In re: Monae Breece v. ( 2013 )

By order of the Bankruptcy Appellate Panel, the precedential effect
of this decision is limited to the case and parties pursuant to 6th
Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).
File Name: 13b0004n.06
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
In re: MONAE BREECE, )
)
Debtor. ) No. 12-8018
______________________________________ )
Appeal from the United States Bankruptcy Court
for the Northern District of Ohio, Eastern Division
Bankruptcy Case No. 11-52625
Argued: November 13, 2012
Decided and Filed: January 18, 2013
Before: FULTON, McIVOR and PRESTON, Bankruptcy Appellate Panel Judges.
____________________
COUNSEL
ARGUED: Michael V. Demczyk, McNAMARA, DEMCZYK CO., LPA, Uniontown, Ohio, for
Appellant. Todd A. Mazzola, RODERICK LINTON BELFANCE, LLP, Akron, Ohio, for Appellee.
ON BRIEF: Michael V. Demczyk, McNAMARA, DEMCZYK CO., LPA, Uniontown, Ohio, for
Appellant. Todd A. Mazzola, Brian T. Angeloni, RODERICK LINTON BELFANCE, LLP, Akron,
Ohio, for Appellee.
____________________
OPINION
____________________
C. KATHRYN PRESTON, Bankruptcy Appellate Panel Judge. In this appeal, Monae
Breece (“Debtor”) appeals the bankruptcy court’s ruling that she may not claim a homestead
exemption in real property pursuant to Ohio Revised Code § 2329.66(A)(1)(b) because the real
property is owned by a limited liability company (an “LLC”). For the reasons stated in this opinion,
the Panel concludes that Debtor’s membership interest in the LLC does not grant her an interest in
the real property owned by the same LLC, and thus, she may not claim a homestead exemption in
the LLC’s real property pursuant to Ohio Revised Code § 2329.66(A)(1)(b). Therefore, the
bankruptcy court’s ruling sustaining the Chapter 7 Trustee’s objection to Debtor’s homestead
exemption is affirmed.
I. ISSUES ON APPEAL
The issue presented in this appeal is whether the bankruptcy court erred in determining that
Debtor does not hold an interest in residential real property in which she can claim a homestead
exemption pursuant to Ohio Revised Code § 2329.66(A)(1)(b), because the real property is owned
by an LLC.
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal.
The United States District Court for the Northern District of Ohio has authorized appeals to the
Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C.
§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to
28 U.S.C. § 158(a)(1). For purposes of appeal, a final order “ends the litigation on the merits and
leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United
States, 489 U.S. 794, 798 (1989) (citations omitted). “An order sustaining a trustee's objection to
debtor's claim of exemptions is a final, appealable order.” In re Zingale, 451 B.R. 412, 414 (B.A.P.
6th Cir. 2011) (citations omitted).
The bankruptcy court's legal determinations are reviewed de novo. Darrohn v. Hildebrand
(In re Darrohn), 615 F.3d 470, 474 (6th Cir. 2010) (citing Shaw v. Aurgroup Fin. Credit Union,
552 F.3d 447, 449 (6th Cir. 2009)). A bankruptcy court's decision involving application or
interpretation of state law is a conclusion of law reviewed de novo. In re Zingale, 451 B.R. 412, 414
(B.A.P. 6th Cir. 2011) (citing Menninger v. Schramm (In re Schramm), 431 B.R. 397, 399 (B.A.P.
6th Cir. 2010)). “Interpretation of a state's exemption statute involves a question of law and is
reviewed de novo.” Menninger v. Schramm (In re Schramm), 431 B.R. 397, 399 (B.A.P. 6th Cir.
2010) (citing Hamo v. Wilson (In re Hamo), 233 B.R. 718, 721 (B.A.P. 6th Cir. 1999)). De novo
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review means that “the appellate court determines the law independently of the trial court's
determination.” Myers v. IRS (In re Myers), 216 B.R. 402, 403 (B.A.P. 6th Cir. 1998) (citation
omitted).
