In re Allentown Ambassadors, Inc., Bankruptcy No. 04-22368ELF.

• Decision Date: 05 February 2007
• Docket Number: Adversary No. 04-2390.,Bankruptcy No. 04-22368ELF.
• Citation: 361 B.R. 422
• Parties: In re ALLENTOWN AMBASSADORS, INC., Debtor. Allentown Ambassadors, Inc., Plaintiff, v. Northeast American Baseball, LLC, et al., Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

361 B.R. 422

In re ALLENTOWN AMBASSADORS, INC., Debtor.

Allentown Ambassadors, Inc., Plaintiff, v. Northeast American Baseball, LLC, et al., Defendants.

Bankruptcy No. 04-22368ELF.

Adversary No. 04-2390.

United States Bankruptcy Court, E.D. Pennsylvania.

February 5, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David F. Dunn, David Dunn Law Offices PC, Allentown, PA, for Debtor. "

Steven J. Adams, Stevens & Lee, Reading, PA, for defendants.

OPINION

ERIC L. FRANK, Bankruptcy Judge.

                TABLE OF CONTENTS
                I.  INTRODUCTION ..............................................................426
                 II.  SUMMARY JUDGMENT STANDARDS ................................................428
                III.  FACTS .....................................................................429
                 IV.  PROCEDURAL HISTORY ........................................................431
                  V.  COUNT I — VIOLATION OF THE AUTOMATIC STAY — 11 U.S.C
                      § 362(a)(3) ...............................................................433
                      A.  Contentions of the Parties ............................................433
                          1.  The Debtor's Position .............................................433
                          2.  The Defendants Position ...........................................434
                      B.  Section 362(a)(3) May Stay Acts to Possess or Control Intangible
                            Property Rights of the Bankruptcy Estate, Depending Upon (1) the
                            Nexus Between the Conduct at Issue and the Property Interests of
                            the Estate, (2) the Degree of Impact on the Bankruptcy Estate and
                            (3) the Nature of Any Competing Legal Interests .....................435
                

                C.  The Defendants Are Not Entitled to Summary Judgment on the
                            Debtor's Claim that Their Conduct Constituted the Exercise of
                            Control Over the Debtor's Intangible Property Rights in Violation
                            of 11 U.S.C. § 362(a)(3) .......................................441
                          1.  Prior to Commencement of the Bankruptcy Case, the Debtor Had
                                Intangible Membership Rights in the NAB LLC Including
                                Certain Management lights Purportedly Terminated Upon the
                                Debtor's Bankruptcy Filing Pursuant to the Ipso Facto Provision
                                of the NAB, LLC operating Agreement .............................442
                         2.  To Evaluate the Enforceability of the Ipso Facto Provision of the
                               NAB, LLC Operating Agreement, It Is Necessary to Determine
                               Whether the Operating Agreement. Is an Executory Contract ........443
                         3.  The NAB, LLC Operating Agreement Is an Executory Contract ..........444
                         4.  The Present Record Does Not Permit A Finding that the Ipso
                               Facto Provision of the Operating Agreement Is Enforceable               Under 11 U.S.C. § 365(e)(2) .................................445
                             a.  In Applying 11 U.S.C. § 365(e), the Court Must Also Consider
                                   11 U.S.C. § 365(c) and (f) ..............................445
                             b.  Section 365(e)(1) Overrides a Contractual Ipso Facto Provision
                                   Unless (1) An Applicable Statute or the Common Law
                                   Unequivocally Prohibits an Assignment of the Contract
                                   Without the Non-Debtor's Consent or (2) the Identity of
                                   the Assignee Would Be Material to the Non-Debtor, Taking
                                   into Consideration the Nature of the Enterprise in
                                   Which the Debtor and the Non-Debtor Are Engaged ..............446
                             c.  The North Carolina Limited Liability Company Act Is Not
                                   "Applicable Law" that Unequivocally Prohibits an Assignment
                                   of the Contract Without the Non-Debtor's Consent
                                   and the Present Record Does Not Support a Finding that
                                   the Identity of an Assignee of the Debtor's Membership
                                   Interest Would Be Material to the Other LLC Members ..........454
                         5.  The Present Record Does Not Establish that the Bankruptcy
                               Estate's Property Interests Were So Insubstantial or the Justification
                               for the Defendant's Actions Dissolving the LLC to the
                               Detriment of the Estate as to Warrant Entry of Summary
                               Judgment Against the Debtor on Its § 362(a)(3) Claim ........457
                 VI.  COUNT II — BREACH OF FIDUCIARY DUTY .................................460
                VII.  CONCLUSION ................................................................462
                

I. INTRODUCTION

This adversary proceeding arises in the chapter 11 bankruptcy case of a corporation that previously operated a minor league baseball team. The plaintiff is the Allentown Ambassadors, Inc. ("the Debtor"). Presently, the remaining defendants in the proceeding are the teams which were members of the now dissolved baseball league ("the Team Members"), the league's Commissioner, Miles Wolff ("Defendant Wolff'), and the league itself. The league was in the business form of a limited liability company ("LLC") and was called the North American Baseball, LLC ("the NAB, LLC").

