2017 Opinions

2017 Site.Year2017ChargingOrderOpinions

2017 Charging Order Opinions

JPMorgan Chase Bank v. McClure, 2017 CO 22, 2017 WL 1321334 (Colo., April 10, 2017).

♦ The Colorado Supreme Court resolved a priority dispute between judgment creditors regarding a debtor's membership interests in three Colorado limited liability companies (LLCs). The petitioner, JPMorgan Chase Bank (Chase), obtained Arizona judgments and charging orders against the debtor, an Arizona resident, and served the Arizona orders on the Colorado LLCs. Chase also domesticated its Arizona judgment in Colorado but did not initially domesticate the charging orders. Meanwhile, the respondents, the McClures, obtained their own Arizona judgment, domesticated it in Colorado, and then secured and served Colorado-issued charging orders. The central legal issue was whether Chase’s prior service of undomesticated foreign charging orders took precedence over the McClures' later service of Colorado-issued orders. The Court first held that a membership interest in an LLC is located in the state where the LLC was formed, regardless of the debtor’s domicile, to ensure consistency and minimize the burden on the entity. It further concluded that a foreign charging order that requires a Colorado LLC to redirect distributions is not effective or enforceable until the creditor takes formal steps to obligate the company under Colorado law, such as domesticating the foreign order or obtaining a local one. Although Chase served its Arizona orders before the McClures acted, those orders were not enforceable in Colorado at the time of service. Because the McClures were the first to serve orders that were legally enforceable in Colorado, their claims were entitled to priority under the first-in-time rule. The Supreme Court affirmed the Court of Appeals, concluding that simply serving a foreign order is insufficient to establish priority over subsequent local or domesticated orders. This decision clarifies that creditors must comply with Colorado’s domestication procedures to effectively bind a Colorado LLC and secure their priority status. ♦

U.S. v. Wilhite, 2017 WL 5517410 (D.Colo., Nov. 17, 2017).

♦ The United States District Court for the District of Colorado, with Judge Christine M. Arguello presiding, issued an order on November 17, 2017, denying Michael David Wilhite’s motion for reconsideration regarding his ownership interest in AFC and the assets of the Yahab Foundation. This legal dispute arose from the government’s efforts to garnish those interests to satisfy a significant restitution obligation imposed after a 2000 criminal conviction. Wilhite presented three primary arguments in his request for the court to reverse its prior decision. First, he claimed that newly available evidence in the form of tax returns demonstrated he did not intend to defraud creditors. However, the court ruled that these returns were not actually new, as they had been available to the defendant for years, and a motion for reconsideration is not a proper vehicle for rehashing arguments that were already considered and rejected. Second, Wilhite argued that the government’s attempt to garnish his assets was barred by the four-year statute of limitations under the Colorado Uniform Fraudulent Transfer Act and the six-year period under the Federal Debt Collection Procedures Act. The court dismissed this reasoning, explaining that when the United States acts in its sovereign capacity to enforce a criminal restitution lien, it is not subject to state-level limitations. Moreover, the Mandatory Victim’s Restitution Act provides the government with broad authority to collect restitution for twenty years after a defendant's release, superseding other restrictive timeframes. Third, Wilhite contended that under Colorado law, he held no individual interest in the specific funds AFC transferred to the Yahab Foundation. The court rejected this technicality, finding that the transfer was substantively a distribution of profits to which Wilhite was entitled, thus making the funds subject to garnishment. Ultimately, the court found no manifest injustice in allowing the government to collect funds that had been fraudulently concealed. By denying the motion for reconsideration, the court also rendered Wilhite’s motion to stay moot. ♦

Branch Banking & Trust Co. v. Crystal Centre, 2017 WL 57345 (M.D.Fla., Jan. 5, 2017).