III. FACTS
On January 13, 2004, Debtor and her grandmother, Gladys Brown, jointly obtained legal title
to the real property known as 2124 Greencrest Drive, Union Town, Ohio (the “Real Property”). On
April 1, 2004, articles of organization for Gardinia Breeze, L.L.C.1 (“Gardinia”) were filed; Debtor
and Ms. Brown initially held the membership interests. On July 2, 2004, Debtor and Ms. Brown
transferred the Real Property to Gardinia; Gardinia continues to hold legal title to the Real Property.
Ms. Brown passed away, leaving Debtor as the sole remaining member of Gardinia. Gardinia
has no debt and the Real Property is its only asset. The Real Property is subject to a mortgage;
Debtor is personally liable for the debt secured by the mortgage.
On July 5, 2011, Debtor filed a voluntary petition for relief under Chapter 7 of the
Bankruptcy Code. Debtor has used the Real Property as her residence since 2004, and still resided
on the Real Property at the time of commencement of the Chapter 7 case.
The Real Property is listed on Debtor’s Schedule A with no indication of the nature of
Debtor’s interest in the property. On Schedule C, Debtor claimed a homestead exemption in the
Real Property pursuant to Ohio Revised Code § 2329.66(A)(1)(b). Debtor also listed on Schedule
B her equity interest in Gardinia under the category of stock and interests in incorporated and
unincorporated businesses, and indicated that she holds 100% of the membership interests with a
current value of $0.00. Debtor did not claim any exemption in her membership interest in Gardinia.
The Chapter 7 Trustee (“Trustee”) filed an objection to Debtor’s claim of exemption in the
Real Property, in part on the basis that the Real Property is titled in the name of and owned by
Gardinia and not Debtor. Debtor filed a Response to Trustee’s objection to exemption, and Trustee
filed a reply to Debtor’s response.
1
On Schedule B , Debtor gives the name of the LLC as Gardenia Breeze, L.L.C.; however, a
search of the business records maintained by Ohio’s Secretary of State indicates that the name is actually
Gardinia Breeze, L.L.C., according to the articles of organization on file. Accordingly, the Panel will refer
to the name of the LLC as Gardinia throughout this opinion.
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The bankruptcy court held a hearing on Trustee’s objection to exemption and determined at
the conclusion of that hearing that Debtor did use the Real Property as her residence. The Court
asked Debtor and Trustee to file briefs in support of their respective positions, and took the matter
under advisement. On April 16, 2012, the bankruptcy court issued its memorandum opinion and
order sustaining Trustee’s objection and disallowing Debtor’s claimed exemption. Debtor’s timely
appeal followed.
IV. DISCUSSION
The filing of a petition for relief under the Bankruptcy Code creates a bankruptcy estate
consisting of “all legal or equitable interests of the debtor in property as of the commencement of
the case.” 11 U.S.C. § 541(a)(1). The Bankruptcy Code allows debtors to exempt certain property
from the bankruptcy estate pursuant to 11 U.S.C. § 522(b). Holland v. Star Bank, N.A. (In re
Holland), 151 F.3d 547, 548 (6th Cir. 1998). Pursuant to § 522(b)(2), a debtor may claim federal
exemptions set forth in § 522(d) so long as the applicable state has not “opted-out” and enacted its
own exemptions. Ohio has elected to opt-out of the federal exemptions and create its own. See Ohio
Rev. Code Ann. § 2329.662. As the objecting party, Trustee has the burden of proving that Debtor’s
exemption is not properly claimed. Fed. R. Bankr. P. 4003(c).
In this case, Debtor claimed a homestead exemption in the Real Property owned by Gardinia
pursuant to Ohio Revised Code § 2329.66(A)(1)(b). Ohio’s homestead exemption provides in
pertinent part as follows:
(A) Every person who is domiciled in this state may hold property exempt from
execution, garnishment, attachment, or sale to satisfy a judgment or order, as follows:
(1) . . .
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(b) [T]he person's interest, not to exceed [$21,625]2, in one parcel or item of real
or personal property that the person or a dependent of the person uses as a residence.
Ohio Rev. Code Ann. § 2329.66(A)(1)(b).
