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FILED

DEC 27 2017

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

ORDERED PUBLISHED

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. EW-17-1131-FSTa

)

TERELL W. EUTSLER, ) Bk. No. 2:15-bk-00870-FPC

)

Debtor. )

______________________________)

)

BRADY F. CARRUTH; WILLIAM )

LESLIE DOGGETT, )

)

Appellants, )

)

v. ) OPINION

)

TERELL W. EUTSLER, )

)

Appellee. )

______________________________)

Argued and submitted on September 27, 2017

at Spokane, Washington

Filed – December 27, 2017

Appeal from the United States Bankruptcy Court

for the Eastern District of Washington

Honorable Frederick P. Corbit, Bankruptcy Judge, Presiding

 

Appearances: Christopher L. Dodson of Bracewell LLP argued for

appellants Brady F. Carruth and William Leslie

Doggett; Eowen S. Rosentrater argued for appellee

Terell W. Eutsler.

 

Before: FARIS, SPRAKER, and TAYLOR, Bankruptcy Judges.
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FARIS, Bankruptcy Judge:

INTRODUCTION

Appellants 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 131 bankruptcy case. They seek to enforce an

option agreement to purchase certain stock from the Debtor. We

AFFIRM.

FACTUAL BACKGROUND

The 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.

Initially, 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

percent.

When 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

1 Unless specified otherwise, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, 

all “Rule” references are to the Federal Rules of Bankruptcy

Procedure, and all “Civil Rule” references are to the Federal

Rules of Civil Procedure.

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“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.

On 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.

The 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.

Mr. 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.

A year 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

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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 shares.

The 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.

Alternatively, 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.

The 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 2015.2 Finally, he argued

that the Buy-Sell Agreement is not an executory contract under

2 The bankruptcy court did not address this argument because

it decided the case on other grounds. The parties do not contend

that the bankruptcy court erred in that respect.

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§ 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.

At the hearing on the Motion for Relief, the chapter 13

trustee sided with the Debtor and expressed concern that granting

the requested relief would imperil the Debtor’s ability to fund

his plan.

After receiving post-hearing briefing, the bankruptcy court

denied the Motion for Relief. The court held that the Buy-Sell

Agreement was not an executory contract under the so-called

“Countryman” definition. As we explain below, a contract is

“executory” under that definition only if, as of the petition

date, all parties to the contract owe duties that, if not

performed, would constitute a material breach excusing the other

parties’ duty to perform. Applying Texas law, the court held

that no breach of any of the parties’ outstanding obligations as

of the petition date would have constituted a material breach.

The court also held that the Bankruptcy Code barred

enforcement of the ipso facto provision of the Buy-Sell

Agreement. Finally, it was “concerned that Mr. Eutsler’s

employment may be in jeopardy if he was forced to sell his

interest in the company. Mr. Eutsler’s employment income is

necessary to make his Chapter 13 Plan payments.”

The Minority Shareholders filed a timely motion to

reconsider the ruling on the Motion for Relief (“Motion for

Reconsideration”), and the bankruptcy court denied it. The

Minority Shareholders then filed a timely notice of appeal from

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the orders denying the Motion for Relief and the Motion for

Reconsideration.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(G). We have jurisdiction under 28 U.S.C.

§ 158.

ISSUES

(1) Whether the bankruptcy court abused its discretion in

denying the Motion for Relief.

(2) Whether the bankruptcy court abused its discretion in

denying the Motion for Reconsideration.

STANDARDS OF REVIEW

The question whether a particular contract is “executory”

under § 365 is a question of fact, Unsecured Creditors’ Comm. v.

Southmark Corp. (In re Robert L. Helms Constr. & Dev. Co.), 139

F.3d 702, 706 n.13 (9th Cir. 1998) (hereinafter “In re Helms

Constr.”) (en banc),3 which we review for clear error, Honkanen

3 The case law on this point in this circuit is

inconsistent. Helms Construction states that the question of

“executoriness” is a question of fact, although it does so in a

footnote with no supporting citation. But in two prior decisions

which Helms Construction did not cite, the Ninth Circuit held

that “[d]eterminations regarding the executory nature of a

contract are conclusions of law that this court reviews de novo.” 

