Wells Fargo Equipment Finance Inc. v. Jason Retterath and Analia Retterath

IN THE SUPREME COURT OF IOWA
No. 18–0599
Filed April 12, 2019
WELLS FARGO EQUIPMENT FINANCE, INC.,
Appellee,
vs.
JASON RETTERATH and ANALIA RETTERATH,
Appellants.
Appeal from the Iowa District Court for Chickasaw County,
Richard D. Stochl, Judge.
A judgment debtor and his wife appeal from a district court ruling
dismissing their petition to vacate a charging order. AFFIRMED.
Jason W. Miller of Patterson Law Firm, L.L.P., Des Moines, for
appellants.
G. Mark Rice and Johannes H. Moorlach of Whitfield & Eddy, P.L.C.,
Des Moines, for appellee.
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CHRISTENSEN, Justice.
A judgment creditor filed foreign judgments and obtained a charging
order to execute these foreign judgments in Iowa district court against the
judgment debtor’s membership interests in an Iowa limited liability
company (LLC). The judgment debtor and his wife filed a petition to vacate
the charging order based on their claim that the creditor could not attach
these interests since the debtor and his wife owned them as a tenancy by
the entireties in their domicile of Florida. The creditor filed a motion for
summary judgment, maintaining Iowa law governs and the legal doctrine
of tenancy by the entireties does not exempt the debtor’s membership
interest in the Iowa LLC since Iowa does not recognize tenancy by the
entireties. The district court granted the creditor’s motion for summary
judgment and dismissed the couple’s petition to vacate the charging order.
On appeal, the couple presents multiple claims. First, they argue
the district court erred by applying Iowa law instead of Florida law.
Second, they contend the district court erred in determining the couple
did not own their membership units in a tenancy by the entireties. Third,
the couple claims the foreign judgments were not properly registered, nor
was the charging order properly issued. Finally, they challenge the district
court’s ruling that there were no due process grounds to vacate the
charging order. For the reasons set forth below, we affirm the district court
judgment.
I. Background Facts and Proceedings.
Jason and Analia Retterath are Florida citizens and residents of
Palm Beach County, Florida, who have been married since February 13,
1999. Wells Fargo Equipment Finance, Inc. (WFEFI) is a Minnesota
corporation with its principal office in Minneapolis, Minnesota, that is the
owner and holder of two Florida judgments against Jason arising from its
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suit against Jason in Broward County, Florida. The litigation that led to
these judgments began in November 2009, and the judgments were
entered on August 22, 2011, and January 23, 2012.
On December 22, 2015, WFEFI caused these judgments to be filed
in the Iowa District Court for Chickasaw County alongside an affidavit in
support of foreign judgment, listing Jason’s name and last known address.
The clerk of court did not make a note of the mailing notice of the filing of
WFEFI’s foreign judgments to Jason in the docket. On January 6, 2016,
WFEFI filed its application for charging order pursuant to Iowa Code
section 489.503 in Iowa district court. WFEFI sought to execute the
Florida judgments against Jason’s membership interest in Homeland
Energy Solutions, LLC, (Homeland), an Iowa limited liability company that
has its home offices in Lawler, Iowa. Counsel for WFEFI certified the
application, which was mailed to Jason in conjunction with its filing.
Jason stated in an affidavit that he did not “receive service of process or
otherwise receive notice of the proceedings that resulted in the Charging
Order.”
Homeland owns and operates ethanol production and by-product
production facilities, and it also markets and processes ethanol and
related by-products. Though it is located in Iowa, Homeland began selling
membership units in the state of Florida in 2006. Its affairs are governed
by its operating agreement, which is entered into between Homeland and
“each of the Persons identified as Members on the Company’s Unit holder
Register and any other Persons that may from time-to-time be admitted as
Members of the Company in accordance with the terms” of the agreement.
According to the agreement, “[t]he laws of the State of Iowa shall govern
the validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties arising thereunder.”
