Opinion 2012 Ohio Singh Charging Order

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.

 

 

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

 

 

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

 

General Information

• About Jay Adkisson and this website
• Articles About Charging Orders

 

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

• Charging Orders (Section 503) contains the general charging order provisions.

• Foreclosure of Charging Order Liens (503(c-e)) deals with foreclosure generally of an interest subject to a charging order lien.
• Foreclosure re Single-Member LLC (503(f)) is the special case of foreclosure of an LLC with only one member.

• 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):

• Uniform Limited Liability Company Act, Article V ("ULLCA" and "RULLCA").

• Uniform Partnership Act, Article V - ("UPA" and "RUPA")
• Uniform Limited Partnership Act, Article VII - ("ULPA" and "RULPA")

 

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

 

 

• 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.

 

• Anti-SLAPP Laws - A collection of and commentary about Anti-SLAPP laws and significant court decisions on the subject within the United States, and special focus on the California Anti-SLAPP law.

 

• 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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