3.78 Irish Acres, LLC v. Ireland Empire Servicing Co., et al. (In re 3.78 Irish Acres, LLC)

Summarized by Lars Fuller , BakerHostetler
10 years 4 days ago

Citation:

BAP No. NV-15-1096-JuKiD (BAP 9th Cir. Feb. 25, 2016) (unpublished)

Tag(s):

Ruling:

In an unpublished ruling, the BAP for the 9th Circuit affirmed the ruling of the bankruptcy court (D. Nev.) dismissing an LLC's second chapter 7 filing based on claim and issue preclusion following the dismissal of the first case, also finding that the second case was filed in bad faith. The BAP agreed that under Nevada LLC law, a 50% member did not have authority to file bankruptcy, and that 100% consent of members was required. The BAP also agreed that 50% member's filing second case two days after dismissal of first case, while filing to identify any prior filing, and misrepresenting that member was "majority member," and while failing to identify any entity holding a 10% or greater interest in the corporate ownership statement, constituted bad faith. BAP also agreed that member's attempt to change percentage of ownership interest at member meeting attended only by petitioning member was invalid, and constituted further bad faith.

Procedural context:

Member of LLC filed chapter 7 bankruptcy for entity, and creditor moved to dismiss, with sanctions. Bankruptcy court granted motion, and member appealed to BAP for 9th Circuit.

Facts:

Vahey, as the trustee of a family trust, filed a chapter 7 case on behalf of an LLC shortly after the bankruptcy court dismissed its first petition. A creditor filed a motion to dismiss the bankruptcy, asserting that the court's findings for dismissal in the first case precluded the LLC's second filing. In the first case, at issue was whether Vahey had authority to file the bankruptcy case as a member or manager of the LLC, or as the trustee of one of the members (i.e., the trust was a member). In the first case, the bankruptcy court determined that because the trust was only a 50% member, i.e., not a majority member, under Nevada LLC law the member did not have authority to file the petition without the consent of all the members. Vahey did not appeal the dismissal. In the second case, the bankruptcy court held that claim and issue preclusion precluded the second filing, and also found that the second case was filed in bad faith. The BAP affirmed. Vahey, a medical doctor, associated with Musso in making real estate investments. Under the plan, Musso identified parcels, and Musso and Vahey put up money to purchase the properties. They would then split profits upon resale. Vahey had invested approximately $1.2 million since 2007 in this manner, and Vahey and Musso invested similarly in a vacant parcel through an LLC in which Vahey, through a family trust, and Musso, through a separate entity (Sweeney), each held a 50% membership. Musso and a third party (Yampolsky) were managers of the LLC. The LLC purchased the parcel for $4.95 million, of which Vahey was credited with contributing $1.2 million. Yamposky obtained a promissory note from the LLC secured by deed of trust against the property in the amount of $550k. Yamposky resigned as manager in 2010, leaving Musso as the sole manager. In 2011, Vahey and a related entity filed suit against various defendants, including Musso and Yamposky, alleging fraud. Musso and Sweeney, having acquired the note and deed of trust from Yamposky, assigned the note and deed of trust to the title insurer in return for assistance in defending against Yahey's suit. The title insurer subsequently assigned the note and deed of trust to Inland. Inland then began the process of foreclosing against the real property, providing notice to Yahey. Yahey unsuccessfully attempted to block the foreclosure sale. The title insurer commenced a separate suit Sweeney in state court, seeking ultimately to execute against Sweeney's membership interest in the LLC. Vahey commenced the first chapter 7 case seeking to stop the foreclosure sale. Inland sought to dismiss the first case. The bankruptcy court agreed that Yahey, as the representative of a 50% member, did not have authority to file bankruptcy for the LLC, and dismissed the case. Two days later, Yahey filed the second case.

Judge(s):

Jury, Kirscher, Dunn

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