In the Matter Of: Kmart Corporation, Debtor-Appellee. Appeal Of: Capital One Bank Capital One, F.S.B. And Capital One Services, Inc.

EASTERBROOK, Circuit Judge.

One of the many contested matters in Kmart’s bankruptcy was whether the debt- or could assume an executory contract with Capital One Bank providing for a co-branded credit card. Kmart wanted to continue the arrangement, while Capital One did not want its brand to be associated with a bankrupt retailer. After a trial, Bankruptcy Judge Sonderby held that Kmart is entitled to assume the contract, and District Judge Pallmeyer affirmed.

Capital One contended during the trial that Kmart was in material breach of its obligations under the agreement. If true, that would have…