Debtor argues that her status as sole member of Gardinia vests in her a sufficient interest in
the Real Property to entitle her to claim a homestead exemption as contemplated by Ohio Revised
Code § 2329.66(A)(1)(b). The bankruptcy court, however, held that if the Supreme Court of Ohio
had to determine the issue, it would find that Debtor’s “sole ownership of the membership interests
in the LLC would not confer upon her an ‘interest’ in the Real Property pursuant to [Ohio Revised
Code] § 2329.66(A)(1)(b)” and thereby determined Debtor was not entitled to claim the exemption.
The bankruptcy court determined that Debtor is not entitled to claim a homestead exemption
in the Real Property pursuant to Ohio Revised Code § 2329.66(A)(1)(b). In reviewing the
bankruptcy court’s decision, the Panel must determine what interest Debtor holds in the Real
Property and whether that interest is property of the estate.
A. Ohio Limited Liability Company Law
In this appeal, Debtor has not clearly defined her interest in the Real Property; however, she
does not assert an interest in the Real Property unrelated to her status as sole member in Gardinia.
Debtor submits that her interest in the Real Property is derivative of her membership interest in
Gardinia because Debtor would otherwise be entitled to a distribution upon liquidation of Gardinia
absent an intervening bankruptcy filing.
2
Ohio law provides for adjustment of the exemption amount:
(B) On April 1, 2010, and on the first day of April in each third calendar year after
2010, the O hio judicial conference shall adjust each dollar amount set forth in this
section to reflect the change in the consumer price index for all urban consumers, as
published by the United States department of labor, or, if that index is no longer
published, a generally available comparable index, for the three-year period ending on
the thirty-first day of December of the preceding year.
Ohio Rev. Code Ann. § 2329.66(B). The adjusted dollar amounts do not appear in the text of the
statute; however, that information may be accessed by visiting the Ohio Judicial Conference website. Ohio
Judicial Conference, http://www.ohiojudges.org/ (follow “Exemptions from execution, garnishment,
attachment or sale pursuant to R.C. 2329.66" hyperlink).
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Pursuant to Ohio law, a person owning an equity interest in an LLC is a member of that LLC.
Ohio Rev. Code Ann. §1705.01(G). That membership interest confers upon the member a right to
a “share of the profits and losses of [the] limited liability company and the right to receive
distributions from that company.” Ohio Rev. Code Ann. §1705.01(H). A person’s membership
interest in an LLC is personal property. Ohio Rev. Code Ann. §1705.17. “A ‘membership interest’
in a limited liability company, however, does not confer upon the ‘member’ any specific interest in
company property, whether personal property or real property. Such property is, instead, held and
owed [sic] solely by the company.” In re Liber, No. 08-37046, 2012 Bankr. LEXIS 2244, *10
(Bankr. N.D. Ohio May 18, 2012). Ohio Revised Code § 1705.34 provides that “[r]eal and personal
property owned or purchased by a limited liability company shall be held and owned in the name of
the company. Conveyance of that property shall be made in the name of the company.”
In determining whether a person’s membership interest in an LLC confers upon him an
exemptible interest in LLC property, a court must attempt to predict how the Ohio Supreme Court
would rule if presented with the same issue. “In construing questions of state law, the federal court
must apply state law in accordance with the controlling decisions of the highest court of the state.”
Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th Cir. 1999) (citation omitted). “If the
state's highest court has not addressed the issue, the federal court must attempt to ascertain how that
court would rule if it were faced with the issue.” Meridian, 197 F.3d at 1181. “[T]he Court may rely
upon analogous cases and relevant dicta in the decisional law of the State's highest court, opinions
of the State's intermediate appellate courts to the extent that they are persuasive indicia of State
Supreme Court direction, and persuasive opinions from other jurisdictions, including the majority
rule." Owensby v. City of Cincinnati, 385 F. Supp. 2d 626, 631 (S.D. Ohio 2004) (internal quotation
marks and citation omitted).
There is no Sixth Circuit caselaw on the issue before this Panel. However, an unpublished
decision from Northern District of Ohio is closely on point and held that the Supreme Court of Ohio
would hold that members of an LLC do not have an exemptible “interest” in real property owned by
the LLC within the meaning of the Ohio homestead statute as a result of their membership interest
in the LLC. In re Stewart, Ch. 7 Case No. 09-37257, ECF No. 207, Mem. Decision Regarding
Objection to Homestead Exemption (Bankr. N.D. Ohio Oct. 1, 2010).
