Compliance With Charging Orders
Topic Compliance TopicsCompliance
The Harmonized Acts make no provisions for a court to enforce a charging order, thus leaving the presumption that the appropriate remedy sounds in contempt.
Acts of non-compliance with a charging order typically fit into the following categories:
1. Non-compliance by the entity, by decision of the debtor/member ("D/M");
2. Non-compliance by the entity, by decision another member;
3. Non-compliance by the D/M; and
4. Collusive non-compliance by the D/M, the entity, and/or other members.
There is also a distinction to be drawn between willful non-compliance (what contempt requires) and non-willful non-compliance (i.e., negligence) for which contempt is not available and the creditor's remedy would sound in damages.
The contempt remedy requires the creditor to obtain an Order to Show Cause (OSC) re Contempt (still known in some states as a Writ of Fieri Facias), and go through a lengthy evidentiary hearing process. Conversely, damages for a negligent distribution are usually remedied through a creditor's suit or similar device, similar to where a bank allows a debtor to withdraw money pending a levy. It is probably satisfactory for an expanded Comment to explain this difference.
The non-compliance may also be divided between the making of a distribution to the D/M in violation of the charging order, and the making of so-called "imputed income" to the D/M by paying the D/M's expenses, such as credit cards, car leases, etc. This issue probably requires a change to § 503 to make it clear that all consideration of any kind passing to a D/M is subject to the charging order, and that the entity is directly liable to the creditor for a like amount of the consideration given by the entity but not distributed to the creditor.
- 2021.02.15 ... Debtor’s Large LLC Distribution To Circumvent Charging Order Draws Ire Of Non-Debtor Member In Bargreen
- 2020.06.20 ... Payment Of Distributions Directly To Creditor Holding A Charging Order Deemed Appropriate In BMO Case
- 2020.11.26 ... Contempt Not Precluded By Charging Order Exclusivity In Gengs
- 2018.09.16 ... Debtor's Access To LLC Assets For His Personal Purposes Leads To Turnover Order In Golfwood Square
- 2018.05.31 ... LLC Manager's Fiduciary Duty Possibly Breached By Not Making A Distribution To Creditor In Garcia
- 2018.04.22 ... Creditor Fails To Prove Up Contempt For Violating Charging Order In SE Property
- 2014.01.30 ... Charging Orders And The Contemptuous Partnership
- 2013.02.24 ... Simply Ignoring Court Orders Is Not The Best Strategy
- 2012.06.22 ... Owner Of Debtor LLC Goes To Jail For Contempt For Interfering With Foreclosure Sale
- 2011.8.10 ... Buffa's Bad Tuna: Debtor Owning 99% Of LLC Attempts To Dodge Charging Order By Paying Oversized Salary To Wife
COMPLIANCE WITH CHARGING ORDER OPINIONS
- BMO Harris Bank N.A. v. Smith, 2020 WL 2914838 (June 3, 2020).
- Buckeye Retirement Co. v. Buffa, 2011 WL 6299681 (D.Conn., Dec. 16 2011).
- Earthgrains Baking Co. v. Sycamore Family Bakery, Inc., D.Utah Case No. 09CV523 (Aug. 21, 2015).
- Earthgrains Baking Companies, Inc. v. Sycamore Family Bakery, Inc., 2019 WL 6001940 (D.Utah, Nov. 14, 2019).
- Ex Parte SE Property Holdings LLC (SE Property Holdings, LLC v. Harrell), 2021 WL 5145446 (Ala., Nov. 5, 2021).
- Garcia v. Garcia, 2018 WL 2316522 (Cal.App. Distr. 5, Unpublished, May 22, 2018).
- Golfwood Square LLC v. O'Malley, 2018 IL App (1st) 172220-U, 2018 WL 4370875 (Ill.App., Unpublished, Sept. 11, 2018).
- Grengs v. Grengs, 2020 ND 242, 2020 WL 6793355 (N.D., Nov. 19, 2020).
- In re Cowstone, LLC, 2012 WL 2205565 (Bkrtcy.E.D.N.C., Slip Copy, June 14, 2012).
- Joshlin Bros. Irrigation v. Sunbelt Rental, Inc., 2014 WL 248104, 2014 Ark. App. 65 (Ark.App., Unpublished, Jan. 22, 2014).
- SE Property Holdings, LLC v. The Rookery, LLC, S.D.Ala. Civil No. 11-0014-WS-C (April 13, 2018).
- Seven Arts Pictures, Inc. v. Jonesfilm, 2013 WL 599661 (5th Cir., Feb. 18, 2013).
- Timberland Bank v. Mesaros, 2018 WL 2215463 (Wa.App., May 15, 2018).
- Wholesaler Equity Development Corp. v. Bargreen, 2021 WL 321560 (W.D.Wa., Feb. 1, 2021).