In The Matter Of Northlake Development L.L.C.

Facts

Kiniyalocts and Earwood, formed Kinwood to develop property. Earwood secretly formed Northlake Development, LLC, with himself as sole owner, managing member, and registered agent for service of process. Earwood signed a warranty deed as Kinwood's 'Managing Member,' conveying Kinwood's property to Northlake. Northlake applied to BankPlus for a loan, secured by the property. BankPlus made the loan, taking as collateral a deed of trust on the property. Earwood spent all the money on himself. Northlake filed for Chapter 11 bankruptcy protection, listing the property as a Northlake asset. Kiniyalocts contested the deed. The bankruptcy judge-finding that Earwood never had the authority to convey the property from Kinwood to Northlake and that the Kinwood deed could not pass title of any kind-entered judgment for Kinwood, declared the Kinwood deed and the BankPlus deed of trust null and void, and required both to be canceled. BankPlus appealed to the district court, which affirmed. BankPlus appealed arguing that the Northlake deed was not void, but rather was voidable; and that-because it had taken the deed of trust from Northlake in good faith and without notice that the Kinwood deed was unauthorized-its deed of trust was enforceable. The Fifth Circuit certified the following question: When a minority member of a Mississippi limited liability company prepares and executes, on behalf of the LLC, a deed to substantially all of the LLC's real estate, in favor of another LLC of which the same individual is the sole owner, without authority to do so under the first LLC's operating agreement, is the transfer of real property pursuant to the deed: (i) voidable, such that it is subject to the intervening rights of a subsequent bonafide purchaser for value and without notice, or (ii) void ab initio, i.e., a legal nullity?

Issues

Rule of Law

Holding and Decision

Legal Analysis

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