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[3] (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



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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:



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





     Distributions/Economic Rights - Creditors rights to distributional interests/economic rights


     Prejudgment Relief - Freezing the interest and distributions pending judgment


     Entities - The types of legal entities amenable to charging orders, or not

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

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

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

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

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


     Abstention - Collateral attacks on charging orders in federal court

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

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

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


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

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

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


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


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


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


     Appeal - Issues relating to the appeal of a charging order


     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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List Of Court Opinion Sections

Additional Court Opinions About charging orders (unsorted)




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


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