Writ of Execution in Support of Charging Order?

Writ of Execution in Support of Charging Order?

      In a recent decision of the Superior Court of New Jersey that has been approved for publication, a “writ of execution” was issued in support a charging order granted to secure the judgment-creditor’s right to receive significant arrearage on alimony and child support obligations.  Leonard v. Leonard, __ A.3d __, 212 WL 4458390 (N.J. Super. A.D. June 13, 2012, approved for publication Sept. 20, 2012).  What remains unclear is exactly what is gained by adding the writ of execution on top of the charging order lien.

      The facts appear to be relatively straight forward, was as of sometime in 2012 in arrearage in excess of $110,000 for alimony and child support accrued since his 2004 from Cynthia Leonard.  Keith was a 10% owner in Blydan Oak Group, LLC, the owner of commercial real property generating annual rents of $240,000.  Keith represented that the LLC may be planning to sell this real property, resulting in a significant distribution.

      The court, reciting the charging order language of the New Jersey LLC Act, found that it could issue a charging order against Keith’s interest in the LLC, that charging order in favor of Cynthia.  In connection with the issuance of that charging order, the court noted that:

However, Defendant [Cynthia] as the judgment-creditor, only has the rights of an assignee of the limited liability company interest.  The entry of judgment in this matter does not deprive any other member of the LLC be benefit of any exemption laws applicable to his or her limited liability company interest.  Further, the entry of judgment does not provide defendant with the right to interfere with the management of the LLC or for its dissolution of the company or foreclosure upon company interests.

      In addition, Cynthia requested the entry of a “writ of execution” against Leonard’s interest in the LLC arguing that the writ:

… will help guarantee that any LLC distributions due to plaintiff in the normal course of business operations or upon sale of the commercial real estate will go directly toward payment of plaintiff’s support arrears, as the writ will place a priority on payment of this debt ahead of other potential creditors of plaintiff.

      In determining to award the writ of execution, the court wrote:

In this case, the court finds the issuance of a writ of execution upon plaintiff’s minority interest in the LLC to be an appropriate equitable remedy.  The writ is not against the LLC as a whole, but only against plaintiff’s minority interest.

The writ will help assure that plaintiff’s support obligation is not subsequently subordinated to a claim of a subsequent creditor.  Further, the writ will help assure that if the LLC issues financial distributions to plaintiff or sells its major real estate asset, the funds which would otherwise go to plaintiff instead go first towards pay down towards and liquidation of the support arrearages.

      What is confusing about this holding is the absence of a description of either:

·                     How a subsequent creditor of the judgment-debtor could come into rights vis-à-vis the judgment-debtor’s interest in the LLC and the proceeds thereof that would be superior to the rights held by a judgment-creditor pursuant to a charging order; and

·                     In what manner are the rights available under a writ of execution more effective against the LLC than are the rights that exist under a charging order?