2018 Opinions

2018 Site.Year2018ChargingOrderOpinions

2018 Charging Order Opinions

Brown v. Sperber-Porter, 2018 WL 4184372 (D.Ariz., Aug. 24, 2018).

♦ The United States District Court for the District of Arizona issued a report and recommendation concerning petitions for charging orders brought by Rickman Brown and fellow judgment creditors. These creditors sought to reach the interests of judgment debtors Joseph Baldino, Helen Baldino, the Baldino Family Revocable Trust, and the Meridian Financial Corporation Profit Sharing and Retirement Trust in two Arizona limited liability companies, Mortgages Ltd. Opportunity Fund MP 15 LLC and MP 17 LLC. The underlying litigation resulted in a December 2016 judgment for over 1.6 million dollars, with the petitioners asserting an outstanding balance of approximately 1.25 million dollars plus interest. The procedural history involved multiple orders to show cause, extensive discovery requests, and a hearing where the parties eventually reached a stipulation. Despite the debtors' pending motion seeking a judicial determination that the judgment had already been satisfied, the magistrate judge recommended granting the petitions for charging orders against the debtors' interests in both MP 15 and MP 17. The proposed orders specifically direct the managers and members of these LLCs to refrain from making any payments to the Baldino debtors and instead funnel any due monies or profits directly to the petitioners' counsel until the judgment is retired. Additionally, the court recommended that the petition regarding Meridian's interest in MP 17 be denied as moot and without prejudice, as the petitioners elected to withdraw that specific request pending further discovery. This recommendation serves as a procedural step under federal law, allowing parties fourteen days to file objections before a final district court ruling. Ultimately, the court found the charging orders appropriate under Arizona Revised Statute section 29-655, providing a legal mechanism for creditors to collect on unsatisfied judgments via the debtors' membership interests in the identified investment entities. ♦

Garcia v. Garcia, 2018 WL 2316522 (Cal.App. Distr. 5, Unpublished, May 22, 2018).

♦ The California Court of Appeal, Fifth District, addressed a dispute involving the foreclosure of economic interests in limited liability companies and subsequent allegations of breach of fiduciary duty. The plaintiffs defaulted on bank loans, leading to a judgment where the bank obtained a charging order and eventually foreclosed upon the plaintiffs' fifty percent economic interest in two family-owned companies managed by the defendant. After the foreclosure, the companies liquidated assets and distributed over five million dollars to the bank as the holder of the economic interests before dissolving. The plaintiffs sued, arguing they retained a separate right to their original capital contributions and accumulated capital accounts that should not have been transferred to the bank. They also alleged the manager breached his fiduciary duty by intentionally failing to make earlier distributions under the charging order, which they claimed precipitated the foreclosure and the liquidation of the businesses. The trial court dismissed the complaint without leave to amend and imposed sanctions for a related elder abuse lawsuit, ruling the claims were meritless. On appeal, the court held that under the Beverly-Killea Limited Liability Company Act, an economic interest includes the right to all distributions, including the return of capital; therefore, the plaintiffs retained no rights to their capital accounts once the bank foreclosed. However, the appellate court reversed the dismissal of the fiduciary duty claim regarding the failure to make distributions. It determined that a manager's discretionary decisions must be made in good faith and that the alleged failure to act in the best interests of the companies stated a valid cause of action. Consequently, the court also reversed the sanctions, directing the trial court to overrule the demurrer and allow the litigation to proceed. ♦

Regions Bank v. Kaplan, 2018 WL 3954344 (M.D.Fla., Aug. 18, 2018).

