The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
Voll v. Dunn, 2014 WL 7461644 (Conn.Super., Nov. 10, 2014).
UNPUBLISHED OPINION. CHECK COURT RULES BEFORE CITING.
Superior Court of Connecticut, Judicial District of Waterbury.
Joseph VOLL individually and Derivatively on Behalf of Macdaddy's Macaroni & Cheese Bar Management, LLC et al.
Nov. 10, 2014.
Attorneys and Law Firms
A Professional Corporat Leclairryan, New Haven, CT, for Joseph Voll individually and Derivatively on Behalf of Macdaddy's Macaroni & Cheese Bar Management, LLC et al.
Bruce Matzkin, Law Office of Noah Schotten Sexton, Branford, CT, Noah Schotten Sexton, Noah S. Sexton P.C., New Rochelle, NY, Andre Cayo, Law Offices of Cayo & Associates, LLC, Stratford, CT, for Robert Dunn.
KARI A. DOOLEY, J.
*1 This action arises out of a business venture between plaintiff, Joseph Voll, and defendant, Robert Dunn. In connection with this business venture, the plaintiff and the defendant (and others) formed three limited liability companies, Macdaddy's Macaroni & Cheese Bar Management, LLC, (the Management LLC), Macdaddy's Monroe, LLC (the Monroe LLC), and Macdaddy's Fairfield, LLC (the Fairfield LLC). The Monroe LLC operated a Macdaddy's restaurant in Monroe and the Fairfield LLC operated a Macdaddy's restaurant in Fairfield. The Management LLC was the entity into which the Monroe restaurant profits would flow for distribution to its members. The Fairfield LLC paid licensing and royalty fees to the Management LLC, also for distribution to the Management LLC's members. In this action, the plaintiff brings derivative claims on behalf of the LLCs and individual claims against the defendant for breach of the defendant's statutory duties; statutory theft, conversion, and CUTPA. The plaintiff also seeks a declaratory judgment that he has no present obligations under the Management LLC operating agreement. Lastly, the plaintiff seeks a declaratory judgment as to the legal effect of his purported execution and levy of the defendant's LLC interests. By way of counterclaims, the defendant seeks a declaratory judgment regarding the same purported execution and levy of his LLC interests. He further seeks an order of specific performance under the Management LLC operating agreement, as well as an accounting. The case was tried to the court over the course of several days in May 2014. The court heard from several witnesses and received numerous exhibits into evidence. Post-trial briefs were received on July 9, 2014.1 In August, the court asked for supplemental briefing on an issue related to the request for declaratory judgment. Those briefs were received on September 9, 2014. Replies were submitted on September 10, 2014. The court has reviewed the evidence adduced at trial, the testimony of the witnesses, the arguments advanced in the parties' briefs, the cases and authority cited therein, and renders this decision after consideration of all of these items.
"In a case tried before a court, the trial judge is the sole arbiter of the credibility of the witnesses and the weight to be given specific testimony ... It is within the province of the trial court, as the fact finder, to weigh the evidence presented and determine the credibility and effect to be given the evidence." (Citations omitted; internal quotation marks omitted.) Cadle Company v. D'Addario, 268 Conn. 441, 462, 844 A.2d 836 (2004). The court makes the following factual findings by a fair preponderance of the evidence, unless otherwise indicated, based upon the better, more credible evidence, presented.2
The plaintiff is a businessman whose primary business is as a general contractor in the construction industry. Through a variety of LLCs, he and his wife also own and manage various commercial properties. The plaintiff also has some experience in the restaurant industry. The defendant is an individual who has, at various times, owned and operated restaurants none of which have had sustained viability. In 2010, the defendant determined to open a restaurant which would serve a variety of macaroni and cheese dishes to be called Macdaddy's. In the course of finding a location for such a restaurant, the defendant looked at a commercial property on Main Street, in Monroe. The property is owned by an LLC whose sole member is the plaintiff's wife. The plaintiff met the defendant when he showed him the property. During this time that the defendant was looking for a suitable location, he was also looking for an investor to fund the opening of the restaurant. He approached the plaintiff about investing in the proposed restaurant and perhaps others as well. The defendant hoped that the macaroni and cheese concept would give rise to multiple locations of Macdaddy's restaurants. Ultimately, the plaintiff agreed to invest in the Macdaddy's restaurant. The location for what would hopefully be the flagship restaurant was the Monroe Connecticut property.
*2 The parties drew up an operating agreement in connection the formation of the Management LLC. The parties also formed the Monroe LLC for purposes of operating the Monroe restaurant. Pursuant to their agreement, the plaintiff provided the funds and the labor for the build out of the Monroe property. The defendant provided the concept, the menus, and the operational support for the management of the restaurant. In view of their respective obligations, the parties agreed that the profits from the Monroe Macdaddy's would flow into the Management LLC where it would be distributed evenly between the members.3
The Monroe Macdaddy's opened on July 4, 2011. At that time, the defendant was also working as an investment broker at Spencer Trask though he was spending a fair amount of time at the Macdaddy's. Eventually, Spencer Trask suggested that the defendant make a choice as he was not devoting sufficient time to his work at Spencer Trask. Around the same time, approximately February 2012, one of the original partners, Michael Burdick, was making plans to leave Connecticut to go to Texas. Therefore, the defendant left his employment and began working at the Monroe restaurant on a full-time basis.
By the Fall of 2011, the defendant and the plaintiff were looking for a second location. They approached Gary Swanson, the owner of commercial property in Fairfield. The property had previously been used as a restaurant and would require very little build out or modification. Ultimately, rather than simply rent the commercial space to Macdaddy's, Swanson, along with his wife, became members with the plaintiff and the defendant in Fairfield Macdaddy's LLC. The Fairfield LLC became a licensee and was going to operate a Macdaddy's restaurant with the profits being divided between the defendant, the plaintiff and the Swansons—25% to each.4 In addition, the Fairfield LLC would pay a licensing fee as well as royalties, in the form of a set percentage of sales, into the Management LLC. Per the Management LLC operating agreement, the licensing fee and the royalties would be equally distributed to the plaintiff and the defendant.
In January 2012, the plaintiff loaned the defendant $4,000 to assist him with his personal obligations. The defendant testified that this was the first in what was promised to be monthly advances until the next two stores were operating and the profits would cover his fiscal needs. The plaintiff denies any such agreement. The court does not credit the defendant's testimony for reasons which are discussed infra.
In early 2012, the plaintiff raised concerns with the defendant about his handling of the Macdaddy's finances, to include whether the defendant was taking distributions in advance of paying vendors, and his removal of $10,000 received as a licensing fee from Texas to pay his personal bills. These issues were not resolved. However, the parties, in a shared desire to further the Macdaddy's brand, continued to work together. In that vein, the operating agreement was amended in March 2012. As part of that agreement, the plaintiff agreed to fund the build out of two additional restaurants. The defendant was to be responsible for the day to day operations. The operating agreement was unequivocal however that neither the plaintiff nor the defendant would be paid for services performed on behalf of the LLCs by way of salary or wages. The financial pay out to either would be in the form of distributions of profits.5 Unbeknownst to the plaintiff, by March 2012, the defendant had already siphoned tens of thousands of dollars out of the restaurant. His conduct in this regard is discussed in detail below.
*3 The Fairfield Macdaddy's opened on or about September 1, 2012. The initial plan was for the Swansons to perform the day to day management of the restaurant. However, at the time the restaurant opened, they had a medical emergency occur in the family. As a result, the defendant began overseeing the operations of the Fairfield Macdaddy's as well. He was splitting his time between the two Macdaddy's. As such, at that point, he had unfettered access to the Point of Sale cash register system and the checkbooks for both restaurants.
The Defendant's Defalcations
After the Monroe Macdaddy's opened, almost immediately, the defendant began to take cash out of the business. His personal bank accounts at TD Bank show regular and frequent cash deposits ranging from a few hundred dollars to thousands of dollars. Beginning on July 11, 2011 and continuing to February 15, 2012, the defendant deposited $21,150.00 in cash into this account. Similarly, the defendant made cash deposits into an account named "Jordan's Future, LLC" between August 2011 and May 2012, which totaled $17,600.6 The defendant acknowledged that his only source of legitimate income during this time was Macdaddy's and Spencer Trask and that he was paid by that entity through ACH electronic deposits. There is but one possible source of these cash deposits—the Monroe Macdaddys. The plaintiff was not aware of this conduct, did not authorize this conduct and this conduct was not sanctioned by the Management LLC/Monroe LLC operating agreement.
In addition, from September 8, 2011 through January 9, 2012, the defendant wrote checks out of the Monroe LLC to "Jordan's Future, LLC" totaling $13,700.00. He disguised the true nature of these checks by often inserting "management fees," "consultation" or "consulting fees" in the memo portion of the check. These were not authorized or legitimate, but merely a means of diverting the Monroe LLC income to himself contrary to his rights and obligations under the operating agreement.
The defendant also wrote checks out of the Monroe LLC to himself as "draws" or as advances on draws. These were not permitted under the operating agreement, were not authorized by the plaintiff and amounted to misappropriation of these funds. These checks total $5,750.00.7
The defendant also used the Monroe LLC assets to acquire goods and services for his home through the barter network. He provided Macdaddy's product to others in exchange for both lawn care services at his home as well as deliveries of firewood. The total value of the services bartered for and diverted to his personal use was $6,320.00.
A reconciliation of the bank deposits and the point of sale system for the period June 2012 through November 15, 2012, established substantial cash shortages. The defendant acknowledged that the cash shortage were likely the "draws" he was using to pay his personal bills. Between June and November 15, 2012, these shortages total $39,425.47.
