Opinion
No. 00 B 23784
November 22, 2000
Attorney for Debtor: George A.Thomas, Teresa L. Einarson, George A. Thomas Associates, Ltd., Glen Ellyn, IL.
Attorney for Richard G. Andrzejewski: Daviel A. Zazove, Barbara L. Yong, Matthew J. Cozzi, Field Golan, Chicago, IL.
MEMORANDUM OPINION
This matter comes before the Court on two motions related to an Agency Agreement between Patrick R. Walbran ("Walbran"), a debtor in possession under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et. seq., and Richard Andrzejewski ("Andrzejewski"), his agent. Walbran seeks to reject the Agency Agreement as an executory contract. Andrzejewski seeks relief from the automatic stay so that he can continue with a state court lawsuit to compel specific performance of the Agency Agreement. For the reasons that follow, Walbran's motion to reject the contract is denied. Andrzejewski's motion to modify the stay is granted.
BACKGROUND
On August 4, 1994, Walbran entered into an Articles of Agreement for Deed (the "Articles") in which he agreed to make an installment purchase of real property (the "Property") and the assets of an auto salvage business (the "Business") located on the real property. The Articles provide that Walbran would make weekly payments in the amount of $1,849.37 every Monday through December 24, 2013 (which is a Tuesday).
Between August 1994 and August 1999, Walbran operated the Business, a sole proprietorship, himself. On August 1, 1999, Walbran and Andrzejewski entered into the Agency Agreement now at issue. The Agency Agreement is very badly drafted, but the gist of it is that Andrzejewski will operate the Business and that Walbran will not participate in the day to day operations. The Agency Agreement offers no enlightenment about what operating the Business might entail, but it does make clear that Andrzejewski is to pay $1,200 a week to Walbran and to keep the net profits of the business, if any, for himself. However, the Agency Agreement does not require that Andrzejewski operate the Business profitably. Under the terms of the Agency Agreement, Walbran may not sell either the Business or the Property without Andrzejewski's consent; if a sale does take place, Walbran and Andrzejewski are to split the proceeds "except for $75,000 the division of which shall be agreed upon by the parties." The final paragraph of the Agency Agreement provides:
Principal is the sole owner of the business pursuant to Agreement for Deed described above. This agreement does not transfer pledge assign that agreement. Upon the payment in full of that agreement RICHARD J. ANDRZEJEWSKI and PATRICK WALBRAN shall own the business and real estate equally and shall sign whatever documents or directions to the Contract Seller to ensure that the deed/and or ownership of the business and real estate are placed in each of their names in equal shares.
Andrzejewski claims: (1) that from August 4, 1999 until August 15, 2000, he made all the weekly payments due under the Articles for Deed; and (2) that he purchased substantially all of the personal property used in the Business, including the inventory, with his own funds in the amount of $340,000. Walbran does not dispute Andrzejewski's claims. Nor is there any dispute that Andrzejewski made the weekly $1,200 payments to Walbran pursuant to the terms of the Agency Agreement.
Unhappily, the course of the Agency Agreement never did run smooth, and on April 25, 2000, Walbran changed the locks on the Property and prevented Andrzejewski from entering. Andrzejewski sought relief in the Circuit Court of Cook County, Illinois (the "State Court"). The State Court entered a temporary restraining order (the "TRO") on May 9, 2000 that prevented Walbran from interfering with Andrzejewski's operation of the Business. On June 14, 2000, the Circuit Court converted the TRO to a preliminary injunction (the "PI").
On July 10, 2000, Walbran filed a Notice of Appeal to the Illinois Appellate Court (the "Appellate Court"), seeking a reversal of the TRO and the PI. Andrzejewski then filed a motion to dismiss the appeal based on certain procedural defects.
Not long thereafter, on August 15, 2000, Walbran filed his Chapter 11 petition at 10:10 a.m. At approximately 11:00 a.m. that same day, Walbran entered the Property and ordered Andrzejewski to leave. When Andrzejewski refused, Walbran called the police. Andrzejewski left the Property after the police arrived and threatened him with arrest. Despite the existence of the TRO and the PI, the filing of the bankruptcy petition invoked the protection of the automatic stay and has thus far prevented Andrzejewski from taking any further action in the matter.
On August 17, 2000, two days after his bankruptcy filing, Walbran filed his Motion for Approval of Rejection of Executory Contract. On August 18, 2000, three days after his bankruptcy filing, Walbran filed an Amended Notice of Interlocutory Appeal with the Appellate Court. On August 25, 2000, Andrzejewski filed his motion for relief from the automatic stay so that he could continue with the state court lawsuit. He also sought to prevent Walbran from using the net proceeds of the Business and from selling or using any of the personal property used in the Business without providing adequate protection; Andrzejewski argued that these items were cash collateral.
