 debtor to move to assume or reje ct an e x ecutor

y contra ct at any time before the conf

irmation of a plan unle ss the court orde rs it to make an e arlier deter mination. See 11 U.S.C. §§ 365(a) , 365(d)( 2), 1107(a ). The Code does not condition the rig ht to assume or
re je c t on la c k o f p re

jud ic e to t

he no n- de bto r p a

rt y , a nd the satis fa c tio n o f c la ims a t le ss t ha n th e ir full non-bankr

uptcy value is common in bankruptc y proce eding s, as is the disruption of nondebtors’ e x pectations of profitable business a rra ng ements. As for policy , we ha

ve noted that “ [t ]he main purpose of Sec tion 365 is t o allow a de bto r t o r e

je c t e xec uto ry

c on tr a c ts i n o rd e r t o r e lie ve the e state of burd e ns ome ob lig a tio ns wh ile
a t th e same tim e pr ov idi ng‘a me ans wh e re by

a de bto r c an f

or c e oth e rs to c on tin

ue to d o b us ine ss
w i thi tw h e nth e b an kr

u p t c y f i l i n g m i g h to th e r

w i s e m ak e th e mr e l u c t an tt o d o s o . ’ ” F r i t o - L ay,14

Inc. v. L TV Steel Co., Inc. (I n re Chate aug ay

Corp.), 10 F .3d 944, 954-55 (2d Cir. 1993) ( quoting Richmond L easingCo. v. Capital Bank, N .A., 762 F.2d 1303, 1310 ( 5th Cir. 1985)). Ordinar ily , the [chapter 11] debtor ne ed not commit itself to assumption or rejection of such a c ontrac t until a reorg anization plan is confirmed. In the meantime, the e x ecutor y contra ct re mains in effe ct and c reditors a re bound to honor it. I f and when assumed, the contra ct oper ates a ccor ding to its tenor. . . . Par ties who wish to know wher e they stand may , p ur su ant t o 1 1 U .S. C. § 36 5( d) (2 ), se e k to c omp e l an e a rl y e le c tio n. . . . B ut t

he re is no assura nce that the judge will acquiesc e. The interests of the c reditors c ollectively and the bankr upt estate a s a whole w ill not y ield easily to the convenie nce or

advanta g e of one c r e d i t o r o u to f m an y. Pub. Serv. Co. of N.H. v. N.H. Ele c. Coop. (In re Pub. Serv. Co. of N.H .), 884 F .2d 11, 14-15 (1st Cir. 1989) (citations omitted). “In short, § 365 permits the trustee or debtor-in- possession, subject to the appr oval of the ba nkruptcy court, to g o throug h the inventory of executory contra cts of the de btor and de cide whic h ones it would be bene ficial to adhe re to a nd which ones it would be benef

icial to reje ct.” Or ion Pictures Corp. v. Showtime Networks, Inc. (I n re O rion Pictures Corp.), 4 F .3d 1095, 1098 (2d Cir. 1993).

Howeve r longthis process may take, howe ver one rous the dilemmas fa ced by the non-debtor pa

rty to an executory

contra ct may

be while the non- debtor a waits the debtor’ s de c isi on , a

nd wh e the r o r n ot t

he ba nk ru ptc y jud g e g ra nts a mot ion by the no n- de bto r p art

y to
acc eler ate the de btor’s timetable for making its election to assume or r ejec t, the power to make that elec tion is, as we made c lear in I n re Chate aug ay

Corp., that of the de btor alone. 10 F .3d at 955 (“Sec tion 365 does not confer any power of ele ction upon the other c ontrac ting pa rty .”);
acc ord, In re Pub. Serv. Co. of N.H ., 884 F.2d at 15 (“The Ba nkruptcy Code place s the option of assuming or

reje ctingexecutory

contra cts with the debtor, not with its business partners. To disturb this m echa

nism would unbalance the Code’s ove rridingpolicy favor ing de btor15

reor g anization and reha

bilitation.”). That the de btor’s intere sts are pa ramount in the bala

nce of control is undersc ored by the business judg ment standard e mploy ed by courts in deter

mining whe ther to per

mit the debtor to assume or

reje ct the contr act. See Orion Pictures, 4 F .3d at 1099 (“ [B]ankruptcy court revie winga trustee ’s or de btor-in-possession’s de cision to assume or re ject an e x ecutor

y contra ct sh ou ld e xami ne a

c on tr a c t and

the surr ound ingc ir c ums tanc e s a nd a pp ly its be st ‘ bu sin e ss judgme nt’ to determine if it would be benef

icial or burde nsome to the estate to a ssume it. . . . [T] he proc ess of de ciding a motion to assume is one of the ba nkruptcy court plac ing itself in the position of the trustee or de btor-in-possession and de termining whether assuming the contra ct would be a g ood business decision or a bad one.” (citations omitted)); Sundial Asphalt Co. v. V.P.C. I nvestors, Corp. (In re Sundial Asphalt Co.), 147 B .R. 72, 81 (E.D.N.Y. 1992) (“Under the ‘business judg ment’ test, an e x ecutor y contra ct . . . should be re jected if the debtor c an demonstrate that rejec tion will benefit the estate.” (citation omitted)). This standar d rathe r ob vio us ly pr e su pp os e s th at th e e state wi ll a ssume a c on tr a c t on ly

wh e re do ingso wi ll b e to i ts
e c on omi c a dv anta g e and

wi ll r e je c t c on tr a c ts who se pe rf or manc e wo uld

be ne fi t th e c ounte rp art

y at the expense of the estate.

The Code pr ovisions permitti ng a debtor to acc ept or re

ject an e x ecutor

y contra ct do not alter the pa

rties’ c ontrac tual rig hts. The terms of the contra ct ar e uncha ng ed and thus, a s shown above , wher e the c ontrac t expi res by its own terms in the course of the ba nkruptcy , or the debtor take s action in the cour se of the ba nkruptcy to terminate the outstandingobligations, the contra ct’s mer e executory nature as of the c ommenceme nt of the proc eeding —without more— will not guar antee the debtor the availability of § 365’s a ssumption and rejec tion provisions.COR also argues that, eve n if Penn Tra ffic pr operly reje cted the Proje ct 5 Ag ree ment, COR is not limit ed to a g ener al unsec ured c laim ag ainst the estate. COR conte nds that it is entit led to invoke the bene fit of § 365(i) a nd/or (j) of the Code (which pr ovide c ounte rp art ie s to c e rt a in r e je c te d e xec uto ry

re a l e state sa le s o r p ur c ha se c on tr a c ts w ithri g hts to particula r ele ments of re lief), or

to obtain specific pe rfor

mance of the Projec t Ag ree ment. Be cause these a

rguments anticipate issues that may arise in c laims-adjudication proc eeding s that have no t y e t c omm e nc e d, we thi nk it b e st t o p e rm it the B ank ru ptc y Court to c on sid e r t

he se arguments in the first instance.

COR also relies upon Columbia County Indus. Dev. Ag ency

v. Hudson Valley Care Ctrs., Inc., No. 1:06-CV- 1158 (L EK), 2007 WL2261585 (N.D.N .Y. Aug . 2, 2007), in a su bmi ssi on to t his Court purs ua nt t o F e de ra l Ru le of

Ap pe llate Pr oc e dure 28 (j ). Th a t r e lia nc e is misplaced. Columbia County is clear ly distinguishable f

rom the pre sent ca se in sever al re spects. Most obviousl y , Columbi a County did not discuss the specific issue be fore us here – whether post-petition perfor

mance by the non-de btor party

to a contra ct may

rende r a c ontrac t none xec uto ry fo r p ur po se s o f § 36 5 o f t

he B ank ru ptc y Cod e . A sid e fr om t

he fa c t th a t th is c a se prese nts a question not resolved by the district court in Columbia County , we a re satisfied, in any event, that ther e wa s far

g reater pe rfor

mance by the appe llant there, a

nd that the unique tax policy c on c e rn s in

that c a se are he re wi tho ut p ara lle l. 16 Where, howe ver, the parties’ rig hts under the ter ms of their pre -petition ag ree ment have not be en altere d or extinguished by operation of nonbankruptcy law, both par

ties remain subjec t to the contra ctual oblig ations, and re jection of the c ontrac t constitutes a brea ch. In the eve nt of reje ction of such a

n executory

contra ct, the Code g overns the tr eatment of the non-de btor party ’s
re s u l t i n g cl ai mwi th i nth e b an krup t cy p ro ce ed i n g. Her e, neither

the terms of the Project Ag ree ment nor any applicable principles of nonbankruptc y

law wa rra nt deviation from the g ener al rule r equiringtreatment of the Project Ag ree ment, which wa s executory as of the c ommenceme nt of Penn Tra ffic’ s bankruptcy proce eding , as executory

notwithstanding COR’s attempt to complete its per formanc e. We have considere d COR’s remainingarguments for re versa l of the District Court’s dec ision and find the m, s imi larl y , w ith out me ri t. 5

Acc ording ly , the District Court proper ly held in Penn Traf

fic I Ithat the Project17

Ag ree ment rema ined executory as of the time Penn Tr aff ic moved to re

ject it, and the District Court’s subsequent orde r af firming the B ankruptc y

Court’s g rant of the motion to reject the Project Ag ree ment is hereby aff irmed. CO NC LU SION The Apr il 9, 2007, Memorandum and Or der D ecidingAppea l from Orde r of Ba nkruptcy Court is affirmed.