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Charging Order Opinions New

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NEW OPINIONS

CFPB v. Integrity Advance, LLC, 2024 WL 5262916 (D.Kan.Dec. 31, 2024).
♦ In CFPB v. Integrity Advance, LLC, the U.S. District Court for the District of Kansas ruled that the Federal Debt Collection Procedures Act (FDCPA) preempts a Kansas state law allowing for charging orders to seize a debtor's interest in a Limited Liability Company (LLC). The Consumer Financial Protection Bureau (CFPB) was attempting to collect a $43 million judgment against James R. Carnes. The CFPB had previously obtained a charging order under Kansas law to attach Carnes's interests in several LLCs. However, the court, upon its own review, determined that the FDCPA, which governs federal debt collection, provides the exclusive means for the CFPB to collect debts. The court found that the FDCPA's garnishment provision, which allows for the seizure of a debtor's property held by a third party, applies to LLC interests. Therefore, the court vacated the existing charging order and denied all pending motions related to it, including a new application for a charging order, concluding that the FDCPA's garnishment procedures are the proper method for the CFPB to pursue Carnes's LLC interests. The court sided with the weight of recent authority that interprets the FDCPA to preempt state laws that provide alternative collection mechanisms. ♦

Big Sandy Co. v. American Carbon Corp., 2024 WL 5250401 (E.D.Ky., Dec. 30, 2024).
♦ In Big Sandy Co. v. American Carbon Corp., the U.S. District Court for the Eastern District of Kentucky granted Big Sandy Company's motion for a charging order against American Carbon Corporation (ACC). This order allows Big Sandy to collect on a prior judgment against ACC by placing a lien on ACC's interests in four subsidiary LLCs (McCoy Elkhorn Coal, Knott County Coal, Deane Mining, and Perry County Resources). The court rejected ACC's arguments that the court lacked jurisdiction because the subsidiaries were not registered in Kentucky, and that the charging order would improperly give Big Sandy priority over other creditors. The court held that it had jurisdiction over ACC, and therefore could issue a charging order against its interests in the LLCs, regardless of where they were formed. The court also clarified that the charging order acts as a lien, not an assignment, and does not inherently grant priority over other creditors. The order requires the subsidiaries to notify Big Sandy of any distributions to ACC and to pay those distributions directly to Big Sandy until the judgment is satisfied. The order also prevents the subsidiaries from diverting funds and requires ACC to inform Big Sandy of any new or reinstated LLCs. ♦

Bartch v. Bartch, 2024 WL 3560748 (10th Cir., July 29, 2024).

Stich v. Mattingly, 2024 WL 2788210 (Ky.App., May 31, 2024).
♦ Stich v. Mattingly, 2024 WL 2788210 (Ky.App., May 31, 2024), involves a dispute between Kevin Stich, a member of a limited liability company (LLC) called Haunt Brothers, LLC, and Kevin Mattingly, a judgment creditor. Mattingly obtained a judgment against Stich for unpaid rent and sought to collect on the judgment by foreclosing on Stich's interest in Haunt Brothers. (1) Key Points: (a) Charging Order: Mattingly obtained a charging order against Stich's interest in Haunt Brothers, which gave him the right to receive distributions from the LLC up to the amount of the judgment. (b) Foreclosure: Mattingly sought to foreclose on Stich's interest in Haunt Brothers, arguing that he was entitled to the entire interest, not just the right to receive distributions. (c) Stich's Argument: Stich argued that the foreclosure should be limited to his right to receive distributions up to the amount of the judgment. (d) Court's Decision: The court affirmed the foreclosure order, finding that the statute (KRS 275.260) allows for the foreclosure of the entire interest in the LLC, not just the right to receive distributions. (2) Reasoning: (a) The court interpreted the statute to mean that the "limited liability company interest subject to the charging order" in KRS 275.260(4) refers to the judgment debtor's entire transferable interest in the company. (b) The court found that limiting the foreclosure to the right to receive distributions would render the foreclosure provision meaningless. (c) The court reasoned that the foreclosure process is intended to provide a more drastic remedy for creditors, allowing them to recoup their debts through a forced sale of the member's entire interest. (3) Outcome: The court upheld the foreclosure order, allowing Mattingly to foreclose on Stich's entire interest in Haunt Brothers, LLC. This means that Stich will lose his membership in the LLC, and the purchaser at the foreclosure sale will acquire his rights as an assignee. (4) Implications: This case highlights the importance of understanding the specific provisions of the Kentucky Limited Liability Company Act (KRS 275.001 et seq.) when dealing with charging orders and foreclosures. It also demonstrates that creditors can use foreclosure as a powerful tool to collect on judgments against LLC members. ♦

