Adkisson's

Charging Orders

The Creditors' Primary Remedy Against A Debtor's

Interest In A Limited Liability Company Or Partnership

Caution state law variances!

 

The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more

 

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Shanghai

 

Shanghai Real Estate Ltd. v. Greenberg, 2014 WL 660624 (Conn.Super., Jan. 28, 2014).

 

UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING.

 

Superior Court of Connecticut, Judicial District of Litchfield.

 

SHANGHAI REAL ESTATE LIMITED

 

v.

 

Mark GREENBERG et al.

 

No. LLICV104011273S. | Jan. 28, 2014.

 

Attorneys and Law Firms

 

Withers Bergman LLP, New Haven, CT, for Shanghai Real Estate Limited.

 

Cramer & Anderson LLP, Danbury, CT, for Mark Greenberg et al.

 

Opinion

 

JOHN W. PICKARD, J.

 

*1 The plaintiff, Shanghai Real Estate Limited, applied to this court for charging orders against the interests which the defendants, Mark Greenberg and Linda Greenberg, have in certain limited liability companies registered outside the State of Connecticut. The defendants object on the ground that the court lacks jurisdiction over these foreign companies. The parties have argued the matter and have filed post-argument briefs. The plaintiff obtained a judgment in its favor against the defendants in the Supreme Court of British Columbia, Canada. The plaintiffs registered the judgment in Connecticut. On December 21, 2010, this court entered judgment in accordance with the Canadian judgment. On October 7, 2013, the plaintiff filed applications pursuant to General Statutes sec. 34–171 for orders charging the membership interests of the defendants in numerous limited liability companies with payment of the outstanding balance of the judgment. On December 18, 2013, the parties appeared at a hearing on this matter and stipulated to an order charging the interest of Mark Greenberg in 21 limited liability companies registered in the State of Connecticut. In accordance with the stipulation of the parties the court entered the order as requested. The defendants maintained their objection to orders charging their interests in nine foreign companies owned by Mark Greenberg and three foreign companies owned by Linda Greenberg. The plaintiff has two arguments. First, it argues that the defendants lack standing to object to the charging orders. Second, the plaintiff argues that even if the defendants have standing to raise an objection, the objection must be overruled because the court does not need jurisdiction over the foreign companies in order to charge the membership interests of the defendants. The plaintiff contends that the court need only have jurisdiction over the member/judgment debtor in order to charge its membership interest with payment of the judgment. The defendants argue that the court must have jurisdiction over a foreign company before it can issue a charging order prohibiting it from doing the things that they claim the plaintiff is requesting.1 They cite the governing statute, General Statutes sec. 34–171, for the claim that it does not authorize this court to order a foreign company to produce confidential financial information. They argue that the court should not follow the Superior Court authority cited by the plaintiff, Rockstone Capital, LLC. v. Marketing Horizons, Ltd., Superior Court, judicial district of New Haven at New Haven, Docket No. CV–06–5006818–S (July 17, 2013) [56 Conn. L. Rptr. 573], because it is "patently and inherently flawed." But, the flaw is in the defendants' argument because the proposed order which the plaintiff has submitted with its brief regarding the foreign companies is different in significant ways from the original order submitted with the motion and which the parties agreed to apply to the Connecticut companies. The proposed order which the plaintiff submitted to the court with its brief does not order the foreign companies to do anything. The proposed order is directed to the defendants only. It orders the defendants to: (1) provide the plaintiff's attorney with the name and address of each of the managers and managing members of each of the foreign companies; (2) charge the defendants' interests in the foreign companies to pay all present and future distributions, credits, drawings, or payments due to the defendants to be paid to the plaintiffs until the judgment is satisfied in full, including, interest and costs;2 (3) take no loans, directly or indirectly, from the foreign companies until the judgment is satisfied in full, including interest and costs; (4) not undertake, enter into or consummate any sale, encumbrance, hypothecation or modification of the defendants' membership interest in any of the foreign companies except in the context of a bona fide sale to an unrelated third party and the defendants shall provide ten business days notice of any such sale to the plaintiff's attorney. *2 The language of the order being sought by the plaintiff is unobjectionable. It is directed to the defendants only. The court has jurisdiction over the defendants. So, even if the defendants would have standing to object to an order directed to foreign companies, the plaintiff is not currently seeking such an order. Accordingly, the defendants' objection to the application for a charging order is overruled. The plaintiff's application for a charging order is granted as to the defendant, Mark Greenberg, against his membership interest in the 9 remaining companies identified in the plaintiff's application, namely; (1) 99 Pioneers, LLC; (2) 334 West 85th Street, LLC; (3) Eden Associates, LLC; (4) Infinity, LLC; (5) Mark Greenberg Real Estate Co., LLC; (6) Parkview Funding, LLC: (7) Tehachapi Investors, LLC: (8) Three Streets, LLC; and (9) Union Square Southbury, LLC. The plaintiff's application for a charging order is granted as to the defendant, Linda Greenberg, against her membership interest in the 3 remaining companies identified in the plaintiff's application, namely: (1) 410 CPW, LLC; (2) Tehachapi Funding, LLC; and Tehachapi Investors, LLC. The charging orders will be attached to this decision.