♦ The case of Regions Bank v. Kaplan involves a comprehensive fraudulent-transfer action presided over by United States District Judge Steven Merryday in the Tampa, Florida, Middle District of Florida. The litigation stems from judgments totaling several million dollars that Regions Bank obtained against multiple companies owned by Marvin Kaplan and his wife, Kathryn Kaplan. During those proceedings, the bank discovered that the Kaplan entities transferred more than $700,000 to Kathryn Kaplan and that MK Investing, a company managed by Marvin within his self-directed IRA, transferred over $600,000 in assets to another IRA-controlled entity, MIK Advanta. The defendants contended these transfers were legitimate loans repaid via the payment of attorney’s fees; however, the court characterized this defense as a post-hoc fabrication supported by amended tax returns and inconsistent testimony. Judge Merryday found the transfers to Kathryn Kaplan to be both actually and constructively fraudulent under Florida’s Uniform Fraudulent Transfer Act, noting that Kathryn was an insider and provided no value or collateral in exchange for the funds, which effectively depleted the debtor entities of their assets. Similarly, the court ruled that MK Investing's cash transfer of $73,973 and its assignment of a $370,500 interest in 785 Holdings to MIK Advanta were fraudulent acts intended to hinder creditors. Beyond the individual transfers, the court determined that MIK Advanta was a mere continuation of MK Investing, as both shared the same management, office, personnel, and assets, thereby rendering the successor entity liable for the original $1.5 million judgment. Although the court dismissed the de facto merger claim because the predecessor company had not technically dissolved and found no personal liability for Marvin Kaplan himself, it issued a permanent injunction to prevent further asset dissipation. The final court ruling directed the entry of judgments totaling $742,543 against Kathryn Kaplan and $1,505,145.93 against MIK Advanta. ♦

Saadi v. Maroun, 2018 WL 1282325 (M.D.Fla., March 13, 2018).

♦ The United States District Court for the Middle District of Florida addressed a motion filed by Plaintiff Edward T. Saadi seeking to collect on a 2009 judgment totaling ninety thousand dollars against Defendant Pierre A. Maroun. Following a history of unsuccessful collection efforts, Saadi moved for a judicial sale of the defendant interest in Maroun's International, LLC, which owned a valuable condominium where the defendant resided, or alternatively, for a charging order against that interest. The central legal issue revolved around Florida Statute section 605.0503, which dictates that a judicial sale of a member interest is only a viable remedy if the limited liability company is a single-member entity. If the entity has multiple members, the judgment creditor exclusive remedy under the statute is a charging order. A magistrate judge conducted an evidentiary hearing to determine the membership structure of the company. Saadi argued that the defendant was the sole member, citing state filings that listed no other individuals and evidence that the defendant used company bank accounts for personal expenses while the company failed to file tax returns. However, the defendant was permitted to supplement the record with affidavits and financial documents suggesting the existence of other members holding significant stakes. The magistrate judge ultimately found Saadi evidence unconvincing, noting that Florida law does not require all members to be listed in official state annual reports or articles of organization. Saadi filed objections to the magistrate judge recommendation and the decision to allow supplemental evidence, asserting hearsay and authentication concerns. District Judge Susan C. Bucklew overruled these objections, concluding that regardless of the supplemental evidence, Saadi failed to satisfy his burden of proof to show the company was a single-member entity. Consequently, the court adopted the magistrate recommendation, denying the judicial sale but granting a charging order against the defendant interest in the company. ♦

Golfwood Square LLC v. O'Malley, 2018 IL App (1st) 172220-U, 2018 WL 4370875 (Ill.App., Unpublished, Sept. 11, 2018).

♦ The Illinois Appellate Court affirmed a circuit court judgment ordering the turnover of funds from a defunct limited liability company to satisfy a substantial debt. The case originated from a 2012 settlement where Golfwood Square LLC obtained a nine hundred fifteen thousand dollar judgment against Michael O'Malley. To collect, Golfwood obtained a charging order against O'Malley’s interest in Shefield Street Group, which was the sole member of 3 Squared LLC. Following the sale of a condominium that was 3 Squared's only asset, the company became functionally defunct, yet O'Malley failed to dissolve it or distribute the remaining proceeds as required by the operating agreement. Instead, O'Malley maintained unfettered access to the account, using over eighty thousand dollars for personal expenses, legal fees for other entities, and various debts unrelated to 3 Squared. Golfwood eventually moved for an order directing the turnover of the remaining one hundred forty-four thousand dollars, arguing that O'Malley was using shell companies to circumvent the charging order. O'Malley appealed, asserting that the turnover order improperly pierced the corporate veil and granted Golfwood oversight of the companies' affairs. The appellate court disagreed, ruling that under the Limited Liability Company Act and the Code of Civil Procedure, the trial court acted within its authority to give effect to the original charging order. The court found that O'Malley had effectively treated the funds as his own, making the company a mere conduit for his personal expenditures. Because 3 Squared carried no direct liabilities and had ceased operations, the turnover was deemed a necessary measure to prevent O'Malley from evading his legal obligations. The decision emphasizes that courts may look beyond nominal corporate ownership when a debtor uses business accounts as a personal piggy bank to frustrate judgment creditors. ♦