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The facts in the instant appeal are very similar to the facts of Stewart. In Stewart, the debtors
were sole members of an LLC which owned one parcel of real property as its only asset. The debtors
resided in that real property and paid the mortgage, real property taxes, homeowner association dues,
and property insurance related to the real property. The LLC had no operating agreement and failed
to hold formal meetings, take minutes or conduct election of officers. The debtors listed the real
property on Schedule A of their bankruptcy petition identifying the nature of their interest as fee
simple but indicating the real property was in the name of the LLC. The debtors claimed a
homestead exemption in the real property pursuant to Ohio Revised Code § 2329.66(A)(1)(b). A
judgment lien creditor filed an objection to the debtors’ claim of homestead exemption.
The debtors in Stewart argued three theories to support their claim of homestead exemption
in the LLC’s real property: (1) as the sole members of the LLC they had an interest in the real
property; (2) they had an oral lease with the LLC which qualifies as an exemptible interest under
Ohio Revised Code § 2329.66(A)(1)(b); and, in the alternative, (3) the court should invoke the alter-
ego doctrine to disregard the business entity and vest in the debtors ownership of the real property.
Relying on the Ohio Supreme Court case of Gaylord, Son & Co. v. M. Imhoff & Co., 26 Ohio St. 317
(1875), the court rejected all three of the debtor’s arguments.
In addressing the debtors’ first theory, the Stewart court examined both Ohio and Delaware
law relating to an LLC and determined that under the law of both states, “an individual’s status as
a member of a limited liability company does not result in an ownership interest in property owned
by the entity[,]” and therefore, the debtors did not have an exemptible interest in the real property
as a result of their membership interests in the LLC. In re Stewart, Ch. 7 Case No. 09-37257, ECF
No. 207, Mem. Decision Regarding Objection to Homestead Exemption at 5 (Bankr. N.D. Ohio Oct.
1, 2010). In addressing the second theory advanced by the debtors, the court determined they did
not have an oral lease with the LLC but instead had nothing more than a tenancy at will. The court
ultimately determined that a tenancy at will did not rise to the level of tenancy that qualifies for the
homestead exemption under Ohio Revised Code § 2329.66(A)(1)(b) because of the “ephemeral
nature of [the debtors’] occupancy.” Stewart, Mem. Decision Regarding Objection to Homestead
Exemption at 8. Finally, the court declined to apply the alter-ego doctrine and disregard the entity
of the LLC so that debtors could claim a homestead exemption as fee simple owners of the real
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property because Ohio law generally limits its use to third parties rather than insiders and only when
justice requires. Stewart, Mem. Decision Regarding Objection to Homestead Exemption at 10-11.
At least one other bankruptcy court has declined to allow debtors to claim a homestead
exemption in real property owned by an LLC of which they were the sole members. In re Kane, No.
10-18898-JNF, 2011 Bankr. LEXIS 2007 (Bankr. D. Mass. May 23, 2011). Aligning itself with the
Stewart court, the court in Kane declined to permit debtors to pierce the veil to regain title to the real
property owned by the LLC, and determined that the real property is not exemptible because it was
not property of the bankruptcy estate.
Debtor urges that Stewart is distinguishable and argues that the bankruptcy court’s reliance
on Gaylord, Son & Co. v. M. Imhoff & Co., 26 Ohio St. 317 (1875), was misplaced. Debtor points
out that the Gaylord court applied an earlier version of Ohio’s exemption statute that did not include
the term “interest.” While this is true, it is a distinction without a difference. In Gaylord, the issue
before the Supreme Court of Ohio was whether the partners of an insolvent partnership were entitled
to statutory exemptions out of partnership property when the same had been seized in execution by
the partnership creditors. Gaylord, 26 Ohio St. at 320. The partnership creditors obtained a judgment
against the partners and levied upon a leasehold and machinery held by the partners as partnership
property. The partners collectively agreed to claim statutory exemptions in the property. At that
time, the exemption statute at issue provided as follows:
Sec. 3. That it shall be lawful for any resident of Ohio, being the head of a family and
not the owner of a homestead, to hold exempt from levy and sale as aforesaid,
personal property to be selected by such person, his agent or attorney, at any time
before sale, not exceeding five hundred dollars in value, in addition to the amount of
chattel property now by law exempted. The value of said property to be estimated and
appraised by two disinterested householders of the county, to be selected by the
officer, etc.
