In re Hake

• Decision Date: 04 December 2009
• Docket Number: No. 09-8008.,09-8008.
• Citation: 419 B.R. 328
• Parties: In re Randall Joseph HAKE and Mary Ann Hake, Debtors. ELM Road Development Co., et al., Plaintiffs-Appellants, v. Buckeye Retirement Co., LLC, Ltd., et al., Defendants-Appellees.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

419 B.R. 328

In re Randall Joseph HAKE and Mary Ann Hake, Debtors ELM Road Development Co., et al., Plaintiffs-Appellants, v. Buckeye Retirement Co., LLC, Ltd., et al., Defendants-Appellees.

No. 09-8008.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued November 4, 2009.

Decided and Filed December 4, 2009.

COPYRIGHT MATERIAL OMITTED

ARGUED:

Michael J. Moran, Gibson & Lowry, Cuyahoga Falls, Ohio, for Appellants. John R. O'Keefe, Jr., Metz Lewis LLC, Pittsburgh, Pennsylvania, John M. Steiner, Leech, Tishman, Fuscaldo & Lampl, Pittsburgh, Pennsylvania, for Appellees.

ON BRIEF:

Michael J. Moran, Gibson & Lowry, Cuyahoga Falls, Ohio, for Appellants. John R. O'Keefe, Jr., Metz Lewis LLC, Pittsburgh, Pennsylvania, for Appellees.

Before FULTON, McIVOR, and RHODES, Bankruptcy Appellate Panel Judges.

OPINION

THOMAS H. FULTON, Chief Bankruptcy Appellate Panel Judge.

This is an appeal of the bankruptcy court's granting of summary judgment in favor of Defendants Buckeye Retirement Co., LLC, Ltd. ("Buckeye") and Mark Gleason, Chapter 7 Trustee (the "Chapter 7 Trustee") in the adversary proceeding brought by Plaintiffs Elm Road Development Co. ("Elm Road"), Tuller Brookfield Associates, Inc. ("Tuller"), Woodland Park Retirement Housing Limited Partnership ("Woodland Park"), Daniel Daniluk ("Daniluk") and CI Residential Property Corp. seeking a declaratory judgment that certain property was either not property of the Debtors' bankruptcy estate or prohibited by contract from being assigned or transferred by the Chapter 7 Trustee without the consent of certain parties. The Chapter 7 Trustee had previously moved under 11 U.S.C. § 363 to sell that property, consisting of the Debtor Randall Joseph Hake's ("Hake") 50% interest in Elm Road, 32.5% interest in Tuller, and 100% interest in Randall J. Hake Contracting Corp. ("Hake Contracting") (collectively the "Carve-Out Assets"). In granting the Defendants' summary judgment and approving the sale of the Carve-Out Assets, the bankruptcy court concluded that the Carve-Out Assets were property of the bankruptcy estate and that Hake's agreement not to sell his interests in Elm Road and Tuller, without obtaining the prior consent of the other shareholders, constituted an unenforceable restraint on alienation of property under Ohio law. The bankruptcy court also concluded that the sale of Hake's interests in Tuller and Hake Contracting would not violate a provision of the partnership agreement of Woodland Park that prohibits transfers of limited partnership interests without general partner consent.

For the reasons stated below, the bankruptcy court's order granting summary judgment in favor of the Appellees is affirmed.

I. ISSUES ON APPEAL

1. Did the bankruptcy court err in concluding that Hake's agreement not to sell his interests in Elm Road and Tuller, without obtaining the prior consent of the other shareholders, constitutes an unenforceable restraint on alienation of property under Ohio law?

2. Did the bankruptcy court err in concluding that the sale of Hake's interests in Tuller and Hake Contracting, themselves holders of limited partnership interests in Woodland Park, would not violate the provision of the Woodland Park partnership agreement that prohibits transfers of limited partnership interests without general partner consent?

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel has jurisdiction to decide this appeal, as authorized by the Northern District of Ohio. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right. 28 U.S.C. § 158(a)(1). For the purpose of an appeal, a final order is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. U.S., 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989). An order granting summary judgment is a final order, as is an order approving the sale of a debtor's assets. Conley v. Smith (In re Smith), 407 B.R. 442(6th Cir. BAP 2008) (unpub.table); Official Committees of Unsecured Creditors v. Anderson Senior Living Prop., LLC (In re Nashville Senior Living, LLC), 407 B.R. 222 (6th Cir. BAP 2009).

The issues raised by this appeal challenge the bankruptcy court's interpretation of Ohio state law and certain contractual provisions. Interpretations of state law and contractual provisions are conclusions of law. See Lebovitz v. Hagemeyer (In re Lebovitz), 360 B.R. 612 (6th Cir. BAP 2007); Van Aken v. Van Aken (In re Van Aken), 320 B.R. 620, 623 (6th Cir. BAP 2005).

