Hanna v. Baier ( 2017 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
Wagih Hanna, and
Bothina Hanna,
Plaintiffs
v. C.A. No. S12J-03-058
Dieter A. Baier,
Defendant.
Submitted: September 21, 2017
Decided: December 19, 2017
Upon Defendant ’s Motionfor Prol‘ective Ora’er, GRANTED.
ORDER
Andres Gutierrez de Cos, Esq., 4708 Kirkwood Highway, Z"d Floor, Wilmington, Delaware
19808, Attorneyfor the Plaintiffs.
Daniel A. Grifflth, Esq., 405 N. King Street, Ste 500, Wilmington, Delaware 19801, Attorneyfor
the Defendcmt.
BRADY J.
PROCEDURAL BACKGROUND
In August 2011, the Massachusetts Superior Court of Worchester County entered a
money judgment in the amount of $521, 610.31 against the Defendant. On March 9, 2012, a
Foreign Judgment in the above amount was filed in this Court. On June 7, 2012, the Circuit
Court for Talbot County Maryland issued a Charging Order against Defendant’s interest in
Cabinetry Unlimited, LLC (“CU, LLC”). Defendant filed a Petition for Bankruptcy in the
United States Bankruptcy Court for the District of Maryland on August 23, 2013. Consequently,
the Bankruptcy Court entered a Discharge Order, discharging the judgment Plaintiffs obtained
against the Defendant. The Charging Order against Defendant’s interest in CU, LLC survived
the Bankruptcy discharge. In July 2017, Plaintiffs served Notices of Depositions to Defendant,
CU, LLC, Park Street Investments, LLC, and PKS & Company; seeking Discovery in Aid of
Execution. On July 27, 2017, Plaintiffs filed a Petition to Issue a Rule to Show Cause as to why
Plaintiffs should not be allowed to execute on the judgment Defendant filed this Motion for
Protective Order on August 7, 2017 and this Court held a hearing on the matter on September l,
2017. The Court allowed Plaintiffs to file supplemental submissions to address the issue of
whether jurisdiction in Superior Court is appropriate. Plaintiffs filed a Memorandum of Law on
Proper Jurisdiction on September 10, 2017. On September 21, 2017, Defendant filed a
Response. This is the Court’s decision.
PARTIES’ CONTENTIONS
Defendant contends that §18-703 of the Delaware Limited Liability Company Act
(“Act”) governs the Charging Order at issue. Defendant argues the Act provides, in summary,
that (1) the Charging Order is a lien on Defendant’s interest in CU, LLC; (2) the Charging Order
is Plaintiffs exclusive remedy; and (3) “attachment, garnishrnent, foreclosure or other legal or
equitable remedies are not available to” the Plaintiffs.l
Plaintiffs contends that 6 Del. C. §18-703 does not bar post-judgment discovery because
it “is not ‘a legal remedy,’ but only a supplement to execution per the language of the Rule.”2
Plaintiffs argue granting the protective order would prevent the Plaintiffs from knowing whether
the Charging Order is being followed, or from determining how much is owed at this point.
Defendant contends that such discovery is prohibited by 6 Del. C. §18-703(d), and is in
violation of the Bankruptcy Code even if the Act does not prohibit the discovery. Defendant
argues that the judgment Plaintiffs seek to execute was discharged by the Bankruptcy Court for
the District of Maryland, and the only remedy retained by the Plaintiffs is the Charging Order,
which is a lien upon the Defendant’s interest in CU, LLC and cannot be executed upon.
Defendant avers that the nature of Plaintiffs discovery request is of “post-judgment discovery on
a routine money judgment.”3
Plaintiffs argue they are permitted to request discovery from any person per the test of
Fed. R. Civ. Pro. 69 (a)(2).4 Plaintiffs also rely on Delaware Superior Court Rules of Civil
Procedure Rule 69(aa) in establishing their right to discovery. That Rule provides, “the judgment
creditor or judgment creditor’s successor in interest when that interest appears of record, may
take discovery by deposition, interrogatories and requests for production, in aid of the judgment
or execution.”5
' Def.’s Mot. for Protective Order, at 3 (Aug. 7, 2017) (hereinafter, “Def’s Mot.”).
