In re Warner, No. 1:10-bk-888, 2012 Bankr. LEXIS 4496 (Bankr. N.D. W.Va. Sept. 27, 2012)

(debtor had 1/6th interest in farm business; in exchange for security in financing provided debtor (and other brothers) signed over his interest in farm to his brother providing financing; debtor filed Chapter 7 bankruptcy; court held operating agreement for farm prohibited transfer of membership units, so debtor’s interest in farm was property of bankruptcy estate and trustee sought liquidation of farm from remaining members, which was rejected; trustee sought declaration that operating agreement required dissolution of farm; members argued dissolution not required because members agreed to continue company in accordance with operating agreement; written agreement to continue also stated debtor was dissociated from company; court held agreement invalid because dissociation violates automatic stay and it was untimely; court, however, sua sponteevaluated whether dissolving LLC because member files bankruptcy would contravene federal law; the issue turned on whether an operating agreement is an executory contract and if so, whether 11 U.S.C. §365 governs trustee’s rights; because operating agreement in this situation does not contain any material obligations unperformed by debtor, it is not an executory contract and §365 does not apply; under terms of operating agreement, the farm must dissolve because the debtor filed bankruptcy; 11 U.S.C. §541, however, invalidates the condition requiring dissolution upon filing bankruptcy because this would modify debtor’s economic and non-economic rights so agreement provision is unenforceable; court held trustee could redeem debtor’s interest or appoint receiver to operate company and could seek judicial decree of dissolution under state law, so court’s decision does not leave trustee without remedy).