Court Opinion

ID: 5016
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:01:34+00
Date Added: 2024-06-11T16:41:41.315782
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                         FOR THE FIFTH CIRCUIT

                         _____________________

                              No. 91-4765
                         _____________________

     IN THE MATTER OF:       HARRY S. PHILLIPS and
                             PHILLIPS & PHILLIPS, LTD.,
                             Debtors.

     MARTHA J. PHILLIPS,

                                        Appellant-Cross-Appellee,

                                  versus

     FIRST CITY, TEXAS )) TYLER, N.A., HARRY S.
     PHILLIPS, and PHILLIPS & PHILLIPS, LTD.,

                                        Appellees-Cross-Appellants.

     _______________________________________________________

        Appeals from the United States District Court for
                  the Eastern District of Texas
     _______________________________________________________

                         (     July 2, 1992   )

Before SNEED,1 REAVLEY and BARKSDALE, Circuit Judges.

REAVLEY, Circuit Judge:

     The dispositive issue in this appeal is whether Harry S.

Phillips (HSP) had legal authority to file a voluntary petition

under the Bankruptcy Code's Chapter 11 on behalf of Phillips &

Phillips, Ltd. (P&P) after filing a similar petition on his own

behalf.   The bankruptcy court held that Texas law did not deprive

HSP of that authority.       On appeal, the district court held that

     1
       Senior Circuit Judge of the Ninth Circuit, sitting by
designation.
Texas partnership law would deprive HSP of authority, but that

federal Bankruptcy Rule 1004(a) preempted this Texas law.   We

hold that Texas law deprived HSP of authority to file bankruptcy

on P&P's behalf, and we find no federal law that preempts this

Texas law.   Consequently, we reverse the district court's order

that affirms the bankruptcy court's confirmations of the

reorganization plans of HSP and P&P.

                            I. BACKGROUND

     Martha J. Phillips (MJP) and HSP divorced in 1976.    Rather

than divide their extensive real estate and mineral interests,

they created P&P as a limited partnership and transferred their

community property to it.   Their partnership agreement states

that MJP and HSP each own half of P&P and HSP is its sole general

partner.

     In February 1988, a Texas court issued a Final Judgment in

accord with a jury's findings that HSP breached the partnership

agreement and his fiduciary duties to MJP.   The Final Judgment

awarded MJP damages against both HSP and P&P, dissolved P&P, and

directed HSP, "as general partner of Phillips & Phillips," to

wind up P&P within 90 days by paying P&P's unsecured creditors

with its liquid assets and transferring an undivided one-half

interest in all of P&P's remaining property to MJP subject to all

existing encumbrances on that property.

     HSP appealed from the part of the court's order that

dissolved P&P, and MJP appealed from the court's determination of

damages.   In January 1989, HSP asked the Texas Court of Appeals

                                  2
to dismiss his appeal.    HSP filed a voluntary petition for

bankruptcy protection under 11 U.S.C. §§ 1101 et seq. (Chapter

11) for his personal estate on January 17, 1989, two days before

the Texas Court of Appeals was to hear oral argument on MJP's

appeal.2   Then, on February 2, 1989, the day before a Texas court

was to have considered MJP's motions for contempt and appointment

of a receiver for P&P, HSP filed a voluntary petition for

protection under Chapter 11 on behalf of P&P.    HSP has not yet

complied with the Final Judgment's requirement that he wind up

P&P.

       MJP asked the bankruptcy court to dismiss P&P's petition,

arguing, inter alia, that HSP did not have authority to file the

petition on P&P's behalf.    The bankruptcy court held that Texas

partnership law did not prohibit HSP, as the sole general partner

of P&P, from filing a Chapter 11 petition on P&P's behalf even

though he had already filed one on his own behalf.    The court

then held that, even if Texas law did prohibit HSP from placing

P&P in Chapter 11 proceedings, contrary provisions of the federal

Bankruptcy Code preempted Texas law under the Constitution's

Supremacy Clause.

       The bankruptcy court also found that:

            Any attempt to liquidate the assets of
            Phillips & Phillips, Ltd. and Harry S.
            Phillips other than through the present
            pending Chapter 11 proceedings could result

       2
       The bankruptcy court permitted MJP to prosecute her
appeal; Texas courts determined that HSP owes MJP $535,302.14 for
breaching contractual and fiduciary duties. See Phillips v.
Phillips, 820 S.W.2d 785, 786-88 & n.2 (Tex. 1991).

