Opinion 2022 North_Carolina Conflicts Jurisdiction Foreign_LLC Receiver Opinion2022NorthCarolinaWilliamsConflictsJurisdiction
United States District Court, M.D. North Carolina.
BRIAN C. WILLIAMS, et al., Plaintiffs,
v.
THE ESTATES LLC, et al, Defendants.
1:19-CV-1076
Filed 08/10/2022
Catherine C. Eagles, District Judge.
PAGE_1 In June 2022, the Court entered a money judgment in favor of the plaintiffs, Brian Williams, Maricol de Leon, Jairo da Costa, and Mike Gustafson, and against the defendants, including Avirta LLC, King Family Enterprises LLC, GG Irrevocable Trust, and Craig Brooksby. The judgment has not been satisfied.
The plaintiffs seek to collect on the judgment through the entry of charging orders: court orders that direct a limited liability company in which a judgment debtor has an economic interest to pay any money the LLC would otherwise pay the judgment debtor toward satisfaction of the judgment. The plaintiffs have identified several LLCs in which they say defendants Avirta, King Family Enterprises, GG Irrevocable Trust and Mr. Brooksby have economic interests, and they seek entry of charging orders directing those LLCs to withhold any distributions, allocations, or other payment obligations to these defendants and instead to make such payments toward satisfying the judgment.
Under the applicable North Carolina statute, the plaintiffs are judgment creditors of the defendants and have applied for a charging order to a court of competent jurisdiction. A charging order is thus appropriate to any LLC in which a defendant is an “interest owner.”
Avirta, King Family Enterprises, and GG Irrevocable Trust are interest owners in various LLCs and their economic interest in those LLCs will be charged with the payment of the unsatisfied amount of the judgment. But the plaintiffs have not shown that Mr. Brooksby is an interest owner in any of the LLCs. For these reasons, the plaintiffs’ motion will be granted only in part.
Federal Rule of Civil Procedure 69(a)(1) governs the enforcement of a money judgment in federal court. The procedure to execute a money judgment in federal court “must accord with the procedure of the state where the court is located,” Fed. R. Civ. P. 69(a)(1), here, North Carolina. Under North Carolina law, a “charging order” is “the exclusive remedy by which a judgment creditor of an interest owner [in an LLC] may satisfy the judgment from or with the judgment debtor's ownership interest.” N.C. Gen. Stat. § 57D-5-03(d).
The North Carolina Limited Liability Company Act, § 57D-1-01 et seq., governs “the internal affairs of every LLC,” including a determination of “the rights and duties of interest owners, managers, and other company officials.” § 57D-1-02(a). Section 57D-5-03 of the Act provides that:
§ 57D-5-03(a).
An “interest owner” is “[a] member or an economic interest owner.” § 57D-1-03(15). An “economic interest owner” “owns an economic interest but is not a member [of an LLC].” § 57D-1-03(11). An “economic interest” is “[t]he proprietary interest of an interest owner in the capital, income, losses, credits, and other economic rights and interests of a limited liability company, including the right of the owner of the interest to receive distributions from the limited liability company.” § 57D-1-03(10).
PAGE_2 When entered, a charging order provides “a lien on the judgment debtor's economic interest” once it is served upon the LLC. § 57D-5-03(b). The judgment creditor has “the right to receive the distributions that otherwise would be paid to the interest owner with respect to the economic interest,” but the LLC is not otherwise responsible for the judgment. § 57D-5-03(a).
To obtain a charging order, a plaintiff must show three things. First, the plaintiff must be a judgment creditor of the defendant. Second, the court to which application is made must be a court of competent jurisdiction. And third, the defendant must be an interest owner in the LLC.
The defendants say in passing that “North Carolina law is not the proper choice of law for this situation,” Doc. 251 at 1, but they do not explain why or provide any support for this perfunctory assertion. Here, the rules and statutes apply on their face, and “it is not the court's job to undertake the analysis and legal research needed to support ... perfunctory argument[s].” Cathey v. Wake Forest Univ. Baptist Med. Ctr., 90 F. Supp. 3d 493, 509 (M.D.N.C. 2015); accord Lab. Corp. of Am. Holdings v. Kearns, 84 F.Supp.3d 447, 460 (M.D.N.C. 2015); Hughes v. B/E Aerospace, Inc., No. 12-CV-717, 2014 WL 906220, at PAGE_1 n.1 (M.D.N.C. Mar. 7, 2014) (“A party should not expect a court to do the work that it elected not to do.”). This choice-of-law argument is waived.1
fn1 See, e.g., Grayson O Co. v. Agadir Int'l LLC, 856 F.3d 307, 316 (4th Cir. 2017) (“A party waives an argument by failing to present it in its opening brief or by failing to develop its argument—even if its brief takes a passing shot at the issue.”) (cleaned up); Schaefer v. Universal Scaffolding & Equip., LLC, 839 F.3d 599, 607 (7th Cir. 2016) (“Perfunctory and undeveloped arguments are waived, as are arguments unsupported by legal authority.”); Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 396 n.PAGE_ (4th Cir. 2014) (same).
In April 2022, the jury returned a verdict in favor of each plaintiff on several causes of action arising out of a bid-rigging conspiracy in which the defendants rigged bids at public auctions on foreclosed properties.2 Doc. 235. In June 2022, the Court entered a money judgment in favor of each of the plaintiffs and against the defendants, including Avirta, King Family Enterprises, GG Irrevocable Trust, and Mr. Brooksby. Doc. 245. The defendants are jointly and severally liable as to each of the judgment amounts. The judgment has not been satisfied. It is undisputed that each plaintiff is a judgment creditor of Avirta, King Family Enterprises, GG Irrevocable Trust, and Mr. Brooksby. See id.
fn2 For each of the plaintiffs’ causes of action, the defendants and the total judgment amounts sometimes varied. See Doc. 235. The defendants discussed in this Order are the defendants upon which the plaintiffs have moved for a charging order.
The United States District Court for the Middle District of North Carolina has subject matter jurisdiction over the dispute and personal jurisdiction over each defendant. Judgment was entered in this court, which is also responsible for issuing orders as needed to enforce its judgment. The Court concludes that the Middle District is a court of competent jurisdiction.
PAGE_3 The defendants do not directly say the Middle District is not a court of competent jurisdiction, but they use words that might be directed to this requirement. First, the defendants make passing reference to “minimum contacts” in the briefing. Doc. 251 at 2. They make no argument nor provide any cases or other law that supports what appears to be a personal jurisdiction theory, and the Court need not spend time on this perfunctory argument. See supra note 1. Second, the defendants say the Court cannot issue a charging order to any LLC formed in another state, Doc. 251 at 2, implicitly conceding the propriety of charging orders directed to LLCs formed under North Carolina law.
As to foreign LLCs, the defendants contend that the Court may not enter charging orders against interests in foreign LLCs because “LLC” is defined by the statute as “[a]n entity formed under this Chapter.” § 57D-1-03(19). But this isolated definition is not determinative. The statute authorizes a charging order against “the economic interest of an interest owner,” § 57D-5-03, and an “economic interest” is defined as, inter alia, the “economic rights and interests of a limited liability company,” § 57D-1-03(10), which is defined as either a North Carolina LLC or a foreign LLC. § 57D-1-03(17). Read together, these statutes say a court can issue a charging order to a foreign LLC.
