BMO Harris Bank N.A. v. Smith, 2020 WL 2914838 (June 3, 2020).
United States District Court, D. Kansas.
BMO HARRIS BANK N.A., Plaintiff,
Robert SMITH, Defendant.
Case No. 16-2815-DDC-TJJ
Attorneys and Law Firms
Christopher C. Miles, Mark T. Benedict, Husch Blackwell LLP, Kansas City, MO, for Plaintiff.
Keith J. Shuttleworth, Shuttleworth Law Firm LLC, Overland Park, KS, for Defendant.
CHARGING ORDER AND ACCOMPANYING MEMORANDUM OPINION
Daniel D. Crabtree, United States District Judge
*1 Plaintiff and judgment creditor BMO Harris Bank N.A. has secured a judgment in its favor and against defendant and judgment debtor Robert Smith in the amount of $1,431,356.69, plus post-judgment interest at the rate of 2.58% per annum. Doc. 52. Defendant admits that he has paid “[n]o amounts” to satisfy the judgment. Doc. 58 at 1. Plaintiff alleges that defendant holds a membership interest in R & M Land, LLC. Doc. 56 at 1 (¶ 3); Doc. 61 at 1 (¶ 2). Defendant and R & M Land, LLC concede that defendant is a member of R & M Land, LLC. Doc. 58 at 1; Doc. 60 at 1 (¶ 3).
Invoking Kan. Stat. Ann. § 17-76,113 and Fed. R. Civ. P. 69, plaintiff has filed an Application for Charging Order (Doc. 56). Defendant has filed his Opposition (Doc. 58) and “interested party” R & M Land, LLC has filed an Opposition (Doc. 60). Plaintiff has filed a Reply (Doc. 61).
The court first considers whether it has jurisdiction to issue the requested charging order. Concluding that it has jurisdiction to enter such an order, it considers the method of payment of any distributions from R & M Land, LLC to plaintiff.
Fed. R. Civ. P. 69(a)(1) authorizes plaintiff’s post-judgment request for an LLC charging order. It provides that “[t]he procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.” Because no federal statute applies, the court turns to the Kansas statute governing the rights of judgment creditors to proceed against a judgment debtor’s interest in a limited liability company to satisfy the judgment. That Kansas statute—Kan. Stat. Ann. § 17-76,113(a)—provides, “[o]n application by a judgment creditor of a member ... a court having jurisdiction may charge the limited liability company interest of the judgment debtor to satisfy the judgment.” Kansas law defines a “limited liability company interest” as “a member’s share of the profits and losses of a limited liability company and a member’s right to receive distributions of the limited liability company’s assets.” Kan. Stat. Ann. § 17-7663(g). And it defines a “limited liability company” as a “limited liability company formed under the laws of the state of Kansas and having one or more members.” Kan. Stat. Ann. § 17-7663(g). Applying these definitions to Kan. Stat. Ann. § 17-76,113, the statute authorizes the court to charge an LLC member’s share of the profits and losses and right to receive distributions of assets from the LLC if it was formed under Kansas law. Defendant acknowledges that R & M Land, LLC is a Kansas limited liability company, and that he is a member of it. Doc. 58 at 1. The court thus concludes it has jurisdiction to enter the requested Charging Order.
II. Method of Payment
The parties dispute the method of payment of any distributions from R & M Land, LLC. Doc. 58 at 3–4; Doc. 61 at 2 (¶ 5). Plaintiff asks the court to order that any distributions due to defendant because of his membership interest in R & M Land, LLC should “be placed into the court registry” for distribution to plaintiff. Doc. 61 at 2; Doc. 61-1 at 1 (Proposed Order). Defendant objects to this proposal for two reasons: (1) he contends that depositing payments from R & M Land, LLC with the court is inconsistent with Fed. R. Civ. P. 67 (citing United States v. McDonald Grain & Seed Co., 135 F. Supp. 854, 860 (D.N.D. 1955)), and (2) he contends that “there is no reason to pay the money into the Court Clerk’s office, have it sit there for at least two weeks or more, and continue accruing interest on the judgment against [defendant], until the Court Clerk pays it out to Plaintiff.” Doc. 58 at 3. Plaintiff disagrees. It responds that Rule 67 “provides broad authority for funds to be deposited into the Court registry.” Doc. 61 at 2. And, plaintiff contends, defendant’s “sudden concerns about accruing interest are surprising, given that he has not paid a cent toward satisfaction of the Judgment.” Id.
