Opinion
8:22-bk-00740-RCT
06-10-2022
In re Lloyd V. Thompson and Rosabelle Dominguez, Debtor(s).
Chapter 13
ORDER GRANTING MOTION FOR RELIEF FROM THE AUTOMATIC STAY
Roberta V. Colton, United States Bankruptcy Judge
Before the Court is the Motion for Relief from Stay (Doc. 22) (the "Motion") filed by North Mill Credit Trust ("North Mill") and the objection to the Motion filed by Debtors (Doc. 24) (the "Response"). Following a preliminary hearing on May 11, 2022, the parties were invited to file supplemental briefs on their respective positions within three business days. Both North Mill and Debtors timely filed briefs (Docs. 30 & 32). Having considered the Motion, the Response, and the supplemental briefs, and upon review of the governing law, the Court finds that Motion should be granted.
Background
Debtors Lloyd V. Thompson and Rosabelle Dominguez filed this Chapter 13 case on February 25, 2022. On Schedule A/B, Debtors list a 2012 Peterbilt 367 Tractor and Dump Body (the "Truck") and value the Truck at $45,000. Debtors scheduled North Mill on Schedule D with a claim of $94,059, secured by the Truck. The schedules reflect that only Mr. Thompson is liable on the debt to North Mill; no co-debtors are listed on Schedule H. Debtor's Chapter 13 plan proposes to value the Truck at $45,000 and cramdown North Mill's claim.
Doc. 1.
Doc. 19.
The Truck, however, is not titled in either of Debtors' names but rather in the name of Elohim Trucking Service, LLC ("Elohim"), a single-member LLC owned by Mr. Thompson.Elohim purchased the Truck in December 2020, financing the purchase with North Mill. Mr. Thompson personally guaranteed the debt. Per the amended Schedules I and J, Debtors' only income is derived from Mr. Thompson's operation of Elohim.
Motion ¶¶ 2, 5-6, & Ex. A.
Doc. 29. Interestingly, on their Schedules A/B, Debtors did not schedule Mr. Thompson's interest in Elohim nor any interest in "business-related property."
Motion Ex. A.
Doc. 17.
It is alleged that by August 2021, Elohim had defaulted under the terms of North Mill's loan and Mr. Thompson had breached his personal guaranty. In early December 2021, North Mill sued Elohim and Mr. Thompson in state court seeking a writ of replevin as to the Truck. The verified petition for the writ asserts that Elohim, or alternatively Mr. Thompson, owed North Mill $94,059.40, exclusive of attorneys' fees and costs. Like Debtors' bankruptcy schedules, North Mill's verified petition estimates the Truck's value as $45,000.
Motion Ex. A.
Motion ¶¶ 13, 15.
Motion Ex. A.
Debtors disclosed the pendency of the state court action on their statement of financial affairs, albeit as an action for breach of contract. It is unclear how far the matter had progressed in state court before Debtors filed this Chapter 13 case.
Doc. 1.
Positions of the Parties
North Mill argues that despite Debtors' schedules and proposed Chapter 13 plan, Debtors have no protectable interest in the Truck nor is the Truck property of the bankruptcy estate such that the automatic stay applies. North Mill, therefore, moves for relief for relief from the stay "in an abundance of caution."
Debtors, noting that the term "property of the estate" as defined in § 541 of the Bankruptcy Code is broadly interpreted, assert that Mr. Thompson has a property interest in the Truck under Florida law by virtue of his personal guarantee of the loan. Debtors also argue that North Mill is adequately protected based upon its proposed treatment in the plan and further add that the Truck is essential to their case as it is the sole vehicle in Elohim's inventory and without it, Mr. Thompson's business would fail.
Statutory references are to 11 U.S.C. §§ 101-1532 ("Code" or "Bankruptcy Code"), unless noted otherwise.
Discussion
The threshold issue here is whether property of a single-member LLC that is owned by a debtor becomes part of that debtor's bankruptcy estate by reason of the debtor's personal guarantee of a debt secured by the property. The Court agrees with North Mill and concludes that it does not.
Section 541(a)(1) of the Code provides that "property of the estate" includes "all the legal or equitable interests of the debtor in property as of the commencement of the case." Though federal law determines whether debtor's interests in property become property of the bankruptcy estate, it is applicable state law that determines the nature and extent of those interests.Debtors are correct that, here, the Court must decide the issue based upon Florida law.
See, e.g., In re Johnson, 608 B.R. 784, 788 (Bankr. S.D. Ga. 2019) (citing Southtrust Bank of Ala., N.A., v. Thomas (In re Thomas), 883 F.2d 991, 995 (11th Cir. 1989)); see generally Butner v. U.S., 440 U.S. 48, 99 S.Ct. 914 (1979).