♦ The United States District Court for the Middle District of Florida considered a motion for a charging order filed by Branch Banking and Trust Company against Oswald P. Carrerou’s interests in ten Florida limited liability companies to satisfy a significant judgment of over nine hundred thousand dollars. The legal dispute centered on whether Mr. Carrerou held these interests as a tenancy by the entireties with his wife, Leah Carrerou. Under Florida law, property held in this manner is exempt from the claims of creditors of only one spouse, provided six specific unities are met, including the unity of marriage and interest. Initially, Magistrate Judge Amanda Arnold Sansone recommended granting the charging order for Lake Sears Shores, LLC, Idylwild Luxury Homes, LLC, Mid–Horizon Investments, LLC, and Sands Aviation, LLC, while denying it for the remaining six entities where public records clearly supported joint ownership. District Judge James S. Moody, Jr. later reviewed this recommendation alongside objections and new evidence. The Court adopted the Magistrate’s findings for the six entities held as tenancy by the entireties and for Lake Sears Shores, LLC, which was not. However, the Court reversed the recommendation regarding Idylwild Luxury Homes, LLC, Mid–Horizon Investments, LLC, and Sands Aviation, LLC after the defendants provided previously unsubmitted corporate documents showing the couple acquired units together as a tenancy by the entireties. Ultimately, the Court granted the charging order only for Lake Sears Shores, LLC and denied it without prejudice for the other nine companies, permitting the plaintiff to renew its motion if future discovery contradicts the presumption of joint ownership. The ruling also granted the plaintiff’s request for reasonable attorney’s fees and costs incurred during the motion process, illustrating the critical role of documentation in establishing asset exemptions during post-judgment execution. ♦

Capstone Bank v. Perry-Clifton Enterprises, LLC, 2017 WL 5894915 (Fla.App., Nov. 30, 2017).

♦ The Florida First District Court of Appeal addressed the priority of competing claims against a member's interest in a Florida limited liability company. The trial court had granted priority to an Alabama divorce judgment obtained by Christy Richards, treating it as a de facto charging order that preceded Capstone Bank's formally issued charging order. However, the appellate court reversed this decision, clarifying that under Section 605.0503 of the Florida Statutes, a charging order is the sole and exclusive remedy for a judgment creditor to satisfy a debt from an LLC interest. Because the former wife had only recorded her foreign judgment and had not applied for or obtained a specific charging order as required by Florida law, her lien did not carry the same legal weight or priority as the bank's perfected charging order. In the related case of Capstone Bank v. WinSouth Credit Union, the court again reversed a trial court’s priority determination involving competing bank claims. The court found that WinSouth’s charging order was deficient because its underlying Alabama judgment had not been properly domesticated against the individual debtors in Florida, having only been recorded against a corporate entity. The court emphasized that the mere recording of a foreign judgment is insufficient for enforcement against specific individuals unless domestication is established for each. Furthermore, the concurring opinion highlighted that priority is generally governed by the date an enforceable charging order is actually issued by a court, rather than the date the underlying judgment was domesticated. In both instances, the appellate court strictly interpreted Florida's charging order statutes and domestication requirements, underscoring that creditors must follow precise procedural steps to secure and maintain priority over a debtor’s membership interests in a limited liability company. These rulings reinforce the principle that statutory compliance is paramount in complex commercial litigation and debt collection. ♦

DuTrac Community Credit Union v. Hefel, 2017 WL 461211 (Iowa 2017).

♦ The Supreme Court of Iowa addressed several issues regarding judgment collection, specifically the validity of a charging order against a debtor's interest in a limited liability company and the legality of multiple levies under a single execution. The litigation followed the default of Star Properties, LLC, on loans personally guaranteed by Douglas and Sheila Hefel. Although the Hefels filed for bankruptcy and initially received a discharge, the bankruptcy court later revoked the discharge after finding the Hefels had fraudulently concealed numerous assets. DuTrac subsequently obtained a deficiency judgment in Iowa district court and sought a charging order against Douglas Hefel’s transferable interest in Westgate Communities, LLC. The district court granted the charging order but quashed several garnishments and levies, concluding that multiple such actions were improper under state law. On appeal, the Supreme Court of Iowa affirmed the charging order, dismissing the Hefels' arguments regarding accord and satisfaction, election of remedies, and waiver. The court determined these defenses were inapplicable because DuTrac was not a party to the bankruptcy trustee’s compromise agreement and the right to seek a charging order as a judgment creditor only materialized after the fraudulent discharge was revoked. Furthermore, the court held that Westgate's operating agreement restrictions on transferring ownership did not prevent a charging order, as the order only encumbers the right to distributions rather than transferring management rights or membership. Regarding the procedural aspect of execution, the Supreme Court reversed the district court's decision to quash the garnishments. Interpreting Iowa Code section 626.3, the court held that while only one execution may exist at a time, a creditor is permitted to direct the sheriff to perform multiple garnishments or levies to satisfy that single execution. Consequently, the case was remanded for further proceedings consistent with the validity of both the charging order and the multi-asset execution strategy. ♦

