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Charging Order Procedure

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PAGE SUMMARY

The procedure for obtaining a charging order to enforce a money judgment against LLC or partnership interests is governed by significant procedural and substantive requirements. In federal court, Federal Rule of Civil Procedure 69(a)(1) mandates adherence to the forum state's procedures while maintaining federal local rules and continuing jurisdiction. Generally, a judgment creditor must file a formal application demonstrating the debtor's membership interest, a burden that requires concrete evidence beyond mere agency. Due process necessitates actual notice and often formal service upon both the judgment debtor and the business entity, with some jurisdictions requiring additional registration with regulatory authorities. While courts exercise broad discretion in granting these equitable remedies and may order evidentiary hearings or discovery, the resulting order typically grants only assignee status, limiting the creditor's recovery to distributions to preserve business continuity. Statutory frameworks vary across jurisdictions regarding foreclosure rights, particularly for single-member entities, and interstate enforcement frequently necessitates domestication of the specific charging order. Priority is generally established by a first-in-time rule relative to service rather than the underlying judgment date. Strategic considerations include the potential for automatic liens upon notice of motion, as seen in California, and the ability of the entity or other members to extinguish the order by satisfying the underlying debt. Ultimately, strict adherence to local rules and specific state statutes is paramount to overcoming the procedural hurdles inherent in these post-judgment enforcement actions.

Charging Order Procedural Issues

Introduction

The procedure for obtaining a charging order involves filing a formal application with the court, providing proper notice to all affected parties, and serving the order once issued. In federal court, charging orders must comply with Federal Rule of Civil Procedure 69(a)(1), which requires adherence to state law procedures where the court is located. Regions Bank v. Stewart, Not Reported in F.Supp.2d (2011); SE Property Holdings, LLC v. Unified Recovery Group, LLC, Not Reported in F.Supp.3d (2014). The process typically requires: (1) a valid underlying judgment, (2) a formal application identifying specific LLC or partnership interests, (3) notice to the business entity and judgment debtor, (4) opportunity for hearing and response, and (5) proper service on all parties after issuance. Once obtained, charging orders must be served on both the judgment debtor and the affected business entities, with some jurisdictions requiring additional filing with regulatory authorities.

Federal Court Procedures for Obtaining Charging Orders

Federal courts follow Federal Rule of Civil Procedure 69(a)(1), which provides that "[a] money judgment is enforced by a writ of execution unless the court directs otherwise. The procedure on execution-and in proceedings supplementary to and in aid of judgment or execution-must accord with the procedure of the state where the court is located". Regions Bank v. Stewart, Not Reported in F.Supp.2d (2011). This means federal courts apply state substantive law while following federal procedural rules for post-judgment enforcement.
The application process requires strict compliance with local court rules. In Kearney Construction Co., LLC v. Bank of America, the Middle District of Florida denied charging order motions because the moving party failed to comply with Local Rule 3.01(g), which requires pre-filing conferences with opposing counsel. Kearney Construction Co., LLC v. Bank of America, Not Reported in F.Supp.3d (2015). The court emphasized that "a certification to the effect that opposing counsel was unavailable for a conference before filing a motion is insufficient to satisfy the parties' obligation to confer."
Federal courts retain jurisdiction to enforce judgments even after cases are closed. The Kearney Construction court applied the principle from Riggs v. Johnson County, 6 Wall. 166, 187 (1867), that "the jurisdiction of a court is not exhausted by the rendition of the judgment, but continues until that judgment shall be satisfied". Kearney Construction Co., LLC v. Bank of America, Not Reported in F.Supp.3d (2015). This allows creditors to seek charging orders in the same federal court that issued the underlying judgment.

State Court Application Requirements

State procedures vary but share common elements. Under Ohio law, as applied in Campbell v. 1 Spring, LLC, the judgment creditor must file a motion for charging order pursuant to R.C. 1706.342(A), which provides that "on application by a judgment creditor, the court may charge the membership interest of a judgment debtor". Campbell v. 1 Spring, LLC, Not Reported in N.E. Rptr. (2024). The statute's use of "may" indicates the trial court has discretion whether to issue a charging order.
In Iowa, DuTrac Community Credit Union v. Hefel demonstrates a more detailed procedural timeline. DuTrac Community Credit Union v. Hefel, 893 N.W.2d 282 (2017). The process involved: (1) filing a petition seeking deficiency judgment, (2) filing an application for charging order, (3) allowing intervention by interested parties, (4) conducting hearings on the application, (5) ordering the creditor to file a proposed charging order, and (6) entering the final charging order. The Iowa Supreme Court noted that "an application for a charging order is a postjudgment equitable proceeding" subject to de novo review.
Arizona follows similar procedures under A.R.S. § 29-655. In Brown v. Sperber-Porter, the District of Arizona required petitioners to file both petitions for charging orders and motions for orders to show cause. Brown v. Sperber-Porter, Not Reported in Fed. Supp. (2018). The court ordered the judgment debtors to serve the LLC entities with copies of the petitions and provided all parties opportunity to respond before granting the relief.