In Florida, an LLC "is an entity distinct from its members." And, a member of an LLC "has no interest in any specific limited liability company property." Thus, in bankruptcy, the estate of a member of a Florida LLC does not include the separate property of the LLC. This is true even if the debtor is the LLC's sole member and the debtor personally guaranteed a debt secured by the LLC's property. Because Elohim is a separate legal entity, its property, i.e., the Truck, is not part of Debtors' bankruptcy estate.
See In re Whittle, 449 B.R. 427, 430 (Bankr. M.D. Fla. 2011) ("The Florida statutory scheme is clear that a limited liability company holds property separate and apart from the property of its members[.]"); see also Thakkar v. Greenspoon Marder, PA. (In re Nilhan Fin., LLC), 614 B.R. 379, 385 (M.D. Fla. 2020) ("As a member of the LLC, [appellant] has no ownership interest in the property of the LLC under Florida law.").
See, e.g., Proactive Measures USA, LLC v. DAngelo, No. 1:20-CV-02496-JMS-MG, 2021 WL 5412533, at *2 (S.D. Ind. Oct. 21, 2021); see also In re Brines, No. 14-40442, 2015 WL 3476695, at *2 (Bankr. D. Kan. May 28, 2015); In re Peoples Bankshares, Ltd., 68 B.R. 536, 539 (Bankr. N.D. Iowa 1986) (listing cases).
See, e.g., In re Johnson, 608 B.R. at 789-90 (listing cases).
Debtors briefly reference a right of redemption in their Response. But even if Mr. Thompson possessed such a right by virtue of his guaranty of the debt, the right of redemption alone is not a sufficient interest to render property part of the bankruptcy estate.
See Bell-Tel Fed. Credit Union v. Kalter (In re Kalter), 292 F.3d 1350, 1355-56 (11th Cir. 2002) ("Debtors' mere rights to redeem do not bring the vehicles into the Debtors' bankruptcy estates under Florida law."); see also Charles R. Hall Motors, Inc. v Lewis (In re Lewis), 137 F.3d 1280, 1285 (11th Cir. 1998) (interpreting Alabama law and holding that "the bankruptcy estate's only interest in the repossessed automobile-a bare right of redemption- failed to render the automobile 'property of the estate.'").
Debtors' arguments in their supplemental brief are not persuasive, and they conflate a debtor's membership interest in an LLC with an interest in the property of the LLC. While true that a debtor's membership interest in an LLC becomes part of the bankruptcy estate, that interest does not carry with it an interest in the LLC's separate property.
E.g., In re Penn, No. 09-14624-WHD, 2010 WL 9445533, at *2 (Bankr. N.D.Ga. Apr. 2, 2010) ("The fact that an individual debtor holds an interest in another entity does not give that individual a direct ownership interest in the assets owned by the other entity.") (citing cases).
Last, though not raised by Debtors, the co-debtor stay applicable in Chapter 13 cases does not change the result. The Chapter 13 co-debtor stay applies only to individual co-debtors, not businesses. Should a business desire to invoke the automatic stay for its assets, it must file its own bankruptcy case. But of course, a business cannot be a debtor in Chapter 13.
§ 1301(a); see, e.g., In re Saleh, 427 B.R. 415, 422 (Bankr. S.D. Ohio 2010) ("[T]he limits of the co-debtor stay in a Chapter 13 case are prescribed in § 1301. That section does not allow a limited liability company or corporation to receive the protection of the co-debtor stay in a Chapter 13 case.").
Cf. In re McCormick, 381 B.R. 594, 602 (Bankr. S.D. N.Y. 2008) ("Debtor has never provided this Court a satisfactory explanation for why he could not cause the LLC to file its own bankruptcy case which, as his counsel admitted during the hearing, would invoke the automatic stay on behalf of the company and thereby stay all pending collection actions against it.").
§ 109(e); see, e.g., In re McCormick, 381 B.R. at 597-98.
For these reasons, it is
ORDERED AND ADJUDGED:
1. The 2012 Peterbilt 367 dump truck, which is the subject of the Motion, is not property of Debtors' bankruptcy estate. Rather, the Truck is the separate property of Elohim Trucking Service, LLC and is not subject to the automatic stay.
2. The Motion (Doc. 22) is GRANTED.
3. North Mill may proceed with its state court replevin action to recover the Truck and may pursue its available state law in-rem remedies without further delay. But North Mill may not seek nor obtain in personam relief against the Debtors.
4. Although likely inapplicable based upon the Court's ruling, the fourteen-day stay of this Order pursuant to Fed.R.Bankr.P. 4001(a)(3), to the extent it applies, is waived.
Attorney William J. Denius, Esq. is directed to serve a copy of this Order on interested parties who do not receive service by CM/ECF and to file proof of service within three days of its entry.