There is no language in the statute that bars such a charging order, see § 57D-5-03, and other courts applying Chapter 57D have entered a charging order as to foreign LLCs. See Am. Bank Ctr. v. Barker, No. 18-MC-103, 2019 U.S. Dist. LEXIS 120685, at PAGE_2–4 (W.D.N.C. July 17, 2019); see also Strum v. Ultima WNC Dev., LLC, No. 13 CVS 719, 2022 WL 2190134, at PAGE_3 (N.C. Sup. Ct. June 16, 2022) (denying charging order as to defendant's interests in foreign LLCs on other grounds and noting the plaintiff could renew its motion should it uncover evidence the defendant was a member of those LLCs).3 The defendants have not provided any case support for their argument.
fn3 Other courts interpreting similar state statutes have reached the same conclusion. See Vision Mktg. Res., Inc. v. McMillin Grp., LLC, No. 10-CV-2252, 2015 WL 4390071, at PAGE_5–6 (D. Kan. July 15, 2015) (similar Kansas statute); German Am. Cap. Corp. v. Morehouse, No. 13-CV-296, 2017 WL 3411941, at PAGE_1 (D. Md. Aug. 4, 2017) (similar Maryland statute); SEC v. Brogdon, No. 15-CV-8173, 2021 WL 2802153, at PAGE_6–7 (D.N.J. July 2, 2021) (similar New Jersey statute); but see McElroy v. Sumrall, No. 18-CV-0002, 2021 WL 1741850, at PAGE_1–2 (S.D. Ala. May 3, 2021) (holding Alabama charging order statute applied only to Alabama LLCs).
A defendant is an interest owner if it is a member of an LLC or has an economic interest in an LLC, as defined by the statute. See discussion supra.
The plaintiffs seek to charge Avirta's interest in 28 LLCs. See Doc. 248 at 3–4.4 According to records of the Utah Secretary of State provided by the plaintiffs, Doc. 248-1, Avirta is a member of 26 LLCs for which the plaintiffs seek a charging order. See id. A member's interest in an LLC is subject to a charging order, see §§ 57D-5-03, 57D-1-03(15), so, as to these 26 LLCs a charging order will enter.5
fn4 In their motion, the plaintiffs use spellings of the names of some of these LLCs that differ from that in the records of the Utah Secretary of State provided by the plaintiffs. Compare Doc. 248 at 4 (motion, referencing Tibra LLC, Ourhome320EL, LLC, and Galeon, LLC) with Doc. 248-1 at 1–2 (Secretary's records for Timbra LLC, OurHome3012EL LLC, Galleon, LLC). The Court will use the spelling from the Utah Secretary of State's records.
fn5 The Court will charge Avirta's interest in the following LLCs: Avignon, LLC, Brigadier, LLC, Citadel Management, LLC, Daria, LLC, Debt Executor LLC, Etienne, LLC, Galleon LLC, La Rochelle LLC, Land Development and Investment, LLC, Lightstone Pictures, LLC, Liken LLC, Liken the Bible LLC, Liken the Scriptures LLC, Likenit LLC, Marseille, LLC, Montclair, LLC, Oriental Holdings, LLC, OurHome3012EL, LLC, Pescadero, LLC, Rouen, LLC, Santex LLC, Shaka Management LLC, and The Estates, LLC, The Estates Developments LLC, The Estates Real Estate Group, LLC, and Timbra LLC.
PAGE_4 As to the two remaining LLCs, Celona, LLC, and Citadel Management of North Carolina, the motion will be denied. The evidence the plaintiffs submit does not establish that Avirta is a member of either LLC. See Doc. 248-1. Nor have they provided any other evidence that Avirta is an interest owner in those LLCs.
The plaintiffs seek to charge King Family Enterprises’ interest in five LLCs. See Doc. 248 at 4. According to Utah Secretary of State records provided by the plaintiffs, King Family Enterprises is a member of each of these five LLCs, see Doc. 248-2, so King Family Enterprises is an “interest owner” in them. See §§ 57D-5-03, 57D-1-03(15). A charging order will enter as to King Family Enterprises’ interest in the five LLCs.6
fn6 The Court will charge King Family Enterprises’ interest in the following LLCs: Avirta LLC, Brothers King LLC, King Entertainment LLC, RCK Marketing LLC, and Temporal Sustainment LLC.
The plaintiffs seek to charge GG Irrevocable Trust's interest in King Family Enterprises LLC, its co-defendant. See Doc. 248 at 5. According to Utah Secretary of State records provided by the plaintiffs, GG Irrevocable Trust is a member of King Family Enterprises. See Doc. 248-3. The Court will charge GG Irrevocable Trust's interest in King Family Enterprises with payment of the unsatisfied amount of the judgment.
The defendants contend that King Family Enterprises is not the proper subject of a charging order, Doc. 251 at 5–6, but the argument is not clear or comprehensible. The defendants agree that a named defendant LLC may be the subject of a charging order if paying out money to another named defendant, id. at 7, and they do not address the undisputed fact that GG Irrevocable Trust is a member of this LLC.
The plaintiffs say that Mr. Brooksby has an economic interest in The Estates, LLC, Timbra LLC, Avirta, King Family Enterprises and 80 to 100 “equity share” LLCs that were assigned title to properties purchased through the Estates’ bid-rigging scheme. Doc. 248 at 5–6. The plaintiffs do not contend that Mr. Brooksby is a member of any of these LLCs, and instead contend that he has an “economic interest” in these LLCs such that the LLC is subject to a charging order.7 See § 57D-5-03.
fn7 The defendants say Mr. Brooksby has no direct economic interest in Rex King Limited Partnership. Doc. 251 at 6–7. The plaintiffs have not sought a charging order as to any interest Mr. Brooksby has in that entity. Doc. 248 at 5–8.
Mr. Brooksby is a beneficiary of the GG Irrevocable Trust, see Doc. 252-1 at 2, which is a member of King Family Enterprises LLC and which receives funds from The Estates, Timbra, Avirta, and King Family Enterprises. See Doc. 248-4 at 2–3. The plaintiffs contend that because Mr. Brooksby is a beneficiary of a trust that receives funds from an LLC, he has an economic interest in that LLC sufficient to satisfy the statutory definition for an interest owner. Doc. 248 at 5.
The statutory definition of “economic interest” is not unlimited. The judgment debtor must have a “proprietary interest ... in the capital, income, losses, credits, and other economic rights and interests of a limited liability company, including the right ... to receive distributions from the limited liability company.” § 57D-1-03(10). The statute does not define a “proprietary interest,”8 and the plaintiffs have not provided any case law or other authority that sheds light on whether a trust beneficiary has an economic interest in an LLC because the trust receives funds from or is a member of the LLC. Nor have they pointed to a specific term in the GG Irrevocable Trust that supports a finding that Mr. Brooksby has an “economic interest” in any LLC of which the trust is a member.
fn8 Black's Law Dictionary defines the term as “[a] property right; [specifically], the interest held by a property owner together with all appurtenant rights, such as a stockholder's right to vote the shares.” Interest, Black's Law Dictionary (11th ed. 2019). Rather than settle the issue, this prompts the question of whether the beneficiary to a trust has a property right in the trust. The plaintiffs provided no law on that question either.
PAGE_5 The burden is on the plaintiffs to show Mr. Brooksby's economic interest in an LLC, and the Court has no obligation to undertake legal research that a litigant chooses not to provide. See discussion supra. This aspect of the motion will be denied.
The evidence at trial established that The Estates, another defendant and judgment debtor, was a membership organization; persons who paid a fee were called members and allowed to use its services. The plaintiffs have presented evidence that:
Doc. 248-4 at 6–11.
This evidence is insufficient to show that Mr. Brooksby has an economic interest in these LLCs. The evidence shows The Estates receives distributions from the equity share LLCs, and there is no evidence that Mr. Brooksby receives those distributions. The fact that Mr. Brooksby later is paid by The Estates, by inference for his work as manager, does not by itself establish that Mr. Brooksby has a “proprietary interest ... in the capital, income, losses, credits, and other economic rights and interests of a limited liability company, including the right ... to receive distributions” from the “equity share” LLCs. § 57D-1-03(10); see generally First Bank v. S & R Grandview, L.L.C., 232 N.C. App. 544, 550, 755 S.E.2d 393, 397 (2014) (noting that a charging order does not affect managerial rights).
The plaintiffs say that Mr. Brooksby has an “indirect” right to payments from the equity share LLCs via the Estates and cite cases they contend support the view that such indirect rights are an economic interest as defined by the statute. But that position is not supported by the text of the statute, as discussed supra, or any cases they cite.
