Hannah Woldeyohannes
MEMORANDUM OF DECISION AND ORDER REOPENING CHAPTER 7 CASE FOR OTHER CAUSE
Appearances
Former Chapter 7 Trustee: Bonnie C. Mangan, Esq., Law Office of Bonnie C.
For the Movant (as to ECF No. 152) AWET, LLC: Edward C. Taiman, Jr., Esq., Sabia Taiman, LLC, 999 Asylum Ave., #114, Hartford, CT 06105
For the Movant (as to ECF Nos. 216, 288, 294, 295, 304, 305, 312) and Respondent (as to ECF No. 152) Alyssa Peterson: Alyssa Peterson, Self-Represented Litigant, 297 Grandview Terrace, Hartford, CT 06114
For the Objecting Parties (as to ECF No. 223) Sofia Woldeyohannes, Yodit Woldeyohannes, and Mussie Russom: Ronald Ian Chorches, Esq.1, Law Offices of Ronald I. Chorches, LLC, 82 Wolcott Hill Rd. Suite 203, Wethersfield, CT 06109
I. INTRODUCTION
This dispute arose in approximately 2004 when creditor Alyssa Peterson (“Creditor“) sued the debtor Hannah Woldeyohannes (“Debtor“) in state court, claiming the Debtor usurped a business opportunity. In 2009 the Creditor won a monetary judgment. Two bankruptcies followed, and state court litigation continues.
The present litigation arises from a sale order entered in this case (the “2018 Case“) -- the Debtor‘s second bankruptcy case – commenced on August 20, 2018, when the Creditor filed an involuntary Chapter 7 bankruptcy petition against the Debtor (the “Petition Date“). On March 25, 2021, I entered an Order Granting Motion to Approve Private Sale (“Sale Order“) approving the Chapter 7 Trustee‘s proposed sale of whatever membership interest the Debtor owned in a limited liability company called A to Zee, LLC (“A to Zee“) on the date of the order for relief, September 25, 2018.2 The Sale Order was slightly different than what the Chapter 7 Trustee (the “Trustee“) originally proposed in her motion and added a reference to equitable interests in real property owned by A to Zee. This reference to real property owned by non-debtor A to Zee – appearing in the Trustee‘s other documents associated with the sale process including the Sale Order but not in her motion – resulted in the dispute now before the court.
A second limited liability company called AWET, LLC (“AWET“) – formed after the 2018 Case was closed – filed a motion to reopen the 2018 Case to address the discrepancy in the Sale Order, but I denied it reasoning AWET lacked standing. An appeal followed and the District Court vacated the order denying AWET‘s motion to reopen, remanding the case to the bankruptcy court.
This Memorandum of Decision will review relevant facts, relevant procedural history, applicable law, evidence presented during an evidentiary hearing and the court‘s legal conclusions. Familiarity with
II. BACKGROUND
a. The Bankruptcy Court Sale Order
This Memorandum of Decision addresses confusion created by language in the Sale Order added by the Chapter 7 Trustee, Bonnie C. Mangan (the “Trustee“), which differs from the language she used in her sale motion. The differing language suggests the Trustee sold an interest of some sort in real property owned by A to Zee, in addition to the bankruptcy estate‘s ownership interest in A to Zee itself, if any. The bankruptcy estate never owned real property and the bankruptcy schedules disclosed no ownership interest in a limited liability company. The Trustee sold whatever interest – which may have been nothing – the bankruptcy estate had in a limited liability company. The Trustee‘s motion and Bill of Sale, and the Sale Order could have been clearer. This Memorandum of Decision and Order seeks to address the mistake in the Sale Order.
b. The Parties
This matter is the latest iteration in a decades-long dispute among multiple parties, not all of whom appeared or participated in this case. The Debtor, Hannah Woldeyohannes, owned an interest in a limited liability company, A to Zee, in the early 2000‘s.4 The amount of this ownership and its disposition is contested. A to Zee bought, owns, and leases four condominium units known as 230-232 Farmington Avenue, Hartford, Connecticut, Laurelhart Condominiums Unit Numbers B-2, E-3, D-6 and E-7” (“Condos“).5
In 2004, the Creditor filed an action against the Debtor in Connecticut Superior Court claiming the Debtor and A to Zee usurped a business opportunity by purchasing the Condos, which the Creditor had planned to purchase with the Debtor.6 The Creditor later withdrew her claim against A to Zee. After years of litigation, the state court awarded a money judgment to the Creditor against the Debtor.7
Today, A to Zee is purportedly owned and managed by the Debtor‘s family members. AWET argues A to Zee is owned by Yodit Woldeyohannes, Sofia Woldeyohannes, and Isaias Yohannes (the “Woldeyohannes siblings“) as members and Mussie Russom, Sofia Woldeyohannes‘s husband, is A to Zee‘s manager.8 The Creditor, on the other hand, argues she is the rightful owner of A to Zee. In the 2018 Case, the Debtor asserted no ownership interest in A to Zee. On the Petition Date and when the order for relief entered, the Debtor was listed as the Managing Director for A to Zee with the Connecticut Secretary of the State.
Over the years, the Debtor, the Woldeyohannes siblings, and A to Zee all employed Attorney Patrick Boatman and his firm, the Law Office of Patrick Boatman
After the 2018 Case was closed, the Boatman Firm assigned the Mortgage to AWET, and the assignment was recorded in the land records in December 2021.11 The sole member and agent of AWET is Mr. Russom.12 The authority of A to Zee to grant the Mortgage to the Boatman Firm, and the validity and enforceability of the Mortgage at the time it was granted and recorded are at the center of AWET‘s allegations in the bankruptcy court.
c. The 2018 Chapter 7 Bankruptcy Case
On the Petition Date, the Creditor Ms. Peterson and another creditor filed an involuntary Chapter 7 bankruptcy petition against the Debtor pursuant to
After much effort by the creditors and the Trustee, the Debtor eventually filed bankruptcy schedules and a statement of financial affairs.15 The Debtor‘s Schedule A/B (in the portion listing interests in personal property) stated:
Debtor is still listed as Managing Director of A to Zee, LLC at the State of Connecticut Sec. of State‘s office, (CONCORD website), however she no longer has any interest in A to Zee LLC and has not had any interest in A to Zee LLC since family members took it over in 2006. A to Zee, LLC is listed for disclosure purposes only because Debtor‘s name is still of record with the CT Secretary of State‘s office.
