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♦ Introduction To Charging Order Appealability

The law on appealability of charging orders varies significantly across US jurisdictions, with courts split on whether these post-judgment collection remedies constitute immediately appealable orders. Federal courts generally apply the final judgment rule under 28 U.S.C. § 1291, treating charging orders as final only when they dispose of all issues raised in the post-judgment motion. State courts follow different approaches: California consistently treats charging orders as appealable "special orders after final judgment," Texas courts are split between treating them as non-appealable interlocutory orders versus appealable mandatory injunctions, Maryland applies a case-by-case finality analysis, and Florida generally allows appeals. The key determinant across jurisdictions is whether the charging order conclusively resolves all issues presented in that stage of the collection proceeding.

Federal Appellate Jurisdiction

Federal courts analyze charging order appealability under the final judgment rule established in 28 U.S.C. § 1291. The Tenth Circuit Bankruptcy Appellate Panel in Pettine v. Direct Biologics, LLC (In re Pettine), 2023 WL 7648619 (BAP 10th Cir., Nov. 15, 2023)., held that "the charging order disposed of the all the claims asserted in the motion" and therefore constituted a final order for appellate purposes. This analysis follows the broader federal principle that a post-judgment order will be treated as "final" for purposes of 28 U.S.C. § 1291 if it "disposes of all issues raised in the post-judgment motion." Roose v. Patrick, 98 F. App'x 719, 723 (10th Cir. 2004).

Courts have reached different conclusions on whether specific charging orders meet this standard. For example, the Kentucky Court of Appeals in Vance v. Spring Hill Signs, LLC, No. 2013-CA-001264-MR, 2015 WL 1636832, at *3 (Ky. Ct. App. Apr. 10, 2015), found a charging order was a final order because it adjudicated all of the claims to post-judgment relief in terms of a charging order against the debtor's interest in the LLCs, as well as all rights to distributions in the LLCs. However, courts have also found charging orders non-final where they did not dispose of all issues raised at that particular stage of the proceedings, as in Jack M. Sanders Family Limited Partnership v. Roger T. Fridholm Revocable Living Trust, 2014 WL 1603546 (Tex.App.Distr. 1, 2014)..

Federal courts have not extensively addressed whether charging orders qualify under the collateral order doctrine established in Cohen v. Beneficial Industrial Loan Corp. The limited precedent suggests charging orders rarely meet the stringent requirements for collateral order treatment, as they typically do not resolve issues "completely separate from the merits" or present matters that are "effectively unreviewable on appeal from a final judgment."

State Court Approaches to Charging Order Finality

California's Special Order After Judgment Doctrine

California courts have consistently held charging orders appealable under the "special order made after final judgment" doctrine. The California Supreme Court in Baum v. Baum, 51 Cal.2d 610 (1959), established that "an order either granting or denying a judgment creditor's motion for a charging order under the provisions of section 15028 of the Corporations Code would fall within this class of appealable orders." The court applied the established test that to be appealable, a "special order made after final judgment" must affect the judgment in some manner or relate to its enforcement. The court found that the charging order at issue related to enforcement of the judgment and was therefore appealable as a special order made after final judgment.

The California Court of Appeal in Phillips, Spallas & Angstadt, LLP v. Fotouhi, 197 Cal.App.4th 1132 (2011), reaffirmed this principle, stating that "an order granting a judgment creditor's motion for a charging order is appealable" and citing the established rule that "any order relating to the enforcement of a judgment is appealable." This approach treats charging orders as inherently affecting the underlying judgment regardless of whether they resolve all collection issues.

Texas's Divided Authority

Texas appellate courts have reached conflicting conclusions on charging order appealability. The Texas Court of Appeals in Jack M. Sanders Family Limited Partnership v. Roger T. Fridholm Revocable Living Trust, 2014 WL 1603546 (Tex.App.Distr. 1, 2014)., held that charging orders generally are not immediately appealable, explaining that "most post-judgment orders made for the purpose of enforcing or carrying into effect an already-entered judgment are not subject to an appeal because an appeal is typically not statutorily authorized from such an order and because such orders are typically not final judgments or decrees."

