The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
2012 - Florida - Wong
Wong v. Yoo, No. 04-CV-4569 (E.D.N.Y., July 20, 2012).
AARON WONG, Plaintiff,
YOUNG YOO, et al., Defendants.
No. 04-CV-4569 (JBW).
United States District Court, E.D. New York.
July 20, 2012.
STEVEN M. GOLD, Magistrate Judge.
On June 28, 2012, I terminated defendant James Mangone's motion to quash, Docket Entry 241, inferring from plaintiff's letter of June 13, Docket Entry 253, that plaintiff was no longer seeking the documents at issue in defendant's motion. Plaintiff has since informed the Court that he does press one document request defendant sought to quash, that for the 2011 federal tax return of the Mangone Family Partnership. See Docket Entry 255.
Defendant Mangone's motion to quash highlights the tension between Florida law and federal law as to discovery about this partnership. Florida law provides protection for certain activities of limited partnerships; this much is clear. See FLA. STAT. ANN. sec. 620.1703(3) (providing that remedies, other than that stated in section (1) of the statute for a charging order against a partner's interest, "including foreclosure on the partner's interest . . . and a court order for directions, accounts, and inquiries that the debtor general or limited partnership might have made are not available to the judgment creditor"); see also Martineau v. Banco Popular N. Am., 77 So.3d 925, 926 (Fla. Dist. Ct. App. 2012) (Casanueva, J., concurring) (interpreting Section 620.1703 to prohibit the "production of financial records relating to an account owned by" a Florida limited partnership). Defendant invokes this statute in his effort to prevent disclosure of the partnership's tax return. See Def. Mem. at 9-14.
While state law privacy concerns such as these are due deference, they cannot overwhelm significant federal interests. See King v. Conde, 121 F.R.D. 180, 188, 195 (E.D.N.Y. 1988) (holding, in a federal civil rights case, that "federal courts must balance the interests favoring and disfavoring disclosure in order to resolve discovery disputes" where state and federal rules conflict because of the "paramount importance of federal civil rights policy" and the fact that"[f]ederal law disfavors privileges barring disclosure of relevant evidence"); see also Billups v. West, 1997 WL 100798, at *5 (S.D.N.Y. Mar. 6, 1997) (applying the King balancing test where a prisoner sought non-privileged but personal information regarding Department of Corrections officers in a civil rights case). These important federal interests exist here. A jury awarded Wong substantial damages as compensation for defendant Mangone's violation of his civil rights under color of law. See Jury Verdict dated Apr. 29, 2010; Partial Judgment, Docket Entry 189. The Court of Appeals for the Second Circuit has affirmed this judgment, see 450 Fed. Appx. 27 (2d Cir. 2011), but the damages owed remain unpaid.
The Court has considered these competing interests and orders the following: 1) the tax return shall be provided to defendant Mangone's attorney, Mr. Kleinman; 2) by July 31, 2012, by letter or during the previously scheduled telephone conference, Mr. Kleinman will inform the Court whether he has received the return and propose a date for a court conference; 3) at this conference, counsel for plaintiff will be required to articulate with specificity why he requires this tax return and may bring an appropriate expert to assist him in doing so. The Court will then examine the document and order disclosure as appropriate. The Court rules this way in order to give deference to the privacy concerns central to the Florida statute, while recognizing the "great weight of the policy in favor of discovery in civil rights actions." King, 121 F.R.D. at 195.
 "Def. Mem." refers to the defendant's memorandum in support of his motion to quash, Docket Entry 241-2. Defendant also submitted a supplemental letter responding to the Court's questions during a conference on May 11, 2012. See Def. Supp. Mem., Docket Entry 250.
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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
Entities - The types of legal entities amenable to charging orders, or not
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
Abstention - Collateral attacks on charging orders in federal court
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
Abstention - Attempts to collaterally attack the charging order in federal court
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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