In American Bank Center, for example, the court entered charging orders only as to LLCs in which the judgment debtor had an ownership interest. 2019 U.S. Dist. LEXIS 120685, at PAGE_2–5. Specifically, the judgment debtor had a significant ownership interest in two LLCs, including Merlin Holdings, LLC, and Merlin Holdings owned an interest in nine other LLCs. Id. at PAGE_3. The court entered a charging order to the two LLCs, ordering them to make all payments ordinarily due to the judgment debtor to the plaintiff until satisfaction of the judgment. Id. at PAGE_4–5. In so doing, the court expressly ordered that Merlin Holdings could not make any payments to the judgment debtor until otherwise ordered, including any money Merlin Holdings received from the nine LLCs in which it owned an interest. Id. at PAGE_4. The court did not, however, issue a charging order to the nine LLCs in which the judgment debtor owned no interest, which is what the plaintiffs propose here.
PAGE_6 Likewise, in Top Gains Mineral Macao Commercial Offshore v. Chen, 2015 Cal. Super. LEXIS 14834, at PAGE_2–4 (Cal Super. Ct. Sept 4, 2015), a judgment debtor owned 60% of the membership interests in Spiro Mining, LLC. The court extended a lien only on distributions owed to the judgment debtor from Spiro, not to distributions a different LLC owed to Spiro. Id. at PAGE_3. And in Arvest Bank v. Byrd, No. 10-CV-2004, 2014 WL 4161987, at PAGE_2 (W.D. Tenn. Aug 19, 2014), the court entered a charging order as to “any interest the [judgment debtors] may own in them,” noting there was “uncertainty and conflicting information” about the judgment debtors’ individual ownership interests in those LLCs.
These cases do not support entering a charging order to LLCs if the judgment debtor receives money from them indirectly via another entity. This aspect of the motion will be denied.
The plaintiffs are judgment creditors and have applied to a court of competent jurisdiction, so a charging order is appropriate to the extent the named defendants are “interest owners” in LLCs. The Court will charge the economic interest that Avirta, King Family Enterprises, and GG Irrevocable Trust have in various LLCs with the payment of the unsatisfied amount of the judgment. But a charging order as to Mr. Brooksby's purported interest in various LLCs is not appropriate because the plaintiffs have not shown that he is an interest owner in those LLCs.
It is ORDERED that the plaintiffs’ motion for a charging order, Doc. 247, is DENIED as to Avirta's purported interest in Celona, LLC, and Citadel Management of North Carolina, LLC, and Mr. Brooksby's purported interest in The Estates, Timbra, Avirta, King Family Enterprises and the 80 to 100 “equity share” LLCs. The motion is otherwise GRANTED. A separate charging order will issue.
This the 10th day of August, 2022.
Only the Westlaw citation is currently available.
United States District Court, M.D. North Carolina.
Brian C. WILLIAMS, et al., Plaintiffs,
v.
The ESTATES LLC, et al., Defendants.
1:19-CV-1076
Signed December 7, 2022
Attorneys and Law Firms
Dhamian A. Blue, Blue LLP, Raleigh, NC, Jonathan T. Dickerson, James C. White, J.C. White Law Group, PLLC, Chapel Hill, NC, for Plaintiffs Brian C. Williams, Maricol Yunaira Tineo De Leon, Jairo Vensrique Leon Da Costa.
Jonathan T. Dickerson, James C. White, J.C. White Law Group, PLLC, Chapel Hill, NC, for Plaintiff Mike Gustafson.
David J. Martin, David J. Martin PLLC, Apex, NC, John David Matheny, II, Moorseville, NC, Steven W. Shaw, Law Office of Steven W. Shaw, Mapletoon, UT, for Defendants The Estates LLC, The Estates Real Estate Group, LLC, Timbra of North Carolina, LLC, Versa Properties, LLC, Red Tree Holdings, LLC, Maldives, LLC, Tonya Newell, Lynn Pinder, Craig Orson Brooksby, Avirta, LLC, King Family Enterprises, LLC.
John David Matheny, II, Moorseville, NC, Steven W. Shaw, Law Office of Steven W. Shaw, Mapletoon, UT, David J. Martin, David J. Martin PLLC, Apex, NC, for Defendant The Estates (UT), LLC.
John David Matheny, II, Moorseville, NC, Steven W. Shaw, Law Office of Steven W. Shaw, Mapletoon, UT, David J. Martin, David J. Martin PLLC, Apex, NC, Robert E. Culver, The Culver Firm, P.C., Tacoma, WA, for Defendant Carolyn Souther.
Steven W. Shaw, Law Office of Steven W. Shaw, Mapletoon, UT, David J. Martin, David J. Martin PLLC, Apex, NC, for Defendant GG Irrevocable Trust.
John David Matheny, II, Moorseville, NC, Joseph Houchin, Kaufman & Canoles, Raleigh, NC, Steven W. Shaw, Law Office of Steven W. Shaw, Mapletoon, UT, David J. Martin, David J. Martin PLLC, Apex, NC, for Defendant NC Bidding-2, LLC.
Catherine C. Eagles, District Judge.
PAGE_1 After a trial, the jury found that the defendants had engaged in a bid-rigging conspiracy to limit competition and reduce prices paid for real estate in foreclosure. Judgment of over one million dollars was entered against the defendants and in favor of the plaintiffs. By permanent injunction, the defendant Craig Brooksby and others were prohibited from participating with any other person or entity in the sale of property obtained in public foreclosure auctions. The defendants have not satisfied the judgment and Mr. Brooksby has violated the permanent injunction by actively participating with others in the sale of pieces of real property bought at public foreclosure auctions.
The plaintiffs seek appointment of a receiver to gather and protect the assets of defendant Craig Brooksby, The Estates, LLC, Avirta LLC, GG Irrevocable Trust, and King Family Holdings, LLC. Doc. 316. In view of the overwhelming evidence that these defendants are hiding assets, and in light of the defendants' consent to the appointment of a Receiver at a hearing on November 29, 2022, the motion was granted in open court and an Order appointing a Receiver has been entered. See Doc. 362. This Order memorializes the Court's findings and conclusions leading to that appointment.
The plaintiffs have also filed a motion to hold Mr. Brooksby in contempt for violating the permanent injunction and the charging orders. Doc. 329. In view of the violation by Mr. Brooksby and the modified relief sought by the plaintiffs at the present time, the motion will be granted in part and otherwise denied without prejudice.
The Court finds the following based on the evidence of record and at trial.1 Additional findings of fact are made infra in the Discussion section.
fn1 While the Court has included some citations to the record, it has not attempted to cite all of the evidence which supports its findings of fact. Among the sources available and considered are the evidence submitted at summary judgment, class certification, and on post-trial motions, trial testimony the Court remembers, and trial exhibits.
fn2 For simplicity, the Court will not repeat the facts that underlie the extortion verdicts. Suffice it to say, those facts were compelling as to the shady and deceptive conduct of the responsible defendants, including Mr. Brooksby and the Estates.
The Estates LLC is a membership-based limited liability company founded by Craig Brooksby that operates across multiple states, including North Carolina. Doc. 244 at 3. Mr. Brooksby manages and runs the Estates. He uses a number of other LLCs to conduct real estate deals and distribute profits, including defendants Avirta, Doc. 172 at 1353 (testimony by Mr. Brooksby characterizing Avirta as "one of my LLCs"), and King Family Enterprises. See infra pages 6–7. Family partnerships and trusts like defendant GG Irrevocable Trust are also part of the way he distributes profits.
fn3 The Court has used the pagination appended by the CM-ECF system for this and other deposition cites, not the internal pagination used by the court reporters transcribing the deposition.
PAGE_2 The Estates required members to pay a monthly subscription fee for access to its services. Doc. 244 at 3. This included exclusive access to the Estates' website, http://www.estatestracking.com. Id. at 3–4. The website featured an online database providing real estate information on various properties in foreclosure or otherwise for sale, including information such as estimated debt on a property, estimated value of a property, and location of a property. Id. at 4.
