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The debtors’ joint chapter 11 plan established a liquidating trust for the primary purpose of liquidating and distributing Alameda’s assets.

The plan provided that, with certain exceptions not relevant here, all of Alameda’s rights, title and interest in and to Alameda’s assets were “irrevocably transferred, absolutely assigned, conveyed, set over and delivered to the Alameda Liquidating Trust” for the benefit of the trust beneficiaries.

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Contributed by Victoria Vron Transfer restrictions and anti-assignment clauses are a common feature in operating agreements of joint ventures.

In In re Alameda Investments, LLC, a bankruptcy court addressed the applicability of one such transfer restriction to the transfer of a debtor’s entire interest (membership, economic and otherwise) in a joint venture to the liquidating trust that was set up pursuant to the debtor’s chapter 11 plan to liquidate and distribute its assets.

In 2003, three entities — Alameda, Phoenix, LLC and AKT Investments, Inc.

— entered into an operating agreement to form West Lakeside, LCC, a limited liability company that would develop a 133-acre tract of land in Sacramento County, California.

Alameda and Phoenix each owned a 50% membership interest in West Lakeside, and AKT was its managing member.

The operating agreement prohibited the transfer of, among other things, all or any portion of member, beneficial or economic interests by any member without the prior written approval of a majority of the members.

Section 17301(a)(1) of the California Corporations Code also prohibited the transfer of membership interests without the consent of a majority of the non-transferring members.

On January 9, 2009, Alameda and certain of its affiliates filed for chapter 11 protection.

AKT and Phoenix disagreed, arguing that the liquidating trust received at best only an economic interest in West Lakeside and that the membership interest could not have been assigned without the majority vote of the non-transferring members.

The bankruptcy court found that the operating agreement is not an executory contract and that the transfer restrictions in the operating agreement and the California Corporations Code do not affect the liquidating trust’s interests (whether membership, economic or otherwise) in West Lakeside.

In holding that the operating agreement is not an executory contract, the court looked at whether there was any performance due thereunder by each party as of the petition date, such that failure of such performance would constitute a material breach of the operating agreement.

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