McDonald’s Corp. v. Rincon E., Inc. (In re Rincon E., Inc.), 24

F.3d 248, 1994 WL 140430, at *1 (9th Cir. Apr. 15, 1994) (table);

Aslan v. Sycamore Inv. Co. (In re Aslan), 909 F.2d 367, 369 (9th

Cir. 1990). To compound the confusion, the Ninth Circuit

affirmed an unpublished decision of this Panel that cited and

followed Aslan’s standard of review but did not mention the

subsequent decision in Helms Construction. Olson v. Bay Area

Foreclosure Invs., LLC (In re Olson), BAP No. EC-05-1368-SJB,

2006 WL 6811004, at *4 (9th Cir. BAP Nov. 21, 2006), aff’d, 276

(continued...)

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v. Hopper (In re Honkanen), 446 B.R. 373, 378 (9th Cir. BAP

2011). A finding of fact is clearly erroneous if it is

illogical, implausible, or without support in the record. Retz

v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th Cir. 2010). “To

be clearly erroneous, a decision must strike us as more than just

maybe or probably wrong; it must . . . strike us as wrong with

the force of a five-week-old, unrefrigerated dead fish.” Papio

Keno Club, Inc. v. City of Papillion (In re Papio Keno Club,

Inc.), 262 F.3d 725, 729 (8th Cir. 2001) (quoting Parts & Elec.

Motors, Inc. v. Sterling Elec., Inc., 866 F.2d 228, 233 (7th Cir.

1988)). The bankruptcy court’s choice among multiple plausible

views of the evidence cannot be clear error. United States v.

Elliott, 322 F.3d 710, 715 (9th Cir. 2003).

“A bankruptcy court’s determinations regarding stay relief

are reviewed for an abuse of discretion.” Veal v. Am. Home

Mortg. Servicing, Inc. (In re Veal), 450 B.R. 897, 915 (9th Cir.

BAP 2011) (citing Kronemyer v. Am. Contractors Indem. Co. (In re

Kronemyer), 405 B.R. 915, 919 (9th Cir. BAP 2009)).

Similarly, we review for abuse of discretion a bankruptcy

court’s denial of a motion for reconsideration. See Ahanchian v.

Xenon Pictures, Inc., 624 F.3d 1253, 1258 (9th Cir. 2010);

Tennant v. Rojas (In re Tennant), 318 B.R. 860, 866 (9th Cir. BAP

2004).

To determine whether the bankruptcy court has abused its

3(...continued)

F. App’x 641 (9th Cir. 2008). In this decision, we are compelled

to follow Helms Construction, the Ninth Circuit’s most recent en

banc pronouncement on this issue, and to treat as a question of

fact the determination whether a contract is executory.

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discretion, we conduct a two-step inquiry: (1) we review de novo

whether the bankruptcy court “identified the correct legal rule

to apply to the relief requested” and (2) if it did, whether the

bankruptcy court’s application of the legal standard was

illogical, implausible, or without support in inferences that may

be drawn from the facts in the record. United States v. Hinkson,

585 F.3d 1247, 1262–63 & n.21 (9th Cir. 2009) (en banc). “If the

bankruptcy court did not identify the correct legal rule, or its

application of the correct legal standard to the facts was

illogical, implausible, or without support in inferences that may

be drawn from the facts in the record, then the bankruptcy court

has abused its discretion.” USAA Fed. Sav. Bank v. Thacker

(In re Taylor), 599 F.3d 880, 887–88 (9th Cir. 2010) (citing

Hinkson, 585 F.3d at 1262).

DISCUSSION

The Minority Shareholders’ argument has three steps: first,

the Buy-Sell Agreement was an executory contract; second, because

the Debtor neither assumed nor rejected it, the Buy-Sell

Agreement “rode through” the bankruptcy unaffected; and third,

the automatic stay no longer precluded the Minority Shareholders

from enforcing it. Neither party disputes the second point. 