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Jason acquired his membership interest in Homeland in his
individual capacity on October 29, 2007, when he purchased 2000 units
at a price of $1000 per unit. He acquired an additional 250 units in his
individual capacity by means of a corporate transfer of assets agreement
on May 14, 2010, which was after WFEFI commenced its Florida action
against Jason. On December 15, 2010, Jason transferred all of his
individual membership units in Homeland to himself and Analia through
a unit transfer application. The transfer application required Jason to
choose one of the following forms of ownership: individual, joint tenants
with right of survivorship, corporation on partnership, trust, or other.
Jason marked the “Joint Tenants with Right of Survivorship” box to
indicate the form of ownership. The Retteraths file tax returns in Iowa to,
among other things, report the income they receive from Homeland. Prior
to the charging order, Homeland made distribution payments directly to
the Retteraths’ personal joint banking account in Florida.
On January 8, 2016, WFEFI filed an affidavit regarding the amounts
due on the Florida judgments, which was served on Jason. Shortly
thereafter, the district court entered a charging order on January 12,
which stated,
IT IS, THEREFORE, ORDERED that WFEFI is hereby
granted a charging order against the entire membership
interest of [Jason] Retterath in Homeland pursuant to Iowa
Code section 489.503. Any amount to be distributed to
[Jason] Retterath up to and including the amount to fully
satisfy WFEFI shall be remitted payable to Wells Fargo
Equipment Finance, Inc. . . . Any amount so received by
WFEFI shall be satisfied, and WFEFI shall submit a partial or
full satisfaction as appropriate to indicate the status of the
Charging Order. In the event of full satisfaction, any surplus
shall be paid to Retterath.
The charging order was served on Jason through the mail to his correct
address.
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On July 13, Jason and Analia Retterath filed a petition to vacate the
charging order, claiming they took possession of the Homeland
membership units simultaneously as tenants by the entireties under
Florida law. The Retteraths maintained Florida law governs their
ownership of the Homeland units and Florida law prohibits making
property owned as a tenancy by the entireties available to answer for the
judgment debts of one of the tenants individually. The petition noted
Analia was never served with process or otherwise provided notice of the
application for charging and claimed this lack of notice violated Analia’s
due process rights under the Federal and Iowa Constitutions. The
Retteraths also claimed the statutory scheme of Iowa Code chapter 626A
violates their right to procedural due process.
WFEFI filed its answer to the petition to vacate on August 5,
asserting Iowa law governs the parties’ dispute and the legal doctrine of
tenancy by the entireties does not exempt Jason’s membership interest in
Homeland from the judgment. Thus, WFEFI argued as an affirmative
defense that the Retteraths failed to state a claim for which relief may be
granted. WFEFI and the Retteraths filed motions for summary judgment
on March 3, 2017, and the parties filed a resistance to the opposing party’s
respective motion for summary judgment on March 24.
On February 8, 2018, the district court granted WFEFI’s motion for
summary judgment and denied the Retteraths’ motion for summary
judgment. The district court also dismissed the Retteraths’ petition to
vacate the charging order. Though the district court found it was
unnecessary to determine whether Florida or Iowa law applied, it still
addressed the issue and determined Iowa law applied since “Iowa has the
most significant contacts with this dispute.” Nevertheless, the district
court concluded a tenancy by the entireties did not exist even if Florida
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law applied since they did not receive title from the same conveyance. The
district court explained Jason received his membership interest from
Homeland, while Analia later received her membership interest from
Jason. Finally, the district court addressed WFEFI’s claim from its
supplemental brief, which accused Jason of fraudulent conversion for
transferring his Homeland membership units to avoid creditors to the
underlying lawsuit. The district court concluded additional findings of fact
were required and denied summary judgment on the fraudulent
conversion issue.
