Court Denies Motion To Reject Settlement Agreement
In re LG Philips Displays USA, Inc., Case No 06-10245 (BLS), 2006 WL 1748671 (Bankr. D. Del. June 21, 2006) (Judge Brendan L. Shannon)
Debtor moved to reject a settlement agreement under which debtor conveyed option to purchase real estate, as the Debtor wished to purchase the property itself. The party holding the purchase option objected to the motion. The Court denied the motion, holding that the settlement agreement was not an executory contract that could be rejected under the Bankruptcy Code.
A predecessor of the debtor acquired an option to purchase real property. Six years later, but prior to the petition date, the debtor conveyed that right to Delafoil Ohio, Inc. as part of a settlement agreement. During its bankruptcy case, the debtor filed a motion to reject the settlement agreement, asserting that it was an executory contract. Delafoil objected, arguing that the settlement agreement was not an executory contract that the debtor could reject.The Court concluded that the settlement agreement was not an executory contract that could be rejected under 11 U.S.C. § 365(a). Various payment obligations under the settlement agreement would never arise because of the cessation of activities by the debtor that would have triggered such obligations. The debtor asserted that confidentiality provisions of the settlement agreement were executory in nature. The Court held they were not, however, noting that the confidentiality provisions arose in the context of a manufacturing and supply agreement between the debtor and Delafoil that terminated in 2003, prior to the petition date.
Finally, the Court rejected the debtor’s argument that a right of first refusal in the agreement between the parties was an executory contract. Distinguishing the Court’s prior holding in In re Kellstrom Indus., Inc., 286 B.R. 833 (Bankr. D. Del. 2002), the Court held it was not an executory contract because a third-party would be obligated to sell the property to Delafoil, or if Delafoil failed to exercise the option, to the debtor, if the debtor chose to purchase the property. In either event, Delafoil had no obligation to the debtor. Accordingly, the Court held that the settlement agreement could not be rejected under 11 U.S.C. § 365(a).
