United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: TERELL W. EUTSLER, Debtor.
TERELL W. EUTSLER, Appellee. BRADY F. CARRUTH; WILLIAM LESLIE DOGGETT, Appellants,
and submitted on September 27, 2017 at Spokane, Washington
from the United States Bankruptcy Court for the Eastern
District of Washington Honorable Frederick P. Corbit,
Bankruptcy Judge, Presiding
Christopher L. Dodson of Bracewell LLP argued for appellants
Brady F. Carruth and William Leslie Doggett;
S. Rosentrater argued for appellee Terell W. Eutsler.
Before: FARIS, SPRAKER, and TAYLOR, Bankruptcy Judges.
Brady F. Carruth and William Leslie Doggett (the
"Minority Shareholders") appeal from the bankruptcy
court's denial of their motion for relief from the
automatic stay and motion for reconsideration in debtor
Terell W. Eutsler's ("Debtor") chapter
bankruptcy case. They seek to enforce an option agreement to
purchase certain stock from the Debtor. We AFFIRM.
facts are undisputed. In 1995, the Debtor and Stephen Dorr
incorporated Softbase Development, Inc., a closely-held Texas
corporation. The Debtor is the president of Softbase and a
member of its board of directors.
the Debtor and Mr. Dorr each owned half of the stock. In
1998, the Minority Shareholders purchased 49 percent of the
stock for $155, 000. Thus, the Debtor and Mr. Dorr each owned
25.5 percent, and the Minority Shareholders each owned 24.5
the Minority Shareholders bought their stock, the parties
entered into a Stock Restriction/Buy-Sell Agreement (the
"Buy-Sell Agreement"). Among other things, the
Buy-Sell Agreement provided that, upon the occurrence of
certain "terminating events, " one of which was
"the filing of any proceedings for bankruptcy . . . by a
Shareholder, " that shareholder was required to give
written notice to the corporation and the other shareholders.
The corporation then had the option, but not the obligation,
to purchase the shareholder's stock at a price based on a
formula. If the corporation did not timely exercise the
option, then the other shareholders had the same option.
March 12, 2015, the Debtor filed his chapter 13 petition in
the United States Bankruptcy Court for the Eastern District
of Washington. He valued his interest in Softbase at $5, 000.
He did not schedule the Buy-Sell Agreement as an executory
contract in Schedule G.
bankruptcy court confirmed the Debtor's amended chapter
13 plan on June 3, 2015. The form plan provides blanks for
the debtor to list assumed and rejected contracts, but the
Debtor did not complete either space.
Dorr received notice of the bankruptcy filing as one of the
Debtor's unsecured creditors. The Debtor did not send
notice of his bankruptcy filing to Softbase or the Minority
Shareholders. Neither Softbase nor the other shareholders
(Mr. Dorr and the Minority Shareholders) exercised an option
to purchase the Debtor's stock.
and a half later, on December 16, 2016, the Minority
Shareholders filed a motion seeking relief from the automatic
stay ("Motion for Relief"). They argued that the
Debtor's bankruptcy filing was a "terminating
event" that triggered the purchase options in the
Buy-Sell Agreement. They claimed that they only discovered
the Debtor's bankruptcy case on November 18, 2016, when
an inspection of Softbase's records revealed the
bankruptcy. Because Softbase did not exercise its right to
purchase the Debtor's stock, the Minority Shareholders
argued that they were entitled to purchase the Debtor's
Minority Shareholders contended that cause existed to lift
the stay because their rights under the Buy-Sell Agreement
were unaffected by the Debtor's bankruptcy. They argued
that the Buy-Sell Agreement was an executory contract within
the meaning of § 365(a) and, because the Debtor did not
accept or reject the Buy-Sell Agreement in his plan,
"the Agreement rode-through Debtor's bankruptcy
unaffected." They argued that the ipso facto provision
(that triggered the option rights upon the Debtor's
bankruptcy filing) was enforceable.
the Minority Shareholders argued that the shares were not
property of the Debtor's estate and were not subject to
the automatic stay because the confirmed chapter 13 plan did
not address the Buy-Sell Agreement.
Debtor opposed the motion. He argued that if he lost his
Softbase stock, his employment would terminate and he would
have no income with which to fund his plan. He also contended
that the thirty-day period for the Minority Shareholders to
exercise the purchase option had expired because Softbase had
notice of his bankruptcy as of April 2015. Finally, he
argued that the Buy-Sell Agreement is not an executory
contract under § 365 because the Minority Shareholders
failed to exercise their purchase option, which is the only
feature of the Buy-Sell Agreement that would give rise to a
performance obligation and make it an executory contract.
hearing on the Motion for Relief, the chapter 13 trustee
sided with the Debtor and expressed concern that granting the
requested relief would ...