The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
2015 - Florida - Regions Bank
Regions Bank v. Hyman, 2015 WL 1056302 (M.D.Fla., Mar. 10, 2015).
United States District Court, M.D. Florida, Tampa Division.
REGIONS BANK, etc., Plaintiffs,
Larry S. HYMAN, etc., et al., Defendants.
No. 8:09–CV–1841–T–17MAP. | Signed March 10, 2015.
ELIZABETH A. KOVACHEVICH, District Judge.
*1 This cause is before the Court on the following pending motions:
Motion for Case Management Conference
Motion for Leave to File Supplemental Complaint
Motion for Bond to be Posted by Regions Bank to Secure Interest Dkt. 403 Response
Motion for Charging Order on Partnership Interests
Supplemental Motion for Proceedings Supplementary, Specifically to Foreclose Judicial Liens, Implead Defendants, and for Declaratory Relief
After the Final Judgment in favor of Plaintiff Regions Bank was entered in this case, Plaintiff Regions Bank commenced garnishment proceedings to collect its judgment. Writs of garnishment were served, to which Answers were filed. Defendants asserted claims of exemption and moved to dissolve the writs. The assigned Magistrate Judge conducted evidentiary hearings, and issued a Report and Recommendation. The Court ruled on the Report and Recommendation, denying the Motion to Dissolve Writs, and finding that USAmeribank Account 056 was not an account subject to exemption as held by the judgment debtor and his spouse as tenants by the entirety. The Court found that the Answer to the Writ filed by USAmeribank was deficient, such that the Plaintiff’s duty to provide notice to other account owners was not triggered. Re-service of the writ would require USAmeribank to file its Answer to the writ in compliance with Florida Statutes, and trigger Plaintiff’s duty to provide proper notice to other owners in accordance with the Florida statutes. In the alternative, a waiver of such service could be filed. (Dkt.464). The Court has further determined that Accounts 3695 and 0129 are not subject to exemption as held by the judgment debtor and his spouse as tenants by the entirety. Before entering a final judgment in garnishment as to each account, the Court must determine the ownership of the funds in each account. (Dkt.467).
The Court notes that Plaintiff Regions Bank obtained discovery as to the accounts at issue before the evidentiary hearing in August, 2013 and that Plaintiff and Defendants submitted evidence for the Court’s consideration in connection with the evidentiary hearing of August 20, 2013. The assigned Magistrate Judge directed supplemental briefing before the evidentiary hearing. (Dkts.357, 358).
Dkt. 381 Motion for Case Management Conference
After consideration, the Court denies the Motion for Case Management Conference as moot.
Dkt. 385 Motion for Leave to File Supplemental Complaint
Plaintiff Regions Bank moves for leave to file a Supplemental Complaint addressing claims and events arising after the filing of the original Complaint. A Report and Recommendation was entered on October 18, 2013. The proposed Supplemental Complaint is based on a communication from counsel for Defendants after the Report and Recommendation was issued, but before the time to file objections expired, as to the filing of a Complaint against Plaintiff Regions by Defendant Kearney and Mrs. Kearney for malicious prosecution and abuse of process relating the writ issued to U.S. Ameribank, and to possible claims by Defendants Harris and Seeger for wrongful garnishment.
*2 The Court has entered its Order on the Report and Recommendation, in which the Court rejected the legal findings of the Report and Recommendation. (Dkt.464). The Court has denied the Motion to Dissolve writs of garnishment on accounts at USAmeribank, and Platinum Bank, and denied Defendant Kearney’s Claim for Exemption. The Court agrees that a supplemental complaint is the appropriate vehicle to seek declaratory relief as to the actions of Plaintiff Regions in enforcing its judgment; however, at this point the Court’s ruling can be challenged by motion and appeal and a separate declaratory judgment action is not necessary.
After consideration, the Court denies Plaintiff Regions’ Motion for Leave to File Supplemental Complaint.
Dkt. 399 Motion for Order Requiring Posting of Bond by Regions Bank
Defendant Bing Kearney, Jr. moves the Court for an Order Compelling Plaintiff Regions Bank to post a cash bond reflecting the accrual of interest that could have been earned since the respective writs of garnishment were served on accounts at USAmeribank and Platinum Bank up to and including January 1, 2015 at the post-judgment interest rate of 4.75% per year.