245 Park Member LLC v. HNA Group (Int'l) Co., 2024 WL 1506798 (2nd Cir., April 8, 2024).

Campbell v. 1 Spring, LLC, 2024-Ohio-308, 2024 WL 342686 (Ct.App., Slip Op., Jan. 30, 2024).

Universal Life Ins. Co. v. Lindberg, 2023 WL 8379394 (N.C.App., Dec. 5, 2023).
♦ Universal Life Ins. Co. v. Lindberg, 2023 WL 8379394 (N.C.App., Dec. 5, 2023), is a legal opinion from the Court of Appeals of North Carolina in the case of Universal Life Insurance Company v. Greg E. Lindberg. The opinion addresses the validity of an injunction and a charging order issued by a lower court in an attempt to enforce a federal court judgment against Lindberg. Here's a breakdown of the key points: (1) The Injunction: (a) The court found that the trial court lacked jurisdiction to issue the injunction. This is because the plaintiff, Universal Life Insurance Company, did not attempt to execute the judgment through a writ of execution before seeking the injunction. North Carolina law requires a returned, unsatisfied writ of execution before supplemental proceedings, like the injunction, can be pursued. (b) The court vacated the injunction. (2) The Charging Order: (a) The court found that the charging order was too broad. It included LLCs in which Lindberg did not have an "economic interest" as defined by the North Carolina Limited Liability Company Act. (b) The court reversed the charging order in part. The trial court must reduce the number of LLCs included in the charging order to only those where Lindberg is a member or has a legally assigned economic interest. (c) The court also reversed the charging order's requirements for Lindberg to produce documents and freeze distributions. These requirements were deemed beyond the scope of the "exclusive remedy" provided by the NC LLC Act. (3) Overall: The Court of Appeals found that the lower court's attempts to enforce the judgment against Lindberg were flawed. The injunction was vacated, and the charging order was significantly narrowed. The case was remanded back to the trial court for further proceedings consistent with the appellate court's opinion. (4) Key Takeaways: (a) Jurisdiction is crucial. The court emphasized the importance of following proper procedures, such as attempting to execute a judgment before seeking supplemental relief. (b) Statutory interpretation is key. The court carefully analyzed the language of the NC LLC Act to determine the scope of the charging order. (c) The "exclusive remedy" principle matters. The court recognized that the NC LLC Act provides a specific remedy for judgment creditors, and any additional requirements must be justified by other legal authority. ♦

In re Canada, Bk.N.D.Tex. Case No. 23-30568 (Dec. 5, 2023).

Saregama India, Ltd. v. Subramanian Aiyer, N.D.Cal. Case No. 23-MC-80172 (Nov. 29, 2023).

Prime Victor Int'l Ltd. v. Simulacra Corp., D.Nev. Case No. 23-MS-00014 (Nov. 29, 2023).

Crabar/GBF, Inc. v. Wright, 2023 WL 8110737 (D.Neb., Nov. 22, 2023).

Pettine v. Direct Biologics, LLC (In re Pettine), 2023 WL 7648619 (BAP 10th Cir., Nov. 15, 2023).

Brockley v. Ellis, 2023 WL 6303748 (S.D., Sept. 27, 2023).

Mexico Foods Holdings, LLC v. Nafal, 2023 WL 6284705 (Tex.App. Dallas, Sept. 27, 2023).

Bran v. Spectrum MH, LLC, 2023 WL 5487421 (Tex.App., 14th Distr., August 24, 2023).

Klinek v. Luxeyard, Inc., 2023 WL 4497063 (Tex.App. 14th Distr., July 13, 2023).

In re McCuan, 2023 WL 4030468 (M.D.Fla. 2:19-CV-317, June 15, 2023).

Wright v. Shenandoah Investors, LLC, 2023 NY Slip Op. 31392(U)

Fremont Bank v. Signorelli, 2023 WL 2505021 (N.D.Cal., Feb. 24, 2023).