## Facts

- Landlords leased Pennsylvania restaurant property in 1977 under a long-term lease with renewal options; the tenant’s successor was The Ground Round, Inc.
- The parties executed a lease addendum concerning a Pennsylvania liquor license used at the premises.
- The liquor license was transferred to the tenant during the lease term, with an express contractual obligation that, upon lease termination, the tenant would transfer the license back to the landlords for nominal consideration and “free of all claims or violations.”
- In 2004, during an extended lease term, Ground Round filed Chapter 11, ceased operations at the premises, and rejected the unexpired lease under 11 U.S.C. § 365.
- Ground Round asserted it could retain the liquor license notwithstanding the addendum; the landlords sought specific performance compelling reconveyance of the license.
- The bankruptcy court granted summary judgment for the landlords and ordered Ground Round to tender the license for transfer back to the landlords (who would pay transfer costs); the Bankruptcy Appellate Panel affirmed.

## Issues

1. Whether rejection of an unexpired lease under 11 U.S.C. § 365 extinguishes the debtor’s contractual obligation to reconvey a liquor license upon lease termination.
2. Whether the landlords’ right to return of the liquor license is a “claim” under 11 U.S.C. § 101(5), such that the remedy must be reduced to a monetary claim rather than specific performance.

## Decision

- The First Circuit affirmed.
- Rejection under § 365 constituted a breach, not a rescission or termination that eliminated the reconveyance obligation.
- The landlords’ right to the liquor license was not merely an equitable remedy that “gives rise to a right to payment” under § 101(5); it was a right to specific property tied to the lease bargain.
- Because the right was not a dischargeable “claim” that must be satisfied with money, the bankruptcy court properly ordered specific performance requiring transfer of the license back to the landlords.

## Legal Principles

- Rejection of an executory contract or unexpired lease under 11 U.S.C. § 365 is treated as a breach, not an avoidance of the contract or an erasure of all rights created by it.
- An equitable remedy is a bankruptcy “claim” under 11 U.S.C. § 101(5)(B) only if the breach “gives rise to a right to payment,” meaning money is an adequate substitute contemplated by law or the parties’ arrangement.
- Where a counterparty seeks enforcement of a bargained-for right to a specific, unique asset (including property-like interests defined by state law), bankruptcy does not convert that right into a mere unsecured damages claim simply because the debtor rejected the contract.
- Bankruptcy does not expand a debtor’s prepetition property rights beyond the allocation of interests established under applicable nonbankruptcy law and the parties’ agreement.

## Conclusion

The court held that lease rejection did not eliminate the debtor’s duty to return the liquor license at lease termination and that the landlords’ right to the license was not a dischargeable “claim” reducible to money damages, so specific performance ordering reconveyance was proper.


Abboud v. Ground Round, Inc. (In re Ground Round, Inc.), 482 F.3d 15 (1st Cir. 2007)