With respect to the third point, the Minority Shareholders argued

that cause existed to lift the stay solely because the Buy-Sell

Agreement rode through the bankruptcy unaffected; conversely,

they conceded that, if the Buy-Sell Agreement was not an

executory contract and therefore could not “ride through,” cause

to lift the stay did not exist. Thus, our analysis turns on

whether the Buy-Sell Agreement is an executory contract. We hold

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that the bankruptcy court was correct under controlling Ninth

Circuit law.4

A. The bankruptcy court did not clearly err in finding, as a

matter of fact, that the Buy-Sell Agreement is not an

executory contract.

The bankruptcy court found that the Buy-Sell Agreement was

not an executory contract. This factual determination was not

clearly erroneous.5

The bankruptcy court correctly held that the Ninth Circuit

has adopted Professor Countryman’s definition of an executory

contract: “a contract under which the obligation of both the

bankrupt and the other party to the contract are so far

unperformed that the failure of either to complete performance

would constitute a material breach excusing the performance of

the other.” Vern Countryman, Executory Contracts in Bankruptcy:

Part I, 57 Minn. L. Rev. 439, 460 (1973); see In re Helms

Constr., 139 F.3d at 705 (“An executory contract is one ‘on which

4 We explain in footnotes why we think the court of appeals

should revisit some of those issues, including the definition of

“executory contract” in general and specifically whether an

option contract such as the Buy-Sell Agreement is an executory

contract.

5 The bankruptcy court made this decision in ruling on a

stay relief motion. Ordinarily, bankruptcy courts refrain from

making merits decisions in that procedural context. In re Veal,

450 B.R. at 914 (“[A] creditor’s claim or security is not finally

determined in the relief from stay proceeding.”) (citing Johnson

v. Righetti (In re Johnson), 756 F.2d 738, 740-41 (9th Cir. 1985)

(“Hearings on relief from the automatic stay are thus handled in

a summary fashion. The validity of the claim or contract

underlying the claim is not litigated during the hearing.”)). 

But any challenge on this ground is waived because no party

raised it.

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performance remains due to some extent on both sides.’”).6

The bankruptcy court correctly held that the materiality of

the parties’ remaining obligations depends on whether, under

applicable state law, one party’s nonperformance would excuse the

other party’s obligation to perform. Hall v. Perry (In re

Cochise Coll. Park, Inc.), 703 F.2d 1339, 1348 n.4 (9th Cir.

1983). The bankruptcy court properly looked to Texas law,

because the Buy-Sell Agreement specified that it was “made

pursuant to and shall be construed under the laws of the state of

Texas” and was predominately signed in Texas, see Ulrich v.

Schian Walker, P.L.C. (In re Boates), 551 B.R. 428, 434 (9th Cir.

BAP 2016), and the court accurately recited the Texas law of

materiality.

6 Most courts follow the Countryman definition, but some

decisions adopt a more flexible approach. See, e.g., Chattanooga

Mem’l Park v. Still (In re Jolly), 574 F.2d 349, 351 (6th Cir.

1978) (“[D]efinitions [such as Countryman’s] are helpful, but do

not resolve this problem. The key, it seems, to deciphering the

meaning of the executory contract rejection provisions, is to

work backward, proceeding from an examination of the purposes

rejection is expected to accomplish. If those objectives have

already been accomplished, or if they can’t be accomplished

through rejection, then the contract is not executory within the

meaning of the Bankruptcy Act.”). A very recent law review

article makes a powerful argument in favor of a “modern contract

approach” to executory contracts. Under that approach, all

contracts with any unperformed obligation on either side,

material or not, are “executory contracts” under § 365. Jay

Lawrence Westbrook & Kelsi Stayart White, The Demystification of

Contracts in Bankruptcy, 91 Am. Bankr. L.J. 481 (2017). The

alternative approaches have much to recommend them; the

Countryman definition turns on factors that have little if

anything to do with the underlying policies of bankruptcy law and

produce anomalous results in some cases. But neither party to

this appeal challenges Helms Construction, and we could not

disregard or overrule it even if they asked us to do so.