Plaintiff Regions Bank argues that the only authority for posting bond in garnishment Sec. 77.031, Fla. Stat., requiring the filing of a bond when a writ of garnishment is sought before judgment. Since the writs of garnishment were sought post-judgment, that section of the garnishment statute does not apply. To the extent that Defendant seeks to re-argue his contention that the funds are held in tenants by the entireties accounts, Plaintiff Regions moves to strike the allegations.
After consideration, the Court denies Defendant’s Motion for an Order Requiring Bond.
Dkt. 424 Motion for Charging Order on Partnership Interests
No opposition to the Motion for Charging Order was filed.
Plaintiff Regions Bank seeks a charging order against the interests of Defendant Bing Charles W. Kearney, Jr. in certain partnerships:
Plaintiff Regions Bank believes that Judgment Debtor is a partner with an interest in a partnership composed of Judgment Debtor, BK Trust Management I, LLC and Judgment Debtor jointly with his spouse, Tonya Kearney, known as BK Family Investment Partnership I, Ltd., shown by Judgment Debtor’s 2013 Tax Return.
Plaintiff Regions Bank believes that Judgment Debtor is a partner with an interest in a partnership composed of Judgment Debtor and BK Trust Management II, LLC, known as BK Family Investment Partnership II, Ltd., based on tax records.
Plaintiff Regions Bank believes the Judgment Debtor is a partner with an interest n a partnership composed of the Judgment Debtor and BCWKJR, Inc., known as the CWK Family Partnership, Ltd., based on tax records.
Plaintiff Regions Bank requests an Order granting this Motion, enter a charging order substantially similar as that attached as Exh. A against the interest of the Judgment Debtor in BK Family Partnership I, BK Family Partnership II, and CWK Family Partnership, Ltd.
*3 After consideration, the Court grants Plaintiff’s Motion for Charging Order. A separate Charging Order will be entered.
Dkt. 438 Supplemental Motion for Proceedings Supplementary, Specifically, to Foreclose Judicial Liens, Implead Defendants and for Declaratory Relief
No opposition to Plaintiff’s Supplemental Motion was filed.
Plaintiff Regions Bank alleges that Defendant Bing Kearney owned fractional interests in three properties in Hillsborough County, Florida:
863 Seddon Cove Way, Tampa, FL, 33602
50% interest with son Charles W. Kearney, III
1173 Shipwatch Circle, Tampa, FL, 33602
50% interest with Clayton W. Kearney
410 South Armenia Ave., Unit 926, Tampa, FL, 33609
50% interest with Carlie Kay Kearney
Plaintiff Regions Bank argues that purported judgment creditor Pine Cone Management, LLC initiated foreclosure actions in Hillsborough County Circuit Court as to the above properties, based on a stipulated Final Judgment Against Bing Charles W. Kearney, Jr. In Case No. 10–14939, adjudicating an obligation of Judgment Debtor to Pine Cone Management, LLC as purchaser of an outstanding claim of Caterpillar Financial Services Corp. In the amount of $1,957,304.27. Plaintiff Regions alleges that Pine Cone Management, LLC is owned and controlled by an insider of the Judgment Debtor. Plaintiff Regions argues that the Pine Cone Foreclosure Judgments did not foreclose the lien of the Bank, as the Bank was not properly served in any of the Pine Cone Foreclosures.
Plaintiff Regions Bank further alleges that Pine Cone Management, LLC has used the Pine Cone Judgments to block judgment collection efforts of the Bank as a legitimate creditor as it relates to Plaintiff’s attempt to obtain a charging lien on the assets of three partnerships in which Judgment Debtor Kearney holds an individual interest: BK Family Partnership I, Ltd, BK Family Partnership II, Ltd., and CWK Family Partnership. In the Notice of State Court Entry of Charging Order (Dkt.427), the Charging Order states it was stipulated to by Judgment Debtor. Plaintiff Regions argues that the activities of the Judgment Debtor upon receipt of Plaintiff’s proposed Motion were a blatant attempt to allow a related insider creditor a first position on assets that might otherwise fully satisfy the Bank’s Judgment.
Plaintiff Regions has identified the following transfers:
May 4, 2009
Transfer of 50% interest in 809 Seddon Cove Dr., Tampa, FL to BK Family Partnership I
Nov. 25, 2009
Sale of 809 Seddon Cove Property for $285,000 to Lance and Michele Ponton
May 4, 2009
Transfer of 50% interest in 823 Seddon Cove Dr., Tampa, FL to BK Family Partnership I
September 3, 2013
Sale of 823 Seddon Cove Dr. for $562,000 to Rodney and Theresa Dade
May 4, 2009
Transfer of 50% interest in 807 Seddon Cove Dr., Tampa FL to BK Family Partnership I.
