6 F.3d 492 (7th Cir. 1993), 92-3902, Matter of Midway Airlines, Inc.

Docket Nº:92-3902.
Citation:6 F.3d 492
Party Name:In the Matter of: MIDWAY AIRLINES, INC., Midway Airlines (1987), Inc. and Midway Aircraft Engineering, Inc., Debtors. The METROPOLITAN AIRPORTS COMMISSION, a Minnesota public corporation, Appellant, v. NORTHWEST AIRLINES, INC. and Sheldon L. Solow, bankruptcy trustee for the estate of Midway Airlines, Inc., Midway Airlines (1987), Inc. and Midway A
Case Date:October 04, 1993
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
FREE EXCERPT

Page 492

6 F.3d 492 (7th Cir. 1993)

In the Matter of: MIDWAY AIRLINES, INC., Midway Airlines

(1987), Inc. and Midway Aircraft Engineering,

Inc., Debtors.

The METROPOLITAN AIRPORTS COMMISSION, a Minnesota public

corporation, Appellant,

v.

NORTHWEST AIRLINES, INC. and Sheldon L. Solow, bankruptcy

trustee for the estate of Midway Airlines, Inc.,

Midway Airlines (1987), Inc. and Midway

Aircraft Engineering, Inc., Appellees.

No. 92-3902.

United States Court of Appeals, Seventh Circuit

October 4, 1993

Argued June 3, 1993.

Page 493

Michael B. Fisco, Steven W. Meyer, Keith W. Bartz, Oppenheimer, Wolff & Donnelly, Minneapolis, MN, Mark Leipold, Lois K. Winston, Oppenheimer, Wolff & Donnelly, Chicago, IL, and Thomas W. Anderson (argued), Metropolitan Airports Com'n, Minneapolis, MN, for appellant.

Sheldon L. Solow, Sachnoff & Weaver, Chicago, IL, for debtors.

Larry M. Wolfson, Timothy J. Chorvat (argued), and David P. Sanders, Jenner & Block, Chicago, IL, for appellees.

Before BAUER, CUDAHY and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

On March 25, 1991, Midway Airlines, Inc., and certain other affiliated entities, filed for bankruptcy under chapter 11 of the Bankruptcy Code. 11 U.S.C. Secs. 101-1330 (hereinafter the Code). Midway ceased operations on November 13, 1991, and, two weeks later, converted its chapter 11 reorganization into a liquidation under chapter 7. A short time later, Sheldon L. Solow was appointed trustee to administer Midway's bankruptcy estate.

Before its demise, Midway ran scheduled airline service to and from Chicago's Midway Airport. Beginning in 1989, Midway leased Gate 43 at the Minneapolis/St. Paul International Airport (MSP Airport) from the Metropolitan Airports Commission (MAC), a public corporation organized under Minnesota law for the purpose of owning and operating aeronautical facilities in Minnesota including the MSP Airport. By the time Midway suspended operations, its obligations to MAC under the lease were in default.

As part of his efforts to liquidate Midway's assets, the trustee solicited bids for Midway's leasehold interest in Gate 43. Northwest Airlines, Inc., submitted the only bid. Northwest offered to cure all of Midway's defaults under the lease and to pay an additional $5,000. There is no dispute that

Page 494

Northwest is a major tenant at MSP Airport. 1

The trustee moved the bankruptcy court for authority to assume the lease and to assign it to Northwest. MAC objected on two grounds: (1) that applicable Minnesota law as well as the federal Airline Deregulation Act of 1978 excuse MAC from accepting performance of Midway's obligations under the lease from Northwest and (2) that permitting Northwest to assume the lease would be anti-competitive because of Northwest's dominant position at MSP Airport. The bankruptcy court overruled MAC's objections. MAC appealed to the district court which affirmed the bankruptcy court's decision. MAC now appeals to us. We affirm, but for reasons different than those expressed by the district court.

