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

 

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

Alexander

 

U.S. v. Alexander, 2016 WL 2893406 (D.Ariz., May 18, 2016).

 

United States District Court, D. Arizona.

 

United States of America, Plaintiff,

 

v.

 

Robert F. Alexander, Defendant.

 

No. CR-05-00472-001-PHX-DGC

 

05/18/2016

 

ORDER

 

*1 On November 17, 2006, the Court entered a Judgment against Defendant Robert F. Alexander. See Doc. 129. The Judgment required Defendant to pay $9,923,225.55 in restitution to the victims of his offense, commencing with $300 minimum monthly payments during the term of his supervised release. Id. at 1-2. Defendant complied with this provision, and continued to make $300 monthly payments after the expiration of his supervised release term. Doc. 161 at 1. But when the government raised the minimum monthly restitution payment to $750, Defendant could no longer make the payments. Id.

 

Defendant does not dispute that he owes additional restitution. Id. To satisfy this outstanding obligation, the government seeks a charging order against Defendant's interest in E-Logic, LLC. Doc. 160 at 2. Defendant is the sole member of E-Logic, which generated an annual profit of $8,100 in 2014 and a similar profit in 2015. Doc. 161 at 2. E-Logic's annual profit is distributed to Defendant, the company's only worker. Id.  Defendant seeks to limit the charging order to no more than 25 percent of his disposable earnings, consistent with Arizona's garnishment statutes. Id. at 2-3. The government never responded to Defendant's objection.

 

The United States is entitled to a charging order against Defendant's member interest in E-Logic. "The United States may enforce a judgment imposing a fine in accordance with the practices and procedures for the enforcement of a civil judgment under Federal law or State law." 18 U.S.C. sec. 3613(a); see also United States v. Berger, 574 F.3d 1202, 1204 (9th Cir. 2009). Under Arizona law, a court of competent jurisdiction "may charge the member's interest in the limited liability company with payment of the unsatisfied amount of the judgment plus interest." A.R.S. sec. 29-655(A). In such a case, "the judgment creditor has only the rights of an assignee of the member's interest." Id. An assignee of a member's interest is not entitled to participate in the LLC's management. A.R.S. sec. 29-732(A). Instead, an assignee "is only entitled to receive, to the extent assigned, the share of distributions, including distributions representing the return of contributions, and the allocation of profits and losses, to which the assignor would otherwise be entitled with respect to the assigned interest." Id. A charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment out of a member's interest in a limited liability company. A.R.S. sec. 29-655(C). Here, Defendant is the sole member of E-Logic, LLC. The United States may charge Defendant's interest in E-Logic for Defendant's unpaid restitution plus interest. The United States, however, is not entitled to participate in E-Logic's management. Instead, the United States is only entitled to Defendant's share of E-Logic's distributions.

 

But the charging order is limited to the garnishment permitted by Arizona law. The fact that a charging order is entered, however, "does not deprive any member of the benefit of any exemption laws applicable to his interest in the limited liability company." A.R.S. sec. 29-655(B). Arizona law limits garnishment to 25 percent of a garnishee's disposable earnings. A.R.S. sec. 33-1131(B). "Earnings" are defined broadly to include "compensation paid or payable for personal services, whether these payments are called wages, salary, commission, bonus or otherwise." A.R.S. sec. 12-1598(4). "Disposable earnings" is defined as the "amount remaining from the gross earnings for a pay period after the deductions required by state and federal law." A.R.S. sec. 12-1598(3). As the sole member of E-Logic, Defendant receives distributions equivalent to the LLC's annual income. These are provided as compensation for his personal services to E-Logic. These distributions qualify as earnings and are protected by the personal property exemption. The charging order therefore cannot deprive Defendant of more than 25 percent of his disposable earnings.1

 

*2 IT IS ORDERED THAT:

 

1. The United States' motion for a charging order (Doc. 160) is granted.

 

2. Defendant Robert F. Alexander's membership interest in E-Logic, LLC is hereby charged for payment of the unsatisfied amount of the Judgment entered in this action until the Judgment is paid in full. The amount charged is not to exceed 25 percent of Defendant's disposable earnings.

 

3. E-Logic, LLC shall promptly deliver any and all distributions, funds, profits, proceeds of sale, payments and disbursements owed to Defendant Robert F. Alexander, over which it has control or possession, now or in the future, to the Clerk of Court for the District of Arizona for application to the Judgment imposed in this case, United States v. Alexander, No. CR-05-00472-001-PHX-DGC, until all financial liability imposed therein is paid in full. Payments shall be made to the following: Clerk of Court, United States District Court for the District of Arizona, 401 W. Washington St., SPC 1, Phoenix, Arizona 85003-2118, with case notation, Case Number: CR-05-00472-001-PHX-DGC.

 

4. This charging order shall be treated as a lien upon the interests of Defendant Robert F. Alexander in E-Logic, LLC in favor of the United States, and may be filed and treated like any other lien under 18 U.S.C. sec. 3613(c).

 

Dated this 18th day of May, 2016.

 

Footnotes

 

1

 

Defendant also proposes an alternative resolution. Defendant states that he "would be agreeable to resolve this matter and is willing to pay a monthly restitution payment of $500.00 or 25% of his non-exempt earnings each and every month whichever is less for the next 24 months in lieu of a charging order." Doc. 161 at 3. The Court has determined that the United States is entitled to a charging order against the Defendant's member interest in E-Logic. The Court need not consider this proposal. Defendant is not precluded from seeking to negotiate a similar resolution directly with the United States.

 

C O M M O N      P A G E      F O O T E R

RECENT ARTICLES BY JAY ADKISSON

 

2019.06.24 ... Charging Order Protection Backfires At Judicial Sale In Preservation Holdings

2019.04.27 ... Iowa Supreme Court Serves Up A Shoddy Charging Order Opinion In Retterath

2019.03.19 ... Million Dollar Quartet Leads To Lien Priority Dispute Involving Charging Order

2019.02.18 ... Florida Order Awarding LLC Interest To Creditor Reversed In Pansky

 

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

 

= = = = =

 

Additional Court Opinions About Charging Orders - Unsorted

 

OTHER INFORMATIONAL WEBSITES BY JAY ADKISSON

 

  • About Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances - https://jayadkisson.com/

 

  • Captive Insurance Companies - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business - https://captiveinsurancecompanies.com/

 

 

  • Collecting On A Judgment - An explanation of common creditor remedies, strategies and tactics to enforce a judgment, including a discussion of common debtor asset protection strategies - https://collectingonajudgment.com/

 

  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general - https://voidabletransactions.com/

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused - https://privateretirementplans.com/

 

  • 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/

 

 

Contact Jay Adkisson:

 

Phone: 702-953-9617     Fax: 877-698-0678     jay [at] jayad.com

 

Unless a dire emergency, please send me an e-mail first in lieu of calling to set up a telephone appointment for a date and time certain.

 

Las Vegas Office: 6671 S. Las Vegas Blvd., Suite 210, Las Vegas, NV 89119, Ph: 702-953-9617, Fax: 877-698-0678. By appointment only.

 

Newport Beach Office: 100 Bayview Circle, Suite 210, Newport Beach, California 92660. Ph: 949-200-7773, Fax: 877-698-0678. By appointment only.

 

Social Media Contact: Twitter and LinkedIn

 

Admitted to practice law in Arizona, California, Nevada, Oklahoma and Texas.

 

© 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