prototypical example of the kind of contract that would be exempt
under § 365(e)(2) is a “so-called ‘personal service contract,’ a
contract entered into on the basis of the ‘character, reputation,
taste, skill, or discretion of the party that is to render
{performance].’” In the Matter of Midway Airlines, Inc., 6 F.3d
492, 495 (7th Cir. 1993). Non-bankrupt parties to this kind of a
contract need not accept substitutions or assignments under §
365(e) if they are excused by applicable law.?

“Applicable law” here is Illinois law, see Midway Airlines, 6
F.3d at 496, which provides that a partnership is dissolved by the
bankruptcy of any partner, 805 ILCS 205/31(5), and that conveyance
of a partnership interest does not entitle the assignee to anything
more than a share of the profits, id. § 27(1). Thus, under
applicable law, the partnership was not obligated to accept Sable
as a substitute partner, and the bankruptcy estate could only
assign Cedicci’s financial interest to Sable, not his status as a

general partner. Sable argues that, because all of Cedicci’s

2 Sable argues that all ipso facto clauses are unenforceable,
but the cases that he cites are inapposite because they do not
involve the assignment of an interest to a third party. See, e.g.,
Central States, S.E. & S.W. Areas Pension Fund v. Basic American
Indus., Inc., 252 F.3d 911, 917 (7th Cir. 2001) (holding that ipso
facto clause that defines bankruptcy as default is unenforceable
against debtor); Summit Investemtn & Devel. Corp. v. LeRoux, Nos.
94-11251-DPW & 94-11252-DPW, 1995 WL 447800, at *9-10 (D. Mass.
Oct. 20, 1995) (holding that, although 11 U.S.C. § 365(e) (2) allows
enforcement of ipso facto clauses to prevent the assignment of
certain executory contracts to third parties, such clauses cannot
be enforced against a debtor-in-possession who is one of the
original parties to the contract).

4


which provide that “a party may waive a written provision of a
contract which is intended for his or her benefit, so long as the
waiver does not deprive a non-waiving party of a benefit.” Field
Enters v. Gresser, 468 N.W.2d 30, 1990 WL 262001, at *20 (Wis. Ct.
App. Dec. 27, 1990). Even if this were the law in Illinois under
these circumstances, and I need not decide whether it is, Sable
could not prevail. Both the partnership agreement, I 7(d) (vi), and
the Uniform Partnership Act, 805 ILCS 205/18(g), require the
consent of all partners, so Perlstein’s alleged statement could not
effect a waiver on behalf of the partnership. No evidentiary
hearing was necessary because there were no material factual
disputes, only differences about the effect to be given to
undisputed facts. The bankruptcy court did not err in finding that
Sable lacked standing to file the involuntary bankruptcy petition
against the partnership. :

The partnership appeals the bankruptcy court’s denial of
attorneys’ fees. Under 11 U.S.C. § 303(i) (1), the bankruptcy may
award attorneys’ fees and costs against the petitioner. In re Reid,
854 F.2d 156, 159 (7th Cir. 1988). I review the bankruptcy court’s
decision to deny fees for abuse of discretion. Id. Factors
informing the exercise of discretion are the good or bad faith of
the petitioner and the relative merits of the petition. Id. at 160.
I may also consider the petitioner’s “motivation and objectives.”

In re K.P. Enterprise, 135 B.R. 174, 177 (Bankr. D. Me. 1992).


concluded that the partnership agreement was an executory contract?
that fell’ within the scope of 11 U.S.C. § 365(e) (2), and that the
ipso facto clause in 9 10(b) was therefore valid and enforceable
against Sable. Accordingly, it held that Sable was not a general
partner and lacked standing to bring an involuntary petition
against the partnership. Sable argues that the bankruptcy court
erred in holding that he lacked standing, failing to find that the
conduct of the remaining partners constituted his admission as a
general partner, and denying him an evidentiary hearing.

