A panel of the Ninth Circuit disagreed about the ability of a bankruptcy court to extend the deadline for assuming an executory contract after the deadline expired under Section 365(d).
In the opinion of the majority, the bankruptcy court had power to extend the assumption deadline because the trustee demonstrated “excusable neglect” under Bankruptcy Rule 9006(b)(1), when the court had previously granted an extension before the original expiration of the deadline.
The majority reasoned that the deadline was no longer one imposed by statute when the court had previously granted an extension, thus giving the bankruptcy court power to modify its own order.
Marathon Litigation
The case involved long-fought litigation that had been to the Ninth Circuit once before. See In re Point Center Financial Inc., 890 F.3d 1188 (9th Cir. 2018). There, the appeals court took sides in an existing circuit split by holding that attendance or objection in bankruptcy court are not prerequisites to being an aggrieved person with standing to appeal. To read ABI’s report, click here.
The case went down and back up again on different questions, the most prominent being the power to extend the assumption deadline after it had expired.
Originally, the chapter 7 trustee had obtained an extension of the assumption deadline by seeking an enlargement before the 60-day deadline had run out under Section 365(d)(1). The trustee had not sought a further extension based on a former corporate officer’s statement that the management agreement in question had no value.
It turned out there was value because the property could be sold. Therefore, the trustee filed a motion for an extension more than two years after the extended deadline had elapsed. The trustee claimed there was “excusable neglect” under Rule 9006(b)(1) because he had been misled by the former corporate officer.
The bankruptcy court granted the extension and authorized assumption of the executory contract. The district court affirmed, prompting the appeal to the Ninth Circuit.
The Majority Opinion
Sitting by designation, Chief District Judge Algernon L. Marbley from the Southern District of Ohio wrote the majority opinion for himself and Circuit Judge Sandra S. Ikuta. He first ruled that the appellants had standing to appeal and that the bankruptcy court had jurisdiction under 28 U.S.C. § 1334(b) and (e).
Judge Marbley then turned to the question of whether the bankruptcy court had power to extend its own deadline for “excusable neglect.” Even though the deadline had expired, he decided that the retroactive extension granted by the bankruptcy court fell within the “plain language” of Rule 9006(b) because the trustee’s failure to act was the result of excusable neglect.
The question was an issue of first impression in the Ninth Circuit, but Judge Marbley agreed with In re Chira, 343 B.R. 361, 370–71 (Bankr. S.D. Fla. 2006), aff’d, In re Chira, 367 B.R. 888 (S.D. Fla. 2007).
Like Chira, Judge Marbley found power to extend the deadline retroactively for excusable neglect because the bankruptcy court had “taken control” of the deadline once before by granting an extension before the original deadline had expired.
The Dissent
Circuit Judge Morgan Christen dissented in part but concurred in the result on different grounds.
Judge Christen agreed that the appellants had standing to appeal and that the bankruptcy court had jurisdiction under Section 1334(b), but she disagreed about the power to extend the deadline under Rule 9006(b)(1).
Judge Christen described the rule as allowing bankruptcy courts “to extend their own deadlines.” She said she was “not persuaded that the bankruptcy court had the authority to retroactively reopen the period Congress specified for accepting an executory contract, and because it appears the majority’s reasoning would allow the bankruptcy court to reopen and extend any deadline without limit.”
If the deadline had been extended before expiration, Judge Christen said the “parties are not disadvantaged.” On the other hand, she said, “the majority’s new rule will leave parties guessing about whether expired deadlines will be revived years after the fact.”
The majority had not reached the question of equitable mootness because they had affirmed on the merits. Finding the case to be “an easy fit for the doctrine of equitable mootness,” Judge Christen said she would affirm “on that basis alone.”
A panel of the Ninth Circuit disagreed about the ability of a bankruptcy court to extend the deadline for assuming an executory contract after the deadline expired under Section 365(d).
In the opinion of the majority, the bankruptcy court had power to extend the assumption deadline because the trustee demonstrated “excusable neglect” under Bankruptcy Rule 9006(b)(1), when the court had previously granted an extension before the original expiration of the deadline.
The majority reasoned that the deadline was no longer one imposed by statute when the court had previously granted an extension, thus giving the bankruptcy court power to modify its own order.
Marathon Litigation
The case involved long-fought litigation that had been to the Ninth Circuit once before. See In re Point Center Financial Inc., 890 F.3d 1188 (9th Cir. 2018). There, the appeals court took sides in an existing circuit split by holding that attendance or objection in bankruptcy court are not prerequisites to being an aggrieved person with standing to appeal. To read ABI’s report, click here.
The case went down and back up again on different questions, the most prominent being the power to extend the assumption deadline after it had expired.
Originally, the chapter 7 trustee had obtained an extension of the assumption deadline by seeking an enlargement before the 60-day deadline had run out under Section 365(d)(1). The trustee had not sought a further extension based on a former corporate officer’s statement that the management agreement in question had no value.