The Court conducted an evidentiary hearing on August 29, 2000. At the hearing, Walbran testified that he had established a segregated bank account into which he was depositing the income from the operation of the Business and from which he paid the operating expenses of the Business. At the conclusion of the hearing, the parties agreed to an order providing that Walbran would continue depositing the income into the segregated account and would pay certain, enumerated operating expenses of the Business from the account. Following the entry of this order, the parties fully briefed each motion and the Court took the matter under advisement.
JURISDICTION
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 157(b) and 28 U.S.C. § 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (G), (M), and (O). Venue lies under 28 U.S.C. § 1409.
DISCUSSION
Andrzejewski's Motion to Modify the Stay
Andrzejewski asks that the automatic stay be modified to allow him to move forward on the Complaint for Specific Performance that he filed in State Court and on which the State Court entered the TRO and PI that Walbran has appealed.
While § 362 stays the commencement or continuation of most prepetition judicial proceedings against the debtor, 11 U.S.C. § 362(a)(1), it also sets forth reasons for which the court shall grant relief from the stay. 11 U.S.C. § 362(d). The court is required to grant relief from the stay on the motion of a party in interest "for cause, including the lack of adequate protection of an interest in property of such party in interest." 11 U.S.C. § 362(d)(1). Although lack of adequate protection is one cause for modification of the stay, it is not the only cause. "A desire to permit an action to proceed to completion in another tribunal may provide another cause." H.R. Rep. No. 95-595, at 343 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6300.
Modification of the stay to permit a state court action to go forward regarding a matter that is entirely a question of state law is an efficient use of judicial resources. In re Williams, 144 F.3d 544, 550 (7th Cir. 1998). The Seventh Circuit has written that in cases of this type, "all roads lead to state court." Id. State courts have greater expertise in deciding such issues promptly. Id. Furthermore, debtors should be discouraged from shopping for a more favorable forum. Id.
The proceedings between Walbran and Andrzejewski in the State Court are entirely a matter of state law. They case was well in progress at the time of Walbran's bankruptcy filing; indeed it had progressed in part to the Appellate Court. Under these circumstances, there is no reason for the bankruptcy court to determine the rights and responsibilities of the parties to the Agency Agreement. The stay will be modified so that the parties can resolve their issues in State Court.
Walbran's Motion to Reject the Agency Agreement
Walbran seeks to reject the Agency Agreement as an executory contract under 11 U.S.C. § 365. In his motion, he offers no authority for his request, but merely iterates and reiterates that he would be able to make more than his agreed-upon $1,200 per week from the Business if he could get rid of Andrzejewski, operate the Business himself, and keep all the profits himself. This may or may not be true. However, the real question is not whether Walbran could make more money, but whether the Agency Agreement is an executory contract and thus rejectable under the Bankruptcy Code.
The Bankruptcy Code does not define the term "executory contract." However, the Seventh Circuit has defined an executory contract as one "in which the obligations of each party remain substantially unperformed." In re C S Grain Co., Inc., 47 F.3d 233, 237 (7th Cir. 1995). An agreement is not an executory contract if one party has substantially completed performance. In re Chicago Partnership Bd., Inc., 236 B.R. 249, 260 (Bankr. N.D.Ill. 1999). Furthermore, a breach or repudiation by one party to a contract relieves the other party of the obligation to perform and takes a contract out of executory status for the purpose of § 365. C S Grain, 47 F.3d at 237.
Under the terms of the Agency Agreement, Walbran had nothing to do from the moment he signed the contract but to collect his weekly check. The day to day operations of the business all fell on Andrzejewski. It is true that Walbran contracted to sign "whatever documents," (Agency Agreement ¶ 9), once the Articles had been paid in full, but that task is ministerial and not a matter of substantial performance. Walbran may not reject the Agency Agreement because it is not an executory contract for purposes of the Bankruptcy Code.
In addition, Walbran's attempt to lock Andrzejewski out of the Property and the Business might well be viewed as a breach that takes the Agency Agreement out of executory status. If Walbran has breached the Agency Agreement, then the contract is no longer executory for that reason as well. However, the question of breach is for the State Court to decide.
CONCLUSION
For the foregoing reasons, Walbran's motion to reject the Agency Agreement as an executory contract is denied and Andrzejewski's motion to modify the automatic stay is granted.