Adkisson's CHARGING ORDERS The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership Caution state law variances! Check currency of statutes!

 

2013 - Michigan - Presidential Facility

 

Presidential Facility, LLC v. Debbas, Case No. 09-12346 (E.D.Mich., April 12, 2013).

 

PRESIDENTIAL FACILITY, LLC, Plaintiff,

 

v.

 

CHRISTOPHER J. DEBBAS and JAMES R. GRIFFITHS, Defendants, and

 

GREGORY S. CAMPBELL and ROBERT PINKAS, Defendants/Third-Party Plaintiffs,

 

v.

 

PETER SINATRA, EMERALD PARTNERS V, LP, and JETDIRECT AVIATION HOLDINGS, LLC, Third-Party Defendants.

 

Case No. 09-12346.

 

United States District Court, E.D. Michigan, Southern Division.

 

April 12, 2013.

 

ORDER

 

LAWRENCE P. ZATKOFF, District Judge.

 

This matter comes before the Court on Plaintiff's Motion for Charging Order [dkt 196]. The motion has been fully briefed. The Court finds that the facts and legal arguments are adequately presented in the parties' papers such that the decision process would not be significantly aided by oral argument. Therefore, pursuant to E.D. Mich. L.R. 7.1(e)(2), it is hereby ORDERED that the motion be resolved on the briefs submitted. For the following reasons, Plaintiff's motion is DENIED.

 

I. PROCEDURAL BACKGROUND

 

On May 16, 2012, the Court entered judgment in favor Plaintiff and against Defendants—including Defendant Gregory Campbell ("Campbell")—in the amount of $9,500,000.00. On July 3, 2012, the Court certified that judgment as final [dkt 170].

 

Plaintiff now brings the instant motion for a charging order against Defendant Campbell. Plaintiff alleges that Defendant Campbell has not "voluntarily paid any portion of the judgment." Plaintiff's motion seeks to encumber any interests in limited partnerships or limited liability companies in which Defendant Campbell has or may subsequently acquire.

 

II. ANALYSIS

 

Fed. R. Civ. P. 69(a), which governs the enforcement of final judgments in federal court, provides:

 

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, but a federal statute governs to the extent it applies.

 

Thus, since this Court sits in the Eastern District of Michigan, the enforcement of Plaintiff's judgment is governed by the appropriate Michigan law.

 

Under Michigan law, a charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment out of a partner's or member's interest in a limited partnership or limited liability company. Mich. Comp. Laws secs. 449.1703, 450.4507(1), (6). A charging order is a lien on the partnership or membership interest of the partner or member that is the subject of the charging order. See id. at secs. 449.1703, 450.4507(5). Thus, to the extent the partnership or membership interest is charged, the judgment creditor has the right only to receive distributions to which a partner or member is entitled. See id. at secs. 449.1703, 450.4507(2).

 

Plaintiff petitions this Court for a charging order against Defendant Campbell on any interests in limited partnerships or limited liability companies in which he has or may subsequently acquire. Issuing a charging order on prospective—and possibly unrealized— interests does not appear to be contemplated by the Michigan statutes governing charging orders. To be sure, the Court has not found—and Plaintiff does not cite to—legal authority that is factually on point with the circumstances presented here. While it is true that the Court has broad authority pursuant to Mich. Comp. Laws sec. 600.6104(5) to make "any order as within [its] discretion . . . to subject any nonexempt assets of any judgment debtor to the satisfaction of any judgment against the judgment debtor," the Court will not issue the requested charging order for the following reasons.

 

Plaintiff identifies in its motion Defendant Campbell's interest in G.D. Campbell & Associates, a limited partnership, as an appropriate interest that should be subject to a charging order. This is Defendant Campbell's only interest in either a limited partnership or limited liability company that Plaintiff has located and apparently is apprised of. On March 20, 2013, however, Plaintiff and Defendant Campbell submitted to the Court a stipulation and order that granted Plaintiff a charging order with respect to Defendant Campbell's interest in G.D. Campbell & Associates [dkt 206]. Thus, Defendant Campbell's only identifiable interest in a limited partnership—or limited liability company—is currently encumbered by a charging order. Moreover, the Court does not believe it is appropriate, at this time, to issue a charging order to reach subsequently-acquired interests in limited partnerships or limited liability companies. Plaintiff may apply to the Court to subject future interests to a charging order should such interests materialize. Therefore, to the extent that Plaintiff is seeking a blanket charging order on any interests which Defendant Campbell may acquire in the future, the Court denies that request.

 

Accordingly, for the reasons stated above, IT IS HEREBY ORDERED that Plaintiff's Motion for Charging Order [dkt 196] is DENIED.

 

IT IS SO ORDERED.

 

RECENT ARTICLES

by Jay Adkisson

 

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

2019.06.24 ... Charging Order Protection Backfires At Judicial Sale In Preservation Holdings

2019.04.27 ... Iowa Supreme Court Serves Up A Shoddy Charging Order Opinion In Retterath

2019.03.19 ... Million Dollar Quartet Leads To Lien Priority Dispute Involving Charging Order

2019.02.18 ... Florida Order Awarding LLC Interest To Creditor Reversed In Pansky

 

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

 

 

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)

 

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.

 

Contact Jay Adkisson:

 

Phone: 702-953-9617     Fax: 877-698-0678     jay [at] jayad.com

 

Unless a dire emergency, please send me an e-mail first in lieu of calling to set up a telephone appointment for a date and time certain.

 

Las Vegas Office: 6671 S. Las Vegas Blvd., Suite 210, Las Vegas, NV 89119, Ph: 702-953-9617, Fax: 877-698-0678. By appointment only.

 

Newport Beach Office: 100 Bayview Circle, Suite 210, Newport Beach, California 92660. Ph: 949-200-7773, Fax: 877-698-0678. By appointment only.

 

Social Media Contact: Twitter and LinkedIn

 

Admitted to practice law in Arizona, California, Nevada, Oklahoma and Texas.

 

© 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.