The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
1995 - Wyoming - Garnishments
Robert Christensen v. John Oedekoven, 95 Wy. 3 (Wyo.App., 1995).
ROBERT F. CHRISTENSEN, (Appellant ) (Defendant),
JOHN GILBERT OEDEKOVEN, Appellee
Appeal from the District Court of Campbell County:
The Honorable Terrence L. O'Brien, Judge
Representing the Appellant:
Randall T. Cox of Sheehan and Cox, Gillette, Wyoming
Representing the Appellee:
Charles R. Hart, Sheridan, Wyoming
Before GOLDEN, C.J., and THOMAS, MACY, TAYLOR & LEHMAN, JJ. MACY, Justice.
Appellant Robert F. Christensen appeals from a summary judgment which quieted title to certain property in Appellee John Gilbert Oedekoven and which awarded damages to Oedekoven for the amount he paid to redeem the property.
Christensen presents the following issues on appeal:
I. Who has the right to redeem partnership property after a foreclosure sale?
A. Whether a holder of a judgment against a general partner may redeem partnership land after a foreclosure sale;
or, stated more narrowly:
B. Whether a holder of a judgment against a general partner, on a partnership debt but rendered against only the general partner, who has garnished the partnership in execution of the judgment, may redeem partnership land after a foreclosure sale.
II. Whether the Plaintiff has standing or otherwise stated a viable claim for relief in the amended complaint[?]
Barkley Herefords, a general partnership, owned and operated a ranch located in Campbell County. Charles Barkley was a general partner in that partnership. The partnership acquired considerable debt, including a Wyoming Farm Loan Board loan secured by a mortgage on the partnership ranch and a Farmers Co-op Association account. Barkley purchased cattle on credit from W. Perry Bolin and gave Bolin a promissory note. Eventually, Bolin obtained a money judgment on that promissory note. The judgment was against Barkley; the partnership had not been included in Bolin's lawsuit.
After the partnership defaulted on its secured loan from the Wyoming Farm Loan Board, the Board foreclosed on its mortgage. The partnership ranch was sold at a foreclosure sale where Oedekoven was the successful bidder.
Christensen obtained an assignment of Bolin's money judgment against Barkley. When the partnership failed to redeem the ranch within the statutory redemption period, Christensen, as a judgment creditor, redeemed it. The Campbell County sheriff issued a certificate of redemption to Christensen.
Oedekoven filed a lawsuit against Christensen and the sheriff.
In his complaint, Oedekoven requested that title to the ranch be quieted in him. Oedekoven asked the district court to declare that Christensen's redemption was null because it had not been obtained in compliance with Wyoming law, and he also sought to enjoin the sheriff from issuing a deed to anyone but him.
In order to further protect his interests in the ranch, Oedekoven took an assignment of a judgment which had been awarded to the Farmers Co-op Association against the partnership and, pursuant to that judgment, redeemed the property from Christensen. After he redeemed the property, Oedekoven amended his complaint to include a prayer for the additional amount of money which he had paid to redeem the property from Christensen.
After the district court had heard arguments on the parties' motions for a summary judgment, it quieted title to the property in Oedekoven. The district court held that Christensen's redemption was void and awarded money damages to Oedekoven for the additional amount he had paid to redeem the property from Christensen.
Christensen appealed to this Court.
* * *
B. Right of Redemption
Christensen contends that he had a right to redeem the ranch because he was a judgment creditor of a general partner. Wyo. Stat. 1-18-104 (1988) sets forth the procedure for judgment creditors to follow in redeeming property which has been sold at a foreclosure sale. Section 1-18-104(a) provides:
(a) If no redemption is made within the redemption period provided in W.S. 1-18-103, any judgment creditor of the person whose real estate has been sold, or any grantee or mortgagee of the real estate or person holding a lien on the real estate sold is entitled to redeem the same on or before the thirtieth day after the expiration of the applicable redemption period provided in W.S. 1-18-103, by complying with subsections (b) and (c) of this section.
(Emphasis added.) Christensen alleges that the partnership property was owned by the partners and that a judgment creditor of an individual partner could redeem the property under Section(s) 1-18-104. We disagree.
