## Facts

- Tia Carrere, an actress, entered a personal-services contract with American Broadcasting Company (ABC) in August 1985 to perform on “General Hospital” through August 1988, at roughly 1.5 performances per week for $600–$700 per episode.
- While the ABC contract remained in effect, Carrere agreed to work for Steven J. Cannell Productions on “The A‑Team,” a deal that could become substantially more lucrative if she became a regular.
- ABC sued Carrere in state court for breach, though an actual breach was not expected unless the “A‑Team” option was exercised.
- On March 4, 1986, Carrere filed a voluntary Chapter 11 petition; the next day she filed a notice and motion seeking to reject the ABC contract as an executory contract.
- Carrere declared her primary reason for filing was to reject the ABC contract and accept the “A‑Team” opportunity, and that she sought advice that bankruptcy would permit rejection before entering the “A‑Team” agreement.
- Carrere’s schedules listed unsecured liabilities of $76,575 and assets of $13,191 (amounts ABC disputed).
- ABC opposed rejection, sought discovery on Carrere’s finances and motives, and moved to dismiss the Chapter 11 case as a bad-faith filing.

## Issues

1. Whether a debtor-performer may reject a personal-services contract as an executory contract under 11 U.S.C. § 365, and what standard governs the decision.
2. Whether rejection could improperly deprive ABC of potential equitable relief (including a negative injunction) limiting Carrere’s future employment.
3. Whether filing Chapter 11 primarily to reject an unfavorable contract and pursue more lucrative work constitutes bad faith requiring dismissal.

## Decision

- The court granted Carrere’s motion to reject the ABC personal-services contract under § 365.
- The court applied the business-judgment standard and concluded rejection would benefit the estate by freeing Carrere to pursue higher earnings.
- The court treated rejection as a breach under § 365(g), converting ABC’s rights primarily into a prepetition damages claim rather than ongoing equitable control over Carrere’s labor.
- The court denied ABC’s motion to dismiss, holding that Carrere’s contract-driven motive did not, on this record, make the Chapter 11 filing abusive or warrant dismissal for bad faith.

## Legal Principles

- A personal-services employment agreement may constitute an executory contract subject to rejection under 11 U.S.C. § 365 in Chapter 11.
- Rejection under § 365 is treated as a breach, generally converting the nondebtor counterparty’s remedies into a claim for damages against the estate.
- A Chapter 11 filing motivated in substantial part by the desire to reject a burdensome executory contract is not per se bad faith; dismissal requires a showing that the case lacks a legitimate bankruptcy purpose or is otherwise abusive.
- In assessing rejection, bankruptcy courts generally defer to the debtor’s business judgment when rejection reasonably appears to benefit the estate.

## Conclusion

The bankruptcy court permitted an individual debtor-performer to reject an executory personal-services contract under § 365 using the business-judgment standard, limited the counterparty largely to a damages claim arising from rejection, and declined to dismiss the Chapter 11 case as a bad-faith filing despite the debtor’s acknowledged strategic motive to pursue more lucrative work.


In re Carrere, 64 B.R. 156 (Bankr. C.D. Cal. 1986)