This appeal turns on the bankruptcy court’s conclusion that
the ipso facto clause in the partnership agreement is valid. The
parties agree that the partnership agreement is an executory
contract. Executory contracts are governed by 11 U.S.C. § 365,
which provides that ipso facto clauses that terminate an executory
contract upon the bankruptcy of one of the parties are invalid, §
365(e) (1) (A), except if “applicable law excuses [the non-bankrupt
party to the contract] from accepting performance from or rendering
performance to the trustee or an assignee of such contract ...,
whether or not such contract . . - prohibits or restricts

a

assignment of rights or delegation of duties,” and the non-bankrupt

parties do not consent to the assignment. § 365(e)(2). The

1 In the context of the Bankruptcy Code, an executory contract
is a contract under which the obligations of both the bankrupt and
non-bankrupt party to the contract are as yet unperformed and that
failure of either party to preform would cause a material breach.
See Black’s Law Dictionary 570 (6th ed. 1990).

3


interests were transferred to the bankruptcy estate, including his
equitable and contractual rights to participate in the management
of partnership affairs, the partnership was not dissolved,

“

“falrguably,” until the bankruptcy trustee rejected the partnership
agreement. Sable Brief at 7 n.1l. However, the question under §
365(e) is not what was transferred to the bankruptcy estate, rather
it is what rights and interests could be assigned by the estate to
a third party. Because the ipso facto clause dissolved the
partnership, and because Illinois law does not permit the trustee
to foist a substitute partner on the remaining, non-bankrupt
partners if they are unwilling, § 365(e)(2) prohibited the
assignment to Sable of anything more than a financial interest in
the partnership.

Because the remaining partners have failed to wind up the
partnership after dissolution and pay Sable his distributive share,
and because they have communicated with him about partnership
affairs, Sable argues that they have effectively substituted him as
a general partner, waived any objection to and should be estopped
from denying his status as a general partner. To the extent that
Sable is complaining that remaining partners have not complied with
the partnership agreement or Illinois law on the issue of winding-
up, a bankruptcy petition is not the proper place to raise that
grievance. He cites no Illinois authority for the viability of an

estoppel claim between an assignee and partners of a reconstituted


Although the Bankruptcy court concluded, correctly, that Sable
lacked standing, his novel arguments were not frivolous and there
is no indication of bad faith. The partnership argues that Sable
had no chance of succeeding on the merits of the petition because
there was only one debt. However, the bankruptcy court concluded
that Sable’s motivation and objective in filing the petition--
preventing a tax sale of the partnership’s sole asset--justified a
denial of fees. Transcript of 9/24/2001 Hearing at 16. This was a
proper consideration, and I find that the bankruptcy court did not
abuse its discretion.
The decision of the bankruptcy court is AFFIRMED.

ENTER ORDER:

Bow tl Buhl

Elaine E. Bucklo
United States District Judge

Dated: June av, 2002


om came: ae ane SOROS SSDS

‘ A
Minute Order Form (06/97)

' t United States District Court, Northern District of Illinois
ef Z hy
— :
Name of Assigned J i Sitting Judge if O
FR Macieeate Jade Elaine E. Bucklo thantAssianed Sudge
‘\ é >
CASE NUMBER (ic 62i0¥f eic8731 DATE 6/28/2002
ea
CASE Sable vs. Morgan Sangamon Partnership
TITLE

[in the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.]

MOTION:

DOCKET ENTRY:

aM Oo Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

@) Oo Answer brief to motion due____. Reply to answer brief due,

(4) o Ruling/Hearing on set for__— at

(5) a Status hearing[held/continued to] [set for/re-set for]on___——ssetfor__—satt

(6) i) Pretrial conference{held/continued to] [set for/re-set for]on___setfor___—at__.
(7) ia] Trial[set for/re-set for] on __at

(8) 0 [Bench/Jury trial] [Hearing] held/continued to at

(9) Qa This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) CGeneral Rule21 OCOFRCP41(a)(1) OO FRCP41(a)(2).

(10) Ms [Other docket entry] The decision of the bankruptcy court is affirmed. Enter Memorandum Opinion
and Order.

(1) Mf [For further detail see order attached to the original minute order.]

No notices required, advised in open court Document
, do

. = Num
No notices required. ; Siimb
number of notices:
Y | Notices mailed by judge's staff. 01 2002
Notified counsel by telephone. JUL date decketed

Docketing to mail notices.