                                  3
            in the diminution of both bankruptcy estates
            to the point where not all creditors or
            certain classes of creditors and/or parties
            in interest would be paid.

In November 1989, the court confirmed plans of reorganization for

both HSP and P&P under which HSP, as debtor-in-possession with

court supervision, was to liquidate P&P's assets over a four-year

period, pay all creditors, and share any remaining equity equally

with MJP.

     The district court affirmed the bankruptcy court's plan

confirmations after ruling that, although Texas partnership law

prohibits a bankrupt partner from placing a partnership in

Chapter 11 proceedings, this law conflicts with Bankruptcy Rule

1004(a).    The district court concluded that, under the

Constitution's Supremacy Clause, Bankruptcy Rule 1004(a) renders

HSP's personal bankruptcy legally irrelevant to his authority to

place P&P in Chapter 11 proceedings.

                           II. DISCUSSION

     MJP attacks the district court's order affirming the

bankruptcy court's plan confirmations on several grounds.      We

agree with her argument that the courts erroneously recognized

HSP's authority to file a voluntary bankruptcy petition on P&P's

behalf, and this error alone precludes confirmation of either

plan.   We review the legal conclusions of the bankruptcy court

and the district court de novo.       Pierson & Gaylen v. Creel &

Atwood (In re Consolidated Bancshares, Inc.), 785 F.2d 1249, 1252

(5th Cir. 1986).

                                  4
A. HSP'S AUTHORITY UNDER TEXAS LAW

     Texas' Uniform Partnership Act provides that a "partnership

is in no case bound by any act of a partner after dissolution ...

[w]here the partner has become bankrupt."          TEX. REV. CIV. STAT. ANN.

art. 6132b § 35(3)(b) (Vernon 1970).3         We read this language to

prohibit HSP from placing P&P in Chapter 11 proceedings after the

Texas court dissolved P&P and HSP secured Chapter 11 protection

for himself.

     Professor Bromberg, the chief draftsman of Texas' Uniform

Partnership Act, suggests that "the reason for [section 35(3)(b)]

may be the fear of binding the partnership to unwise transactions

entered into by the bankrupt partners."          Allan R. Bromberg &

Larry E. Ribstein, BROMBERG & RIBSTEIN   ON   PARTNERSHIP § 7.16(d) (1991).

More specifically, upon securing bankruptcy-court protection, a

general partner who becomes a debtor-in-possession4 of her

personal estate necessarily assumes responsibilities to her

creditors that conflict with her responsibilities to her co-

     3
       Under Texas law, bankruptcy of any partner or the
partnership causes dissolution of the partnership. TEX. REV. CIV.
STAT. ANN. art. 6132b § 31(5). Thus, section 35(3)(b) simply
removes a bankrupt partner's authority to act on behalf of
partnerships.
     4
       If the bankruptcy court appoints a trustee instead of
leaving the debtor-partner in control of her bankruptcy estate,
the trustee assumes all of the debtor's partnership interests.
11 U.S.C. §§ 323 (trustee "is the representative of the estate"),
541(a)(1) (voluntary petition creates an estate that contains
"all legal or equitable interests of the debtor in property"
except power that the debtor may only exercise for the benefit of
a separate entity). Thus, federal law precludes a bankrupt
partner from relying on her status as a partner to act on behalf
of a partnership after the court has appointed a trustee to
administer her estate.

                                     5
partners.   See Skeen v. Harms (In re Harms), 10 B.R. 817, 822

(Bankr. D. Colo. 1981) (sole general partner of limited

partnership who becomes debtor-in-possession of personal estate

under Chapter 11 generates "an inherent conflict of interest

which precludes him from remaining as general partner" because

partners owe fiduciary duty to co-partners and debtors-in-

possession owe fiduciary duty to creditors); In re Map 1978

Drilling Partnership, 95 B.R. 432, 435 (Bankr. N.D. Tex. 1989)