*4 The defendant used the Management LLC business debit/credit card for personal items as well. The plaintiff offered the bank statements and testified as to whether the items purchased were needed or procured for the Monroe store. The testimony was both opinion and fact, and where the line blurred is difficult to assess. Therefore, the evidence is insufficient for the court to conclude that many of these purchases were misappropriations, but does find that one of them, a payment to the defendant's child's pediatrician, was not authorized and was clearly for the personal benefit of the defendant.
The defendant also effectuated $6,000 in wire transfers from the Management LLC account to the Jordan's Future LLC account. Although the plaintiff identified an additional transfer of $500.00 in his claim, a review of the bank records reflects that this $500.00 was transferred from the Jordan's Future LLC account into the Management, LLC, for a net loss of $5,500.00.8 In addition, the defendant removed the Fairfield licensee fees, $10,000.00, from the Management LLC account. Finally, the defendant wrote checks to himself from the Management LLC account which were neither approved distributions nor otherwise authorized.9
The defendant also regularly and frequently wrote or received checks made payable to cash. For each, he is identified as the person who endorsed and therefore cashed the checks. The plaintiff argues that the inference to be drawn is that these funds represent additional thefts by the defendant. The court is not persuaded. The defendant testified that the cash was used to pay employees who were not paid through the payroll service. Although the court finds the defendant an unreliable witness, the bookkeeper, Jennifer Edwards confirmed this testimony. Further, many of the checks written to cash include a reference to a name and a pay period covered thereby. The checks are written on a regular periodic basis. While paying employees "under the table" may not have been in the best interests of the LLC, the court cannot and does not find that these funds were converted, misappropriated or stolen by the defendant.10 To the extent that there are damages which have or may yet flow from paying employees under the table, the plaintiff has not proven those damages.
The defendant's cash grab was not limited to the Monroe restaurant or the Management LLC. When he began work at the Fairfield restaurant, in light of the Swanson's family situation, he began taking cash from the Fairfield LLC as well. In the month of September 2012, the very month it opened, the defendant took approximately $8,000.00 from the register.
At this point, the cash discrepancies and the unauthorized distributions were coming to light and the relationship between the parties was very strained. By his own account, the defendant saw the end in sight. Rather than trying to ameliorate or fix the situation, the defendant continued to siphon off LLC assets.
*5 In October 2012, the defendant took money received as part of a "Groupon" promotion. Groupon promotions allow for customers to purchase coupons for product in limited quantity and for a limited period of time at a very reduced price. For example, a customer could purchase a $50 Macdaddy's coupon for $25. The Groupon sellers then forward the receipts for any groupons sold to the entity for which it sold a groupon. The contract between Groupon and Macdaddy's specified that the receipts were to be sent to the Monroe Macdaddy's LLC bank account. However, the defendant changed that direction and told Groupon to send the receipts to the Jordan's Future LLC account, which Groupon did. In this regard, the defendant diverted $7,076.48 from the Monroe LLC.
Also around this time, the defendant falsified banking documents and opened a second bank account in the name of the Monroe LLC. The defendant then diverted insurance proceeds received as a result of Hurricane Sandy into this account. This diversion of LLC funds was quickly discovered and the majority of the funds were returned.
In November 2012, after the relationship between the parties had irretrievably broken down, the plaintiff brought this lawsuit, seeking at the outset, an injunction which would, among other things, remove the defendant from the operation of the Macdaddy restaurants and which would preclude his access to the accounts or funds of the LLCs. Upon the filing of the suit, the defendant used the Management LLC debit card to withdraw an additional $1,000.00 from the LLC account. In addition, on November 13, 2012, the defendant withdrew $15,000.00 from the Fairfield, LLC bank account, again, without authorization or justification. After a hearing in January 2013, the court (Radcliffe, J.) granted the injunctive relief requested.
When the plaintiff took over the operations of the Monroe store, he found its financial situation dire. The plaintiff discovered that the Monroe LLC was behind on its accounts payable to vendors. It was behind on its rent and utilities. It was behind on its tax obligations. At least one supplier was making deliveries on a COD basis. The bank account showed checks returned for insufficient funds. The plaintiff has since been able to put the Monroe LLC back on sound financial footing though as recently as the Spring of this year, the LLC remained in arrears on its rent.
Although the defendant takes issue with some of the claimed defalcations, he admits he diverted groupon funds. He admits he used the barter network for his own personal needs. He admits to taking cash and checks from the LLCs. He testified that he was merely taking "draws" against the profits which would eventually be due him anyway. He was taking funds because he needed them, and his plan was to reduce his future distributions until he and the plaintiff were evened out. He further testified that in January 2012, the plaintiff agreed to advance him $4,000.00 per month in light of his enhanced responsibilities at the Monroe store but that the plaintiff reneged on that agreement, further justifying his use of LLC funds for his own personal needs. In short, the defendant is utterly unapologetic. He seems to view himself as a modern day Jean Valjean, vilified for simply taking what he needed to feed his family.
*6 He further ascribes the takeover of the Monroe and Fairfield stores to acts of treachery by the plaintiff and the Swansons, occasioned not by his own larcenous conduct, but by the plaintiff's scheme to force him out of the business and to steal the Macdaddy's brand. The defendant's myopic view is remarkable for its complete and utter disregard for the role his own conduct has played in his removal from the Macdaddy's restaurants.
In any event, the court does not credit the defendant's testimony. Indeed, the defendant is perhaps the least credible witness this court has ever seen. From early in the life of the restaurant, the defendant reneged on the agreement he had made. He began siphoning cash out of the Monroe restaurant to whatever purpose he saw fit. His effort to justify his use of the Monroe cash register as his own personal piggy bank is frankly, astonishing. He claims he had to take the money because he had no income but this, we know, is not true. He was taking cash and diverting funds for months while he was still employed at Spencer Trask. Further, his diverting of funds was a regular and frequent occurrence within months of the Monroe restaurant opening. He also claims he had no choice because he had to take care of his family.11 However, the amounts taken are well in excess of the amount needed to sustain a small family. Between July 2011 and November 2012, the defendant had siphoned off in excess of $100,000.00 from the Monroe restaurant alone, to include over $6,000 for lawn care and firewood. This is hardly bread and milk money. Finally, and perhaps most importantly, the defendant's after-the-fact explanation that he intended to even things out with the plaintiff once the second and third stores were opened is a self-serving and wholly incredible claim.12
The Execution on the LLC Interests
In connection with the closing of a restaurant previously operated by the defendant, the defendant was sued. A default judgment was entered against him in the amount of $132,444.48. The plaintiff purchased the judgment from the judgment creditor. In June 2013, he engaged the services of a State Marshal to serve an execution of the judgment on the defendant, but the judgment remained unsatisfied. Thereafter, the State Marshal served the execution and levied the defendant's interests in the Management LLC, the Monroe LLC and the Fairfield, LLC. At the time he served the execution, the State Marshal provided the defendant with the Exemption Claim Form for Property Executions (JD–CV–5) which gives direction to the judgment debtor if he wishes to contest the execution or otherwise seek an exemption therefrom.
Thereafter, by publication, posting and service upon the defendant, the Marshal gave notice of his intention to auction the defendant's membership interest in the three LLCs. The notice provided in pertinent part:
PLEASE TAKE NOTICE, pursuant to the Uniform Commercial Code and the civil judgment entered against Robert T. Dunn ("Judgment Debtor") on April 22, 2009 (the "Judgment"), the following collateral will be sold in public to the highest qualified bidder, by reason of the failure of the Judgment Debtor to satisfy the Judgment and Marshal Robert S. Miller, Auctioneer, will conduct a public sale on August 30, 2013, at 10:00 a.m. at the Office of Robert S. Miller, State Marshal, 32 Elm Street, 1st Floor left, New Haven, CT 06510, in satisfaction of the Judgment in the amount of $132,444.48, plus statutory interest from April 22, 2008: 50 of 100 membership units of Macdaddy's Macaroni and Cheese Bar Management, LLC; 50 of 100 membership units of Macdaddy's Monroe, LLC; and 25 membership units of Macdaddy's Fairfield, LLC. Judgment Creditor reserves the right to bid for the purchase of the collateral and if Judgment Creditor is the highest bidder, to pay the purchase price of the collateral, in whole or in part, by crediting the purchase price against the balance due as evidenced by the Judgment. Judgment Creditor further reserves the right to cancel the sale in part or in its entirety or to adjourn the sale to a future date and notice of any adjourned date will be given only at the time and place of the scheduled sale and only to those who attend the sale ...
*7 (Emphasis added.)
Upon service of the execution, the defendant did not file any objection with the court and did not challenge the execution on his interest in the three LLCs. Rather, shortly before the scheduled auction, the defendant filed a petition in the bankruptcy court. The defendant contacted the Marshal and advised him of his intention to file a petition in bankruptcy in advance of the auction date. The auction did not proceed but was continued to a future date. As no one appeared at the auction, to include the defendant or his counsel, no one was notified of the new date. By the second auction date, the defendant was still in bankruptcy. He had not filed the necessary paper work but the bankruptcy court gave him additional time and so the auction was continued yet again. Eventually, the bankruptcy court gave the defendant until December 2, 2013 to complete his petition paperwork or the bankruptcy would be dismissed. The auction was rescheduled for December 3, 2013.13 The bankruptcy was dismissed on December 2, 2013. On December 3, 2013, the plaintiff purchased the defendant's interests in the three LLCs for $50,000.00: $25,000 for the Management LLC; $15,000 for the Monroe, LLC and $10,000 for the Fairfield, LLC. Between the original notice of auction and December 3, 2013, neither the defendant nor his counsel had any communication with the Marshal about the new auction date. The defendant did not make any inquiry whatsoever as to the status of the seizure and/or planned auction. Nor did the defendant's counsel inquire of the plaintiff's counsel as to these matters. The defendant was notified of the sale and as well the reduced amount of the judgment as a result. The Marshal then filed his return on the execution in which he details these events.
