The United States Bankruptcy Appellate Panel for the Ninth Circuit recently ruled on a significant case involving LeFever Mattson Inc. (LFM) and Live Oak Investments LP. The panel upheld a lower court's decision that LFM's removal as general partner of Live Oak LP was a violation of the automatic stay in LFM's bankruptcy case. This ruling is important as it clarifies the rights of debtors in bankruptcy and the implications of state law on bankruptcy proceedings.

The case, titled In re: LeFever Mattson, was filed under docket number 25-1238 on June 29, 2026. The ruling affects LFM, its creditors, and the limited partners of Live Oak LP, including William Andrew, who appealed the bankruptcy court's decision. This ruling matters because it addresses the intersection of state partnership law and federal bankruptcy law, particularly regarding the automatic stay that protects debtors during bankruptcy proceedings.

Background

LeFever Mattson Inc. is a California corporation that has invested in various real estate properties, including residential and commercial properties. In 2015, LFM formed Live Oak Investments LP to manage an apartment complex known as Southwood. LFM was designated as the general partner in the partnership agreement, which outlined its management rights and responsibilities.

In August 2024, after selling Southwood for approximately $10.8 million, LFM received a significant portion of the proceeds but did not distribute any funds to the limited partners. This led to claims from the limited partners that LFM breached its fiduciary duties. Shortly after these events, LFM filed for Chapter 11 bankruptcy, along with its affiliates, including Live Oak LP.

One year later, the limited partners of Live Oak LP, including Andrew, attempted to remove LFM as the general partner, citing LFM's alleged breaches of the partnership agreement. They held a meeting, voted to replace LFM with Andrew as the new general partner, and authorized Live Oak LP to retain its own bankruptcy counsel. This action prompted the Official Committee of Unsecured Creditors to file a motion arguing that the removal of LFM violated the automatic stay in LFM's bankruptcy case.

The Ruling

The Bankruptcy Appellate Panel affirmed the lower court's ruling that the limited partners' actions violated the automatic stay. The court determined that LFM's management rights as general partner of Live Oak LP were property of LFM's bankruptcy estate and not subject to termination upon LFM's bankruptcy filing. The court stated, "LFM's pre-bankruptcy management rights as general partner of Live Oak LP were not terminated when LFM filed its chapter 11 case and such rights became property of LFM's estate."

The panel also found that California's statutes regarding the automatic dissociation of a general partner upon filing for bankruptcy were impermissible ipso facto clauses, meaning they could not alter the debtor's rights under federal bankruptcy law. The judges noted that such clauses are inconsistent with Section 541(c)(1)(B) of the Bankruptcy Code, which protects a debtor's property rights, stating that "parties cannot contract around what becomes estate property, and states cannot legislate estate property away."

Impact

This ruling has significant implications for bankruptcy cases involving partnerships. It clarifies that a debtor's management rights, even if they are not transferable, remain part of the bankruptcy estate and are protected by the automatic stay. This means that actions taken by partners to remove a debtor from management during bankruptcy can be deemed void if they violate the automatic stay.

The ruling affects not only LFM and its creditors but also sets a precedent for future bankruptcy cases involving partnerships. It reinforces the principle that state laws cannot override federal bankruptcy protections, ensuring that debtors retain their rights during the bankruptcy process.

What's Next

It is unclear if the decision will be appealed further. The court filing did not provide information on any related cases pending or future actions by the parties involved. However, the ruling establishes a clear interpretation of the relationship between state partnership laws and federal bankruptcy protections, which may influence similar cases in the future.