(following Harms in requiring avoidance of conflict-of-interest

for debtor-partner in Chapter 11 proceedings by conditioning

reorganization of limited partnerships on naming of new sole

general partner); In re Royal Gorge Assoc., 77 B.R. 277, 278

(Bankr. D. Colo. 1987) ("flagrant conflict of interest" for law

firm to represent sole general partner, who was also creditor of

partnership, in his voluntary Chapter 7 case, while at the same

time representing partnership in its Chapter 11 case).    Creditors

are wholly dependent on the party controlling an estate in

bankruptcy proceedings to protect their interests.   Likewise,

partners, especially limited partners, must rely on general

partners to protect all partners' interests in partnership

property.   Both the creditors and the partners are interested in

the same partnership property.   Thus, Texas, which alone

regulates the creation and dissolution of business associations

within its borders, logically protects non-bankrupt partners from

bankrupt partners who acquire responsibilities under federal

bankruptcy law that could compromise the interests of the non-

                                 6
bankrupt partners.

     HSP presents three arguments in favor of a contrary

interpretation of section 35(3)(b).

1. Texas' Definition of "Bankrupt"

     First, HSP contends that he has not become "bankrupt" within

the meaning of section 35(3)(b) because he filed his voluntary

petition under Chapter 11, which facilitates debtor

reorganization, as opposed to Chapter 7, which facilitates

liquidation.   Thus, we must consider whether one who files a

voluntary petition for Chapter 11 protection is "bankrupt" within

the meaning of Texas partnership law.    The Texas Uniform

Partnership Act states that "'bankrupt' includes bankrupt under

the Federal Bankruptcy Act."   TEX. REV. CIV. STAT. ANN. art. 6132b §

2.   This is a deceptively simple statement, and we must review

some legislative history to properly convey our difficulties in

construing section 2.

     Congress consolidated federal bankruptcy law in the

Bankruptcy Act of 1898.   See Act of July 1, 1898, c. 541, 30

Stat. 544.   At that time, bankruptcy law only facilitated

liquidation.   Not until 1933 did Congress amend the Bankruptcy

Act to permit reorganization of certain entities.     See Pub. L.

No. 72-420, 47 Stat. 1474 (1933).    In 1938, Congress amended the

Bankruptcy Act with the precursor to Chapter 11 to facilitate

general corporate reorganization.     See Act of June 22, 1938, Pub.

L. No. 74-575, 52 Stat. 840 (1938).    Until Congress substantially

revised the Bankruptcy Act with the Bankruptcy Reform Act of

                                 7
1978, the Bankruptcy Act apparently referred to entities

undergoing Chapter 7 liquidation as "bankrupts," and those

undergoing Chapter 11 reorganization as "debtors."     See S. REP.

NO. 989, 95th Cong., 2d Sess. 23 (1978), reprinted in Historical

and Revision Notes following 11 U.S.C.A. § 101(12) at 36 (1979),

and reprinted in 1978 U.S.C.C.A.N. 5787, 5809.     But the

Bankruptcy Reform Act of 1978 removed all references to

"bankrupt" in federal bankruptcy law, created the Bankruptcy

Code, 11 U.S.C. § 1 et seq., and adopted "debtor" to refer to all

who seek protection under the Code, whether they do so through

liquidation under Chapter 7 or reorganization under Chapter 11.

See 11 U.S.C. § 101(12); see generally H.R. REP. No. 595, 95th

Cong., 2d Sess. 3-5 (1978), reprinted in 1978 U.S.C.C.A.N. 5963,

5965-66 (recounting Reform Act's history and purpose).

     When the Texas legislature referred to the "Federal

Bankruptcy Act" in enacting section 2 in 1961, it could have

meant the Federal Bankruptcy Act as written in 1898, as it stood

in 1961, or as amended over time.     The language of section 2

accords with any of these interpretations.      Consistent with the

last interpretation, we think that, as a matter of statutory

construction and policy, Texas courts would consider one who

files a voluntary petition under Chapter 11 "bankrupt" within the

meaning of Texas partnership laws.

     Section 2 is to be "interpreted and construed as to effect

its general purpose to make uniform the law of those states which

enact it."   TEX. REV. CIV. STAT. ANN. art. 6132b § 4(4).    Sections 2

                                  8
and 4(4) are Texas' versions of the Uniform Partnership Act as it

existed in 1961.       The current version of the Uniform Partnership

Act explains that "Federal Bankruptcy Act" in its section 2

explicitly refers to 11 U.S.C. § 1 et seq., the Bankruptcy Code.