ECF No. 81, p. 5.
The record here is consistent that the Debtor was listed with the Secretary of the State as a former managing director of A to Zee on the Petition Date (August 20, 2018) until October 19, 2020.16
i. The Sale Motion, the Proposed Order and the Sale Order
On February 23, 2021, the Trustee filed a “Motion to Sell Debtor‘s ownership interest
[T]he bankruptcy estate‘s right, title and interest, if any, in and to the Debtor‘s, (Hannah Woldeyohannes‘) ownership interest as of the petition date in A to Zee, LLC, and any and all equitable rights held by the Debtor, Hannah Woldeyohannes, in [the Condos], and any claims that may emanate from said alleged interest.
ECF No. 122, ¶ 6.
The Sale Motion disclosed, “[o]n Schedule A/B at Question 19, the Debtor claims that she no longer has an interest in A to Zee … . As of the Petition Date, records at the Connecticut Secretary of State reflected that the Debtor was the managing member of A to Zee, LLC since its inception in 2004. At various different times, the Connecticut Superior Court, the State of Connecticut Court of Appeals, and the United States Bankruptcy Court have all made findings that the Debtor was either the sole owner of A to Zee, LLC or held a 100% interest in the asset A to Zee, LLC.”18
The Sale Motion also specified, “[t]he sale of the bankruptcy estate‘s interest in the Asset is without representation or warranties, express or implied, however, the Chapter 7 Trustee defers to any prior judicial findings and decisions issued by the United States Bankruptcy Court, the State of Connecticut Superior Court, and the State of Connecticut Appellate Court including, but not limited to, the status of ownership or encumbrances related to the Asset.”19 The Sale Motion stated the Asset would be sold “free and clear of all liens, claims and encumbrances” and “without representation or warranties.”20
The court understood, and the Trustee confirmed, the Asset to be sold was the Debtor‘s interest in A to Zee, and any equitable rights held by the Debtor‘s estate in the Condos.21 According to the Trustee‘s recent testimony in 2024, she had not intended to sell any interest in real property.22 The Trustee never identified what “equitable rights” the Debtor might have in the Condos owned by the non-debtor A to Zee. The proposed order filed with the Sale Motion described the Asset as,
. . . the bankruptcy estate‘s right, title and interest, if any, in and to the [Debtor‘s] recorded ownership interest at the time of the bankruptcy filing in A to Zee, LLC, a Connecticut Limited Liability Company, registered with the Secretary of State, and any and all equitable rights held by the Debtor, Hannah Woldeyohannes and A to Zee, LLC, in [the Condos] and any claims associated with the Debtor, A to Zee, LLC or any claims emanating therefrom . . . .23
The proposed order, unlike the Sale Motion, sought the ability to sell “any and all equitable rights held by the Debtor and A to Zee, LLC, in [the Condos.]”24 The Debtor did not schedule any interest in the
No attempt was made to identify what “liens, claims and encumbrances” might exist. No certificate of service was filed indicating the Boatman Firm or any other lienholder was on notice of the Sale Motion or the hearing. The Boatman Firm was not listed as a creditor of the Debtor in the 2018 Case, did not file a proof of claim in the case, and did not file a notice of appearance.
On March 17, 2021, Sofia Woldeyohannes filed a one-sentence objection to the Sale Motion and the Notice: “Hannah Woldeyohannes has no equity interest in A to Zee, LLC“.30 Attached to the objection was a document labeled “A to Zee, LLC Operating Agreement” dated February 25, 2016, which represented the Debtor had transferred her interest in “A to Zee, LLC and its condominium units” to Isaias Yohannes, Sofia Woldeyohannes, and Yodit Woldeyohannes.31 No affidavit or other evidence that would be admissible pursuant to
ii. The 2021 Hearing on the Sale Motion and the Entry of the Sale Order
The court held a hearing regarding the Sale Motion on March 24, 2021. The Chapter 7 Trustee clarified the sale was for the bankruptcy estate‘s interest in A to Zee as well as any equitable rights held by the Debtor in the Condos.33 Sofia Woldeyohannes appeared at the hearing telephonically and objected to the proposed sale on the basis the Debtor did not have an interest in A to Zee.34
The court inquired how the Trustee determined the ownership of A to Zee, the nature of the Debtor‘s interest in A to Zee, and the value of the equity in the Condos.35 The Trustee explained she reviewed the Debtor‘s schedules, in which the Debtor had said she did not own any interest in A to Zee.36 The Trustee expressed skepticism regarding the Debtor‘s representation, referencing an earlier bankruptcy court adversary proceeding in 2011, in which the
There was no discussion during the hearing – and the Sale Motion and Sale Order are silent – regarding a sale of real property or the Mortgage. The question of whether A to Zee owned the Condos in 2016 – the time the purported mortgage was granted to the Boatman Firm by A to Zee – was also unaddressed.
