Lubrizol Enterprises v. Richmond Metal Finishers

756 F.2d 1043 (1985)

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Nature of the Case

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Facts

D entered into the contract with P that granted P a non-exclusive license to utilize a metal coating process technology owned by D. Under the agreement, D was (1) to notify P of any patent infringement suit and to defend in such suit, to notify P of any other use or licensing of the process, and to reduce royalty payments if a lower royalty rate agreement was reached with another licensee; and to indemnify P for losses arising out of any misrepresentation or breach of warranty by D. P was to account for and to pay royalties and to cancel certain existing indebtedness. P would defer use of the process until May 1, 1983. P never used D technology. D filed Chapter 11 and sought under § 365(a), to reject the contract with P. The bankruptcy court properly interpreted § 365 as requiring it to undertake a two-step inquiry to determine the propriety of rejection: first, whether the contract is executory; next, if so, whether its rejection would be advantageous to the bankrupt. The bankruptcy court approved the rejection. The district court reversed that determination in neither test was satisfied and disallowed the rejection. D appealed.