The resolution of the issue in this case turns on our determination as to whether Christensen was a "judgment creditor of the person whose real estate has been sold." Section 1-18-104(a). Determining the lawmakers' intent is our primary focus when we interpret statutes. State Department of Revenue and Taxation v. Pacificorp, 872 P.2d 1163, 1166 (Wyo. 1994). Initially, we make "`an inquiry respecting the ordinary and obvious meaning of the words employed according to their arrangement and connection.'" Parker Land and Cattle Company v. Wyoming Game and Fish Commission, 845 P.2d 1040, 1042 (Wyo. 1993) (quoting Rasmussen v. Baker, 7 Wyo. 117, 133, 50 P. 819, 823 (1897)). We construe the statute as a whole, giving effect to each word, clause, and sentence, and we construe together all parts of the statute in pari materia. 845 P.2d at 1042. When a statute is clear and unambiguous, this Court will not apply rules of statutory construction. 845 P.2d at 1043. When a statute is ambiguous, we may utilize extrinsic aids to help us determine the Legislature's intent. Olheiser v. State ex rel. Wyoming Worker's Compensation Division, 866 P.2d 768, 770 (Wyo. 1994).
" [A] statute is unambiguous if its wording is such that reasonable persons are able to agree as to its meaning with consistency and predictability." Allied-Signal, Inc. v. Wyoming State Board of Equalization, 813 P.2d 214, 220 (Wyo. 1991). "[A] statute is ambiguous only if it is found to be vague or uncertain and subject to varying interpretations." 813 P.2d at 219-20. "[W]hether an ambiguity exists in a statute is a matter of law to be determined by the court." 813 P.2d at 220.
Padilla v. Lovern's, Inc., 883 P.2d 351, 353 (Wyo. 1994).
In this case, the interpretation of Section(s) 1-18-104 must be consistent with the partnership statutes which were in effect in Wyoming at the time that this controversy occurred. See Wyo. Stat. Section(s) 17-13-101 to -615 (1989). Section 17-13-501(a) delineated the property rights of individual partners: (1) rights in specific partnership property; (2) the partner's interest in the partnership; and (3) the right to participate in the partnership's management. Section 17-13-502 described the nature of an individual partner's right in specific partnership property:
(a) A partner is co-owner with his partners of specific partnership property holdings as a tenant in partnership.
(b) The incidents of this tenancy are such that:
(i) A partner, subject to the provisions of this act [Section(s) 17-13-101 to -615] and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners;
. . .
(iii) A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership.
A partner's rights in specific partnership property were limited by 17-13-502. Specific partnership property was not available for attachment or execution on a claim against an individual partner. Section 17-13-502(b)(iii).
In the context of this case, the statutory phrase, "person[]
whose real estate has been sold," is unambiguous when it is interpreted together with the partnership statutes. When property which is held in a partnership's name is sold at a foreclosure sale, the partnership, not an individual partner, is the "person whose real estate has been sold." Under the plain language of the statute, only a judgment creditor of the partnership can redeem the property.
This interpretation is consistent with this Court's decision in Wyoming National Bank of Gillette v. Davis, 770 P.2d 215 (Wyo. 1989). In that case, we held that the district court could not enter a nunc pro tunc order to allow a judgment creditor of a partnership to proceed against an individual partner's assets when the creditor had not sued the partner in his individual capacity. Although the creditor could have joined the individual partner as a defendant in the lawsuit, she failed to do so, and her failure to secure a judgment against the partner prohibited her from reaching the partner's individual assets. 770 P.2d at 216-17.
Christensen cites L.C. Jones Trucking Co., Inc. v. Superior Oil Company, 68 Wyo. 384, 234 P.2d 802 (1951), in support of his contention that a judgment creditor of an individual partner may proceed to collect against partnership assets. In L.C. Jones Trucking Co., Inc., the Court allowed a judgment creditor who had obtained a valid judgment against only one of two partners to attach partnership assets for payment of the judgment. 68 Wyo. at 409-18. That case, however, presented a very different factual and procedural background than is presented in this case. Although the partnership entity was not sued in L.C. Jones Trucking Co., Inc., each member of the partnership was originally named as a defendant in the lawsuit, and the district court expressly recognized that the debt was a partnership debt. 68 Wyo. at 401. The Court did not analyze the wording of the applicable statutes in reaching its conclusion.
In the case at bar, Christensen asserted his right to redeem pursuant to an assignment of the judgment which had been awarded to Bolin. The record clearly shows that Bolin obtained a judgment against Barkley but not against the partnership. Bolin's judgment in no way indicated that all the members of the partnership had been sued or that the debt was a partnership obligation.
Christensen had a remedy available to him in this case. He could have reached Barkley's interest in the partnership by obtaining a charging order pursuant to Section(s) 17-13-505(a):
(a) On due application to a competent court by any judgment creditor of a partner, the court which entered the judgment order, or decree, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require.