Estates members submitted internal bids on properties listed on the Estates' website by clicking on a "Buy It" button and disclosing the maximum amount they would pay for the property in question. Id. Based on that information, Mr. Brooksby, the acquisition assistants retained by the Estates, or some other agent of the Estates selected one bidder the Estates would represent in submitting bids at a public foreclosure auction or in the upset bid process. Id. The Estates often did not choose the member offering the highest amount, instead frequently choosing a lower bid that had a better possibility of making more money for Mr. Brooksby and others or which he favored for other undisclosed reasons. Id.
Estates members were required to use their own individual "bidding LLC"—an LLC set up with the specific intent of bidding on properties—to bid on properties. Doc. 172 at 119–21; Doc. 354-1, Interrogatory No. 6 (listing 120 "bidding llc[s]"). And as part of their membership, Estates members received the services of an acquisition assistant who was made manager of the bidding LLC and then attended the foreclosure sale and bid on behalf of the bidding LLC. Doc. 172 at 120–21; Doc. 244 at 4. Estates members were also entitled to consultations with and advice from Mr. Brooksby, the Estates' acquisition assistants, or both, about bidding strategies. Doc. 244 at 4. If there was a later upset bid process, the acquisition assistant kept the chosen Estates member informed and continued to make bids on his or her behalf, through the bidding LLC. Id.
Only one member of the Estates could use its services to place public bids on properties in foreclosure, and the Estates members agreed not to bid against one another. Id. at 4–5. If an Estates member acquired property found through the Estates' database, he or she owed the Estates an acquisition fee, even if he or she did not use an acquisition assistant's services. Id. at 5; Doc. 172 at 122.
Mr. Brooksby was entitled to some of the profits obtained from selling any property acquired using the Estates' services. Doc. 244 at 5. The exact arrangements for paying Mr. Brooksby are complicated and opaque. Mr. Brooksby and Estates members used multiple limited liability companies for the real estate transactions. See Doc. 172 at 84–87, 222, 231; Doc. 248-1; Doc. 354-1, Interrogatory No. 5 (Mr. Brooksby's interrogatory response identifying over 125 LLCs in which he has an interest), Interrogatory No. 6 (listing 120 bidding LLCs). Mr. Brooksby has cloaked the distribution of funds, fees, and profits through multiple LLCs and other entities, including a limited partnership and trust. See Doc. 172 at 84–87, 221–24, 231. These entities are often managers or members of the other entities, creating a complicated web. See, e.g., Doc. 256-2 (showing that King Family Enterprises, LLC, is managed by Citadel Management LLC and its members are Rex King Limited Partnership and GG Irrevocable Trust); Doc. 248-2 (showing that King Family Enterprises, LLC, is a member of Avirta LLC); 256-3 (showing that Citadel Management LLC is managed by Craig Brooksby and Rex King); Doc. 256-5 (showing that Avirta LLC is managed by Citadel Management LLC and Rex King and its member is King Family Enterprises LLC); Doc. 248-1 (showing that Avirta LLC is a member of The Estates, LLC, The Estates Real Estate Group LLC, Citadel Management LLC, Citadel Management of North Carolina, LLC, as well as several other LLCs); Doc. 354-1, Interrogatory No. 5 (showing some of the relationships between over 125 different LLCs that Mr. Brooksby was involved with or had an economic interest in). Because of this, and the sheer number of LLCs involved in this scheme, the Court is not sure exactly where the profits ended up or how much money ended up under Mr. Brooksby's control.
PAGE_3 The mechanics of selling property through the Estates are also complicated, and difficult to ascertain with specificity. Generally speaking, and based on the record in this case, when an Estates member bought a property out of foreclosure, they would assign title to the property to another LLC, called an "equity share" LLC. See Doc. 172 at 177–178, 220–221. The Estates member who bought the property was the member of this equity share LLC. Id. at 220–21. There were typically other investors or lenders involved in financing the purchase and any renovations or other expenses. And the buyer, the lender, and one of Mr. Brooksby's LLCs each had what Mr. Brooksby characterized as an "equity share" in the property. See, e.g., id. at 105; see also id. at 221 (characterizing each entity as an "economic interest holder"). Avirta, LLC, which Mr. Brooksby controls, was a member of or took an equity share interest in many of these LLCs. Id. at 222 (testimony that Avirta "ha[d] many LLCs that t[ook] an equity share interest" in these properties). At the time of Mr. Brooksby's deposition, he estimated that there were 80 to 100 such LLCs in existence, which were often used more than once. Id. at 231; see also Doc. 322 at 2–3; Doc. 354-1, Interrogatory No. 5 (listing over 125 LLCs in which Mr. Brooksby has an interest); Doc. 354 at 17 ("[T]here are over 100 entities that are involved here which means that there are probably thousands of transactions....").
When a property was later flipped at a profit, the equity share LLC distributed those profits to the Estates member, the lender, and the Brooksby/Avirta-controlled LLC. See e.g., Doc. 172 at 224, 229–30. The Estates also took a fee. Id. at 224, 226. The Estates or the Brooksby/Avirta-controlled LLC took somewhere between 40–50% of the profits. Id. at 112, 224.
Mr. Brooksby received payments from the Estates for his role facilitating these transactions. Id. at 231. Although the transactions are difficult to follow, it seems as though the money that goes to the Brooksby/Avirta-controlled LLC also often eventually ends up under Mr. Brooksby's control through GG Irrevocable Trust and King Family Enterprises LLC or perhaps other entities. GG Irrevocable Trust and King Family Enterprises LLC are in the line of distributions that eventually make their way to Mr. Brooksby, or for his benefit. See, e.g., id. at 85–87 (testimony about an "irrevocable trust" and "family limited partnership"); Docs. 252-2, 252-3, 252-4 (showing Rex King Limited Partnership and GG Irrevocable Trust as members of King Family Enterprises LLC); Doc 172 at 71 (Mr. Brooksby's testimony that Rex King is his brother-in-law); Doc. 252-1 at 1–3 (showing Mr. Brooksby as trustee and as one of the beneficiaries of GG Trust who may receive payments from the trustee, and who has "the power to terminate the trust with respect to their own interest" and receive a distribution).
Whatever the technicalities, the reality is that Mr. Brooksby played a large role in the bid-rigging scheme and controls many of the entities that profited or that control the profits. See, e.g., Doc. 299 at 11 (the defendants' brief noting that although Frosty Properties LLC owned a certain property and someone else owned that LLC, it was Mr. Brooksby who "ran the sale [of that property] from start to finish. He controlled the process ... This has been the practice for years"); Doc. 299-1 at 6–7; Doc. 354-1, Interrogatories No. 5, No. 12. And to the extent that money from the scheme ended up in GG Irrevocable Trust, Mr. Brooksby directly profits as a beneficiary of the Trust, and he has the power to terminate the trust with respect to his own interest at any time. Doc. 252-1 at 1–3.
After hearing several days of evidence, the jury returned a verdict finding that the various defendants engaged in a bid-rigging conspiracy in violation of the Sherman Act and state law by agreeing to limit bids by Estates members to one Estates member per property during the time they were placing bids on the plaintiffs' properties. Doc. 235 (Jury Verdict, Issues 1, 4, 7). To compensate the plaintiffs for injuries caused by these federal and state antitrust violations, the jury awarded $87,300 in damages to Mr. Williams, id. at 2, $85,000 in damages to Mr. da Costa and Ms. de Leon, id. at 6, and $34,900 in damages to Mr. Gustafson. Id. at 10.
PAGE_4 The jury also found that the defendants engaged in extortion and/or unfair and deceptive trade practices. Id. (Jury Verdict, Issues 2, 5, and 8). To compensate the plaintiffs for injuries caused by the defendants' attempted extortions and misrepresentations, the jury awarded $35,000 in damages to Mr. Williams, id. at 3, $50,000 in damages to Mr. da Costa and Ms. de Leon, id. at 7, and $10,000 in damages to Mr. Gustafson. Id. at 11.
