Charging Orders Affirmed

Charging Orders Affirmed

In this third appeal of a family dispute, the Washington Court of Appeals affirmed the issuance of a charging order in support of certain judgments graned to one sibling against another. Bangasser. v. Bangasser, 2019 WL 5112459 (Wash. Ct. App. Oct. 14, 2019).

As the court noted, this is the third appeal in this case. Thomas Bangasser served as the general partner of Midtown Limited Partnership, a partnership that held certain commercial real estate in Seattle. The limited partners in that partnership were Thomas’ siblings or entities owned by those siblings. Various of the siblings had made personal loans to Thomas, which loans were never repaid. Ultimately, the limited partners removed Thomas as the general partner, and he brought suit alleging that his removal was in violation of the partnership agreement. Roughly coincident in time, the siblings who had loaned money to Thomas, brought suit to enforce the promissory notes and to collect thereon.

Ultimately, Midtown would sell its real estate for a total of some $23,300,000. In support of the judgments enforcing the promissory notes, the court issued charging orders against Thomas’ distributions. The limited partnership deposited approximately one half of his anticipated proceeds from the sale in court against a potential claim of a purported transferee of a portion of Thomas’ interest in the limited partnership.

The decision affirmed the validity of the charging orders, including that they could be used to collect attorney’s fees pursuant to the promissory notes Thomas had executed.

Shareholders and Officers of Business Corporation Personally Liable for Violation of PACA

Shareholders and Officers of Business Corporation Personally Liable for Violation of PACA

In a recent decision from Georgia, the court held that certain officers and shareholders of a corporation could be held personally liable for violations of the Perishable Agricultural Commodities Act of 1930 (“PACA”). Baker & Murakami Produce Company LLLP v. Weng Farms Inc., Case No. CV 418-0252, 2019 WL 5491895 (S.D. Ga. Oct. 24, 2019).

The plaintiffs alleged that they had sold produce to the defendant Weng Farms, Inc., but had not been paid. The amounts due and owing were $302,078.25. The plaintiffs sought to hold Lea Weng and William Foster, owners and officers of Weng Farms, personally liable on those claims. Normally, that would not be possible because the shareholders and officers of business corporations are not personally liable for its debts and obligations. In this instance, all else was not equal. Rather, the product that had been sold was agricultural produce and, under PACA, assuming certain notices requirements are satisfied (they were in this case), there is imposed upon the purchaser of produce a statutory trust for the proceeds from which the seller would be paid.

Weng Farms never answered the complaint. In this decision awarding a default judgment against the individual defendants (default was not sought against Weng Farms itself), that default judgment was justified on the basis that:

Individual defendants are subject to personal liability under the PACA when they “are in a position to control PACA trust assets,” such as officers, directors, and shareholders “and fail to maintain the assets.” 2019 WL 5491895, *4 (citations omitted).

The court went on to find that the claim for attorney’s fees incurred in connection with the action were due and owing and were likewise subject to the PACA trust.

The Kentucky Uniform Voidable Transactions Act

The Kentucky Uniform Voidable Transactions Act

In recent decision from the Kentucky Court of Appeals, it discussed the application of Kentucky’s former law with respect to fraudulent conveyances and the adoption, effective January 1, 2016, of the Uniform Voidable Transactions Act, which has now been codified at KRS ch. 378A. Orchard v. Western Energy Production, LP, No. 2019-CA-000066-MR, 2019 WL 5293489 (Ky. App. Oct. 18, 2019).

With respect to the application of fraudulent conveyance law, the transfers at issue took place on August 25, 2015. Obviously that date predates the effective date of the Kentucky Uniform Voidable Transactions Act.. Relying in part upon in re Licking River Mining, LLC v. Monday Coal, LLC, 571 B.R. 241, 245 N.3 (Bankr. E.D. Ky. 2017), it was held that the former fraudulent conveyance law, and specifically KRS § 378.010, would apply to the allegedly improper transactions.

Attorney Not Legitimately Hired By LLC = No Attorney-Client Privilege

Attorney Not Legitimately Hired By LLC = No Attorney-Client Privilege

In a recent decision from Tennessee, the court was called upon to determine whether an attorney had been properly hired on behalf of an LLC.  The court held that he had not.  Inconsequence there was not attorney-client relationship and no attorney-client privilege.  Morristown Heart Consultants, PLLC v. Patel, No. E2018- 01590-COA-R9-CV, 2019 WL 3318184 (Tenn. Ct. App. July 24, 2019).

This case involved a dispute between two unequal members in a two member LLC.  While each member had a right to 50% of the earnings of the LLC, Dr. Ramaprasad held a 67% management right while Dr. Patel held a 33% interest in management. The court held that the majority member’s “act of hiring an attorney to represent [the LLC] in a potential action against [the second member] was not in the ordinary course of the LLC’s business.”  The operating agreement, as to actions not in the ordinary course, required member approval. But Ramaprasad never got that consent. He never called a meeting of the members to consider the matter. And he never signed a written consent that would have authorized him to act outside of a meeting.