Gaylord, 26 Ohio St. at 320 (quoting 66 Ohio L. 50). After examining the language of the
exemption statute, the Supreme Court of Ohio stated:
Looking alone to the language of the section above quoted, we find nothing to justify
the inference that the legislature in passing it was intending to provide for other than
individual debtors, and for the exemption of their individual property from sale on
execution; and when construed in connection with the law relating to partnerships,
as it had always stood and still stands, we are convinced that it could not have been
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the intention of the law-maker to bring partners or partnership property within the
operation or provisions of the section in any respect.
Gaylord, 26 Ohio St. at 321. Accordingly, the court determined that the partners were not entitled
to an exemption in the partnership property. Clearly, the Supreme Court of Ohio in Gaylord was
unwilling to extend Ohio’s exemptions to partners or partnership property because it interpreted the
statute to encompass only individual debtors and their individual property. This decision is
instructive of how the Supreme Court of Ohio would rule if faced with the facts of the instant case:
it is unlikely that the Supreme Court of Ohio would allow a member of an LLC to claim an
exemption in property owned by an LLC pursuant to Ohio’s homestead exemption given the fact the
Gaylord court did not extend the Ohio exemption statute to the partners in that case. Based on Ohio
law, this Panel concludes that the bankruptcy court correctly held that Debtor’s membership interest
in Gardinia does not bestow on her an interest in the Real Property.
B. Use of the Real Property and Liberal Construction of Homestead Exemption
Debtor argues that a liberal construction of Ohio’s homestead exemption statute does not
require the person claiming it to hold an ownership interest in the property, and therefore, the
primary focus for determining whether the homestead exemption applies should be whether the
Debtor possesses and uses the Real Property as her residence. Debtor asserts that the most important
statutory element of the Ohio homestead exemption is the term “uses,” and it should trump all other
statutory elements including the term “interest.”3
Debtor relies upon a recent Sixth Circuit Bankruptcy Appellate Panel opinion involving
Ohio’s homestead exemption, In re Wengerd, 453 B.R. 243 (B.A.P. 6th Cir. 2011), for the
proposition that the debtor’s use of the property is crucial to determining the claim for homestead
exemption. In Wengerd, the debtors entered into a contract to sell their home prior to filing
bankruptcy. On the day the debtors filed their bankruptcy petition, they were using their property
3
Debtor’s argument essentially suggests that this Panel ignore the statutory element requiring
Debtor have an “interest” in the property being claimed exempt, if the Panel determines Debtor uses the
Real Property as her residence. This argument is difficult to reconcile with Debtor’s argument that courts
have a duty when engaging in statutory construction “to give effect to the words used, not to delete words
used or to insert words not used.” Columbus-Suburban Coach Lines, Inc. v. Public Utils. Comm’n,
20 Ohio St. 2d 125, 127 (1969).
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as their principal residence. Shortly after filing their bankruptcy petition, however, the debtors
closed on the sale of their home, retained the net proceeds of the sale, and relocated to another state
where they intended to live. The debtors claimed a homestead exemption in the real property that
was sold. The issue before the Panel was whether a debtor had to intend to remain at the homestead
property in order to claim an exemption in same. The Panel concluded:
Exemptions are determined on the date a bankruptcy petition is filed. The Debtors
were using their property as their principal residence on the date they filed their
petition. Therefore, the Debtors' intention to leave their property post-petition is
irrelevant and does not defeat their claim to the homestead exemption provided by
Ohio Rev. Code § 2329.66(A)(1).
Wengerd, 453 B.R. at 252.
