COR Route 5 Co., LLC v. The Penn Traffic Co. (In re The Penn Traffic Co.)

524 F.3d 373 (2008)

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COR Route 5 Co., LLC v. The Penn Traffic Co. (In re The Penn Traffic Co.)

United States Court of Appeals for the Second Circuit
524 F.3d 373 (2008)

Facts

Real estate developer COR Route 5 Co., LLC (COR) held property near a shopping mall. The Penn Traffic Company (Penn Traffic) (debtor) was a food retailer that owned land adjacent to the shopping mall. Penn Traffic wanted to develop a supermarket on its land and entered into an agreement with COR regarding the supermarket development. Under the agreement, COR was to reimburse Penn Traffic for construction costs, and Penn Traffic was to convey the parcel of land for the supermarket to COR and then lease back the improved parcel. Before the parties had fully performed under the agreement, Penn Traffic filed for chapter 11 bankruptcy. At the time of the bankruptcy filing, COR had not reimbursed Penn Traffic for roughly $3.5 million in construction costs or tendered a lease to Penn Traffic, and Penn Traffic had not conveyed the supermarket parcel to COR. Months after Penn Traffic filed its bankruptcy petition, COR sent Penn Traffic a letter tendering the $3.5 million construction reimbursement and a signed lease. Penn Traffic refused to accept the tender and moved to reject the parties’ agreement under 11 U.S.C. § 365, which allows rejection of executory contracts. The bankruptcy court denied the motion. The court recognized that the agreement was executory on the date of the bankruptcy petition because both parties still had unperformed obligations at that time. However, the court held that COR’s postpetition tender of the $3.5 million and lease to Penn Traffic had rendered the agreement nonexecutory, so Penn Traffic could not reject it. Following an appeal, the bankruptcy court authorized the rejection, and the district court affirmed. COR appealed to the United States Court of Appeals for the Second Circuit.

Rule of Law

Issue

Holding and Reasoning (Swain, J.)

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