The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
2013 - Michigan - Presidential Facility
Presidential Facility, LLC v. Debbas, Case No. 09-12346 (E.D.Mich., April 12, 2013).
PRESIDENTIAL FACILITY, LLC, Plaintiff,
CHRISTOPHER J. DEBBAS and JAMES R. GRIFFITHS, Defendants, and
GREGORY S. CAMPBELL and ROBERT PINKAS, Defendants/Third-Party Plaintiffs,
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.
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.
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.
by Jay Adkisson
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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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