Opinion 2003 Georgia Stewart Foreclosure Sale Charging Order

 

Adkisson's

CHARGING ORDERS

The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership

 

2003 - Georgia - Stewart

 

Stewart v. Lanier Park Medical Office Building, Ltd., 578 S.E.2d 572 (Ga.App., 2003).

 

A02A2188.

 

COURT OF APPEALS OF GEORGIA, THIRD DIVISION

 

259 Ga. App. 898;578 S.E.2d 572;

 

February 26, 2003, Decided

 

PRIOR HISTORY: [*1] Promissory note. Hall Superior Court. Before Judge Girardeau.

 

DISPOSITION: Judgment affirmed.

 

* * *

 

JUDGES: JOHNSON, Presiding Judge. Blackburn, P. J., and Miller, J., concur.

 

OPINIONBY: JOHNSON

 

OPINION: JOHNSON, Presiding Judge.

 

Lanier Park Medical Office Building, Ltd. is a limited partnership which was formed in 1982 by a group of physicians to own and manage medical office space. Richard Stewart is one of the limited partners, holding an interest of about 30 percent of the partnership. Under the terms of the partnership agreement, several of the limited partners, including Stewart, were to rent office suites in the buildings, and pay rent and a share of the operating expenses to the general partner, which is a hospital. The partnership was to last 15 years, until 1997, and then dissolve after the revenue bond which financed the construction of the buildings was repaid.

 

Stewart failed to pay the rent and expenses as agreed and, by February 1995, accumulated an arrearage of $ 87,687. That year, Stewart signed a promissory note evidencing his obligation to Lanier Park in the past due amount. In the note, Stewart agreed to make 11 payments of $ 5,000 and a balloon payment of $ 39,028. The note provided for ten percent [*2] interest per year on the principal balance. Stewart defaulted on the note, but continued to use the office space.

 

In 1997, Lanier Park filed suit against Stewart, seeking the balance due on the note, as well as rent and expenses which accrued after the note was signed. Stewart answered and counterclaimed, seeking dissolution of the partnership, an accounting, distribution of partnership assets, and damages for misrepresentation, breach of contract, and breach of fiduciary duty. The jury found in favor of Lanier Park, awarding it a total of $ 172,794 for money due on the note, additional rent and operating expenses, and attorney fees. The jury awarded Lanier Park an additional $ 20,150 for attorney fees and costs of litigation for bad faith and stubborn litigiousness. It found in favor of Lanier Park on Stewart's breach of contract and breach of fiduciary duty claims.

 

In March 2001, the trial court entered judgment on the jury's verdict, reserving for later determination Stewart's claim for a distribution of assets, and his request for a full and final accounting. Stewart filed an application for interlocutory review of that judgment, but this Court denied the application as untimely. [*3]

 

When Stewart failed to pay the judgment, Lanier Park moved for a forfeiture of Stewart's partnership interest, and a writ of fi. fa. was issued. Lanier Park then applied for an order charging Stewart's partnership interest in order to satisfy the unpaid judgment. n1 In defense, Stewart urged that the fi. fa. was entered improperly because the judgment at issue was not yet final.

 

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

 

n1 See O.C.G.A. § 14-9A-52.

 

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

 

In February 2002, the court entered an order charging Stewart's interest in the partnership with the amount awarded in the March 2001 judgment and ordered that his partnership interest be foreclosed upon by judicial sale. Stewart appeals from the latest order.

 

1. Stewart contends that the trial court erred in granting Lanier Park a charging order against his partnership interest because Lanier Park was not a judgment creditor for purposes of O.C.G.A. § 14-9A-52. According to Stewart, the earlier judgment was not final inasmuch as two of his claims were [*4] still pending. We are not persuaded by Stewart's argument O.C.G.A. § 14-9A-52 provides, in relevant part, that on application by any judgment creditor of a limited partner, the court may charge the interest of an indebted limited partner with payment of the unsatisfied amount of the judgment debt.

 

It is true that the trial court's March 2001 judgment was not final as to all matters before the court. However, the judgment was final as to the issue of Stewart's liability to Lanier Park. Indeed, in its February 2002 order, the trial court reiterated that the judgment entered in March 2001 was final with regard to Stewart's obligation to pay Lanier Park $ 192,944, and that the only matters remaining were for a final accounting and possible distribution of assets. The court explained that Stewart's counterclaims had not been decided because of the practical impossibility of their resolution before Stewart paid the amount owed under the judgment. The trial court decided to enter a charging order in order to use Stewart's partnership interest toward payment of the debt, so that a proper distribution could then be made. It is clear that Lanier Park was a judgment [*5] creditor for purposes of O.C.G.A. § 14-9A-52. There was no error.

