Recent Changes - Search:
Site /

Jurisdiction And Service Of Charging Order

Topic Jurisdiction TopicsJurisdictionService




PAGE SUMMARY

Charging orders serve as a critical post-judgment remedy, allowing creditors to attach a debtor’s economic interest in an LLC or partnership while preserving the entity's management structure. A central conflict exists regarding the jurisdictional prerequisites for issuing such orders, specifically whether personal jurisdiction over the judgment debtor suffices or if jurisdiction over the LLC entity is also required. Courts following a liberal interpretation, such as those in Georgia and Connecticut, maintain that jurisdiction over the member is adequate because the order only impacts the member’s individual distribution rights without imposing substantive duties on the entity. Conversely, a stricter approach adopted by several federal courts and Colorado requires personal jurisdiction over the LLC itself, arguing that the affirmative act of redirecting distributions triggers due process protections for the entity. To ensure enforceability and priority across state lines, practitioners must navigate the majority rule that locates membership interests in the state of formation, necessitating the domestication of both the underlying judgment and the specific charging order in that foreign jurisdiction. Priority is generally established by the first-in-time service on the entity’s registered agent, which formalizes the lien and binds the LLC. While the ministerial nature of compliance supports the efficiency of member-only jurisdiction, the prevailing trend toward requiring entity-level jurisdiction and proper domestication underscores the importance of the internal affairs doctrine in stabilizing multi-jurisdictional enforcement efforts.

Charging Order Jurisdictional And Service Issues

Summary

A charging order is a judicial remedy allowing a judgment creditor to satisfy a judgment from a judgment debtor’s interest in a limited liability company (LLC) or partnership by attaching distributions payable to the debtor without granting control or interference in the entity’s management. Courts may issue charging orders only if they are “courts of competent jurisdiction,” which generally includes jurisdiction over the judgment debtor member or transferee and, in some cases, in rem jurisdiction over the LLC interest or personal jurisdiction over the LLC itself. The situs of the membership interest—usually the state of the entity’s formation—plays a central role in determining jurisdiction and the applicable substantive law, consistent with the internal affairs doctrine. Foreign charging orders often require domestication in the state of the LLC’s formation to be effective and enforceable, as courts without jurisdiction over the entity may lack authority to bind it or prioritize competing charging orders. The judgment creditor’s rights are limited to receiving distributions and do not include rights to accelerate or manage the interest. Service of the charging order on the LLC, often via the registered agent, is a prerequisite to effectuate the lien and ensure enforcement and jurisdiction.
In federal courts, personal jurisdiction over parties is generally acquired by proper service of process and constitutionally adequate notice, and the Federal Rules emphasize the importance of service in conferring jurisdiction. Under the Foreign Sovereign Immunities Act, specific service procedures are mandated to establish personal jurisdiction over foreign states. State rules reinforce that service of process is essential to establish personal jurisdiction over defendants, including entities, and proper service cannot be waived by mere knowledge of the lawsuit absent formal acceptance or appearance. For charging orders, courts typically require serving the order on the entity’s registered agent or equivalent to ensure jurisdiction and to bind the entity to the lien, as failure to do so can render enforcement void.
Courts have jurisdiction to hear motions for charging orders through three recognized pathways: (1) personal jurisdiction over the LLC member/judgment debtor, (2) in rem jurisdiction over the LLC membership interest to be charged, or (3) personal jurisdiction over the LLC entity itself. Federal and state courts are split on whether personal jurisdiction over the member alone is sufficient or whether jurisdiction over the LLC entity is also required. For service requirements, courts generally mandate that charging orders be served on the LLC to establish priority and enforceability, even when the LLC is not formally joined as a party. Foreign charging orders require domestication of both the underlying judgment and the charging order itself in the state where enforcement is sought. The majority rule holds that LLC membership interests are located where the LLC was formed for jurisdictional purposes, promoting uniformity and preventing conflicting orders from multiple jurisdictions.