On March 25, 2021, the bankruptcy court entered the Sale Order approving the Sale Motion and Notice and overruling Sofia Woldeyohannes‘s objection.42 The court overruled Sofia Woldeyohannes‘s objection because it was unsupported by admissible evidence.43 The bankruptcy court served the Sale Order using the list of creditors for the
2018 Case. Neither the Boatman Firm nor Sofia Woldeyohannes were on the service list because neither had filed a proof of claim nor a notice of appearance.44
iii. The Chapter 7 Trustee‘s Bill of Sale
On April 13, 2021, the Chapter 7 Trustee executed and delivered a quit claim bill of sale and assignment (the “Bill of Sale“) to the Creditor.45 The Trustee‘s Bill of Sale is a document prepared, executed and delivered by the Trustee after the Sale Order entered. The Bill of Sale repeated the erroneous language stating the Chapter 7 Trustee was transferring “and any and all equitable rights held by . . . A to Zee” in the Condos.46
On April 30, 2021, the Creditor recorded the Bill of Sale in the Hartford, Connecticut, Land Records at Volume 7748,
$1,904.88, was disbursed to the Trustee for administrative fees and expenses.50 On September 9, 2021, the Clerk‘s Office administratively closed the Bankruptcy Case.51
iv. AWET‘s Motion to Reopen the 2018 Case
On July 6, 2022, ten months after closure of the 2018 Case, AWET filed a motion to reopen. AWET is a Connecticut limited liability corporation incorporated on September 7, 2021. AWET represented it was not a creditor of the Debtor‘s estate but rather was the owner and holder of the Mortgage on the Condos.52 AWET stated the Boatman Firm had assigned the Mortgage to AWET on October 29, 2021, shortly after the 2018 Case was closed.53 AWET argued the Condos were owned by A to Zee, and the Sale Order should not have purported to sell A to Zee‘s interest in the Condos nor sold real property owned by A to Zee free and clear of liens, including AWET‘s Mortgage.54
Simultaneously, AWET moved pursuant
v. AWET‘s Appeal and the District Court Decision
On August 12, 2022, AWET timely appealed the denial of its motion to the United States District Court for the District of Connecticut (the “Appeal“).59
The Appeal issues were, “(1) whether the Bankruptcy Court erred when it held AWET is not a party in interest within the meaning of Bankruptcy Rule 5010 and therefore lacked standing to seek the reopening of the bankruptcy estate; and (2) whether the Bankruptcy Court erred by concluding cause did not exist to award relief under
As to the second question, whether cause existed to reopen the case, the District Court determined the bankruptcy court, “failed to consider several important factual issues pertinent to the question of whether cause existed to reopen the closed bankruptcy case” and on remand needed to further develop the record to determine what was sold, whether the sale approved the sale of assets not owned by the debtor, and whether the prior holder of the mortgage on the Condos, the Boatman Firm, received notice of the sale. In re Woldeyohannes, 2023 WL 8717014, at *7-8. The District Court vacated the bankruptcy court‘s Amended Memorandum of Decision and Order Denying Movant‘s Motion to Reopen vacated and remanded to the bankruptcy court with instructions to determine, “the ownership interest of the bankruptcy estate in the subject property at the time of its sale, as well as whether any mistake in the proceedings or Sale Order resulted in the improper sale of the subject property free and clear of a mortgage owned by AWET.” In re Woldeyohannes, 2023 WL 8717014, at *8; ECF No. 177.
d. The Pending Motions
On remand, the bankruptcy court held an evidentiary hearing in which AWET, the Creditor and the former Chapter 7 Trustee participated.60 A threshold issue to AWET‘s motion to reopen is whether AWET has standing as a party in interest.61 AWET‘s standing argument is based on its claim it holds a valid and enforceable mortgage on real property owned by a non-debtor who is harmed by the Sale Order. Other related motions are discussed as relevant to AWET‘s motion to reopen.
i. How is AWET Related to this Case?
AWET claims it is harmed by the bankruptcy court‘s Sale Order because the Creditor recorded the Sale Order on the land records and used it to allege in a state court foreclosure action that Ms. Peterson – and not A to Zee – owns the Condos. A to Zee remains the focus of the parties’ disputes in this 2018 Case because it continues to hold title to the Condos. In order to reopen the 2018 Case, AWET needed to demonstrate cause to reopen the 2018 Case in addition to establishing standing. Because the Sale Order purports to sell an interest in real property owned by the non-debtor A to Zee, to have standing here, AWET needed to establish it holds a valid, enforceable mortgage against the Condos, or some other pecuniary interest affected by the Sale Order.
ii. The Creditor‘s Challenge to AWET‘s Standing
The Creditor and purchaser under the Sale Order negotiated the sale with the Chapter 7 Trustee, and was involved in crafting the language of the Sale Motion and presumably the Sale Order. She opposes AWET‘s claim to standing here, as well as the validity and enforceability of AWET‘s mortgage on the Condos. Once the Sale Order entered, the Creditor commenced a foreclosure of the mortgage in state court, asserting she had purchased all of the equity interest in A to Zee, among other claims. To be clear, the Chapter 7 Debtor here scheduled a 0% interest in A to Zee and the Chapter 7 Trustee sold the possibility the Debtor had an interest in the limited liability company. The Trustee was candid the equity interest history of A to Zee was murky and she was selling the Debtor‘s hypothetical interest to the Creditor without representation or warranty.
The Creditor‘s challenge to AWET’ s mortgage and thus to AWET‘s standing centers on her claim Hannah Woldeyohannes was the sole owner of A to Zee in 2016 when the Mortgage was granted. She argues in support that the Debtor was subject to an injunction preventing her from encumbering assets of A to Zee and that some or all of the Debtor‘s interest in A to Zee remains in the estate of the 2011 Case. Alternatively, the Creditor argues the Sale Order entered correctly because the estate of the 2018 Case included A to Zee‘s interest in the Condos due to an earlier state court ruling she claims pierced the corporate veil.
Whether, when and to what extent the Debtor owns or owned A to Zee is disputed, and the parties made various arguments about the effect of multiple state court cases, bankruptcy cases, and alleged conduct constituting disassociation from the limited liability company.
