Swope (Trustee) et al v. Huntington National Bank et al

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re:
John Devore and
Susan Devore,
Debtors.
William L. Swope, Trustee,
Plaintiff,
v.
Huntington National Bank, et al.,
Defendants.
) 	Case No.: 09-3372
)
) 	Chapter 7
)
) 	Adv. Pro. No. 10-3365
)
) 	Hon. Mary Ann Whipple
)
)
)
)
)
)
)
)
MEMORANDUM OF DECISION AND ORDER REGARDING
CROSS-MOTIONS FOR SUMMARY JUDGMENT
This adversary proceeding is before the court on cross-motions for summary judgment filed by
Plaintiff, the Trustee in the underlying Chapter 7 case, and Defendant Huntington National Bank
(“Huntington”) [Doc. ## 15 & 16], and Huntington’s response to Plaintiff’s motion [Doc. #18]. In his
complaint, Plaintiff names as defendants Huntington, John and Susan Devore (the Debtors in the underlying
The court incorporates by reference in this paragraph and adopts as the findings
and orders of this court the document set forth below. This document has been
entered electronically in the record of the United States Bankruptcy Court for the
Northern District of Ohio.
Dated: June 27 2011
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Chapter 7 case), Devore Rentals, LLC, and JACD, LLC. 	Plaintiff seeks a declaratory judgment as to
Huntington’s secured status in the net sale proceeds resulting from the sale of five parcels of real estate.
In its answer and cross-claim against Devore Rentals, LLC, and JACD, LLC, Huntington alleges
that it has a judgment lien that has attached to the five parcels of real estate and that any attempted
prepetition transfers of the parcels are void since the grantee entity did not exist or, alternatively, should be
avoided as fraudulent transfers under Ohio Revised Code § 1336.02(A)(1) and (2). While all of the parties
have stipulated to the facts upon which the court is to rely in deciding the cross-motions for summary
judgment, [see Doc. # 13], no responses have been filed by Debtors, Devore Rentals, LLC, or JACD, LLC.
The district court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §1334(b) as
a civil proceeding arising in or related to a case under Title 11. This proceeding has been referred to this
court by the district court under its general order of reference. 28 U.S.C. § 157(a); General Order 84-1 of
the United States District Court for the Northern District of Ohio. This is a core proceedings that the court
may hear and determine. 28 U.S.C. § 157(b)(1) and (b)(2)(K). For the reasons that follow, the court finds
that Huntington is entitled to entry of judgment in its favor.
FACTUAL BACKGROUND
The parties have stipulated to the following facts. The five properties that are the subject of this
adversary proceeding are located in Marion, Ohio, at the following addresses: 306 Grand Avenue, 436 Pearl
Street, 267 N. Prospect Street, 658 E. George Street, and 408 Lynn Drive (collectively “the Subject
Properties”). 	Pursuant to deeds filed with the Marion County Recorder in 2006 and 2007, the Subject
Properties were titled in the name of Devore Rentals, LLC, an Ohio limited liability company originally
formed and registered with the Ohio Secretary of State on July 15, 2005. Debtors are each fifty percent
owners of Devore Rentals, LLC.
On May 4, 2009, Huntington accelerated its six loans to the Debtors and Devore Rentals, LLC, and
demanded payment in full, providing a deadline for such payment of May 11, 2009. Huntington’s demand
letter advised Debtors and Devore Rentals, LLC, that unless full payment was made by that date, it would
initiate legal proceedings to take an immediate judgment on the promissory notes and guaranties. [Doc. # 13,
¶ 4 & Ex. A, p. 3]. On May 11, 2009, Debtor John Devore, in his capacity as authorized member of Devore
Rentals, LLC, executed quit claim deeds in an effort to transfer the Subject Properties and naming JACD,
LLC, as the grantee. [Id., ¶ 5 & Ex. B]. Those deeds were recorded on May 12, 2009, in the Marion County
Recorder’s office.
