Opinion 2012 Ohio Singh Charging Order

 

Adkisson's CHARGING ORDERS The Creditors' Primary Remedy Against A Debtor's Interest In A Limited Liability Company Or Partnership

Caution state law variances! Check currency of statutes!

 

Charging Order Statutes Of The United States

 

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

Singh

 

In re Singh, Case No. 11-15433 (N.D.Ohio, Sept. 19, 2012).

 

In re: KASHMIR SINGH, Chapter 7, Debtor.

 

Case No. 11-15433.

 

United States Bankruptcy Court, N.D. Ohio, Eastern Division.

 

September 19, 2012.

 

MEMORANDUM OF OPINION AND ORDER

 

PAT E. MORGENSTERN CLARREN, Bankruptcy Judge.

 

The debtor claimed a $15,000.00 exemption as to his interest in the partnership Airport Taxi Service and as to the partnership assets. The trustee objects. (Docket 83, 85, 87, 88). For the reasons stated below, the trustee's objection is overruled in part and sustained in part.FN1

 

Ohio Revised Code sec. 2329.66(A)(14) provides for an exemption of a "person's right in specific partnership property, as exempted by division (B)(3) of section 1775.24 of the Revised Code or the person's rights in a partnership pursuant to section 1776.50 of the Revised Code, except as otherwise set forth in section 1776.50 of the Revised Code[.]" OHIO REV. Code sec. 2329.66(A)(14).FN2 Section 1775.24(B)(3) in turn states that a partner's right in specific partnership property is exempt, except on a claim against the partnership. OHIO REV. CODE sec. 1775.24(B)(3).FN3 And sec. 1776.50 provides for a charging order against a partner's economic interest in a partnership:

 

(A) On application by a judgment creditor of a partner or of a partner's transferee, a court having jurisdiction may charge the economic interest of the judgment debtor to satisfy the judgment. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the partnership and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances of the case may require.

 

(B) A charging order constitutes a lien on the judgment debtor's economic interest in the partnership. The court may order a foreclosure of the interest subject to the charging order at any time. The purchaser at the foreclosure sale has the rights of a transferee.

 

(C) At any time before foreclosure, an interest charged may be redeemed by any of the following:

 

(1) The judgment debtor;

 

(2) One or more of the other partners by using property other than partnership property;

 

(3) One or more of the other partners, with the consent of all of the partners whose interests are not so charged, by using partnership property.

 

(D) Nothing in this chapter deprives a partner of any right under exemption laws with respect to the partner's interest in the partnership.

 

(E) This section provides the exclusive remedy by which a judgment creditor of a partner, or partner's transferee, may satisfy a judgment out of the judgment debtor's economic interest in the partnership.

 

OHIO REV. CODE sec. 1776.50.

 

The court heard this matter on September 18, 2012. At that time,FN4 the debtor claimed that he is entitled to an exemption as to both the partnership property and his partnership interest. The trustee acknowledged that the debtor's interest in partnership property is exempt, but argued that sec. 1776.50 affords him the ability to reach the debtor's interest in the partnership. The disputed issue is, therefore, whether the debtor's partnership interest is exempt under the terms of sec. 1776.50.

 

Judge Richard Speer addressed this issue in In re Foos, 405 B.R. 604 (Bankr. N.D. Ohio 2009), where, in a well-reasoned opinion, he concluded that sec. 1776.50 does not create an exemption for a partner's interest in a partnership. Instead, the section provides that a court may charge a partner's economic interest in the partnership, which charging order "does not function to protect a debtor's interest in a partnership, but rather is a statutorily created means for a creditor of a judgment debtor who is a partner of others to reach the debtor's beneficial interest in the partnership, without risking dissolution of the partnership." Id. at 609 (internal quotation marks and citation deleted). Under sec. 1776.50, "a charging order constitute[s] the `exclusive remedy for a judgment-creditor, and by extension a trustee in bankruptcy, against a debtor's economic interest in a partnership." Id. at 610. Conversely, "a debtor's right to claim their partnership interest exempt under sec. 2329.66(A)(14) is confined to the limited protections afforded to debtors with respect to `charging orders' under sec. 1776.50." Id.

