A.F.Evans Company, Inc.

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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Memorandum
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 09-41727 EDJ
A.F. EVANS COMPANY, INC., 	Chapter 11
Debtor./
MEMORANDUM: MOTION TO ASSUME AND ASSIGN PARTNERSHIP INTEREST
Chapter 11 debtor A.F. Evans (“Debtor”) has moved this court
for an order authorizing it to assume a partnership interest in
Bigby Associates, LP (“Bigby”) and assign it to The Reliant Group
(“Assignee”). 	Alliant Tax Credit XV and associated entities
(collectively, “Alliant”), a limited partner in Bigby, has objected
to the sale.
Debtor’s motion to assume and assign, as pertains to the Bigby
partnership interest, was taken under submission following oral
argument on May 28, 2009. 	The court now sets an evidentiary hearing
to aid its resolution of the motion.
Signed: June 23, 2009

EDWARD D. JELLEN
U.S. Bankruptcy Judge

Entered on Docket
June 24, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-41727 Doc# 176 Filed: 06/23/09 Entered: 06/24/09 12:14:12 Page 1 of
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UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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1Debtor so conceded at the May 28, 2009 hearing.
2Unless otherwise indicated, all future section references
are to the Bankruptcy Code.
2	Memorandum

Assignability of executory contracts in bankruptcy.
By its terms, the Bigby Limited Partnership Agreement
(“Partnership Agreement”) prohibits Debtor from assigning its
general partnership interest absent Alliant’s consent. 	The relevant
provision of the agreement reads, “No General Partner may
Withdraw... from the partnership or assign, pledge or encumber all
or any part of its interest without the Consent of [Alliant Tax
Credit XV]...” 	(See Alliant Limited Opposition, Ex. C at 270).
It is not disputed that, outside the context of a bankruptcy
filing, Debtor would not be able to assign its interest in Bigby
without Alliant’s consent. 1 	However, Bankruptcy Code § 365(f)(1) 2
provides that a trustee in bankruptcy (or debtor in possession, as
here) may, subject to the restriction hereinafter mentioned, assign
a contract even where the contract prohibits, restricts, or
conditions the assignment of such contract. 	In the context of a
bankruptcy filing, then, the Partnership Agreement consent
requirement is not alone sufficient to prevent the Debtor from
unilaterally assigning its partnership interest.
The freedom of the debtor in possession to assign an executory
contract under § 365(f)(1) is subject to the restrictions of
§ 365(c). 	That section states that the debtor in possession may not
assume or assign an executory contract if applicable law excuses a
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UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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3	Memorandum
non-debtor party from accepting performance from an entity other
than the debtor. 	The issue before the court, then, is whether
“applicable law” excuses Alliant from accepting performance from the
Assignee.
2. Whether “applicable law” excuses Alliant from accepting
performance from the Assignee.
The parties cite the California Corporations Code, a range of
case law, and the common law of partnerships in marshaling a
definition of “applicable law” to apply to § 365(c)(1).
The case law cited by the parties reveals that courts have come
to different conclusions as to the effect of the partnership laws of
different states in the context of § 365(c)(1). 	(See In re Schick,
325 B.R. 318, 324 (S.D.N.Y. 1999) (holding that New York partnership
law prevented assignment of a general partnership interest without
the consent of the other partners), In re Catron, 158 B.R. 629, 635
(E.D. Va. 1993) (holding that Virginia partnership law excused non-
debtor parties to the contract from accepting performance from a
party other than the debtor), In re Allentown Ambassadors, 361 B.R.
422, 455 (Bankr. E.D. Pa. 2007) (holding, inter alia, that North
Carolina partnership law does not contain a clear, unambiguous
prohibition against assignment without the consent of the other
parties to the contract, and therefore the non-debtor parties are
not excused from accepting performance from a party other than the
debtor), In re Claremont Acquisition Corporation, Inc., 186 B.R.
977, 983-84 (Bankr. C.D. Cal. 1995) (holding, inter alia, that
California law restricting an automobile franchisee’s ability to
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UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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4	Memorandum
assign the franchise without the consent of the manufacturer excused
the manufacturer from accepting performance from debtor assignee,
provided the refusal was reasonable).) 	This court must therefore
look to the partnership law of California to determine whether
“applicable law” excuses Alliant from accepting performance from the
Assignee.
Both Debtor and Alliant cite California Corporations Code
§ 15672. 	(See Alliant Limited Opposition at 5; Debtor Reply to
Limited Opposition at 4-5; Alliant Objection to Sale Motion at 3-4.)
Subsection (a) of that code section states that, “A limited
partnership interest is assignable in whole or in part.” 	Subsection
(c), however, states that “A partnership agreement may provide that
a general partner may not assign or encumber a partnership interest
