Fremont Bank v. Signorelli, 2023 WL 2505021 (N.D.Cal., Feb. 24, 2023).
Opinion 2023 California Exemption Opinion2023FremontBankCaliforniaExemption
Fremont Bank v. Signorelli, 2023 WL 2505021 (N.D.Cal., Feb. 24, 2023).
United States District Court, N.D. California.
FREMONT BANK, Plaintiff,
v.
ROBERT J SIGNORELLI, et al., Defendants.
Case No. 18-cv-04808-HSG (DMR)
Filed 02/24/2023
REPORT AND RECOMMENDATION RE: MOTION FOR AN ORDER CHARGING INTEREST
Donna M. Ryu United States Magistrate Judge
PAGE_1 Plaintiff Fremont Bank moves for an order charging an interest pursuant to Federal Rule of Civil Procedure 69(a) and California Code of Civil Procedure section 708.310. [Docket No. 99.]
This case has been referred to the undersigned for post-judgment collection issues. [Docket No. 59.] 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.
I. BACKGROUND
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 (“Family, L.P.”).1 At issue in the lawsuit was Defendants’ default on a 2015 business loan agreement in which Fremont Bank agreed to lend R. Signorelli up to $1,000,000. [Docket No. 56 (Order on Summ. J.) 1-2.] On April 19, 2019, the Honorable Haywood S. 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.] A total of $30,000 has been paid toward the judgment. As of January 6, 2023, the outstanding balance on the judgment is $1,014,915. [Docket No. 99-2 (Kirschenbaum Decl., Jan. 6, 2023) ¶¶ 5-7.]
On November 3, 2021, Fremont Bank filed an ex parte application for a judgment debtor examination of R. Signorelli with production of documents. The court granted the motion on November 5, 2021 and ordered R. Signorelli to appear for a judgment debtor examination via Zoom videoconference, and to produce the requested documents on that date. The court later rescheduled the judgment debtor examination. After R. Signorelli failed to appear at the scheduled judgment debtor examination and did not produce any documents, Fremont Bank moved for issuance of an Order to Show Cause why he should not be held in contempt for violating the court’s order to appear and produce documents. It also moved for civil contempt sanctions and an award of attorneys’ fees and costs. The facts regarding those proceedings were set forth in detail in the undersigned’s April 28, 2022 Order and June 28, 2022 Report and Recommendations re: Civil Contempt and Request for Sanctions. [Docket Nos. 78, 82.]
On August 29, 2022, after holding an Order to Show Cause hearing, Judge Gilliam found R. Signorelli in contempt and ordered him to appear at a judgment debtor examination, produce documents, and pay Fremont Bank $4,155 in compensatory sanctions. [Docket No. 91.] R. Signorelli ultimately appeared for the judgment debtor examination on September 29, 2022 and November 1, 2022. He produced documents in response to Fremont Bank’s requests in September and October 2022. Kirschenbaum Decl. ¶¶ 11-13.
Fremont Bank now moves for an order charging Family, L.P.’s interest in third parties Pine Brook Capital Partners II, L.P. (“Pine Brook”) and PBCP Feeder, L.P. (“PBCP”) under Federal Rule of Civil Procedure 69(a) and California Code of Civil Procedure section 708.310. It asserts that Family, L.P. owns partnership interests in Pine Brook and PBCP and that it is entitled to an order applying Family, L.P.’s interest in the third parties toward satisfaction of the judgment. [Docket No. 99.]
II. LEGAL STANDARD
PAGE_2 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:
Cal. Code Civ. Proc. § 708.310. Here, Fremont Bank seeks a remedy pursuant to California Corporations Code section 15907.03, which applies to orders charging a judgment debtor’s interest in a partnership. Section 15907.03 states in relevant part:
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Cal. Corp. Code § 15907.03.
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 partners or the partnership” creates a lien on a judgment debtor’s interest in a partnership. “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.
