Tuesday, May 3, 2016

Confusion as to Charging Orders; Personal Jurisdiction Over LLC Not Required

Confusion as to Charging Orders; Personal Jurisdiction Over LLC Not Required

      Recently, I reported on a Alabama decision in which the court would not issue a charging order against you with respect to the judgment-debtor’s interest in LLCs organized outside of Alabama, that refusal based upon the court’s lack of personal jurisdiction over those foreign LLCs. HERE IS A LINK to that discussion. Demonstrating that very little with respect to charging orders is settled, a recent Magistrate Judge decision from the Federal District Court in Arizona came to the opposite conclusion, and rejected lack of personal jurisdiction over the LLC as a basis for not issuing a charging order. Dream Games of Arizona Inc. v. PC Onsite LLC, No. CV 03-00433-PHX-DLR (ESW), 2016 WL 1567180 (D. Arizona March 24, 2016).
      Dream Games of Arizona, Inc. was the judgment creditor against Casey Hagon, the judgment debtor. Dream Games sought a charging order against Hagon’s interest in C&D Consulting LLC, a Texas limited liability company. On behalf of C&D Consulting, Hagon objected to the charging order on the basis that (i) the court lacked personal jurisdiction over C&D and (ii) certain required financial reporting by C&D was inappropriate.
      As to the question of jurisdiction, the court, as a factual matter, found that C&D Consulting had sufficient contacts with Arizona to give rise to general jurisdiction. In a footnote, the court rejected the notion that jurisdiction over the LLC in which the Judgment-Debtor has an interest is necessary. Rather, at footnote 4, it wrote:
Moreover, the Court does not need personal jurisdiction over C&D Consulting to issue an order charging Judgment Debtor’s interests in C&D Consulting. Personal jurisdiction over Judgment Debtor is sufficient. See Vision Marketing Resources Inc. v. McMillin Group, LLC, No. 10–2252–KHV, 2015 WL 4390071, at *3–5 (D. Kansas July 15, 2015) (concluding that the court “need not have jurisdiction over the LLC entity itself in order to issue a charging order, when it has jurisdiction over the LLC member because the LLC has no right or direct interest affected by the charging order. Rather it is the judgment debtor’s interest in and right to future distributions of the LLC that is being charged”). Judgment Debtor has waived any defect in personal jurisdiction over him in this action. See Fed.R.Civ.P. 12(h)(1).

      As to the question of financial reporting, the proposed charging order required that C&D Consulting:
Provide Judgment Creditor with quarterly financial statements and an accounting of all disbursements to Judgment Debtor, or for the benefit of Judgment Debtor, within 21 days after the conclusion of each calendar quarter, from the date of this Order until the Judgment is fully satisfied.
On the basis that the Arizona LLC act’s charging order provision “does not explicitly prohibit a court from requiring regular disclosure of financial information pertaining to the Judgment Debtor’s interest in the LLC,”, the court found that the requested financial disclosure “will aid in the satisfaction of the Judgment.” On the basis, this magistrate recommended that the proposed form of charging order be approved.


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