Federal Jurisdictional Framework

Federal courts apply state law to charging order proceedings under Federal Rule of Civil Procedure 69, which provides that judgment enforcement "must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies". FRCP Rule 69. Academic commentary has identified three alternative bases for exercising jurisdiction over charging order motions: "(1) Personal jurisdiction over the member, (2) In rem jurisdiction over the LLC membership interest to be charged, or (3) Personal jurisdiction over the LLC itself". Vision Marketing Resources, Inc. v. McMillin Group, LLC, Not Reported in F.Supp.3d (2015); Oberg v. Lowe, Not Reported in Fed. Supp. (2021).
The foundational principle underlying federal court jurisdiction to enforce judgments through charging orders derives from the Supreme Court's early holding that "the jurisdiction of a Court is not exhausted by the rendition of its judgment, but continues until that judgment shall be satisfied". This continuing jurisdiction allows federal courts to pursue post-judgment remedies including charging orders against LLC interests owned by judgment debtors over whom they have personal jurisdiction.

State Statutory Requirements

State limited liability company statutes uniformly require charging order applications to be made to a "court of competent jurisdiction," but most statutes do not specifically define the jurisdictional requirements. FL ST § 605.0503 CO ST § 7-80-703 TX BUS ORG § 101.112 GA ST § 14-11-504. The typical statutory language, exemplified by Florida's LLC Act, provides that "on application to a court of competent jurisdiction by a judgment creditor of a member or a transferee, the court may enter a charging order against the transferable interest of the member or transferee". FL ST § 605.0503.
However, states diverge significantly on whether their charging order statutes apply to foreign LLCs. Some jurisdictions, like Minnesota, have been interpreted to exclude foreign LLCs from their charging order statutes based on restrictive definitions of "limited liability company". Vision Marketing Resources, Inc. v. McMillin Group, LLC, Not Reported in F.Supp.3d (2015). Conversely, other states like Connecticut and Kansas have interpreted their statutes to encompass foreign LLCs, finding "no constraints in the charging order statute that limited its application solely to domestic LLCs". Vision Marketing Resources, Inc. v. McMillin Group, LLC, Not Reported in F.Supp.3d (2015).

Personal Jurisdiction Over Members vs. LLCs

Courts are fundamentally divided on whether personal jurisdiction over the LLC member alone is sufficient to issue a charging order, or whether the court must also have personal jurisdiction over the LLC entity itself. This split creates significantly different procedural requirements depending on the jurisdiction.

Liberal Approach: Member Jurisdiction Sufficient

Several federal district courts and several state appellate courts have adopted the position that personal jurisdiction over the LLC member is sufficient to issue a charging order against the member's interest in a foreign LLC. The District Court for the District of Kansas established this principle in Vision Marketing Research, Inc. v. McMillin Group, LLC, holding that "the Court need not have jurisdiction over the LLC entity itself in order to issue a charging order, when it has jurisdiction over the LLC member because the LLC has no right or direct interest affected by the charging order". Vision Marketing Resources, Inc. v. McMillin Group, LLC, Not Reported in F.Supp.3d (2015).
The Georgia Court of Appeals in Mahalo Investments III, LLC v. First Citizens Bank & Trust Co. similarly concluded that "it is only necessary for a court to have jurisdiction over the judgment debtor to have the authority to enter charging orders against the judgment debtor's interest". Mahalo Investments III, LLC v. First Citizens Bank & Trust Co., Inc., 330 Ga.App. 737 (2015). The court reasoned that "Because the limited liability company has no right or direct interest that is affected by the charging order, we see no reason why it must be added as a party to the proceeding to obtain the charging order. ... Moreover, it is the judgment debtor's right to possession of distributions in the future that is essentially being levied or charged". Mahalo Investments III, LLC v. First Citizens Bank & Trust Co., Inc., 330 Ga.App. 737 (2015).
Connecticut courts have reached the same conclusion, with the Superior Court in Cadle Co. v. Ginsburg holding that a judgment creditor was entitled to a charging order even though the LLC was not made a party because "a charging order merely gives the judgment creditor the rights of an assignee of the member's interest in the limited liability company". Cadle Co. v. Ginsburg, Not Reported in A.2d (2002).

Strict Approach: LLC Jurisdiction Required

Conversely, some federal courts have required personal jurisdiction over the LLC entity itself before issuing charging orders. The Eastern District of Pennsylvania exemplified this approach in Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, where the court denied a motion for a charging order against a foreign LLC, stating: "Because we do not have personal jurisdiction over SCST, we lack authority to issue a charging order against the members' transferable interests in SCST". Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, Not Reported in Fed. Supp. (2020).
This stricter approach is based on the theory that charging orders require the LLC to take affirmative action by redirecting distributions from the member to the judgment creditor, thereby affecting the LLC's operations and requiring proper notice and jurisdiction over the entity itself. Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, Not Reported in Fed. Supp. (2020).