Succession of McCalmont, 2018 WL 6521176 (La.App., Cir. 3, Dec. 12, 2018).

♦ The Louisiana Third Circuit Court of Appeal reviewed a discovery dispute involving the estate of Colleen McCalmont. Colleen had filed for divorce from James McCalmont III in 2016 but died in 2017 before the community property was partitioned. Her son, James McCalmont IV (Jay), was appointed executor and sought to compel discovery from his father to value the succession. The trial court ordered Mr. McCalmont to produce various financial, personal, and business records and to allow Jay entry onto certain properties for appraisal. On appeal, the Third Circuit addressed whether Jay, as a legal representative and assignee of the deceased member’s interest, was entitled to inspect the records of several limited liability companies (LLCs). Regarding the LLCs, the court reversed the trial court’s order. Citing the Louisiana Limited Liability Companies Act and the specific operating agreement for J-Mack Industries, the court held that while an assignee is entitled to allocations and distributions, they lack management rights, including the right to inspect books or records. The court noted that these rights are reserved exclusively for members, and Jay had not been admitted as a member. However, the court affirmed the trial court’s discovery orders concerning Mr. McCalmont’s personal financial records, documents related to the McCalmont Family Trust, and access to immovable property. The court found that Jay demonstrated good cause and relevancy for these items, as they were reasonably calculated to lead to the discovery of admissible evidence regarding the valuation of the estate and potential reimbursement claims for the use of community funds. Specifically, the court allowed discovery into expenses related to Mr. McCalmont’s paramour and bank records dating back to 2011 to determine the value of community accounts. Ultimately, the judgment was affirmed in part regarding personal and community property information but reversed concerning the production of LLC business, financial, and tax records. ♦

Rand v. Steinberg, 2018 WL 4183449 (Md.Spec.App., Unreported, Aug. 31, 2018).

♦ The Court of Special Appeals of Maryland addressed a protracted collection dispute stemming from a 2004 conflict between Steven Steinberg and attorney Charles S. Rand. Steinberg sought to satisfy a 40,000 dollar consent judgment by charging Rands interest in his single-member entity, McKernonRand, LLC. A 2014 circuit court order initially restrained Rand from transferring LLC assets but permitted him a 2,000 dollar monthly partnership draw. However, after Rands indefinite suspension from the practice of law in 2015, the circuit court modified this arrangement in 2016, terminating the monthly draw and ordering that funds from a separate judgment against a garnishee be deposited into the court registry due to a related conservatorship proceeding. Both parties appealed the denial of their respective motions to alter or amend this modified order. The appellate court first established its jurisdiction, concluding that while the denials were not final judgments, they were appealable interlocutory orders under Maryland Code section 12-303(1) because they concerned the possession of property and the charging of income generated therefrom during enforcement proceedings. Turning to the merits, the court affirmed the circuit courts decisions, finding no abuse of discretion. It determined that the suspension of the partnership draw was reasonable given Rands loss of his law license and that the decision to defer further modification of the charging order was appropriate in light of the ongoing conservatorship case. The court also dismissed Rands procedural challenges regarding service and due process, noting that the charging order process is an enforcement mechanism that generally requires service of the resulting order rather than the initial motion. Ultimately, the appellate court found the circuit courts logic sound and affirmed the judgments in their entirety. ♦

Morgan Stanley Smith Barney LLC v. Johnson, 2018 WL 4654711 (D.Minn., Sept. 27, 2018).