The Debtor's primary claim is that the Team Members. "exercise[d] control over property of the estate" in violation of 11 U.S.C. § 362(a)(3) when they dissolved the NAB, LLC and formed a new baseball league without including the Debtor, approximately six (6) months after the commencement of this bankruptcy case. The Debtor's other claim is that Defendant Wolff breached his fiduciary duty to the Debtor in his actions as a manager of the NAB, LLC.

The Defendants have filed a Motion to Dismiss the Debtor's Second Amended Complaint ("the Motion"). This is the fourth motion to dismiss filed by the Defendants since the initiation of this adversary proceeding on September 20, 2004.

In this latest Motion, the parties have supplemented the record with excerpts from a transcript of a hearing conducted in the main bankruptcy case, a deposition transcript, an affidavit from a party and certain documents.¹ Pursuant to Fed.R.Civ.P. 12(b)(6), I will treat the Motion as a motion for summary judgment under the Fed.R.Civ.P. 56.²

To decide the Motion, I must engage in an elaborate analysis of the interrelationship of several provisions of the Bankruptcy Code and applicable state law. Among the provisions I must consider are 11 U.S.C. §§ 362(a)(3), 365(c), 365(e), 365(f) and the North Carolina Limited Liability Company Act, N.C.G.S.A. §§ 57C-1-01 et seq. ("the NCLLCA").

As explained below, I conclude that:

1. The present record is inadequate to permit a determination whether the provision of the NAB, LLC Operating Agreement which purported to terminate the Debtor's status as a member of the LLC upon its bankruptcy filing is enforceable under 11 U.S.C. § 365(e).

2. Because the record does not permit a determination that the Debtor's membership in the NAB, LLC terminated upon its bankruptcy filing and the Defendants do not dispute that the Debtor retained its "economic rights" in the NAB, LLC after its bankruptcy filing, the Defendants are not entitled to summary judgment on the Debtor's claim that the Defendants violated 11 U.S.C. § 362(a)(3).³

3 Defendant Wolff owed a fiduciary duty to individual members of the NAB, LLC, such as the Debtor and therefore, the Defendants are not entitled to summary judgment on Count II of the Second Amended Complaint.

Based on these conclusions, I will deny the Motion in its entirety.

II. SUMMARY JUDGMENT STANDARDS

The standards for evaluating a motion for summary judgment under Fed.R.Civ.P. 56⁴ are well established and have been stated in numerous written opinions in this district. E.g., In re Klayman, 333 B.R. 695 (Bankr.E.D.Pa.2005); In re Lacheen, 2005 WL 1155257 (Bankr.E.D.Pa. April 28, 2005) (Sigmund, Ch. J.); In re Lewis, 290 B.R. 541 (Bankr.E.D.Pa.2003) (per Carey, J.); In re Newman, 304 B.R. 188 (Bankr. E.D.Pa.2002) (per Fox, Ch. J.).

Pursuant to Rule 56, summary judgment should be granted when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue a§ to any material fact and that the moving party is entitled to a judgment as a matter of law." Before a motion for summary judgment may be granted, the court must find that the motion alleges facts which, if proven at trial, would require a directed verdict in favor of the movant. See Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.1993). If the movant meets this initial burden, the responding party may not rest on his pleadings, but must designate specific factual averments through the use of affidavits or other permissible evidentiary material that demonstrate a triable factual dispute.⁵ Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. at 247-50, 106 S.Ct. at 2510-11. Such evidence must be sufficient to support a jury's factual determination in favor of the nonmoving party. Id. Evidence that merely raises some metaphysical doubt regarding the validity of a material facts is insufficient. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). If the party opposing the motion believes that summary judgment is premature, Rule 56(f) requires the party to present by affidavit the reasons why the party is presently unable to submit evidence in opposition to the motion. Celotex, 477 U.S. at 326, 106 S.Ct. at 2554.

In its consideration of the evidence submitted in support of and opposition to a motion for summary judgment, the court's role is not to weigh the evidence but only to determine whether there is a disputed, material fact for determination at trial. Anderson v. Liberty Lobby, Inc., 477 U.S. at 247-50, 106 S.Ct. at 2510-11 (1986). All reasonable inferences must be drawn in favor of the nonmoving party and against ...