in a limited partnership.” 	The California Corporations Code alone
does not clearly excuse Alliant from accepting performance from the
Assignee.
Alliant argues that California partnership law incorporates the
principle of delectus personarum - the right to choose one’s own
partners - thereby triggering the § 365(c)(1) prohibition on
assignment, and excusing Alliant from accepting performance from the
Assignee. 	(Alliant Objection to Sale Motion at 5; see Rivlin v.
Levine, 195 Cal.App.2d 13, 21 (Cal. Dist. Ct. App. 1961) (“In all
general partnerships, and also in bone fide limited partnerships,
there is the right of delectus personarum, the right to determine
membership.”).)
The principle of delectus personsarum does not, by itself,
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UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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5	Memorandum
direct this court to conclude that Alliant is excused from accepting
performance from the Assignee. 	Rather, a restriction on assignment
must be upheld only if the duty of the contract party is material.
(See In re Schick, 235 B.R. at 323 (“Faced with a state law
restricting assignment ... a court must inquire into its rationale
and uphold the restriction under section 365(c) if the identity of
the contracting party is material to the agreement.”); see also In
re Allentown, 361 B.R. at 454 (“If ... the governing law or statute
is equivocal [the court must determine] whether the identity of an
assignee would be material to the non-debtor, taking into
consideration the nature of the enterprise in which the debtor and
the non-debtor are engaged.”).)
Debtor states that Alliant and Debtor are merely investors in
the Bigby Limited Partnership, and have no special relationship
sufficient to trigger the anti-assignment language of § 365(c)(1).
(See Debtor Reply to Limited Opposition at 7.) 	Alliant counters
that its right of delectus personarum prevents Debtor from severing
its economic from its non-economic rights under the Agreement, and
assigning only the economic rights without Alliant’s consent. 	(See
Alliant Objection to Sale Motion at 4.)
The court concludes that there is legal authority to support
the proposition that a prohibition on assignment is not enforceable
in the context of a bankruptcy filing where the identity of the
contracting party is not material to the contract, i.e., where only
an economic interest is being assigned. 	(See In re Allentown, 361
B.R. at 452 (“[T]he question of whether or not management power in a
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UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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6	Memorandum
partnership is assignable turns not upon the status which
‘applicable law’ generally accords to partnership agreements but
upon the materiality of the identity of the partners to the
performance of the obligations remaining to be performed under the
partnership in question.”); see cf., In re Catapult Entertainment,
Inc., 165 F.3d 747, 754-55 (9th Cir. 1999) (“where applicable
nonbankruptcy law makes an executory contract nonassignable because
the identity of the nondebtor party is material, a debtor in
possession may not assume the contract absent consent of the
nondebtor party.”), Coykendall v. Jackson, 17 Cal.App.2d 729, 731
(Cal. Dist. Ct. App. 1936) (“an executory contract for personal
services involving a personal relation of confidence between the
parties, or involving liabilities or duties, which in express terms
impute or indicate reliance on the character and personal ability of
the parties, cannot be assigned....”).)
3. An evidentiary hearing is necessary to determine whether the
partnership interest at issue here is assignable.
Because the record is devoid of facts regarding the rights and
duties Debtor proposes to assign to Assignee, an evidentiary hearing
is required to determine whether the partnership interest is
assignable.
The issues to be resolved at the evidentiary hearing are as
follows. 	First, what the rights to be assumed and duties to be
delegated to Assignee by Debtor are. 	Second, are those rights and
duties such that the identity of the Assignee is material to
performance under the Agreement, thereby giving rise to a right of
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UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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7	Memorandum
refusal by Alliant.
4. Adequate assurance of future performance.
Alliant is correct that Debtor has failed to present evidence
adequately assuring future performance by the Assignee, as required
by § 365(f)(2)(B). 	Accordingly, the parties may address this issue
at the evidentiary hearing.
END OF ORDER
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UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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8	Memorandum
COURT SERVICE LIST
Chris D. Kuhner, Esq.
Kornfield, Nyberg, Bendes and Kuhner
1999 Harrison St. #2675
Oakland, CA 94612
Steven Sacks, Esq.
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48 th Floor
Los Angeles, CA 90071
Maxim B. Litvak, Esq.
Pachulski, Stang, Ziehl and Jones
150 California St. 15th Fl.
San Francisco, CA 94111-4500
T. Scott Bucey, Esq.
Pepler Mastromonaco LLP
100 First Street, 25 th Floor
San Francisco, CA 94105
Eugene K. Yamamoto, Esq.
Law Offices of Eugene K. Yamamoto
160 Franklin Street
Oakland, CA 94607
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