♦ The United States District Court for the District of Minnesota addressed a motion to appoint a receiver and issue a charging order to enforce a final judgment exceeding 1.5 million dollars. The plaintiffs, collectively referred to as Morgan Stanley, sought to collect compensatory damages awarded during a FINRA arbitration. Despite the judgment being confirmed in 2017, the defendant, Christopher Johnson, had only paid a negligible amount, leading the plaintiffs to seek extraordinary equitable remedies against his interests in various limited liability companies and other personal assets. The court granted a charging order under Minnesota’s LLC statute, which mandates that the companies redirect any distributions intended for Johnson to the judgment creditors. Recognizing the plaintiffs' argument that Johnson might be using loan interest payments as a subterfuge to avoid making reachable distributions, the court also appointed Timothy G. Becker as a receiver. The receiver was granted the authority to examine the financial records of the LLCs, perform a full accounting of transactions dating back to 2015, and determine if the defendant was concealing assets. While the court declined the plaintiffs' immediate request to foreclose on Johnson's equity interests, finding that the one-year period since judgment did not yet warrant such a drastic measure, it left the door open for future foreclosure if the receiver finds evidence of bad faith. Furthermore, the court found the appointment of a receiver over non-LLC property appropriate under federal equitable principles, citing the validity of the claim and the failure of conventional collection methods. The receiver is tasked with reporting asset findings and making recommendations for liquidation to satisfy the debt. Finally, the order requires the receiver to post a 250,000 dollar bond and compels Johnson to cooperate fully with all investigations. ♦

PNC Bank v. Walnut Grove Office Gardens, LLC, N.D.Miss. 17-MC-17 (Oct. 5, 2018).

♦ The United States District Court for the Northern District of Mississippi addressed a motion for a charging order filed by the plaintiff to recover over four million dollars from defendant Walter D. Wills, III. The litigation began in the Western District of Tennessee through a breach of contract claim involving three corporate entities and Wills as a guarantor. In 2014, summary judgment was awarded to PNC Bank, establishing significant financial liabilities across multiple loan defaults. An amended judgment was formally entered in Tennessee on October 4, 2017, following the termination of a court-ordered receivership. Seeking to collect on this judgment, PNC Bank registered the certification in Mississippi on November 2, 2017, and subsequently moved to charge Wills’ interests in several local entities, including AG Pipeline, LP, Kirby-Willis Plantation, LP, KWP Sayle, LLC, and KWP Utility Company, LLC. District Judge Debra M. Brown analyzed the request under 28 U.S.C. Section 1963, which details the requirements for registering federal judgments across districts. The statute stipulates that a judgment may be registered only after it becomes final by appeal or following the expiration of the legal timeframe for filing an appeal. The court observed that PNC Bank registered the judgment just twenty-nine days after its entry, failing to wait the full thirty days required by Federal Rule of Appellate Procedure 4. Because the time for appeal had not yet expired, the registration was deemed premature and legally insufficient to support enforcement actions. Judge Brown clarified that the amended judgment reset the appeal period due to its substantive changes. Ultimately, the court denied the motion without prejudice, allowing the bank the opportunity to renew its application once the judgment is registered in strict compliance with federal law. ♦

GenX Processors Mauritius Ltd. v. Jackson, 2018 WL 5777485 (D.Nev., Nov. 2, 2018).

♦ Dispute over discovery in aid of executing a default judgment. Following a 2015 judgment of $555,576.19 against Matthew G. Jackson and Symmetric Systems, LLC, the plaintiff sought to recover funds after Jackson allegedly used various entities to shield personal assets. The court previously issued charging orders against nine entities tied to Jackson, including Vinum, Inc. and Ecommerce Marketing, Inc. The current matter arose from the plaintiff's motion to compel these Charged Entities to respond to subpoenas duces tecum requesting financial records, tax returns, and corporate documents. The Charged Entities objected, arguing that the plaintiff's remedy was limited to the charging orders and that the discovery was irrelevant. The court first addressed personal jurisdiction over Ecommerce Marketing, Inc., concluding it was Jackson's alter ego due to his total control as sole owner and officer. Therefore, the court attributed Jackson's Nevada contacts to the entity. Regarding the subpoenas, the court applied the broad discovery standards of Federal Rule 69, which allows inquiries into nonparties with close ties to a judgment debtor to trace concealed assets. The court found that Jackson's history of obstruction and his position as the sole operator of these entities justified the probing discovery. It specifically ruled that the need for tax returns outweighed privacy interests because of reasonable suspicions regarding asset transfers. While the court granted the motion to compel and ordered the entities to produce the documents by November 26, 2018, it denied the plaintiff's request for attorney's fees. The court explained that under Rule 45, nonparties are excused from compliance once they serve timely objections until a court order is issued, making Rule 37 sanctions inapplicable. ♦