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Debtors’ Statement of Financial Affairs states that Debtor John Devore is 100% owner of JACD,
LLC. However, at the time of the attempted transfers, JACD, LLC, was not a registered entity with the Ohio
Secretary of State. 	JACD, LLC, provided no consideration to Devore Rentals, LLC, for the attempted
transfer of the Subject Properties and, at the time of the attempted transfers, was insolvent, as defined by
Ohio Revised Code § 1336.02(A)(1) and (2).
On May 22, 2009, Huntington obtained a judgment against Debtors and Devore Rentals, LLC, in
the total amount of $675,110.48 and, on that same date, filed a Certificate of Judgment with the Marion
County, Ohio, Court of Common Pleas, which became a good and valid lien on all real property held by
Devore Rentals, LLC, in Marion County, Ohio. [Doc. # 13, ¶ 8 & Ex. C, p. 2].
On June 4, 2009, Debtors filed their petition for relief under Chapter 7 of the Bankruptcy Code.
The court authorized Plaintiff to retain an auctioneer to sell the Subject Properties and, on March
12, 2010, by Stipulated Judgment Entry approved by Plaintiff, Huntington, and Debtors, the court ordered
the Subject Properties to be sold by the auctioneer, with the net proceeds of the sale to be held by Plaintiff
pending further order of the court. On May 12, 2010, the auctioneer offered the Subject Properties for sale,
all of which were sold for the total gross sale price of $110,000.00. The net sale proceeds after payment
of property taxes and assessments, closing costs, advertising costs, and the auctioneer’s fees and expenses
total $85,498.83 (“Net Sale Proceeds”).1 The Net Sale Proceeds are being held by Plaintiff in his trust
account pending further order of the court. All parties that may claim an interest in the Net Sale Proceeds
are before the court in this adversary proceeding.
LAW AND ANALYSIS
I. Summary Judgment Standard
Under Rule 56 of the Federal Rules of Civil Procedure, made applicable to this proceeding by
Federal Rule of Bankruptcy Procedure 7056, summary judgment is proper only where there is no genuine
issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c).
In reviewing a motion for summary judgment, however, all inferences “must be viewed in the light most
favorable to the party opposing the motion.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 586-88 (1986). The party moving for summary judgment always bears the initial responsibility of
1 The initial net proceeds totaled $81,098.83. However, due to an accounting error, the auctioneer fees listed in his fee
application were $4,400.00 more than the correct amount, and the auctioneer has filed an amended fee application indicating that
he has refunded the overpayment of $4,400.00 to Plaintiff. [See Doc. # 13, ¶ 24; Case No. 09-33772, Doc. # 169].
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informing the court of the basis for its motion, “and identifying those portions of ‘the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits if any’ which it believes
demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). Where the moving party has met its initial burden, the adverse party “may not rest upon the mere
allegations or denials of his pleading but . . . must set forth specific facts showing that there is a genuine
issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue for trial exists
if the evidence is such that a reasonable factfinder could find in favor of the nonmoving party. Id.
In cases such as this, where the parties have filed cross-motions for summary judgment, the
court must consider each motion separately on its merits, since each party, as a movant for summary judgment,
bears the burden to establish both the nonexistence of genuine issues of material fact and that party’s entitlement
to judgment as a matter of law. Lansing Dairy v. Espy, 39 F.3d 1339, 1347 (6 th Cir. 1994); Markowitz v.
Campbell (In re Markowitz), 190 F.3d 455, 463 n.6 (6 th Cir. 1999). The fact that both parties simultaneously
argue that there are no genuine factual issues does not in itself establish that a trial is unnecessary, and the fact
that one party has failed to sustain its burden under Rule 56 does not automatically entitle the opposing party to
summary judgment. See 10A Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and
Procedure: Civil 3d § 2720 (1998).
II. The Parties’ Cross-Motions for Summary Judgment
The parties’ motions raise two issues: (1) whether the quit claim deeds executed by Devore Rentals,
LLC, to JACD, LLC, effected a transfer of title to the Subject Properties; and (2) if the transfers were
effective, whether they were fraudulent transfers under Ohio Revised Code § 1336.04(A)(1) or (A)(2).
