Freedom Fund v. Lvreis, Inc.
2022 Ohio 786
Ohio Ct. App.2022Background
- Freedom Fund, an Idaho LLC registered to do business in Ohio, was originally member-managed by Perron (47.5%), Greenwalt (47.5%), and Mountain West IRA (5%); its purpose included acquiring notes and real estate.
- Perron signed a 2012 assignment purporting to transfer Freedom Fund membership to Loan Buddies and an option to repurchase, but there is no record that Greenwalt or the trust consented to transfer their interests.
- In 2015 Greenwalt signed a $90,000 mortgage on Freedom Fund’s Glensprings property in favor of lender LVREIS; LVREIS recorded the mortgage and later paid delinquent taxes on the property.
- Loan Buddies later filed amended Idaho filings purporting to convert Freedom Fund to manager-managed and to make Loan Buddies sole member; the trial record showed Loan Buddies recorded a mortgage in 2016 and that Freedom Fund did not receive the LVREIS loan proceeds.
- Freedom Fund sued to quiet title, arguing Greenwalt lacked authority to encumber company property; the trial court ruled for Freedom Fund and declared the LVREIS mortgage void.
- The court of appeals reversed: it held Greenwalt remained a member and had actual authority under the operating agreement (and former R.C. 1705.35) to execute the mortgage, so the mortgage binds Freedom Fund.
Issues
| Issue | Freedom Fund's Argument | LVREIS's Argument | Held |
|---|---|---|---|
| Whether Greenwalt remained a member after the 2012 assignment/amendments | The assignment and Loan Buddies’ amended filings did not include Greenwalt’s consent, so he remained a member | Loan Buddies’ filings converted the LLC and removed Greenwalt as a member | Greenwalt remained a member; the purported amendments were invalid without his consent |
| Whether Greenwalt had authority to mortgage the Glensprings property | Greenwalt’s mortgage of company assets for another entity was outside the ordinary course and unauthorized | The operating agreement allowed any member to manage individually; a member’s execution of instruments binds the LLC | Greenwalt had actual authority under the operating agreement and former R.C. 1705.35; mortgage valid and binding |
| Whether LVREIS’s knowledge of self‑dealing made the mortgage void | LVREIS knew proceeds were used to benefit another company and thus the mortgage was unauthorized | LVREIS relied on member authority and title/closing practices; mortgage should be respected | Court rejected Freedom Fund’s position; LVREIS prevailed on authority grounds |
| Whether ratification or apparent authority was required to validate the mortgage | Freedom Fund argued its later knowledge/payment of taxes did not ratify because it was not fully informed | LVREIS asserted member execution and company conduct could support ratification/apparent authority | Appellate court did not reach ratification/apparent authority after finding actual authority; trial-court ratification finding reversed |
Key Cases Cited
- CyrusOne, LLC v. Great Am. Ins. Co., 174 N.E.3d 41 (Ohio 2021) (manifest‑weight standard for bench trial findings)
- State v. Straley, 11 N.E.3d 1175 (Ohio 2014) (statutory interpretation is a question of law reviewed de novo)
- World Harvest Church v. Grange Mut. Cas. Co., 68 N.E.3d 738 (Ohio 2016) (unambiguous contract language enforced as written)
- Beasley v. Monoko, Inc., 958 N.E.2d 1003 (Ohio Ct. App. 2011) (courts construe ambiguous contracts against drafter)
- Mtge. Network, Inc. v. Ameribanc Mtge. Lending, LLC, 895 N.E.2d 917 (Ohio Ct. App. 2008) (agent’s authority can bind principal)
- Nee v. State Indus., Inc. Express, 2 N.E.3d 1290 (Ohio Ct. App. 2013) (distinction between express and implied authority)