The Legislature attempted "to give a remedy by which the judgment creditor of an individual member of a partnership [could] reach the individual's interest in the partnership. This remedy [was] called a `charging order.'" Margie Millhone, Notes, Charging Orders Under the Uniform Partnership Act, 9 Wyo. L.J. 112, 112 (1955). The statutory charging order was "virtually the exclusive remedy available to a partner's separate creditor who want[ed] to reach the partnership interest." Elliot Axelrod, The Charging Order-Rights of a Partner's Creditor, 36 Ark. L. Rev. 81, 81 (1982). Charging orders could not, however, be obtained against a partner's interest in specific partnership property. Axelrod, supra, at 96.
Christensen argues that a charging order had been obtained because Bolin, Christensen's predecessor in interest, secured a writ of garnishment against the partnership. We cannot accept Christensen's argument.
We agree with the Colorado Court of Appeals which concluded that charging orders are remedies different in character from writs of garnishment. Union Colony Bank v. United Bank of Greeley National Association, 832 P.2d 1112, 1116 (Colo. Ct. App. 1992). "[T]he charging order, unlike garnishment, is a post-judgment remedy specifically tailored for partnerships." Id. The charging order procedure protects the interests of the nondebtor partners by giving the judge wide latitude to control the creditor's actions against the partnership. Id.; see also Section(s) 17-13-505(a). Neither Christensen nor his predecessor in interest obtained a charging order in compliance with the partnership statutes.
* * *
We hold that the district court did not err by granting a summary judgment in favor of Oedekoven.
1. The sheriff is not a party to this appeal.
2. The partnership statutes which were codified at Section(s) 17-13-101 to -615 were repealed by 1993 Wyo. Sess. Laws ch. 194, Section(s) 2 effective January 1, 1994. The Uniform Partnership Act, Section(s) 17-21-101 to -1003, was created by 1993 Wyo. Sess. Laws ch. 194, Section(s) 1 and became effective January 1, 1994.
3. "`Person' includes individuals, partnerships, corporations, and other associations." Section 17-13-102(a)(iii).
4. We refuse Christensen's invitation to reconsider the facts as to whether Bolin's claim involved a partnership debt. That issue was necessarily decided in the Bolin-Barkley litigation and, under the related doctrines of res judicata and collateral estoppel, we will not disturb the earlier decision. See McKee v. McKee, 882 P.2d 885, 887 n.1 (Wyo. 1994), and Livingston v. Vanderiet, 861 P.2d 549, 551-52 (Wyo. 1993).
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More Articles On Charging Orders click here
LAW REVIEW ARTICLES
by Jay Adkisson
For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487
Analysis of Uniform Limited Liability Company Act Sections re Charging Orders
The Uniform Acts re Charging Orders and Transferable Interests (without Jay's comments):
Effect of Bankruptcy On The Debtor-Member's LLC Interest here
Collected Court Opinions On Charging Orders here and below
NATURE OF REMEDY
Distributions/Economic Rights - Creditors rights to distributional interests/economic rights
Prejudgment Relief - Freezing the interest and distributions pending judgment
Procedure - The procedure for obtaining a charging order and ancillary provisions
Unknown Interest - Where the debtor's interest, if any, has not been ascertained
Order Form Generally - Most issues to the form of the charging order
Order Form Future Interests - How the charging order affects subsequently-acquired interests
Exemptions - Available state and federal protections that may apply to charging orders
Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute
Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs
Foreign Entities - Charging orders against out-of-state entities
Creditor Rights Restrictions - Limitations on creditors' management and informational rights
Information Rights - Creditors' ability to access information about the LLC
Management & Voting Rights - Rights of creditor after charging order issued
LIEN EFFECT AND PRIORITY
Lien - The lien effect of a charging order and priority issues
Compliance - Issues for the LLC and non-debtor members in complying with a charging order
Receiver - The role of the receiver in charging order proceedings
SINGLE MEMBER LLC
Single-Member LLCs - Enforcing the judgment against an LLC with a sole member
Foreclosure - Liquidation by judicial sale of the debtor's right to distributions
REPURCHASE AND REDEMPTION RIGHTS
Repurchase/Redemption Rights - Third-parties' ability to purchase the charged interest
Appeal - Issues relating to the appeal of a charging order
RELATION TO OTHER REMEDIES
Exclusivity - The charging order as the sole remedy available to creditors and exceptions
Voidable Transactions/Fraudulent Transfers - Issues relating to avoidable transfers of interests
Bankruptcy - Treatment of the debtor/member's interest in bankruptcy
Intra-Member Disputes - Where one member obtains a charging order against another
Taxes - Tax issues relating to charging orders for all involved parties
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Additional Court Opinions About charging orders (unsorted)
THE CHARGING ORDERS PRACTICE GUIDE
The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more
Available for purchase directly from the ABA at https://goo.gl/faZzY6
Also available from Amazon at https://www.amazon.com/Charging-Orders-Practice-Guide-Understanding/dp/1641052643
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