On December 9, 2013, the plaintiff moved to dismiss the then pending actions brought by the defendant, which actions were purportedly brought on behalf of the various Macdaddy's LLCs. The plaintiff argued that insofar as the defendant no longer had a membership interest in the LLCs, he had no standing to assert claims on their behalf. The defendant responded by asserting that the execution of the judgment as to the LLC interests was of no legal force and effect and is not permitted under Connecticut law. The issues were fully briefed and argued but the defendant withdrew all pending actions in which he was the plaintiff, either individually or derivatively, rendering the motion moot.
Thereafter, this matter was scheduled for trial. The plaintiff amended the complaint to include a request for declaratory judgment that the execution on the defendant's membership interests in the LLCs was legal and that therefore the defendant has no present membership interest in any of the LLCs.14 The defendant filed an answer, special defenses and counterclaims. In his counterclaims, he seeks the converse declaratory judgment with respect to the execution on his LLC interests, i.e. that such was not allowed under Connecticut law. He further seeks an order of specific performance under the Management LLC operating agreement requiring the plaintiff to fund the build out of two additional Macdaddy's locations. Finally, his counterclaim seeks an accounting.
*8 As indicated, the plaintiff brings several derivative claims against the defendant seeking compensatory money damages. These include breach of fiduciary duty under CGS sec. 34–141 (count two), civil theft in violation of CGS sec. 52–564 (count three), conversion (count four), and CUTPA violations in violation of CGS sec. 42–110a (count five). He also seeks a permanent injunction similar to the temporary injunction issued by the court previously. Finally, he brings two counts in which he seeks a declaratory judgment. In the first, he seeks a judgment regarding the execution on the defendant's membership interest in the three LLCs. In the second, he seeks a declaratory judgment that in light of the defendant's defalcations, the plaintiff is under no obligation to fund the build out of any additional Macdaddy's restaurants. The second request for declaratory relief is moot if the court finds in the plaintiff's favor on the first.
With the above facts found, it is hardly remarkable that the plaintiff has proven the LLCs' entitlement to compensatory damages under counts two through five, which the court will take up first.
Breach of Fiduciary Duty under Conn. Gen.Stat. sec. 34–141—Count Two
In count two, the plaintiff brings derivative claims on behalf of the three LLCs, that the defendant breached his "fiduciary duty" to the LLCs through the various thefts and diversion of corporate assets as detailed above. The plaintiff brings this claim under Conn. Gen.Stat. sec. 34–141, a portion of the Connecticut Limited Liability Company Act (the LLC Act). Section 34–141 provides: "A member or manager shall discharge his duties under 34–140 and the operating agreement, in good faith, with the care an ordinary prudent person in a like position would exercise under similar circumstances, and in the manner he reasonably believes to be in the best interests of the limited liability company, and shall not be liable for any action taken as a member or manager for any failure to take such action if he performs such duties in compliance with the provisions of this section." The plaintiff's label on count two notwithstanding, the court treats the statutory duty to be a duty of good faith.15 See, Kasper v. Valluzzo, WL 8883574, 6–7 (Conn .Super.) (December 23, 2011, Tierney, J.) (By its plain language, Section 34–141 establishes only a duty of good faith).
The question then is whether the defendant breached this duty to conduct himself "in good faith," consistent with an "ordinary prudent person" and "in a manner he reasonably believes to be in the best interests of the" LLC. He clearly did not. The defendant's conduct amounted to self-dealing of the most egregious type. He treated the fiscal assets of the Management LLC, the Monroe LLC and to a lesser extent the Fairfield LLC as his own personal ATM. Without regard to the financial obligations of these LLCs or the obligations imposed upon him under the operating agreements, he simply helped himself. His regular and frequent drain on the cash assets of the Monroe LLC left it behind in its obligations to vendors, its landlord and the taxing authorities. Whether the taking of cash, the writing of checks to himself or to Jordan's Future LLC, the diverting of groupon receipts or the use of the Monroe LLC's assets to obtain goods and services to maintain his personal lifestyle, he violated the standard required by the statute and is liable to the Monroe LLC as a result. See also, Wilcox v. Schmidt, 2010 WL 2817490, 1 (Conn.Super.) (June 3, 2010, Swords, J .) (A limited liability company's chief financial officer breached the duty of good faith, loyalty and honesty to the LLC by issuing a check to himself on the LLC's account in repayment for a loan he made to the LLC. He also changed the password on the LLC's computer system, which prevented other members from discovering the CFO's actions until the unauthorized check had been deposited. As a result, the LLC was deprived of corporate assets, was unable to pay a line of credit, and was unable to meet other obligations. The CFO's actions were purely in his own interests and against the best interests of the LLC. C.G.S.A. sec. 34–141.) Similarly, his cash removal from the Fairfield LLC and the unauthorized taking of funds from the Management LLC violated his duty of good faith to those entities as well. The damages occasioned by these breaches will be discussed below.
Civil Theft—Count Three
*9 Similarly, the plaintiff has established that the defendant's conduct constituted civil theft, as alleged in count three.
The elements that the plaintiffs must prove to obtain treble damages under the civil theft statute, sec. 52–564, are the same as the elements required to prove larceny, pursuant to General Statutes sec. 53a–119 ... A person commits larceny when, with intent to deprive another of property or to appropriate the same to himself or a third person, he wrongfully takes, obtains or withholds such property from an owner ... It must be shown that (1) there was an intent to do the act complained of, (2) the act was done wrongfully, and (3) the act was committed against an owner ... The essential cause of action is a wrongful exercise of dominion over personal property of another.
(Citations omitted.) Kosiorek v. Smigelski, 138 Conn.App. 695, 713, (2012). The facts found, as detailed above, establish that the defendant stole money and other assets from each of the three LLCs. He is liable for civil theft under Section 52–564. The details and amount of that liability will be set forth in the damages section.
Similar to civil theft, "[t]he tort of '[c]onversion occurs when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights.' (Internal quotation marks omitted.) Wellington Systems, Inc. v. Redding Group, Inc., 49 Conn.App. 152, 169, 714 A.2d 21, cert. denied, 247 Conn. 905, 720 A.2d 516 (1998). In addition, conversion requires that the owner be harmed as a result of the unauthorized act. Devitt v. Manulik, 176 Conn. 657, 660, 410 A.2d 465 (1979)." News America Marketing In–Store, Inc. v. Marquis, 86 Conn.App. 527, 544, 862 A.2d 837 (2004). Therefore, to establish conversion, the plaintiff had to demonstrate that (1) the funds at issue belonged to one of three LLCs, (2) that the defendant deprived the LLC(s) of that money for an indefinite period of time, (3) that the defendant's conduct was unauthorized and (4) that the defendant's conduct harmed the LLC(s). Id.
The defendant's repeated and unauthorized taking of monies or misuse of assets as detailed above renders the defendant liable for conversion as well. The details and amount of that liability will be set forth in the damages section.
CUTPA provides that "[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." General Statutes sec. 42–110b(a). In determining conduct violates CUTPA, our Supreme Court has adopted the criteria set out in the federal trade commission's cigarette rule: "(1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—whether, in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers [competitors or other businessmen]. All three criteria do not need to be satisfied to support a finding of unfairness." Journal Publishing Co. v. Hartford Courant Co., 261 Conn. 673, 695, 804 A.2d 823 (2002). Thus, CUTPA proscribes both "unfair" and "deceptive" acts or practices. An act or practice is "unfair" if it "offends public policy as it has been established by statutes, the common law or otherwise" or if it is "immoral, unethical, oppressive, or unscrupulous" or if it "causes substantial injury to consumers." Id. See also, Cheshire Mortgage Service, Inc. v. Nontes, 223 Conn. 80, 105–06, 612 A.2d 1130 (1992).
*10 Here, the defendant's theft and misappropriation of the three LLC's funds violates a well entrenched public policy against theft and conversion, and by just about any measure, qualifies as "immoral, unethical, oppressive [and] unscrupulous." Therefore, the plaintiff has proven a CUTPA violation.
Claims brought by the Plaintiff in his Individual Capacity
Counts two and five, breach of statutory duty of good faith and CUTPA, are also advanced as individual claims. In order to prevail, the plaintiff must establish harm to himself separate and distinct from the harm caused to the LLCs. See, Padaweer v. Yur, 142 Conn.App. 812, 818 (2013); Ma'Ayerg and Associates v. Pro Search, Inc., 115 Conn.App. 662, 670, 974 A.2d 724 (2009). Absent such proof, the plaintiff does not have standing to bring claims separate and distinct from the LLCs. Id.
As to count two, pursuant to Conn. Gen.Stat. sec. 34–141, the defendant owed the statutory duty of good faith not just to the LLCs but also to the other members of the LLCs. Thus, the plaintiff does have an individual claim under the statute. Further, the defendant's breach of this statutory duty of good faith was wanton, egregious and intentional. Thus, even absent proof of actual damages to the plaintiff individually,16 the court can award nominal damages, which it will do in the amount of $100.00. Right v. Breen, 277 Conn. 364, 376, 890 A.2d 1287 (2006).
