Fremont Bank v. Signorelli, 2020 WL 13093882 (April 8, 2020).
Fremont Bank v. Signorelli, 2020 WL 13093882 (April 8, 2020).
United States District Court, N.D. California.
FREMONT BANK, Plaintiff,
ROBERT J. SIGNORELLI, et al., Defendants.
Case No. 18-cv-04808-HSG (DMR)
REPORT AND RECOMMENDATION RE: MOTION FOR AN ORDER CHARGING SIGNORELLI FAMILY, L.P.'S INTEREST IN STARJ PARTNERS, LLC
DONNA M. RYU United States Magistrate Judge
PAGE_1 Plaintiff Fremont Bank moves for an order charging interest pursuant to Federal Rule of Civil Procedure 69(a) and California Code of Civil Procedure section 708.310. [Docket No. 58.] The Honorable Haywood S. Gilliam, Jr. referred the motion to the undersigned for a Report and Recommendation. This matter is suitable for resolution without a hearing. Civ. L.R. 7-1(b). For the following reasons, the court recommends that the motion be granted.
On August 8, 2018, Fremont Bank filed this action for breach of contract and breach of written guaranties against Defendants Robert J. Signorelli, Kathryn R. Signorelli, and Signorelli Family, L.P (“the Partnership”). At issue in the lawsuit was Defendants' default on a 2015 business loan agreement in which Fremont Bank agreed to lend Robert J. Signorelli up to $1,000,000. [Docket No. 56 (Order on Summ. J.) 1-2.] On April 19, 2019, Judge Gilliam granted summary judgment in favor of Fremont Bank in the amount of $959,553.19 and the clerk entered judgment. [Docket Nos. 56, 57.] Defendants have not satisfied the judgment. [Docket No. 58-1 (Williams Decl., Oct. 25, 2019) ¶ 11.]
Fremont Bank now moves for an order charging the Partnership's interest in third party STARJ Partners, LLC (“STARJ”) under California Code of Civil Procedure section 708.310. It asserts that the Partnership is a member of STARJ and that it is entitled to an order applying the Partnership's interest in STARJ toward satisfaction of the judgment. Defendants did not file an opposition.
Fremont Bank did not appear to have served the motion on STARJ. Therefore, the court ordered Fremont Bank to file either proof of service on STARJ or supplemental briefing addressing why service of the motion is not required to obtain the relief Fremont Bank seeks. [Docket No. 60.] Fremont Bank timely filed a brief clarifying the relief it seeks and asserting that service of the motion on STARJ is not required under California law, as discussed below. [Docket No. 61 (Supp. Br.).]
Federal Rule of Civil Procedure 69(a) governs execution of money judgments and provides that the law of the forum state controls “[t]he procedure on execution.” Fed. R. Civ. P. 69(a)(1). Therefore, California law applies here.
California Code of Civil Procedure section 708.310 authorizes a court to enter a charging order against a judgment debtor's interest in a partnership or limited liability company to satisfy any outstanding judgment against the debtor partner or member. It provides:
If a money judgment is rendered against a partner or members but not against the partnership or limited liability company, the judgment debtor's interest in the partnership or limited liability company may be applied toward the satisfaction of the judgment by an order charging the judgment debtor's interest pursuant to Section 15907.3, 16504, or 17705.03 of the Corporations Code.
Cal. Code Civ. Proc. § 708.310. Here, Fremont Bank seeks a remedy pursuant to California Corporations Code section 17705.03, which applies to orders charging a judgment debtor's interest in a limited liability company. STARJ is a limited liability company. Supp. Br. 3-4. Section 17705.03 states:
PAGE_2 On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. A charging order constitutes a lien on a judgment debtor's transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.