See UNIF. PARTNERSHIP ACT § 2, 6 U.L.A. § 2 (1992 Supp.).    Thus, the

current National Conference of Commissioners of Uniform State

Laws considers the present federal understanding of the term

"bankrupt" controlling under section 2 of the Uniform Partnership

Act.5       No federal or state court has addressed the meaning of

section 2, but the legislatures of Colorado, Georgia,

Pennsylvania, and Rhode Island have specified that "Federal

Bankruptcy Act" as used in section 2 means federal bankruptcy law

as currently amended.       Only California has limited the definition

of "bankrupt" under section 2 to Chapter 7 liquidation

proceedings.       See id. ("Action in Adopting Jurisdictions").

Thus, by adopting the majority view of "Federal Bankruptcy Act,"

our interpretation accords with the mandate of the Texas Uniform

Partnership Act's section 4.       We also note that section 2 only

states what is included within "bankrupt" without explicitly

limiting that term's significance.       We understand Texas, to the

extent that its legislature considered the issue now before us,

        5
       Federal conflation of the terms "debtor" and "bankrupt"
only means that there is no longer any difference between these
two terms. The opposite conclusion )) that, for purposes of
state laws that retain the term "bankrupt," there is no such
thing as "bankrupt" under federal law )) would considerably
change the significance of bankruptcy in states' partnership
laws. We cannot countenance such a drastic change without some
indication of legislative intent or reason for doing so.

                                     9
to have simply ceded to the federal government concurrent

authority to define "bankrupt" for purposes of Texas partnership

law.

       Most importantly, however, we would create an unnecessary

loophole in Texas partnership law by interpreting it to treat

those who seek Chapter 7 protection differently from those who

seek Chapter 11 protection.     See In re Sandy Ridge Devel. Corp.,

881 F.2d 1346, 1352 (5th Cir. 1989) ("although Chapter 11 is

titled 'Reorganization,' a plan may result in the liquidation of

the debtor").    Would it follow Sandy Ridge, then, that parties

who wish to liquidate could simply file their petitions under

Chapter 11 to avoid the state-law implications of bankruptcy?      We

think not.

       Only one reported case withheld the label "bankrupt" from an

entity that sought Chapter 11 protection: In re Safren, 65 B.R.
566, 569-70 (Bankr. C.D. Cal. 1986).     We think that Safren is

wrongly decided.    California adopted section 31(5) of the Uniform

Partnership Act, which states that "[d]issolution is caused ...

[b]y the bankruptcy of any partner or the partnership."     The

Safren court held that filings for protection under Chapter 11 do

not invoke section 31(5).     Id.   The court reasoned that the

National Conference of Commissioners on Uniform State Laws

drafted the Uniform Partnership Act almost 20 years before

Congress first amended the liquidation provisions of the

Bankruptcy Act to facilitate reorganizations.     From this, the

court concluded that the drafters of the Uniform Partnership Act

                                    10
only envisioned the extant liquidations when they used the term

"bankrupt" in section 31(5).     Id.   But the information available

to the drafters of the Uniform Partnership Act is much less

important than that available to California's legislature when it

adopted section 31(5) in 1949.     See id. at 569 n.2.   By that

time, Chapter 11 had existed for eleven years and California's

legislature could have understood "bankrupt" to apply to anyone

seeking protection under any chapter of the federal bankruptcy

laws.

     The Safren court also based its decision on its

understanding of public policy.    The court explained as follows:

          If a partnership is to be reorganized and to
          continue in business, state law should not be
          permitted to dissolve it. Upon confirmation
          of a plan of reorganization, the assets of
          the bankruptcy estate, which was created by
          the filing of the case, are revested in the
          partnership, subject to those debts provided
          for in the plan; unpaid partnership
          liabilities are discharged. The partnership,
          like a corporation, then emerges from Chapter
          11 to continue in business.
               In addition, the dissolution of a
          partnership upon the filing of its Chapter 11
          case may have substantial tax consequences,
          that could render its reorganization
          difficult or impossible.

Id. at 569.   The court's entire policy argument concerns how to

interpret state law to effectuate a federal objective:

partnership reorganization.    But the purpose of the state law

construed by the court is not to preserve the life of

partnerships; as we have previously explained, that law mandates

partnership dissolution upon partner bankruptcy to protect the

conflicting interests of the many interested parties when the

                                  11
legal nature of the parties' relationships change as a result of

federal law.   See generally Woodruff v. Bryant, 558 S.W.2d 535,

539 (Tex. Civ. App. -- Corpus Christi 1977, writ ref'd n.r.e.)