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Copy to judge/magistrate judge. LYnoa jonusia sin . x '
AG 6/28/20: 7
7 date mailed notice,
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partnership, but even if there is such a claim, he cannot
demonstrate that he detrimentally relied on any actions of the
partnership.

Perlstein approved the collateral assignment, which would have
transferred to Sable not only Cedicci’s financial interest, but
also his status as a partner. However, Sable opted not to foreclose
on the collateral assignment, and instead, purchased only the
financial interest at a public auction. He cannot credibly claim
that he relied on an agreement that he himself chose not to
enforce. He also claims that, after he purchased Cedicci’s
interest, the partnership gave him access to its books and included
him in discussions about partnership matters. There can be no
detrimental reliance on the basis of actions that occurred after he
purchased the interest, see Vaughn v. Speaker, 533 N.E.2d 885, 891
(Ill. 1988) (holding that standard for “determining whether
reliance was detrimental is whether the reliance played a
substantial part, and so was a substantial factor, in influencing
the decision” of the claimant to act to its detriment), and he does
not explain how he otherwise changed his circumstances in reliance
on the partnership’s actions.

Sable also claims that, because Perlstein referred to Sable as
a partner on one occasion, the partnership waived any objection to
his status as a substituted partner. He cites only an unreported

Wisconsin appellate court case, applying Wisconsin rules of waiver,


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

LEONARD SABLE, not individually
but as trustee for Coventry Eye
Care Center of Evanston
Illinois Partnership Pension
Fund,
Appellant,

v.

MORGAN SANGAMON PARTNERSHIP,

Appellee.

Ne- 01 C 6210

DOCKETED

JUL O 1 2002

MORGAN SANGAMON PARTNERSHIP,
Appellant,

v.
LEONARD SABLE, not individually
but as trustee for Coventry Eye
Care Center of Evanston
Illinois Partnership Pension
Fund,

Appellee.

No. 01 C 8731

MEMORANDUM OPINION AND ORDER

Morgan Sangamon is an Illinois general partnership that was

formed in 1993 by Jerome Cedicci, Michael Perlstein, and Ronald

Goodman for the purpose of owning and managing a single piece of

real property. The partnership agreement prohibits the admission of

an additional or substitute partner without the written consent of

all partners. @ 7(d) (vi). It also contains an “ipso facto clause,

providing that the bankruptcy of a partner:



shall terminate and dissolve the Partnership, provided that

the remaining Partners shall forthwith reconstitute the

Partnership and continue to conduct the business of the

Partnership. The successor in interest of such [bankrupt

Partner shall succeed to and own the interest in the

Partnership theretofore owned by his predecessor in interest

and may be admitted as to [sic] a substituted partner of the

Partnership with the approval of, and upon the terms and

conditions designated by, the Managing Partners.

{| 10(b). Cedicci and Perlstein were the managing partners.

In a 1997 transaction, Cedicci executed a collateral
assignment of his 40 percent share in the partnership to Leonard
Sable. Cedicci filed a petition for voluntary Chapter 7 bankruptcy
in 1998. Rather than foreclosing on the collateral assignment,
Sable purchased Cedicci’s 40 percent interest from the bankruptcy
estate in a public auction in 1999. When the property owned by the
partnership fell into tax arrears in 2001, Sable filed a petition
for involuntary bankruptcy against the partnership. The bankruptcy
court dismissed the petition, holding that Sable’s purchase of
Cedicci’s economic interest did not make him a general partner with
standing to file an involuntary petition against the partnership
under 11 U.S.C. § .303(b). In re Morgan Sangamon P’ship, 269 B.R.
652, 653 (Bankr. N.D. Ill. 2001). Sable appeals the dismissal of
his petition; the partnership cross-appeals the bankruptcy court’s
denial of attorneys’ fees.

I review the bankruptcy court’s factual findings for clear

error, and I review its conclusions of law de novo. In Matter of

Juzgwiak, 89 F.3d 424, 427 (7th Cir. 1996). The bankruptcy court