The opinion of the court was delivered by: Margaret M. Morrow United States District Judge
BANKRUPTCY NO. BK 08-10004 RR
ADVERSARY NO. AP 08-01037 RR
ORDER REVERSING DECISION OF THE BANKRUPTCY COURT
Top Rank, Inc. appeals an order of the bankruptcy court granting Victor M. Ortiz's motion for summary judgment on its claims for declaratory and injunctive relief. The order was entered on August 18, 2008, and Top Rank timely appealed.
I. FACTUAL AND PROCEDURAL BACKGROUND
Ortiz is a professional boxer; Top Rank is a boxing promoter.*fn1 In 2005, Ortiz and Top Rank entered into a five-year promotional agreement,*fn2 pursuant to which Ortiz agreed to fight annually in a minimum number of bouts promoted by Top Rank and Top Rank agreed to pay Ortiz a guaranteed minimum purse per bout.*fn3 The agreement contained an exclusivity provision, requiring that Ortiz fight only in televised bouts promoted by Top Rank.*fn4 The contract prohibited Ortiz from fighting in bouts for another promoter for ninety days before or after a televised appearance promoted by Top Rank.*fn5
On January 2, 2008, Ortiz filed a voluntary Chapter 7 bankruptcy petition. On April 21, 2008, he filed an adversary action against Top Rank, seeking declaratory relief, a permanent injunction, and attorneys' fees and costs.*fn6 Ortiz argued that the promotional agreement was rejected by operation of law on March 3, 2008, because the bankruptcy trustee did not assume his obligations under the contract within sixty days after the bankruptcy action was filed, and Top Rank took no action to prevent its rejection within that period.*fn7 See 11 U.S.C. § 365(d)(1) ("In a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected").
Ortiz asserted that Top Rank had interfered with his efforts to enter an agreement with Golden Boy Productions, another boxing promoter, by advising Golden Boy that the promotional agreement was still valid.*fn8 Ortiz sought a declaration that he was no longer required to perform his obligations under the promotional agreement and an injunction prohibiting Top Rank from interfering with future negotiations between Ortiz and third parties.*fn9 On August 18, 2008, the bankruptcy court entered judgment in Ortiz's favor on the declaratory and injunctive relief claims.*fn10 It concluded that the trustee's rejection of the promotional agreement terminated all of Ortiz's obligations under the agreement; and that Top Rank's rights under the agreement were limited to seeking monetary damages against the bankruptcy estate.*fn11 The court also found that even if the trustee's rejection of the contract did not terminate Ortiz's obligations, the exclusivity provision was unenforceable under Nevada law as an unreasonable non-competition agreement.*fn12
Top Rank appealed the ruling on August 26, 2008.*fn13 It contends (1) that the bankruptcy court erred as a matter of law in finding that the trustee's rejection of the promotional agreement extinguished all of Top Rank's non-monetary rights under the contract;*fn14 (2) that the court committed reversible error by addressing the reasonableness of the exclusivity provision under Nevada law because Ortiz did not raise the issue in his motion for summary judgment and it did not have an opportunity to conduct discovery or present evidence on the issue;*fn15 and (3) that, even if it was appropriate for the bankruptcy court to address the reasonableness of the exclusivity provision, it erred in finding that the clause was unreasonable as a matter of law.*fn16
The district court has jurisdiction to hear appeals from final judgments, orders or decrees of the bankruptcy court. 28 U.S.C. § 158(a). When reviewing a decision of the bankruptcy court, a district court functions as an appellate court and applies the standards of review generally applied in federal courts of appeal. In re Webb, 954 F.2d 1102, 1103-04 (5th Cir. 1992). The district court must accept the bankruptcy court's findings of fact unless they are clearly erroneous. A finding is clearly erroneous "'when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" In re Banks, 263 F.3d 862, 869 (9th Cir. 2001) (quoting Anderson v. Bessemer City, 470 U.S. 564, 573 (1985)). The district court reviews the bankruptcy court's conclusions of law de novo. In re Cohen, 300 F.3d 1097, 1101 (9th Cir. 2002); In re Anastas, 94 F.3d 1280, 1283 (9th Cir. 1996).
B. Whether Rejection of the Promotional Agreement Terminated Ortiz's Obligations Under the Agreement
1. Standards Governing Rejection of Executory Contracts in Bankruptcy
The parties' dispute concerns the effect of the rejection of an executory personal contract in bankruptcy; this issue is addressed in 11 U.S.C. § 365. Section 365(a) provides that "the trustee, subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." Section 365(d)(1) provides that "[i]n a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected." The parties agree that the promotional agreement was an "executory contract" as that term is defined in bankruptcy law, and do not dispute that it was "deemed rejected" by the trustee's failure to assume it.
Section 365(g) describes the effect of such a rejection: "Except as provided in subsections (h)(2) and (i)(2) of this section, the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease --
(1) if such contract or lease has not been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title, immediately before the date of the filing of the petition; or
(2) if such contract or lease has been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title --
(A) if before such rejection the case has not been converted under section 1112, 1208, or 1307 of this title, at the time of such rejection; or
(B) if before such rejection the case has been converted under section 1112, 1208, or 1307 of this title --
(i) immediately before the date of such conversion, if such contract or lease was assumed ...