In connection with the CUTPA claim, count five, the plaintiff must prove an "ascertainable loss of money or property, real or personal ..." General Statutes sec. 42–110g(a). The ascertainable loss requirement is a threshold barrier which limits the class of persons who may bring a CUTPA action seeking actual damages or equitable relief. Hinchliffe v. American Motors Corp., 184 Conn. 607, 615, 440 A.2d 810 (1981). An ascertainable loss is a "deprivation, detriment [or] injury" that is "capable of being discovered, observed or established." Id., at 613, 440 A.2d 810. "[A] loss is ascertainable if it is measurable even though the precise amount of the loss is not known ... Under CUTPA, there is no need to allege or prove the amount of the ascertainable loss." Id., at 614, 440 A.2d 810. Where a plaintiff has established a CUTPA violation and an ascertainable loss, the court must award at least nominal damages, even if the plaintiff has failed to prove the amount of any actual damages. Tang v. Bou–Fakhreddine, 75 Conn.App. 334, 340, 815 A.2d 1276 (2003).
The plaintiff, as a member of the Management LLC and the Fairfield LLC was entitled to a distribution of the profits from the Monroe LLC as well as the Fairfield, LLC. Similarly, licensing fees and royalties from licensees were to be paid into and distributed by the Management LLC. While the extent to which the Monroe or Fairfield store would have been profitable is unknowable in light of the defendant's egregious misconduct and the precise distribution of any licensee fees or royalties was not proven, the diversion of these potential profits, fees and royalties clearly harmed the other members of the LLCs, to include the plaintiff individually. The plaintiff suffered an ascertainable loss when he lost the ability to assess the profitability and viability of the LLCs due to the defendant's actions. He lost the benefit of the agreements he had entered into; he lost all potential profit from the LLCs when the defendant siphoned off not only potential profits but the funds necessary to pay the bills. However, as noted, the actual damages suffered were not proven. The court cannot and does not assess actual damages in favor of the plaintiff in his individual capacity. The court does however award nominal damages in the amount of $100.00. See, Tang v. Bou–Fakhreddine, 75 Conn.App. 334, 815 A.2d 1276 (2003).
Compensatory Damages as to Derivative Claims in Counts Two Through Five
*11 The defendant is liable to the LLCs for the monies he took or diverted, the value of the assets he bartered away for his own personal use and the extent to which he used the debit/credit cards of the Management LLC for personal use.
As noted above, the court does not award all of the damages claimed by the plaintiff and sets forth below the extent to which the plaintiff has met his burden of proof. The failure of the court to include an award for damages which were sought, though not discussed below, is a determination by the court that the plaintiff has failed in his proof.
As to the Monroe, LLC, the court awards damages as follows: (1) funds diverted from the Groupon contract to Jordan's Future, LLC account—$7,076.48; (2) checks written to the defendant as purported "draws" or to Jordan's Future, LLC—$19,450; (3) documented cash "shortage" from June 2012 through November 15, 2012—$38,425.00; (4) the value of product bartered for lawn care and firewood at his personal residence—$6,320.00; (6) cash deposits to TD Bank July 11, 2011 through February 15, 2012—$20,150; (7) cash deposits to Jordan Futures LLC account August 29, 2011 through May 2012: $17,600.00.17
Total damages due to the Monroe, LLC: $109,021.48.18
As to the Management LLC, the court awards damages as follows: (1) unauthorized checks payable to the defendant—$7,358.81; (2) ATM withdrawals in November 2012—$1,000.00; (3) unauthorized wire transfers to the defendant's Jordan's Future LLC account—$5,500.00; (4) unauthorized use of the corporate debit card for his daughter's pediatrician—$89.60; (6) unauthorized withdrawal of the Fairfield licensing fee: $10,000.00.
Total damages awarded to the Management LLC: $23,948.41.
As to the Fairfield, LLC, the court awards damages as follows: (1) cash diverted during September 2012: $8,000.00; (2) unauthorized November 2012 withdrawal from Fairfield LLC bank account—$15,000.00.
Total damages awarded to the Fairfield, LLC: $23,000.00
The plaintiff seeks treble damages under the civil theft statute. Conn. Gen.Stat. sec. 52–564 provides, "Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages." Under this mandatory language, where liability is found, the damages are to be trebled. See Stuart v. Stuart, 297 Conn. 53 n. 14 (sec. 52–564 contains mandatory language); Carmichael v. Stonkus, 2010 WL 3584419, *4–5 (Conn.Super., Swienton, J.). The damages identified above will be trebled.
Prejudgment and Postjudgment Interest
The plaintiff seeks an award of both prejudgment and postjudgment interest pursuant to Conn. Gen.Stat. sec. 37–3a. "The decision of whether to grant interest under sec. 37–3a is primarily an equitable determination and a matter lying within the discretion of the trial court." Chapman Lumber, Inc. v. Tager, 288 Conn. 69, 99–100, 952 A.2d 1 (2008). See also, Ulrich v. Fish, 112 Conn.App. 837, 844, 965 A.2d 567, cert denied, 292 Conn. 909, 973 A.2d 109 (2009) ("An award of postjudgment interest is discretionary and a prevailing plaintiff is not entitled to such interest as a matter of law"). General Statutes sec. 37–3a(a) provides in relevant part: "Except as provided in sections 37–3b, 37–3c and 52–192a, interest at the rate of ten per cent a year, and no more, may be recovered and allowed in civil actions ... as damages for the detention of money after it becomes payable." "[P]rejudgment interest is awarded in the discretion of the trial court to compensate the prevailing party for a delay in obtaining money that rightfully belongs to him." Northrop v. Allstate Ins. Co., 247 Conn. 242, 254–55, 720 A.2d 879 (1998).
*12 [t]he court's determination [as to whether interest should be awarded under sec. 37–3a] should be made in view of the demands of justice rather than through the application of any arbitrary rule ... Whether interest may be awarded depends on whether the money involved is payable ... and whether the detention of the money is or is not wrongful under the circumstances. (Citations omitted; internal quotation marks omitted.)
Sosin v. Sosin, 300 Conn. 205, 229 (2011), citing, Stephan v. Pennsylvania General Ins. Co., 224 Conn. 758, 765, 621 A.2d 258 (1993). The trial court is not required to find that the retention of funds was "unreasonable or without justification in order to find that it was "wrongful." Id. In reviewing the legislative policy behind the statute, the Sosin Court noted that "the primary purpose of sec. 37–3a, ... is not to punish persons who have detained money owed to others in bad faith but, rather, to compensate parties that have been deprived of the use of their money." Id.
Here, the theft of monies and assets occurred in increments over the course of approximately 16 months. It would be difficult, if not impossible, to determine the point in time at which interest should be assessed for the funds stolen throughout this time period. Equity requires that prejudgment interest be awarded but the court will award interest from the date this action was filed, November 9, 2012 at a rate of 3.25% to the date of judgment. Similarly, the court awards postjudgment interest of 3.25% thereafter.
Attorneys Fees Under CUTPA
The plaintiff also seeks attorneys fees pursuant to CUTPA. Under CUTPA, "the court may award, to the plaintiff, in addition to the relief provided in this section, costs and reasonable attorneys fees based on the work reasonably performed by an attorney." CGS sec. 42–110g(d). The award of attorneys fees is not mandatory but is within the sound discretion of the trial court. Staehle v. Michael's Garage, Inc., 35 Conn.App. 455, 459, 646 A.2d 888 (1994). "The plaintiff who establishes CUTPA liability has access to a remedy far more comprehensive than the simple damages recoverable under common law. The ability to recover ... attorneys fees ... enriches the private CUTPA remedy and serves to encourage private CUTPA litigation." Hinchliffe v. American Motors Corp., 184 Conn. 607, 614, 440 A.2d 810 (1981).
An award of attorneys fees is appropriate in this case. The court will schedule a hearing at which the plaintiff may produce evidence of his attorneys fees in pursuing the CUTPA claim individually and derivatively.19
The plaintiff also seeks an award of punitive damages. Once a violation of CUTPA has been established, the court may award punitive damages if the evidence established that "the defendant has acted with reckless indifference to the rights of the plaintiff or has committed an intentional and wanton violation of those rights ." Tang v. Bou–Fakhreddine, 75 Conn.App. 334, 339, 815 A.2d 1276 (2003). Whether to award such damages however is within the court's discretion. Id. In view of the award of treble damages, prejudgment and postjudgment interest, as well as attorneys fees, the court declines to award punitive damages.20
*13 In view of the foregoing, the award of damages for counts two through five on the derivative claims are as follows:
Compensatory Damages: $109,021.48
Prejudgment Interest of 3.25% is 9.71/day, $7,096.11 (as of November 10, 2014)
Total Damages to be trebled:21 $116,117.58
Total Damages: $348,352.74
Compensatory Damages: $23,000.00
Prejudgment Interest of 3.25% is $2.05/day, $1,497.05 (as of November 10, 2014)
Total Damages to be trebled: $24,497.05
Total Damages: $73,491.15
Compensatory Damages: $23,948.41
Prejudgment Interest of 3.25% is $2.13/day, $1,558.78 (as of November 10, 2014)
Total Damages to be trebled: $25,507.19
Total Damages: $76,521.57
The court awards damages on count two in favor of Joseph Voll individually in the nominal amount of $100.00. Neither prejudgment nor postjudgment interest is awarded on this amount.
The court awards damages on count five in favor of Joseph Voll individually in the nominal amount of $100.00. Neither prejudgment nor postjudgment interest is awarded on this amount.
