Kentucky Has Some Strange Laws – Snakes and Reptiles in Religious Services

Kentucky Has Some Strange Laws – Snakes and Reptiles in Religious Services

       Notwithstanding the oft reported handling of snakes in certain religious services, typically reported when one of the handlers suffers a bite and subsequently dies, doing so is actually illegal in Kentucky.  Under KRS § 437.060, it provided that:

Any person who displays, handles or uses any kind of reptile in connection with any religious service or gathering shall be fined not less than fifty dollars ($50) nor more than one hundred dollars ($100).

Default Judgment Upheld by Court of Appeals

Default Judgment Upheld by Court of Appeals

      The Court of Appeals, in a July decision, has upheld a default judgment entered against a combination of entity and individual defendants where, it appears, no responsive pleadings were ever filed.  True Gospel Church Ministries, Inc. v. Church of God in Christ, No. 2011-CA-000796-MR, 2012 WL 2604268 (Ky. App. 2012).

      Cloesey Henderson established, in the early 1980s, the True Gospel Church of God in Christ (the “TGC”), which in turn affiliated with the National Church of God in Christ (the “National Church”), being then assigned to its Kentucky first jurisdiction.  TGC thereafter obtained two pieces of real property upon which it constructed a church.  In 2008, Cloesey died, leaving as survivors his widow, Carthel, a son, David, and a daughter, Shirley.  Thereafter, the National Church appointed a replacement pastor for TGC.  Cloesey’s heirs were dissatisfied with that appointment and, in concert with some or all of the congregation, formed the True Gospel Church Ministries, Inc. (“TGCMI”).  Then, purportedly as representatives of TGC, David, Shirley and Carthel transferred the real property to TGCMI.  TGCMI then affiliated with the Church of God in Christ International (the “International Church”).

      The National Church instituted suit against TGCMI and each of David, Shirley and Carthel on the basis that the real property belonged to the National Church and that they had no authority to transfer it to TGCMI.  A bishop of the International Church filed a document designated as a response to the complaint, ostensibly on behalf of TGCMI.  However, as this bishop was not an attorney, this document was not treated as a responsive pleading.

      More than eight months after the filing of the complaint, the plaintiffs moved for a default judgment or a summary judgment.  On the date scheduled for the hearing on the motion for default or summary judgment, it was represented to the court that counsel had been hired on behalf of TGCMI and possibly the individual defendants whereupon the court directed the attorney to enter an appearance and file an answer.  He, in turn, filed that appearance but only on behalf of TGCMI, and on its behalf filed a response in opposition to the motion for default/summary judgment.  No answer was filed on behalf of the individual defendants or TGCMI.

      A hearing was scheduled on the motion for default/summary judgment, but TGCMI’s counsel failed to appear thereat.  The hearing was re-scheduled, and TGCMI’s counsel again failed to appear.  Taking the matter under advisement, the court then granted the motion for a default judgment.  In doing so, the court noted that no appearance or answer had been entered on behalf of any of the individual defendants, and no answer had been filed on behalf of TGCMI.

      Just over two weeks after the entry of that default judgment, new counsel entered an appearance on behalf of all of the defendants and filed a motion for leave to file an answer and as well a motion to alter, vacate or amend the grant of the default judgment.  Still, the default judgment was entered, and appeal was taken to the Court of Appeals.

      Reciting that the question is one of the trial court’s abuse of discretion, the Court of Appeals reviewed the factual posture of the case below.  The appellants, the defendants below, argued that it was an abuse of discretion to enter a default judgment “because the responsibility for not filing an answer properly belong[ed]” to their attorney and not to themselves.  Rejecting that argument, it was noted that a default judgment may be entered when no defense is entered.  While an entry of appearance was made on behalf of TGCMI, nothing precluded the individual defendants from representing themselves.  Further, while that counsel “might be at fault for failing to file an answer on behalf of [TGCMI], he cannot be at fault for failing to file an answer on behalf of [the individual defendants] because he did not represent them.”

      In response to the argument that the trial court should have vacated its default judgment pursuant to CR 55.2 for good cause shown, such was rejected in that “[c]arelessness by a party or his attorney is not reason enough to set an entry aside,” citing S.R. Blanton Dev. Inc. v. Investors Realty and Management Co., Inc., 819 S.W.2d 727, 729 (Ky. App. 1991).

Is the Charging Order Receiver Acting as a Receiver for the LLC Itself?

Is the Charging Order Receiver Acting as a Receiver for the LLC Itself?

