Yeon K. Han v. Raymond A. Yancey

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 1:15-cv-00953-LMB-IDD, 10-18839-RGM, 12-01496-RGM. Copies to all parties and the district court. [999976802]. [15-2345]

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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 15-2345

In Re:

MIN SIK KANG; MAN SUN KANG,
Debtors.

----------------------------------YEON K. HAN,
Creditor – Appellant,
v.
OFFICIAL COMMITTEE OF UNSECURED CREDITORS,
Creditor,
and
RAYMOND A. YANCEY,
Trustee – Appellee.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.
Leonie M. Brinkema,
District Judge. (1:15-cv-00953-LMB-IDD; 10-18839-RGM; 12-01496RGM)

Submitted:

October 5, 2016

Decided:

Before SHEDD, DUNCAN, and FLOYD, Circuit Judges.

Affirmed by unpublished per curiam opinion.

November 29, 2016

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Timothy J. McGary, Vienna, Virginia, for Appellant.
Todd M.
Brooks, Baltimore, Maryland, Bradford F. Englander, WHITEFORD
TAYLOR & PRESTON LLP, Falls Church, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

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PER CURIAM:
Appellant Yeon Han challenges the district court’s order
affirming the bankruptcy court’s grant of summary judgment to
Appellee

Raymond

Yancey,

bankruptcy case.
judgment

the

Chapter

11

Trustee

in

this

The bankruptcy court entered a declaratory

invalidating

a

purported

transfer

of

ownership

interests to Han in one of the bankruptcy debtors’ LLCs, on the
grounds

that

agreement.

the

transfer

violated

the

LLC’s

operating

Because we agree that the purported transfer is null

and void, we affirm.

I.
A.
Although the ownership transfer at issue here took place in
2009, it has its origins in events tracing back to 2004.

In

February 2004, Grand Centreville, LLC (“Grand Centreville”) was
created

for

the

sole

purpose

of

acquiring,

developing,

and

managing a retail shopping center in Centreville, Virginia.

At

the time of its formation, Grand Centreville had one member: a
shell company called Grand Equity, LLC (“Grand Equity”).

Grand

Equity,

Grand

in

turn,

was

managed

by

its

sole

member,

Development, LLC (“Grand Development”), another shell company.
Grand Development was wholly owned and managed by the Debtors,
Min and Mik Kang.
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In June 2005, Grand Centreville refinanced an existing loan
and executed a “Deed of Trust, Assignment of Leases and Rents
and Security Agreement” (“2005 Deed of Trust”).

The 2005 Deed

of Trust prohibited specific transactions that could threaten
the lender’s interests.
direct

and

indirect

In particular, (1) Grand Centreville’s

owners

could

not

transfer

more

than

a

49% interest in Grand Centreville; (2) Grand Centreville could
not incur debts outside the ordinary course of business, and
(3) Grand

Centreville

could

not

encumber

the

property

with

additional security interests.
During

the

course

incorporated

another

Formation”),

which

Centreville

and

of

entity,
became

acquired

the

refinancing,

the

Debtors

Formation,

Inc.

(“Grand

Grand
the

a

managing

member

of

0.5%

ownership

interest.

Grand
Grand

Equity (99.5% owner) and Grand Formation (0.5% owner) created a
new operating agreement (“the 2005 Operating Agreement”), which
listed “Ronnie C. Kim” as an Independent Member.

Kim, however,

testified that he was never a member of the entity.
64.

J.A. 1757–

The 2005 Operating Agreement incorporated requirements from

the 2005 Deed of Trust, including restrictions on the transfer
of

ownership

interests,

incurrence

of

debts,

and

encumbrance

with additional liens on the property.
As

relevant

Corporation

to

Commission

the
of

Trustee’s
Virginia
4

standing,

canceled

the

the

State

existence

of

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Grand

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Equity

registration

Filed: 11/29/2016

and
fees

Grand
as

Pg: 5 of 13

Development

of

December

for
31,

nonpayment
2008.