In Rem Jurisdiction and Location of Membership Interests

A critical issue in charging order jurisdiction is determining where LLC membership interests are "located" for purposes of establishing in rem jurisdiction. The majority of courts that have addressed this issue have concluded that membership interests are located in the state where the LLC was formed, not where the member resides.
The Supreme Court of Colorado established this principle in JPMorgan Chase Bank, N.A. v. McClure, holding that "for purposes of determining the enforceability of a charging order, a member's membership interest is located where the LLC was formed". JPMorgan Chase Bank, N.A. v. McClure, 393 P.3d 955 (2017). The Iowa Supreme Court reached an identical conclusion in Wells Fargo Equipment Finance, Inc. v. Retterath, reasoning that "locating the membership interest in the state in which the LLC was formed recognizes this authority and promotes uniformity" and prevents an LLC from becoming "subject to various and competing charging orders from differing foreign jurisdictions". Wells Fargo Equipment Finance, Inc. v. Retterath, 928 N.W.2d 1 (2019).
This rule has significant practical implications because it establishes a clear jurisdictional basis for charging orders in the LLC's state of formation while potentially limiting the ability of courts in other jurisdictions to exercise in rem jurisdiction over membership interests in foreign LLCs.

Service Requirements and Priority Determinations

Courts generally require service of charging orders on LLCs to establish the order's priority and enforceability, even when the LLC is not formally joined as a party to the proceeding. The Colorado Supreme Court in JPMorgan Chase Bank, N.A. v. McClure established that charging orders are "typically entitled to priority over later-served charging orders" and agreed with "first in time" priority principles. JPMorgan Chase Bank, N.A. v. McClure, 393 P.3d 955 (2017).
Many jurisdictions allow alternative methods of service when the LLC's management is reserved to its members. Arizona law, for example, provides that "process, notice or demand may be served either on a manager of a limited liability company if management of the limited liability company is vested in one or more managers or on a member of the limited liability company if management of the limited liability company is reserved to the members" AZ ST § 29-606. Under this approach, service on a judgment debtor who is also an LLC member constitutes adequate notice to the LLC itself.

Domestication Requirements for Foreign Charging Orders

Courts have established clear requirements for domesticating foreign charging orders to ensure their enforceability against LLCs in different jurisdictions. The Colorado Court of Appeals in McClure v. JP Morgan Chase Bank NA held that "to enforce a foreign charging order against a Colorado LLC based on domestication, the creditor would have to domesticate the charging order and not just the judgment on which the charging order is based". McClure v. JP Morgan Chase Bank NA, 395 P.3d 1123 (2015). This requirement exists because "the charging order—unlike the judgment on which it is based—requires the Colorado LLC to take action, namely, to pay LLC distributions to the judgment creditor". McClure v. JP Morgan Chase Bank NA, 395 P.3d 1123 (2015).
The priority of competing charging orders is determined by the timing of proper domestication and service rather than the chronological order of the underlying judgments. Courts have established that proper domestication is a prerequisite to enforcing a charging order, and failure to properly domesticate results in no enforceable charging order at all.

Arguments and Rebuttals

Arguments Supporting Liberal Jurisdiction (Member Jurisdiction Sufficient)

Minimal Impact on LLC Operations
*Charging orders only affect the member's right to receive distributions, not the LLC's management or operational decisions. Vision Marketing Resources, Inc. v. McMillin Group, LLC, Not Reported in F.Supp.3d (2015); Mahalo Investments III, LLC v. First Citizens Bank & Trust Co., Inc., 330 Ga.App. 737 (2015).
*The LLC's burden is purely ministerial—redirecting payments rather than making substantive business judgments. Vision Marketing Resources, Inc. v. McMillin Group, LLC, Not Reported in F.Supp.3d (2015).
*Anticipated Rebuttals: Even ministerial compliance requires LLC action and attention, justifying jurisdictional protection for the entity. Financial redirection affects LLC cash flow management and potentially violates operating agreements.
Economic Efficiency and Practical Enforcement
*Requiring jurisdiction over every LLC would make multi-state enforcement unduly burdensome for judgment creditors.
*Due process protections for the member are fully protected through personal jurisdiction over the judgment debtor.
*Anticipated Rebuttals: Due process protections should extend to all affected parties, including business entities required to comply with court orders. Efficiency concerns do not override constitutional jurisdictional requirements.
Nature of Property Interest
*Membership interests are personal property of the member, not property of the LLC itself. Wells Fargo Bank, N.A. v. Barber, 85 F.Supp.3d 1308 (2015).
*Charging orders create liens against the member's economic rights rather than claims against LLC assets Cadle Co. v. Ginsburg, Not Reported in A.2d (2002).
*Anticipated Rebuttals: The enforcement mechanism necessarily involves the LLC entity, distinguishing charging orders from traditional personal property execution. LLC compliance with charging orders affects entity operations regardless of the theoretical property characterization.