Standing

Only judgment creditors have standing to seek charging orders. In DuTrac Community Credit Union v. Hefel, the Iowa Supreme Court emphasized that Iowa Code section 489.503 provides that only a "judgment creditor" may seek a charging order. DuTrac Community Credit Union v. Hefel, 893 N.W.2d 282 (2017). The debtor must have a membership or partnership interest that can be charged, requiring the creditor to establish this through discovery or documentation.
Farmer v. Farmer addressed whether a judgment creditor who obtained judgments in one proceeding could file an application for a charging order in a different proceeding where the judgment debtor was already a party. Farmer v. Farmer, 979 N.W.2d 173 (2022). The South Dakota Supreme Court held that "the language in SDCL 47-34A-504 does not state or imply that a judgment creditor must be a party to the pending suit in which the creditor's application for a charging order is filed." This allows creditors who have obtained judgments in one court to seek charging orders in different proceedings where the judgment debtor and LLC are parties, as long as proper notice is given.
The burden of proof falls on the moving party. In Perez v. Dhillon, the Eastern District of California emphasized that "it is up to him, as the moving party, to establish his entitlement to the relief that he seeks". Perez v. Dhillon, Not Reported in Fed. Supp. (2020). The court found that serving as a registered agent for an LLC was insufficient evidence of membership interest, requiring more concrete proof such as operating agreements or sworn declarations from knowledgeable parties.

Notice Requirements

Proper notice to all affected parties is essential. Most state statutes explicitly require notice to the business entity. North Dakota's statute provides that a court may enter a charging order "following notice to the limited liability company of the application". Open Road Trucking, LLC v. Swanson, 936 N.W.2d 72 (2019). Similarly, South Dakota law requires notice to the limited liability company under SDCL 47-34A-504; Farmer v. Farmer, 979 N.W.2d 173 (2022).
Maryland Rule 2-649(b) requires that charging orders "shall be served on the partnership" in the same manner required for service of process. Rand v. Steinberg, Not Reported in Atl. Rptr. (2018). This establishes a formal service requirement equivalent to initiating litigation.
The notice must be actual and effective. In Biscayne Contractors, Inc. v. Redding, the D.C. District Court noted that a party "did not receive actual notice of the Charging Order until August 9, 2014" and "The Court has not seen any evidence that Abu-El-Hawa, operating pro se, had any knowledge of the restrictions of the Charging Order before August 9, 2014" that date. Biscayne Contractors, Inc. v. Redding, 219 F.Supp.3d 41 (2016). This timing was crucial for determining the order's enforceability.

Service of Charging Orders

Once issued, charging orders must be properly served on all affected parties. The Biscayne Contractors case illustrates the multi-step service process. Biscayne Contractors, Inc. v. Redding, 219 F.Supp.3d 41 (2016). After the court granted the motion and issued the charging order on May 5, 2014, the plaintiff: (1) filed the charging order with the D.C. Department of Regulatory and Consumer Affairs on May 6, 2014, and (2) delivered a copy to the affected party on August 9, 2014.
Service requirements include both the judgment debtor and the business entity. In [[ Site.2015KansasVisionMarketing | Vision Marketing Resources, Inc. v. McMillin Group, LLC ]], the District of Kansas ordered that "Plaintiff shall serve a copy of this Charging Order upon Judgment Debtors and Buffalo Nickel Trading, LLC and shall file a certificate of service indicating the manner and date of service". Vision Marketing Resources, Inc. v. McMillin Group, LLC, Not Reported in F.Supp.3d (2015). This demonstrates the dual service requirement on both individual debtors and business entities.
Some jurisdictions allow service through registered agents. In Law v. Zemp, the Oregon Supreme Court noted that "the order was served on Zemp through each of the companies' registered agent". Law v. Zemp, 362 Or. 302 (2018). This provides a practical mechanism for serving business entities through their official representatives.

Court Discretion and Hearing Procedures

Courts exercise significant discretion in granting charging order applications. The Campbell v. 1 Spring, LLC court explained that Ohio's statute indicates "the trial court has discretion as to whether to issue a charging order". Campbell v. 1 Spring, LLC, Not Reported in N.E. Rptr. (2024). Courts may require hearings and discovery before deciding applications.
In Brown v. Sperber-Porter, the federal court conducted multiple hearings and allowed discovery on contested issues. Brown v. Sperber-Porter, Not Reported in Fed. Supp. (2018). The court "granted the request for a period of discovery, set a discovery schedule, and set an evidentiary hearing" before ultimately granting the charging order petitions.
Some courts implement streamlined procedures with built-in objection periods. SE Property Holdings, LLC v. Unified Recovery Group, LLC demonstrates this approach. SE Property Holdings, LLC v. Unified Recovery Group, LLC, Not Reported in F.Supp.3d (2014). The Southern District of Alabama granted the application "unless the Defendants file an objection" within approximately nine days, with automatic effectiveness unless objections were filed.

