Carruth v. Eutsler (In Re Eutsler)
585 B.R. 231
| 9th Cir. BAP | 2017Background
- Terell Eutsler (Debtor) owned 25.5% of Softbase; two Minority Shareholders each owned 24.5%. They entered a Stock Restriction/Buy‑Sell Agreement when they bought the shares in 1998.
- The Agreement contained an ipso facto clause: certain "terminating events" (including a shareholder's bankruptcy filing) required the filer to give notice and triggered an option for the corporation, then other shareholders, to purchase the filer’s shares at a formula price.
- Debtor filed Chapter 13 on March 12, 2015, valued his Softbase interest at $5,000, and did not list the Buy‑Sell Agreement as an executory contract in his schedules or assume/reject it in his plan. Softbase and other shareholders received no direct notice; no one exercised the option.
- In December 2016 the Minority Shareholders moved for relief from the automatic stay to enforce their option, claiming the bankruptcy filing was a terminating event and that the Buy‑Sell Agreement either was an executory contract that "rode through" the case or, alternatively, the shares were not estate property.
- The bankruptcy court denied stay relief and reconsideration, holding the Buy‑Sell Agreement was not an executory contract under Ninth Circuit/Countryman law, the ipso facto provision was unenforceable in bankruptcy, and lifting the stay risked undermining Debtor’s plan funding. Panel affirmed.
Issues
| Issue | Minority Shareholders' Argument | Debtor's Argument | Held |
|---|---|---|---|
| Is the Buy‑Sell Agreement an "executory contract" under § 365? | Agreement is executory; option and covenants create mutual outstanding duties. | Not executory—only contingent option duties existed; remaining promises (notice, non‑competition, non‑encumbrance) are non‑material. | Not executory under Countryman/Helms: obligations contingent on option exercise don’t make contract executory. |
| If executory, did the Agreement "ride through" (neither assumed nor rejected) so parties can enforce it? | If executory and not rejected/assumed in confirmed plan, it rides through and remains enforceable. | Did not contest the general ride‑through doctrine; highlighted effects on Debtor’s plan funding. | Panel assumes ride‑through doctrine applies to executory contracts but did not need to decide because Agreement held non‑executory. |
| Was stay relief warranted to allow enforcement of the Agreement? | Cause existed to lift stay because Agreement rode through and ipso facto clause triggered rights. | Lifting stay would jeopardize Debtor’s employment/income and plan; ipso facto enforcement barred. | No stay relief; because Agreement is non‑executory, Minority Shareholders conceded no cause to lift stay. |
| Was denial of reconsideration appropriate? | Sought reconsideration based on errors/new arguments. | Opposed; no extraordinary circumstances or new evidence. | Denial affirmed—no basis under Civil Rule 59(e) or 60(b) (via Rules 9023/9024). |
Key Cases Cited
- In re Robert L. Helms Constr. & Dev. Co., 139 F.3d 702 (9th Cir. 1998) (adopts Countryman definition; option obligations contingent on exercise generally do not render a contract executory)
- Hall v. Perry (In re Cochise Coll. Park, Inc.), 703 F.2d 1339 (9th Cir. 1983) (materiality of remaining obligations judged under applicable state law)
- Diamond Z Trailer, Inc. v. JZ L.L.C. (In re JZ L.L.C.), 371 B.R. 412 (9th Cir. BAP 2007) (unrejected executory contracts can "ride through" bankruptcy and remain in force)
- Buck v. Davis, 137 S. Ct. 759 (2017) (standard for "extraordinary circumstances" under Rule 60(b)(6) cited in reconsideration analysis)