In re Northlake Development L.L.C.

George Kiniyalocts and Michael Earwood formed Kinwood Capital Group, LLC (Kinwood), whose operating agreement required a 75-percent member vote to approve any transaction involving company property. Earwood secretly formed Northlake Development, LLC (Northlake) as its sole owner and, acting as a Kinwood member, executed a deed conveying Kinwood's property to Northlake without the required vote. Northlake then borrowed from BankPlus using the property as collateral, and later filed for bankruptcy listing the property as its own. When Kiniyalocts discovered and contested the conveyance, the bankruptcy court found Earwood had no authority to convey the property and voided BankPlus's deed of trust; the district court affirmed, and on appeal BankPlus argued the deed was merely voidable, not void, because BankPlus took it without notice of Earwood's lack of authority. The Fifth Circuit certified the authority question to the Mississippi Supreme Court.