("Dissolution is an act that actually changes the legal

relationship of the partnership, and has nothing to do with

whether or not the partnership business is continuing or winding

up.").

     Thus, we repudiate Safren and side with the many bankruptcy

courts that have interpreted various states' versions of the

Uniform Partnership Act to include Chapter 11 petitioners as

"bankrupts" under those states' partnership laws.   See, e.g., In

re Sunset Developers, 69 B.R. 710, 711-12 (Bankr. D. Idaho 1987);

In re Minton Group, Inc., 27 B.R. 385, 390 (Bankr. S.D.N.Y.

1983), aff'd, 46 B.R. 222 (S.D.N.Y. 1985); In re Harms, 10 B.R.

at 821-22.6

2. Third Parties

     Next, HSP relies on the title and comments7 to section 35 to

argue that this law only limits the authority of bankrupt

partners to bind partnerships to third parties, and it does not

     6
       See also In re Corky Foods Corp., 85 B.R. 903, 904 (Bankr.
S.D. Fla. 1988) (completely misreading Safren to hold that, while
state law includes Chapter 11 petitioners as "bankrupts," some
state partnership laws that apply to bankrupts conflict with
federal bankruptcy law); cf. Safren, 65 B.R. at 570 n.5 (decision
rests wholly on interpretation of state law without reaching
conflict issue).
     7
       Section 35 is entitled "Power of Partner to Bind
Partnership to Third Persons after Dissolution." TEX. REV. CIV.
STAT. art. 6132b § 35; see also id. Source and Comments )) Alan
R. Bromberg.

                                12
otherwise limit their authority to wind up partnership affairs.

HSP explains that he placed P&P in Chapter 11 proceedings as a

means of winding up that partnership, and because MJP is an

insider and not a third party, section 35 did not prevent him

from filing a voluntary petition on P&P's behalf even if he is

"bankrupt" under Texas law.   We disagree.

     Even if we accept HSP's argument that section 35 only

eliminates a bankrupt partner's authority to bind a partnership

to third parties, it would preclude him from placing P&P in

Chapter 11 proceedings.   By securing bankruptcy protection for

P&P, HSP changed the legal relationship between P&P and third-

party creditors; indeed, we can scarcely imagine a partnership

liquidation or reorganization plan that does not change the legal

obligations of )) or "bind"8 )) a partnership to third parties.

     HSP emphasizes one of Professor Bromberg's comments to

section 35: "In all instances, authority continues to wind up

affairs and complete unfinished transactions...."     TEX. REV. CIV.

STAT. ANN. art. 6132b § 35, Source and Comments )) Alan R.

Bromberg at 386.   But Texas' legislature mandates that "the

partners who have not wrongfully dissolved the partnership or the

legal representative of the last surviving partner, not bankrupt,

has the right to wind up the partnership affairs."     TEX. REV. CIV.

STAT. ANN. art. 6132b § 37 (emphasis added); see also Normandin v.

Normandin (In re Normandin), 106 B.R. 14, 16 (Bankr. D. Mass.

     8
       See BLACK'S LAW DICTIONARY 153 (5th ed. 1979) (to "bind" is
"to obligate [or] place under definite duties or legal
obligations").

                                 13
1989) (interpreting Massachusetts' identical section 37 to deny

partner who files a bankruptcy petition the right to participate

in wind-up process).   Moreover, both immediately before and after

the comment that HSP relies upon, Professor Bromberg acknowledges

that section 37 limits partners' authority to wind up a

partnership's affairs.   TEX. REV. CIV. STAT. ANN. art. 6132b § 35,

Source and Comments at 384, 386.      He notes that sections 35 and

37 "are rather complicated and sometimes overlap."      Id. at 384.

While we cannot say what Professor Bromberg's comment to section

35 means, we refuse to add the gloss to section 35 that HSP

advocates when that gloss conflicts with section 37, and is

nowhere supported in the text of section 35.