After the District Court Order entered, the Creditor filed but later withdrew a competing motion to reopen the 2018 Case, seeking to clarify that, as the purchaser in the Sale Order transaction, she had standing to pursue the claims a trustee might pursue specified in Chapter 5, Title 11, United States Code, including avoidance actions and malpractice claims against A to Zee‘s prior counsel.62 The Chapter 5 claim has not merit and the bankruptcy court will not reopen the 2018 Case to address it.63
An evidentiary hearing was held on March 19, 2024, April 23, 2024, and May 16, 2024. The Creditor and AWET introduced evidence. Mussie Russom, the alleged manager of A to Zee, the former Chapter 7 Trustee, and the Creditor testified during the hearing. No member of A to Zee, current or past, testified during the evidentiary hearing.64
Mr. Russom‘s testimony started with the business practices of A to Zee, the Woldeyohannes siblings and the membership of A to Zee at different periods over the past two decades. He also testified as to the validity of the Mortgage, note, and assignment.
The Trustee testified she did not intend to, and maintains she did not, sell anything more than the Debtor‘s interest in A to Zee. She specifically denied selling A to Zee‘s interest in real property.65 The Trustee testified it was her practice to notify all parties with an interest in real property if she was selling real property, but when selling a membership interest, she would only inform those with a lien on the membership interest (i.e., a lien on the personal property).66 The Trustee also testified she gave the Boatman Firm actual notice of the hearing concerning the Sale Motion but did not inform Attorney Boatman the
sale might affect the Mortgage on the Condos by selling A to Zee‘s real property interest free and clear of liens.67
The Creditor testified on a variety of matters, including prior state and bankruptcy court decisions she believes affect this case. Her direct testimony mainly consisted of entering exhibits she planned to use during argument.
Both AWET and the Creditor offered voluminous evidence about past litigations involving the Debtor, the Creditor, and A to Zee, including a purported injunction the state court granted at the behest of the Creditor that purportedly prevented the Debtor from transferring her interest in A to Zee.68 Much of the evidence offered was not admissible.
The court examined all admitted evidence. Evidence relevant to the court‘s determination is discussed below. The following chronology is based on testimony and other admissible evidence, and publicly available records for which the parties asked the court to take judicial notice.
i. The Debtor‘s Ownership, Control and Alleged Disassociation from A to Zee in 2006
At some point in the early 2000s, the ownership of A to Zee became a subject of
Mr. Russom testified that in 2006 the Debtor‘s siblings took over A to Zee and Hannah Woldeyohannes was “out” of A to Zee after that time.69
While explaining the family‘s way of operating A to Zee despite their disputes, Mr. Russom testified that, “officially” the Debtor was the only one “known in the department of [the Secretary of the State]” and was the only one who could act on behalf of A to Zee.70 Mr. Russom also testified that during the 2006 time period the Debtor was submitting A to Zee‘s taxes, executing leases on behalf of A to Zee, and nothing officially changed after the Debtor‘s purported dissociation in 2006.71 Mr. Russom went on to testify, the Debtor “has been written in the Department of [the Secretary of the] State as managing member even until 2019, ‘20, because we did not know that should be changed. . . . And once we discovered that that has to be changed because she‘s officially still the owner of it, that‘s when we changed it to the rightful owners.”72 A change of agent form Mr. Russom filed with the Secretary of the State in October 2020 reflects this.73
ii. The 2009 State Court Decision
As noted, in 2004, the Creditor sued the Debtor for breaching their oral agreement and depriving her of a business opportunity when A to Zee purchased the Condos.74 Judgment was entered in favor of the Creditor as a result of a disciplinary default.75 Importantly, the Creditor initially named both the Debtor and A to Zee as defendants in her lawsuit, but she later withdrew the claim against A to Zee. As a result, in 2009, the state court entered a money judgment for the Creditor and against the Debtor in the
amount of $169,821.47. The state court also determined the Creditor‘s “allegations that the defendant Woldeyohannes is the alter ego of A to Zee [were] admitted and the court [determined] that the [Debtor] is the sole member of A to Zee.”76
After obtaining the judgment, the Creditor did not seek a charging order against the Debtor‘s membership interest in A to Zee, and the state court‘s earlier order prohibiting assignment of the Debtor‘s interest in A to Zee and prohibiting transfer or encumbrance of A to Zee‘s interest in the Condos expired 90 days after September 17, 2010.77
In 2011, with the 2009 state court judgment to the Creditor still outstanding, the Debtor filed a voluntary Chapter 7 bankruptcy case, but it did not go well. Case number 11-20003 (“2011 Case“). Initially the bankruptcy court entered an order of discharge for the Debtor.78 The United States Trustee timely sought to revoke the Debtor‘s Chapter 7 discharge by filing an adversary proceeding complaint, commencing Tracy Hope Davis, United States Trustee for Region 2 v. Woldeyohannes, Adversary Proceeding Case No. 12- 2021. The U.S. Trustee alleged in part that the Debtor lied under oath when she
listed only a twenty-five (25%) percent interest in A to Zee in her bankruptcy schedules filed under penalty of perjury, when in fact she owned a 100% ownership interest in A to Zee. The Debtor conceded the U.S. Trustee might win the dispute over the discharge but made no other admission. The Debtor agreed judgment could enter against her in the adversary proceeding brought by the U.S. Trustee to revoke her discharge pursuant to
The entry of the judgment vacating the earlier discharge order effectively mooted another adversary proceeding brought by the Creditor in the 2011 Case. Since the Creditor alleged her debt was non-dischargeable pursuant to
In vacating the 2011 Case discharge order, the bankruptcy judge (Dabrowski, U.S.B.J., retired) did not address whether A to Zee was an alter ego of the Debtor. The alter ego question was discussed during the hearing on the discharge in the 2011 Case, but the judge did not decide that issue one way or the other. Rather, the Debtor‘s Chapter 7 discharge in the 2011 Case was first vacated and then waived with her consent based on her admission there were issues with her bankruptcy schedules and her agreement the U.S. Trustee could likely prove enough of
iv. The 2011 Bankruptcy Case and the 75% Interest in A to Zee
Assuming for the sake of argument - but this is not a determination - the Debtor continued to own all of the membership interest in A to Zee on the petition date of the 2011 Case, it could be argued the Debtor failed to schedule a seventy-five (75%) interest she owned at that time. While the Creditor argues the record of the 2011 Case establishes the Debtor admitted she owned 100% of A to Zee, the record of the 2011 Case is not so clear.83 The Debtor admitted there were problems with her bankruptcy schedules but did not specify what those problems were.
