CYR, Circuit Judge.
Summit Investment and Development Corporation ("Summit"), one of three general partners in Belle Isle Limited Partnership, a Massachusetts limited partnership, appeals from a district court order affirming a bankruptcy court ruling denying Summit's claims for declaratory and injunctive relief against its two other general partners, debtors-in-possession Edward G. Leroux, Jr. and Albert F. Curran, Sr. The bankruptcy court held that Bankruptcy Code § 365(e) preempted certain provisions in the limited partnership agreement which purported to convert the general partnership interests held by Leroux and Curran into limited partnership interests immediately upon the filing of their respective chapter 11 petitions. We affirm.
I
BACKGROUND
Pursuant to written agreements [hereinafter, collectively: "Agreement"], Leroux, Curran, and Summit became the general partners in Belle Isle Limited Partnership.
In October 1992, appellee Leroux filed a voluntary chapter 11 petition. Curran soon followed suit. Although Summit maintained that Section 7.5E automatically divested Leroux and Curran of their general partnership interests, and, by extension, ousted Leroux as the managing general partner, Leroux continued to act as Belle Isle's managing general partner, and appellee Curran as a general partner.
Summit initiated these adversary proceedings in June 1993, seeking a judicial declaration that appellees' general partnership interests terminated upon the filing of their voluntary chapter 11 petitions by operation of the ipso facto provisions in Section 7.5E and MLPA § 23(4). Summit requested injunctive relief ousting appellees from any management role in Belle Isle. Leroux and Curran responded that Bankruptcy Code section 365(e) preempts contractual and statutory ipso facto provisions that purport to terminate contract rights solely because a contracting party institutes bankruptcy proceedings.
II
DISCUSSION
The bankruptcy court entered judgment for Leroux and Curran, see Summit Inv. & Dev. Corp. v. LeRoux (In re LeRoux), 167 B.R. 318
Statutory interpretations are subject to plenary review. See In re Erin Food Servs., Inc., 980 F.2d 792, 799 (1st Cir.1992). The "plain meaning" of statutory language controls its construction. See Laracuente v. Chase Manhattan Bank, 891 F.2d 17, 21-22 (1st Cir.1989). But the meaning, or "plainness," of discrete statutory language is to be gleaned from the statute as a whole, see Little People's Sch., Inc. v. United States, 842 F.2d 570, 573 (1st Cir.1988), including its overall policy and purpose, see Wilcox v. Ives, 864 F.2d 915, 926 (1st Cir.1988). "Literal" interpretations which lead to absurd results are to be avoided. See Sullivan v. CIA, 992 F.2d 1249, 1252 (1st Cir.1993).
Plain statutory language does not prompt recourse to countervailing legislative history. See United States v. Bohai Trading Co., Inc., 45 F.3d 577, 581 (1st Cir.1995). On the other hand, the congressional intendment conveyed by unclear statutory language may be discernible from its legislative history. See O'Neill v. Nestle Libbys P.R., Inc., 729 F.2d 35, 36 (1st Cir.1984). Nevertheless, federal preemption under the Supremacy Clause, see U.S. Const. art. VI, cl. 2, will be found only if there is "clear" evidence of a congressional intent to preempt state law, or we are persuaded that the federal and state statutes, by their very terms, cannot coexist. See Greenwood Trust Co. v. Commonwealth of Mass., 971 F.2d 818, 828 (1st Cir.1992), cert. denied, ___ U.S. ___, 113 S.Ct. 974, 122 L.Ed.2d 129 (1993).
A. Preemption Under Bankruptcy Code § 365(e)(1)
The preemptive effect of Bankruptcy Code § 365(e) upon a partnership agreement is a question of first impression in this circuit. Generally speaking, until the enactment of the Bankruptcy Reform Act of 1978, unambiguous contractual ipso facto provisions such as Section 7.5E were enforceable against chapter 11 debtors, debtors in possession, and their estates. Congress reversed course in 1978, however, with its enactment of various Code provisions, see Bankruptcy Code §§ 365(e), 365(f), 541(c), which invalidate contractual ipso facto provisions for the reason that automatic termination of a debtor's contractual rights "frequently hampers rehabilitation efforts" by depriving the chapter 11 estate of valuable property interests at the very time the debtor and the estate need them most. S.Rep. No. 989, 95th Cong., 2d Sess. 59 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5845.
Summit's first contention turns on one such Code provision, Bankruptcy Code § 365(e)(1), which states in relevant part:
11 U.S.C. § 365(e)(1) (emphasis added).
Summit argues that the general partnership interests held by LeRoux and Curran
First, Summit's interpretation does not come to terms with the prefatory clause in section 365(e)(1), which plainly provides that the invalidation of contractual ipso facto clauses under section 365(e)(1) appertains "[n]otwithstanding a [supplemental termination] provision in applicable law;" that is to say, for example, in a state statute which in its own right would require automatic termination of a contract or contract right upon the filing of a bankruptcy petition. Thus, the effects of MLPA § 23(4) are nullified by section 365(e)(1). Given the plain language of this prefatory clause, the word "solely" — though oddly placed — is more faithfully read to modify the word "conditioned," thereby clarifying that contractual termination clauses that are triggered by conditions other than the three listed in subsections 365(e)(1)(A), (B), and (C), would not be invalidated by operation of section 365(e)(1).
Second, even if this "plain language" reading were less conclusive, Summit has not cited, nor have we found, any legislative history supporting its suggested distinction between statutory and contractual ipso facto provisions. We are left, then, with no rationale which would warrant the categorical conclusion that Congress recognized a State interest sufficiently compelling to outweigh the important rehabilitative policies that section 365(e) was designed to serve.