 

ORDER

 

After the Judgment Creditor's Application for Charging order dated October 7, 2013 (the "Application") came before me for a hearing and the parties having submitted memorandum in support of their respective positions as ordered by the Court and, upon due consideration of the arguments presented by the parties: IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT: 1. The interests of the Judgment Debtor, Linda Greenberg (the "Judgment Debtor"), in the Foreign Companies (defined below) are charged with payment of the unsatisfied amount of the Judgment3 debt and also with accrued interest and costs. The term "Foreign Companies" used herein refers to the following limited liability companies: (1) 410 CPW, LLC;

 

(2) Tehachapi Funding, LLC; and

 

(3) Tehachapi Investors, LLC.

 

2. Within 10 days from the date of entry of this order, the Judgment Debtor shall provide the Judgment Creditor's counsel with the name and address of each of the managers or managing members of each of the Foreign Companies. 3. The Judgment Debtor's membership interest in each of the Foreign Companies is charged with payment of the Judgment by ordering the Judgment Debtor to pay all present and future distributions, credits, drawings, or payments received from the Foreign Companies to the Judgment Creditor until the Judgment is satisfied in full, including, interest and costs. 4. Until said Judgment is satisfied in full, including, interest and costs, the Judgment Debtor shall not take any loans, directly or indirectly, from the Foreign Companies for the Judgment Debtor's personal benefit. 5. Until said Judgment is satisfied in full, including interest and costs, the Judgment Debtor shall not undertake, enter into or consummate any sale, encumbrance, hypothecation or modification of the Judgment Debtor's membership interest in any of the Foreign Companies except in the context of a bona fide sale to an unrelated third party and the Judgment Debtor shall provide ten (10) business days notice of any such sale to the Judgment Creditor by notifying the Judgment Creditor's counsel in writing. *3 6. The Judgment Debtor shall supply the Plaintiff with 2012 tax returns for each of the Foreign Companies which documents, and the information contained therein, the Judgment Creditor shall retain as confidential and not subject to further dissemination or disclosure is part of a further collection proceeding or compelled by subpoena in which case Judgment Creditor will provide the Judgment Debtor with reasonable notice of any such subpoena prior to complying therewith. The Judgment Creditor reserves its right to seek additional financial information and documents from the Judgment Debtors with respect to each of the Foreign Companies. 7. Until the Judgment is satisfied in full, including all costs and interest thereon, the Judgment Debtor shall supply the Judgment Creditor, within forty-five (45) days of the close of the respective accounting period for which said data is or may be generated, all future statements reflecting cash position, balance sheet position, and profit and loss for each of the Foreign Companies which documents, and the information contained therein, the Judgment Creditor shall retain as confidential and not subject to further dissemination or disclosure unless such dissemination or disclosure is part of a further collection proceeding or compelled by subpoena in which case the Judgment Creditor will provide the Judgment Debtor reasonable notice of any such subpoena prior to complying therewith.

 

ORDER

 

After the Judgment Creditor's Application for Charging order dated October 7, 2013 (the "Application") came before me for a hearing and the parties having submitted memorandum in support of their respective positions as ordered by the Court and, upon due consideration of the arguments presented by the parties: IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT:

 

1. The interests of the Judgment Debtor, Mark Greenberg (the "Judgment Debtor"), in the Foreign Companies (defined below) are charged with payment of the unsatisfied amount of the Judgment4 debt and also with accrued interest and costs. The term "Foreign Companies" used herein refers to the following limited liability companies:

 

(1) 99 Pioneers, LLC;

 

(2) 334 West 85th Street, LLC;

 

(3) Eden Associates, LLC;

 

(4) Infinity, LLC;

 

(5) Mark Greenberg Real Estate Co., LLC;

 

(6) Parkview Funding, LLC;

 

(7) Tehachapi Investors, LLC;

 

(8) Three Streets, LLC; and

 

(9) Union Square Southbury, LLC

 

2. Within 10 days from the date of entry of this order, the Judgment Debtor shall provide the Judgment Creditor's counsel with the name and address of each of the managers or managing members of each of the Foreign Companies.