Finally, the jury found that some of the defendants were unjustly enriched by their conduct at the expense of the plaintiffs. Id. (Jury Verdict, Issues 3, 6, 9). To prevent the defendants from being unjustly enriched by their misconduct, the jury awarded damages in the amount of $110,000 to Mr. Williams, id. at 4, $110,000 to Mr. da Costa and Ms. de Leon, id. at 8, and $55,000 to Mr. Gustafson. Id. at 12.
On June 2, 2022, the Court entered judgment in favor of the plaintiffs and against the relevant defendants. Doc. 245. With trebling and prejudgment interest, the judgment against Mr. Brooksby and the Estates totaled approximately $1,287,675, and GG Irrevocable Trust, Avirta, and King Enterprises are jointly liable for approximately $659,766 of that based on their participation in the bid-rigging. Doc. 245.
That same day, the Court also entered a permanent injunction, Doc. 246, after finding that there was a cognizable danger that existing antitrust violations would continue to recur and that a permanent injunction was appropriate to protect the public from the impact of future antitrust violations. Doc. 244 at 13–14, 22, 26–27, 29–30. Among other things, the defendants were enjoined from operating the Estates website in its current form or any website that allowed sharing of information about bidding. Doc. 246 at ¶ 5. Mr. Brooksby and other individual defendants were prohibited from acting with any other person or entity to buy or sell property obtained through a public real estate foreclosure auction for eight years. Id. at ¶ 9.
On August 10, 2022, the Court entered a charging order to multiple limited liability companies in which defendants Avirta LLC, King Family Enterprises LLC, and GG Irrevocable Trust have economic interests. Doc. 293.4 A "charging order" is a court order that directs a limited liability company in which a judgment debtor has an economic interest to pay any money the LLC would otherwise pay the judgment debtor toward satisfaction of the judgment. See generally Doc. 292; N.C. Gen. Stat. § 57D-5-03; First Bank v. S & R Grandview, LLC, 232 N.C. App. 544, 548–49, 755 S.E.2d 393, 396 (2014).
fn4 The plaintiffs also asked for charging orders as to Mr. Brooksby's purported interest in The Estates, LLC, Timbra, LLC, Avirta, LLC, King Family Enterprises, and 80 to 100 "equity share" LLCs that were assigned title to properties purchased through the Estates' bid-rigging scheme. Doc. 248 at 5–8. The Court denied this request, finding that the plaintiffs had not shown that Mr. Brooksby was an interest owner in those LLCs, as that term is used in the relevant statute. Doc. 292 at 9–12.
No defendant has paid anything towards satisfaction of the judgment.
Since the filing of the permanent injunction on June 2, 2022, Mr. Brooksby has continued to participate with others in the sale of properties bought at public foreclosure auctions. For example, on June 28, 2022, he signed various documents for the sale of real estate in South Carolina on behalf of Biscay, LLC. Doc. 277-5 at 5–6, 8. This property was bought at a public foreclosure auction, Doc. 277 at ¶ 9, and the closing documents themselves show that Mr. Brooksby acted with another entity, Biscay LLC, to sell real estate. Mr. Brooksby has admitted his acts in the Biscay sale, as well as his participation in another real estate sale involving and on behalf of limited liability companies. See Doc. 299 at 7–9, 11 (the defendants' statement noting that these sales were "performed" by Mr. Brooksby); Doc. 300 at 1 ¶ 2 (declaration of Mr. Brooksby declaring facts in Doc. 299 are true).
PAGE_5 Plaintiffs have filed a motion to hold Mr. Brooksby in contempt for these violations of the permanent injunction.5 Doc. 329.
fn5 The plaintiffs also asked the Court to hold Mr. Brooksby in contempt for violation of the Charging Order, see Doc. 329, but at the hearing on November 29, 2022 they told the Court they were no longer pursuing that avenue and instead wanted to focus on the violations of the permanent injunction.
The plaintiffs also filed a motion asking that James C. Lanik be appointed as receiver of the assets of Mr. Brooksby, The Estates LLC, Avirta LLC, GG Irrevocable Trust, and King Family Enterprises LLC.6 Doc. 316. These defendants initially opposed the motion, but their brief in opposition contained no citations to the record or case law. Doc. 323. And in open court on November 29, 2022, the defendants withdrew their opposition and consented to the appointment of a receiver. The defendant Carolyn Souther, represented by different counsel, asked at the hearing that a Receiver be appointed to protect assets in which she has in interest.
fn6 The motion refers to King Family Holdings, LLC, but that is not a judgment debtor or a defendant. Judgment was entered against King Family Enterprises LLC, see Doc. 245, and the evidence with which the Court is familiar concerns King Family Enterprises LLC. See, e.g., Docs. 245–248. The Court assumes the reference to King Family Holdings was a clerical error.
The plaintiffs have filed a motion to hold Mr. Brooksby in contempt for selling properties in violation of paragraph 9 of the permanent injunction. "To ensure compliance with its orders, a district court has the inherent authority to hold parties in civil contempt." Rainbow Sch., Inc. v. Rainbow Early Educ. Holding LLC, 887 F.3d 610, 617 (4th Cir. 2018) (citing Shillitani v. United States, 384 U.S. 364, 370 (1966)).
Before a court will find a party in civil contempt, the entity seeking the contempt order must establish four things by clear and convincing evidence: "(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) that the decree was in the movant's 'favor'; (3) that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) that the movant suffered harm as a result." Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000) (cleaned up) (quoting Colonial Williamsburg Found. v. The Kittinger Co., 792 F. Supp. 1397, 1405–06 (E.D. Va. 1992), aff'd, 38 F.3d 133, 136 (4th Cir. 1994)).
Paragraph 9 of the permanent injunction, in effect since June 2, 2022, enjoins Mr. Brooksby and other defendants from acting together, in any combination, or with any other persons or entities to buy or sell directly or indirectly any property obtained through a public real estate foreclosure auction anywhere in the United States for a period of eight years. Doc. 246 at ¶ 9. In other words, the enjoined defendants may buy or sell property individually and on his or her own behalf, but none may buy or sell property through or with any entity, including any LLC.
PAGE_6 On July 28, 2022, defendant Carolyn Souther filed a declaration of compliance in which she described how Mr. Brooksby violated this injunction on June 29, 2022. Doc. 277 at ¶¶ 9–15. On or around this date, Mr. Brooksby signed various documents for the sale of real estate ("202 River Bluff") in South Carolina on behalf of Biscay, LLC. Doc. 277-5 at 5–6, 8. This property was bought at a public foreclosure auction, Doc. 277 at ¶ 9, and the closing documents show that Mr. Brooksby acted with another entity, Biscay LLC, to sell this property in violation of the injunction. Doc. 277-5 at 5–6, 8. Mr. Brooksby has admitted his acts in the Biscay sale, as well as his participation in another real estate sale ("2019 Tennessee Avenue") involving and on behalf of limited liability companies. See Doc. 299 at 7–9, 11 (the defendants' statement noting that the June sale and another sale were both "performed" by Mr. Brooksby through LLCs); Doc. 300 at 1 ¶ 2 (declaration of Mr. Brooksby declaring facts in Doc. 299 are true); see also Doc. 322.
There is some evidence that Mr. Brooksby has violated the injunction through sales of other properties. At least two other properties that had been bought through foreclosure were sold sometime after June 2, 2022, see Doc. 322 at 3, and the evidence suggests that Mr. Brooksby played a role in those sales as well. See, e.g., Doc. 299-1 at 6–7 (letter from Mr. Shaw, Mr. Brooksby's counsel, explaining that "Mr. Brooksby handles, directs and controls various aspects of properties acquired through The Estates system" and that he "always" handled transactions and sales of Estates' property).
It is undisputed that the permanent injunction, Doc. 246, was a valid decree issued by this Court, and that Mr. Brooksby had actual knowledge of the injunction. The injunction was in the plaintiffs' favor, as it was designed to prevent the same type of antitrust violations that harmed the plaintiffs. And Mr. Brooksby violated the terms of this injunction through the sales of 202 River Bluff and 2019 Tennessee Avenue, discussed supra.
