480 B.R. 641
Bankr. N.D.W. Va.2012Background
- Trustee seeks summary judgment to dissolve McCoy Farm LLC or appoint a liquidator/receiver.
- McCoy Farm owns 141.37 surface acres and 157.81 acres of oil and gas in WV; George Sr. is manager; 12 units total.
- Debtor and brothers transferred membership units to Karl Warner as security for a loan; transfers later deemed ineffective.
- Debtor filed Chapter 7 on April 22, 2010; estate includes the Debtor’s membership interests and non-economic rights in McCoy Farm.
- Operating Agreement §10(a)(ii) triggers dissolution on member bankruptcy; §10(c) contemplates dissolution and liquidation by manager.
- Defendants allege continued existence of McCoy Farm per §10(b) Resolution (Dec. 17, 2011), but the court deems it defective.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §365 applies to the OA as executory contract | Trustee: OA may be executory; §365 could govern rights if executory. | Defendants: OA not executory; §365 not controlling. | §365 does not apply; OA not executory. |
| Whether §541(c)(1) invalidates dissolution provisions in the OA | Trustee: §541(c)(1) invalidates dissolution upon bankruptcy. | Defendants: §541(c)(1) does not void all dissolution provisions. | §541(c)(1) invalidates §10(a)(ii) dissolution link. |
| Whether the Trustee may liquidate the Debtor’s interest in McCoy Farm | Trustee: may realize value via dissolution or other remedies as estate representative. | Defendants: cannot extend Debtor’s rights beyond his pre-petition estate. | Trustee cannot unilaterally enforce dissolution; options exist, not summary dissolution. |
| Impact of automatic stay and Dissolution Resolution on estate | Trustee argues stay prohibits post-petition disassociation actions. | Defendants argue Resolution valid and governing. | Resolution void for stay; dissolution cannot be compelled under OA via §10(a)(ii). |
Key Cases Cited
- Gloria Mfg. Corp. v. Int'l Ladies’ Garment Workers’ Union, 734 F.2d 1020 (4th Cir. 1984) (executory-contract concept and breach notions in bankruptcy)
- In re Antonelli, 4 F.3d 984 (4th Cir. 1993) (partnership interests become estate property upon bankruptcy)
- In re Farmers Markets, Inc., 792 F.2d 1400 (9th Cir. 1986) (section 541(c)(1) invalidates transfer restrictions affecting estate)
- In re White, 466 F.3d 1241 (11th Cir. 2006) (ipso facto acts found void under automatic stay principles)