Disagreement over the Requirements for Issuing a Charging Order

Disagreement over the Requirements for
Issuing a Charging Order

      Within less than four months courts in Missouri and Georgia have disagreed over the showing that needs to be made by a judgment-creditor requesting a charging order.  In the Missouri case, Regions Bank v. Alverne Associates, LLC, No. ED 101121, 2014 WL 6913237 (Mo. Ct. App. Dec. 9, 2014), a judgment-creditor was denied a charging order when there was not tendered proof of the amount outstanding on the judgment.  In the Georgia decision, Gaslowitz v. Stablis Fund I, LP, Nos. A14A2029, A15A0433, 2015 WL 1059575 (Ga. Ct. App. March 12, 2015), a charging order was issued on the face of the judgment-debtor’s objection that the amount of the outstanding judgment had not been shown and was recognized as being in dispute.

      Berger guaranteed two loans from Regions Bank to Alverne Associates, LLC; the loans were also secured by two pieces of real estate.  The loans went into default, and Regions Bank received a judgment for $1,775,618.67 plus costs; the judgment provided for post-judgment interest until collected.  The assignee of the judgment, RBRE, subsequently sought a charging order against “any [LLC] in which Samuel B. Berger has an interest” and attached to the motion exhibits setting forth “the alleged outstanding balances on each promissory note and calculations of compound interest ‘at 9% per annum.’”  At some point the LLCs in which Berger had an interest were identified as they were named in the charging order that was issued by the trial court.  Before and after the entry of the charging order Berger objected on the basis that the principal and interest were improperly calculated; he would appeal on the same basis.

      On appeal, as previously noted, the charging order was set aside.  Looking to Missouri law outside the charging order statute, a motion “is not self-proving,” “the movant has the burden of proving the allegations made therein” and while “a movant may submit proof of facts on the form of affidavits, depositions or oral testimony,” exhibits attached to motions are not evidence or self-proving.  2014 WL 6913237, *4.  Based upon the absence of evidence of the total amount of the outstanding judgment, the charging order was lifted.

      Perhaps cribbing from Berger’s playbook, Gaslowitz argued that the charging order issued against his interest in G & A, LLC should be set aside as there was a dispute as to the remaining balance owed on the judgment to which Gaslowitz was subject.  The trial court held that the uncertainty as to the amount owed is not a bar to the issuance of a charging order.  On appeal Gaslowitz argued:

That it cannot be determined from the [charging] order what distributions are due Stablis, nor when such distributions can again be paid to Gaslowitz, rendering [the charging order] impermissibly vague and indefinite.  2015 WL 1059575, *2. 

      Rejecting this argument, the Georgia Court of Appeals wrote:

[T]he charging order gives the judgment creditor the right to receive distributions to which the member would otherwise be entitled on account of the member’s limited liability company interest until the judgment with interest is satisfied. But the amount of distributions subject to the charging order will not necessarily correspond to the specific amount of the judgment that remains unpaid on the date that the charging order is issued. The unsatisfied amount of the judgment could be reduced or even eliminated by funds received from other sources, especially where, as here, there are co-debtors on the judgment. Thus, we conclude, OCGA § 14–11–504(a) does not reasonably require that, as a prerequisite to the issuance of a charging order, the judgment creditor establish the specific amount of the judgment that remains unpaid on the date the charging order is issued.  It follows that the trial court did not err in granting Stablis’s motion for summary judgment.

The appellants also contend that, because the order issued by the trial court gives no direction to the parties as to the extent of funds to be distributed thereunder, the order is unenforceably vague. A charging order, however, cannot extend past the satisfaction of the underlying judgment because, by definition, the charge can only be against the “unsatisfied amount” of the judgment. OCGA § 14–11–504(a). Accordingly, the charging order at issue here does not continue indefinitely or contemplate an unlimited charge on Gaslowitz’s membership interest, but would remain until the $1,621,132.78 judgment, with interest, is satisfied. Nothing would preclude Gaslowitz from moving to extinguish the charge on the grounds that the judgment has been satisfied, and the trial court’s order does not allow Stablis to collect or retain payments beyond those necessary to satisfy its judgment.  2015 WL 1059575, *2-3 (footnote omitted)

      Still, Gaslowitz was successful in having set aside an order for the accounting of the assets of G & A, LLC.  Id. at *4.

      The analysis employed in the Regions Bank decision may be legitimate under Missouri law, but the paradigm set forth in the Gaslowitz decision, from the perspective of charging order law, is better.  It recognizes that the amount of the judgment is a matter determined by the trial court issuing the judgment (which may not be the court issuing the charging order) and that its satisfaction may come from any number of sources including distributions from the charging order before that court.  Over-payment is not a concern as the judgment-debtor has every incentive to track payouts made in satisfaction thereof and to file (or to prompt the judgment-creditor to file) a notice of satisfaction of judgment.