2 Pl.’s Resp. to Defs Mot. for Protective Order, #6 (Aug. 24, 2017) (hereinafter, “Pl’s Resp”).
3 Def’s Mot., at 6.
4 Pl’s Resp. at 5. (emphasis added).
5 Super. Ct. R. Civ. Pro. R. 69(aa).
Lastly, Defendant contends this Court lacks jurisdiction over this matter. Defendant
asserts that a Charging Order on an LLC member’s interest is governed by the Act and the Act
“makes clear that jurisdiction for this action lies with the Court of Chancery.”6
Plaintiffs contends this Court has exclusive jurisdiction because 10 Del. C. §35 12
provides “the Superior Court may make all necessary rules respecting the form of process. . . [of]
all other matters relating to attachment proceedings.”7 Plaintiffs assert that a charging order is a
form of execution permitting a judgment creditor to divert a flow of payments from judgment
debtor.8 Accordingly, Plaintiffs contend the issue of enforcing a charging order must be heard in
Superior Court.
APPLICABLE LAW
The Limited Liability Company Act, §18-703 provides, in relevant part:
(b) A charging order constitutes a lien on the judgment debtor’s limited liability
company interest.
(d) The entry of a charging order is the exclusive remedy by which a judgment
creditor of a member or member’s assignee may satisfy a judgment out of the
judgment debtor’s limited liability company interest and attachment, garnishment,
foreclosure or other legal or equitable remedies are not available to the judgement
creditor. ..
(f) The Court of Chancery shall have jurisdiction to hear and determine any matter
relating to any such charging order.9
DISCUSSION
The Charging Order at issue provides that the Defendant’s interest in the limited liability
company CU, LLC, be charged with the payment of the Judgment registered by the Circuit Court
for Talbot County, Maryland. The Act provides that such charging order constitutes a lien on the
judgment debtor’s interest in the limited liability company. Plaintiffs seek to execute the
6 Def.’s Mot., at 6.
7 Pl’s Mem. of Law on Proper Jurisdiction, at 2 (Sep. 10, 2017) (hereinafter, “Pl’s Mem. of Law”).
8 ld. (citing MacDOnald v. Macr)@nazd, 1986 Dei. Ch. LExis 400, ar *9 (Dei. ch. May 9, 1986).
9 6 Del. C. §18-703 (b), (d), and (i).
Charging Order in a way similar to an execution of a garnishment or attachment of wages of a
money judgment However, pursuant to §18-703(d) of the Act, the entry of the Charging Order
is the exclusive remedy to which Plaintiffs are entitled, and no attachment, garnishment,
foreclosure or other legal or equitable remedies are available to the Plaintiffs. ln making the
analogy between a charging order and wage garnishment, Plaintiffs rely on MacDonald v.
MacDonala’,l° in which the Court of Chancery declined jurisdiction in a matter where the relief
sought was a charging order against the defendant’s interest in a Delaware limited partnership.
However, since McDonald was decided, the statute has been amended The relevant subsection
has been amended several times, most recently, in 2005. In that year the legislation added a new
subsection, which provides: “the Court of Chancery shall have jurisdiction to hear and determine
any matter relating to any such charging order.”ll This amendment made clear that the proper
jurisdiction to hear any matters relating to orders charging a member’s interest in a limited
liability company is exclusively in the Court of Chancery. The Court finds that the language,
which is clear and unambiguous, includes not only execution on the Charging Order, but also
proceedings in aid of execution.
CONCLUSION
F or the abovementioned reasons, Defendant’S Motion for Protective Order is
GRANTED. Any further proceedings must occur in the Court of Chancery.
IT IS SO ORDERED
M. JaW§rady
Superi ' Court Judge
'° MacDor/ald v. MacDonald, 1986 WL 5480 (Del. Ch. May 9, 1986).
" 6 Del. C. §18-703(t) (2005).