Chapter 7 bankruptcy trustees have significant discretion in exercising their business judgment to determine how to administer estate assets and minimize claims, including discretion to use the tool of abandonment. The Chapter 7 Trustee in the 2011 Case, like all Chapter 7 Trustees, would have been paid a minimal fee of perhaps $60 to administer the bankruptcy case, plus the possibility of receiving an additional fee calculated as a percentage of money distributed to creditors.84 Abandonment as provided in
However, only property listed in a debtor‘s bankruptcy schedules is automatically abandoned upon the closure of a bankruptcy case. Under
Based on this record, the 25% interest in A to Zee was abandoned to the Debtor when the 2011 Case closed, consistent with
v. Evidence of A to Zee Membership Interests After 2011
The record here includes no evidence of A to Zee‘s business records prior to 2016,
vi. The A to Zee 2016 Operating Agreement
The earliest document in this record concerning the management or ownership of A to Zee is the Operating Agreement dated February 25, 2016, listing Yodit Woldeyohannes, Sofia Woldeyohannes, and Isaias Yohannes as members and the Debtor as a prior member who had no further interest in A to Zee.88 This document was admitted with limited weight since Mr. Russom is neither a member nor a manager, according to the Operating Agreement. As noted, the Woldeyohannes siblings did not participate in the evidentiary hearings although they have appearing counsel.
There are several other issues with the Operating Agreement. For example, when asked about the Operating Agreement, Mr. Russom testified he was familiar with the document and witnessed its execution by all signatories.89 This testimony was undercut by Mr. Russom‘s inability to recall where the parties signed it, although he believed it was signed in Attorney Boatman‘s office, and lacked familiarity with its terms.90
Mr. Russom appeared unfamiliar with important terms of the Operating Agreement and was surprised he had not signed it, stating he may have signed as a manager.91 In fact, and despite Mr. Russom‘s testimony otherwise, the Operating Agreement itself states A to Zee would not have and did not have a manager.92 Upon learning he was not listed as manager, he stated, “I never noticed this one, actually. So, there is none that says I‘m the manager in these papers?”93
The Operating Agreement itself creates more questions than answers. For example, it states the Debtor transferred her interest in A to Zee to the other purported members in 2006, notwithstanding the 2009 state court decision that the Debtor owned 100% of A to Zee then, and notwithstanding her own bankruptcy schedules in the 2011 Case that stated she owned a 25% interest.94
The Operating Agreement requires a vote or other consent of the members to borrow money, incur any liability, or to
vii. The A to Zee 2016 Mortgage to the Boatman Firm
AWET introduced a note from A to Zee to the Boatman Firm96 and certified copies of the Mortgage Deed,97 and Assignment of Mortgage to AWET.98 Mr. Russom testified to their authenticity.99 Sofia Woldeyohannes purportedly signed the Mortgage, while the note was signed by Hannah Woldeyohannes as a “former member” as well as Sofia Woldeyohannes, Yodit Woldeyohannes, and Isaias Yohannes as members.100 A to Zee granted the disputed mortgage to the Boatman Firm one day after the Operating Agreement was signed and it was recorded a few months later.101 No borrowing resolution, meeting minutes, or other documents supporting A to Zee‘s membership interests and authority to grant the Mortgage is in the record.
viii. The A to Zee 2020 Change of Member Form and Mortgage Assignment to AWET
Four years later, in the midst of the 2018 Case, A to Zee filed a Change of Manager/Member form dated October 19, 2020, listing Yodit Woldeyohannes, Sofia Woldeyohannes, and Isaias Yohannes as members and Mr. Russom as manager with the Secretary of the State.102 The form bears an execution date of July 17, 2020, and represents the Debtor had ceased to be a member of A to Zee.103
One year later, after the 2018 Case was closed, Patrick Boatman, as duly authorized member of the Boatman Firm, indorsed the note to AWET.104 The assignment was recorded at about the same time as the note maturity date, in December 2021.
f. The Creditor‘s Additional Motions and Request
During the pendency of the hearing, the Creditor filed several additional documents, including a motion (ECF Nos. 288, 294) considered here as a further objection
Well after the conclusion of the evidentiary hearing, the Creditor filed her opposition to AWET‘s motion to reopen which is moot in light of the court‘s ruling here.108
g. Non-bankruptcy Litigation
It appears the parties continue to engage in non-bankruptcy litigation surrounding the Condos, which is affected by the existence of the Sale Order. ECF No. 217, p.3; see, Peterson v. Law Offices of Patrick W. Boatman, LLC et al., Connecticut Superior Court, Case No. HHD-CV23-5078361-S.
III. JURISDICTION
This court has jurisdiction over this adversary proceeding pursuant to
IV. APPLICABLE LAW
a. “Cause” to Reopen a Bankruptcy Case
Once standing to reopen a bankruptcy case is established, the moving party bears the burden of establishing cause to reopen. In re Dicks, 579 B.R. 704, 708 (Bankr. E.D.N.Y. 2017).
Because AWET seeks to reopen the 2018 Case for purposes other than administering
Factors courts should consider when deciding to reopen a
b. Standing as a Party in Interest
Only a debtor or a “party in interest” has standing to file a motion to reopen a closed bankruptcy case pursuant to
Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure define “party in interest“;
The Second Circuit, while acknowledging the term
Under the 2011 statutory scheme, an assignee was only entitled to receive the distributions to which the assignor would have been entitled.
