Adkisson's CHARGING ORDERS The Creditors' Primary Remedy Against A Debtor's Interest In A Limited Liability Company Or Partnership

Caution state law variances! Check currency of statutes!

 

Charging Order Statutes Of The United States

 

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

Saadi

 

Saadi v. Maroun, 2018 WL 1282325 (M.D.Fla., March 13, 2018).

 

United States District Court, M.D. Florida, Tampa Division.

 

Edward T. SAADI, Plaintiff,

 

v.

 

Pierre A. MAROUN, et al., Defendants.

 

Case No. 8:07-cv-1976-T-24 MAP

 

Signed 03/13/2018

 

Attorneys and Law Firms

 

Edward T. Saadi, Law Office of Edward T. Saadi, Boardman, OH, William J. Brown, Law Office of William J. Brown, Miami, FL, for Plaintiff.

 

Lior Segal, Segal & Schuh Law Group, PL, Mohamad A. Akbik, Clearwater, FL, for Defendants.

 

ORDER

 

SUSAN C. BUCKLEW, United States District Judge

 

*1 This cause comes before the Court on Plaintiff's Renewed Motion for Judicial Sale and Motion for Charging Order. (Doc. No. 280). This motion was referred to Magistrate Judge Pizzo, who held an evidentiary hearing on the matter. Thereafter, the Magistrate Judge issued a Report and Recommendation in which he recommends denying the motion to the extent Plaintiff seeks a judicial sale and granting the motion to the extent that Plaintiff seeks a charging order. (Doc. No. 356). All parties were furnished copies of the Report and Recommendation and were afforded the opportunity to file objections pursuant to 28 U.S.C. sec. 636(b)(1). Objections to the Report and Recommendation were filed by Plaintiff. (Doc. No. 360). As explained below, the Court overrules Plaintiff's objections to the Report and Recommendation.

 

Additionally, in connection with the instant motion, the Magistrate Judge granted Defendant's request to supplement the record with additional evidence. (Doc. No. 340, 354, 357). Plaintiff also objects to this ruling. As explained below, the Court overrules Plaintiff's objections to this ruling.

 

I. Background

 

On October 1, 2009, a jury awarded Plaintiff Edward T. Saadi $90,000 in compensatory and punitive damages for his claims against Defendant Pierre A. Maroun. (Doc. No. 225). Plaintiff has been unable to collect on his judgment and has filed various motions to aid in collection. In the instant motion, Plaintiff seeks a judicial sale of Defendant's interest in Maroun's International, LLC ("MILLC"), or alternatively, a charging order against Defendant's interest in MILLC.1

 

1

 

The MILLC owns a condominium valued in excess of Plaintiff's $90,000 judgment. Defendant lives in the condominium.

 

Florida Statute sec. 605.0503 controls the appropriate resolution of Plaintiff's motion for judicial sale or a charging order against Defendant's interest in MILLC. Section 605.0503(4) provides that if MILLC has only one member (i.e., Defendant), then the remedy of a judicial sale may be available. However, if the MILLC has more than one member, as Defendant contends, then a judicial sale is not an available remedy and Plaintiff can only seek a charging order. Fla. Stat. sec. 605.0503(1) & (6).

 

The Magistrate Judge held an evidentiary hearing to determine whether Defendant was the sole member of MILLC. Thereafter, the Magistrate Judge allowed Defendant to supplement the record with the following: (1) an affidavit and a corrected affidavit of Omar Al-Qawasmi, who allegedly holds a 49% interest in MILLC; (2) an application for use of the fictitious name, "MI7USA," by MILLC dated October 31, 2011; (3) eight letters between various dignitaries in the Jordanian government and MI7USA that purportedly show that MILLC is a viable business entity; (4) a copy of the original mortgage that Omar Al-Qawasmi took out on his house in Jordan dated August 29, 2012; (5) a copy of the wire transfer evidencing that Omar Al-Qawasmi deposited money into MILLC's Regions Bank account on September 6, 2012; (6) a copy of a promissory note from MILLC to Omar Al-Qawasmi that was presented at the hearing but has now been filed with the Pinellas County Clerk of Court; (7) the deed to the condominium owned by MILLC; and (8) sworn affidavits from the other alleged members of MILLC (Ahmad Kameh who allegedly owns 15% and Jean Maroun who allegedly owns 15%). (Doc. No. 340, Ex. A-E; Doc. No. 354, Ex. A-E).

