FOR THE NORTHERN DISTRICT OF CALIFORNIA In re FOODSOURCE SALES CORPORATION,                                       No. 1-84-00703      Debtor. ___________________________/ J. TAYLOR HALEY, Trustee,      Plaintiff,    v.                                                                                                  A.P. No. 1-89-0011 FORD C. ABBOTT, et al.,      Defendants. ______________________________/ Memorandum of Decision I. Background
     Debtors FoodSource, Inc., and FoodSource Sales Corporation (collectively referred to hereafter as "FoodSource") were formed to develop and market a patented refrigerated shipping container. While these purposes were straightforward, the debtors' method of marketing the containers was unorthodox and spawned a great deal of litigation, including this adversary proceeding between the Chapter 11 Trustee and hundreds of investors who agreed to purchase containers.      The fair market value of each container, as determined in subsequent tax court proceedings, was about $56,000.00. FoodSource raised capital by selling the containers, or fractional interests in them, to private investors for $260,000.00 per container. The containers were attractive investments despite the high price tag because most of the purchase price was in the form of a nonrecourse note secured by the container. The contract between FoodSource and the investor provided that FoodSource would manage the container and apply the income it earned to the note payments.      The great lure of the FoodSource investment was the potential tax benefits; investors believed that for a modest down payment they could obtain a quarter of a million dollars' worth of depreciable asset. They were not worried about liability on the note, as it was nonrecourse. Investors flocked to FoodSource, and hundreds or thousands purchased interests in containers.      Subsequent to the original sales, the Internal Revenue Service commenced proceedings in tax court to disallow the deductions based on the contract amount of the container purchase. Many investors agreed to recourse notes, in the hope that this would save their deductions, but the tax court disallowed the deductions anyway. Noonan v. Commissioner of Internal Revenue, T.C. Memo. 1986-449.      The creation of recourse notes and the disallowance of the tax benefits are at the heart of this litigation.      The Trustee has commenced this adversary proceeding against a subset of about 1000 investors known as the "Option B Budd Group." An understanding of the previous federal district court litigation which gave rise to this group is necessary to fully understanding this adversary proceeding.      The Budd Company was the actual manufacturer of the containers. In March, 1982, it gave FoodSource notice that it intended to dispose of 682 containers which it had manufactured for FoodSource because FoodSource had not paid for them. FoodSource filed suit against Budd to stop the disposal, alleging that the containers had already been sold to investors with Budd's knowledge and permission. Budd filed a counterclaim against the investors, as a class, alleging that its interest was superior to theirs. FoodSource then filed a cross-claim against the investors, seeking declaratory relief as to its obligations and rights with respect to the investors.      The convoluted Budd litigation was certified as a class action and settled. Investors were given the opportunity to either opt in or opt out of the settlement. Those who opted in were allowed to choose between two treatments, Option A and Option B. Those investors who chose Option A had their notes rescinded, and are therefore not involved in this adversary proceeding. The Option B investors, however, agreed to remain obligated to FoodSource on their notes and to release FoodSource from all present and future claims arising out of or in connection with their purchase of a container. The defendants in this adversary proceeding are those Option B investors.      The Trustee takes the position that by virtue of the terms of the settlement the members of the Option B Budd Group are still liable on their notes notwithstanding their failure to obtain the tax benefits and notwithstanding any other defenses they might have had prior to the settlement. The defendants have raised two levels of defenses. First, they argue that they were fraudulently induced to select Option B, and the waivers they agreed to as a result of the Budd settlement are therefore not binding. Second, they argue that even under the settlement FoodSource had obligations which were not met, excusing them from their obligations under the notes.      Now before the Court is the first round of motions and countermotions in what promises to be protracted and complex litigation. The defendants seek dismissal or abstention based on misjoinder, complexity, and failure of the trustee to assume the executory contract which defendants assert exists between FoodSource and themselves.
