Court Opinion

ID: 6938434
Source: CourtListenerOpinion
Date Created: 2022-07-24 00:50:37.118455+00
Date Added: 2024-06-11T16:07:35.778177
License: Public Domain

WIDENER, Circuit Judge,
dissenting;
I respectfully dissent.1
*913I am of opinion that since only Andrews can perform the noncompetition agreement, performance that only he can render, then the right to receive Tarmac’s payments is not the property of the trustee, for the payments themselves are excluded from property of the estate. They are “earnings from services performed by an individual debtor after the commencement of the case.” 11 U.S.C. § 541(a)(6).
The substance of the majority decision is found on pages 911-912 of the opinion and is:
From this, Andrews argues that the ... [non-competition agreement] is executory in nature and therefore that postpetition payments were made in exchange for post-petition forbearance. The argument is unconvincing. Even assuming the ... [non-competition agreement] may be characterized as an executory agreement, it does not thereby follow that the contract is one for the performance of services within the meaning of § 541(a)(6). (footnote omitted)
I.
In view of this holding, it is well to briefly recount the relevant facts.
Andrews and the other owners sold the assets of their concrete business, called AMAX, to Tarmac for $9 million under the terms of a purchase money agreement.
By virtue of a separate non-competition agreement Andrews agreed not to compete in the concrete business with Tarmac within Tarmac’s business territory for a period of four years. The consideration for this separate agreement was $1 million, payable in quarterly installments of $62,500, plus interest. The execution of the non-competition agreement was an express condition of the sale “because Tarmac was concerned about the AMAX principals’ substantial customer relationships and contacts in the ready-mix concrete business.” P. 908. “... Tarmac arrived at the one million figure based on its estimate of the value of eliminating future competition from Andrews.” P. 908. The order of the bankruptcy court, affirmed by the district court and the panel, not only held that the payments under the noncompetition agreement were not the property of Andrews, it held that "... all payments under the non-competition agreement are property of the bankruptcy estate pursuant to 11 U.S.C. § 541.” A12.
II.
The first proposition I examine is whether or not the noncompetition agreement was an executory agreement.
That agreement, in pertinent part, provides:
1. Non-com/petition. In consideration of the payment set forth in § 2 of this agreement by purehaser[Tarmac], for a period of four (4) years after the closing, ... [Andrews] shall not ©engage ... directly or indirectly, in the readymix concrete business within the counties (or cities) [naming certain counties or cities in Northern Virginia, Maryland and the District of Columbia]_ Alll.
* * * *
2. Payments. In consideration of the obligations of ... [Andrews] set forth in § 1 of this agreement, [ ... Tarmac] shall pay to [Andrews] ... the sum of $1,000,000 payable in quarterly installments of $62,-500 each, together with quarterly inter-est_ A112.
So the obligation of Andrews not to compete extended for four years after the sale, and the obligation of Tarmac to make the payments extended for a like period of time.
In Lubrizol Enter., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir.1985), we decided under the Bankruptcy Code whether or not the contract involved in that case was executory. That contract was a non-exclusive license agreement to utilize a metal coating process in which the licensor (RMF) agreed to give the licensee (Lubrizol) notice of any patent infringement suit or any other use or licensing of the process, and not to license the same to anyone else at a lower *914royalty payment. The licensee owed to the licensor the duty of accounting for and paying royalties for the life of the contract. The licensor filed a petition in bankruptcy and sought to reject the licensing agreement in order that it might sell or license the technology unhindered.
Among others, we held that the following question had to be decided: “first, whether the contract is executory.” 756 F.2d at 1045.
We decided that under 11 U.S.C. § 365(a) “... a contract is executory if performance is due to some extent on both sides.” 756 F.2d at 1045. We quoted with approval Professor Countryman’s definition that a contract is executory if the “ ‘ “obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete the performance would constitute a material breach excusing the performance of the other.” ’ ” 756 F.2d at 1045. We held that the contract was execu-tory because of the “unperformed continuing duty of forbearance”, 756 F.2d at 1046, on the part of the licensor, as well as other contingent duties, and also the “unperformed and continuing duty of accounting for and paying royalties for the life of the agreement”, 756 F.2d at 1046, on the part of the licensee.
In the case at hand, Andrews had the unperformed and continuing duty not to compete with Tarmac for a period of four years, which had not expired at the time he filed his petition in bankruptcy. Tarmac had the unperformed and continuing duty during that same period of making the $62,500 payments so long as Andrews was performing his duty not to compete.
In my opinion, the non-competition agreement at issue here is a perfect example of an executory agreement under the definition of the same in Lubrizol. Performance was due to some extent on both sides for a period of four years. Competing by Andrews or nonpayment by Tarmac would undoubtedly have been a material breach of the contract excusing performance by the other.
The majority disposes of Lubrizol as “largely irrelevant to the instant case.” P. 911. It justifies not following Lubrizol for the reason that Lubrizol was decided under 11 U.S.C. § 365, “... a bankruptcy provision that applies in a context different from § 541.” P. 911. What the majority does not mention is that the reason for the existence of 11 U.S.C. § 365 is executory contracts. The section even has as its catch line the following: “Executory contracts and unexpired leases.” (Italics added.) That section, which takes up almost 13 pages of Norton’s reprint of the Bankruptcy Code, is devoted entirely to executory contracts and unexpired leases under the Bankruptcy Code. The section is not limited to any particular executory contract, but as to the treatment of executory contracts in general under the Bankruptcy Code, as well as unexpired leases, which latter has no application here.
I therefore suggest that the holding of the majority, that Lubrizol is largely irrelevant, is patent error. If that definition of an exec-utory contract, under the section of the Bankruptcy Code dealing with executory contracts, is not relevant, obtaining a relevant decision under any circumstances would be unlikely. In my opinion, the definition of executory contract in Lubrizol is circuit precedent and should bind us. The contract between Tarmac and Andrews fits exactly within the definition of Lubrizol.