Debtor’s reliance on Wengerd is not well-taken. The Panel in Wengerd did not have to
determine whether the debtors in that case had an interest in the property as the debtors owned the
property and the parties clearly were not disputing that fact. The only issue before that Panel was
whether the homestead statute required that debtors intend to remain in the homestead in order to
properly claim a homestead exemption. Naturally, the Panel focused on that element because it was
the only issue in dispute. Debtor overemphasizes this fact and seems to suggest that the usage of the
property as a residence is paramount to any other statutory elements in Ohio Revised Code
§ 2329.66(A)(1)(b). This simply is not the case.
Debtor also relies upon several opinions from the Supreme Court of Ohio for support of the
proposition that possession and physical occupancy, and not ownership of real property are the focus
for claiming a homestead exemption. Morgridge v. Converse, 150 Ohio St. 239, 81 N.E.2d 112
(1948); McComb v. Thompson, 42 Ohio St. 139 (1884); Jackson v. Reid, 32 Ohio St. 443 (1877);
Gibson v. Mundell, 29 Ohio St. 523 (1876). Debtor’s reliance on these cases is misplaced. Though
the courts in rendering these opinions discuss the fact that a debtor must possess or use the real
property as a residence before he can claim a homestead exemption therein, the courts did not have
to determine whether or if the debtor in each case held a sufficient interest in the real property before
examining the homestead exemption issues. While the cases support the proposition that a debtor
must use or possess real property as a residence before claiming an exemption, the cases do not
support the proposition that residing in the property is sufficient to prove an ownership or other
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exemptible interest. In the instant case, the Real Property is not owned by Debtor, so these cases
have no applicability.
Debtor argues that she held an “interest” in her residential real estate within the meaning of
the Ohio homestead exemption, but she fails to provide any citation of authority for that proposition
other than 11 U.S.C. § 541 and Ohio Revised Code § 2329.66(A)(1)(b). Rather, Debtor argues that
because the term “interest” in the Ohio homestead exemption statute is not qualified by or preceded
by the word ownership, her sole membership interest in Gardinia qualifies as an exemptible interest
because Ohio’s exemption statutes should be liberally construed.
“Ohio courts follow the rule that exemption statutes are to be construed liberally in favor of
the debtor and any doubt in interpretation should be in favor of granting the exemption.” Baumgart
v. Alam (In re Alam), 359 B.R. 142, 147-148 (B.A.P. 6th Cir. 2006) (citing Daugherty v. Cent. Trust
Co. of Northeastern Ohio, N.A., 28 Ohio St. 3d 441, 445, 504 N.E.2d 1100, 1103 (1986)). Use of
the term “liberal construction” does not mean “words and phrases shall be given an unnatural
meaning, or that the meaning shall be enlarged or expanded to meet a particular state of facts.”
Dennis v. Smith, 125 Ohio St. 120, 124, 180 N.E. 638, 640 (1932).
Debtor relies on Radford v. Kachman, 27 Ohio App. 86, 160 N.E. 875 (Ct. App., Athens
County 1927) for support of the proposition that equitable title is sufficient to qualify for the
homestead exemption. In Radford, a creditor filed suit against the debtor and his wife, who were
owners of certain real property. The debtor and his wife conveyed what was deemed a mortgage to
a lumber company, thereby conveying legal title to it and reserving equitable title in themselves. The
court in determining whether the homestead exemption applied, held that “ [t]he homestead law
protects a possession held under an equitable as well as one under a legal title. Under this rule a
homestead may be claimed in land of which the party is in possession under a contract of purchase
or any other equitable title as well as if he held the legal title.” Radford, 27 Ohio App. at 91 (citation
omitted). Prior court decisions must be considered within the context of legal practices at the time.
Before the Uniform Commercial Code existed, a conveyance of title was a mechanism for financing
whereby the property owner did not intend for creditor to retain legal title in the property. The
Radford court recognized that the title to the real estate was conveyed by the debtor solely as a means
of securing debt and that debtor was the true owner of the real estate.
