Thursday, April 28, 2016

Alabama Court Enters Charging Order With Respect to Interest in Alabama LLCs, But Not With Respect to Foreign LLCs

Alabama Court Enters Charging Order With Respect to Interest in Alabama LLCs, But Not With Respect to Foreign LLCs
      In a decision rendered just this week by a United States District Court sitting in Alabama, it granted a motion to issue charging orders against the interest of a judgment-debtor in two Alabama LLCs. At the same time, the court would not, with respect to that same judgment-debtor's interest in LLCs organized in Wyoming and Nevada, issue a charging order. Arayos, LLC v. Ellis, Misc. Action 15-0027-WS-M, 2016 WL 1642676 (S.D. Ala. April 25, 2016).
      Arayos, LLC holds a multimillion dollar verdict against John Vellianitis. That judgment, originally issued in Maine, was domesticated in Alabama. In furtherance thereof, Arayos sought charging orders against Vellianitis's interest in two Alabama LLCs, an LLC formed in Wyoming and another formed in Nevada.  While it is not express in the decision, it appears that Vellianitis is domiciled in Alabama.
      Based in part on records from the Alabama Secretary of State indicating that Vellianitis was a member of each of the Alabama LLCs, in accordance with the charging order provision of the Alabama LLC Act (Ala. Code § 10 A-5-605), the requested charging orders were entered.
      With respect to the Nevada and Wyoming LLCs, the court was not so accommodating. Initially, the records presented indicated only that Vellianitis was the registered agent of each of those companies in Alabama. As such, the plaintiff had made no showing that Vellianitis is a member of those entities. {Whether that really should be an issue with respect to the issuance of a charging order is open to debate. If a charging order is entered with respect to a purported member's interest in an LLC when in fact they are not a member, the charging order will be a nullity as it will attach to nothing and impose no burdens upon the LLC.} Of greater import, however, was the court's question as to whether, pursuant to the Alabama LLC Act, it could enter a charging order with respect to an interest in either in Nevada or Wyoming LLC. While acknowledging in a footnote that the analysis might be different were it the court having rendered the judgment, rather than a court that was involved only for purposes of enforcing collection of the main judgment, the requested charging orders as to the foreign entities were denied on the basis that:
Plaintiff has presented no argument explaining why it contends a provision of the Alabama Business and Nonprofit Entities Code would empower this Court to issue a charging order as to a judgment-debtor’s membership interest in Wyoming and Nevada limited liability companies, as part and parcel of the judgment- creditor's efforts to enforce a judgment entered by a federal court in Maine.
      In effect, this court interpreted the reference to a “limited liability company” in the Alabama LLC Act’s charging order provision as relating exclusively to Alabama organized LLCs. This interpretation is consistent with the decision rendered in Fannie Mae v. Heather Apartments Limited Partnership, No. A13-0562, 2013 WL 622-3564 (Minn. Ct. App. December 2, 2013).  Whether that should be the focus, rather than upon jurisdiction over the judgment-debtor, is a question for another day.

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