III.

Since the contract between Andrews and Tarmac is not executory, the reasoning of the majority goes, Andrews’ refraining from competition with Tarmac is not “services performed” within the meaning of § 541(a)(6) as those “performed by an individual debtor after the commencement of the case.” It reasons that “the phrase ‘services performed’ is stretched out of shape if it is taken to include refraining from doing something, i.e., not competing, as contrasted with doing something or taking action.” P. 909. That question was also addressed in Lubrizol. We followed Fenix Cattle Co. v. Silver (In Re: Select-A-Seat Corp.), 625 F.2d 290, 292 (9th Cir.1980), for its holding that “an obligation of a debtor to refrain from selling software packages under an exclusive licensing agreement made a contract executory as *915to the debtor notwithstanding the continuing obligation was only one of forbearance.” 756 F.2d at 1045-46. We then addressed the question at hand in that case and held: “[although the license to Lubrizol was not exclusive RMF owed the same type of unperformed continuing duty of forbearance arising out of the most favored licensee clause running in favor of Lubrizol. Breach of that duty would clearly constitute a material breach of the agreement.” 756 F.2d at 1046.
That holding of Lubrizol also is, of course, contrary to the majority opinion in this case which has held that forbearance is not a service under the statute.2
IV.
The decision of the majority is that the Trustee has the benefit of Andrews’ non-competition contract with Tarmac because payments under the contract are ordered to be given to the Trustee. Thus the effect of the majority decision is that the Trustee has assumed the executory contract in order that he might receive the benefits under it, that is to say, the $62,500 payments. What the majority does not mention, however, is 11 U.S.C. § 365(c)(1), the pertinent text of which is:
(c) The trustee may not assume ... any executory contract ... if—
(1)(A) Applicable law excuses a party, other than the debtor, to such contract ... from accepting performance from or rendering performance to an entity other than the debtor ... and
(B) Such party does not consent to such ... assumption.
The non-competition agreement in this case can be performed only by Andrews. Indeed, the majority opinion clearly recites that Tarmac was concerned about the AMAX principals’ (including Andrews’) substantial customer relationships and contacts in the ready-mix concrete business and that the consideration for the agreement was based on Tarmac’s estimate of the value of “eliminating future competition from Andrews.” (Italics added.) P. 908. There is nothing in the non competition agreement about Tarmac accepting performance from anyone other than Andrews. There is no finding of the bankruptcy court that performance of the non-competition agreement by anyone other than Andrews was acceptable to Tarmac. Indeed, nothing along that line is even suggested.
Therefore, the attempted assumption of the non-competition agreement by the Trustee, in order to get the payments, is a violation of 11 U.S.C. § 365(e)(1)(A) and (B):

. In the only other opinion from a court of appeals analyzing the precise problem in this case, the Fifth Circuit, in Matter of Walden, 12 F.3d 445 (5th Cir.1994), by way of dictum, agrees *913with the conclusion that I would reach here: post-petition non-competition payments are not property of the bankruptcy estate under 11 U.S.C. § 541(a)(6).

. The common law is to like effect: "Withholding competition, when not opposed to public policy, is a sufficiently binding consideration.” Camden v. Dewing, 47 W.Va. 310, 34 S.E. 911, 912 (1899).