Because the court finds that the quit claim deeds are void and that Defendant is entitled to a declaration that
it has a first and best lien against the Net Sales Proceeds by way of its valid judgment lien against all real
property of Devore Rentals, LLC, located in Marion County, Ohio, it does not address Huntington’s
fraudulent transfer claim.
Huntington argues that the quit claim deeds executed by Devore Rentals, LLC, are null and void
since the grantee, JACD, LLC, was not in existence at the time of the attempted conveyance. The court
finds that there are no genuine issues of material fact created by the record in this action and that based on
the undisputed facts it agrees with Huntington.
Under Ohio law, “[i]t is indispensable to the validity of a grant that the grantee be capable of
receiving it and that both the grantee and the grantor be persons or entities in being at the time of the grant.”
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Thomas v. City of Columbus, 39 Ohio App. 3d 53, 55 (1987) (citing Sloane v. McConahy, 4 Ohio 157, 169
(1829)). The transfer of property to a non-existent grantee “is a mere nullity.” Muskingum Valley Turnpike
Co. v. Ward, 13 Ohio 120, 127 (1844); Meta Brain/Mind Biomedical Research Found. v. Gorges, No.
68686, 1995 WL 643804, *6, 1995 Ohio App. LEXIS 4884, *20 (Ohio App. Nov. 2, 1995) (holding that
since grantee was neither a de facto nor a de jure corporation, it was incapable of holding title and any
purported transfer of property was void).
In this case, the parties agree that JACD, LLC, did not exist at the time the quit claim deeds were
executed by Devore Rentals, LLC. And there is no evidence, and Plaintiff does not argue, that Debtors ever
took any steps to complete the creation of the limited liability company after the execution of the deeds.
Although not a stipulated fact, Defendants state in their answer to Huntington’s cross-claims that an attempt
was made to register with the Ohio Secretary of State but that the name JACD, LLC was ultimately rejected
and the paperwork was returned to Defendants’ counsel after Debtors’ Chapter 7 case was filed. [Doc. # 9,
¶ 10]. Defendants further state that they “decided not to resubmit the paperwork to the Secretary of State
as the need for the LLC no longer existed.” [Id.] While a de facto corporation has the capacity to acquire
legal title to real estate, Thomas, 39 Ohio App. at 55 (citing Society Perun v. City of Cleveland, 43 Ohio
St. 481 (1885)), where a business entity does not make a good-faith effort to incorporate or does not take
necessary steps to complete incorporation, a court will not impose de facto corporate status. Americare
Healthcare Servs. v. Akabuaku, No. 10AP-777, 2010 WL 4705148, *4, 2010 Ohio App. LEXIS 4750, *9
(Ohio App. Nov. 18, 2010).
The court finds that because JACD, LLC, was not an existing entity, it was not capable of taking title
to the Subject Properties. Plaintiff offers no evidence or argument to the contrary. Consequently, under the
authorities cited above, the quit claim deeds purporting to transfer title to the Subject Properties to JACD,
LLC, are void, and title to the Subject Properties remained at all relevant times in Devore Rentals, LLC so
that the bank’s judgment lien attached to them. Huntington having a valid judgment lien against all
properties owned by Devore Rentals, LLC, in Marion, Ohio, and no other party having an interest in the
Subject Properties, Huntington is entitled as a matter of law to a declaratory judgment that it has a first and
best lien against those properties.
THEREFORE, for the foregoing reasons, good cause appearing,
IT IS ORDERED that Plaintiff’s Motion for Summary Judgment [Doc. # 15] be, and hereby is,
DENIED; and
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IT IS FURTHER ORDERED that the Motion of Huntington National Bank for Summary
Judgment [Doc. # 16] be, and hereby is, GRANTED. 	A separate final judgment conforming to this
memorandum of decision and order will be entered by the court.
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