Both
Whether a dissociation under
In In re Modanlo, 412 B.R. 715, 721 (Bankr. D. Md. 2006), on the other hand, the bankruptcy court was tasked with interpreting a statute with language squarely on point with the Connecticut Statute and whether a bankruptcy trustee file a new bankruptcy case for a debtor‘s limited liability company.120 The issue in that case was whether filing bankruptcy divested the debtor, the sole member of an LLC, of his right to manage an LLC. In re Modanlo, 412 B.R. at 717-18. The Court held,
the decisional law interpreting LLC acts that divest bankruptcy trustees of a LLC member‘s management rights are founded on notions that (remaining) members (like partners in a partnership) should not be forced to accept substituted performance by a member‘s trustee. . .. [T]his concern . . . [is] applicable only in the context of multi-member LLCs, not single member LLCs. Accordingly, the Court finds that the Trustee had the power to place [the Debtor‘s LLC] into bankruptcy upon his appointment, and, . . . possesses both the economic and governance rights to participate in the management of [the LLC] . . ..
In re Modanlo, 412 B.R. at 731.
The Court in Modanlo relied primarily on a Colorado bankruptcy court decision, In re Albright, 291 B.R. 538 (Bankr. D. Colo. 2003). In that case the Court held, “[t]he Colorado limited liability company statute provides that the members, including the sole member of a single member limited liability company, have the power to elect and change managers. Because the Trustee became the sole member of [the LLC] upon the Debtor‘s bankruptcy filing, the Trustee now controls, directly or indirectly, all governance of that entity, including decisions regarding liquidation of the entity‘s assets.” In re Albright, 291 B.R. at 541.
V. DISCUSSION
After remand the bankruptcy court reconsidered AWET‘s motion to reopen the Chapter 7 case for the purpose of modifying or correcting the Sale Order and held an evidentiary hearing to determine whether AWET – an LLC created after the 2018 Case without a claim against the 2018 Case‘s bankruptcy estate – has standing as a party in interest to seek to reopen the case. Based on the evidentiary record here, I conclude AWET failed to meet its burden to establish standing based on a valid and enforceable mortgage on the Condos. However, the Sale Order is inaccurate, does not reflect what the Chapter 7
AWET Failed to Establish It Holds the Mortgage
The District Court questioned whether AWET could establish standing as a party-in-interest premised on a valid Mortgage that was affected by the Sale Order. In re Woldeyohannes, 2023 WL 8717014, at *6. To have a valid and enforceable Mortgage, AWET needed to show that A to Zee was authorized to grant the Mortgage to the Boatman Firm in February 2016. For A to Zee to be authorized to borrow money and to grant the Mortgage, the owners of the membership interest(s) in A to Zee needed to consent. AWET argues that if the Debtor Hannah Woldeyohannes owned A to Zee prior to February 2016, she no longer did on the day the Mortgage was signed. AWET primarily relies on three documents to establish A to Zee‘s authority to grant a Mortgage on the Condos: the Operating Agreement, the note and the Mortgage.
The Operating Agreement
To buttress its claim that A to Zee acted with authority when it executed the note and Mortgage in 2016, AWET relied heavily on a copy of the 2016 Operating Agreement filed as part of Sofia Woldeyohannes‘s objection to the Sale Motion in 2021. While the document is in evidence as part of the objection, the court accords it little weight. No signatory to the Operating Agreement participated in the evidentiary hearing on the motion to reopen, although Sofia and the other Woldeyohannes siblings have appearing counsel in this case. While Mr. Russom testified he witnessed the execution of the Operating Agreement, his name does not appear and he was unclear where the execution of the agreement occurred. The signatures on the Operating Agreement are not notarized. No affidavit by any party who signed the Operating Agreement is in evidence and no signatory testified.
Mr. Russom‘s testimony was at times self-serving and internally inconsistent. He is the sole member of AWET and the alleged manager of A to Zee. He appeared unfamiliar with the terms of the A to Zee Operating Agreement. For example, Mr. Russom testified he is A to Zee‘s manager when the Operating Agreement he relies on specifies there will not be a manager unless one is named. The only record of a manager being named from 2016 to 2020 was a form filed with the Secretary of the State identifying Hannah Woldeyohannes as the Managing Director for A to Zee, until a change was made in October 2020.
Generally, the Operating Agreement could be clearer. It requires a membership vote (of which there is no record) before the LLC may borrow money or grant a mortgage but also provides consent of the members will suffice. Nothing other than Mr. Russom‘s testimony and the otherwise unauthenticated Operating Agreement supports the claim that the Woldeyohannes siblings owned 100% of the A to Zee membership interest in 2016. No evidence other than Mr. Russom‘s testimony supports the assertion in the Operating Agreement that each of the Woldeyhohannes siblings hold a capital contribution or capital account of $77,000 to A to Zee, and there was no credible evidence to suggest when Hannah Woldeyohannes‘s membership interest was acquired by any of the Woldeyohannes siblings, or for what consideration.
The record fails to support a conclusion that the Woldeyohannes siblings – rather than the Debtor or anyone else – owned all or a part of A to Zee as of February 2016. Instead, the record reflects a state court‘s determination the Debtor owned 100% of A to Zee prior to 2011, consistent with the record before the bankruptcy court in the 2011 Case. The closure of the 2011 Case left Hannah Woldeyohannes with at least a 25% interest in A to Zee, as explained below.
On this record, the court cannot credit much of Mr. Russom‘s testimony and does not find the Operating Agreement to be persuasive evidence of the Woldeyohannes siblings’ membership interests in A to Zee, or their authority to act in the name of A to Zee, in 2016.
The Note and Mortgage
During the evidentiary hearing, AWET introduced a copy of a promissory note from A to Zee to the Boatman Firm, and certified copies from the Hartford land records of a Mortgage Deed securing the note and an Assignment of Mortgage from the Boatman Firm to AWET. The Mortgage was purportedly signed in February 2016, by Sofia Woldeyohannes and Patrick Boatman, while the note was signed by Hannah Woldeyohannes as a “former member” as well as the Woldeyohannes siblings as members. Neither the Debtor nor any one of the Woldeyohannes siblings testified.