Ilani v. Abraham, D.Nev. Case No. 2:17-CV-692 (Aug. 21, 2018).

♦ The United States District Court for the District of Nevada issued an order on August 21, 2018, addressing the post-judgment enforcement efforts of Plaintiffs Ezra and Cathy Ilani. The plaintiffs filed applications requesting judgment debtor examinations of Simon S. Abraham and KDA Holdings, LLC, along with an ex parte application for charging orders against various business entities. Magistrate Judge Peggy A. Leen denied all three applications without prejudice, citing specific legal deficiencies in each. First, regarding the individual examination of Simon Abraham, the court observed that Federal Rule of Civil Procedure 69 requires enforcement proceedings to follow the procedures of the state where the court sits. Under Nevada Revised Statute 21.270(1), a judgment debtor cannot be required to appear for such an examination outside the county of their residence. Because the plaintiffs did not provide evidence that Mr. Abraham resided in Clark County, Nevada, where the court is located, this request was legally insufficient. Second, the court addressed the plaintiffs' attempt to compel the appearance of a specific person most knowledgeable for defendant KDA Holdings. The court clarified that while Federal Rule 30(b)(6) allows for the deposition of a corporate representative, the discovering party is limited to describing the topics of examination with reasonable particularity. The legal right to designate and prepare the specific witness who will speak for the corporation belongs to the organization itself, not the party seeking the discovery. Finally, the court declined to issue charging orders because the plaintiffs based their request on mere information and belief regarding the debtors' interests in various entities rather than providing factual proof. Additionally, the application failed to address the applicability of Nevada Revised Statute 78.746(2). Because of these failures to meet statutory and procedural requirements, the court denied the motions while allowing the plaintiffs to correct these issues in future filings. ♦

In re Yow, 590 B.R. 696 (Bk.E.D.N.C. 2018).

♦ In re Yow (2018) is a bankruptcy case from the United States Bankruptcy Court for the Eastern District of North Carolina regarding the liquidation of Lionel L. Yow's estate. The primary dispute involved a motion by the Chapter 7 trustee to sell the debtor's membership interests in several limited liability companies, specifically Decoy Investments, LLC and Yow Mercedes Investments, LLC. Other members of these entities objected, asserting that the operating agreements provided them with rights of first refusal and required their consent for any transfer. The court first addressed whether the operating agreements were executory contracts under the Countryman standard. It determined they were not because the members had no material unperformed obligations, meaning the trustee could neither assume nor reject them under Section 365 of the Bankruptcy Code. Next, the court evaluated whether the transfer restrictions constituted unenforceable ipso facto clauses. It concluded they were not because the provisions did not automatically forfeit or terminate the debtor's interest upon filing for bankruptcy but instead provided a purchase option. Central to the ruling was the bifurcation of membership interests under North Carolina law into economic interests, such as the right to receive distributions, and non-economic interests, such as voting rights. The court found that the specific language in the operating agreements for both Decoy and Mercedes explicitly allowed for the unrestricted transfer of a member's right to receive income. Although the Mercedes agreement contained internal contradictions, the court applied principles of contract interpretation to favor the specific permission for economic transfers over general restrictions on the entire membership interest. Ultimately, the court held that the trustee had the authority to sell the debtor's bare economic interests without offering them to other members first or obtaining their approval, as the trustee was not attempting to convey non-economic rights. The motion to sell was allowed. ♦

Law v. Zemp, 362 Or. 302 (Jan. 11, 2018).