The court established that "there is no statutory authorization for appeals of charging orders, so the trial court's order is only appealable if it operates as a mandatory injunction" that resolves property rights. Jack M. Sanders Family Limited Partnership v. Roger T. Fridholm Revocable Living Trust, 2014 WL 1603546 (Tex.App.Distr. 1, 2014).. However, the court found the charging order at issue did not qualify as a mandatory injunction because it lacked the requisite clarity and specificity.

Conversely, the Texas Court of Appeals in Spates v. Office of the Attorney General, 2016 WL 354417 (Tex.App.14th Dist., Jan. 28, 2016)., reached the opposite conclusion, holding that a charging order was appealable because it "resolves the property rights of the parties and imposes obligations on [the entity]." The court distinguished prior Texas authority by finding that "unlike the orders in Jack M. Sanders and Dispensa, the charging order in this case resolves the property rights of the parties and imposes obligations on prodigy, and is therefore appealable." Spates v. Office of the Attorney General, 2016 WL 354417 (Tex.App.14th Dist., Jan. 28, 2016)..

More recently, the Texas Court of Appeals in 000_2008MarylandKeelerExpiredJudgment, found a charging order appealable as a mandatory injunction, reasoning that the order "requires that 'any and all distributions, of any kind in any amount whatsoever, that are due to or become due to Myers by reason of his ownership interests in the S/R Myers Family, L.P. be paid directly to HCB up to the amount of $1,163,745.48.' "

Maryland's Case-by-Case Finality Analysis

Maryland courts apply traditional finality principles to charging orders while recognizing their unique characteristics. In 000_2008MarylandKeelerExpiredJudgment, the Maryland Court of Special Appeals held that "although not a money judgment, a charging order may constitute a final judgment where the elements of finality are met." The court found the charging order final because it "settled the rights of the litigants at the time it was entered and concluded the matter between the parties."

However, Maryland courts have also found charging orders non-final in other circumstances. In 91st Street Joint Venture v. Goldstein, 691 A.2d 272, 114 Md.App. 561 (Md.Sp.App., 1997)., the court held that a charging order "the charging order was not a final order which concluded the matter between the parties at the time it was issued by the court, and it was subject to revision at any time prior to the entry of a final judgment" because it was "subject to redemption by appellee" and "could be challenged by debtor through the filing of exceptions."

The Maryland Court of Special Appeals in Rand v. Steinberg, Not Reported in Atl. Rptr. (2018), noted the difficulty of applying traditional finality analysis to charging orders, observing that charging orders don't involve the "adjudication of claims" in the conventional sense and that traditional analysis doesn't fit well with the charging order procedure.

Other State Approaches

Missouri courts treat charging orders as appealable special orders after judgment. The Missouri Court of Appeals in St. Louis Bank v. Kohn, 2017 WL 1650034 (Mo.App., May 2, 2017)., held that "charging order and order appointing a receiver were appealable as special orders after judgment," treating them similarly to other post-judgment enforcement orders.

Florida courts generally recognize charging order appealability, as evidenced by numerous reported decisions reviewing charging orders on their merits without jurisdictional challenges. Tennessee courts, however, have found charging orders non-final, with the Tennessee Court of Appeals in Rogers Group, Inc. v. Gilbert, 2016 WL 2605651 (Tenn.App., May 3, 2016)., concluding that a charging order was "not a final judgment for purposes of appeal."

Final Judgment Rule Application

Courts applying the final judgment rule focus on whether the charging order disposes of all issues raised in that particular stage of the proceeding. The Texas Court of Appeals in Dispensa v. University State Bank, 951 S.W.2d 797 (1997), found the charging order non-final because it "fails to dispose of all the issues raised at that particular stage of the proceeding," applying the principle from Crowson v. Wakeham, 897 S.W.2d 779, 783 (Tex. 1995), that orders that fail to dispose of the issues raised at a particular stage of a process are interlocutory in nature and not appealable.

The key inquiry is whether the charging order resolves all collection issues presented to the court or leaves matters for future determination. Federal and state courts have noted that a charging order may be final when it adjudicates all of the claims to post-judgment relief, but not when it leaves issues unresolved at that particular stage of the proceedings.