of

annual

Virginia

law

provides that when an LLC is canceled, its property “shall pass
automatically to its managers, . . . members, . . . or holders
of interest, . . . as trustees in liquidation.”
§ 13.1-1050.2(C). 1

See Va. Code

Thus, because the Debtors wholly owned Grand

Development, which wholly owned Grand Equity, the interests in
Grand

Centreville

held

by

the

canceled

LLCs

“pass[ed]

automatically” to the Debtors, as trustees in liquidation.
On March 16, 2009, the purported transfer at issue here
took place (“the 2009 Sale”).
agreed

to

Centreville

effectively
and

Grand

sell

In the 2009 Sale, the Debtors

60%

of

their

Formation

to

Han 2

interests
and

James

in

Grand

Sohn, 3

in

1

Citations throughout are to the current version of the
Virginia Limited Liability Company Act (the “Act”). The Act was
amended in 2008, effective April 1, 2009, which resulted in the
renumbering of certain provisions related to the cancellation of
an LLC’s certificate due to nonpayment of registration fees and
the process of winding up when such a cancellation occurred.
See 2008 Va. Acts 155, ch. 108.
No substantive changes were
made, and the process now in effect is substantially similar to
the process then in effect.
See Gen. Tech. Applications, Inc.
v. Exro Ltda, 388 F.3d 114, 119-20 (4th Cir. 2004).
2

Han pleaded guilty on May 15, 2013 before Judge Gerald
Bruce Lee in the Eastern District of Virginia to two counts of
conspiracy to commit wire fraud, including participation in the
creation of false HUD-1 settlement statements in connection with
the 2009 Sale. See J.A. 1985.
3

Sohn settled with the Trustee after the bankruptcy court
ruled on summary judgment.

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violation of the terms of the 2005 Operating Agreement.

The

Debtors also purported to issue a promissory note in favor of
Han and Sohn, which was secured by a security interest in the
shopping center.
B.
On

October

19,

Chapter 11 bankruptcy.

2010,

the

Debtors

jointly

filed

for

The Office of the United States Trustee

appointed the Official Committee of Unsecured Creditors (“the
Committee”)

in

early

December

2010,

which

instituted

the

underlying adversary action to reverse several transactions the
Debtors entered into prior to the bankruptcy.

In January 2013,

the Office of the U.S. Trustee then appointed Appellee Yancey as
the Chapter 11 Trustee, and he took over the Committee’s claims
against

Sohn

complaint,

and

Han.

seeking,

The

among

Trustee

other

filed

relief

not

a

second-amended

relevant

here,

a

declaration that the 2009 Sale was invalid.
The

parties

filed

cross-motions

for

summary

judgment

on

this claim, with the Trustee arguing that the 2009 Sale was null
and void because it violated the 2005 Operating Agreement.

At

the summary judgment hearing, the bankruptcy court determined
that, if the 2005 Operating Agreement was effective, then the
2009 Sale was void.

The court held a trial to resolve the

factual dispute as to whether the 2005 Operating Agreement was
effective.

After trial, the court concluded that the agreement
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was effective, and that the purported transfer was null and void
because it violated the agreement.

The district court affirmed

the bankruptcy court’s ruling invalidating the 2009 Sale.

II.
On appeal, Han argues that: (1) the Trustee lacks standing;
(2) the

2005

Operating

Agreement

never

became

effective

and

therefore did not govern the 2009 Sale; and (3) even if the 2005
Operating Agreement governed, the 2009 Sale was not null and
void.
In

reviewing

standard

of

reviewed

the

784 F.3d

230,

a

review

bankruptcy
that

bankruptcy
234

(4th

the

order,

district

court’s
Cir.

“we

apply

court

applied

decision.”

2015)

In

(quoting

bankruptcy

legal

court’s

conclusions

court de novo.

of

factual

both

the

findings

for

bankruptcy

re

In

648 F.3d 232, 237 (4th Cir. 2011) (per curiam)).
the

the

same

when

it

Jenkins,

re

Nieves,

We thus review

clear

court

and

error

and

district

Id.
A.