3. MJP's Consent

     Finally, First City, Texas - Tyler, N.A., a creditor of HSP

and P&P who sides with HSP in this appeal, argues that HSP's

authority to wind up P&P derives from the Final Judgment, and

because MJP did not challenge this aspect of the Final Judgment,

HSP's authority to wind up P&P is legitimated by consent.     But if

MJP consented to anything, she consented to having HSP wind up

P&P within 90 days by conveying to her an undivided one-half

interest in all of P&P's real estate and mineral interests.      She

has consistently contested HSP's authority to manage P&P's assets

beyond the Final Judgment's directives, and she sought a receiver

for P&P as a result of HSP's disregard for the Final Judgment.

     Moreover, HSP was not bankrupt when he received authority to

wind up P&P under the Final Judgment.     The Texas court that

                                 14
issued the Final Judgment did not sanction a conflict-of-interest

on HSP's part because none existed at that time.           The court could

appropriately depend on section 35(3)(b) to protect MJP and HSP's

creditors from any conflict that would arise if HSP sought

bankruptcy protection after the Final Judgment, and nothing in

the Final Judgment is inconsistent with this understanding.

     We conclude that, under Texas law, HSP lacked authority to

file a voluntary Chapter 11 petition on P&P's behalf.

B. FEDERAL PREEMPTION   OF   TEXAS LAW

     While the district court understood Texas law to divest HSP

of authority to act on P&P's behalf after he sought Chapter 11

protection, it held that Bankruptcy Rule 1004(a) negates the

effect of section 35(3)(b) in this case.           FED. BANKR. R. 1004(a)

states: "A voluntary petition may be filed on behalf of the

partnership by one or more general partners if all general

partners consent to the petition."            The district court cited In

re Westover Hills, Ltd., 46 B.R. 300, 305 (Bankr. D. Wyo. 1985)

in support of its decision that rule 1004(a) preempts section

35(3)(b).    The Westover Hills court interpreted rule 1004(a) to

mean that, "[w]here a limited partnership contains only one

general partner, and that general partner files a voluntary

petition, then the bankruptcy case is properly commenced."            Id.

But the sole general partner in Westover Hills was not bankrupt

when it filed a voluntary petition on behalf of the partnership,

and the Westover Hills court did not address any conflict between

federal and state law.          Thus, while the Westover Hills court's

                                         15
interpretation of rule 1004(a) is correct on the facts of that

case, it is irrelevant to this case.

     Whether rule 1004(a) preempts section 35(3)(b) depends on

whether we find an actual conflict between federal and state law.

See California Fed. Sav. & Loan Ass'n v. Guerra, 479 U.S. 272,

280-81, 107 S. Ct. 683, 689 (1987); Perry v. Mercedes Benz of

North Am., Inc., 957 F.2d 1257, 1261 (5th Cir. 1992).9    An actual

conflict "occurs either because 'compliance with both federal and

state regulations is a physical impossibility,' or because the

state law stands 'as an obstacle to the accomplishment and

execution of the full purposes and objectives of Congress.'"

Guerra, 479 U.S. at 281, 107 S.Ct. at 689 (citations omitted).

     We thus examine the operation and purpose of rule 1004(a)

and section 35(3)(b) to determine whether they conflict.    Rule

1004(a) provides that any "general partner" may file a voluntary

petition on behalf of a partnership.   But no federal law defines

"general partner;" this is exclusively the task of state

partnership law.   See Westover Hills, 46 B.R. at 303-05 (applying

Wyoming law to determine whether a partner is a limited or

general partner for purposes of rule 1004(a)).   Texas defines a

general partner as one who has "all the rights and powers and

[is] subject to all the restrictions and liabilities of a partner

in a partnership without limited partners."   TEX. CIV. STAT. ANN.

art. 6132a § 10(a) (emphasis added).   Section 35(3)(b) is one of

     9
       The parties raise, and we recognize, no issue concerning
either express or implied preemption. See id.

                                16
these restrictions that defines a "general partner" in Texas.      An

entity that has all of the rights and responsibilities of a

general partner under Texas law, but can also act on behalf of

the partnership after filing for bankruptcy protection, is

something more than, and therefore different from, a general

partner under Texas law.

