## Facts

- Aerobox Composite Structures, LLC (the debtor-in-possession) held a prepetition Patent and Technology License Agreement with Tubus Bauer GmbH concerning polypropylene honeycomb technology.
- The agreement granted Aerobox an exclusive North American license for in-house manufacture and use, plus a nonexclusive North American license to manufacture for resale as value-added panels.
- The agreement had a 15-year term starting January 10, 2004, with automatic renewal unless terminated on three months’ notice.
- Assignment required Tubus Bauer’s prior written consent, which it agreed not to withhold unreasonably.
- All monetary consideration due under the agreement had been paid in full.
- Aerobox filed a voluntary Chapter 11 petition on January 23, 2007 and had not yet decided whether to assume or reject the agreement.
- Tubus Bauer moved to (a) compel rejection of the agreement under § 365, or (b) obtain relief from the automatic stay to cancel the agreement under nonbankruptcy law.
- Aerobox, the unsecured creditors’ committee, and the postpetition financier opposed the motion.

## Issues

1. Whether 11 U.S.C. § 365(c)(1) prohibits a debtor-in-possession from assuming an executory contract based solely on the possibility that applicable nonbankruptcy law would bar assignment to a third party without the counterparty’s consent.
2. Whether, absent an actual proposed assignment or change in the identity of the performing party, the court should compel rejection of the license agreement or grant stay relief to permit termination.

## Decision

- The court denied Tubus Bauer’s motion to compel rejection and denied alternative relief from the automatic stay.
- The court held that § 365(c)(1) does not, by itself, bar a debtor-in-possession from assuming an executory contract when the debtor-in-possession proposes to continue performance and no assignment is being pursued.
- Because Aerobox had not sought to assign the agreement, § 365(c)(1) did not provide a basis to force rejection or to permit Tubus Bauer to terminate the agreement notwithstanding the automatic stay.

## Legal Principles

- Section 365(c)(1) limits assumption or assignment only when (i) applicable law would excuse the nondebtor from accepting performance from an entity other than the debtor and (ii) the nondebtor does not consent.
- A debtor-in-possession may be treated as the same contracting entity as the prepetition debtor for purposes of § 365(c)(1) when it seeks only to assume and continue performing, so the counterparty is not compelled to accept performance from a different entity.
- The “actual test” approach applies: § 365(c)(1) is triggered by an actual proposed assignment or change in the identity of the performing party, not by a hypothetical ability to assign.
- Absent an actual assignment effort, § 365(c)(1) does not justify compelling rejection of an executory contract or granting stay relief to enable unilateral termination.

## Conclusion

The court held that § 365(c)(1) did not prevent Aerobox, as debtor-in-possession, from potentially assuming and continuing to perform the technology license, and it therefore denied the licensor’s attempt to force rejection or obtain stay relief where no assignment was being pursued.


In re Aerobox Composite Structures, LLC, 373 B.R. 135 (Bankr. D.N.M. 2007)