BANKRUPTCY BULLETIN
In In re EllDan Corp., 2023 WL 175195 (Bankr. D. Minn. Jan. 12, 2023), the bankruptcy court granted the debtor’s motion to reject its franchise agreements pursuant to 11 U.S.C. § 365.
The debtor maintained it exercised sound business judgment for the benefit of the estate in the determination that the costs of royalty fees due to the franchisor outweighed the benefits received under the franchise agreements. The counterparty franchisor objected to the rejection. The bankruptcy court held that the debtor’s rejection decision was not manifestly unreasonable or made in bad faith. Thus, the court approved the debtor’s rejection of the franchise agreements under section 365, leaving the contract counterparty with claims for breach of contract under applicable non-bankruptcy law, and not a rescission of the contract.
Further, the bankruptcy court declined to review the parties’ requests for declaratory and injunctive relief regarding the non-compete provision because of the limited review for the contested matter under Federal Rule of Bankruptcy Procedure 9014. The bankruptcy court ordered the parties may commence an adversary proceeding under Federal Rule of Bankruptcy Procedure 7001 to pursue the additional relief, and the franchisor may file a motion for relief from the automatic stay under 11 U.S.C. § 365(d) to pursue any remedies under applicable non-bankruptcy law.
To read the full opinion, click here.
Editors-in-Chief:
C.J. Harayda, Stinson LLP
David M. Tanabe, Winthrop & Weinstine, P.A.