We

begin

with

the

threshold

issue

of

standing.

Han

contends that the Trustee does not have standing to bring the
instant claim because the Debtors, in whose shoes the Trustee
stands, did not have a direct interest in Grand Centreville, but
only

an

interest

in

the

entities
7

that

controlled

Grand

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Centreville--Grand

Equity

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and

Grand

Development.

Thus,

according to Han, the Trustee is impermissibly attempting to
assert

the

rights

of

corporate

belonging to the Debtors.

entities

rather

than

rights

This argument is without merit.

A Chapter 11 Trustee has the power to assert the rights of
the

debtor

and

creditors,

as

defined

by

state

law.

Steyr-

Daimler-Puch of Am. Corp. v. Pappas, 852 F.2d 132, 135 (4th Cir.
1988).

Under

Virginia

law,

the

property

of

canceled

LLCs

“pass[es] automatically” to the managers, members, or holders of
interest, who act as trustees in liquidation to distribute the
company’s assets after the LLC is wound up and all liabilities
and obligations are satisfied.

Va. Code § 13.1-1050.2(c).

When Grand Development and Grand Equity were canceled in
2008, their interests in Grand Centreville were held in trust by
Mr.

Kang

Mrs. Kang,

“as
the

trustee[]
ultimate

in

liquidation”

owners.

Id.

for

Because

himself
there

is

and
no

evidence to suggest that the LLCs were anything but pass-through
entities with no business to wind up or outstanding debts to
pay,

the

interests

they

directly to the Debtors.

held

in

Grand

Centreville

passed

Stepping into the Debtors’ shoes, the

Trustee therefore has standing to pursue its claim that the 2009
Sale is null and void.

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B.
Han next argues that because Ronnie Kim never agreed to the
2005 Operating Agreement, it never became effective.

See Va.

Code § 13.1-1023(B)(1) (providing that “[a]n operating agreement
must initially be agreed to by all of the members”).

There is

no basis for this argument.
It is true that the 2005 Operating Agreement lists Ronnie
Kim, together with Grand Formation and Grand Equity, as a member
of Grand Centreville.

J.A. 1345.

However, membership in an LLC

is a matter of assent, and a person cannot become a member
without
DeLuca),

agreeing
194

to

B.R.

do
65

so.

Cf.

(Bankr.

Broyhill

E.D.

Va.

v.

1996). 4

DeLuca

(In

Ronnie

re
Kim

testified that he had never been a member of Grand Centreville,
and had not seen the 2005 Operating Agreement prior to preparing
for his deposition, nor even heard of Grand Centreville before
4

Han argues that Broyhill does not support the district
court’s conclusion that “a member [must] have knowledge of and
consent[] to the membership interest.”
Appellant’s Br. at 11.
Although Broyhill does not directly touch on the issue in the
present case, the court there did conclude that an entity became
a member of an LLC through the assent of all its members. And
Han even concedes that she “is not suggesting that Mr. Kim be
made an ‘involuntary member.’”
Appellant’s Br. at 12.
Her
argument that the remaining members’ assent to the 2005
Operating Agreement is meaningless without Kim’s inclusion is
belied by the remaining members’ conduct--they never sought
Kim’s input on decisionmaking or his consent to the 2009 Sale.
Simply put, there is no indication they actually intended for
Kim to be a true member. Cf. In re Williams, 455 B.R. 485, 496
(Bankr. E.D. Va. 2011).

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J.A. 1757–64; J.A. 1823–27.

evidence suggested otherwise.

And no testimony or other

Thus, because Kim was never a

member of Grand Centreville, the 2005 Operating Agreement became
effective without his agreement. 5
C.
Finally, Han argues that the lower court erred by holding
that

the

transfer

was

null

and

void.

She

contends

that

violations of the 2005 Operating Agreement only rendered the
transaction voidable, which would allow her to raise equitable
defenses such as estoppel.

See Richard L. Deal & Assoc., Inc.

v. Commonwealth, 299 S.E.2d 346, 349 (Va. 1983).