      In a recent decision of the Bankruptcy Court for Montana, it appears, most curiously, that a receiver appointed to receive distributions diverted under a charging order is being permitted to act as a receiver for the entire LLC and supervise its assets.  In re Jonas, No. 10-60248-11, 2012 WL 2994724 (Bkrtcy. D. Mont. July 23, 2012).

      This decision arises out of what has apparently been a long dispute between Edwin Jonas (“Jonas”) and his former spouse Linda.  Jonas held either a 50% or 100% interest in Blacktail Mountain Ranch Co., LLC.  Linda had been awarded a charging order as well as a receiver in respect thereto against Jonas’ interest in Blacktail.  Much of this decision is focused upon his efforts, ultimately unsuccessful, seeking injunctive relief against the activities of that receiver and the enforcement of the charging order.

      It was stated that the cattle owned by the LLC were running loose.  In determining that injunctive relief was not in order, the Court wrote that:

Linda seeks to have the receiver placed into possession of the LLC in order to protect the LLC assets.  Jonas has admitted in his testimony that he failed to keep control of the LLC’s cattle.  The LLC’s cattle appeared to be in more harm under his control that they would be under a receiver’s control.

      Something strange is here taking place.  A receiver appointed in connection with a charging order is authorized, on the judgment-creditor’s behalf, to receive the distributions that would have otherwise gone to the judgment-debtor.  This is a limited faculty that does not entail control of the LLC itself.  As the holder of a charging order is not authorized thereby to have a voice in the management of affairs of the venture, likewise the charging order receiver has no voice.  Were this clearly a single-member LLC, the Court might have been, at least subconsciously, applying the rule of In re Albright to in effect treat the holder of the charging order against the sole interest in an LLC as creating dominion over the LLC’s assets.  See, e.g., Thomas E. Rutledge & Thomas Earl Geu, The Albright Decision - Why a SMLLC is Not an Appropriate Asset Protection Vehicle, 5 Business Entities 16 (Sept./Oct., 2003.  On the other hand, the Court acknowledged that there is a possibility that the LLC has another member, noting that they would need to protect their interests in that LLC in the Montana state court proceeding wherein the charging order had been first awarded.

Something here is just not right.

Delaware Law Applied to Pre-Incorporation Agreement

Delaware Law Applied to Pre-Incorporation Agreement

      Recently, the Business Law Court of North Carolina addressed the question of choice-of-law as to an agreement to issue shares in a Delaware corporation.  Notwithstanding that the contract was entered into in North Carolina, the corporation, incorporated in Delaware, having its principal place of business North Carolina and the plaintiff’s residency in North Carolina, it was held that Delaware law would apply.  Mancinelli v. Momentum Research, Inc., 2012 NCBC 28 (May 17, 2012). 

      Mancinelli was recruited from her existing employment in North Carolina to join Momentum Research on terms including the issuance to her of 15% of the company’s stock (or at least she so alleged).  She asserted as well that she signed a shareholder agreement, but the company was unable to produce a copy of that document and disputed its existence; she had no copy.  There was, however, other evidence of an agreement to issue the stock to Mancinelli.  The question arose as to whether Delaware law or that of North Carolina should be applied in assessing the claims for breach of the agreement to issue the stock.

      The court relied primarily upon principles set forth in the Restatement of Conflicts as to the internal affairs doctrine (Restatement (2^nd) of Conflict of Laws, § 302 (1971)), it providing that the law of the state of incorporation governs a number of matters particular to the relationship of the shareholders and the corporation, including the issuance of shares.  The fact of the defendant’s principal place of business, the plaintiff’s residency and that the contract was entered into in North Carolina were held not sufficient to override these principles on the basis that “North Carolina has the most significant relationship to the contracts and parties at issue.”  Slip op. ¶ 16.

      Applying Delaware law, which does not enforce an oral agreement to issue shares, the plaintiff’s complaint was, to the extent of that count, dismissed.  However, to the extent her complaint was based upon the breach of the alleged written shareholder agreement, it was allowed to proceed.

Kentucky Has Some Strange Laws – Dueling

Kentucky Has Some Strange Laws – Dueling

      The Kentucky Constitution is rather (in)famous for its constitutional provision requiring that all public officers (including attorneys) swear that they have not participated, directly or as a second, in a duel.  Ky. Const. § 239.  Many are unaware, however, that there is as well a statutory limitation on dueling applicable to everyone in the Commonwealth:

Any person who, in this state, challenges another to fight with any deadly weapon, in or out of this state, and any person who accepts the challenge, shall be fined five hundred dollars ($500) and imprisoned for not less than six (6) and no more than twelve (12) months.  KRS § 437.030.