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Further, the bankruptcy court correctly ruled that whether a

contract is “executory” is a question of fact, both under the

Bankruptcy Code, In re Helms Constr., 139 F.3d at 706 n.13, and

under Texas law, Hudson v. Wakefield, 645 S.W.2d 427, 430 (Tex.

1983).7

The bankruptcy court correctly applied these principles to

the Buy-Sell Agreement. The Ninth Circuit has held that “a paidfor but unexercised option” is typically not an executory

contract, but that other kinds of options may be executory. In

re Helms Constr., 139 F.3d at 705.

[W]e look to outstanding obligations at the time the

petition for relief is filed and ask whether both sides

must still perform. Performance due only if the

optionee chooses at his discretion to exercise the

option doesn’t count unless he has chosen to exercise

it. An option may on occasion be an executory

contract, for instance, where the optionee has

announced that he is exercising the option, but not yet

followed through with the purchase at the option price.

The question thus becomes: At the time of filing, does

each party have something it must do to avoid

materially breaching the contract? Typically, the

answer is no; the optionee commits no breach by doing

nothing.

Id. at 706 (emphasis added).8

In the present case, the Debtor’s obligation to sell the

stock and the Minority Shareholders’ obligation to pay for it

7 See n.3 supra.

8 The advocates of the modern contract approach would treat

LLC operating agreements (which are similar in many respects to

the Buy-Sell Agreement in this case) and options in general as

executory contracts. Westbrook & White, supra n.6, at 503-06,

511-13. This approach has substantial appeal, but we are not

writing on a blank slate. Instead, we must follow Helms

Construction, which holds otherwise.

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were (when the Debtor filed his bankruptcy petition) contingent

on the Minority Shareholders’ future decision to exercise the

option. Therefore, under Helms Construction, those obligations

don’t count. The only obligations which the parties owed to each

other at the petition date were the obligation to give notice of

the bankruptcy filing and any voluntary or involuntary

assignment, and obligations not to compete with or disparage

Softbase or encumber the stock. The bankruptcy court held that a

breach of these provisions might justify an award of damages or

injunctive relief but would not defeat the purpose of the BuySell Agreement or justify the other party’s suspension of

performance. See Mustang Pipeline Co. v. Driver Pipeline Co.,

134 S.W.3d 195, 199 (Tex. 2004); Hernandez v. Gulf Grp. Lloyds,

875 S.W.2d 691, 692 (Tex. 1994).

Under binding Ninth Circuit precedent, we review this aspect

of the court’s decision for clear error. In re Helms Constr.,

139 F.3d at 706 n.13. Neither party argued that the facts were

in dispute or requested an evidentiary hearing. Although other

judges might reach the opposite conclusion on the same or similar

facts,9 we cannot say that the bankruptcy court clearly erred.

9 The Buy-Sell Agreement prohibited the Debtor from selling

any of his shares to a third party without first offering them to

Softbase and the Minority Shareholders. If the Debtor breached

that obligation and secretly sold half of his shares to a third

party without giving notice to his fellow shareholders, and one

of the other shareholders later tried to sell his stock, some

judges might find that the Debtor’s prior breach of the Buy-Sell

Agreement excused the other shareholder’s obligation to sell to

the Debtor. But, although it is a close question, we cannot say

that the bankruptcy court’s contrary finding rises to the level

of clear error.

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The Minority Shareholders urge us to follow In re Parkwood

Realty Corp., 157 B.R. 687, 690 (Bankr. W.D. Wash. 1993), in

which the bankruptcy court held that a shareholders agreement

including the option to repurchase stock was an executory

contract because “at the very least, upon Parkwood Lakes’

decision to exercise its repurchase rights under the Shareholders

Agreement, the debtor is required to turn over its stock, and

Lakes is required to pay the purchase price.” However, Parkwood

was decided before the Ninth Circuit held, in Helms Construction,

that performance obligations contingent on the exercise of an

option “do not count.”

The Minority Shareholders also argue that this case is

similar to In re RoomStore, Inc., 473 B.R. 107 (Bankr. E.D. Va.

2012), which held that a buyback option and negative and

affirmative covenants rendered the subject agreement executory. 