♦ The Supreme Court of Oregon clarified the extent of a trial court’s authority to incorporate ancillary provisions into a charging order aimed at a judgment debtor’s interests within limited partnerships and limited liability companies. This case originated when Robert Law, seeking to satisfy a judgment against Ronald Zemp, obtained a charging order against Zemp’s distributional interests in four family limited partnerships and one limited liability company. Beyond simply charging the interests, the trial court imposed several restrictive conditions, including prohibitions on the entities making loans or acquiring capital without approval and mandates for the entities to provide extensive financial documentation and tax records to the creditor. The affected entities appealed, contending that these ancillary requirements improperly interfered with business management and exceeded statutory bounds. Upon review, the Supreme Court of Oregon held that trial courts do indeed have either specific or general statutory authority to include ancillary provisions in charging orders for both types of entities. Regarding limited partnerships, the Court found that the authority is incorporated through the linkage between ORS 70.295 and the broader partnership provisions of ORS chapter 67. For limited liability companies, the Court identified authority within ORS 1.160, which empowers courts to employ necessary means to effectuate their jurisdiction. Crucially, the Court established a standard requiring that such ancillary provisions must be necessary to provide the judgment creditor access to the debtor’s distributional interest while avoiding undue interference with the company’s internal management. Ultimately, the Court determined that the existing record did not support the necessity of the challenged provisions in this case. The Court therefore reversed the Court of Appeals, vacated the trial court’s order, and remanded the case for further proceedings to evaluate the necessity of the provisions under the newly defined standard. ♦

Estate of Bentley v. Byrd, 2018 WL 930921 (Tenn.App., Feb. 15, 2018).

♦ The case of Estate of Bentley v. Byrd involves an appeal from the Madison County Circuit Court regarding the enforcement of a foreign judgment under the Uniform Enforcement of Foreign Judgments Act. Mark Bentley, the judgment creditor, initiated the action to enroll an Alabama monetary judgment for 1.35 million dollars against Wood Byrd, seeking specifically to execute on Byrd's ownership interests in Hishbach Partners. Despite the early concerns raised by the partnership regarding the lack of service on the judgment debtor, the trial court issued a charging order in 2008 and subsequently authorized the foreclosure of Byrd's interest in 2015 after Mark Bentley's estate was substituted as the plaintiff. The Tennessee Court of Appeals ultimately vacated these orders, ruling that the trial court failed to obtain personal jurisdiction over Byrd. Under Tennessee Code Annotated section 26-6-105, a summons must be served upon a judgment debtor, and no execution process may issue until thirty days after such service is completed. The appellate court found that the record lacked any evidence of proper service and dismissed the trial court's prior reasoning that actual and constructive notice sufficed. Furthermore, the court rejected the Estate's primary argument that Byrd had waived his right to contest personal jurisdiction when his out-of-state counsel participated in a 2014 telephone conference to request a continuance of a scheduled hearing. Citing established precedent, the court held that a simple motion or request for a continuance does not constitute a waiver of service of process defenses. The appellate court also clarified that because a judgment rendered without personal jurisdiction is void rather than merely voidable, it remains subject to challenge at any time and did not require a direct appeal immediately following the 2008 order. Consequently, all execution orders were vacated, and the case was remanded with instructions that any future enforcement must strictly adhere to statutory service requirements. ♦

Timberland Bank v. Mesaros, 2018 WL 2215463 (Wa.App., Unpublished, May 15, 2018).

♦ The Court of Appeals of Washington dismissed an appeal by Shawn A. Mesaros concerning a trial court's charging order as moot. The case originated after Timberland Bank obtained a judgment against Mesaros and moved to charge his transferable interest in Pamria, LLC with the unsatisfied portion of the debt. The resulting charging order not only charged his interest but also required Mesaros to produce LLC records, restrained him from managing the company, foreclosed his interest, and ordered a sheriff's sale. Mesaros contested the document production and management restriction requirements, arguing they exceeded statutory authority under RCW 25.15.251 and .256. However, he did not challenge the foreclosure or the subsequent sale of his interest to a third party. The appellate court determined that because Mesaros's entire interest in the LLC had been sold during the pendency of the appeal, he was dissociated from the company by operation of law according to RCW 25.15.131. Consequently, he no longer possessed management rights or any legal interest in the entity, rendering the court unable to provide effective relief even if his arguments were valid. The court further rejected Mesaros's contention that a reversal would assist in purging his related contempt orders, noting that parties must obey court orders until they are set aside, provided the court has proper jurisdiction. Since the sale of the LLC interest made the restoration of management rights or privacy of records irrelevant to Mesaros's current legal standing, the court officially dismissed the appeal without reaching the merits of the statutory arguments. This decision highlights the finality of foreclosure sales in the context of LLC charging orders and the high threshold for maintaining an appeal once the underlying property interest has been legally extinguished. ♦