 

*2 In the Report and Recommendation, the Magistrate Judge found that neither Plaintiff's nor Defendant's evidence was persuasive. As a result, the Magistrate Judge concluded that Plaintiff failed to show that Defendant was the sole member of MILLC. Therefore, the Magistrate Judge found that the only remedy available to Plaintiff was a charging order against Defendant's interest in MILLC, and the Magistrate Judge recommended such relief.

 

II. Plaintiff's Objection to Defendant Supplementing the Record

 

The Magistrate Judge granted Defendant's request to supplement the record with additional evidence. (Doc. No. 354, 357). Plaintiff objects to this ruling, arguing that the affidavits submitted consist of hearsay because they are out of court statements and Plaintiff cannot cross-examine the affiants. Plaintiff also argues that the remaining documents are unauthenticated and should not have been considered.

 

A district court shall consider objections to a magistrate judge's order and modify or set aside any portion of the order if it is found to be "clearly erroneous or is contrary to law." Fed. R. Civ. P. 72(a). This standard has been described as follows:

 

Clear error is a highly deferential standard of review. [A] finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. A magistrate judge's order is contrary to law when it fails to apply or misapplies relevant statutes, case law, or rules of procedure.

 

Lanard Toys Limited v. Toys "R" Us-Delaware, Inc., 2017 WL 2992059, at *1 (M.D. Fla. July 14, 2017)(internal citations and quotation marks omitted).

 

Plaintiff has not shown that the Magistrate Judge's ruling was clearly erroneous or contrary to law. Plaintiff did not cite to any case law discussing the proper materials to be considered in an evidentiary hearing conducted pursuant to Florida Statute sec. 605.0503. Furthermore, as explained below, even if the Magistrate Judge had not considered these additional exhibits, his ultimate finding would still be supported—Plaintiff failed to show that Defendant was the sole member of MILLC. Accordingly, the Court overrules Plaintiff's objections to Magistrate Judge's ruling allowing Defendant to supplement the record.

 

III. Plaintiff's Objections to the Report and Recommendation

 

Plaintiff objects to the Magistrate Judge's conclusion that it would be speculation to conclude that Defendant was the sole member of MILLC. However, Plaintiff's evidence for proving that Defendant was the sole member of MILLC was that Defendant never listed any other members of MILLC in any of its filings, that Defendant used MILLC's bank account for personal expenses and titled it similar to his personal account, that the MILLC failed to file tax returns, and that Defendant lived rent-free in the condominium owned by MILLC. The Magistrate Judge properly concluded that this evidence was not sufficient. Specifically, the Magistrate Judge stated the following:

 

Saadi says the LLC is just Maroun, relying primarily upon Florida Department of State records and Maroun's and the LLC's responses to Saadi's interrogatories. For example, the Electronic Articles of Organization for Maroun's International, LLC filed with the Secretary of State on May 6, 2006, and the annual reports for Maroun's International, LLC for the years 2007-2017 mention only Maroun and no one else. See doc. 335, Ex. 3, 4, and 5. From this, he posits the LLC is a single entity structure—and Maroun is the only stakeholder. But that conclusion assumes that Florida's LLC scheme requires an LLC to list all its members in such filings. And that is not the case. In fact, the process for setting up an LLC in Florida can be unsophisticated.... Nothing in the Act required the LLC to identify in its articles of organization all its members of the LLC. Similarly, the LLC's annual reports show Maroun as the "Managing Member/Manager" for the years 2009-2012 and the "Authorized Person" for the years 2013-2017. But as with the articles of organization, the legislative scheme did not require the LLC to list in the annual report all its members. Fla. Stat sec. 6-5.0212. That makes Saadi's conclusion that these filings evince a single-member LLC unconvincing.

 

(Doc. No. 356, p. 3-4).

 

*3 Considering only Plaintiff's evidence and disregarding all of Defendant's evidence, this Court concludes that Plaintiff has not shown that there are no other members of MILLC. Plaintiff's evidence simply showed that Defendant may have been improperly using MILLC's assets as his own, but that alone is not the same as showing that there are no other members of MILLC. Therefore, the Court overrules Plaintiff's objection to the Magistrate Judge's conclusion that Plaintiff has not shown that there are no other members of MILLC, and as such, a judicial sale is not an available remedy.