Count Six,—Declaratory Judgment as to the Execution on Defendant's LLC interests
As noted above, the plaintiff purchased a judgment debt against the defendant and then executed on that judgment against the defendant's membership interests in the three LLCs pursuant to Conn. Gen.Stat. sec. 52–356a. The interests were then sold at a noticed auction to the plaintiff for $50,000. As a result, the plaintiff claims to own 100% of the Management LLC, 100% of the Monroe LLC and 50% of the Fairfield LLC. The defendant argues however that the plaintiff's exclusive remedy vis-a-vis the defendant's interest in the LLCs was a charging order pursuant to the LLC Act, specifically, Conn. Gen.Stat. sec. 34–171.
This is a question of first impression as there is no Connecticut appellate authority which addresses this claim. In the court's view, in order to determine this issue, several questions must be asked, analyzed and answered: (1) is an LLC membership interest "personal property" as contemplated under the levy and execution statute, sec. 52–356a? If yes, (2) are charging orders nonetheless the exclusive remedy available to judgment creditors of a debtor member of an LLC? If no, did the Marshal comply with the statutory requirements for such an execution and sale when he adjourned the sale to a subsequent date for which no new Notice was posted.
The Postjudgment Procedures Statutes
Conn. Gen.Stat. sec. 52–350f provides:
A money judgment may be enforced against any property of the judgment debtor unless the property is exempt from application to the satisfaction of the judgment under [specific statutes]22 or any other provision of the general statutes or federal law. The money judgment may be enforced, by execution or by foreclosure of a real property lien to the amount of the money judgment ...
The term "property" is defined at Conn. Gen.Stat. sec. 52–350(16) as:
*14 any real or personal property in which the judgment debtor has an interest which he could assign or transfer, including (A) any present or future right or interest, whether or not vested or liquidated, (B) any debt, whether due or to become due, and (C) any cause of action which could be assigned or transferred.
Conn. Gen.Stat. sec. 52–356a(a) provides:
(1) On application of a judgment creditor or a judgment creditor's attorney, stating that a judgment remains unsatisfied and the amount due thereon, ... the clerk of the court in which the money judgment was rendered shall issue an execution pursuant to his section against the nonexempt personal property of the judgment debtor other than debts due from a banking institution or earnings ... The execution shall be directed to any levying officer
Thus, if the defendant's full membership interest in the LLCs is "property" as defined under Section 52–350(16), then the next question is whether Section 52–350f permits execution against that property pursuant to Section 52–356a, or whether such execution is prohibited by "any other provision of the general statutes or federal law." The latter inquiry implicates the exclusivity issue identified above and will be taken up in due course.
It is at this juncture that the interplay between the LLC Act and our postjudgment procedures statutes first comes into play. There is little question that the defendant's membership interest in the LLCs is "personal property in which the judgment debtor has an interest." The question is whether this is an interest that he "could assign or transfer" as required under sec. 52–350(16).
On the issue of assignment or transfer of LLC membership interests, the defendant relies upon the LLC Act, which provides in Section 34–170, that "(a) Except as provided in writing in an operating agreement, ... (1) A limited liability company membership interest is assignable in whole or in part; ..." The statute then continues to set forth the impact of any such assignment on the LLC, the assignee and the assignor. It specifically includes a provision that the assignee is not permitted "to participate in the management and affairs of the limited liability company." (Emphasis added.) By its plain language, the assignable interest does not therefore include full ownership and/or management rights. Thus, the defendant argues, the LLC interests at issue here could not "be assigned or transferred" by operation of the Act and are not "property" for purposes of the postjudgment procedures statutes. The defendant's reliance is misplaced.
Generally, the rights and obligations of members in a Connecticut LLC are set forth in the LLC Act. However the provisions of the LLC Act are applicable only to the extent the matters covered by its provisions are not otherwise addressed in the LLC operating agreement. The LLC Act "provides a set of default rules governing [LLCs], which organizers and members can elect to modify at their discretion through the company's operating agreement." 418 Meadow St. Associates, LLC v. Clean Air Partners, LLC, 304 Conn. 820, 834 (2012). "[T]he statutory scheme controls and provides for the default method of operation unless the organizers or members of the limited liability company contract, through the operating agreement, for another method of operation. Indeed this is one of the foundational principles of the law governing limited liability companies." Id. at 837. Thus, the Act was not intended to limit the freedom to contract however the members of an LLC chose by way of the operating agreement. See Conn. Gen.Stat. sec. 34–242 (It is the policy of sections 34–100 to 34–242, inclusive, to give maximum effect to the principle of freedom of contract and to enforcement of limited liability company agreements"). Members may elect whether and to the extent they want to be bound by the LLC Act with respect to the matters covered thereby. Id.
*15 Thus, the LLC Act's provisions limiting the extent of an assignment or transfer, do not end, and in fact do not even aid the court's analysis because, in the first instance, they are applicable only to the extent that the operating agreement does not address the issue. See, 418 Meadow St. Associates, LLC v. Clean Air Partners, LLC, supra, at 836 ("Contrary to the defendant's claim, sec. 34–187 applies to all limited liability companies unless the operating agreement provides for a different rule that conflicts with the statute or provides that the statute does not apply at all. That is the plain meaning of the statutory language, "[e]xcept as otherwise provided ... ).
The court received into evidence the Management LLC operating agreement as well as the Fairfield LLC operating agreement. Both include provisions defining a membership interest and both include provisions governing the transfer or assignment of a membership interest. Unlike the LLC Act, neither restricts, by definition or otherwise, the nature or scope of the interest that may be assigned or transferred. Each permits assignment or transfer of full ownership rights in the LLC.
The Management LLC operating agreement defines a "Membership Interest" as "all of the rights of a Member in the Company, including a Member's (i) Interest; (ii) right to inspect the Company's books and records; (iii) right to participate in the management of and vote on matters coming before the Company; and (iv) unless this Agreement or the Articles of Organization provide to the contrary, right to act as an agent of the Company." Thus, the definition of a member's interest is broader than the definition provided under the Act and includes full membership rights.23
Article 6.4 of the operating agreement sets for the terms under which a transfer of a member's interest is permitted. It provides:
None of the Members may Transfer or encumber any part of their respective Membership Interest for no consideration, including, but not limited to, gift transfers, provided however transfers by will or transfers into a trust shall be permitted. Furthermore, none of the Members shall dispose of or encumber any part of or all of their respective Membership Interest in the Company (whether by sale, pledge, other encumbrance, court order or otherwise by operation of law) without first giving written notice to the Company and to the other Members, stating such intention, and attached to such notice shall be a statement indicating the name and address of the prospective purchaser or lienor, if any, and the number of Percentages involved in the proposed disposition or encumbrance, and the consideration to be received. Any disposition or encumbering of any of the Members' Membership Interest shall be subject to the options set forth in Section 6.4.2 below ... Any lienholder or encumbrancer who becomes an owner of any of the Membership Interest shall be subject to the terms and conditions of this Agreement. To the extent that any lienholder or encumbrancer becomes an owner of any of the Membership Interest, that lienholder or encumbrancer must immediately offer those Membership Interests for sale in accordance with Section 6.4.2. below.
*16 Section 6.4.2 sets forth the circumstances under which membership interests can be transferred to a third party. If a member wishes to sell his membership interest, he must give notice to the Company as well as the other members. The company has a right to purchase the interest under the same terms and conditions as the proposed sale. If the company does not exercise the right, the remaining members have the next right to do so, collectively or in whatever numbers they choose to participate and for whatever percentage of the "for sale" interest they choose. If the members do not exercise the right of purchase, either at all, or with respect to a portion of the interest that is for sale, the offering member is then free to complete the transaction and sell his membership interest. The third-party purchaser is thereafter "subject to the terms and conditions of this Agreement as though the party named transferee were party hereto, and only if the proposed disposition or encumbrance will not violate applicable federal and state securities laws." Section 6.4.2.(vi).
To sum up, under the Management LLC operating agreement, a full membership interest may be transferred by will or to a trust without consideration and without further restriction. A full membership interest may be transferred to a third party, subject to the rights of purchase granted to the Company and other members in the first instance. In the end however, the full membership interest is transferable to a third party.
The court looks next to the Fairfield, LLC operating agreement. Therein, the terms "Interest" is also broadly defined to mean "the interest of a Member in the Company as a member, representing such Member's rights, powers and privileges as specified in this Agreement." The term "transfer" is defined to mean "to sell, assign, transfer, give, donate, pledge, deposit, alienate, bequeath, devise or otherwise dispose of or encumber to any Person other than the Company." "Transferee" is defined as "a Person to whom a Transfer is made." Article Ten of the Fairfield LLC operating agreement covers "Transfers of Company Interests." It allows the Swansons to make transfers between themselves without restriction as to time or manner. Thereafter, the agreement provides that if a member wishes to sell all or a portion of his interest in the LLC, he must give notice to all other members. The notice must include the percentage of the member's interest being offered for sale; the price; the name and address of the prospective purchaser and the terms of the sale. The notice serves as an offer to sell the member's interest to the other members upon the same terms and at the same price. One, some, or all of the other members may elect to purchase the offering member's interest. However, if the other members do not elect to purchase all of the offering member's interest, the offering member may consummate the sale to the prospective purchaser identified in the notice. The transferee thereafter shall "agree in writing to be bound by the provisions of this Agreement." In sum, the full ownership interest in the Fairfield, LLC could be transferred by the defendant.24
*17 Therefore, this court concludes that the defendant's membership interest in the Management LLC and the Fairfield, LLC was "property" as defined in Section 52–350(16) and therefore subject to execution pursuant to Section 52–350f, unless such execution is otherwise prohibited by "any other provision of the general statutes or federal law." As noted, the defendant argues that such execution is prohibited by the LLC Act, which, he argues, provides for the exclusive remedy available to judgment creditors of debtor members.