SE Property Holdings, LLC v. The Rookery, LLC, S.D.Ala. Civil No. 11-0014-WS-C (April 13, 2018).

♦ United States District Court Judge William H. Steele issued an order on April 13, 2018, regarding a motion for a show cause order against defendant Richard Vail. The plaintiff sought to hold Vail in contempt for allegedly violating a 2013 charging order that required his company, Vail Construction, LLC, to distribute any due amounts to the plaintiff to satisfy a 2011 default judgment. SE Property Holdings argued that Vail, as the company’s sole member, effectively bypassed this order by using business funds to pay for personal expenses, such as residential mortgages, a boat purchase, personal loans, and payments to his ex-wife. To support these claims, the plaintiff submitted hundreds of pages of financial exhibits documenting various transfers. In response, Vail filed an affidavit explaining that many of the disputed transactions were for legitimate business purposes, including equipment purchases, material expenses, and business storage. He asserted that properties used by the company justified the payments made from its accounts. The plaintiff challenged Vail’s lack of corroborating documentation, but the court found that the plaintiff bore the initial burden of proof. Judge Steele ultimately denied the motion, ruling that the plaintiff had not met the high clear and convincing evidence standard required for a contempt finding. The court noted that while the transfers were documented, it was not clearly established that they constituted personal distributions rather than business expenses. Furthermore, the judge characterized the motion as premature, suggesting that the plaintiff should have utilized post-judgment discovery to uncover more concrete evidence before seeking a show cause order. Consequently, both the motion to strike Vail’s affidavit and the motion for a show cause order were denied, leaving the plaintiff to pursue further discovery to substantiate its allegations of wrongdoing. ♦

Golfwood Square LLC v. O'Malley, 2018 IL App (1st) 172220-U, 2018 WL 4370875 (Ill.App., Unpublished, Sept. 11, 2018).

♦ The Illinois Appellate Court affirmed a trial court order directing the turnover of funds from a third-party entity to satisfy a substantial judgment. In 2012, Golfwood Square LLC obtained a settlement judgment of 915,000 dollars against Michael O'Malley. To collect, Golfwood initiated supplementary proceedings and received a charging order against Shefield Street Group (SSG), which was 90 percent owned by O'Malley. SSG was the sole member of 3 Squared LLC, a company created specifically to hold a Chicago condominium. After 3 Squared sold its primary asset in 2014, it retained approximately 224,000 dollars in proceeds. Despite the company being defunct, O'Malley did not dissolve it or distribute the funds through SSG as required. Instead, he maintained unfettered access to the account and spent roughly 80,000 dollars on personal expenses, legal fees, and debts for other business ventures. Golfwood filed a motion for a turnover order for the remaining 144,000 dollars, asserting that O'Malley used 3 Squared as a shell to bypass the 2013 charging order. The trial court granted the motion, concluding that 3 Squared held assets belonging to O'Malley that should satisfy the judgment. O'Malley appealed, claiming the order improperly pierced the corporate veils of his companies and granted Golfwood undue control over their management. The appellate court rejected these claims, noting the order did not impose personal liability for corporate debts but targeted assets the debtor treated as personal funds. Because 3 Squared had no active business operations or direct liabilities, the court held the turnover was legally authorized under the Code of Civil Procedure and the Limited Liability Company Act to prevent O'Malley from evading his obligations. Consequently, the appellate court affirmed the decision, ensuring the remaining funds were applied toward the outstanding judgment. ♦