However, RoomStore explicitly rejected the Ninth Circuit

authority by which we are bound: “I decline to follow the line of

authority of the Helms Construction decision of the Ninth Circuit

and cases following it.” Id. at 114. Moreover, RoomStore did

not consider the materiality of the ongoing obligations, nor did

it apply Texas law.

Accordingly, the bankruptcy court did not clearly err in

holding that the Buy-Sell Agreement was not an executory

contract.

B. We do not decide whether the Buy-Sell Agreement has “ridden

through” the bankruptcy case.

The second step of the Minority Shareholders’ argument is

that, because the Debtor’s confirmed chapter 13 plan neither

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assumed nor rejected the Buy-Sell Agreement, it has “ridden

though” the bankruptcy case such that the Minority Shareholders

could enforce it. This is consistent with our precedents. 

Diamond Z Trailer, Inc. v. JZ L.L.C. (In re JZ L.L.C.), 371 B.R.

412, 424 (9th Cir. BAP 2007) (holding that, “where there is no

breach or default in an executory contract as of the commencement

of the case, the contract remains in force unless it is rejected

and, if not rejected, ‘passes with other property to the

reorganized’ debtor”) (quoting Consol. Gas Elec. Light & Power

Co. v. United Rys. & Elec. Co., 85 F.2d 799, 805 (4th Cir.

1936)). The Debtor did not challenge this assertion and the

bankruptcy court accepted it without discussion. Therefore, any

argument to the contrary has been waived.10

///

///

///

10 We express no opinion on the question whether a debtor

may modify a chapter 13 plan to provide for the assumption or

rejection of a previously omitted executory contract. Section

365(d)(2) provides that, in a chapter 13 case, “the trustee may

assume or reject an executory contract or unexpired lease of

residential real property or of personal property of the debtor

at any time before the confirmation of a plan” or an earlier date

set by the court. But this must be read in conjunction with

§ 1329, which broadly authorizes post-confirmation modifications

of chapter 13 plans. That section does not specifically mention

the assumption or rejection of executory contracts. See Oseen v.

Walker (In re Oseen), 133 B.R. 527, 529 n.1 (Bankr. D. Idaho

1991). It does, however, permit amendments to “increase or

reduce the amount of payments on claims of a particular class

provided for by the plan,” § 1329(a)(1), and assumption or

rejection of a contract often changes the amount distributed to

the other party to the contract. (In fact, if assumption or

rejection did not change the creditors’ distributive rights,

assumption or rejection would probably be a meaningless gesture.)

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C. The Minority Shareholders concede that, if the Buy-Sell

Agreement is not executory, cause to lift the automatic stay

did not exist.

The third step of the Minority Shareholders’ argument is

that the bankruptcy court should have lifted the automatic stay

to permit them to enforce the Buy-Sell Agreement. But they take

the position that, if the Agreement is not an executory contract,

the ipso facto provision is not enforceable and there is no

reason to lift the automatic stay: “Appellants do not dispute

that § 541 would preclude enforcement of the Agreement if it were

non-executory because the ‘ride-through’ doctrine only applies to

executory contracts.” Given our determination that the Buy-Sell

Agreement is not an executory contract, we need not reach the

question whether the bankruptcy court should have lifted the

stay.

D. The bankruptcy court did not abuse its discretion in denying

the Motion for Reconsideration.

The bankruptcy court did not err when it denied the Minority

Shareholders’ Motion for Reconsideration. There were no

“extraordinary circumstances,” Buck v. Davis, 137 S. Ct. 759, 777

(2017), that would warrant relief under Civil Rule 60(b)(6), made

applicable in bankruptcy by Rule 9024. Nor was there any newly

discovered evidence, clear error, intervening change in the

applicable law, or other circumstance that would justify relief

under Civil Rule 59(e), made applicable in bankruptcy by Rule

9023. Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 890

(9th Cir. 2000). The bankruptcy court did not abuse its

discretion under either of these rules.

///

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CONCLUSION

The bankruptcy court did not err in denying the Motion for

Relief and Motion for Reconsideration. Accordingly, we AFFIRM.

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