 

Consequently, for the reasons stated, the trustee's objection to the debtor's claim of exemption in the partnership property is overruled, while the trustee's objection to the debtor's claim of exemption in his partnership interest in Airport Taxi Service is sustained.

 

IT IS SO ORDERED.

 

FN1 Jurisdiction exists under 28 U.S.C. sec. 1334 and General Order No. 2012-7 entered by the United States District Court for the Northern District of Ohio on April 4, 2012. This is a core proceeding under 28 U.S.C. sec. 157(b)(2)(B), and it is within the court's constitutional authority as analyzed by the United States Supreme Court in Stern v. Marshall, 131 S.Ct. 2594 (2011).

 

FN2 The debtor's right to exempt this property is governed by Ohio law. 11 U.S.C. sec. 522(b); OHIO REV. Code sec. 2329.662.

 

FN3 The trustee argued that sec. 1775.24(B)(3) no longer applies under sec. 2329.66(A)(14) because the section was repealed effective January 1, 2010. However, this argument fails under generally recognized principals of statutory construction. "Where a reference statute incorporates the terms of one statute into the provisions of another act, the two statutes co-exist as separate legislative enactments, each having its appointed sphere of action. As neither statute depends on the other's enactment for its existence, repeal of the provision in one enactment does not affect its operation in the other statute." 1A Sutherland Statutes and Statutory Construction sec. 23.33 (7th ed.) (quotation marks and citations deleted). The Ohio Supreme Court applies this statutory principal. See State, ex rel. Fritz v. Gongwer, 151 N.E. 752, 745 (Ohio 1926) (referring to legislation by reference and noting that "`For this purpose the law referred to is, in effect, incorporated with and becomes a part of the one in which reference is made, and so long as that statute continues, will remain a part of it."). Consequently, sec. 1775.24(B)(3) continues in effect as referenced in sec. 2329.66(A)(14).

 

FN4 These arguments differ somewhat from those stated in their filings.

 

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More Articles On Charging Orders click here

 

THE CHARGING ORDER 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

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

 

 

Appeal - Issues relating to the appeal of a charging order

 

Bankruptcy - Treatment of the debtor/member's interest in bankruptcy

 

Compliance - Issues for the LLC and non-debtor members in complying with a charging order

 

Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute

 

Creditor Rights Restrictions - Limitations on creditors' management and informational rights

 

Distributions - Creditors rights to distributive payments

 

Economic Rights - Limitation of charging order and foreclosure to debtor's economic rights

 

Exclusivity - The charging order as the sole remedy available to creditors and exceptions

 

Exemptions - Available state and federal protections that may apply to charging orders

 

Foreclosure - Liquidation by judicial sale of the debtor's right to distributions

 

Foreign Entities - Charging orders against out-of-state entities

 

Information Rights - Creditors' ability to access information about the LLC

 

Intra-Member Disputes - Where one member obtains a charging order against another

 

Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs

 

Lien - The lien effect of a charging order and priority issues

 

Management & Voting Rights - Rights of creditor after charging order issued

 

Order Form Generally - Most issues to the form of the charging order

 

Order Form Future Interests - How the charging order affects subsequently-acquired interests

 

Prejudgment Relief - Freezing the interest and distributions pending judgment

 

Procedure - The procedure for obtaining a charging order and ancillary provisions

 

Receiver - The role of the receiver in charging order proceedings

 

Repurchase/Redemption Rights - Third-parties' ability to purchase the charged interest

 

Single-Member LLCs - Enforcing the judgment against an LLC with a sole member

 

Taxes - Tax issues relating to charging orders for all involved parties

 

Unknown Interest - Where the debtor's interest, if any, has not been ascertained

 

Voidable Transactions/Fraudulent Transfers - Issues relating to avoidable transfers of interests

 

= = = = =

 

Additional Court Opinions About charging orders (unsorted)

 

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.