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In the Matter of Noonan P.K.A. Willie Nile
United States Bankruptcy Court for the Southern District of New York
17 B.R. 793 (1982)
Robert Noonan (debtor) was a musical artist who had a recording contract with Arista Records (creditor). Under the 18-month contract, Noonan was obligated to create a minimum of two albums. The contract gave Arista the right to extend the contract for three additional 18-month periods, each requiring at least two new albums. Noonan received a $300,000 advance for recording the first two albums. Arista’s only way to recover the advance was through royalties from album sales. This contract was in place when Noonan filed for bankruptcy under Chapter 11. A Chapter 11 filing was typically used for a reorganization of a business that enabled it to remain in business, offering a greater recovery for creditors than a liquidation sale of the business’s assets. After Noonan filed under Chapter 11, even though album sales had been less than expected, Arista exercised its right to renew Noonan’s contract for an additional 18 months, which obligated Noonan to create two more albums. In response, Noonan filed a successful motion seeking a declaration that Arista’s renewed contract was executory. Executory contracts, which can require performance well into the future, are automatically rejected under Chapter 7 bankruptcy. Noonan pursued conversion to a Chapter 7 filing and discontinued his Chapter 11 filing. Arista filed a motion seeking Noonan’s forced reconversion to Chapter 11 and the filing of its plan for reorganization that would yield more money for Noonan’s creditors than could be realized via liquidation of Noonan’s assets under Chapter 7. Arista’s plan also required Noonan to assume the renewed contract.
Rule of Law
Holding and Reasoning (Babitt, J.)
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