Arguments Supporting Strict Jurisdiction (LLC Jurisdiction Required)

Due Process and Notice Requirements
*Charging orders require LLCs to take affirmative compliance actions, creating due process obligations for proper notice and jurisdiction. Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, Not Reported in Fed. Supp. (2020).
*Constitutional protections extend to business entities that must alter their operations in response to court orders. Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, Not Reported in Fed. Supp. (2020).
*Anticipated Rebuttals: The member's consent to LLC jurisdiction through operating agreements may waive due process objections. Charging orders merely enforce existing contractual distribution obligations without creating new legal duties.
Statutory Construction and Legislative Intent
*Charging order statutes require "courts of competent jurisdiction," suggesting broader jurisdictional requirements than member-only jurisdiction. Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, Not Reported in Fed. Supp. (2020).
*Legislative adoption of specific charging order procedures indicates intent to provide comprehensive procedural protections. Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, Not Reported in Fed. Supp. (2020).
*Anticipated Rebuttals: "Competent jurisdiction" language refers to subject matter jurisdiction over collection proceedings generally. Specific statutory provisions for charging orders demonstrate legislative intent to streamline collection procedures.
Practical Operation and Enforcement
*Effective charging order enforcement may require court involvement to address compliance issues McClure v. JP Morgan Chase Bank NA, 395 P.3d 1123 (2015)
*Multi-member LLCs may face distribution conflicts requiring judicial resolution
*Anticipated Rebuttals: Most charging order compliance involves routine financial redirection requiring minimal court involvement. Operating agreements typically provide mechanisms for resolving distribution conflicts without court intervention

Cases on Both Sides

Supporting Liberal Jurisdiction (Member Jurisdiction Sufficient)

*Vision Marketing Resources, Inc. v. McMillin Group, LLC, Not Reported in F.Supp.3d (2015) — The federal district court held that personal jurisdiction over the LLC member was sufficient to issue a charging order against the member's interest in a foreign LLC. The court reasoned that the LLC has no direct rights affected by a charging order, which only impacts the member's right to future distributions.
*Mahalo Investments III, LLC v. First Citizens Bank & Trust Co., Inc., 330 Ga.App. 737 (2015) — The Georgia Court of Appeals ruled that courts only need jurisdiction over the judgment debtor to issue charging orders against LLC interests. The court determined that LLCs have no rights directly affected by charging orders since only the member's future distribution rights are at stake.
*Dream Games of Arizona Incorporated v. PC Onsite LLC, Not Reported in Fed. Supp. (2016) — The federal district court found it had general personal jurisdiction over the LLC based on its continuous and systematic contacts with Arizona. The court also noted in a footnote that personal jurisdiction over the judgment debtor would be sufficient to charge his LLC interests even without jurisdiction over the entity itself. Additionally, the court found that service on the member constituted adequate notice to the LLC under Arizona statutes when management was reserved to members.
*Cadle Co. v. Ginsburg, Not Reported in A.2d (2002) — The Connecticut Superior Court held that LLCs need not be joined as parties to charging order proceedings because charging orders merely grant creditors the rights of assignees. The court emphasized that charging orders do not affect LLC operations beyond redirecting distributions.