A bankruptcy court's conclusions of law are reviewed de novo. Moran v. LTV Steel Co., Inc. (In re LTV Steel Co., Inc.), 560 F.3d 449 (6th Cir.2009). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." Buckeye Check Cashing, Inc. v. Meadows (In re Meadows), 396 B.R. 485, 488 (6th Cir. BAP 2008)(internal quotation & citation omitted).

III. FACTS

The bankruptcy court based its conclusions on a joint stipulation of facts filed by the parties. The joint stipulation states as follows:

a. Elm Road is an Ohio S corporation, with Randall Hake and Daniel Daniluk are [sic] each a 50% shareholder. The sole asset of Elm Road was acquired in a 1031 like-kind exchange from a limited partnership, North River Commons Limited Partnership. Plaintiffs claim that North River Commons Limited Partnership had written restrictions on transfer if [sic] its partnership interests. At the time of the incorporation of Elm Road, Daniel Daniluk and Randall J. Hake agreed that they would restrict the transfer, sale or assignment of the stock in Elm Road and require the consent of the other shareholder be obtained prior to any effective transfer of the same. No writing to that effect has been produced date [sic].

b. Tuller is an Ohio S corporation. Randall Hake is a 32.5% shareholder in Tuller. Tuller's only asset is a 50% limited partnership interest in Woodland Park Retirement Housing Limited Partnership ("Woodland"). At the time Tuller was formed, Daniel Daniluk, Randall J. Hake, and the other stockholders in Tuller agreed that they would restrict the transfer, sale or assignment of the stock in Tuller and require the consent of Daniel Daniluk or Randall Hake be obtained prior to any effective transfer of the same. No writing to that effect has been produced to date.

c. The partnership agreement of Woodland and other partnership documents contain restrictions which purport to preclude or limit the sale, transfer, hypothecation or pledge of any limited partnership interest in Woodland without the consent of the general partners of Woodland, which are Plaintiff CI Residential Property Corp. and the Village of McDonald.

d. Randall Hake owns a 100% interest in Hake Contracting. Among other assets, Hake Contracting owns a 49% limited partnership interest in Woodland.

e. The parties agree that there is no written article of incorporation which expressly restricts the transfer of shares by any shareholders in Elm Road or Tuller.

f. The Plaintiffs have not located or produced any bylaws which expressly restrict the transfer of shares by any of the shareholders of Elm Road or Tuller.

g. Neither the Trustee nor Buckeye has possession of any share certificate pertaining to Elm Road, Tuller or Woodland.

Appellants' Appendix at 247-48.

Section 9.02(a) of the partnership agreement of Woodland Park states as follows:

Under no circumstances will any offer, sale, transfer, assignment, hypothecation or pledge of any Limited Partner Interest be permitted unless the General Partners shall have Consented, except that the Limited Partner may sell, transfer, or assign all or any part of its Limited Partner Interest to any person related to or any entity affiliated with, or under common control with, the Limited Partner.

Appellants' Appendix at 409.

The Woodland Park partnership agreement defines "Partnership Interest" as follows:

. . . the ownership interest of a Partner in the Partnership at any particular time, including the right of such Partner to any and all benefits to which such Partner may be entitled as provided in this Agreement and in the Act, together with the obligations of such Partner to comply with all the terms and provisions of this Agreement and of said Act. Such Interest of each Partner shall, except as otherwise specifically provided herein, be that percentage of the aggregate of such benefit or obligation specified by Section 5.01 as such Partner's Percentage Interest.

Appellants' Appendix at 395.

Paragraph 10 of Woodland Park's Certificate of Limited Partnership states as follows:

A limited partner has the right to grant the right to become a limited partner to an assignee of any part of his limited partnership interest, provided all the partners consent. The only terms and conditions imposed on this power are those imposed by the Ohio Revised Code.

Appellants' Appendix at 386.

IV. DISCUSSION

The issues raised in this appeal require the Panel to construe Ohio law. Because the Ohio Supreme Court has not addressed the precise issues presented here, the Panel must determine "how that court would rule if it were faced with the issue." Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th Cir.1999). In doing so, the Panel "may use the decisional law of the state's lower courts, other federal courts construing state law, restatements of law, law review commentaries, and other jurisdictions on the `majority' rule in making its determination." Id. (citing Grantham & Mann v. American Safety Prods., 831 F.2d 596, 608 (6th Cir. 1987)).

1. Did the bankruptcy court err in concluding that Hake's agreement not to sell his interests in Elm Road and Tuller, without obtaining the prior consent of the other shareholders, constitutes an unenforceable restraint on alienation of property under Ohio law?

Ohio law generally disfavors...