Wednesday, January 13, 2016
The Last of the 2015 Charging Order Decisions
December 31, 2015 saw the issuance of two decisions involving charging orders. Unfortunately, neither is very illuminating.
In the first case, being a claim for legal malpractice, the plaintiff asserted, inter alia, that charging order protections were better than the bankruptcy filing that did take place. Dotlick v. Tucker Hester, LLC, No. 29A02-1503-CC-125, 2015 WL 9587528 (Ind. Ct. App. Dec. 31, 2015). The suit failed in that the malpractice claim was an asset of the bankruptcy estate.
The second decision, Steinberg v. Rand, No. 1807, 2015 WL 9590762 (Ct. Spec. App. Md. Dec. 31, 2015), involved the appropriate scope of a charging order and an exemption from its reach. It is in that respect, from the perspective of charging orders, that this decision could have been more interesting of the two decisions.
Rand, an attorney, retained Steinberg to represent Rand in an employment dispute. The relationship soured and Steinberg was terminated as counsel. Steinberg sued Rand for the unpaid fee, and Rand countersued for legal malpractice. Rand then filed for personal bankruptcy, and the bankruptcy court issued a non-dischargeable $40,000 judgment against Rand in favor of Steinberg.
Steinberg then sought a charging order against Rand’s SMLLC, McKernonRand, LLC, through which Rand practiced law. The requested charging order contained the following language:
ORDERED, that McKernonRand, LLC shall sequester and pay over to the Judgment Creditor all distributions of any kind whatsoever otherwise payable to the Judgment Debtor, Charles S. Rand, and to account for said payments to this Court and to the Judgment Creditor, until such time as the judgment, plus interest and costs, entered against the Judgment Debtor has been paid in full and satisfied; and it is further
ORDERED, that Defendant is enjoined from transferring, conveying, assigning, or otherwise disposing of any property owned by McKernonRand, LLC or Defendant’s interest in McKernonRand, LLC, subject to further order of this Court.
Rand objected that (a) he had not been served a copy of the requested charging order (b) the proposed order is too broad and could preclude payout of operating expenses. Rand also objected that the order needed to allow for a “salary” to himself. Ultimately the court entered a “charging order” that allowed $2000 per month to Rand, but did not actually require the LLC to pay any amounts to Steinberg. Steinberg then appealed.
The interesting questions are (i) is a charging order that does not direct the diversion to the judgment-creditor of payouts that would otherwise have gone to the judgment-debtor sufficient and (ii) is a “salary” set-aside in an SMLLC permissible?
Sadly, neither question was answered. Rather, the Court of Appeals held that the entered order is interlocutory and not subject to appeal.
Ultimately, December 31, 2015 was a bust for new guidance on charging orders.