The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
2018 - Nevada - Ilani
Ilani v. Abraham, D.Nev. Case No. 2:17-CV-692 (Aug. 21, 2018).
EZRA ILANI, et al., Plaintiffs,
SIMON S. ABRAHAM, et al., Defendants.
Case No. 2:17-cv-00692-APG-PAL.
United States District Court, D. Nevada.
August 21, 2018.
Ezra Ilani & Cathy Ilani, Plaintiffs, represented by David Lyle Edelblute, Kolesar & Leatham, Linda K. Williams, Kolesar & Leatham, Scott D. Fleming, Armstrong Teasdale LLP, William D. Schuller, Kolesar & Leatham & Matthew T. Dushoff, Kolesar & Leatham, Chtd.
Simon S. Abraham & KDA Holdings, LLC, ThirdParty Plaintiffs, represented by Andras F. Babero, The Law Office of Andras F. Babero.
(Mots Debtor Exam — ECF Nos. 63, 64)
(App Charging Order — ECF No. 67)
PEGGY A. LEEN, Magistrate Judge.
Before the court is Plaintiffs' Application for Order Authorizing a Judgment Debtor's Examination of Simon S. Abraham Individually and in His Capacity as Person Most Knowledgeable for KDA Holdings, LLC (ECF No. 63), and Plaintiffs' Application for Order Authorizing a Judgment Debtor's Examination of Person Most Knowledgeable for KDA Holdings, LLC (ECF No. 64). Also before the court is plaintiff's Ex Parte Application for Charging Orders (ECF No 67). These applications are referred to the undersigned pursuant to 28 U.S.C. sec. 636(b)(3) and LR IB 1-7(k) of the Local Rules of Practice.
Rule 69 of the Federal Rules of Civil Procedure provides that a "money judgment is enforced by a writ of execution." Fed. R. Civ. P. 69(a)(1). In aid of the judgment or execution, a judgment creditor may obtain discovery from any person, including the judgment debtor. Fed. R. Civ. P. 69(a)(2). In "proceedings supplementary to and in aid of judgment or execution," the procedure "must accord with the procedure of the state where the court is located." Fed. R. Civ. P. 69(a)(1). Nevada law provides that a judgment creditor is entitled to a court order "requiring the judgment debtor to appear and answer upon oath or affirmation concerning his or her property." NRS 21.270(1). However, "[n]o judgment debtor may be required to appear outside the county in which the judgment debtor resides." NRS 21.270(1). The application does not demonstrate that Simon Abraham resides in Clark County, Nevada.
Second, the proposed order would require Mr. Simon to appear in his individual capacity and as the "person most knowledgeable" of judgment debtor KDA Holdings. The Federal Rules of Civil Procedure do not provide for a deposition of a "person most knowledgeable" although this term is used to refer to a Rule 30(b)(6) deposition of a corporate representative of KDA Holdings. A party seeking to take a Rule30(b)(6) deposition of a corporation or organization may not dictate who appears on behalf of the corporation.
The purpose of a deposition taken pursuant to Rule 30(b)(6) is to streamline the discovery process. See Great American Ins. Co. of New York v. Vegas Const. Co., 251 F.R.D. 536, 538 (D. Nev. 2008) (citing Resolution Trust Corp. v. Southern Union Co., Inc., 985 F.2d 196, 197 (5th Cir. 1993)). Rule 30(b)(6) imposes burdens on both the discovering party and the designating party. The party seeking discovery through a Rule 30(b)(6) deposition is required to describe "with reasonable particularity the matters on which examination is requested." Fed. R. Civ. P. 30(b)(6). The responding party is required to produce one or more witnesses knowledgeable about the subject matter of the noticed topics. Marker v. Union Fidelity Life Ins. Co., 125 F.R.D. 121, 126 (M.D.N.C. 1989). However, the person designated need not have personal knowledge on the subjects on which examination is requested.
The rule "gives the corporation being deposed more control by allowing it to designate and prepare a witness to testify on the corporation's behalf." United States v. Taylor, 166 F.R.D. 356, 360 (M.D.N.C. 1996). It is a discovery device employed by the examining party "to avoid the `bandying' by corporations where individual officers disclaim knowledge of facts clearly known to the corporation." Federal Deposit Ins. Corp. v. Butcher, 116 F.R.D. 196, 199 (E.D. Tenn. 1986); see also Snapp v. United Transportation Union, __ F.3d ___, 2018 WL 2168653, at *11 (9th Cir. May 11, 2018) (quoting 7 James Wm. Moore et al., Moore's Federal Practice sec. 30.25 (3d ed. 2016) ("[A] corporation generally cannot present a theory of the facts that differs from that articulated by the designated Rule 30(b)(6) representative.")).
The testimony of a Rule 30(b)(6) designee "represents the knowledge of the corporation, not the individual deponents." United States v. Taylor, 166 F.R.D. at 361; see also Hyde v. Stanley Tools, 107 F. Supp. 2d 992 (E.D. La. 2000), aff'd, 31 Fed. App'x 151 (5th Cir. 2001) (per curium). A Rule 30(b)(6) designee presents the corporation's position on noticed topics. United States v. Massachusetts Indus. Fin. Agency, 162 F.R.D. 410, 412 (D. Mass. 1995). A corporation has a duty under Rule 30(b)(6) to provide a witness who is knowledgeable in order to provide "binding answers on behalf of the corporation." Starlight Int'l, Inc. v. Herlihy, 186 F.R.D. 627, 638 (D. Kan. 1999). While plaintiffs may request a Rule 30(b)(6) deposition, plaintiffs may not demand that a specific person appear as the corporation's designated witness.
Finally, plaintiffs' application for charging orders (ECF No 67) requests "a charging order against certain business entities in which Judgment Creditors are informed and believe one or more of the Judgment Debtors may hold an interest." The court will not grant a charging order based on "information and belief" that the judgment debtors may have an interest. Moreover, the application makes no attempt to inform the court if the provisions of NRS 78.746(2) apply
For these reasons,
IT IS ORDERED: Plaintiffs' Applications for Judgment Debtor Examinations (ECF Nos. 63, 64), and Application for Charging Orders (ECF No 67) are DENIED without prejudice.
by Jay Adkisson
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More Articles On Charging Orders click here
LAW REVIEW ARTICLES
by Jay Adkisson
For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487
Analysis of Uniform Limited Liability Company Act Sections re Charging Orders
The Uniform Acts re Charging Orders and Transferable Interests (without Jay's comments):
Effect of Bankruptcy On The Debtor-Member's LLC Interest here
Collected Court Opinions On Charging Orders here and below
NATURE OF REMEDY
Distributions/Economic Rights - Creditors rights to distributional interests/economic rights
Prejudgment Relief - Freezing the interest and distributions pending judgment
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
Abstention - Attempts to collaterally attack the charging order in federal court
Bankruptcy - Treatment of the debtor/member's interest in bankruptcy
Intra-Member Disputes - Where one member obtains a charging order against another
Taxes - Tax issues relating to charging orders for all involved parties
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Additional Court Opinions About charging orders (unsorted)
THE CHARGING ORDERS PRACTICE GUIDE
The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more
Available for purchase directly from the ABA at https://goo.gl/faZzY6
Also available from Amazon at https://www.amazon.com/Charging-Orders-Practice-Guide-Understanding/dp/1641052643
OTHER INFORMATIONAL WEBSITES
by Jay Adkisson
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