     Thus, when rule 1004(a) employs the term "general partner,"

it either imports all authority limitations with the definition

of "general partner" from state law or, pursuant to the Supremacy

Clause, it augments the authority of those whom states label

"general partner."   Any such augmentation constitutes a

substantive change in the authority of general partners.   But

when Congress accorded the Supreme Court authority to promulgate

the Bankruptcy Rules, it stated, "[s]uch rules shall not abridge,

enlarge, or modify any substantive right."   28 U.S.C. § 2075

(emphasis added); see also FED. BANKR. R. 1001 (Bankruptcy Rules

"govern procedure in United States Bankruptcy Courts") (emphasis

added); In re Hanover Indus. Mach. Co., 61 B.R. 551, 552 (Bankr.

E.D. Pa. 1986) ("the [Bankruptcy] Code defines the creation,

alteration or elimination of substantive rights but the

Bankruptcy Rules define the process by which these privileges may

be effected").   So rule 1004(a), by itself, cannot augment the

authority of what states define as "general partners."

     The argument could be made that rule 1004(a) simply

                                17
implements 11 U.S.C. § 301,10 in which Congress augmented the

authority of general partners by providing: "A voluntary case

under a chapter of [title 11] is commenced by the filing with the

bankruptcy court of a petition under such chapter by an entity

that may be a debtor under such chapter."    But nothing in section

301 indicates that every entity that may be a debtor under the

Bankruptcy Code is entitled to file a voluntary petition; nor

does section 301 make any attempt whatsoever to address the

countless details that attend questions of authority to act on

behalf of a business entity.    See H.R. 8200, H.R. REP. NO. 598 at

196, reprinted in, 1978 U.S.C.C.A.N. at 6157 ("Title 11 does not

define 'partner' or 'partnership'; the definitions are left to

nonbankruptcy law as construed by the bankruptcy court.")

(emphasis added).

      For many years, courts have consistently looked to state

law to determine whether a person has authority to file a

voluntary petition on behalf of a corporation.    In Grand Lodge,

Knights of Pythias v. O'Connor, 95 F.2d 477, 478 (5th Cir. 1938)

the officers of a corporation that was involved in Louisiana

receivership proceedings filed a petition for reorganization

under federal bankruptcy law.    This court looked exclusively to

Louisiana law to determine that the officers were without

authority to file the petition.    Id. at 479.   Moreover, this

court relied on Louisiana law concerning the significance and

     10
       See Advisory Committee Note to FED. BANKR. R. 1004 in 11
U.S.C.A. (West 1984) (rule 1004(a) "complements" § 301).

                                  18
timing of corporate dissolution to determine that the corporation

"may not be reorganized in bankruptcy."   Id.   Throughout the many

revisions to federal bankruptcy law, courts continue to resolve

authority-to-file disputes according to state law.   See In re

Quarter Moon Livestock Co., 116 B.R. 775, 778 (Bankr. D. Idaho

1990) ("the authority to file a bankruptcy petition must be found

in the instruments of the corporation and applicable state law")

(citing In re Crescent Beach Inn, Inc., 22 B.R. 155 (Bankr. D.

Me. 1982)); In re Bel-Aire Invest., Inc., 97 B.R. 88, 89-90

(Bankr. M.D. Fla. 1989) ("It is well established that since the

Bankruptcy code itself does not establish the requisites for the

initiation of a voluntary corporate bankruptcy case, the validity

of all the individuals acting on behalf of the corporation must

be determined with reference to the laws of the State in which

the corporation was chartered."; recognizing that application of

state law would render corporation unable to file a voluntary

petition) (citing In re Autumn Press, Inc., 20 B.R. 60 (Bankr. D.

Mass. 1982); Taylor v. Markus Enterprises, Inc. (In re Markus

Enterprises, Inc.), 91 B.R. 459, 460 (M.D. Tenn 1988) ("Whether

the debtor, in light of its dissolution, retains the capacity to

file a petition under the Bankruptcy Code, Chapter 11, is a

matter of the law of [Tennessee]."); see also In re Sunset

Developers, 69 B.R. at 712 (as a matter of Idaho law, partner who

filed for Chapter 11 protection lacks "authority as a general

partner to bind the partnership to an involuntary bankruptcy

petition").   Without further direction from Congress, we will

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continue to look to state law to determine which people have

authority to seek federal bankruptcy protection on behalf of

state-created business entities.