Maryland courts have struggled with applying traditional three-part finality tests to charging orders. The Maryland Court of Special Appeals in Rand v. Steinberg, Not Reported in Atl. Rptr. (2018), observed that traditional finality analysis "doesn't fit well with the charging order procedure" because charging orders don't involve the "adjudication of claims" in the conventional sense.

Mandatory Injunction Analysis

Some jurisdictions analyze whether charging orders qualify as immediately appealable mandatory injunctions. The Texas Court of Appeals in Jack M. Sanders Family Limited Partnership v. Roger T. Fridholm Revocable Living Trust, 2014 WL 1603546 (Tex.App.Distr. 1, 2014)., established that charging orders may be appealable "if the order has the nature of a mandatory injunction that resolves property rights." However, the court found that most charging orders do not meet this standard because they lack the specificity and immediate enforceability typical of mandatory injunctions.

The Texas Court of Appeals in Dispensa v. University State Bank, 951 S.W.2d 797 (1997), found that the particular charging order at issue failed to qualify as a mandatory injunction because it "lacks the clarity and certainty of a final, appealable judgment" and did not fully determine the parties' substantive property rights. The court acknowledged that a properly issued charging order can function as a mandatory injunction by ordering the affected partnership to pay the income due the debtor to his judgment creditor.

By contrast, the Texas Court of Appeals in Myers v. HCB Real Holdings, LLC, Not Reported in S.W. Rptr. (2022), found a charging order appealable as a mandatory injunction where it contained specific payment obligations, reasoning that orders requiring immediate transfer of distributions possess the characteristics of mandatory injunctive relief.

Arguments and Rebuttals

Arguments for Immediate Appealability

Special Order After Judgment Doctrine

  • Charging orders affect enforcement of the underlying judgment and therefore qualify as special orders after judgment that are immediately appealable regardless of finality.
  • California authority demonstrates that post-judgment enforcement orders are inherently appealable because they relate to effectuation of the judgment.
  • Anticipated Rebuttals: Critics argue that not all post-judgment collection orders are appealable, and courts must still apply finality principles to determine whether the specific order resolves discrete issues.

Complete Resolution of Collection Issues

  • When charging orders dispose of all issues raised in the post-judgment motion, they satisfy federal final judgment requirements under 28 U.S.C. § 1291.
  • Bankruptcy and federal courts recognize that charging orders can constitute final orders when they resolve all collection claims presented.
  • Anticipated Rebuttals: Opponents contend that charging orders often leave collection proceedings ongoing and subject to future modification, making them inherently interlocutory.

Mandatory Injunction Characteristics

  • Charging orders requiring specific payment or transfer obligations operate as mandatory injunctions that are immediately appealable.
  • Orders compelling entities to pay distributions directly to creditors have the practical effect of mandatory injunctive relief.
  • Anticipated Rebuttals: Courts note that most charging orders lack the specificity and immediate enforceability required for mandatory injunction treatment.

Arguments Against Immediate Appealability

Interlocutory Collection Proceedings

  • Charging orders are typically part of ongoing collection proceedings that do not conclusively resolve all enforcement issues.
  • The general rule that post-judgment collection orders are not immediately appealable applies to charging orders absent specific statutory authorization.
  • Anticipated Rebuttals: Proponents argue that charging orders differ from other collection mechanisms because they create specific liens and payment obligations that affect property rights.

Lack of Finality

  • Many charging orders remain subject to modification, redemption, or further proceedings that prevent them from being truly final.
  • Traditional finality requirements cannot be satisfied when collection proceedings remain ongoing.
  • Anticipated Rebuttals: Supporters contend that the specific charging order may be final even if broader collection efforts continue, following the discrete proceeding approach.

Insufficient Mandatory Injunction Elements

  • Most charging orders do not contain the specificity and immediate enforceability required for mandatory injunction treatment.
  • Charging orders that merely establish future payment obligations lack the characteristics of true mandatory injunctive relief.
  • Anticipated Rebuttals: Advocates point to charging orders containing specific payment amounts and deadlines as examples of sufficiently specific mandatory relief.