S.E. Property Holdings, LLC v. Chunn, 2017 WL 5167249 (La.App., Nov. 8, 2017).

♦ The Court of Appeal of Louisiana, Third Circuit, addressed a discovery dispute involving efforts by plaintiff S.E. Property Holdings, LLC, also known as SEPH, to collect a multimillion-dollar deficiency judgment against defendant Donald Keith Chunn. SEPH issued subpoenas duces tecum to several banks seeking the financial records of various limited liability companies in which Chunn allegedly held membership or management interests. These entities, acting as non-party movants, filed motions to quash the subpoenas, arguing that SEPH was not entitled to their private financial information. The trial court quashed the subpoenas, with the exception of one directed to Chunn's wife, and SEPH appealed. On appeal, SEPH contended that general discovery rules and the law governing judgment debtor examinations entitled it to the records because they were relevant to locating Chunn's assets and good cause existed for their production. However, the appellate court affirmed the trial court's ruling, emphasizing that specific provisions of the Louisiana Limited Liability Company Act control over more general discovery statutes. The court explained that under Louisiana Revised Statute 12:1331, a judgment creditor of a member is restricted to obtaining a charging order, which grants the creditor only the rights of an assignee rather than those of a full member. As an assignee, a creditor is entitled to receive distributions or shares of profits to which the member would be entitled but lacks management powers or the right to access the internal financial documents of the business. Because SEPH had not been admitted as a member of the companies, it remained a mere assignee and lacked legal standing to subpoena the entities' records. The court concluded that the trial court did not abuse its broad discretion, effectively protecting the non-party entities from discovery by a non-member. ♦

German American Capital Corp. v. Morehouse, 2017 WL 3411941 (D.Md., 2017).

♦ The United States District Court for the District of Maryland addressed a motion by Plaintiff German American Capital Corporation (GACC) for a charging order against Defendant Dean F. Morehouse’s membership interest in Residences at Savannah Harbor, LLC. This request aimed to satisfy a 2013 judgment exceeding $23 million, of which approximately $11 million remained unpaid following Morehouse’s default on a 2014 forbearance agreement. Morehouse initially consented to the charging order but later sought leave to file a supplemental memorandum, arguing that the forbearance agreement barred GACC from seeking a lien against his interest in the LLC because the entity held the Brampton Property, which he claimed was exempt under the contract. Judge George J. Hazel first addressed whether Maryland law permits a charging order against a foreign limited liability company. Although the LLC was formed in Georgia, the court concluded that Maryland statutes, when read in conjunction with definitions of economic interests and personal jurisdiction over the debtor, allow for such orders against foreign entities. Regarding the procedural request, the court denied Morehouse leave to file the supplemental memorandum, finding he failed to demonstrate due diligence or excusable neglect for his delay in locating the relevant contractual provisions. Even upon considering the merits of Morehouse's late argument, the court found it unpersuasive. The court interpreted the forbearance agreement under Maryland’s objective theory of contracts, noting that Paragraph 10 clearly allowed GACC to enforce its full rights under the original judgment upon a termination event, such as Morehouse’s admitted default. The court determined that the specific provision regarding the Brampton Property did not survive the termination of the forbearance agreement. Consequently, the court granted GACC’s motion for the charging order, facilitating the collection of the outstanding judgment from Morehouse’s membership interest in the company. ♦

St. Louis Bank v. Kohn, 2017 WL 1650034 (Mo.App., May 2, 2017).

