The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
2011 - Alabama - Regions Bank
Regions Bank v. Stewart, 2011 WL 1827453 (S.D.Ala., 2011).
United States District Court, S.D. Alabama, Southern Division.
REGIONS BANK, as Successor Trustee of the Carl T. Martin Estate–Trust Part One, and the Carl T. Martin Estate–Trust Part Two, as established under the last will and testament of Carl T. Martin, deceased, Plaintiff,
David STEWART, Defendant.
Civil Action No. 10–0145–M.
May 10, 2011.
Bradley Robert Sanders, Jr., Phelps Dunbar, LLC, Allen E. Graham, Mobile, AL, for Plaintiff.
Charles J. Potts, Briskman & Binion, P.C., Mobile, AL, for Defendant.
MEMORANDUM OPINION AND ORDER
BERT W. MILLING, JR., United States Magistrate Judge.
*1 Plaintiff has filed a Renewed Application for Charging Order pursuant to the Fed.R.Civ.P. 69(a)(1) and Alabama Code § 10–12–35 (Doc. 63). Defendant has filed a response (Doc. 65) to which Plaintiff has replied (Doc. 66). After consideration of the pleadings of record, Plaintiff's Renewed Application for Charging Order is GRANTED (Doc. 63).
The Court notes that on November 8, 2010, the undersigned found that Plaintiff Regions Bank had demonstrated a breach of contract against ZLM Acquisitions, LLC, an Alabama limited liability company which is not a party to this action, and that Defendant Stewart was liable, pursuant to his Personal Guaranty, for damages of seven hundred eighty-six thousand, one hundred eighty-four dollars and thirty-nine cents ($786,184.39) as of November 8, 2010 (Doc. 53). Judgment was entered on that same date in favor of Regions Bank and against Stewart (Doc. 54).
Plaintiff has now filed a Renewed Application for Charging Order, moving for an Order from this Court "against Judgment Debtor David Stewart [ ], attaching Stewart's membership interest in ZLM Acquisitions, LLC, Shimmering Sand Development Company, and P & P Acquisitions, LLC" pursuant to the Fed.R.Civ.P. 69(a)(1) and Alabama Code § 10–12–35 (Doc. 63). Plaintiff notes that Defendant did not appeal the judgment and asserts that the judgment is still not satisfied (Doc. 63, ¶¶ 7–8).
The Rules of Civil Procedure state that "[a] money judgment is enforced by a writ of execution unless the court directs otherwise. The procedure on execution-and in proceedings supplementary to and in aid of judgment or execution-must accord with the procedure of the state where the court is located." Fed.R.Civ.P. 69(a)(1) (2011). The law of Alabama, where this Court is located, provides for the following:
On application to a court of competent jurisdiction by any judgment creditor of a member or assignee, the court may charge the interest of the member or assignee with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of financial rights. This section shall be the sole and exclusive remedy of a judgment creditor with respect to the judgment debtor's membership interest.
Ala.Code 10–12–35(a). The Court notes that this Court has previously issued a charging order pursuant to this statute, see Vision Bank v. Swindall, C.A. 09–442–CG–M (S.D. Ala. November 30, 2010 (Doc. 71)), and that other federal courts have done so as well under the state statutes of their jurisdiction. See, e.g., The First National Bank of Louisville, N.A. v. Young, 1995 WL 549128, *3 (D.Mass.1995); Wooten v. Lightburn, 2009 WL 2424686, *2–3 (W.D.Va.2009); General Electric Capital Corp. v. JLT Aircraft Holding Co., LLC, 2010 WL 3023316, *3 (D.Minn.2010); and Lumbermens Mut. Cas. Co. v. Luciano Enterprises, LLC, 2005 WL 2340709, *1 (D.Alaska 2005).
Plaintiff has asserted that Stewart has admitted in post-judgment discovery that he owns interest in three different limited liability companies (hereinafter LLC ) in Alabama (Doc. 63, pp. 6–77). Those interests are as follows:
*2 (1) Eighty percent (80%) in ZLM Acquisitions, LLC, with its principal place of business located at 3145 Gulf Shores Parkway, Gulf Shores, Alabama 36542. The registered agent is Daniel G. Blackburn, located at 110 Courthouse Square, Bay Minette, Alabama 36507. There are two other LLC members: Tom Steber, 6397 E. Quarry Drive, Elberta, Alabama 36530; and Maurice J. Fitsimons, 190 Country Club Drive, Daphne, Alabama 36526.
(2) Fifty percent (50%) in Shimmering Sands Development Company, LLC. The registered agent is The Corporation Company, 2000 Interstate Park Drive, Suite 204, Montgomery, Alabama 36109. The only other LLC member is TDTM Investments, LLC.
(3) Fifty percent (50%) in P & P Acquisitions, LLC. The registered agent is Daniel G. Blackburn, 110 Courthouse Square, Bay Minette, Alabama 36507. The only other LLC member is Terry Stewart.
(Doc. 63, pp. 6–7).
Defendant has urged that this Application be denied because the LLC's have not been notified of the Application or given any opportunity to respond. Stewart further argued that granting the Application would "make Regions Bank a participating member of each LLC" (Doc. 65, ¶ 2). Defendant references no legal authorities for these arguments, however.
The Court finds that the Application should be GRANTED (Doc. 63) as federal law and state law both allow it. With regard to Stewart's arguments, the Court notes that the LLC's have been put on notice in that all have a member with, at least, a fifty percent interest in the company. Furthermore, Defendant's argument that granting the application would make Regions Bank a participating member of each LLC is unsupported in that the law, and this Court, will only allow Plaintiff to step into Stewart's shoes as "an assignee of financial rights."
Therefore, after consideration of the relevant pleadings, the Court GRANTS Plaintiff's Renewed Application for Charging Order (Doc. 63) and will enter a separate Order to effectuate the decision in this memorandum.
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
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
OTHER INFORMATIONAL WEBSITES
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