The Exclusivity of the Act with respect to a Creditor's Rights
Pursuant to Conn. Gen.Stat. sec. 34–171, a judgment creditor of an LLC member may seek an order from the court charging "the member's limited liability company interest with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member's limited liability company interest ..." As noted previously, the assignment provisions confer to an assignee only the right to receive profits and distributions which a member may have. Indeed, as also noted previously, the LLC membership interest is defined to be nothing more than that right.
There is no dispute that a charging order obtained pursuant to Section 34–171 does not confer ownership or voting rights. Conn. Gen.Stat. sec. 34–171. Metcoff v. NCT Group, Inc., 2012 WL 6901181 (Conn.Super.) (Taylor, J. December 20, 2012) [55 Conn. L. Rptr.]. The judgment creditor who obtains a charging order does not step into the shoes of the LLC member in the management or affairs of the LLC. See, Rockstone Capital, LLC v. Marketing Horizons, LTD, 2013 WL 4046597 (July 17, 2013, Young, J.) [56 Conn. L. Rptr. 574]. The question posed is whether this is a judgment creditor's only avenue for pursuing the debtor's LLC interests.
The defendant relies upon Commissioner of Environmental Protection v. State Five Industrial Park, Inc., 304 Conn. 128, 159 n. 5 (2012). There, the Commissioner sought to collect a multimillion dollar judgment it had obtained against an individual from a corporate entity through reverse veil piercing and thereafter through traditional veil piercing, against the majority shareholder of the corporation, the debtor's wife. The Supreme Court reversed the trial court finding that even if Connecticut recognized a reverse veil pierce, an issue it did not decide, the facts of the case did not support a finding that a reverse veil pierce was appropriate. In his concurrence, Justice Zarella opined that the court should reach the question of reverse veil piercing and should reject such a theory. He opined that whether to recognize the theory is a question better left to the legislature. In so doing, he stated in a footnote:
There may be one instance in which reverse veil piercing is the only feasible means to adequately satisfy a judgment. When the wrongdoer is also the alter ego of a single member limited liability company, current judgment collection methods may prevent adequate satisfaction of a judgment. Judgment creditors are initially limited to obtaining a charging order against the limited liability company member. See General Statutes sec. 34–171. This however only transfers to the judgment creditor a right to receive distributions; it does not confer membership or voting rights ... Simply put, 'the transferring member may well insist on continuing as the only rightful member to present the creditor from reaching the [limited liability company's] assets. In these cases, the creditor will be effectively precluded from reaching those assets under statutory approaches inherent in ... limited liability company law.
*18 Id., 304 Conn. at 159, n. 5 (Zarella, J. concurring).
However, this language is dicta and the issue presented here was not before the Supreme Court.25 In fact, the issue presented here could not have been presented to the Supreme Court in that case because the judgment debtor in the Five Star case was not a shareholder of the entity from which the Commissioner sought recovery. Further, Five Star was not an LLC and so the provisions of the LLC Act were not in play. As indicated, there is simply no Connecticut appellate authority on this issue, which the court considers a matter of statutory construction and interpretation.
It is well settled that [w]hen construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature ... In other words, [the court seeks] to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the statutory language actually does apply ... In seeking to determine that meaning, General Statutes sec. 1–2z directs [the court] first to consider the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered ... The test to determine ambiguity is whether the statute, when read in context, is susceptible to more than one reasonable interpretation ... When a statute is not plain and unambiguous, we also look for interpretive guidance to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common-law principles governing the same general subject matter ...
(Internal quotation marks omitted.) Lagueux v. Leonardi, 148 Conn.App. 234, 240 (2014).
Additionally, "[t]he General Assembly is always presumed to know all the existing statutes and the effect that its action or non-action will have [on] any one of them." (Emphasis in original; internal quotation marks omitted.) Stuart v. Stuart, 297 Conn. 26, 37, 996 A.2d 259 (2010). Thus, "[t]he rule of construction that words in a statute must be construed according to their plain and ordinary meaning [is informed by] the doctrine of [in pari] materia, under which statutes relating to the same subject matter may be looked to for guidance in reaching an understanding of the meaning of a statutory term ... If a statute is capable of two constructions, one that is rational and effective in accomplishing the evident legislative object, and the other leading to bizarre results destructive of that purpose, the former should prevail." Id. Further, "[c]ourts cannot, by construction, read into statutes provisions which are not clearly stated ... The legislature is quite aware of how to use language when it wants to express its intent to qualify or limit the operation of a statute." State v. Ingram, 43 Conn.App. 801, 825, 687 A.2d 1279 (1996), cert. denied, 240 Conn. 908, 689 A.2d 472 (1997).
*19 "[T]he legislature, in amending or enacting statutes, always [is] presumed to have created a harmonious and consistent body of law ..." (Internal quotation marks omitted.) State v. Courchesne, 296 Conn. 622, 709, 998 A.2d 1 (2010). We also presume that the legislature does "not intend to promulgate statutes ... that lead to absurd consequences or bizarre results." (Internal quotation marks omitted.) Id., at 710, 998 A.2d 1. "Accordingly, [i]n determining the meaning of a statute ... we look not only at the provision at issue, but also to the broader statutory scheme to ensure the coherency of our construction." (Internal quotation marks omitted.) Thomas v. Dept. of Developmental Services, 297 Conn. 391, 404, 999 A.2d 682 (2010). "[C]ommon sense must be used and courts must assume that a reasonable and rational result was intended ... and, further, if there are two [asserted] interpretations of a statute, we will adopt the ... reasonable construction over [the] one that is unreasonable." (Citation omitted; internal quotation marks omitted.) State v. Courchesne, supra, at 710, 998 A.2d 1.
Lagueux v. Leonardi, supra, at 234, 241–42.
Here, the LLC Act is silent as to whether a charging order is the exclusive remedy available to the judgment creditors of an LLC member.26 "Although [statutory] silence does not necessarily equate to ambiguity" Stewart v. Stewart, 297 Conn. 26, 37, 996 A.2d 259 (2010), silence may well render a "statute ambiguous ... [if] there is more than one plausible interpretation of its meaning." (Internal citations and quotations omitted.) Stewart v. Stewart, 297 Conn. 26, 37, 996 A.2d 259 (2010). The court believes that there is more than one plausible meaning to the text on this issue.
The court has reviewed the legislative history of Public Act 93–267 by which the LLC Act first became law. It too is silent as to the scope of the charging order remedy or its exclusivity with respect to judgment creditors.
The court starts by setting forth our Supreme Court's recent observations regarding the genesis and nature of the limited liability company.
"A limited liability company ... has been described as an unincorporated association of investors, called members in [common] parlance, whose personal liability for obligations of the venture are limited to the amount invested ... It is a distinct business entity that adopts and combines features of both partnership and corporate forms ...
From the partnership form, the [limited liability company] borrows characteristics of informality of organization and operation, internal governance by contract, direct participation by members in the company, and no taxation at the entity level ... From the corporate form, the [limited liability company] borrows the characteristic of protection of members from investor-level liability ... Flexible in nature, the [limited liability company] allows direct involvement and control by its members yet also permits a corporate representative form of governance if the entity elects to be governed by managers." Gottsacker v. Monnier, 281 Wis.2d 361, 370–71, 697 N.W.2d 436 (2005).
*20 Wisconsin's limited liability company law is similar in many regards to Connecticut's The key defining feature or purpose of a limited liability company, as distinguished from other corporate forms, is that it is "a business entity providing limited liability, flow-through taxation, and simplicity." (Internal quotation marks omitted.) Gottsacker v. Monnier, supra, 281 Wis.2d at 372, 697 N.W.2d 436; see also Ott v. Monroe, 282 Va. 403, 408, 719 S.E.2d 309 (2011) ("[t]he [limited liability company] is a hybrid entity, borrowing from both the corporate and partnership models to combine a corporation's limited liability for its owners with a partnership's pass-through treatment for income tax purposes" [internal quotation marks omitted] ).
418 Meadow St. Associates, LLC v. Clean Air Partners, LLC, 304 Conn. 820, 835 (2012). Consistent with the court's observations above, and pursuant to the doctrine of in para materia, the court looks to the "Connecticut Uniform Partnership Act. Limited Liability Partnerships" (the UPA), Conn. Gen.Stat. sec. 34–300 et seq.
Initially, the court notes that the definition of a partnership interest is very broad. It includes: "all of a partner's interests in the partnership, including the partner's transferable interest and all management and other rights." Conn. Gen.Stat. sec. 34–301(15). This definition is broader than the "membership interest" defined in the LLC Act, which limits its definition (and therefore its application) to only the right to receive profits or distributions. Under the UPA, the only portion of this broadly defined partnership interest that may be transferred is the partner's "share of the profits and losses of the partnership and the partner's right to receive distributions." Conn. Gen.Stat. sec. 34–347. Thus, the UPA distinguishes between a full partnership interest and the more limited "transferable interest." The LLC Act, by defining the membership interest to be only the right to receive profits and distributions, limits the application of the Act to those rights in the first instance.27
Further, unlike the LLC Act, the UPA provision on transfer, sec. 34–347, makes no allowance for alternative provisions which might be contained in a partnership agreement. Thus, the only transferable interest in a partnership is the partner's "share of the profits and losses of the partnership and the partner's right to receive distributions."
