Executory Contracts Are Automatically Rejected Even if Unscheduled, Fifth Circuit Holds

n a topic where there is scant appellate authority, the Fifth Circuit held that a trustee cannot assume and assign an executory contract after the deadline for assumption has passed, even if the contract had not been scheduled and was unknown to the trustee. The case involved a corporate debtor who knew it owned a patent license but failed to list the license in its schedules. However, there was no effort to conceal the license, Circuit Judge Patrick E. Higginbotham said in his October 29 opinion. After the case converted from chapter 11 to chapter 7, the trustee sold all of the estate’s property. The sale occurred more than 60 days after conversion. Section 365(d)(1) provides in effect that an executory contract not assumed within 60 days of conversion “is deemed rejected.” The sale agreement transferred all of the debtor’s property and listed the assets by category. Although the license fell within a category of transferred property, the license was not specifically listed because the trustee was unaware of the existence of the license. The sale-approval order provided that all executory contracts were assumed and assigned to the purchaser. A year after the sale, a lawsuit ended up in bankruptcy court where the licensor of the patent license contended that the license was rejected and had not been sold to the purchaser. The bankruptcy judge agreed with the licensor and held that the license had been rejected automatically and could not have been sold. The district court agreed.

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