Opinion 2012 New York Wong Discovery Charging Order

 

Adkisson's

CHARGING ORDERS

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,

 

v.

 

YOUNG YOO, et al., Defendants.

 

No. 04-CV-4569 (JBW).

 

United States District Court, E.D. New York.

 

July 20, 2012.

 

ORDER

 

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.[1]

 

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.

 

SO ORDERED.

 

[1] "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

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

 

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

 

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