Sixth Circuit BAP Rules Email Accusing Counterparty of Default is Not Anticipatory Breach

OGGUSA, Inc. v. Louisville Dryer Co. (In re OGGUSA, Inc.), No. 22-8010 (6th Cir. BAP June 1, 2023)

On June 1, 2023, the U.S. Bankruptcy Appellate Panel for the Sixth Circuit affirmed an order of a bankruptcy court holding that a certain email accusing a counterparty of default was not an anticipatory breach.  Specifically, OGGUSA, Inc., formerly known as GenCanna, contracted with Louisville Dryer Company to manufacture equipment to be used in GenCanna’s cannabinoid business.  But GenCanna began to experience financial difficulty, including one of its warehouses burning down.

Concerned about GenCanna’s ability to pay, Louisville Dryer sent an email to GenCanna, followed by a letter, that accused GenCanna of being in default of progress payments.  Later, however, it was determined that GenCanna was not in default.

Eventually, GenCanna was forced into an involuntary chapter 11 bankruptcy case.  Thereafter, it sought to reject its contract with Louisville Dryer and recover the approximately $1.8 million it had paid so far based on an argument that Louisville Dyer’s email and letter constituted anticipatory breach.  To the contrary, Louisville Dryer argued that rejection of the executory contract in bankruptcy by GenCanna was the first breach.

Under Kentucky law, the first party to breach cannot recover contract damages.  Also, anticipatory breach is an unequivocal repudiation or renunciation of a contract in advance of the time for performance.

The bankruptcy court determined that the pre-petition correspondence was not an unequivocal repudiation or renunciation.  Accordingly, the court declined to award any damages to GenCanna.  Finding a sufficient basis for the bankruptcy court’s decision, the Sixth Circuit BAP affirmed.

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