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* Kara Homes, Inc. v. Century Kitchens, Inc. (In re Kara Homes, Inc.), 374 B.R 542 (Bankr. D.N.J. Aug. 2007) (Kaplan, J.)
Subcontractors could not perfect liens post-petition by completing the process under state law. Under the bankruptcy court's interpretation of New Jersey law, subcontractors asserting liens against residential home builders must first file notices of unpaid balances (NUB's) with the county clerk and then seek a determination of an arbitrator regarding the subcontractor's compliance with the statute and ability to assert valid liens. The chapter 11 debtors in this case were in the business of constructing residential homes and had contracted with several subcontractors pre-petition. At issue was the validity of the subcontractors' liens against the debtors under state law. The court held that the significance of completing this entire process was more than a matter of perfection, "it goes to the heart or creation of the lien and/or interest." Thus, the court concluded that the defendants who had not sought arbitration before the commencement of the case had no "interest in property" or valid liens against the debtors. Accordingly, those creditors were stayed from completing the state law process because doing so, said the bankruptcy court, would amount to the creation of a lien as a direct violation of the automatic stay. See 11 U.S.C. SS 362(b)(3), 546(b).
* COR Route 5 Co., LLC v. Penn Traffic Co. (In re Penn Traffic Co.), 524 F.3d 373 (2d Cir. Apr. 2008) (Swain, J.)
Contracts that are executory as of the petition date do not become non-executory as a result of the non-debtor's post-petition performance. After the commencement of the debtor's case, but before the debtor moved to reject an executory contract with COR, COR tendered its performance of all outstanding obligations under a pre-petition agreement. When the debtor moved to reject that agreement under section 365, COR objected and argued that its post-petition performance had rendered the agreement non-executory and thus immune from rejection. The Second Circuit disagreed, concluding that the debtor was free to assume or reject the agreement with COR because it was executory as of the petition date. COR's attempt to immunize the agreement from rejection by post-petition performance was of no effect. Said the court, "[h]owever long this process may take, . . . the power to make that election is . . . that of the debtor alone."
* Zurich Am. Ins. Co. v. Int'l Fibercom, Inc. (In re Int'l Fibercom, Inc.), 503 F.3d 933 (9th Cir. Sept. 2007) (Hug, J.)
Insurance policy was a non-executory contract that could not be assumed under section
365. While this case is more intriguing due to its procedural posture, it may also be notable for the proposition that workers' compensation insurance policies are non-executory and, therefore, not assumable under section 365. The insurance carrier appealed the bankruptcy court's order under Rule 60(b)(6) clarifying that the debtor could not have assumed an insurance policy under section 365 because the policy was non-executory. The Ninth Circuit affirmed, recognizing that the policy was, indeed, non-executory -- the debtor's failure to pay premiums or reimburse the
