More Fun and Games and Charging Orders;If It Is Yours It Can Be Reached With a Charging Order

More Fun and Games and Charging Orders;
If It Is Yours It Can Be Reached With a Charging Order

      A recent decision from Illinois is yet another illustration of the steps that judgment-debtors will undertake in order to avoid satisfying a judgement. In this instance, an individual sought to use a dissolved LLC as, effectively, his personal piggy bank. Golfwood Square LLC v. O’Malley, No. 1-17-2220, 2018 IL App. (1^st) 172220-U, 2018 WL 4370875 (Sept. 11, 2018).

      Golfwood Square LLC held a judgment exceeding $900,000 against O’Malley and another individual. O’Malley was the 90% owner of SSG, LLC, which he acknowledged “doesn’t do anything.” In turn, SSG was the sole member of 3 Squared, an LLC that had owned a condo. After judgment had been entered against O’Malley, 3 Square sold the condo, and after satisfaction of the related mortgage retained some $224,000. The operating agreement of 3 Square provided that upon the sale of its assets, the company would be dissolved and, after satisfaction of claims of creditors, the net proceeds would be distributed to the members.

      O’Malley, who admitted that he had “unfettered access” to the account in which those proceeds were deposited, use substantial portions to pay both personal debts and as well the obligations of other companies with which he was affiliated.

      In order to enforce a charging order that had previously been injured, Golfwood sought an order from the court requiring O’Malley to turn over the remaining 3 Square funds.

      In addition to applying several portions of the Illinois law governing supplemental proceedings and collection on judgments, the trial court found that “according to the clear language of 3 Square’s operating agreement, upon selling the Garlands Condo, 3 Square should have dissolved and distributed the sale proceeds to SSG. From there, per the charging order, any distributions that SSG would otherwise have made to O’Malley would instead go to Golfwood. But O’Malley circumvented the charging order by keeping the funds normally under 3 Square’s control while he retained “unfettered access” to the accounts - essentially making a direct distribution to himself in all but name.”

      On that basis, the court of appeals affirmed the turnover order, finding it to be necessary both to enforce the charging order and on otherwise applicable provisions of collection law.

      O’Malley sought to avoid the charging order, by arguing that, in effect, it effected an improper piercing of the veils of each of 3 Square and SSG. This was rejected on the basis that the assets being held (and dispersed from) 3 Square were already O’Malley's.