♦ The Missouri Court of Appeals for the Eastern District addressed an appeal regarding a trial court's grant of a charging order and appointment of a receiver in a post-judgment collection action. The case originated from a 2009 default judgment for 80,877.07 dollars against Michael and Catherine Kohn, which was subsequently assigned to Gaol Holdings, LLC. To collect on the judgment, Gaol Holdings filed a verified motion for a charging order against the Kohns' interests in several limited liability companies and partnerships. The trial court granted this motion and later appointed a receiver over the specified entities. On appeal, the Kohns challenged the legal sufficiency of the charging order application. The appellate court first determined that the appointment of a receiver after a post-judgment charging order constitutes a special order after final judgment and is therefore appealable under Missouri law. Moving to the merits, the court emphasized that a motion for a charging order is not self-proving and requires the movant to provide evidence of the allegations, such as the debtors' ownership interests and the exact amount of the outstanding debt. The court found that the motion filed by the respondent's counsel was based on probable interests and lacked sufficient evidence of personal knowledge regarding the calculating of interest or the debtors' specific holdings. Furthermore, the court noted that referencing discovery documents without producing them violated the best evidence rule and rendered the supporting statements inadmissible hearsay. Consequently, the appellate court held that the charging order was invalid and unenforceable due to the lack of substantial evidence. Because a valid charging order is a prerequisite for a receivership in this context, the court reversed the trial court's judgment and remanded the case with instructions to deny the motion for a charging order and the appointment of a receiver. ♦

Peach REO, LLC v. Rice, 2017 WL 2963511 (W.D.Tenn., July 11, 2017).

♦ The United States District Court for the Western District of Tennessee issued an order on July 11, 2017, addressing two motions related to post-judgment execution. The court first denied the plaintiff's Second Motion to Reopen the case, ruling that formal reopening is unnecessary for a judgment creditor to pursue execution or discovery. The judge emphasized that the court maintains ancillary jurisdiction to ensure its prior judgments are satisfied and that Rule 69 provides sufficient authority for post-judgment actions. Regarding the Motion for Charging Order, the plaintiff sought to reach the interests of defendant Malcolm Kyle Rice in eight specific limited liability companies. The court denied the motion as to Palladian Partners IV, LLC and M. Kyle Rice Properties, LLC because the defendant’s membership in these entities was contested. However, it granted the motion for the six other companies: Cash Depot of Mississippi, Cash Depot of Tennessee, Cash Depot Title Loans of MS, Financial Management Services, Palladian Partners 2001, and Palladian Partners V. Applying choice-of-law rules from Tennessee, Mississippi, and Delaware, the court determined that a charging order functions as a lien on the debtor's financial rights rather than a prohibited assignment of those rights. This distinction allowed the court to bypass antiassignment clauses in the companies' operating agreements. Finally, the court granted discovery relief by ordering the defendant to report any amounts due or distributable from all eight entities, as well as their respective assets, within thirty days. The court clarified that the broad scope of post-judgment discovery under Rule 69 allows for such requests regardless of whether a charging order was currently in place for a particular entity. This order ensures the plaintiff can continue efforts to satisfy the outstanding March 2014 money judgment against the defendants. ♦

Gillet v. ZUPT, LLC, 2017 WL 716633 (Tex.App. 14th Distr., Feb. 23, 2017).

