Charging Orders and Choice of Law

Charging Orders and Choice of Law

      In a recent decision from Maryland, the court held that it would apply Maryland law, to the issuance of a charging order against the judgment-debtor’s interest in a Georgia LLC. German American Capital Corp. v. Morehouse, Case No.: GJH-13-296, 2017 WL 3411941 (D. Md. Aug. 4, 2017).

      Morehouse owed German American Capital Corp. (“GACC”) in excess of $11 million on a judgment rendered in the District of Columbia.  Having domesticated the judgment in Maryland, GACC sought a charging order against Morehouse’s interest in Residences at Savannah Harbor, LLC (“Residences”), a Georgia LLC.  In a belated argument, Morehouse alleged that Georgia, and not Maryland, law should control.  The court found that the Maryland LLC Act’s charging order provision is broad enough to reach an interest in a foreign LLC, reasoning that:

In Maryland, a creditor of a debtor who “hold[s] an economic interest in a limited liability company” may request that a court “charge the economic interest of the debtor in the limited liability company for the unsatisfied amount of the debt.” Md. Code. Corps. & Ass’ns § 4A-607(b)(1). Because it was formed under the laws of Georgia. ECF No. 40-2. Savannah Harbor is a foreign limited liability company. See Md. Code. Corps. & Ass’ns § 4A-101(j) (defining “foreign limited liability” [sic – should read “foreign limited liability company”] as a company formed under the laws of a state other than Maryland.). Notably, the charging statute that GACC relies on does not reference foreign limited liability companies and the term, “limited liability company.” is defined as an unincorporated business “organized and existing under [the Mary land Limited Liability Company Act].” See id. § 4A-101(k). However, the charging statute also references a debtor’s “economic interest.” which is defined in the Act’s definitional section as the right of a “member.” of either a limited liability company or a foreign limited liability company, to receive distributions from a limited liability company, or a member’s share of the profits and losses of such a company. See id. §§ 4A-101(i), (m). Thus, reading the charging statue in conjunction with the definition section, and in the absence of any language specifically barring the entry of charging orders against foreign limited liability companies, the Court concludes that the charging statue does provide for the enforcement of a charging order against a foreign limited liability corporation [sic- should read “company”] like Savannah Harbor. Vision Mktg. Res., Inc. v. McMillin Grp., LLC. No. CIV.A. 10-2252-KHV, 2015 WL 4390071, at *6 (D. Kan. July 15, 2015) (reaching same conclusion after interpreting similar Kansas statute).