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agreement was between the investor and the LLC, not between the members of the LLC, so that it could be an executory contract. The court then found that the parties' failure to execute an operating agreement as required by the contract was not a material breach which was so fundamental as to allow the non-breaching party the opportunity to have its performance excused. The LLC had treated the investor as a member from the date of his investment and the parties treated the failure to execute the document as a form of condition subsequent, given that he had made the investment and the parties were negotiating over the operating agreement. Since the agreement was not executory, the bankruptcy court's decision allowing the LLC to reject the contract was reversed. Presumably the non-debtor would be treated as a member with priority over the other members.
A debtor may file a bankruptcy petition to undo the adverse effects of litigation. Where litigation resulted in a pre-bankruptcy settlement agreement that imposed burdens on the debtor and nondebtor parties, the Ohio bankruptcy court found that it was an executory contract that could be rejected, excusing the debtor's future performance. The agreement had not been noticed to the plaintiff class and the district court had not held a fairness hearing, approved the settlement or entered a judgment. The material unperformed obligations remaining on the petition date included the debtor's obligation to make payments and refrain from certain business practices and the plaintiffs' obligation to deliver mutual releases.
The debtor was in the trucking business. In connection with financing purchase of trucks, the debtor had an option to trade-back each truck for a 55% of the original purchase price. After a sale of debtor's assets, the debtor argued that the stalking horse buyer had acquired the options, which