Likewise, the UPA allows a judgment creditor to obtain a charging order against the "transferable interest of the judgment debtor to satisfy the judgment." Conn. Gen.Stat. sec. 34–349. However, unlike a charging order pursued under the LLC Act, a UPA charging order is deemed a "lien on the judgment debtor's transferable interest in the partnership" and the court can order a "foreclosure of the interest" at any time. Conn. Gen.Stat. sec. 34–349(b). In addition, unlike the charging order pursued under the LLC Act, the UPA specifically provides that the charging order "is 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 transferable interest in the partnership." Thus, a charging order under the UPA has more value to the judgment creditor because it can be foreclosed upon and sold. Because the charging order has greater value to a judgment creditor, the exclusivity provision makes sense as a practical matter and a matter of policy.28
*21 However, under the LLC Act, as noted by Justice Zarella, a charging order could be of little to no value if the judgment debtor is the sole member of the LLC or is the member responsible for making distributions. He would simply make no distributions, thereby protecting his assets and frustrating the creditor's recovery. From a policy standpoint then, this would disfavor a determination that LLC charging orders are an exclusive remedy.
Further support for a finding of non-exclusivity of the LLC charging order is found if the court applies the analysis conducted above regarding whether a full limited partnership interest is "property" for purposes of the postjudgment procedures statutes. Under that analysis, a partner's full limited partnership interest is not "property" as defined in Section 52–350(13) because it cannot be transferred by the partner/judgment debtor. See, Conn. Gen.Stat. sec. 34–347. As a result, a debtor's full partnership interest would not be subject to execution. In that regard then, the exclusivity provision in the UPA renders the UPA consistent with the postjudgment procedure statutes.
On the other hand, as noted above, the LLC Act defers, as may be applicable, to the LLC operating agreement on the issue of transferability. Consistent with such a deferral, the Act contains no exclusivity provision with respect to charging orders. In short, the LLC Act gives greater deference to the member's ability to negotiate the terms and conditions of the operating agreement. Therefore, to the extent the operating agreement provides for the transferability of a full membership interest in an LLC, the LLC Act is consistent with the postjudgment procedure statutes but ONLY if the charging order provisions are nonexclusive. If the charging order provisions are an exclusive remedy, the LLC Act becomes inconsistent with the postjudgment procedures statutes in situations such as the one presented here.
Finally, it is apparent from the language of the UPA that the legislature is aware of and fully capable of making remedies exclusive when they so intend. It is not for this court to inject into a statute a provision that is not there and which is otherwise inconsistent with other statutes, in this case, the post-judgment procedures statutes. "It is our duty to interpret statutes as they are written ... Courts cannot, by construction, read into statutes provisions which are not clearly stated ... The legislature is quite aware of how to use language when it wants to express its intent to qualify or limit the operation of a statute." (Citations omitted; internal quotation marks omitted.) State v. Ingram, 43 Conn.App. 801, 825, 687 A.2d 1279 (1996), cert. denied, 240 Conn. 908, 689 A.2d 472 (1997).
The defendant argues that the charging order remedy must be exclusive because to conclude otherwise would be inconsistent with the LLC Act as a whole because it would undermine the protections afforded members under the LLC Act. If a creditor of one member can execute and levy against a full membership interest, the other members would be thrust into doing business with a person they did not choose to do business with and may not even know. The plaintiff counters that these concerns are not implicated in this situation because they are not designed for the protection of the debtor but of the other members. In this case, the plaintiff is the other member and so no such concern exists.
*22 This argument is addressed by the LLC Act itself. In respecting and encouraging the principles of freedom of contract, the LLC Act allows the members themselves to address such a possibility. Here, as found above, the operating agreements clearly contemplate that a third-party stranger may well step into the shoes of an LLC member.29
Although not addressed by our appellate courts, the Supreme Court in Florida answered a question certified to it from the 11th Circuit Court of Appeals, whether the charging order remedy provided for under Florida's Limited Liability Company Act was exclusive. It concluded that it is not.30 Olmstead v. Federal Trade Commission, 44 So.3d 76, 78 (Fla.Sup.Ct.2010). The Court determined that the Act did not preclude a member's judgment creditor from executing on a member's full interest and that a judgment creditor is not limited to his remedies under the charging order provisions. Id. The Olmstead holding allows for "a potentially effective alternative to 'reverse veil piercing" and "deal[s] a blow to those using single member LLC's as asset protection devices." Charging Order Exclusivity: A Pragmatic Approach to Olmstead v. Federal Trade Commission, Callison, J. William, The Business Lawyer; Vol. 66, February 2011.
It should be noted that the Olmstead decision addressed a situation where the judgment debtor was the sole member of the single-member LLC at issue. This fact weighed heavily in the court's analysis and of course is not present here. Further, the Olmstead court made its determination without consideration of the operating agreement at issue but through an analysis of the LLC Act provisions regarding those circumstances when an assignee may become a member. To that extent, the Olmstead decision does not shed light on the situation presented here.31
However, the Olmstead court did review and rely upon the similarities and differences between Florida's partnership statutes and its LLC statute. It concluded that "[t]he Legislature has shown,—in both the partnership statute and the limited partnership statute—that it knows how to make clear that a charging order remedy is an exclusive remedy. The existence of the express exclusive—remedy provisions in the partnership and limited partnership statutes therefore decisively undermines the ... argument that the charging order provision of the LLC Act—which does not contain such an exclusive remedy provision—should be read to displace the remedy available under [the execution statutes]. Id. at 82. This court, as noted above, agrees.
The court grants the relief sought in count six. By way of declaratory judgment, the court finds that the execution, levy and sale of the defendant's full membership interest in the three LLCs was valid under Connecticut law.32 As such, the plaintiff owns 100% of the Management LLC, 100% of the Monroe LLC and 50% of the Fairfield LLC and did so as of December 3, 2013.33
*23 This determination renders moot the plaintiff's first count for injunctive relief and the plaintiff's seventh count for declaratory judgment regarding the plaintiff's continued commitment to build two additional Macdaddy's restaurants. As to the defendant's derivative request for specific performance under the operating agreement, the defendant does not have standing to assert this claim insofar as he is no longer a member of the Management LLC. General Statutes sec. 52–572j(a) provides, in relevant part, "Whenever any corporation or any unincorporated association fails to enforce a right which may properly be asserted by it, a derivative action may be brought by one or more shareholders or members to enforce the right, provided the shareholder or member was a shareholder or member at the time of the transaction of which he complained or his membership thereafter devolved on him by operation of law." On standing to bring derivative claims, General Statutes sec. 33–721 provides: "A shareholder may not commence or maintain a derivative proceeding unless the shareholder: (1) Was a shareholder of the corporation at the time of the act or omission complained of or became a shareholder through transfer by operation of law from one who was a shareholder at that time; and (2) fairly and adequately represents the interests of the corporation in enforcing the right of the corporation."34 Where a plaintiff loses his status as a shareholder during the pendency of litigation, he loses his standing to assert derivative claims. Guarnieri v. Guarnieri, 104 Conn.App. 810, 821, 936 A.2d 254 (2007). Count two of the counterclaim is dismissed.
With respect to an accounting, the defendant offered no testimony or evidence in support of this request. His post-trial brief does not mention an accounting. He does not appear to seek an accounting in his "Proposed Findings and Rulings." The claim is deemed abandoned.
For all of the foregoing reasons, Judgment will enter as follows:
Count one is dismissed as moot.
As to counts two through five, judgment will enter in favor of the plaintiff in his derivative capacity on behalf of the Management LLC in the amount of $76,521.57; on behalf of the Monroe LLC in the amount of $348,352.74, and on behalf of the Fairfield, LLC in the amount of $73,491.15.
As to count two, judgment will enter in favor of the plaintiff in his individual capacity in the amount of $100.00.
As to count five, judgment will enter in favor of the plaintiff in his individual capacity in the amount of $100.00.
Except as to the award of nominal damages on counts two and five in favor of the plaintiff in his individual capacity, postjudgment interest is awarded in the amount of 3.25% per annum. As to count six, the court grants the requested relief for declaratory judgment as set forth above. Count seven is dismissed as moot.
As to the defendant's counterclaims:
As to count one, the request for declaratory judgment is denied as set forth above. Count two is dismissed for lack of standing.
*24 Count three is deemed abandoned.
The parties are directed to contact the court for purposes of scheduling a hearing on the assessment of attorneys fees. A supplemental judgment will issue upon determination of an award of attorneys fees.
Unfortunately, the defendant chose not to brief or argue many of the claims asserted herein. His post-trial brief does not cite to any statutory or common-law authority. He does not reference any of the evidence adduced at trial. The court specifically requested the parties to provide analysis of the evidence as it relates to the legal claims made. He chose not to do so. Instead, he filed a "Proposed Findings and Rulings" in which he reasserts accusations of wrongdoing by the plaintiff, to include the plaintiff's purported scheme to steal the MacDaddy's brand, and the plaintiff's purported breach of the non-compete agreement in the Management LLC operating agreement. These accusations were contained in the lawsuits brought by the defendant against the plaintiff, litigated for over a year, and then withdrawn. They were not tried to the court and as a result, many of the "proposed findings" are wholly unsupported by the evidence adduced at trial. Indeed, counsel for the defendant appears to be offering his own testimony in support of the findings he asks the court to make. The pleading further seeks relief which is beyond the scope of the pleadings in this case, i.e. dissolution of the Fairfield, LLC, reformation of the LLC agreements, other mandatory injunctions or declaratory judgments. In short, the defendant's post-trial submission is inexplicable.
The court does not attempt to include in this decision all of the evidence relied upon in the court's factual findings. The court has considered all of the evidence admitted and the reference to any subset of the evidence presented should not be construed as identifying the exclusive basis for the court's finding. Nor should the court's failure to identify or mention specific evidence give rise to an inference that such evidence has not been considered.