      In addition, there is as well liability for anyone who carries or delivers the challenge to a duel.

Holder of Charging Orders Not Entitled to Company Financial Records

Holder of Charging Order Not Entitled to Company Financial Records

      In a recent decision rendered by the Iowa Court of Appeals, it was held that the holder of a charging order is not entitled, with respect to the LLC of whose interests have been charged, to the LLC’s cash flow statements.  Wells Fargo Bank, N.A. v. Continuous Control Solutions, Inc., No. 2-431 / 11-1285 (Iowa Ct. App. Aug. 8, 2012).  The primary review of the facts of the underlying dispute are set forth at Wells Fargo Bank, N.A. v. Continuous Control Solutions, Inc., No. 10-1070, 2011 WL 2695269 (Iowa Ct. App. July 13, 2011).

      A group of individual judgment-creditors obtained a judgment against a group of individual judgment-debtors.  Seeking to collect on that judgment, the judgment-creditors applied for charging orders against the judgment-debtors’ interests in three LLCs that they owned collectively and as well interest in two other LLCs in part owned by one of the judgment-debtors.  In connection that request for a charging order, the judgment-creditors requested that the LLCs “disclose their cash flow statements or other documentation ‘in order to verify no distributions had been made to the judgment-debtors or any other entity or person with an ownership interest in these limited liability companies.’” Slip op. at 3.  In turn, the LLCs objected to the requirement to disclose their financial information.  Ultimately, the trial court did order the disclosure of that information every six months.

      Cutting to the chase:

On appeal, the LLCs argued there is no statutory authority for the disclosure orders issued by the district court.  We agree.  Slip op. at 4. 

      The court recognized that the Iowa LLC charging order provision does authorize the issuing court to “[m]ake all of the orders necessary to give effect to the charging order,” but held that this language did not authorize the sought requirement of financial information disclosure.  Ultimately, it determined that this provision applied only with respect to a receiver appointed by the court to receive the distributions.  The court noted as well that as the holder of a charging order is one step removed from being a transferee of the charged economic interest, and as a transferee of an economic interest is not entitled to access company records; no right to company information should be available:

A charging order constitutes a mere lien on the judgment-debtor’s transferrable interest (the member’s economic interest) in the L.L.C. [Iowa Code] § 489.503(1).  If a transferee of a member’s economic interest is not entitled to access to the L.L.C.’s records, the holder of the lien upon the member’s economic interest should be similarly denied access to the L.L.C.’s records or other information concerning the company’s activities, unless otherwise authorized by statute.

      This decision, at least as to the rights of the holder of a charging order to information, should be good law in Kentucky (whether the implication that information could be compelled to be shared with a receiver requires further analysis).  Under Kentucky law, it is express that the holder of a judgment lien “has only the rights of a transferee and shall have no right to participate in the management of or to cause the dissolution of the partnership.”  KRS § 362.1-504(2); see also KRS § 275.260(2) (equivalent provision in the Kentucky LLC Act).  As transferees do not have information rights, the holder of a charging order should likewise lack information rights.

Kentucky Has Some Strange Laws – Working on Sunday

Kentucky Has Some Strange Laws – Working on Sunday

      There are some strange things in Kentucky Revised Statutes.  For reasons that entirely escape me, I recently stumbled upon a statute that imposes a penalty for working on Sunday.  It provides in part:

Any person who works on Sunday at his own or at any other occupation or employees any other person, in labor or other business, whether for profit or amusement, unless his work or the employment of others is in the course of ordinary household duties, work of necessity or charity or work required in the maintenance or operation of a public service or public utility plant or system, shall be fined not less than two dollars ($2) nor more than fifty dollars ($50).  The employment of every person employed in violation of this subsection shall be deemed a separate offense.  KRS § 436.160(1).

      There is an exception in the statute for grocery and drug stores, gas filling stations, movie theatres and fishing tackle/bait shops.  KRS § 436.160(3).

      The following section of KRS goes on to permit counties and cities to permit other Sunday sales.  KRS §§ 436.165(1)-(3).  However, even under that permission, no retail establishment is permitted to be open on Sunday between 6 a.m. and noon.  KRS § 436.165(4)(c).  I am at a loss to explain my Sunday morning runs to Target and Lowes.