Ohio Court of Appeals Disposes of Challenge to Charging Order

Ohio Court of Appeals Disposes of Challenge to Charging Order

      The Ohio Court of Appeals had no hesitancy in upholding the dismissal of challenges to a charging order issued with respect to a professional practice.  FirstMerit Bank, N.A. v. Xyran, Ltd., 2013 WL 1183340 (Ohio App. 8 Dist. March 21, 2013).

      Xyran defaulted on a loan that was guaranteed by Bhupinder, a neurosurgeon.  As part of its efforts to collect, the bank applied for and was granted a charging order with respect to Bhupinder’s interest in a professional practice, The Center of Neurosurgery, LLC (“The Center”).  The charging order was challenged on the basis that it permitted FirstMerit to engage in the unauthorized practice of medicine and violated the provision of The Center’s operating agreement that permitted assignment of an interest in The Center only to licensed physicians.

      The Court reviewed the Ohio LLC Act.  Thereunder, a charging order may be issued against a “membership interest,” and a “membership interest” is defined as a member’s economic rights in the LLC; a membership interest embodies no right to participate in the LLC’s management.  From there the Court determined:

Because the charging order merely allows FirstMerit to garnish Bhupinder’s financial interest in The Center, it does not allow the unauthorized practice of medicine or violate the terms of the operating agreement.

      The Court of Appeals as well upheld the determination that no evidentiary hearing was needed before the charging order was entered.