Supporting Strict Jurisdiction (LLC Jurisdiction Required)

*Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, Not Reported in Fed. Supp. (2020) — The federal district court denied a charging order motion because it lacked personal jurisdiction over the foreign LLC whose members' interests were being charged. The court emphasized that charging orders require LLCs to take affirmative action, necessitating proper jurisdiction over the entity.
*JPMorgan Chase Bank, N.A. v. McClure, 393 P.3d 955 (2017) — The Colorado Supreme Court held that effective charging orders against Colorado LLCs require proper domestication and enforcement in Colorado courts. The court reasoned that foreign charging orders cannot compel Colorado LLCs to act without proper jurisdictional foundations.
*McClure v. JP Morgan Chase Bank NA, 395 P.3d 1123 (2015) — The Colorado Court of Appeals ruled that foreign charging orders are unenforceable against Colorado LLCs until properly domesticated because such orders require LLC action. The court distinguished charging orders from underlying judgments based on their operational impact on LLC entities.
*Wells Fargo Equipment Finance, Inc. v. Retterath, 928 N.W.2d 1 (2019) — The Iowa Supreme Court determined that membership interests are located where LLCs are formed for jurisdictional purposes, requiring proper jurisdiction in that state for effective charging orders. The court emphasized that this rule promotes uniformity and prevents conflicting multi-jurisdictional orders.

Practical Implications

Creditors pursuing charging orders must develop strategic approaches to jurisdiction that account for the significant variations in court interpretations across different jurisdictions. In jurisdictions following the liberal approach, creditors can pursue charging orders against LLC interests immediately upon obtaining personal jurisdiction over judgment debtors, streamlining the collection process and reducing procedural barriers. However, creditors operating in strict jurisdiction states must invest additional time and resources in establishing proper jurisdiction over LLC entities themselves, often requiring investigation into LLC operations, registered agents, and business activities to establish minimum contacts.
The location rule for membership interests creates important forum selection considerations for creditors. Since most courts now hold that membership interests are located where LLCs are formed, creditors often achieve the most reliable jurisdictional foundation by pursuing charging orders in the LLC's state of formation. This approach minimizes later enforceability challenges and provides clearer priority determinations when multiple creditors seek charging orders against the same membership interests.
Domestication requirements significantly impact the timing and cost of multi-jurisdictional enforcement efforts. Creditors must domesticate both underlying judgments and charging orders themselves, creating additional procedural steps that can delay collection efforts. The first-in-time service rule rewards creditors who act quickly to complete domestication and service requirements, making prompt action crucial for establishing priority over competing creditors.
For LLCs and judgment debtors, the jurisdictional split creates opportunities to challenge charging order proceedings on procedural grounds. LLCs formed in states with strict jurisdictional requirements may successfully challenge foreign charging orders that fail to establish proper entity-specific jurisdiction. Members can potentially exploit conflicts between jurisdictional approaches by structuring their LLC interests across multiple states to complicate creditor collection efforts.

Recent Developments

The Colorado Supreme Court's 2017 decision in JPMorgan Chase Bank, N.A. v. McClure has crystallized domestication requirements for foreign charging orders in Colorado, establishing a clearer procedural framework. JPMorgan Chase Bank, N.A. v. McClure, 393 P.3d 955 (2017). Subsequent decisions have clarified that creditors must domesticate charging orders themselves rather than relying solely on domesticated underlying judgments, creating more demanding but predictable requirements for multi-jurisdictional enforcement.
Courts continue to address the split between jurisdictions applying strict jurisdictional requirements, exemplified by the Eastern District of Pennsylvania's approach in Steamfitters Union, Local 420 Welfare Fund v. Direct Air, LLC, Not Reported in Fed. Supp. (2020), and those accepting member-only jurisdiction in certain contexts. This ongoing development reflects differing judicial philosophies on due process protections for business entities and practical enforcement considerations.
Technology-related service issues have become more prominent in recent charging order cases, particularly regarding electronic service methods and notice requirements during the COVID-19 pandemic when traditional service methods faced disruption. Courts have begun addressing these procedural adaptations while maintaining traditional due process protections for all affected parties.
Recent bankruptcy decisions, including In re Pettine from the Tenth Circuit Bankruptcy Appellate Panel, have addressed the intersection between charging order jurisdiction and federal bankruptcy law, creating new procedural complexities when judgment debtors file for bankruptcy protection after charging orders have been entered In re Pettine, 655 B.R. 196 (2023).

JURISDICTION ARTICLES

JURISDICTION AND SERVICE OF CHARGING ORDERS OPINIONS