Cases on Both Sides

Cases Finding Charging Orders Appealable

  • Phillips, Spallas & Angstadt, LLP v. Fotouhi, 197 Cal.App.4th 1132 (2011) — The California Court of Appeal held that an order granting a judgment creditor's motion for a charging order is appealable. The court applied California's established rule that any order relating to enforcement of a judgment qualifies as a special order after final judgment.
  • Baum v. Baum, 51 Cal.2d 610 (1959) — The California Supreme Court held that orders granting or denying charging order motions are appealable as special orders made after final judgment. The court reasoned that charging orders relate to enforcement of the underlying judgment and therefore fall within the class of appealable post-judgment orders.
  • Pettine v. Direct Biologics, LLC (In re Pettine), 2023 WL 7648619 (BAP 10th Cir., Nov. 15, 2023). — The Tenth Circuit Bankruptcy Appellate Panel held that a charging order was a final order for appellate purposes. The court found that the charging order disposed of all claims asserted in the trustee's motion and therefore satisfied federal finality requirements.
  • Spates v. Office of the Attorney General, 2016 WL 354417 (Tex.App.14th Dist., Jan. 28, 2016). — The Texas Court of Appeals held that a charging order was appealable because it resolved property rights and imposed obligations on the entity. The court distinguished prior authority by finding that this particular charging order conclusively determined the parties' rights.
  • Myers v. HCB Real Holdings, LLC, Not Reported in S.W. Rptr. (2022) — The Texas Court of Appeals held that a charging order was appealable as a mandatory injunction. The court found that the order's requirement that all distributions be paid directly to the creditor constituted mandatory injunctive relief.

Cases Finding Charging Orders Not Immediately Appealable

Practical Implications

The jurisdictional split on charging order appealability creates significant practical challenges for creditors and business entities. Forum shopping becomes a strategic consideration, as creditors may seek charging orders in jurisdictions where appeals are more likely to be permitted, while debtors may prefer jurisdictions that limit immediate appealability. In jurisdictions requiring finality, charging orders may remain unenforceable during lengthy appeal processes, delaying creditor collection efforts and potentially frustrating the underlying judgment.

Business attorneys must consider appellate implications when structuring LLC and partnership agreements, particularly regarding distribution provisions that could affect charging order enforceability. The uncertainty creates pressure for parties to seek stays or bonds pending appeal resolution, adding costs and complexity to collection proceedings. The threat of immediate appeal may encourage settlement negotiations in jurisdictions allowing immediate review, while limiting settlement pressure where appeals require final judgment.

Collection strategies must account for jurisdictional variations, with creditors potentially facing different timelines and procedural requirements depending on where charging orders are sought. The lack of uniformity complicates multi-state collection efforts and creates planning challenges for both creditors and business entities with operations across multiple jurisdictions.

Recent Developments

Recent trends show courts increasingly grappling with charging order appealability in the LLC context. The 2023 decision in Pettine v. Direct Biologics, LLC (In re Pettine), 2023 WL 7648619 (BAP 10th Cir., Nov. 15, 2023)., represents significant recent federal authority treating charging orders as final appealable orders in bankruptcy proceedings, providing clearer guidance for federal practitioners. Recent Texas cases like Myers v. HCB Real Holdings, LLC, Not Reported in S.W. Rptr. (2022), show courts more willing to find charging orders appealable as mandatory injunctions when they require specific payment obligations.

The Maryland case Rand v. Steinberg, Not Reported in Atl. Rptr. (2018), demonstrates courts analyzing whether specific orders qualify as true charging orders, distinguishing between orders that require payment of economic interests and those that merely prevent transfers or maintain the status quo. Courts increasingly recognize that LLC charging orders may require different finality analysis than traditional partnership charging orders due to statutory differences in the underlying business entity laws.

Recent federal cases emphasize treating charging orders as discrete post-judgment proceedings subject to separate finality analysis, moving away from viewing them as mere collection steps in ongoing enforcement proceedings. This trend suggests growing federal recognition of charging orders as substantive determinations of creditor rights rather than procedural enforcement mechanisms.

Related Issues

  • Personal jurisdiction over LLC members and entities for charging order enforcement, particularly in multi-state collection scenarios
  • Choice of law determining which state's charging order statutes apply when entities are formed in different jurisdictions than where judgments are obtained
  • Whether charging orders are the exclusive remedy against LLC membership interests or whether creditors may pursue alternative collection methods
  • Priority disputes between multiple creditors seeking charging orders against the same debtor's business entity interests.

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