February 10, 2010
Sale of 807 Seddon Cove Dr., Tampa, FL, for $335,000 to Patricia Schroeder
May 5, 2009
Transfer of 33 1/3% interest in 9631 Wes Kearney Way to BK Family Partnership I. Plaintiff believes that 9631 Wes Kearney Way is currently owned by BK Family Partnership I, KNJI, LLC and Barry Kearney
May 5, 2009
Transfer of 25% interest in 7004 E. Adamo Dr., Tampa, FL to BK Family Partnership I. Plaintiff believes that 7004 E. Adamo Dr. Is currently owned by BK Family Partnership I, KNJI, LLC, CWK Family Partnership and Barry Kearney.
May 12, 2009
Transfer of 33 1/3% interest in 2005 Camp Florida Dr., Brandon, FL
August 28, 2009
BK Family Investment Partnership executed Quit Claim Deed of 2005 Camp property to Stephen D. and Shirley Hammond
May 12, 2009
Transfer of 50% interest to 9625 Wes Kearney Way, Riverview FL to BK Family Partnership I. Plaintiff believes that 9625 Wes Kearney Way is currently owned by BK Family Partnership I and Bryan Kearney.
May 12, 2009
Transfer of 33 1/3 % interest in Pasco Ranch Property to BK Family Partnership I.
September 30, 2009
Sale of Pasco Ranch Property to D & D Ranch of Pasco, LLC for $1,350,000.
March 5, 2009
Transfer of 100% interest in 1340 Gulf Blvd., # 2G, Clearwater, FL to BK Family Partnership I. Plaintiff believes that BK Family Partnership I currently owns 100% of 1340 Gulf Blvd., # 2G.
August 26, 2009
Transfer of 50% interest in Apartment E–14 of Bayshore Trace Condominium to BK Family Partnership I. Plaintiff believes that BK Family Partnership I and Charles W. Kearney, III currently own Apt. E–14, Bayshore Trace.
*4 Plaintiff Regions Bank states that Judgment Debtor Kearney was served with initial process on October 12, 2009. The transfers of the Judgment Debtor’s interests in the transferred properties to BK Family Partnership I fall within one year of the service of the Complaint on the Judgment Debtor. Therefore the burden is on the Judgment Debtor to show that such transfers were not made with the intent to hinder, delay or defraud creditors, pursuant to Sec. 56.29(5)(6), Fla. Stat.
Plaintiff Regions Bank seeks to implead Pine Cone Management, LLC, Clayton Kearney, Charles W. Kearney, III, and Carlie Kearney to proceed with actions as to the Pine Cone Foreclosures, including declaratory relief that Pine Cone is an insider and therefor its judgment position is invalid, and the Pine Cone Foreclosures do not foreclose the Bank’s interest such that it may proceed with judicial lien foreclosures in order to reach the Judgment Debtor’s interest in the properties. Plaintiff Regions Bank asserts that Plaintiff’s discovery in aid of execution does not include information on the Pine Cone Foreclosures or the Transferred Properties.
Upon the granting of this Motion, Plaintiff Regions Bank states it intends to file separate actions against the Judgment Debtor Bing Kearney, Jr., BK Family Partnership and Pine Cone Management, LLC, Clayton Kearney, Charles W. Kearney, III, and Carlie Kearney. Plaintiff Regions seeks an Order granting this Motion, impleading BK Family Partnership I, Pine Cone Management, LLC, Clayton Kearney, Charles W. Kearney, III and Carlie Kearney, and directing Plaintiff to file the appropriate proceedings supplementary within thirty days.
After consideration, the Court grants Plaintiff’s Supplemental Motion for Proceedings Supplementary. BK Family Partnership I, Pine Cone Management, LLC, Clayton Kearney, Charles W. Kearney, III and Carlie Kearney are impleaded as parties. Plaintiff shall file proceedings supplementary within thirty days.
DONE and ORDERED.
by Jay Adkisson
2020.06.20 ... Payment Of Distributions Directly To Creditor Holding A Charging Order Deemed Appropriate In BMO Case
2020.04.30 ... Charging Order Denied For Lack Of Proof Of The Debtor's Interest In Dhillon
2020.02.29 ... Florida Charging Order Requires Distributions To Be Re-Directed To The Creditor In Kostoglou
More Articles On Charging Orders click here
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
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