Alternatively, MHC could have accomplished the act by written consent without having a meeting. Without a meeting, Mr. Ramaprasad could have signed a written consent with his majority governing rights to approve the hiring of Mr. Bowlin and provided notice to Dr. Ramaprasad of the LLC’s action. No evidence is in the record on appeal of written consent approving the action signed by Dr. Ramaprasad or notice of such action provided to Dr. Patel. (citation omitted). 2019 WL 3318184, *5.

As the majority member had not employed the procedure mandated by the company’s operating agreement, the attorney was never properly hired on behalf of the company which had the effect of waiving the attorney-client privilege. Patel is permitted to access the attorney’s file.

Interstate Transport of Krispy Kreme Doughnuts Prohibited

Interstate Transport of Krispy Kreme Doughnuts Prohibited

According to a recent story on the AP Wire, a college student in Minnesota was on a weekly basis driving back-and-forth to Iowa to buy Krispy Kreme doughnuts. There are, apparently, no Krispy Kreme stores in Minnesota. Upon arrival, said student was reselling the doughnuts. According to that same AP Wire story, Krispy Kreme has reached out to the student and told him he was prohibited from continuing with his interstate transport of doughnuts because of potential liability to Krispy Kreme.

The newswire story did not provide any detail as to what exposure the shop could have, and I am befuddled in an effort to come up with one. If the donuts were safe for consumption when they left the store, they are no less safe for consumption having crossed the state border.

HERE IS A LINK to that story.

The Member of the LLC Does Not Own the LLC’s Property

The Member of the LLC Does Not Own the LLC’s Property

In a recent decision from the Bankruptcy Court in Wisconsin, there was applied the rule that an LLC is a legal entity distinct from its members to the effect that the members have no ownership interest in the LLC’s property. As applied in this case, the bankruptcy estate of the sole member of an LLC did not include the property owned by that LLC. In Re Gialamas, ___ B.R. ___, 2019 WL 4201548 (W.D. Wisc. Sept. 4, 2019).

Erick Hallick held a judgment against Thomas Gialamas for almost $17,000,000. Gialamas was, in turn, the sole owner of Blackhawk Junction, LLC, a limited liability company that owned a strip mall. When Gialamas filed for personal bankruptcy protection, Hallick sought an order of abandonment of the property owned by Blackhawk Junction. Both Gialamas and the Creditors Committee objected, arguing that Hallick did not have a lien or other protectable property rights in that property.

After disposing of the argument that a supplemental proceeding in support of collection of the judgment does not create a lien in the judgment debtor's personal property, the court went on to find that there was no protectable interest in the strip mall. Rather:

[T]his court must conclude for purposes of this motion that the movant has not met his burden of demonstrating that the real estate is now property of Mr. Gialamas’ bankruptcy estate. The parties stipulate that at all relevant times the Debtor has owned a membership interest in Blackhawk Junction, LLC. But that simply means his membership interest in Blackhawk Junction, LLC was property of the bankruptcy estate. The underlying assets owned by the LLC are not. 2019 WL 4201548, *3.

In support of this language, one authority cited by the court was In Re Conan, 487 B.R. 539, 541 (Bankr. W.D. Wisc. 2012) which is cited for the proposition that “although the estate includes the membership and ownership of the LLC, it does not include the assets owned by the LLC. Those assets do not become property of the debtor’s bankruptcy estate.”

As the bankruptcy estate did not own the strip mall property, there existed no basis by which it could be ordered to abandon it.

Not addressed by this opinion was a charging order that Hallick had received against Gialamas, which charging order was supported by the appointment of a receiver.

In a footnote, the court noted that there existed an unresolved question as to whether the charging order provisions of the Wisconsin Limited Liability Company Act are the exclusive remedy for a claim against a member’s interest in an LLC. That determination will obviously await another dispute.

The Election of the “Warrior Pope” Julius II

The Election of the “Warrior Pope” Julius II

      Today marks the anniversary of the election of Giuliano della Rovere to the papacy, whereupon he took the regnal name Pope Julius II. He would serve as Pope from his election in 1503 through his death in 1513.



      While famously criticized by Erasmus of Rotterdam for his willingness to utilize force to protect the Church, including having led a papal army (it is often ignored that this action against the city of Bologna resulted in the city’s surrender; there was no battle and no loss of lifte or limb), Julius is famous for:

• ·         hiring Michelangelo to paint the Sistine Chapel; 

• ·         authorizing that the then entirely decrepit St. Peters Basilica, its fabric in many cases dating back to the fourth century, be torn down and the current St. Peters erected in place thereof; 

• ·         hiring Michelangelo as an architect on the new St. Peters; and

• ·         hiring Raphael to paint various frescoes in the Vatican.

   Also, it was Julius II who:

• ·         issued the dispensation allowing Henry VIII of England to marry the widow of his brother Arthur, namely Catherine of Aragon.

• ·         founded the Papal Swiss Guard.

      While ultimately buried in the Vatican, his tomb, not completed until 1445, is in San Pietro in Vincoli. The famous statue of Moses featuring horns (consequent to poor translation of the original Hebrew into Latin by St. Jerome) is part of that tomb (actually a cenotaph).



      The only modern biography is Julius II: The Warrior Pope by Christine Shaw.