Thursday, May 7, 2015

Priority of Judgments and Rights to a Charging Order

Priority of Judgments and Rights to a Charging Order


In a recent decision from Florida, there was addressed the question of which judgment creditor should have the prior rights with respect to the issuance of the charging order. Essentially, the court found that the creditor who first moves for a charging order is entitled thereto. Regions Bank v Hyman, No. 08:9-CV-1841-T-17MAP (M.D. Fla. April 27, 2015).

Regions bank held an unsatisfied judgment against Hyman in the amount of $3,407,620.35, upon which interest accrued at 4.75% per annum, which judgment was entered on September 28, 2012.  Travelers Casualty Insurance also held a judgment against Hyman in the amount of $3.75 million, which judgment was entered on October 28, 2011. While, based upon the recitation of the facts in the decision, Regions Bank had been quite aggressive in pursuing Hyman, Travelers had been far less diligent.  Regions Bank had already been awarded charging orders against Hyman’s interest in several partnerships; when Regions now sought charging orders against certain LLCs in which Hyman had an interest, Travelers objected, asserting that is as its judgment was first in time, it should have the first right to proceed to realize pursuant to a charging order.

While Florida law allows for the filing of a judgment lien with the Secretary of State, which mechanism had been employed by Travelers, the Court found that filing did not apply to interest in either a partnership or LLC, claims thereon on being governed by the charging order statute. 

Although not quite as clear as might be hoped, the decision can ultimately be interpreted as following the rule that the relative priority of charging orders follows the order in which they are granted as contrasted with being based upon the precedence  of the underlying judgments.  For that reason, a judgment creditor is best advised to promptly seek a charging order in order to collect on any judgment. In the event that a subsequent judgment is entered against that same judgment debtor, and that judgment creditor moves probably for a charging order, the stream of income thereby generated will go to satisfy what would otherwise be the junior judgment.

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