♦ The Court of Appeals of Texas for the Fourteenth District reviewed a trial court order for turnover and the appointment of a receiver. Joel Gillet, a minority owner of ZUPT, LLC, originally sued to force a buyout of his 45 percent interest. ZUPT counterclaimed, alleging Gillet misappropriated trade secrets for a competitor. An arbitrator awarded ZUPT over 1.8 million dollars for Gillet's breach of fiduciary duty and awarded Gillet 499,050 dollars for his membership interest, though the arbitrator refused to offset these amounts. Following the trial court's confirmation of the award, ZUPT obtained a turnover order to collect on its judgment. Gillet appealed, arguing that the court lacked evidence of non-exempt assets, that a charging order was the exclusive remedy for an LLC interest, and that the order conflicted with the final judgment. The appellate court reversed and remanded the turnover order. It concluded that while the trial court had sufficient evidence regarding Gillet's judgment award and his ownership interest, it abused its discretion by ordering the turnover of various other asset categories without any supporting evidence. Furthermore, the court found the turnover order inconsistent with the final judgment because it required Gillet to surrender his interest without explicitly mandating he receive a dollar credit equal to his judgment award, potentially allowing for undervaluation of his interest. Significantly, the court held that the statutory rule making a charging order the exclusive remedy for judgment creditors of LLC members did not apply here. The court reasoned that the underlying protections against disrupting business operations are irrelevant when the creditor is the entity itself and the judgment specifically requires the transfer of that interest. Consequently, the appellate court ordered the trial court to revise the turnover order to align with the final judgment's valuation requirements. ♦

Heckert v. Heckert, 2017 WL 5184840 (Tex.App., Nov. 9, 2017).

♦ The Court of Appeals of Texas in Fort Worth issued a memorandum opinion in Heckert v. Heckert regarding a turnover order used to satisfy a personal-injury judgment. Teresa Heckert obtained the order against her former husband, Clyde Heckert, Jr., following a $381,342.47 jury award. Both parties appealed various aspects of the trial court's decision. The appellate court primarily addressed whether specific assets were exempt from turnover and the applicability of the Texas turnover statute. Clyde successfully challenged the turnover of his Vanguard account. The court held that because the account was labeled a traditional IRA and Texas law requires liberal construction of exemption statutes in favor of debtors, the account was exempt under Section 42.0021 of the Property Code. Conversely, the court rejected Clyde's argument that his interests in A2R, Ltd. and Averse 2 Risk, LLC could only be reached through charging orders. It reasoned that since these entities were not operating businesses but were created to hold nonexempt assets, the turnover of Clyde's interests did not disrupt any legitimate business operations, and the charging order's exclusivity was inapplicable. Regarding Teresa's appeal, the court affirmed the trial court's refusal to order the turnover of a Fidelity account, concluding the evidence showed it contained exempt 401k rollover funds and post-divorce contributions. The court also upheld the admission of Clyde's testimony regarding the nature of those funds, ruling it was factual rather than expert opinion or hearsay. Finally, the court found no abuse of discretion in the trial court's decision to award Teresa $10,000 in attorney's fees instead of the requested $25,800, noting that fee awards should consider the complexity of the case and the results obtained. Ultimately, the court reversed only the portion of the order concerning the Vanguard account and affirmed all other rulings. ♦

Pajooh v. Royal West Investments LLC, Series E, 2017 WL 1173892 (Tex.App., March 30, 2017).

♦ The Texas Court of Appeals for the First District addressed the legal limits of receivership and turnover orders when a judgment creditor attempts to collect from a debtor's interest in limited partnerships and limited liability companies. The litigation followed a 2012 judgment against Danesh Pajooh and U.S. Capital Investments LLC that remained largely unsatisfied. Royal West initially secured charging orders against Pajooh's membership interest in U.S. Capital and the partnership interests of both debtors in County Investment LP. The trial court subsequently appointed a receiver with broad authority over the debtors' nonexempt assets, including the power to take possession of the assets and bank accounts belonging to County Investment LP, a third-party entity. The appellants challenged this order, contending it violated the Texas Business Organizations Code's provisions declaring charging orders to be the exclusive remedy for reaching a debtor's interest in such entities. The Court of Appeals reversed the trial court's order to the extent it imposed a receivership over the assets of County Investment LP and the debtors' specific membership and partnership interests. The court emphasized that the plain language of the Business Organizations Code limits a creditor's remedy to a charging order, which entitles the creditor only to distributions and not to the management or property of the entity. However, the court affirmed the appointment of the receiver over the judgment debtors themselves under the Texas Civil Practice and Remedies Code. It reasoned that a receivership is a valid tool for monitoring the debtors' affairs and ensuring that any future distributions from the entities are properly remitted to the creditor. This monitoring role was deemed particularly necessary because Pajooh's control over the entities created a risk that assets might be dissipated or distributions obscured. The case was remanded for proceedings consistent with these findings. ♦

Curci Investments, LLC v. Baldwin, 14 Cal.App.5th 214 (Cal.App.Distr. 4, 2017).

