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CHARGING ORDERS

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,

 

v.

 

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.

 

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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.

 

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© 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.