Venito, Inc. has just filed a voluntary petition under Chapter 11. Its primary asset was an unexpired lease for 9,000 square feet of office space in New York City at a rent of $27.50 per square foot (market rate in 2009). The lease was signed on January 31, 2005, and expires on January 31, 2013. Concurrent with execution of the lease Venito paid a $1 million security deposit ($500,000 in cash and $500,000 in the form of a letter of credit). The lease includes a provision stating that it terminates upon the lessee’s insolvency or on the filing of either a voluntary or an involuntary petition in bankruptcy by the lessee. The lease also prohibits assignment or subletting without the landlord’s consent. Venito had not paid rent for three months prior to the petition date, and it is currently in default on the lease. Prior to the petition date, the landlord had started eviction proceedings by serving a three-day notice to quit, but it had not yet retaken physical possession of the building.

Venito has a license from Langhorn, Inc. to make, use, and sell a patented product. The license provides that it terminates upon the licensee’s insolvency or on the filing of a voluntary or involuntary bankruptcy proceeding by the licensee. It also provides that the license cannot be assigned without Langhorn’s consent. At the time that Venito filed its petition, it had not paid license fees for three months, but Langhorn had not yet sent a notice of default as required by the license. Subsequent to filing the petition, Venito filed a motion to assume the license and assign it to Radical Media.

a. Assume that rental rates have increased to $50 per square foot. Venito has filed a motion with the bankruptcy court to approve assumption of the lease and assignment of it to Radical Media. Venito proposes to keep the $350,000 profit it will make on assignment of the lease. Is the lease an executory contract? Can Venito assume and assign the lease without the landlord’s consent? Can the landlord file a motion to dismiss Venito’s case for bad faith? Who will keep the profit on the lease assignment?

b. Assume that rental rates have fallen to $10 per square foot, Venito does not pay the rent for two months after the petition date, and Venito files a motion to reject the lease. What rights/claims does the landlord have regarding the unpaid rent? Can Venito reject the lease? What are the landlord’s rights to the cash and letter-of-credit security deposits?

c. Does the license from Langhorn terminate upon the filing of the bankruptcy petition? Can it be assumed and/or assigned without Langhorn’s consent? Can Langhorn terminate the license after the bankruptcy filing? What must Venito do to assume and assign the license?