The initial agreement involved a third party, Michael Burdick, who is no longer involved with Macdaddy's and whose interest was eventually re-distributed to the plaintiff and the defendant. Those events are not germane to this court's determination and are therefore not discussed herein.
There was testimony to the effect that the defendant offered this licensing arrangement without the approval or authority of the plaintiff and that in doing so, the defendant undermined the Management LLC's ability to open the second store in Fairfield. The defendant blames the plaintiff for being unreasonable in his refusal of the Swanson's offer in that regard. The court does not resolve this factual dispute.
The Monroe LLC did not have its own operating agreement. Both the plaintiff and the defendant understood that the Management LLC operating agreement applied as well to the Monroe LLC.
The defendant testified that the Jordan's Future, LLC account, named for his daughter, was synonymous with himself. He used the account to meet his personal financial obligations.
The plaintiff included an additional check for $1,089.59 as part of his claims. This check indicates that it was payable to the defendant as a reimbursement of expenses. The plaintiff has failed in his proof that these funds were misappropriated.
These funds were paid into the Management LLC as a licensee fee from Texas.
Distributions were to be made equally to both members. The plaintiff testified that he received a single distribution in the amount of $1,500.00.
These checks total $80,153.00.
The defendant's claim that he had no choice but to take this money makes manifest the extent to which the defendant eschews any personal responsibility for his conduct in dealing so dishonestly and corruptly with his business partners. Of course he had a choice. He could have operated the business as planned and then flowed profits through to the Management LLC for distribution to its members. He may not have liked this choice because it did not meet his apparent need for instant gratification, but it is the choice he bargained for when he negotiated the operating agreement.
Because the defendant determined to ignore the operating agreement, we will never know whether and to what extent the restaurants might have been a viable, sustainable and profitable enterprise for everyone. As it is, the Fairfield Macdaddy's is closed and the Monroe Macdaddy's continues to climb out of the hole the defendant dug for it.
The Marshal rescheduled the auction for whatever date was provided by plaintiff's counsel. Insofar as nobody had appeared at the original auction date in August 2013, he had no else to notify, per the notice of sale.
On this issue, the court did not require post-trial briefing. The court advised the parties that it would accept the previously filed briefs on the motion to dismiss in the case brought by the defendant, Dunn v. Voll, Dkt. No. UWY X10 CV 12 6018557, as the briefs on the declaratory judgment counts. The issue had been fully briefed and argued before the defendant withdrew his claims in that case.
While it is clear that this section sets forth the duty of care imposed upon members and managers of an LLC, it is not as clear that such duty rises to the level of a "fiduciary's" duty as that term is defined at common law. Indeed, whether a member or manager of an LLC owes a traditional "fiduciary duty" to other members or the LLC is a matter most unsettled. Although some Connecticut courts have interpreted General Statutes sec. 34–141 to establish a fiduciary duty owed by members of an LLC, see, Zanker Group, LLC v. Summerville at Litchfield Hills, LLC, Superior Court, judicial district of New Haven, Docket No. CV–04–4015238–S (October 24, 2005, Munro, J.) ("[m]embers and managers of a limited liability company generally owe a fiduciary duty to other members"). and Yavarone v. Jim Moroni's Oil Service, LLC, Superior Court, judicial district of Middlesex, Docket No. CV–03–0102318–S (February 18, 2005, Aurigemma, J.) ("[L]ike a partner in a partnership, a member of a limited liability company has a fiduciary duty to the other members"), there is no appellate authority stating that the good faith provision of section 34–141 amounts to a fiduciary duty as that term is understood at Connecticut common law.
Although the plaintiff might ultimately have received distributions from the Management LLC or the Fairfield LLC, the evidence did not include any accounting or demonstration as to actually lost distributions. The assets, at the time they were misappropriated, were in the hands of, and belonged to, the LLCs. Further, although the plaintiff asserts damage to his credibility, the evidence does not demonstrate any damages stemming therefrom.
Although, as noted above, the court inferred that the cash deposits to these two accounts, both of which were actively used to pay the defendant's bills, were taken from the Monroe LLC, the court does not include any cash deposits made during the time period for which a cash shortage at either the Fairfield or Monroe store was identified so as to avoid the possibility of a duplicative assessment of damages. For the same reason, ATM withdrawals are not awarded.
The court does not award damages for ATM cash withdrawals, misuse of the corporate debit card or checks made payable to Frank Dinardo, Jr., Brian Bifulco and other miscellaneous checks claimed by the plaintiff as unauthorized expenditures. The plaintiff's proof with respect to these items was insufficient.
The court recognizes that distinguishing between work performed pursuing the CUTPA claim versus the other claims, insofar as they all derive from the same allegations of misconduct, will be difficult. Nonetheless, the court is confident that a proportionate approach to assessing a reasonable attorneys fee can be utilized.
To the extent the plaintiff seeks punitive damages under the civil theft statute or common law, the court similarly exercises its discretion to not award such damages.
"Prejudgment interest on money wrongfully withheld from the owner is a proper, albeit discretionary, element of a plaintiff's damages ... General Statutes 52–564 provides that if the defendant stole the plaintiff's property, he 'shall pay the owner treble his damages.' We see no reason to carve out of those damages, as a matter of law, the prejudgment interest element for the benefit of a defendant who has been found liable pursuant to General Statutes 52–564." (Citation omitted.) Lauder v. Peck, 11 Conn.App. 161, 167–68, 526 A.2d 539 (1987).
The LLC membership interests are not exempted by the statutes cited.
Under the LLC Act, Section 34–101(13) defines a "limited liability company membership interest" or "interest" or "interest in the limited liability company" to be "a member's share of the profits and losses of the limited liability company and a member's right to receive distributions of the limited liability company's assets, unless otherwise provided in the operating agreement." (Emphasis added.) Thus, the Act's reference to LLC membership interests is limited by definition to the right to receive income or distributions and does not include full management and ownership rights as are at issue here. By using this narrow definition, the Act becomes silent on the question of an assignment of full ownership interests unless the operating agreement defines a membership interest differently than is provided for under the LLC Act.
The defendant argues that the conditions precedent to any such transfer in both operating agreements and the other restrictions imposed therein render the interest not transferable for purposes of Section 52–350(16). The statute contains no language that would narrow the definition of "transfer" to mean only "transfer without restriction." The court cannot read into a statute a provision it does not contain. State v. Ingram, 43 Conn.App. 801, 825, 687 A.2d 1279 (1996), cert. denied, 240 Conn. 908, 689 A.2d 472 (1997). If the legislature had intended the definition of property to be personal property that the debtor could transfer without restriction as to time, place, manner or means, it certainly could have done so.
The defendant appears to cite Justice Zarella's concurrence as if it is the majority opinion. The court assumes this to be an oversight on the part of the defendant.
Notably, the Uniform Limited Liability Company Act, which the Connecticut legislature has not adopted, contains an "exclusive remedy" provision with respect to charging orders.
Again, this is subject to the operating agreement providing a broader definition.
The exclusivity provision prevents the situation of the non-debtor partners having a stranger thrust upon them in the management of the affairs of the partnership. The provisions are designed to protect the debtor's partners from such an occurrence and to preserve the idea that people pick their own partners in matters of business.
The court notes that the operating agreements do not require consent of the remaining members. Such a provision may well take the ability to transfer sufficiently out of the hands of the member, to render the interest nontransferable. Here, the other members are given the option of stepping into the third-party purchaser's shoes. If they choose not to, the member's ability to transfer is thereafter unencumbered.
Like Connecticut, Florida's Limited Liability Act does not contain an exclusivity provision. The statutes are otherwise nearly identical.
Additionally, the Olmstead court addressed, only in a cursory fashion, the applicability of the execution statutes noting that the parties had not argued that the statutes did not cover LLC membership interests but rather had argued only that the charging order was the exclusive remedy. For reasons different than those found above, the Florida court determined that the LLC interest was subject to the State's execution statutes. Id. at 80.
The procedures followed by the Marshal were consistent with the Notice provided.
The court has found no authority, statutory or otherwise, to support the defendant's claim that the adjournment and rescheduling of the sale in accordance with the original notice was invalid or that the original notice itself was not valid. Had the defendant appeared at the auction date or thereafter made inquiry of the plaintiff's counsel, he would have been provided with the dates to which the auction was adjourned. Such was his right under the Notice, a right he chose not to pursue.
The LLC Act does not have a provision for the bringing or maintaining a derivative action. Although the court located no appellate court authority on the issue, the superior courts have consistently applied the derivative claims statutes to limited liability companies. See, Ward v. Gamble, CV08 5017829, Superior Court, judicial district of Hartford (2009; Prescott, J.) [48 Conn. L. Rptr. 286]; Calpitano v. Rotundo, CV11 6008972, Superior Court, judicial district of New Britain (2011; Swienton, J.) [52 Con. L. Rptr. 464].
by Jay Adkisson
2020.12.17 ... Louisiana Court Of Appeals Rejects Busting Of Single-Member LLC In AOK Property
2020.11.28 ... Uniform Law Commission Creates Drafting Committee To Clean Up And Modernize American LLC Law
2020.11.26 ... Contempt Not Precluded By Charging Order Exclusivity In Gengs
2020.11.23 ... Charging Order Against Interest Of LLC In Bankruptcy Held Not To Violate The Automatic Stay In Nilhan
2020.06.20 ... Payment Of Distributions Directly To Creditor Holding A Charging Order Deemed Appropriate In BMO Case
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
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
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
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
OTHER INFORMATIONAL WEBSITES
by Jay Adkisson
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© 2021 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.