In particular,

she argues that an operating agreement is merely an agreement
among

its

estopped

members,

from

and

denying

that

they

just

had

the

2009 Sale, so too can the Trustee.
Under

Virginia

law,

parties to the agreement.
Net

Props.,

LLC,

654

an

as

the

power

Debtors
to

could

consummate

be
the

We disagree.

operating

agreement

binds

the

Mission Residential, LLC v. Triple

S.E.2d

888,

891

(Va.

2008).

And

the

members can, through the operating agreement, “provide rights to
any

person,

including

a

person

5

who

is

not

a

party

to

the

By not arguing it on appeal, Han waived any contention
that the 2005 Operating Agreement was not effective because of a
missing signature page for Grand Equity.
We therefore do not
address that argument further.

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operating agreement, to the extent set forth in the operating
agreement.”
Here,

Va. Code § 13.1-1023(A)(1).
Han

concedes

that

the

restrictions

in

the

2005 Operating Agreement were designed to benefit the lender.
Appellant’s Br. at 13.

She also concedes that “[t]he transfer

would have violated the transfer of control provisions contained
in the 2005 operating agreement.”

Id.

And yet, without citing

any authority, she argues that the violations would only give
the lender the right to void the 2009 Sale, not render it null
and void.

Although few courts appear to have spoken on the

issue, the courts that have addressed it conclude that actions
that violate an LLC’s operating agreement are null and void.
See, e.g., Kapila v. Deutsche Bank AG (In re Louis J. Pearlman
Enters., Inc.), 398 B.R. 59, 65 (Bankr. M.D. Fla. 2008) (“The
purported transfer is void and of no effect pursuant to the
Operating Agreement.”).
We are likewise persuaded that such actions are without
legal

effect

because

they

exceed

the

conferred by the operating agreement. 6

6

scope

of

authority

As the district court

Han’s reliance upon News-Register Co. v. Rockingham Pub.
Co., 86 S.E. 874 (Va. 1915), to argue otherwise is misplaced.
First, News-Register Co. pre-dated the existence of LLCs, and
concerned two corporations that entered into a partnership
agreement.
Second, as the court there stated, “[t]he main,
indeed the sole, contention in this case centers upon the
question whether, under the laws of Virginia, two corporations
(Continued)
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recognized, operating agreements define the authority of LLCs,
and

companies

that

engage

in

transactions

with

an

LLC

appropriately look to these agreements during the due-diligence
process to determine such authority.

Actions taken outside the

authority conferred by the operating agreement are thus ultra
vires and without legal effect. 7

Because there is no dispute

that the 2009 Sale violated the 2005 Operating Agreement, it is
null and void.

can form a partnership.” Id. at 876. The court concluded that
the two corporations could validly form a partnership, and only
suggested in dicta that a corporate actor could be estopped from
arguing that it was without power to enter into such an
agreement after amending its corporate charter to expressly
allow it to do so and undertaking the transaction in good faith.
Among the other factors making the case inapposite, the
transaction here was not undertaken in good faith, but expressly
designed to obscure the fact that it violated the 2005 Operating
Agreement. See J.A. 1728.
7

As the Trustee argues, the Fifth Circuit’s decision in
Kinwood Capital Group, LLC v. BankPlus (In re Northlake Dev.,
LLC), 643 F.3d 448 (5th Cir. 2011), further supports this
conclusion. In BankPlus, a minority member of an LLC purported
to transfer the LLC’s property to another company that he
created, without any authority under the LLC’s operating
agreement. He then used that property as collateral to obtain a
loan for his new company, and the bank sought to retain the
property after the new company filed for bankruptcy. Relying on
an opinion from the Mississippi Supreme Court, the Fifth Circuit
concluded that the purported transfer was void and of no legal
effect because the minority member, as an agent of the LLC,
acted without authority. Id. at 451.

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III.
For

the

foregoing

reasons,

we

affirm

the

order

of

the

district court. 8
AFFIRMED

8

We dispensed with oral argument because the facts and
legal conclusions are adequately presented in the materials
before this court and argument would not aid in the decisional
process.

13