     HSP cites In re Rittenhouse Carpet, Inc., 56 B.R. 131

(Bankr. E.D. Penn. 1985) in arguing that section 35(3)(b)

conflicts with federal law.   Rittenhouse concerns a conflict of

state partnership law with 11 U.S.C. § 365(e), and has nothing to

do with rule 1004(a) or section 301.   Id. at 132-33.11   We

discuss section 365 because of the possibility that HSP raises it

as an alternative ground for finding a conflict with Texas law

that the district court did not consider.

     Section 365 provides, in part:

          (e)(1) Notwithstanding a provision in an
          executory contract or unexpired lease, or in
          applicable law, an executory contract or
          unexpired lease of the debtor may not be
          terminated or modified, and any right or
          obligation under such contract or lease may
          not be terminated or modified, at any time

     11
       By addressing HSP's argument that is based on
Rittenhouse, we do not imply that we agree with that case's
outcome or rationale. In Rittenhouse and at least two other
cases, courts have applied section 365(e)(1) to permit the sole
general partner of a limited partnership to retain her general
partner status despite statements in the partnership agreement
and state law that deprived her of general partner status when
she filed a Chapter 11 petition on her own behalf. Rittenhouse,
56 B.R. at 132-33; In re Fidelity Am. Mortg. Co., 10 B.R. 781
(Bankr. E.D. Pa. 1981); Corky Foods, 85 B.R. at 904. But none of
these courts considered the significance of section 365(e)(2), or
the then virtually identical 11 U.S.C. § 365(c), which several
courts have relied upon to reach the exact opposite conclusion
than that reached by the courts in Rittenhouse et al. See Sunset
Developers, 65 B.R. at 712-13; Harms, 10 B.R. at 821-22; see also
Minton, 27 B.R. at 390-91 (following Harms); cf. In re Fryar, 99
B.R. 747, 750 (Bankr. W.D. Tex. 1989) (Congress precluded Harms'
reading of section 365(c)(1) without changing the parallel
personal-service provision of section 365(e)(2)).

                                20
          after the commencement of the case solely
          because of a provision in such contract or
          lease that is conditioned on))
               (A) the insolvency or financial
               condition of the debtor at any time
               before the closing of the case;
               (B) the commencement of a case under
               [title 11]; or
               (C) the appointment of or taking
               possession by a trustee in a case under
               [title 11] or a custodian before such
               commencement.
          (2) Paragraph (1) of this subsection does not
          apply to an executory contract or unexpired
          lease of the debtor, whether or not such
          contract or lease prohibits or restricts
          assignment of rights or delegation of duties,
          if))
               (A)(i) applicable law excuses a
               party, other than the debtor, to
               such contract or lease from
               accepting performance from or
               rendering performance to the
               trustee or to an assignee of such
               contract or lease, whether or not
               such contract or lease prohibits or
               restricts assignment of rights or
               delegation of duties; and
               (ii) such party does not consent to such
               assumption or assignment ....

11 U.S.C. § 365(e).   HSP presents no authority or reasoning to

support his implied assertion that the P&P partnership agreement

remains an executory contract after the Final Judgment decreed

that HSP breached the partnership agreement, awarded MJP damages,

and ordered P&P dissolved, and after passage of the Final

Judgment's 90-day prescription for winding up P&P.   Moreover,

section 365(e)(1) by its terms only supersedes conflicting law if

that law supports termination or modification of rights in an

executory contract "solely because of a provision in such

contract."   Id.   No one contends that a contract deprived HSP of

authority to act on P&P's behalf after declaring personal

                                 21
bankruptcy; MJP claims that Texas law has this effect.         See 2

COLLIER   ON   BANKRUPTCY § 365.06 at 365-48, -49 (reciting legislative

history of section 365(e) indicating its function as an "express

prohibition against the enforcement of bankruptcy termination

clauses").        Thus, HSP may not employ section 365 to avoid section

35(3)(b).

      Accordingly, we recognize no conflict between federal

bankruptcy law and section 35(3)(b).

                               III. CONCLUSION

      Because HSP had no authority to institute Chapter 11

proceedings on P&P's behalf, we REVERSE the district court's

order that affirms the bankruptcy court's confirmation of P&P's

plan of reorganization.        Because HSP's plan of reorganization is

wholly dependent on the existence of P&P's plan, we also REVERSE

the district court's order affirming the bankruptcy court's

confirmation of HSP's plan.        We REMAND this case for further

proceedings consistent with this opinion.

      REVERSED and REMANDED.

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