*2 The court agrees with defendant. Plaintiff hasn’t invoked any authority for the court to order R & M Land, LLC to pay distributions due to defendant into the court’s registry for disbursement to plaintiff. Fed. R. Civ. P. 67(a) provides that “[i]f any part of the relief sought is a money judgment or the disposition of a sum of money ... a party—on notice to every other party and by leave of court—may deposit with the court all or part of the money....” “Rule 67 is a procedural device intended to provide a place for safekeeping for disputed funds pending resolution of a legal dispute....” Brady v. Basic Research, L.L.C., 312 F.R.D. 304, 306 (E.D.N.Y. 2016) (citation, internal quotation marks, and alteration omitted). In short, Rule 67 does not contemplate the court ordering a party to pay an undisputed sum of money into the court’s registry to satisfy a judgment.
But Kan. Stat. Ann. § 17-76,113—applicable through Fed. R. Civ. P. 69(a)(1)—permits the court to “charge the limited liability company interest of the judgment debtor to satisfy the judgment.” In two Charging Orders issued in this district, the court has ordered the limited liability company to pay distributions due to the judgment debtor directly to the judgment creditor. See Charging Order Pursuant to K.S.A. § 17-76,113, Vision Mktg. Res., Inc. v. McMillin Grp., LLC, No. 10-2252-KHV (D. Kan. July 15, 2015), ECF No. 68 at 2 (ordering LLCs to pay any money or property due to judgment debtors “directly to [judgment creditor] until the amount remaining due on the Judgment, plus all accrued interest and costs thereon, is paid in full.”); Charging Order Against Kansas Limited Liability Company Interest, Meyer v. Christie, No. 07-2230-CM (D. Kan. Oct. 13, 2011), ECF No. 437 at 2 (ordering judgment debtors to provide judgment creditors with “their written acknowledgment, under penalty of perjury, that all those distributions will be paid directly to Judgment Creditors, c/o their counsel ..., rather than to Judgment Debtors, until the judgment plus interest is satisfied in full....”). Consistent with these Orders, the court orders R & M Land, LLC to pay any distributions due to defendant and judgment debtor Robert Smith directly to plaintiff and judgment creditor BMO Harris Bank N.A. until the judgment and all accrued interest is paid in full.1
IT IS THEREFORE ORDERED BY THE COURT THAT under K.S.A. § 17-76,113, as made applicable by Fed. R. Civ. P. 69(a)(1), the membership interests of Robert Smith, defendant and judgment debtor, in R & M Land, LLC are charged with payment of the unsatisfied amount of the judgment, including interest and costs.
IT IS FURTHER ORDERED THAT any distributions to Robert Smith by reason of his membership interest in R & M Land, LLC must be paid directly to plaintiff and judgment creditor BMO Harris Bank N.A., and interest shall continue to accrue until the judgment is satisfied.
IT IS SO ORDERED.
1. Plaintiff’s Proposed Order directs the United States Marshals Service to serve this Charging Order on R & M Land, LLC by leaving a copy with its registered agent, Robert E. Smith, at 5718 Oakview Street, Shawnee, Kansas 66216. Doc. 61-1 at 2. Again, plaintiff hasn’t invoked any authority justifying this request. Plaintiff does not proceed in forma pauperis nor has it provided a reason that service by the United States Marshal Service is warranted or necessary. The court thus declines to order the United States Marshals Service to serve a copy of this Charging Order on the registered agent for R & M Land, LLC. Plaintiff retains responsibility for effecting service of this Order.
by Jay Adkisson
2020.04.30 ... Charging Order Denied For Lack Of Proof Of The Debtor's Interest In Dhillon
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2019.06.24 ... Charging Order Protection Backfires At Judicial Sale In Preservation Holdings
2019.04.27 ... Iowa Supreme Court Serves Up A Shoddy Charging Order Opinion In Retterath
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2019.02.18 ... Florida Order Awarding LLC Interest To Creditor Reversed In Pansky
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
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
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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
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