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District Judge Lawrence Vilardo

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NanoDynamics Inc. previously received investments from the Smiths. Under their March 2009, stock-subscription agreement, the Smiths agreed to buy 2.5 million shares in NanoDynamics for $1 each. On July 27, 2009, having received $1.8 million of the agreed $2.5 million, NanoDynamics filed for Chapter 7 bankruptcy relief. Wallach was appointed trustee for NanoDynamics, whose schedule of assets listed the $700,000 balance owed by the Smiths. Wallach’s adversary proceeding claimed the Smiths liable for contract breach and owed the bankruptcy estate $700,000 under 11 USC §542. The parties disputed whether the stock-subscription agreement was an executory contract when NanoDynamics filed for bankruptcy. District court affirmed bankruptcy court’s grant of summary judgment to the Smiths; 11 USC §356(c)(2) precludes a bankruptcy trustee from assuming an executory contract to issue a security of the debtor. The contract between NanoDynamics and the Smiths remained executory when NanoDynamics filed for Chapter 7 bankruptcy relief. Thus trustee Wallach could not assume the March 2009 stock-purchase agreement, whose outstanding obligations were “impossible of performance” and must be “deemed rejected.”