Mr. Brooksby initially contended that he should not be held in contempt because he did not know that his conduct was in violation of the permanent injunction. This argument is frivolous. The injunction itself is clear that Mr. Brooksby could not act with any entity to sell, directly or indirectly, "any property obtained through a public real estate foreclosure auction anywhere in the United States for a period of eight years." Doc. 246 at ¶ 9. The Court further explained in its Memorandum Opinion and Order that the injunction prohibited the defendants from acting with any entity to "sell any property obtained at public foreclosures for the next eight years," but that the defendants could continue to individually participate in the public foreclosure market. Doc. 244 at 28. This is sufficient to provide Mr. Brooksby with "at least constructive knowledge" that his conduct was in violation. See Ashcraft, 218 F.3d at 301.
Additionally, "[t]he absence of wilfulness does not relieve from civil contempt." McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949). Because the purpose of civil contempt is remedial, not punitive, it does not matter "with what intent the defendant did the prohibited act." Id. "An act does not cease to be a violation ... of a decree merely because it may have been done innocently." Id. Mr. Brooksby's argument that he did not willfully violate the injunction does not save him from being in contempt.
As stated in open court on November 29, 2022, the Court grants the plaintiffs' motion to hold Mr. Brooksby in civil contempt.
At the November 29, 2022, hearing, the plaintiffs essentially withdrew their other contentions as to contempt, in light of the appointment of a Receiver, and for the same reason modified their request for relief, asking only that Mr. Brooksby be ordered to provide copies of the closing documents for the transactions in which he participated in violation of the injunction. This is an appropriate remedy, as it will allow the plaintiffs to begin tracing those assets to determine if they are available to satisfy the judgment. As reflected in the Minute Entry, the Court ordered Mr. Brooksby to provide the plaintiffs with the closing documents for five sales—202 River Bluff, 2019 Tennessee Avenue, 1825 St. Julian Place Unit 17, 15050 Mesquite Trail, and 934 Riverstone—by December 2, 2022. See Minute Entry 11/29/2022; Doc. 329 at 1 ¶ 2. Mr. Brooksby filed documents he identified as responsive on December 1, 2022. Doc. 361.
PAGE_7 The plaintiffs filed a motion asking that James C. Lanik be appointed as receiver of the assets of Mr. Brooksby, The Estates LLC, Avirta LLC, GG Irrevocable Trust, and King Family Enterprises LLC. Doc. 316. They contend that Mr. Brooksby is in control of the other entities and that these entities are liquidating or likely to liquidate their assets, specifically by selling the properties obtained during the bid-rigging scheme, in avoidance of paying the judgment. Doc. 317. The defendants7 initially opposed the motion, Doc. 323, but in open court on November 29, 2022, they withdrew this opposition and consented to appointment of a receiver.
fn7 Defendants Souther and NC Bidding-2 are represented by other counsel, see Docs. 276, 295, and did not respond to the motion, which is not directed towards them or their assets. At the November 29 hearing, counsel for Ms. Souther joined in the plaintiffs' motion for a receiver. Unless otherwise specified, the Court uses the term "the defendants" in this section to refer to the defendants who are the subject of the motion for a receiver.
A "district court has within its equity power the authority to appoint receivers and to administer receiverships." Gilchrist v. Gen. Elec. Cap. Corp., 262 F.3d 295, 302 (4th Cir. 2001); see also Fed. R. Civ. P. 66. Receivers appointed by a federal court "manage and operate" the receivership estate "according to the requirements of the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof." 28 U.S.C. § 959(b); accord Gilchrist, 262 F.3d at 302. Receiverships are granted for numerous reasons, including "[w]hen a judgment creditor seeks to acquire and preserve the assets of the litigation prior to its destruction or demise," and whether to appoint a receiver is subject to the broad discretion of the district court. 13 Moore's Federal Practice – Civil § 66.04.
Neither the Supreme Court nor the Fourth Circuit has provided a concrete list of factors for courts to weigh in considering whether to appoint a receiver. See Manuel v. Gembala, No. 10-CV-4, 2010 WL 3860407, at PAGE_6 (E.D.N.C. Sept. 30, 2010) ("[T]here is no precise formula for determining whether receivership is appropriate...."). Courts have considered a variety of factors before appointing a receiver. See, e.g., LNV Corp. v. Harrison Family Bus., LLC, 132 F. Supp. 3d 683, 689–90 (D. Md. 2015) (collecting cases and summarizing authorities); Brill & Harrington Invs. v. Vernon Sav. & Loan Ass'n, 787 F. Supp. 250, 253–54 (D.D.C. 1992). Generally, the following considerations are likely to be relevant:
12 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2983 (3d ed. 2022) (cleaned up); see also 13 Moore's Federal Practice – Civil § 66.04 (listing factors courts generally consider important when appointing receivers).
The evidence of record supports the inference that Mr. Brooksby and the entities he controls are engaged in a plan to hide their assets and to avoid paying the judgment. Mr. Brooksby, acting with and on behalf of an entity and in direct violation of the permanent injunction, has sold property obtained through public foreclosure auctions on at least two occasions. See supra pages 12–13. For at least some of these sales, some of the profits should have been paid toward satisfying the judgment. Yet the record does not show that the Clerk has received any money from any defendant or any entity subject to the charging order towards satisfying the judgment. Neither Mr. Brooksby nor any other defendant has explained what happened to the proceeds of these sales.
PAGE_8 The evidence is overwhelming that Mr. Brooksby and the entities he controls or manages plan to sell properties bought through public foreclosure auctions, despite the permanent injunction prohibiting Mr. Brooksby from doing so. The bulk of their entire response to the plaintiffs' motion for a receiver is to explain how these defendants are "willing to work through" (i.e., sell) the properties, "for a fee," pointing to their claimed expertise. Doc. 323 at 1. In other words, Mr. Brooksby initially intended to keep violating the permanent injunction for his own profit and those of his undisclosed "investors." The evidence further shows that at least some of the profits from these sales will be funneled through the defendants, specifically the Estates, Avirta, GG Irrevocable Trust, or King Family Enterprises, eventually making their way to or for the benefit of Mr. Brooksby.
While these defendants through counsel say they will "hand the profits over to the court," id., their conduct to date provides no such assurance. Mr. Brooksby was up front during his deposition that he uses these and other entities to protect his assets. Doc. 172 at 84–87. He paid nothing towards a multi-million dollar verdict entered against him in Nevada some years ago. Doc. 354 at 20, 26–27.
And Mr. Brooksby and his entities are not the best record-keepers. He has been unable to timely comply in full with the Court's supplemental compliance order, see Doc. 322 at 1 (Mr. Brooksby's declaration noting that as to blanks in the chart attached to his declaration, "I don't know that formation [sic] at this time"), and the Court's Order compelling him to answer the plaintiffs' post-judgment interrogatories.
The defendants' track record throughout this litigation has been to deny and delay. The involvement of Mr. Brooksby's attorneys provides no assurance that the involvement of counsel will increase the reliability of Mr. Brooksby's record-keeping, as their work has been sloppy at best and potentially complicit at worst.
The plaintiffs have legitimate concerns that few if any of the profits and fees will make their way to the judgment creditors. Once the property has been sold and the proceeds distributed, the plaintiffs' options to trace the money for satisfaction of the judgment become much more complicated, if not impossible. Mr. Brooksby's testimony, Doc. 172, and the public records available on some of the various entities he controls or from which he benefits establish that there is a complex web of transactions and relationships that an outsider will have difficulty untangling. Mr. Brooksby during his deposition and at trial tended conveniently not to "remember" details about his various entities, including their names. See Doc. 172 at 18, 22, 31–32, 34–35, 84, 135.8
fn8 No party has yet filed the trial transcript, but the Court remembers Mr. Brooksby's evasive demeanor and convenient forgetfulness during his testimony.
