Can a Debtor Reject A Terminated Executory Contract? Should The Debtor Do So?

What happens if a debtor’s executory contract terminates or expires of its own terms, after the debtor’s bankruptcy case is filed (while the contract is still executory) but before the debtor moves to reject the agreement? This situation presents one of the more difficult problems for a debtor and the contract counter-party.

In Agarwal v. Pomona Valley Med. Group, Inc. (In re Pomona Valley Med. Group, Inc.), 476 F.3d 665 (9th Cir. 2007), the debtor, Pomona Valley, had entered into a provider agreement with Dr. Agarwal, a primary care physician and certified cardiologist. Agarwal provided basic medical services, but when a patient required specialty medical services, Agarwal was required to seek authorization from Pomona Valley’s Medical Director. The provider agreement had an initial 12-month term and extended automatically for an unlimited number of additional 12-month terms, unless Pomona Valley gave Agarwal written notice of non-renewal.