The original note is not in the record and the consideration paid to the Boatman Firm for the assignment of the Mortgage to AWET is unexplained. Mr. Russom testified AWET is the holder of the note. ECF No. 282, p. 43, ln. 19-20. Under Connecticut law, the party entitled to enforce an instrument is its “holder,” defined as “[t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.”
Ownership of A to Zee‘s Membership Interests
It is not clear whether anyone claiming an interest in A to Zee other than the Debtor was ever on notice of the differing claims to the ownership of A to Zee.121 In 2006, 2008, and 2009, the Debtor was determined to be the sole owner of A to Zee. See, Peterson v. Woldeyohannes, 2006 WL 2948850, at *1 (“The units were purchased by A to Z, LLC of which [Hannah Woldeyohannes] was sole owner.“), rev‘d, 111 Conn. App. 784 (2008); Peterson v. Woldeyohannes, 111 Conn. App. at 785 (“The defendant is the
Although AWET argues such decisions were somehow faulty, the bankruptcy court must take them as they are. The court further notes during the Debtor‘s adversary proceeding in the 2011 Case the Debtor was represented by the Boatman Firm and canvassed at a hearing, and she chose to consent to judgment entering on a count which included a claim she concealed a 100% interest in A to Zee. See, Tracy Hope Davis, United States Trustee for Region v. Woldeyohannes, Dkt. No. 2:12-ap-2021, AP-ECF No. 54, p. 51, Ln. 7-12. Mr. Russom‘s testimony, the state court decisions and the 2011 Case all indicate the Debtor did not dissociate from A to Zee, at least not completely, before the 2012 decision denying her bankruptcy discharge.
Before 2011, limited liability company operating agreements could be oral, and members could dissociate themselves at will.
On this record, the court cannot conclude the Mortgage was authorized by A to Zee because there is no persuasive evidence showing who held the membership interests in 2016.
Prior Court Orders Do Not Pierce the Corporate Veil Between the Debtor and A to Zee
Ms. Peterson‘s position that the Chapter 7 Trustee had authority to sell A to Zee‘s
In the Creditor‘s original lawsuit against the Debtor commenced in 2004, the state court held the “allegations that the defendant Woldeyohannes is the alter ego of A to Zee [were] deemed admitted and the court [found] that the [Debtor] is the sole member of A to Zee.”124 The result was a money judgment only, because the state court noted the corporate veil could not be pierced because A to Zee was not a party to the case.125 Later in the same case126, the state court said it had no authority to effectively transfer the assets of A to Zee, who was not a party to the action, to the Creditor.
When the bankruptcy court vacated the Debtor‘s 2011 Case bankruptcy discharge order, the issue of whether A to Zee was an alter ego of the Debtor was not raised or considered. Notably, none of the Woldeyohannes siblings were served with notice of the 2011 Case proceedings, although attorneys at the Boatman Firm – the eventual mortgagee here – represented the Debtor.
There is no evidence any court contemplated reverse veil piercing or deemed the assets of A to Zee to be liable for the creditors of the Debtor. To reverse pierce the corporate veil to enable the Chapter 7 Trustee to use assets of A to Zee to satisfy claims
against the Debtor, a court must have considered the impact of reverse piercing on shareholders and creditors and whether adequate remedies were available at law. See, McKay, 332 Conn. at 440. No evidence this was done is in the record.
Property of the Estate in the 2018 Case
Here, the Chapter 7 Trustee had no authority to sell anything other than what Hannah Woldeyohannes owned on September 25, 2018, the date the order for relief entered in the 2018 Case. The Chapter 7 Trustee was confronted with conflicting information about the Debtor‘s ownership of an interest in A to Zee. On the one hand, the 2011 Case included bankruptcy schedules asserting a 25% ownership interest in A to Zee, several state court decisions were premised on the Debtor owning a 100% interest in A to Zee, and the Debtor was listed with the Secretary of the State for the State of Connecticut as having a continuing role in A to Zee as the Managing Director as of September 25, 2018.
On the other hand, the Debtor‘s bankruptcy schedules filed under penalty of perjury in the 2018 Case claimed the Debtor had no ownership interest in A to Zee since 2006 – a fact not supported by other courts’ decisions and contrary to her prior sworn statements in the 2011 Case. On this record, the Chapter 7 Trustee appropriately considered the Creditor‘s offer to purchase whatever interest the Debtor had in the LLC, even if it was nothing. No one – including the Debtor or the Woldeyohannes siblings who have appearing counsel in this case – presented a cogent explanation of how or precisely when the Debtor sold or transferred the 100% interest
This left the Chapter 7 Trustee with a hypothetical, potential ownership interest of the Debtor in A to Zee to sell, but with no interest in real property owned by A to Zee.
No Real Property Was Sold Free and Clear of Liens
The Chapter 7 Trustee identified the creditors of the bankruptcy estate (Hanson Guest and Alyssa Peterson) and the City of Hartford and the Metropolitan District in the caption of the Sale Motion, presumably as counterparties or respondents to the Sale Motion. The inclusion of the City of Hartford and the Metropolitan District is unexplained, and makes no sense unless intended to address municipal, tax or water liens against real property. But the 2018 Case‘s bankruptcy estate included no real property. The Sale Order does not include specific “free and clear” language consistent with
Had the relief granted remained consistent with the relief sought in the Sale Motion (i.e., confined to selling an interest in an LLC and not including “free and clear” language in the order since no liens or encumbrances on the LLC interest being sold were identified) it appears notice would have been sufficient. See,
The court recognized the Chapter 7 Trustee intended to sell the Debtor‘s interest in A to Zee, a membership interest, rather than an interest in real property.127 The court entered the Sale Order intending it to align with the Sale Motion, authorizing the Chapter 7 Trustee to sell only the Debtor‘s interest in A to Zee, whatever that interest might be,
without representation or warranty. No divesting or “free and clear” language was included in the decretal paragraphs of the Sale Order, although the erroneous reference to
The 2018 Case Will Be Reopened
The court will sua sponte reopen the 2018 Case for a limited purpose. Because the case has been closed, the former Chapter 7 Trustee has no authority to act as the case trustee. The court will therefore direct appointment of a Chapter 7 Trustee by the Office of the United States Trustee.