 

3. The Judgment Debtor's membership interest in each of the Foreign Companies is charged with payment of the Judgment by ordering the Judgment Debtor to pay all present and future distributions, credits, drawings, or payments received from the Foreign Companies to the Judgment Creditor until the Judgment is satisfied in full, including, interest and costs.

 

*4 4. Until said Judgment is satisfied in full, including, interest and costs, the Judgment Debtor shall not take any loans, directly or indirectly, from the Foreign Companies for the Judgment Debtor's personal benefit.

 

5. Until said Judgment is satisfied in full, including interest and costs, the Judgment Debtor shall not undertake, enter into or consummate any sale, encumbrance, hypothecation or modification of the Judgment Debtor's membership interest in any of the Foreign Companies except in the context of a bona fide sale to an unrelated third party and the Judgment Debtor shall provide ten (10) business days notice of any such sale to the Judgment Creditor by notifying the Judgment Creditor's counsel in writing.

 

6. The Judgment Debtor shall supply the Plaintiff with 2012 tax returns for each of the Foreign Companies which documents, and the information contained therein, the Judgment Creditor shall retain as confidential and not subject to further dissemination or disclosure is part of a further collection proceeding or compelled by subpoena in which case Judgment Creditor will provide the Judgment Debtor with reasonable notice of any such subpoena prior to complying therewith. The Judgment Creditor reserves its right to seek additional financial information and documents from the Judgment Debtors with respect to each of the Foreign Companies.

 

7. Until the Judgment is satisfied in full, including all costs and interest thereon, the Judgment Debtor shall supply the Judgment Creditor, within forty-five (45) days of the close of the respective accounting period for which said data is or may be generated, all future statements reflecting cash position, balance sheet position, and profit and loss for each of the Foreign Companies which documents, and the information contained therein, the Judgment Creditor shall retain as confidential and not subject to further dissemination or disclosure unless such dissemination or disclosure is part of a further collection proceeding or compelled by subpoena in which case the Judgment Creditor will provide the Judgment Debtor reasonable notice of any such subpoena prior to complying therewith.

 

Footnotes

 

 

1

 

 The original proposed charging order submitted with the plaintiff's motion provided that the companies be directed to: (1) pay the plaintiff the present and future shares of any and all distributions, credits, drawings, or payments due to the plaintiff without court approval; (2) not make any loans to any other person or entity; (3) make no capital acquisitions without court approval; (4) not enter into any sale, encumbrance, hypothecation or modification of the defendants' membership interest without court approval; (5) provide the plaintiff with copies of its operating agreement and all federal and state income tax returns, balance sheets and profit and loss statements for the past three years. This proposed language was agreed to by the parties for the Connecticut companies.

 

 

2

 

 Although the language of this proposed order is confusing, its intent is clear. The court will substitute the following language: "The Judgment Debtor's membership interest in each of the Foreign Companies is charged with payment of the Judgment by ordering the Judgment Debtor to pay all present and future distributions, credits, drawings, or payments received from the Foreign Companies to the Judgment Creditor until the Judgment is satisfied in full, including, interest and costs."

 

 

3

 

 Capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Application.

 

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More Articles On Charging Orders click here

 

THE CHARGING ORDER PRACTICE GUIDE BY JAY ADKISSON

 

The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more

 

Available for purchase at https://goo.gl/faZzY6

LAW REVIEW ARTICLES BY JAY ADKISSON

 

For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487

WEBSITE CONTENTS

 

Appeal - Issues relating to the appeal of a charging order

 

Bankruptcy - Treatment of the debtor/member's interest in bankruptcy

 

Compliance - Issues for the LLC and non-debtor members in complying with a charging order

 

Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute

 

Creditor Rights Restrictions - Limitations on creditors' management and informational rights

 

Economic Rights - Limitation of charging order and foreclosure to debtor's economic rights

 

Exclusivity - The charging order as the sole remedy available to creditors and exceptions

 

Exemptions - Available state and federal protections that may apply to charging orders

 

Foreclosure - Liquidation by judicial sale of the debtor's right to distributions

 

Information Rights - Creditors' ability to access information about the LLC

 

Intra-Member Disputes - Where one member obtains a charging order against another

 

Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs

 

Lien - The lien effect of a charging order and priority issues

 

Procedure - The procedure for obtaining a charging order and ancillary provisions

 

Receiver - The role of the receiver in charging order proceedings

 

Single-Member LLCs - Enforcing the judgment against an LLC with a sole member

 

Taxes - Tax issues relating to charging orders for all involved parties

 

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  • Protected Series LLCs - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017 - https://protectedseriesact.com/

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues - https://calejl.com/

 

 

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© 2018 Jay D. Adkisson. All Rights Reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction.  This site is https://chargingorder.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.

 

Additional related sites: Voidable Transactions