NOT FOR PUBLICATION

OPINION AND ORDER

MICHAEL J. KAPLAN, Bankruptcy Judge.

Although the October 23, 2015 submission on behalf of the Defendants misreads the Court's earlier decision (523 B.R. 406),1 it does not rely solely on that misreading. Rather it goes on to make a winning argument — the 11 U.S.C. § 365 argument.

To recap, the issues that remain for decision in this adversary proceeding — apart from the counterclaims2 — are (1) the enforceability of the Agreement by the Chapter 7 Trustee under New York Business Corporation Law § 628, (2) its enforceability by the Trustee as "breach of contract" in common law terms, and (3) whether 11 U.S.C. § 542 compels payment to the Trustee of the $700,000 sought from the Defendants.

The Court readily dismisses the Trustee's § 542 cause of action. 11 U.S.C. § 542 has no utility to collect a "debt" that has yet to be determined to be "property of the estate" because, for example, there neither has been a determination of liability on an obligation, nor identification of a source of payment (or other satisfaction) to which a debtor has a right of ownership or possession. For example, see In re Charter Co., 913 F.2d 1579 (11th Cir. 1990) and In re Trauger, 109 B.R. 502 (Bankr. Ct., S.D.Fl. 1989).

Turning now to the § 365 cause of action, the Trustee argues some very old cases stating that a bankruptcy trustee can collect the unpaid portion of a stock subscription agreement, but the Court finds that those cases were superceded by statute. In the Bankruptcy Reform Act of 1978 Congress specifically rejected that position by enacting § 365(c)(2) after extensive hearings, as was thoroughly and dispositively examined by U.S. Bankruptcy Court Judge Bernstein for the Southern District of New York, in the case of In re Telligent, Inc., 268 B.R. 723 (2001).

As Judge Bernstein stated (at p. 734) "§ 70b [of the 1898 Act] did not list any categories of contracts that could not be assumed." Witnesses testified before Congress in 1977 and 1978, some seeking to constrain assumption of a contract that contemplated the issue of a security of the debtor. In other words, said Judge Bernstein, the industry testified, "and the Senate listened." [268 B.R. 723, 736.]

Because the Trustee may not assume the Agreement, 11 U.S.C. § 365(d)(1) requires that it be "deemed rejected." In the generality of cases involving rejected executory contracts, the fact of rejection does not mean that a debtor in possession or trustee may not sue upon the instrument. For example, if the executory contract is an unexpired lease of real property and the debtor were to be the landlord, a debtor in possession or trustee might conclude that it is in the best interests of the estate to reject the lease, but that does not constitute abandonment of a possible cause of action against the non-debtor for unpaid rent, damage to the premises, or the like, and that would be an action to enforce the subsequently-rejected contract (subject to a counterclaim by the tenant for breach-of-contract damages).

The case at bar is different. What remains of the matter in dispute is, for all intents and purposes, a simple purchase and sale contract — $700,000 to be paid for 700,000 shares of the Debtor's common stock. 11 U.S.C. § 365(c)(2) is a statutory bar to issuing such stock, thereby rendering the balance of the Agreement "impossible of performance."

In the Court's view, that should end the matter under any theory of recovery, but the Court will go on to address two aspects of the Trustee's theories under the N.Y. Business Corporations Law and common law "breach of contract" principles3 in case a reviewing court were to determine that this Court's analysis of the § 365 question is incorrect.4

As to the BCL § 628 issue and the common law issue the Defendants have asserted a great many affirmative defenses, some of which have been consensually withdrawn or stricken without opposition, but many of which survive. One of the affirmative defenses is that the process of soliciting the Agreement was so violative of § 10b and Rule 10-b(5) that it is invalid. One of the difficulties with this argument by the Defendants is the fact that the Agreement itself disclaimed the applicability of the Securities Act of 1933 and of the "Blue Sky" statutes and regulations of the state of New York. The other problem is that Mr. Smith took his seat on the Board of Directors of the Debtor, and then, apparently having acquired full knowledge of the poor financial condition of the Debtor, voted with the Board to file a petition under Chapter 7. These factors, among others, are what led this Court to refuse to decide on cross-motions for summary judgment whether federal securities statutes and regulations were violated. This Court ruled only that the Debtor could not have carried its burden of proof in a federal securities law action against these Defendants on the date that the Debtor filed its Chapter 7 Petition.5

And so the Court moves on to some of the other numerous affirmative defenses raised by the Defendants. The Court rejects the Wagoner defense. Contrary to the Defendants' argument, the Wagoner Doctrine is not the same as the Doctrine of In Pari Delicto.6 Wagoner deals only with the standing of a Chapter 7 trustee to bring an action against a third party if that debtor did not have standing to bring that action. If a debtor could have brought the action without challenge to standing, but could not prevail on the merits because of the Doctrine of in Pari Delicto, then the trustee of the debtor suffers the same fate. In the present case, the Debtor clearly had standing to sue on the Agreement. In other words, a Wagoner defense may be rejected as a matter of law, and this Court so rejects it here. An In Pari Dilecto defense here might well require a trial, given Mr. Smith's vote as a Board Member; he might thereby have waived the affirmative defense.

Next, the Court finds that the Defendants' BCL § 1114 defense7 does not hold up. Articles 10 and 11 of the BCL (§§ 1001-1009, 1101-1118) make it clear that in New York, corporate dissolution is strictly a statutory process (either voluntary or involuntary), and not a condition that a debtor lapses into when it decides that it is insolvent or decides to liquidate. The Delaware statutes seem to be very different, but maybe not "materially" so.

CONCLUSION

The Court grants Summary Judgment dismissing the Complaint in its entirety because, as a matter of law, the 11 U.S.C. § 542 cause of action has no merit, and the 11 U.S.C. § 365 defense is dispositive of the rest of the Complaint.

Because trial might be required as to some of the other affirmative defenses and upon the counterclaims, and because the Court is of the belief that there is "no just reason for delay," the Court orders that this shall be viewed by the parties as a final judgment of dismissal of the Complaint, under Rule 54(b), F.R.Civ.P. (but not as to the Counterclaims).

SO ORDERED.