A qualified receiver is in a good position to oversee the properties, keep good records, track down and maintain other assets of the defendants, and make more funds available for satisfaction of the judgment than if the defendants are left in charge. Mr. Lanik is highly qualified to serve as a receiver. He is licensed to practice law in North Carolina, Virginia, and Colorado and a partner at Waldrep Wall Babcock & Bailey PLLC. Doc. 318 at ¶¶ 2–3. He is admitted to practice in the three Federal District Courts in North Carolina and the United States Court of Appeals for the Fourth Circuit, among others. Id. at ¶ 3. Mr. Lanik's practice is focused on bankruptcy law, and he is board-certified in business bankruptcy law by the North Carolina State Bar and the American Board of Certification. Id. at ¶ 4. He is currently on the panel of Chapter 7 Trustees for this district, and he has served as a court-appointed receiver in state court. Id.
PAGE_9 The evidence against Mr. Brooksby and the Estates was compelling, as the Court has previously explained here and elsewhere. But in the unlikely event they should prevail on appeal, the assets will be protected by the work of the receiver.
Upon full evaluation of the evidence in the entire record and based on the Court's years-long knowledge of this case, the Court finds and concludes that: there is imminent danger that property in which the defendants have a financial interest will be sold and the defendants will conceal or squander the money they are entitled to receive upon sale of those properties rather than turning over those proceeds to satisfy the judgment; that the legal remedies available to the plaintiffs when that happens are non-existent in practical terms; that failure to appoint a receiver is likely to result in substantial harm to the plaintiffs' ability to collect the judgment while appointment of a qualified receiver is unlikely to harm the defendants' financial interests; and that the plaintiffs are highly likely to succeed on appeal as to Mr. Brooksby and the Estates and likely to succeed as to Avirta, GG Irrevocable Trust, and King Family Enterprises.
Mr. Brooksby violated the permanent injunction by joining with others to sell real estate bought out of foreclosure. He is in contempt of court. He and other defendants are actively engaged in hiding assets and for this and other reasons, and in the absence of an objection, appointment of a receiver is appropriate.
It is ORDERED that:
1. Plaintiffs' motion for contempt, Doc. 329, is GRANTED in part, and Craig Brooksby is in contempt of court for violations of the permanent injunction by acting with others to sell real property bought out of foreclosure. Otherwise, the motion is DENIED without prejudice.
2. Mr. Brooksby is ORDERED to produce the closing documents for the sales of the 202 River Bluff, 2019 Tennessee Avenue, 1825 St. Julian Place Unit 17, 15050 Mesquite Trail, and 934 Riverstone properties. These closing documents SHALL be filed on the public docket no later than December 2, 2022.
3. Plaintiffs' motion for appointment of a receiver, Doc. 316, is GRANTED. A separate Order appointing Mr. Lanik has been entered. Doc. 362.
United States District Court, M.D. North Carolina.
BRIAN C. WILLIAMS, et al., Plaintiffs,
v.
THE ESTATES LLC, et al., Defendants.
1:19-CV-1076
Filed 10/19/2023
Catherine C. Eagles, Chief District Judge.
PAGE_1 In April 2022, a jury returned a verdict for the plaintiffs. In June 2022, the Court entered a money judgment against the defendants, including Carolyn Souther. That judgment has not been satisfied.
In August 2023, the plaintiffs filed a motion for a charging order against Ms. Souther. A charging order directs a limited liability company in which a judgment debtor is an interest owner to pay money that would otherwise go to the judgment debtor toward satisfaction of the judgment. The plaintiffs allege that Ms. Souther is an interest owner in numerous LLCs and that any distributions, allocations, dividends, or payments that would be distributed to Ms. Souther by the LLCs instead should go toward their judgment.
Under the applicable North Carolina statute, a plaintiff can receive a charging order if (1) she is a judgment creditor of the defendant; (2) the court to which she has applied is of competent jurisdiction; and (3) the defendant is an “interest owner” in the LLC. The plaintiffs are judgment creditors of Ms. Souther, this Court is of competent jurisdiction, and Ms. Souther is an interest owner in 153 Fish, LLC, Souther Real Estate Investments, LLC, Ichthus Holdings, LLC, and Flint Acquisitions, LLC, so the charging order will issue as to those LLCs. The retirement account held by CSIRA, LLC itself is protected by statute from creditors, but the Court is still evaluating whether any distributions made by CSIRA to Ms. Souther are also protected; the motion as to CSIRA remains under advisement. The record does not clearly establish that Ms. Souther has an ownership interest in the remaining LLCs, so as to those, the motion will be denied.
The enforcement of a money judgment is governed by Rule 69 of the Federal Rules of Civil Procedure, which requires that procedures be in accordance “with the procedure of the state where the court is located,” Fed. R. Civ. P. 69(a)(1), here North Carolina. North Carolina law defines a “charging order” as the “exclusive remedy by which a judgment creditor of an interest owner [in an LLC] may satisfy the judgment from or with the judgment debtor's ownership interest.” N.C. Gen. Stat. § 57D-5-03(d).
This Court previously discussed charging orders in-depth in connection with an earlier motion filed by the plaintiffs seeking charging orders against other defendants. See Doc. 292 at 2–4; Williams v. Estates LLC, No. 19-CV-1076, 2022 WL 3226659, at PAGE_1–3 (M.D.N.C. Aug. 10, 2022). That discussion is incorporated by reference. To summarize, a court of competent jurisdiction can require the economic interest of an interest owner in an LLC to be paid to a judgment creditor rather than the interest owner. See Williams, 2022 WL 3226659, at PAGE_1; § 57D-5-03(a).
North Carolina statute defines an “interest owner” as a “member or an economic interest owner.” § 57D-1-03(15). An “economic interest owner” is “a person who owns an economic interest but is not a member,” § 57D-1-03(11), and an “economic interest” is “[t]he proprietary interest of an interest owner in the capital, income, losses, credits, and other economic rights and interests of a limited liability company, including the right of the owner of the interest to receive distributions from the limited liability company.” § 57D-1-03(10). When entered, a charging order gives the judgment creditor “the right to receive distributions that would otherwise be paid to the interest owner with respect to the economic interest,” but the LLC is not responsible for the judgment. See § 57D-5-03(a); Williams, 2022 WL 3226659, at PAGE_2.
PAGE_2 A plaintiff seeking a charging order must show (1) the plaintiff is a judgment creditor of the defendant; (2) the court to which the plaintiff applied is a court of competent jurisdiction; and (3) the defendant is an interest owner in the LLC. Williams, 2022 WL 3226659, at PAGE_2. Here, neither party contests that the plaintiffs are judgment creditors of the defendant or that this Court is of competent jurisdiction.1
fn1. For further discussion on why the plaintiffs are judgment creditors and this Court is of competent jurisdiction see Williams, 2022 WL 3226659, at PAGE_2–3.
In her answers to interrogatories, Ms. Souther affirms that she is a member and owner of 153 Fish, LLC and Souther Real Estate Investments, LLC, Doc. 508 at 5–6, and she acknowledges these facts in her response to the plaintiffs’ motion seeking charging orders. Doc. 518-1 at 2. Because Ms. Souther's membership makes her an interest owner, § 57D-1-03(15), the plaintiffs are entitled to a charging order directing those LLCs to pay any moneys due to Ms. Souther into the court to be used towards satisfaction of the judgment.
In her answers to interrogatories, Ms. Souther explicitly affirms that she is the owner and 50% economic interest (EI) holder of Ichthus Holdings, LLC. Doc. 508 at 11. It seems obvious that an owner of an LLC has an economic interest in the LLC, and under North Carolina law, an owner of an LLC is the same as a member. Hamby v. Profile Prods., LLC, 361 N.C. 630, 636, 652 S.E.2d 231, 235 (2007); S. Shores Realty Servs., Inc. v. Miller, 251 N.C. App. 571, 584, 796 S.E.2d 340, 351 (2017). This admission establishes that Ms. Souther has an economic interest in Ichthus subject to a charging order.
As to Flint Acquisitions, LLC, Ms. Souther states in her answers to interrogatories that she has a 10% economic interest in Flint. Doc. 508 at 15. This likewise establishes that she has an interest in Flint subject to a charging order.