II. Executory Contract Defense
     The sole substantive ground for dismissal of the complaint is that the Trustee cannot maintain the action until she has first assumed the "executory contracts" between FoodSource and the investors pursuant to section 365 of the Bankruptcy Code. Relying on In re Cochise College Park, Inc. (9th Cir.1983) 703 F.2d 1339, defendants argue that until the contract is assumed the right to payment under the notes is not an asset of the estate.      On a conceptual basis, the Court admits to difficulty following the argument. Where it is conceded that a contract is executory, it seems appropriate to require that the estate assume its burdens before it is entitled to its benefits. However, section 365 seems wholly inapplicable when the estate disputes that the contract is executory and seeks damages from the other side for breach. Where both parties have repudiated any obligations under a contract and seek only damages from each other, there is no longer an executory contract to assume. In re Best Film & Video Corp. (Bkrtcy.E.D.N.Y.1985) 46 B.R. 861, 869-70.      The purpose of section 365 of the Bankruptcy Code is to give the debtor's estate the option of either performing under a pending contract, thereby reaping the benefits for creditors, or else rejecting the contract, thereby reducing the other party to the status of a general unsecured creditor. The idea of section 365 as an affirmative defense to a breach of contract action is foreign to the Court and surely not the intent of its drafters, who were concerned with performance, not breach.      Where both parties to a contract have denied or repudiated their contractual obligations, there is no point in discussing performance; the only issues to be decided are what breaches are excused and what breaches give rise to damages. Section 365 has no discernible role in such a dispute, which should be resolved solely on state law. Indeed, defendants themselves have urged abstention by arguing that only state law is involved.      By arguing for dismissal based on section 365, defendants are in essence attempting to bootstrap a factual dispute into a procedural bar. They argue, and the Trustee disputes, that FoodSource had remaining contractual obligations and its failure to perform excuses defendants from liability on their notes. This is an ultimate fact to be decided; the Trustee cannot be forced to admit it before proceeding to litigate. The extent of contractual promises is a matter to be determined at trial. In re Cochise College Park, supra, at 1349 n.5.      Nor are defendants entitled to any sort of procedural or substantive advantage, such as elevation of any claims to priority status, by forcing the Trustee to assume something before the nature of the estate's obligations, if any, have been determined. In determining if a contract should be assumed or rejected, the only consideration is what is best for the debtor's estate. In re Chi-Feng Huang (9th Cir.BAP 1982) 23 B.R. 798, 810-02; Wheeling-Pittsburgh Steel Corp. (Bkrtcy.W.D.Pa.1987) 72 B.R. 845, 848. The only right given to the nondebtor party is the right, pursuant to section 365(d)(2), to have the court fix a time for acceptance or rejection. In order to protect the estate, the Court will not require the Trustee to make the election until the Trustee knows with certainty what the consequences of assumption and rejection are. Thus, to the extent section 365 applies at all it should not be discussed until after this litigation is concluded. Failure to assume or reject is not a bar to the litigation.      Cochise College Park arose under a litigation context entirely different from this adversary proceeding, and much of the decision is dicta of limited general application. Moreover, that case was decided under the Bankruptcy Act of 1898, which had a more limited definition of property of the estate than section 541 of the Bankruptcy Code. Section 541(a)(1) of the Code includes in the estate all legal or equitable interests of the debtor in property as of the commencement of the case. Since the debtor had a right to sue on the notes before bankruptcy, that right now belongs to the trustee in bankruptcy. See 4 Collier on Bankruptcy (15th Ed.), section 541.10[5].
III. Abstention
     Despite raising section 365 of the Bankruptcy Code as a bar to the action, defendants urge the court to abstain from hearing this case because it involves only state law. Having dismissed the section 365 argument as inappropriate to this case, the Court agrees that only state law is involved. However, the relevant factors argue compellingly in favor of the court exercising its jurisdiction.      First, many of the defendants have filed proofs of claim against the estates based on the same transaction which gave rise to their notes. As to these defendants at least, this is a core matter to be decided by this court pursuant to 28 U.S.C. section 157(b)(2)(C). In re Sun West Distributors, Inc. (Bkrtcy.S.D.Cal. 1987) 69 B.R. 861, 864-65. 28 U.S.C. section 157(b)(3) specifically provides that a matter is not rendered noncore merely because state law is involved.      Secondly, the sheer number of defendants compels an assumption of jurisdiction, regardless of whether this is a core proceeding. The federal courts are much more adept at speedy, efficient and economical resolution of complex multiparty litigation than most state courts. Moreover, the bankruptcy estate saves at least $50,000.00 in process servers' fees alone by taking advantage of the service of process by mail which is available in this court but not state court. These are important considerations to a court concerned with the practicalities and economies of litigation.      Fundamentally, the most compelling factor in favor of exercising jurisdiction is that this litigation goes to the very heart of the debtor's affairs, finances, and efforts to reorganize. Congress gave the federal courts jurisdiction to hear such matters, even though they involve state law, so that reorganization would not be thwarted by crowded state court calendars and the low priority given to civil disputes in state legal systems.
IV. Misjoinder
     The Court finds no merit whatsoever in the argument that defendants are misjoined. They are all members of a court-certified class, and their liability, if any, stems from the same Option B election. The class settlement is clearly the "same transaction" for purposes of FRCP 20. Even if there had been no class settlement, the fact that all defendants entered into the same sort of investment with FoodSource means that any right to relief arises out of the same series of transactions or occurrences.      As a practical matter, the common issues of law and fact heavily predominate over any defendant-specific issues, making joinder a necessity in order to avoid multiple and conflicting rulings. This does not mean that any individual defendant will be denied an opportunity to present his or her individual defenses; where appropriate, the Court will sever and try separately any issues which require such individual attention.      Fundamentally, the Federal Rules of Civil Procedure are intended to facilitate civil litigation, not thwart it or compound it. Individual actions against each defendant would only cost the estate over $100,000.00 in filing fees and create a nightmare for the clerk's office. Where no substantive rights are being affected, FRCP 20 should be interpreted liberally to avoid such unnecessary troubles and expense. League to Save Lake Tahoe v. Tahoe Reg. Plan. Agcy. (9th Cir.1977) 558 F.2d 914, 917.
V. Conclusion
     The Court finds that the defendants are properly joined, that mandatory abstention is not required and discretionary abstention is not appropriate, and that the Trustee is not barred from bringing this action because she has not yet assumed an executory contract which she denies even exists. The motion to dismiss will therefore be denied. A separate order will be entered.
Dated: July 15, 1989                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy