660 B.R. 887
Bankr. M.D. Tenn.2024Background
- 530 Donelson, LLC is a Tennessee member-managed LLC with three members: Eric Lowman, David Patterson (both managing members), and Bhavin Ghodasara.
- A state court appointed a receiver for 530 Donelson, LLC and its primary asset due to concerns about management and preservation of property.
- Ghodasara filed an expedited motion to dismiss the LLC's Chapter 11 bankruptcy, arguing the state receivership precluded the members from authorizing a bankruptcy filing.
- The Bankruptcy Court held an expedited hearing limited to whether the receiver's appointment stripped corporate authority to file for bankruptcy.
- The two main state court orders considered were a Receivership Order and a subsequent contempt order, both silent on bankruptcy filings.
- The Court reserved all other bases for dismissal raised by Ghodasara for a later hearing.
Issues
| Issue | Ghodasara’s Argument | Lowman/Patterson’s Argument | Held |
|---|---|---|---|
| Does state court receivership strip authority to file bankruptcy from LLC management? | Receiver has sole authority; state court order prohibits member action | Receivership does not preclude managers’ authority absent express order | Appointment of receiver does not remove management's authority to file bankruptcy |
| Do the state court orders specifically address or prohibit bankruptcy filings by management? | General language about receiver control is sufficient | Orders are silent; specific exclusion required by law | Orders lack express prohibition; bankruptcy filing allowed |
| Does the Tennessee receivership statute empower the receiver to bar the filing? | Statutory powers of receiver include all company acts, thus filing is included | Statute and commentary specify receivership doesn’t block bankruptcy | Receivership statute does not deprive bankruptcy right |
| Would general language in orders be enough under federal or state law? | General supervisory language should suffice | Sixth Circuit/precedent require explicit language | Express, specific prohibition required but absent |
Key Cases Cited
- Struthers Furnace Co. v. Grant, 30 F.2d 576 (6th Cir. 1929) (receiver appointment typically does not prevent company from filing bankruptcy)
- Muffler v. Petticrew Real Est. Co., 132 F.2d 479 (6th Cir. 1942) (custody of property by a state receiver does not preclude bankruptcy filing)
- In re Yaryan Naval Stores Co., 214 F. 563 (6th Cir. 1914) (state court receivership orders must expressly prohibit bankruptcy to affect that right)
- Merritt v. Mt. Forest Fur Farms of Am., Inc., 103 F.2d 69 (6th Cir. 1938) (constitutional right to bankruptcy cannot be denied by state court order)