 

2. Stewart contends that the trial court erred in ordering a foreclosure and sale of his partnership interest because such would completely destroy his right to an accounting and distribution of partnership assets. We disagree.

 

Under O.C.G.A. § 14-9A-52, once a charging order has been entered, the trial court is authorized, in aid of the order, to appoint a receiver and make all other orders, directions, and inquiries which the circumstances of the case may require. n2 This broad language authorizes a trial court to order that a limited partner's charged interest be foreclosed by judicial sale. n3 Judicial sale may be appropriate where, for instance, it is apparent that distributions under the charging order will not pay the judgment debt within a reasonable amount of time. n4

 

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

 

n2 Nigri v. Lotz, 216 Ga. App. 204, 205 (2) (453 S.E.2d 780) (1995).

 

n3 Id.

 

n4 Id.

 

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [*6]

 

The trial court stated in the February 2002 judgment that the charging order entered in favor of Lanier Park would be ineffective without a judicial sale of Stewart's partnership interest, that, as a practical matter, issues regarding a final accounting and the distribution of partnership assets could not be decided until Stewart paid the debt he owed to the partnership, and that foreclosure was the only reasonable means of getting the debt paid.

 

The trial court has broad discretion in deciding whether to order a foreclosure and sale of charged interests. n5 The trial court indicated that Stewart's claim for an accounting and distribution of assets would be determined at a later date. Under the circumstances of this case, there was no abuse of discretion.

 

- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -

 

n5 Id.

 

- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -

 

* * *

 

Judgment affirmed. Blackburn, P. J., and Miller, J., concur.

 

RECENT ARTICLES

by Jay Adkisson

 

2020.06.20 ... Payment Of Distributions Directly To Creditor Holding A Charging Order Deemed Appropriate In BMO Case

2020.04.30 ... Charging Order Denied For Lack Of Proof Of The Debtor's Interest In Dhillon

2020.02.29 ... Florida Charging Order Requires Distributions To Be Re-Directed To The Creditor In Kostoglou

 

 

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

WEBSITE CONTENTS

 

General Information

 

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

  • Charging Orders (Section 503) contains the general charging order provisions.
  • Transfers of Transferable Interests (Section 502) includes definitions of "transfer" (102(23)), "transferable interests" (102(24)), and "transferees" (102(25)) defines to what the charging order attaches.
  • Definition of Distribution (Section 102(4)) specifies the economic right obtained through a charging order lien and/or foreclosure.

 

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

 

Charging Order Example Sample Form

 

TOPICAL RESEARCH

 

NATURE OF REMEDY

     Distributions/Economic Rights - Creditors rights to distributional interests/economic rights

PREJUDGMENT

     Prejudgment Relief - Freezing the interest and distributions pending judgment

MOTION MECHANICS

     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

INTERSTATE

     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 RESTRICTIONS

     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

     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

     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

     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

SUNDRY OTHER

     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

 

= = = = =

 

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

OTHER INFORMATIONAL WEBSITES

by Jay Adkisson

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Creditor-Debtor Law - An overview of judgment enforcement tools and their uses by creditors, and possible defenses by debtors. Related topics include:

 

  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business.

 

Contact Jay Adkisson:

 

Phone: 702-953-9617     Fax: 877-698-0678     jay [at] jayad.com

 

Unless a dire emergency, please send me an e-mail first in lieu of calling to set up a telephone appointment for a date and time certain.

 

Las Vegas Office: 6671 S. Las Vegas Blvd., Suite 210, Las Vegas, NV 89119, Ph: 702-953-9617, Fax: 877-698-0678. By appointment only.

 

Newport Beach Office: 100 Bayview Circle, Suite 210, Newport Beach, California 92660. Ph: 949-200-7773, Fax: 877-698-0678. By appointment only.

 

Social Media Contact: Twitter and LinkedIn

 

Admitted to practice law in Arizona, California, Nevada, Oklahoma and Texas.

 

© 2020 Jay D. Adkisson. All Rights Reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site is https://chargingorder.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.