The question presented here is quite narrow: Does section 365 of the Code preclude the trustee from assuming Midway's lease for Gate 43 and assigning it to Northwest without MAC's consent? Section 365 gives a trustee in bankruptcy the authority either to reject or to assume executory contracts and unexpired leases. Ordinarily, a trustee may take either of these actions without the consent of the other party to the contract or lease and notwithstanding a provision in the applicable agreement that purports to restrict assignment. See 11 U.S.C. Secs. 365(a) & (f)(1). This rather extensive power reflects the important consideration that the trustee should be able to abandon contracts that impose burdensome liabilities upon the bankruptcy estate, but should also be allowed to retain favorable contracts that benefit the estate. Benjamin Weintraub and Alan N. Resnick, Bankruptcy Law Manual p 7.10 (3d ed. 1992). Section 365 thus advances one of the Code's central purposes, the maximization of the value of the bankruptcy estate for the benefit of creditors. SeeIn re L & S Industries., Inc., 122 B.R. 987, 993 (Bankr.N.D.Ill.1991), aff'd sub nom. Williams v. Stefan, 133 B.R. 119 (N.D.Ill.1991), aff'd, 989 F.2d 929 (7th Cir.1993). The trustee's power, however, is not absolute.

Section 365(c) provides, in pertinent part, as follows:

The trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if--

(1)(A) applicable law excuses a party, other than the debtor, to such a contract or lease from accepting performance from or rendering performance to an entity other than the debtor ... whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and

(B) such party does not consent to such assumption or assignment....

MAC is withholding its consent to the assignment of the gate lease to Northwest. As a result, it contends that the issue before us is whether there exists any "applicable law" that excuses MAC from accepting performance of the lease from an airline other than Midway. 2 In this respect, MAC relies heavily upon In re Braniff Airways, Inc., 700 F.2d 935, 943 (5th Cir.1983), in which the Fifth Circuit held that the Federal Aviation Administration, in its capacity as operator of Washington National Airport, was excused from accepting assignment of a lease for a gate at that airport by Braniff's bankruptcy trustee. 3 We conclude, however, that ultimately we need not reach the issue raised by Braniff.

MAC points out that it is a public corporation "created by statute to coordinate and further the interests of aeronautics in the

Page 495

State of Minnesota...." MAC Br. at 5. To carry out this function, the State of Minnesota has endowed MAC with a broad spectrum of powers, including the authority to (1) acquire property, (2) sue and be sued and, most importantly for our purposes, (3) lease its property to others. Minn.Stat Sec. 473.608 subds. 2, 4 & 15 (1992). On the basis of these statutory provisions, and others, MAC claims "the exclusive authority to lease space at MSP Airport." MAC Br. at 7. This assertion is not particularly controversial, and, in fact, is one that the trustee does not deny. But it is quite another matter whether these same provisions constitute "applicable law" within the meaning of section 365(c) allowing MAC to block the proposed assignment of the lease to Northwest.

Section 365(c) is an exception to the general rule that a bankruptcy trustee may freely assign and delegate a debtor's rights and duties under his executory contracts and unexpired leases. 4 Its purpose is rather narrow: to prevent a trustee from forcing a party to accept performance from, or provide performance to, someone other than the party with whom it contracted in those situations where the identity of the party is central to the obligation itself. See, e.g.,In re Bronx-Westchester Mack Corp., 20 B.R. 139, 143 (Bankr.S.D.N.Y.1982) (An "agreement which does not depend upon a special relationship between the parties is not within the reach of [the Sec. 365(c) ] exception."). The paradigmatic example of such an agreement is the so-called "personal service contract," a contract entered into on the basis of the "character, reputation, taste, skill, or discretion of the party that is to render [performance]." 3 E. Allan Farnsworth, Farnsworth on Contracts Sec. 11.10, at 129 (1990). There can be little doubt, therefore, that, had MAC contracted with Luciano Pavarotti to sing in its passenger facilities in order to soothe the souls of weary travelers, it could not be compelled to accept performance from...

To continue reading

FREE SIGN UP