B. The Preemption Exception in Bankruptcy Code § 365(e)(2)(A)
Summit's second contention relies on Bankruptcy Code § 365(e)(2)(A), one of two express exceptions to the ipso facto provision ban in section 365(e)(1):
11 U.S.C. § 365(e)(2) (emphasis added).
A proper construction of section 365(e)(2)(A) requires consideration of companion section 365(c) as well, which governs the related question whether a trustee or debtor in possession may assume an executory contract that the nondebtor party claims to be "nonassignable" under applicable nonbankruptcy law:
11 U.S.C. § 365(c)(1) (emphasis added).
Summit contends that section 365(e)(2)(A), by its plain language, posits a purely "hypothetical" test for determining whether a particular executory contract, or constituent contract right, comes within its exception. That is to say, even though Leroux and Curran have not yet attempted (and may never attempt) to assume, or to assign to a third party, their partnership "management" and "participation" rights under the Agreement, Summit maintains that in order to come within the section 365(e)(2)(A) exception it need only establish that the Agreement is deemed "nonassignable" under state law. In this case, the Massachusetts limited partnership statute is, quite literally, an "applicable [nonbankruptcy] law excus[ing] a party, other that the debtor [viz., Summit] ... from accepting performance from or rendering performance to ... an assignee of such contract" because it precludes general partners from assigning their general partnership "participation" interests to a third party. See Mass.Gen.Laws Ann. ch. 109, § 40.
First, though Summit's "hypothetical" approach to construing the nonassignability provisions in § 365(e)(2)(A) and 365(c)(1)(A) is not precluded by the literal statutory language, it is at least as plausible to construe these provisions as requiring an actual showing — prior to any termination of the debtor's postpetition contract rights — that the nondebtor party (Summit) would not be forced to accept performance under its executory contract from someone other than the debtor party with whom it originally contracted; viz., that the nondebtor party would not be placed at the mercy of the debtor party by what amounts to an actual "assignment" of the debtor party's contract rights. Such might be the case, for example, were Summit forced to accept performance — under a "nonassignable" executory contract — from the chapter 11 trustee of an individual (i.e., noncorporate) chapter 11 debtor, rather than from the debtor himself.
Second, because the statutory language is ambiguous and open to more than one plausible interpretation, we look to its legislative history, see O'Neill, 729 F.2d at 36:
S.Rep. No. 989, 95th Cong., 2d Sess. 59 (1978), reprinted in 1980 U.S.C.C.A.N. 5787, 5845 (emphasis added). This passage pointedly suggests that Congress did not envision the abstract analysis proposed by Summit, but contemplated a case-by-case inquiry into the actual consequences — to the nondebtor party — of permitting these executory contracts to be performed by the debtor party following the institution of bankruptcy proceedings. In other words, where a debtor or debtor in possession bears the burden of performance under an executory contract, the nondebtor party to whom performance is due must make an individualized showing that it would not receive the "full benefit of [its] bargain" were an entity to be substituted for the debtor from whom performance is due.
The historical evidence of legislative intent is buttressed by the 1984 amendment to section 365(c)(1), and its legislative history. Before the 1984 amendment, the pivotal language in section 365(c) read precisely like the current version of section 365(e)(2); that is, it adverted to the "applicable law excus[ing] 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...." In replacing the highlighted language in section 365(c) with the phrase "to an entity other than the debtor or the debtor in possession," Congress intended to —
H.R.Rep. No. 1195, 96th Cong., 2d Sess. § 27(b) (1980). Since debtors-in-possession Leroux and Curran fit squarely within the category described in the amended version, section 365(c) presents no bar to their assumption of the Agreement.
Summit argues, however, that this "post"-enactment legislative history is not useful because Congress inexplicably chose, in 1984, not to alter the corresponding language in section 365(e)(2)(A). Given the interrelated concerns addressed by sections 365(c) and 365(e)(2), however, we think Congress contemplated in 1984 that section 365(e)(2) would permit a debtor or a debtor in possession to avoid automatic termination of his executory contract rights under the section 365(e)(2)(A) exception. Were this not so, an absurd result would eventuate: there would be no contractual right left for a debtor or debtor in possession to assume under section 365(c)(1) because it would already have been terminated automatically under section 365(e). See Sullivan, 992 F.2d at 1252 (disfavoring statutory interpretation leading to absurd results).
Third, the "hypothetical" test posited by Summit implicitly rests on the discredited notion that Leroux and Curran, in their capacities as prepetition debtors, effectively (though not literally) "assigned" their contract rights to themselves in their capacities as postpetition debtors in possession. Summit says it is inherently disadvantaged by having to continue dealing with Leroux and Curran, just as it would be were they to assign their contract rights to a third party, or to a complete "stranger" to the original Agreement. For example, Summit alleges that Leroux and Curran currently are acting under an inherent conflict of interest, in that they owe conflicting fiduciary duties both to their co-partners and to their chapter 11 creditors.
Finally, Summit's categorical assumption that an inherent conflict of interest exists in all instances directly contravenes the tenor of section 365(e)'s legislative history, which contemplates that courts undertake a fact-"sensitive" inquiry to determine whether or not, in the circumstances of the particular case, nondebtor parties like Summit can nonetheless obtain the "full benefit" of their bargain. In no sense can Summit be compelled to settle for performance from entities whose management expertise and skill is demonstrably inferior to that required of its debtor parties, Leroux and Curran. Further, as copartners, should Leroux and Curran not render the "full benefit of [Summit's] bargain" due to an actual conflict of interest, the bankruptcy court would be required to weigh such a conflict in evaluating whether Leroux and Curran may assume the contract under section 365(c)(1).
III
CONCLUSION
For the foregoing reasons, we hold that section 365(e), in the circumstances of this case, preempts enforcement of the ipso facto termination provisions in Section 7.5E of the Agreement and in MLPA section 23(4).
Comment
User Comments