Ms. Souther contends that these admissions by her, under oath, id. at 37, are insufficient to prove she has an ownership interest in these two LLCs. Doc. 518 at 4–5. In her briefing in opposition to the motion, she says that the interrogatory did not define the phrase “economic interest” with specificity, and that she interpreted “economic interest” more broadly than the statutory definition. Id. These arguments are not persuasive.
First the term “economic interest” is defined by statute. N.C. Gen. Stat. § 57D-1-03(10). In her answers to the interrogatories, Ms. Souther does not object to the term as vague. See Doc. 508 at 5 (objecting only to the phrase “directly or indirectly involved” as vague and ambiguous). Moreover, these interrogatories were answered in August 2023, Doc. 508 at 37, after the plaintiffs had previously sought charging orders against other judgment debtors, Doc. 247, after the Court issued an opinion in which it discussed the statutory term “economic interest,” Doc. 292 at 3, and after court hearings at which the plaintiffs, in Ms. Souther's lawyer's presence, discussed the possibility of seeking other charging orders. Doc. 499 at 24–25. Ms. Souther's claim that she understood this phrase more broadly is disingenuous.
Second, Ms. Souther does not provide evidence to support a finding that she does not have an economic interest in either LLC. She offers her sworn statement explaining her affiliation with some of the other LLCs at issue, but she does not address Flint or Ichthus directly. See Doc. 518-1. In her brief, Ms. Souther through counsel says she has no interest in many of the LLCs she names in her answers to the interrogatory, but statements in a brief are not evidence. City of Greensboro v. Guilford Cnty. Bd. of Elections, No. 15-CV-559, 2017 WL 11488724, at PAGE_1 n.4 (M.D.N.C. Jan. 26, 2017) (collecting cases); see also Hill v. Carvana, LLC, No. 22-CV-37, 2022 WL 1625020, at PAGE_3 (M.D.N.C. May 23, 2022). Even if the statements in the brief are considered, counsel says nothing in the brief about Flint and Ichthus specifically.
PAGE_3 Third, Ms. Souther's answers to the interrogatory are clear. In those answers, she states, under oath, that she is an owner of and 50% “EI” holder in Ichthus. Doc. 508 at 11. When answering the interrogatory, Ms. Souther defined her relationship with some LLCs, by using other terms like contractor, lender, or client. See, e.g., id. at 14. Ms. Souther includes the label “client” when discussing Ichthus, but she offers no explanation of this label, and it doesn't contradict the fact, which she herself affirms under oath, that she is an owner of the LLC. Id. at 11. As to Flint, Ms. Souther explicitly states that she has a 10% “EI” in the LLC. Id. at 15.2
fn2. Even if one accepted the assertions in her brief as evidence, they support a finding that she has an economic interest. In her interrogatory answer, Ms. Souther included the label “contractor” in her answer about Flint. Doc. 508 at 15. In her brief, she says that being a contractor means she is entitled to a percentage of an LLC's profits. Doc. 518 at 5. This constitutes an economic interest. See § 57D-1-03(10), -(11), -(15).
The plaintiffs are entitled to a charging order directing these two LLCs to pay any moneys due to Ms. Souther into the court to be used towards satisfaction of the judgment.
In her answer to interrogatories, Ms. Souther states that she has a 100% “EI” in CSIRA, LLC. Id. at 6. She thus has an economic interest in CSIRA.
In a clarifying declaration, Ms. Souther affirms that American IRA, LLC established CSIRA to administer and make investments for Ms. Souther's self-directed IRA. Doc. 518-1 at 1, 22–24. The plaintiffs offer no contradictory evidence. North Carolina law protects certain property from the claims of creditors, including “[i]ndividual retirement plans as defined in the Internal Revenue Code and any plan treated in the same manner.” § 1C-1601(a)(9).
While funds held in an IRA are protected from creditors by statute, the Court is still evaluating whether that same protection extends to funds once they are disbursed to the owner of the IRA. The motion for a charging order against CSIRA remains under advisement.
For the 48 remaining LLCs, the only evidence cited by the plaintiffs is in Ms. Souther's interrogatory answers. Doc. 507 at 6; Doc. 508 at 5–22. But these answers do not establish that Ms. Souther is a member or that she has an economic interest in any of these LLCs.
In her interrogatory answers, Ms. Souther affirms that 24 of these LLCs are dissolved or delinquent3 and the plaintiffs offer no contrary evidence. If an LLC is dissolved, it is hard to see how anyone has an economic interest in it. The plaintiffs do not address this in their briefing.
fn3. Ms. Souther affirmed that the following LLCs were considered dissolved or delinquent: Jonah Holdings, Doc. 508 at 6–7, Castednet, LLC, id. at 7, High Places 1B, LLC, id., Scottish Pass, LCC, id. at 8, 2 and 5 Fish, LLC, id., Keziah Holdings, LLC, id. at 9, GSBoreals, LLC, id., CH Property Holdings, id. at 10, Beau Holdings, id., Cedar House Properties, id., Mister Property Holdings, LLC, id. at 10–11, Sweet Conifer Holdings, LLC, id. at 11, Field View, LLC, id. at 11–12, Bethsaida, LLC, id. at 12, KTL Holdings, LLC, id., 12085 Morehead Holdings, id. at 12–13, Misty Meadows 25A, LLC, id. at 13, Misty Meadows 35A, LLC, id., Chunker, LLC, id. at 14, Sand Fin Holdings, LLC, id., Eris Acquisitions, id. at 15, Dover Properties, id. at 17, Crius Properties, id. at 18–19, and Aurus Holdings. Id. at 19–20.
For the additional 24 LLCs, which Ms. Souther identifies as either active or of unknown legal status, Ms. Souther either names other people or LLCs as members, or she does not admit she is an owner or otherwise has any interest that constitutes an economic interest.4 For example:
PAGE_4
fn4. These LLCs are: James Randal Souther IRA, LLC, Doc. 508 at 6, Gideer, id. at 9, Evergreen Property Holdings, id. at 13, King David I, id. at 14, 71 Cam, id. at 14–15, Trench Holdings, id. at 15–16, Vilnius, id. at 16, Maldives, LLC, id., Versa Properties, LLC, id. at 16–17, Centauri Acquisitions, id. at 17, Hunter Path, id. at 17–18, Hunter Valley, id. at 18, Biscay, LLC, id., Icon Acquisitions, id., Timber Refuge, id. at 19, Outlander Acquisitions, id., Little Strand, id. at 20, Oxford Acquisition, id., Stansted, id. at 20–21, Hillside Acquisitions, id. at 21, Bristol Acquisitions, id., Greenmeadows Acquisitions, id. at 21–22, Hevea, id. at 22, and Lynx Holdings. Id.
fn5. Whether someone who is a member of an LLC that is a member of a second LLC has an economic interest in the second LLC is not completely clear. At least one court has held that indirect ownership through another LLC is not enough to establish a chargeable ownership interest. See Am. Bank Ctr. v. Barker, No. 18-CV-103, 2019 WL 13221937, at PAGE_1–2 (W.D.N.C. July 18, 2019). The plaintiffs have not persuasively explained why this case should not be followed.
There are similar problems with the rest of the LLCs of active or of unknown legal status. The plaintiffs do not make a specific argument about these LLCs and instead make only the conclusory argument that “in post-judgment interrogatories Ms. Souther identified an ‘economic interest’ in multiple other LLCs.” Doc. 507 at 6. This is insufficient, especially when the interrogatory answers do not appear to support this contention.
The plaintiffs’ motion seeking a charging order against the remaining LLCs will be denied as the evidence does not show Ms. Souther has an ownership interest in any of the companies.
It is ordered that the plaintiffs’ motion for a charging order, Doc. 506, is GRANTED as to Ms. Souther's interest in 153 Fish, LLC, Souther Real Estate Investments, LLC, Ichthus Holdings, LLC, and Flint Acquisitions, LLC. A separate charging order will issue. The motion as to CSIRA, LLC remains under advisement. As to all other LLCs, the motion is DENIED.
This the 19th day of October, 2023.