[CLBS] Important Decision re: LLC's

Fri Feb 22 16:07:14 MST 2013

Folks,

Judge Myers issued an oral decision yesterday regarding the Chapter 7 Trustee's authority to operate a single-member LLC owned by the Debtor(s) prior to the filing of their BK petition (as opposed to simple economic rights related to those LLC's).  (For those interested, the case was In re: Hoyle, 10-01484-TLM.)  It was an oral ruling, so there's no written decision.  However, portions of the decision are transcribed below.

Judge Myers cited several cases in the ruling, specifically the following: A-Z Electronics, LLC: 350 B.R. 886 (Bankr. D. Idaho, 2006); In re Albright, 291 B.R. 538 (Bankr. D. Colo. 2003); Fursman v. Ulrich (In re First Protection, Inc.), 440 B.R. 821 (9th Cir. BAP, 2010).  

Here's the important parts (at least from my perspective!) of the decision:

"This present case of Mr. Hoyle's, like Albright and First Protection does not involve a multi-member LLC.  This case, like those two, addresses the single-member LLC situation.  I have already followed Albright in A-Z Electronics, and I will also follow First Protection in its recognition that Albright's outcome was correct, and also in the BAP's independent conclusions.  

In that latter regard, the BAP stated and held as follows:

"We conclude that all of Debtors' contractual rights and interest in Redux became property of their estate under 541(a)(1) by operation of law when they filed their petition.  Section 541(c)(1)(A) overrides both contract and state law restrictions on the transfers or assignment of Debtors' interest in Redux in order to sweep all of their interests into the estate."  (p. 830)

It further stated there that the restrictions Fuhrsmans pointed to in the operating agreement and under Arizona statutory law "did not prevent the vesting of their contractual rights in their bankruptcy estate."  And "as a result, the Trustee was not a mere assignee, but stepped into Debtor's shoes, succeeding to all of their rights, including their right to control Redux." (p. 830)

This court finds consistent with First Protection and the outcome in Albright and A-Z Electronics that all of the Debtor's interest in Brundage Inn, LLC, and Villa Verona, LLC, including both economic rights and management rights, are property of the estate and under the control of the Trustee.

...

So to repeat, the Motion is well-taken, in that Hoyle's 100% membership interest in the two single-member LLC's, Brundage Inn, LLC, and Villa Verona, LLC, is property of the estate, and the Trustee is entitled to both the economic interest and the right to control and management of those entities.  [The] Motion will be granted."

If you want a copy of the full decision, you have to request a transcript or audio copy from the court.  

MTC

Matthew T. Christensen

Attorney and Counselor at Law

ANGSTMAN JOHNSON 

Attorneys and Counselors

3649 N. Lakeharbor Lane

Boise, Idaho  83703

(208) 384-8588

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mtc at angstman.com <mailto:mtc at angstman.com> 

www.angstman.com <http://www.angstman.com> 

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