♦ The California Court of Appeal considered whether a judgment creditor (Curci) could use “outside reverse veil piercing” to reach the assets of an LLC (JPB Investments LLC, or JPBI) to satisfy a multimillion-dollar personal judgment against its controlling member, real estate developer James P. Baldwin. Curci argued Baldwin effectively owned and controlled JPBI (99% interest; his wife held 1%) and used it to avoid collection—treating it like a personal bank account, stopping distributions after judgment, and extending repayment terms on large insider loans tied to family estate-planning entities without consideration—rendering ordinary remedies like a charging order ineffective. The trial court denied Curci’s motion, believing reverse veil piercing was unavailable in California under Postal Instant Press, Inc. v. Kaswa Corp. On appeal, the court held Postal Instant Press was distinguishable because it addressed corporations, not LLCs, and because key policy concerns (like harming innocent shareholders) were not present on these facts; it also reasoned that the LLC charging-order statute does not categorically bar reverse piercing. The court reversed the denial and remanded for the trial court to conduct a fact-specific alter-ego/veil-piercing analysis (including whether Curci lacks a plain, speedy, and adequate legal remedy) to decide whether JPBI should be added as a judgment debtor. ♦

McClandon v. Dakem & Assoc., LLC, 219 So.3d 269 (Fla.App., 2017).

♦ Dakem sought to collect a twelve-year-old Nevada judgment (domesticated in Florida) from judgment debtor Joeann McClandon through proceedings supplementary targeting distributions from eleven LLCs in which she held a controlling interest. The trial court entered a charging order under section 605.0503, Florida Statutes, against McClandon’s transferable interests and, to enforce the order, appointed a receiver over four LLCs with broad authority that effectively made the receiver the companies’ financial officer and allowed managerial decision-making. On appeal, McClandon argued that a charging order is the “sole and exclusive remedy” for reaching a debtor’s interest in a multi-member LLC and does not authorize a receiver; Dakem responded that a receiver was permitted to give the charging order practical effect under the court’s continuing jurisdiction and equitable powers recognized in subsections 605.0503(7)(c)–(d). The Fifth District agreed in part: it held the trial court did not abuse its discretion by appointing a receiver to collect distributions subject to the charging order, but it exceeded the permissible scope by granting the receiver managerial control over the LLCs. Relying on RULLCA commentary, the court emphasized that a charging order divests only the debtor’s economic rights (profits/distributions) and does not permit interference with LLC management or acceleration of distributions. The order was therefore affirmed as to the charging order and receiver appointment, and reversed as to the provisions giving the receiver managerial/financial-officer control, leaving management with the LLCs. ♦

White v. White, 402 P.3d 136 (Utah.App., 2017).

♦ The Utah Court of Appeals affirmed orders entered in post-divorce proceedings arising from Dean White’s unpaid judgments to his ex-spouse, Julie White. Although the divorce decree awarded Dean the parties’ LLC (The White Empire, LLC)—which held title to a residential property—as well as “all right, title and interest” in that property, the property remained titled in the LLC, and Dean later lived there. To collect on approximately $53,000 in judgments, Julie sought a charging order against Dean’s LLC membership interest; before that hearing, the LLC sold the property and Dean, as sole member, received about $8,621 in net proceeds and dissolved the LLC. Dean claimed those proceeds were protected by Utah’s homestead exemption because the home had been his primary residence, but the courts rejected the claim, concluding the homestead exemption is a personal statutory right that requires a legally cognizable interest in the real property itself, and the property was owned by the LLC (an entity that cannot claim the exemption), while Dean’s membership interest is personal property that does not confer ownership of the LLC’s real property. The court also rejected Dean’s complaint about allegedly improper service of certain filings because he failed to show harmful error, denied Dean attorney fees (as a pro se litigant), and awarded Julie her attorney fees and costs on appeal. ♦