III. DISCUSSION
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 partnership or 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 a moving party must present “substantial evidence” of the judgment debtor’s interest in the entity at issue in order to obtain a charging order. See Textron Fin. Corp. v. Gallegos, No. 15CV1678-LAB (DHB), 2015 WL 11658718, at PAGE_2 (S.D. Cal. Oct. 7, 2015).
PAGE_3 The court concludes that Fremont Bank is entitled to an order charging Family, L.P.’s interest in Pine Brook and PBCP. First, Fremont Bank obtained a money judgment against Family, L.P. [Docket Nos. 56, 57.] Second, Fremont Bank submitted substantial evidence of Family, L.P.’s partnership interests in Pine Brook and PBCP. Specifically, R. Signorelli testified at the judgment debtor examination that Family, L.P. owns partnership interests in Pine Brook and PBCP, which are private equity investment funds. Kirschenbaum Decl. ¶ 14, Ex. A (Signorelli Dep.) at 21-22, 24, 41-43. R. Signorelli produced account statements for Pine Brook and PBCP. The Pine Brook account statement shows that Family, L.P. made $1,299,498 in capital contributions and has received $693,644 in cash distributions from Pine Brook over the lifetime of the investment, including $58,501 in cash distributions in the first half of 2022. Kirschenbaum Decl. ¶ 15, Ex. B. The PBCP account statement shows that Family, L.P. made $2,245,577 in capital contributions and has received $2,935,224 in cash distributions from PBCP over the lifetime of the investment, including $150,685 in cash distributions in the first half of 2022. Kirschenbaum Decl. ¶ 16, Ex. C. R. Signorelli also produced subscription documents for Pine Brook and PBCP, Kirschenbaum Decl. ¶ 17, Exs. D, E, and Fremont Bank submitted evidence that Pine Brook and PBCP are limited partnerships. Kirschenbaum Decl. ¶ 18, Ex. F.
Fremont Bank served its motion on all Defendants and Pine Brook and PBCP. Kirschenbaum Decl. ¶ 19, Ex. G. Any opposition(s) to the motion was due by January 23, 2023. See Civ. L.R. 7-3(a) (“[t]he opposition [to a motion] must be filed and served not more than 14 days after the motion was filed.”). No opposition was filed by the deadline. On January 30, 2023, R. Signorelli, individually and as Trustee of the Signorelli Family Living Trust (the “Family Trust”), and Kathryn R. Signorelli, Trustee of the Family Trust and Family, L.P., filed an opposition to the motion for a charging order. [Docket No. 105.] The opposition does not contest any of the evidence submitted by Fremont Bank in support of the motion. Instead, R. Signorelli and Kathryn R. Signorelli argue that the proposed charging order “would leave the Signorellis without sufficient income to support themselves,” and claim an exemption pursuant to California Code of Civil Procedure section 704.225. Opp’n 2. They offer no explanation for their untimely opposition to the motion for a charging order.
The court may disregard the opposition given its untimeliness. However, even if the opposition had been timely, the court finds that it is without merit. California Code of Civil Procedure section 704.225 provides that “[m]oney in a judgment debtor’s deposit account that is not otherwise exempt under this chapter is exempt to the extent necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.” Cal. Civ. Proc. Code § 704.225. However, the exemptions listed in the relevant chapter “apply only to property of a natural person.” Cal. Civ. Proc. Code § 703.020(a) (emphasis added). Fremont Bank seeks an order charging Family, L.P.’s partnership interests in Pine Brook and PBCP. Family, L.P. is not a natural person. Thus, it may not claim an exemption under section 704.225. R. Signorelli and Kathryn R. Signorelli cite no authority that allow them to claim personal exemptions through Family, L.P.’s partnership interests.
Accordingly, the court recommends that Fremont Bank’s motion for an order charging Family, L.P.’s interests in Pine Brook and PBCP be granted.
IV. CONCLUSION
For the foregoing reasons, the court recommends that Fremont Bank’s motion for an order charging Signorelli Family, L.P.’s interests in Pine Brook Capital Partners II, L.P. and PBCP Feeder, L.P. 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.
Footnotes
1 For clarity, this order refers to Robert J. Signorelli as “R. Signorelli.”