Post-Issuance Registration and Filing Requirements

After issuance, charging orders may require additional filings for effectiveness. The Biscayne Contractors case shows filing with state regulatory authorities. Biscayne Contractors, Inc. v. Redding, 219 F.Supp.3d 41 (2016). The creditor filed the charging order with the D.C. Department of Regulatory and Consumer Affairs the day after the court issued it.
Interstate enforcement creates additional requirements. In McClure v. JP Morgan Chase Bank NA, the Colorado Court of Appeals 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 charging orders, unlike judgments, require the LLC to take specific actions.
Priority among competing charging orders typically follows a first-in-time rule based on service. The Colorado Supreme Court in McClure v. JP Morgan Chase Bank NA held that a charging order is typically entitled to priority over later-served charging orders, regardless of the order in which the competing creditors' judgments were entered. McClure v. JP Morgan Chase Bank NA, 393 P.3d 955 (2017).

Statutory Variations Across Jurisdictions

Different states provide varying procedural frameworks. Pennsylvania's 15 Pa.C.S.A. § 8853 provides that "on application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment" PA ST 15 Pa.C.S.A. § 8853. The statute includes detailed provisions for receivers and foreclosure procedures.
Florida's charging order statute at § 605.0503 contains special provisions for single-member LLCs FL ST § 605.0503. Unlike multi-member entities, single-member LLC interests may be subject to foreclosure sales if "a judgment creditor establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time."
Texas provides that charging orders constitute liens that "may not be foreclosed on under this code or any other law" TX BUS ORG § 101.112. This creates stronger protection for business entities by eliminating foreclosure as an enforcement mechanism.

Extinguishment and Successor Rights

Charging orders can be extinguished through various mechanisms. North Dakota's statute provides that "the member or transferee whose transferable interest is subject to a charging order may extinguish the charging order by satisfying the judgment and filing a certified copy of the satisfaction with the court that issued the charging order" Open Road Trucking, LLC v. Swanson, 936 N.W.2d 72 (2019).
Third parties may also acquire charging order rights by paying off judgments. The same North Dakota provision allows "a limited liability company or one or more members whose transferable interests are not subject to the charging order may pay to the judgment creditor the full amount due under the judgment and thereby succeed to the rights of the judgment creditor, including the charging order" Open Road Trucking, LLC v. Swanson, 936 N.W.2d 72 (2019).

Practical Implications

The procedural requirements for charging orders create several practical considerations for both creditors and business entities. Due process protections require proper notice to both judgment debtors and affected LLCs, which can create timing delays between application and enforcement. The requirement that charging orders serve as the sole and exclusive remedy in most jurisdictions protects LLC business operations from disruption while limiting creditor recovery options to distributions rather than forced liquidation.
Strict procedural compliance requirements create potential pitfalls for creditors, including local court rules for pre-filing conferences, specific notice provisions for business entities, and varying registration requirements across jurisdictions. These compliance costs are offset by the limited rights that charging orders provide, granting only assignee status rather than management control, which protects other LLC members' interests.
Interstate collection efforts face additional complexity when LLCs are formed in different states than where judgments are obtained. The domestication and registration procedures required for foreign charging orders create additional procedural hurdles and potential delays in enforcement.

Recent Developments

Several recent developments have modernized charging order procedures. Many states have updated their LLC statutes to provide clearer procedural guidance, such as Ohio's 2019 transition from R.C. 1705.19(A) to R.C. 1706.342, which clarified application requirements and notice provisions.

California Example

One of the biggest flaws with the charging orders is that, except for California, the states have not enacting coordinating procedures in their Enforcement of Judgments Laws. This has forced courts nationwide to consider motions for charging orders on an ad hoc basis — quite literally, making up the procedure as they go. By way of example, the simple California procedure follows:
CCP § 708.310.
If a money judgment is rendered against a partner or member but not against the partnership or limited liability company, the judgment debtor’s interest in the partnership or limited liability company may be applied toward the satisfaction of the judgment by an order charging the judgment debtor’s interest pursuant to Section 15907.3, 16504, or 17705.03 of the Corporations Code.
CCP § 708.320.
(a) A lien on a judgment debtor’s interest in a partnership or limited liability company is created by service of a notice of motion for a charging order on the judgment debtor and on either of the following:
(1) All partners or the partnership.
(2) All members or the limited liability company.
(b) If a charging order is issued, the lien created pursuant to subdivision (a) continues under the terms of the order. If issuance of the charging order is denied, the lien is extinguished.

While simple, the California procedure thus provides for the following:

1. A noticed motion for charging order;
2. Service both upon the D/M and the target entity;
3. A temporary lien created upon service of the motion (analogous to a lien being created on an asset that is the subject of a levy); and
4. The lien becomes permanent if the motion for charging order is granted, or the lien is extinguished if not.

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