 

Plaintiff also objects to the fact that the proposed charging order does not explicitly include within its scope disbursements made by MILLC to Defendant for reimbursement of expenses. However, Plaintiff fails to cite any authority to support his objection, and as such, the Court overrules this objection.

 

IV. Conclusion

 

Based on the above, it is ORDERED AND ADJUDGED that:

 

(1) The Court overrules Plaintiff's objections (Doc. No. 360) to Magistrate Judge's ruling (Doc. No. 357) allowing Defendant to supplement the record.

 

(2) The Court overrules Plaintiff's objections (Doc. No. 360) to the Report and Recommendation (Doc. No. 356).

 

(3) The Magistrate Judge's Report and Recommendation (Doc. No. 356) is adopted and incorporated by reference in this Order of the Court.

 

(4) Plaintiff's Renewed Motion for Judicial Sale and Motion for Charging Order (Doc. No. 280) is GRANTED to the extent that the Court will issue a charging order; otherwise, the motion is DENIED.

 

DONE AND ORDERED at Tampa, Florida, this 13th day of March, 2018.

 

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More Articles On Charging Orders click here

 

THE CHARGING ORDER 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

LAW REVIEW ARTICLES

by Jay Adkisson

 

For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487

WEBSITE CONTENTS

 

General Information

 

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

  • Charging Orders (Section 503) contains the general charging order provisions.
  • Transfers of Transferable Interests (Section 502) includes definitions of "transfer" (102(23)), "transferable interests" (102(24)), and "transferees" (102(25)) defines to what the charging order attaches.
  • Definition of Distribution (Section 102(4)) specifies the economic right obtained through a charging order lien and/or foreclosure.

 

The Uniform Acts re Charging Orders and Transferable Interests (without Jay's comments):

 

Effect of Bankruptcy On The Debtor-Member's LLC Interest here

 

 

Collected Court Opinions On Charging Orders here and below

 

Charging Order Example Sample Form

 

TOPICAL RESEARCH

 

 

Appeal - Issues relating to the appeal of a charging order

 

Bankruptcy - Treatment of the debtor/member's interest in bankruptcy

 

Compliance - Issues for the LLC and non-debtor members in complying with a charging order

 

Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute

 

Creditor Rights Restrictions - Limitations on creditors' management and informational rights

 

Distributions - Creditors rights to distributive payments

 

Economic Rights - Limitation of charging order and foreclosure to debtor's economic rights

 

Exclusivity - The charging order as the sole remedy available to creditors and exceptions

 

Exemptions - Available state and federal protections that may apply to charging orders

 

Foreclosure - Liquidation by judicial sale of the debtor's right to distributions

 

Foreign Entities - Charging orders against out-of-state entities

 

Information Rights - Creditors' ability to access information about the LLC

 

Intra-Member Disputes - Where one member obtains a charging order against another

 

Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs

 

Lien - The lien effect of a charging order and priority issues

 

Management & Voting Rights - Rights of creditor after charging order issued

 

Order Form Generally - Most issues to the form of the charging order

 

Order Form Future Interests - How the charging order affects subsequently-acquired interests

 

Prejudgment Relief - Freezing the interest and distributions pending judgment

 

Procedure - The procedure for obtaining a charging order and ancillary provisions

 

Receiver - The role of the receiver in charging order proceedings

 

Repurchase/Redemption Rights - Third-parties' ability to purchase the charged interest

 

Single-Member LLCs - Enforcing the judgment against an LLC with a sole member

 

Taxes - Tax issues relating to charging orders for all involved parties

 

Unknown Interest - Where the debtor's interest, if any, has not been ascertained

 

Voidable Transactions/Fraudulent Transfers - Issues relating to avoidable transfers of interests

 

= = = = =

 

Additional Court Opinions About charging orders (unsorted)

 

OTHER INFORMATIONAL WEBSITES

by Jay Adkisson

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Creditor-Debtor Law - An overview of judgment enforcement tools and their uses by creditors, and possible defenses by debtors. Related topics include:

 

  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business.

 

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© 2020 Jay D. Adkisson. All Rights Reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site is https://chargingorder.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.