599 B.R. 155
Bankr. W.D. Okla.2019Background
- The I Am LLC (single-member, Debtor Grooms) held record title to 162 acres; its articles were canceled by the Oklahoma Secretary of State in 2010 and not reinstated before Debtor's 2018 Chapter 13 filing.
- The LLC borrowed $300,000 (later reduced) from First State Bank of Duncan; Debtor personally guaranteed the loan and signed as LLC manager.
- The Bank obtained a state-court foreclosure judgment against the LLC (in rem and in personam as to the LLC) and the property was sold at sheriff's sale to Dustin Hilliary before Debtor's bankruptcy petition.
- Debtor listed the property's value as "Unknown," proposed to sell it in her Chapter 13 plan, and asserts cancellation caused title to revert to her, making the property estate property.
- The Bank and purchaser argue cancellation only affected the LLC's capacity to sue/be sued and that the estate owns only Debtor’s membership interest, not the LLC-owned real property.
- Court found a bona fide dispute over whether the land was "property of the estate," kept the automatic stay in effect pending resolution, and continued the final hearing until after Debtor's motion to sell is heard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether land titled to an LLC whose articles were canceled is "property of the estate" of the debtor-member | Debtor: cancellation terminated the LLC; title reverted to her, so the property is estate property | Bank/Hilliary: cancellation only limits LLC's capacity to sue; LLC assets remain distinct and title did not revert to Debtor | Stay applies because there is a bona fide dispute whether property is estate property; automatic stay continued pending resolution |
| Whether cancellation of articles equals dissolution/termination of legal existence | Debtor: cancellation equates to cessation of LLC existence and thus transfers assets to member | Bank/Hilliary: cancellation is administrative and does not effectuate an automatic transfer of assets; winding up and creditor priority still required | Court: authorities conflict; cancellation often treated as termination of entity for standing, but not clear that assets automatically revert absent winding up — factual-law dispute supports continuing stay |
| Whether debtor may sell the property free of stay without court approval | Debtor: proposes sale in Chapter 13 plan and filed motion to sell | Bank/Hilliary: sale affects non-debtor property/title and may prejudice Bank/Buyer | Court: sale requires court approval; raised concerns about contract defects and post-petition transfers; continued hearing on motion to sell alongside stay motion |
| Remedy while ownership remains disputed | Debtor: stay should protect estate and permit sale to benefit creditors | Bank/Hilliary: stay should be lifted to allow foreclosure confirmation and purchaser's rights | Court: applied "bona fide dispute"/"arguable property" approach and maintained stay temporarily to allow potential estate recovery |
Key Cases Cited
- Butner v. United States, 440 U.S. 48 (states define property interests for bankruptcy purposes)
- In re Midpoint Development, L.L.C., 466 F.3d 1201 (10th Cir. 2006) (cancellation/dissolution language interpreted to suggest LLC ceases to exist when articles are canceled)
- AT & T Advertising, LP v. Winningham, 280 P.3d 360 (Okla. Civ. App. 2012) (cancellation of LLC articles means the LLC no longer exists)
- In re White, 556 B.R. 489 (Bankr. N.D. Okla. 2016) (cancellation of articles means LLC ceased to exist for purposes of suing or being sued)
- Sherron Assocs. Loan Fund V v. Saucier, 237 P.3d 338 (Wash. App. 2010) (when an LLC is canceled without winding up, title to assets may pass to members subject to creditor claims)