Is the Charging Order Receiver Acting as a Receiver for the LLC Itself?

Is the Charging Order Receiver Acting as a Receiver for the LLC Itself?

      In a recent decision of the Bankruptcy Court for Montana, it appears, most curiously, that a receiver appointed to receive distributions diverted under a charging order is being permitted to act as a receiver for the entire LLC and supervise its assets.  In re Jonas, No. 10-60248-11, 2012 WL 2994724 (Bkrtcy. D. Mont. July 23, 2012).

      This decision arises out of what has apparently been a long dispute between Edwin Jonas (“Jonas”) and his former spouse Linda.  Jonas held either a 50% or 100% interest in Blacktail Mountain Ranch Co., LLC.  Linda had been awarded a charging order as well as a receiver in respect thereto against Jonas’ interest in Blacktail.  Much of this decision is focused upon his efforts, ultimately unsuccessful, seeking injunctive relief against the activities of that receiver and the enforcement of the charging order.

      It was stated that the cattle owned by the LLC were running loose.  In determining that injunctive relief was not in order, the Court wrote that:

Linda seeks to have the receiver placed into possession of the LLC in order to protect the LLC assets.  Jonas has admitted in his testimony that he failed to keep control of the LLC’s cattle.  The LLC’s cattle appeared to be in more harm under his control that they would be under a receiver’s control.

      Something strange is here taking place.  A receiver appointed in connection with a charging order is authorized, on the judgment-creditor’s behalf, to receive the distributions that would have otherwise gone to the judgment-debtor.  This is a limited faculty that does not entail control of the LLC itself.  As the holder of a charging order is not authorized thereby to have a voice in the management of affairs of the venture, likewise the charging order receiver has no voice.  Were this clearly a single-member LLC, the Court might have been, at least subconsciously, applying the rule of In re Albright to in effect treat the holder of the charging order against the sole interest in an LLC as creating dominion over the LLC’s assets.  See, e.g., Thomas E. Rutledge & Thomas Earl Geu, The Albright Decision - Why a SMLLC is Not an Appropriate Asset Protection Vehicle, 5 Business Entities 16 (Sept./Oct., 2003.  On the other hand, the Court acknowledged that there is a possibility that the LLC has another member, noting that they would need to protect their interests in that LLC in the Montana state court proceeding wherein the charging order had been first awarded.

Something here is just not right.