The reasons to reopen a closed case are to administer assets, to accord relief to the debtor, or for other cause.
Bankruptcy courts consider many factors in determining whether to reopen a case, including whether there would be no relief if the case were not reopened. Here,
The length of time the case was closed is another consideration. Here, when weighed against the gravity of the harm if the erroneously stated Sale Order is not corrected, the passage of time is awarded little weight. AWET waited nearly a year after the 2018 Case was closed before moving to reopen the case and more time passed as a result of the appeal.
Here, the remaining factors appear to be neutral. No party would suffer undue prejudice should the court grant the motion to reopen. The Creditor faces clarification of the Sale Order to remove a benefit to which she was not entitled, which is not prejudicial. The Creditor appears to have bargained for, and the Chapter 7 Trustee intended to sell, the limited liability company interest as defined in the Sale Motion, which is all the Trustee had the ability to sell. Finally, the benefit to the Debtor is neutral. The Debtor will not receive a benefit and the court‘s decision will not prejudice her.
On this record, it is easy to conclude there is cause for the court to reopen the case for a limited purpose.
The Sale Order Will Be Amended Pursuant to Fed.R.Bankr.P. 60(a) and 60(b)
Once the case is reopened and a Chapter 7 Trustee is appointed, the bankruptcy court will address the remaining issues identified by the district court and suggested by this record, including identification of the property of the bankruptcy estate the Chapter 7 Trustee proposed to sell, whether and to what extent the sale motion should have been granted, what the Sale Order‘s terms and conditions should have been, if any, and the process going forward.
A court may modify or amend an order pursuant to
There is also cause to correct the Sale Order pursuant to
Because the Sale Order must be revisited, the case will be reopened.
Summary of Determinations After Remand
Because fairly straightforward questions were remanded and this decision is lengthy, the court offers this brief summation of its conclusions. The District Court directed a determination of whether AWET held a valid mortgage on the real property (Condos). In re Woldeyohannes, 2023 WL 8717014, at *6. The court concludes AWET failed to meet its burden to establish the Mortgage was authorized and granted by members of A to Zee.
The District Court also directed the bankruptcy court to clarify what was sold to the Creditor, and whether the sale of non-estate property was appropriate. In re Woldeyohannes, 2023 WL 8717014, at *7. What was intended to be sold and what was described as having been sold in the Sale Order are different. The Trustee proposed to sell a remnant asset consisting of whatever interest the bankruptcy estate had, even if that interest was nothing, in A to Zee. The bankruptcy schedules acknowledged the lack of clear and consistent evidence regarding the Debtor‘s interest in and dissociation from A to Zee.
The court also concludes the Trustee did not intend to transfer an interest in the Condos so lienholders on the Condos were not necessary parties to be served with notice of the proposed sale. In answer to the District Court‘s question about whether the prior Mortgage holder, the Boatman Firm, received notice of the Sale Motion, the record does not reflect service on the Boatman Firm.
All other arguments made were considered by the bankruptcy court and determined to be without merit.
VI. CONCLUSION
For these reasons, the court will reopen the case sua sponte but will deny AWET‘s motion to reopen. Accordingly, it is hereby,
ORDERED: This Chapter 7 case, case number 18-21369, is reopened sua sponte for the limited purpose of determining, after notice and a hearing, the appropriate form of an amendment to the Sale Order consistent with the factual findings in this Memorandum of Decision and Order, pursuant to
ORDERED: The United States Trustee is directed to appoint a Chapter 7 Trustee for this limited purpose; and it is further
ORDERED: AWET‘S motion to reopen, ECF No. 152 and its motion pursuant to
ORDERED: Creditor Alyssa Peterson‘s motion to reopen, ECF No. 216, having been withdrawn at ECF No. 312, is moot; and it is further
ORDERED: The objection filed by Mussie Russom, Sofia Woldeyohannes, and Yodit Woldeyohannes to the Creditor‘s motions to limit evidence, ECF No. 223, is overruled as moot; and it is further
ORDERED: Creditor Alyssa Peterson‘s Motion for Order Pursuant to
ORDERED: Creditor Alyssa Peterson‘s Amended Motion for Order, which objects to AWET‘s motion to reopen, ECF No. 294 is overruled as moot; and it is further
ORDERED: Creditor Alyssa Peterson‘s Request for Judicial Notice, ECF Nos. 295
Dated this 19th day of September, 2024, at New Haven, Connecticut.
Ann M. Nevins
Chief United States Bankruptcy Judge
District of Connecticut
Notes
The Creditor‘s arguments fail for several reasons. First, the injunction, by its own terms, became ineffective 90 days after September 17, 2010, when the Connecticut Appellate Court dismissed the Debtor‘s appeal in the state court case. See, Peterson v. Woldeyohannes, No. HHDCV040834966S, Doc. No. 208.10; ECF No. 224-14, p. 6. Second, the court order the Creditor believes continued the injunction was for a prejudgment remedy to attach property of A to Zee, Sofia Woldeyohannes, Yodit Woldeyohannes, and Isaias Yohannes. Peterson v. Hume, Connecticut Superior Court, Case No. HHD CV-11-5035394S, Doc. No. 114. The pre-judgment remedy order did not name Hannah Woldeyohannes. Peterson v. Hume, Connecticut Superior Court, Case No. HHD-CV-11-5035394S, Doc. No. 114.