530 B.R. 293
Bankr. E.D. Pa.2015Background
- Debtor was sole member/manager of JT & T, an LLC that purchased single-family property ("LLC Real Property") in 2006; Debtor paid purchase price from personal funds and handled rents/expenses through her accounts.
- Debtor personally guaranteed and amended a loan with M&T that was secured by mortgages on both JT & T’s property and Debtor’s personal residence; JT & T executed a guaranty secured by the LLC Real Property.
- JT & T defaulted; M&T confessed judgment against JT & T in state court, purchased the LLC Real Property at sheriff’s sale (June 20, 2014).
- Debtor filed Chapter 13 on September 10, 2012; Schedules listed membership interest in JT & T (negative equity) but not the LLC Real Property as Debtor’s asset.
- After M&T moved to name Debtor in a post-foreclosure deficiency action and to foreclose Debtor’s residence, Debtor filed a § 362(k) contempt motion claiming M&T violated the automatic stay by foreclosing the LLC Real Property.
- The bankruptcy court denied contempt relief and found (1) Debtor held no legal/equitable/possessory interest in the LLC Real Property at filing, (2) no resulting trust arose, and (3) the automatic stay never extended to JT & T because Debtor failed to seek an injunction under § 105(a) and the issue is moot post-foreclosure.
Issues
| Issue | Debtor's Argument | M&T's Argument | Held |
|---|---|---|---|
| Did JT & T’s dissolution on member bankruptcy vest the LLC property in Debtor or give her equitable/legal title? | Debtor: bankruptcy triggered dissolution and vested rights/equitable ownership/beneficial use in Debtor under PA law. | M&T: members have no interest in specific LLC assets; dissolution/winding-up makes members trustees for creditors, not owners. | Court: No — PA law gives members no asset-specific interest; winding up benefits creditors first; Debtor obtained no title or equitable ownership. |
| Did a resulting trust arise in Debtor’s favor because she paid the purchase price? | Debtor: payment of purchase price created a resulting trust in her favor, so estate included the property interest. | M&T: Debtor intended JT & T to own the property; high burden to prove resulting trust and statute of repose bars late claims. | Court: No — Debtor intended JT & T ownership; evidence fails clear, convincing standard; §5526 statute of repose also bars the claim. |
| Did Debtor hold a possessory interest (tenancy/possession) in the LLC Real Property protected by §541/§362? | Debtor: collected rents, paid expenses, reported income — these facts show possessory interest protected by the stay. | M&T: Debtor never occupied or controlled the property; tenant and JT & T were in possession. | Court: No — possession requires actual physical control; Debtor did not occupy or hold the property for herself. |
| Should the automatic stay be extended to non-debtor JT & T to enjoin state foreclosure and confession of judgment? | Debtor: actions against JT & T effectively targeted Debtor and diminished her estate, so stay should apply to JT & T. | M&T: automatic stay applies only to the debtor; extension to non-debtors is extraordinary and requires separate proceedings. | Court: No — extension requires an adversary/§105 injunction; Debtor never sought that relief and, in any event, request is moot because foreclosure completed. |
Key Cases Cited
- Masgai v. Masgai, 333 A.2d 861 (Pa. 1975) (burden and standard to prove resulting trust require clear, direct, convincing evidence)
- In re Atlantic Business & Cmty. Corp., 901 F.2d 325 (3d Cir. 1990) (possession without title can constitute estate property under §541/§362)
- McCartney v. Integra Nat’l Bank N., 106 F.3d 506 (3d Cir. 1997) (automatic stay applies only to debtor; extension to non-debtors is exceptional)
- Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194 (3d Cir. 1991) (stay ordinarily not for sureties/guarantors; non-debtor extension limited)
- Proctor v. Sagamore Big Game Club, 265 F.2d 196 (3d Cir. 1959) (statute of repose for implied/resulting trusts protects title certainty)
- Sams v. Redev. Auth. of N. Kensington, 244 A.2d 779 (Pa. 1968) (shareholders/members cannot accept corporate benefits and ignore corporate form)