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Debtor’s argument ignores the fact that a person holding equitable title in real property as in
Radford is very different from a person claiming an interest in real property because she believes
equity requires it. Equitable title is defined as “a beneficial interest in property . . . that gives the
holder the right to acquire formal legal title.” Black’s Law Dictionary 1523 (8th ed. 2004). In this
appeal, Debtor does not assert that she holds actual equitable title in the Real Property, or that she
is entitled to acquire formal legal title in the Real Property by virtue of her membership interest in
Gardinia. Furthermore, in Radford, the debtor and his wife did not claim equitable title in the real
property as an incident of their membership interest in an LLC or any other business entity. Thus,
the Radford holding is distinguishable.
Debtor also argues that the bankruptcy court impermissibly inserted an ownership element
into Ohio’s homestead exemption statute by in effect requiring a debtor to hold legal title to real
property in order to claim a homestead exemption. Debtor argues that the plain meaning of the
homestead statute does not require a person to have a title ownership interest in the property being
claimed exempt.
"It is a cardinal rule that a court must first look to the language of the statute itself to
determine the legislative intent. If that inquiry reveals that the statute conveys a meaning which is
clear, unequivocal and definite, at that point the interpretive effort is at an end, and the statute must
be applied accordingly." Zumwalde v. Madeira & Indian Hill Joint Fire Dist., 128 Ohio St. 3d 492,
496, 946 N.E.2d 748, 752 (2011) (quoting Provident Bank v. Wood, 36 Ohio St. 2d 101, 105-106,
304 N.E.2d 378, 381 (1973)). “In determining legislative intent it is the duty of this court to give
effect to the words used, not to delete words used or to insert words not used.” Columbus-Suburban
Coach Lines, Inc. v. Public Utils. Comm’n, 20 Ohio St. 2d 125, 127, 254 N.E.2d 8, 9 (1969). The
bankruptcy court determined that Debtor’s membership interest in Gardinia did not confer upon her
an “interest” in the Real Property as contemplated by Ohio Revised Code § 2329.66(A)(1)(b). The
bankruptcy court did not hold that the statute required Debtor to have an ownership interest in the
Real Property. Accordingly, Debtor’s argument that the bankruptcy court inserted an “ownership”
element into the homestead exemption statute is without merit.
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C. Property of the Estate
11 U.S.C. § 522(b) provides in pertinent part that “ an individual debtor may exempt from
property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of
this subsection . . . .” (emphasis added).
The definition of property of the estate pursuant to 11 U.S.C. § 541(a) is unquestionably
broad. Its purpose is to bring anything of value that the debtor has into the bankruptcy estate. In re
Webb, 470 B.R. 439, 449 (B.A.P. 6th Cir. 2012) (citation omitted). Notwithstanding, § 541 does not
expand a debtor’s interest in property just because she has filed bankruptcy. Webb, 470 B.R. at 449.
“Thus, whatever rights a debtor has in property at the commencement of the case continue in
bankruptcy -- no more, no less.” Moody v. Amoco Oil Co., 734 F.2d 1200, 1213 (7th Cir. 1984).
“In determining the existence and scope of a debtor's legal or equitable interest in property, we look
to state law.” Guar. Residential Lending, Inc. v. Homestead Mortg. Co., L.L.C., 291 Fed. App’x 734,
738 (6th Cir. 2008) (citing Butner v. United States, 440 U.S. 48, 54-55, 99 S. Ct. 914, 918 (1979)).
In this appeal, Gardinia is an Ohio LLC, and thus, Ohio law is applicable.
Debtor cannot claim an interest in real or personal property owned by Gardinia pursuant to
Ohio limited liability law. As previously discussed, pursuant to Ohio law, a person owning an
interest in an LLC is a member of that LLC. Ohio Rev. Code Ann. §1705.01(G). That membership
interest confers upon the member a right to a “share of the profits and losses of [the] limited liability
company and the right to receive distributions from that company.” Ohio Rev. Code Ann.
