In re Ortiz, CV 08-06116 MMM.
| Citation | 400 B.R. 755 |
| Decision Date | 21 January 2009 |
| Docket Number | No. BK 08-10004 RR.,No. CV 08-06116 MMM.,No. AP 08-01037 RR.,CV 08-06116 MMM.,BK 08-10004 RR.,AP 08-01037 RR. |
| Parties | In re Victor M. ORTIZ, Debtor. Top Rank, Inc., a Nevada Corporation, Appellant, v. Victor M. Ortiz, an individual, Appellee. |
| Court | United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California |
Aram Ordubegian, Andy S. Kong, Richardson & Patel LLP, Los Angeles, CA, for Appellant.
David Marroso, O'Melveny & Meyers LLP, Los Angeles, CA, Ronald E. Michelman, Michelman & Michelman, Encino, CA, for Appellee.
ORDER REVERSING DECISION OF THE BANKRUPTCY COURT
Top Rank, Inc. appeals an order of the bankruptcy court granting Victor M. Ortiz's motion for summary judgment on its claims for declaratory and injunctive relief. The order was entered on August 18, 2008, and Top Rank timely appealed.
Ortiz is a professional boxer; Top Rank is a boxing promoter.1 In 2005, Ortiz and Top Rank entered into a five-year promotional agreement,2 pursuant to which Ortiz agreed to fight annually in a minimum number of bouts promoted by Top Rank and Top Rank agreed to pay Ortiz a guaranteed minimum purse per bout.3 The agreement contained an exclusivity provision, requiring that Ortiz fight only in televised bouts promoted by Top Rank.4 The contract prohibited Ortiz from fighting in bouts for another promoter for ninety days before or after a televised appearance promoted by Top Rank.5
On January 2, 2008, Ortiz filed a voluntary Chapter 7 bankruptcy petition. On April 21, 2008, he filed an adversary action against Top Rank, seeking declaratory relief, a permanent injunction, and attorneys' fees and costs.6 Ortiz argued that the promotional agreement was rejected by operation of law on March 3, 2008, because the bankruptcy trustee did not assume his obligations under the contract within sixty days after the bankruptcy action was filed, and Top Rank took no action to prevent its rejection within that period.7 See 11 U.S.C. § 365(d)(1) ().
Ortiz asserted that Top Rank had interfered with his efforts to enter an agreement with Golden Boy Productions, another boxing promoter, by advising Golden Boy that the promotional agreement was still valid.8 Ortiz sought a declaration that he was no longer required to perform his obligations under the promotional agreement and an injunction prohibiting Top Rank from interfering with future negotiations between Ortiz and third parties.9 On August 18, 2008, the bankruptcy court entered judgment in Ortiz's favor on the declaratory and injunctive relief claims.10 It concluded that the trustee's rejection of the promotional agreement terminated all of Ortiz's obligations under the agreement; and that Top Rank's rights under the agreement were limited to seeking monetary damages against the bankruptcy estate.11 The court also found that even if the trustee's rejection of the contract did not terminate Ortiz's obligations, the exclusivity provision was unenforceable under Nevada law as an unreasonable noncompetition agreement.12
Top Rank appealed the ruling on August 26, 2008.13 It contends (1) that the bankruptcy court erred as a matter of law in finding that the trustee's rejection of the promotional agreement extinguished all of Top Rank's non-monetary rights under the contract;14 (2) that the court committed reversible error by addressing the reasonableness of the exclusivity provision under Nevada law because Ortiz did not raise the issue in his motion for summary judgment and it did not have an opportunity to conduct discovery or present evidence on the issue;15 and (3) that, even if it was appropriate for the bankruptcy court to address the reasonableness of the exclusivity provision, it erred in finding that the clause was unreasonable as a matter of law.16
The district court has jurisdiction to hear appeals from final judgments, orders or decrees of the bankruptcy court. 28 U.S.C. § 158(a). When reviewing a decision of the bankruptcy court, a district court functions as an appellate court and applies the standards of review generally applied in federal courts of appeal. In re Webb, 954 F.2d 1102, 1103-04 (5th Cir. 1992). The district court must accept the bankruptcy court's findings of fact unless they are clearly erroneous. A finding is clearly erroneous "`when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" In re Banks, 263 F.3d 862, 869 (9th Cir.2001) (quoting Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)). The district court reviews the bankruptcy court's conclusions of law de novo. In re Cohen, 300 F.3d 1097, 1101 (9th Cir.2002); In re Anastas, 94 F.3d 1280, 1283 (9th Cir.1996).
The parties' dispute concerns the effect of the rejection of an executory personal contract in bankruptcy; this issue is addressed in 11 U.S.C. § 365. Section 365(a) provides that "the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." Section 365(d)(1) provides that "[i]n a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected." The parties agree that the promotional agreement was an "executory contract" as that term is defined in bankruptcy law, and do not dispute that it was "deemed rejected" by the trustee's failure to assume it.
Section 365(g) describes the effect of such a rejection:
The exceptions in sections 365(h) and (i) concern unexpired real property leases and time share agreements. Additionally, section 365(n) provides special rules for the rejection of intellectual property license agreements. Notably, the statute does not specifically address personal services contracts. Thus, section 365(g) governs the rejection of such a contract.
Both parties agree that the promotional agreement was "rejected" as a result of the trustee's failure to assume it. Ortiz argues that rejection of the agreement "terminated" it, and relieved him of any further contractual obligations. The bankruptcy court agreed, concluding that Ortiz had no further obligations under the contract and that Top Rank's remedies were limited to filing a claim for money damages against the estate.17
Top Rank argues that rejection merely constitutes a pre-petition breach of the contract, which does not effect the substantive rights and obligations of the parties.18 Thus, it asserts that in addition to filing a claim against the estate, it may also seek injunctive relief enforcing the agreement's exclusivity provision.
The law regarding rejection of executory contracts in bankruptcy has been the subject of much confusion; one court has described it as "murky and confusing." In re Bergt, 241 B.R. 17, 21 (Bankr.D.Alaska 1999). In the past, courts treated a rejection as a cancellation or termination of the contract. See Michael T. Andrew, Executory Contracts in Bankruptcy: Understanding "Rejection," 59 U. COLO. L.REV. 845 (1988) ("Andrew I") (describing the "common portrayal of the rejection of executory contracts as permitting contract revocation, cancellation, avoidance or the like"). Courts now recognize, however, that rejection does not terminate a contract. See In re Mitchell, 249 B.R. 55, 58 (Bankr.S.D.N.Y.2000) () citing In re Lavigne, 114 F.3d 379, 386-87 (2d Cir.1997), and In re Drexel Burnham Lambert Group, Inc., 138 B.R. 687, 709 (Bankr.S.D.N.Y.1992) (quoting Michael T. Andrew, Executory Contracts Revisited: A Reply to Professor Westbrook, 62 U.COLO.L.REV. 1, 17 (1991) ("Andrew II")); see also, e.g., In re Onecast Media, Inc., 439 F.3d 558, 563 (9th Cir.2006) (...
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...(i.e., money damages) can be a viable alternative remedy for breach of the underlying obligation. See Top Rank, Inc. v. Ortiz (In re Ortiz), 400 B.R. 755, 766 (C.D.Cal.2009). Thus, a judgment ordering specific performance from a debtor would constitute a “claim” under § 101(5)(B) where a mo......
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