Cal. Corp. Code § 17705.03(a). “A charging order is a lien on the member's distributional interest.” Textron Fin. Corp. v. Gallegos, No. 15cv1678-LAB (DHB), 2015 WL 11658718, at PAGE_1 (S.D. Cal. Oct. 7, 2015) (internal citations omitted). “It only allows the judgment creditor to receive distributions to which the member would otherwise be entitled; it doesn't entitle the creditor to participate in the LLC's management or exercise the rights of a member.” Id. (citations omitted).
Under California Code of Civil Procedure section 708.320(a), service of notice of a motion for a charging order on a judgment debtor and “[a]ll members or the limited liability company” creates a lien on a judgment debtor's interest in a limited liability company. “If a charging order is issued, the lien created [by service of the motion] continues under the terms of the order.” Cal. Code Civ. Proc. § 708.320(b). If the motion for a charging order is denied, the lien is extinguished. Id.
As noted, Fremont Bank did not file proof of service of the motion on STARJ or all of its members. In its supplemental brief, it explains that such service is not required because it does not seek an immediate lien on the Partnership's interest in STARJ under section 708.320(a). Supp. Br. 4. Instead, it seeks to create a lien on the Partnership's interest in STARJ upon issuance of an order granting this motion. Id. Section 708.310 authorizes a judgment creditor to “obtain a charging order under § 17705.03(a) without serving the LLC or making it a party.” Textron, 2015 WL 11658718, at PAGE_1; Cal. Corp. Code § 17705.03(a) (“[o]n application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment.”).
Neither the Ninth Circuit nor the California Supreme Court has addressed the standard governing motions for charging orders under California Code of Civil Procedure section 708.310. The plain language of section 708.310 appears to require only a showing of the existence of a money judgment and a judgment debtor's “interest in the ... limited liability company.” See Express Working Capital, LLC v. Starving Students, Inc., No. CV 12-0097-VAP (Ex), 2017 WL 10605963, at PAGE_2 (C.D. Cal. Mar. 1, 2017) (finding elements of section 708.310 satisfied where court was “presented with a certified judgment against” a judgment debtor and the moving party “presented uncontroverted evidence” of his interest in third party LLC). At least one court within the Ninth Circuit has held that demonstration of the judgment debtor's interest in the limited liability company “requires ‘substantial evidence’ that the debtor is a partner or member of the entity.” Textron, 2015 WL 11658718, at PAGE_2. Other courts have considered whether an opposition to the motion for a charging order has been filed. See Choice Hotels Int'l, Inc., No. C 13-80249 WHA, 2014 WL 458069, at PAGE_4 (N.D. Cal. Jan. 27, 2014) (citing First Cmty. Bank v. Miller, No. 09-80131 PJH MISC, 2011 WL 704406, at PAGE_2 (N.D. Cal. Feb. 18, 2011)); Express Working Capital, 2017 WL 10605963, at PAGE_2 (“The Court may deem [judgment debtor]'s lack of opposition to the motion as acceptance of the motion.”).
PAGE_3 Here, the court concludes that Fremont Bank is entitled to an order charging the Partnership's interest in STARJ. First, Fremont Bank obtained a money judgment against the Partnership. [Docket Nos. 56, 57.] Second, Fremont Bank submitted substantial evidence of the Partnership's membership interest in STARJ. Textron, 2015 WL 11658718, at PAGE_2 (quoting Braewood Convalescent Hosp. v. Workers' Comp. Appeals Bd., 34 Cal. 3d 159, 164 (1983)). STARJ's January 1, 2016 Operating Agreement provides that the Partnership holds a 67.5 percent member interest in STARJ. Williams Decl. ¶ 8, Ex. E. Finally, Defendants did not file an opposition to this motion. Accordingly, the court recommends that Fremont Bank's motion for an order charging the Partnership's interest in third party STARJ be granted.
For the foregoing reasons, the court recommends that Fremont Bank's motion for a charging order be granted. Any party may file objections to this report and recommendation within 14 days of being served with a copy. See 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(a); N.D. Civ. L.R. 72-2.
IT IS SO ORDERED.