§1705.01(H). “A ‘membership interest’ in a limited liability company, however, does not confer
upon the ‘member’ any specific interest in company property, whether personal property or real
property. Such property is, instead, held and owed solely by the company.” In re Liber, No. 08-
37046, 2012 Bankr. LEXIS 2244, *10 (Bankr. N.D. Ohio May 18, 2012). Since the inception of the
concept of corporate existence, corporations have been recognized as a separate and independent
legal entity. See Disciplinary Counsel v. Kafele, 108 Ohio St. 3d 283, 287, 843 N.E.2d 169, 173
(2006); Belvedere Condo. Unit Owners’ Ass’n v. R.E. Roark Cos., 67 Ohio St. 3d 274, 287, 617
N.E.2d 1075, 1085 (1993); see also State ex rel. v. Standard Oil Co., 49 Ohio St. 137, 177, 30 N.E.
279, 287 (1892). This separate corporate existence is generally held inviolate in the absence of
fraud or bad acts by the shareholders or principals that warrants piercing the corporate veil. See
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Belvedere, 67 Ohio St. 3d at 287; see also Standard Oil Co., 49 Ohio St. at 178-79. As the concept
of business entities evolved, the same distinct existence has been bestowed on limited liability
partnerships,4 general partnerships,5 and limited liability companies.6 Along with recognition that
these business entities are separate and distinct from their equity holders, came the recognition that
their assets are owned strictly by the entity, independently of the entity's equity holders and
principals. Debtor has cited no authority indicating that these fundamental principles of the law of
business associations, or the distinction between an LLC and its members should be disregarded
when a debtor is a sole member of an LLC. If the legislature intended to grant members of an LLC
an ownership interest in property owned by the LLC, the legislature knows how to and easily could
have enacted a statute to that effect. See Ohio Revised Code Ann. § 1775.23 (repealed 2010) (“The
property rights of a partner are his rights in specific partnership property . . . .”); see also Ohio
Revised Code Ann. § 1775.24 (repealed 2010) (providing in part that “[a] partner is co-owner with
his partners of specific partnership property holding as a tenant in partnership” and describing the
incidents of that tenancy). Debtor does not allege she has an interest separate and unrelated from her
membership interest in Gardinia; Debtor does not assert that she has a lease, tenancy at will, or any
other possessory interest unrelated to her membership interest in Gardinia.7 Accordingly, it is only
through her membership interest that she claims a right to assert the homestead exemption. Thus,
Debtor holds no specific interest in property owned by Gardinia. Because the exemption statute
allows the Debtor to exempt the Debtor’s interest in property used as a residence, and because
Debtor has no interest in the Real Property, Debtor cannot claim an exemption therein.
Additionally, Debtor cannot claim a homestead exemption in the Real Property because
neither the Real Property nor any interest therein is property of the estate. Property of the estate
consists of “all legal or equitable interests of the debtor in property as of the commencement of the
case.” 11 U.S.C. § 541(a)(1). 11 U.S.C. § 522(b) provides in pertinent part that “ an individual
4
See Ohio Revised Code § 1776.81.
5
See Ohio Revised Code § 1776.21.
6
See Ohio Revised Code § 1705.01.
7
Debtor’s Schedule G does not list any executory contracts or unexpired leases. Further, Debtor’s
Schedule B does not list any equitable or future interests, life estates, rights or powers exercisable for the
benefit of the debtor related to the Real Property or any other property right related to the Real Property.
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debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the
alternative, paragraph (3) of this subsection . . . .” (emphasis added). “No property can be exempted
(and thereby immunized), however, unless it first falls within the bankruptcy estate.” Owen v. Owen,
500 U.S. 305, 308, 111 S. Ct. 1833, 1835 (1991). “Accordingly, in order to properly exempt
property and remove it from the bankruptcy estate, such property must first be included within the
bankruptcy estate.” Khan v. Regions Bank (In re Khan), 2011 Bankr. LEXIS 4946, *20 (Bankr. E.D.
Tenn. 2011). Debtor’s membership interest in Gardinia does not grant her any specific interest in
the Real Property. Thus, Debtor has no cognizable legal interest in any property owned by Gardinia.
Accordingly, the Real Property does not constitute property of Debtor’s bankruptcy estate, and for
that reason, she is not entitled to claim an exemption in same.
V. CONCLUSION
For the reasons set forth herein, the Panel affirms the bankruptcy court’s opinion and order
sustaining Trustee’s objection and disallowing Debtor’s claimed exemption in the Real Property.
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