On February 23, the Retteraths filed a motion to enlarge and modify
pursuant to Iowa Rule of Civil Procedure 1.904(2), requesting the district
court rule upon their claims that the charging order is void because it was
issued without jurisdiction over the Retteraths, the statutory scheme of
Iowa Code chapter 626A violates their right to procedural due process, and
the charging order violated Analia’s right to due process. The district court
entered an addendum to its ruling on the motions for summary judgment
on March 7. The district court denied the Retteraths’ request to set aside
the charging order on due process grounds because Analia was not
entitled to notice since she was not a judgment debtor of WFEFI and the
order did not direct any collection against her interest. The Retteraths
filed their notice of appeal on April 2. We subsequently granted and
retained the appeal.
II. Standard of Review.
We review the district court’s ruling on a motion to vacate for the
“correction of errors at law, not de novo.” State ex rel. Goettsch v. Diacide
Distribs., Inc., 596 N.W.2d 532, 537 (Iowa 1999). The district court’s
factual “findings are binding on us if there is substantial evidence to
support them.” In re Tr. of Killian, 494 N.W.2d 672, 675 (Iowa 1993)
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(quoting Mishler v. Stouwie, 301 N.W.2d 744, 747 (Iowa 1981)). We also
“review a district court ruling on a motion for summary judgment for
correction of errors at law.” Jahnke v. Deere & Co., 912 N.W.2d 136, 141
(Iowa 2018) (quoting Homan v. Branstad, 887 N.W.2d 153, 163 (Iowa
2016)). “When the summary judgment was on a constitutional issue,
however, our review is de novo.” Weizberg v. City of Des Moines, 923
N.W.2d 200, 211 (Iowa 2018). Summary judgment is appropriate “when
the moving party has shown ‘there is no genuine issue as to any material
fact and the moving party is entitled to judgment as a matter of law.’ ”
Jahnke, 912 N.W.2d at 141 (quoting Homan, 887 N.W.2d at 163).
III. Analysis.
On appeal, the Retteraths present a number of challenges to the
district court’s ruling. First, they challenge the district court’s conclusion
that Iowa law applied to the dispute instead of Florida law. Second, the
Retteraths claim the district court erred in determining they failed to show
the necessary “unity of time” element of a tenancy by the entireties under
Florida law when Jason transferred ownership of his Homeland units to
Jason and Analia. Third, they contend the district court erred in
concluding the foreign judgments were properly registered and the
charging order was properly issued in order for the district court to obtain
jurisdiction over the Retteraths. Finally, the Retteraths argue the district
court erred in denying their due process challenge.
A. Choice of Law. The Retteraths challenge the district court’s
conclusion that Iowa law applies to their dispute with WFEFI. The district
court reached this decision based on its application of the Restatement
(Second) of Conflict of Laws sections 222 and 6, which the Retteraths
maintain was inappropriate because Iowa has not applied general choice
of law principles in the past. Instead of general choice of law principles,
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the Retteraths argue Iowa law governing personal property applies to their
membership interests in Homeland. Thus, the Retteraths claim the situs
of their Homeland membership units is the Retteraths’ domicile, which is
Florida. The Retteraths also contend the district court erred in relying on
the choice-of-law clause in Homeland’s operating agreement.
Courts are divided in determining where the intangible property
interest in an LLC lies, and this is an issue of first impression in Iowa. See
JPMorgan Chase Bank, N.A. v. McClure, 393 P.3d 955, 958–59 (Colo. 2017)
(en banc). We have previously held the situs of similar forms of intangible
personal property, such as corporate stock, “is governed by the law of [the
owner’s] domicile, and not by the law of the corporate domicile.” 1 Judy v.
Beckwith, 137 Iowa 24, 30, 114 N.W. 565, 567 (1908); see, e.g., City of
Dubuque v. Ill. Cent. R.R., 39 Iowa 56, 84, (1874) (“As a rule of law, the
situs of [railroad rolling stock] is determined by the domicile of the owner.
This is true as to questions affecting the sale, distribution, and right of
possession thereof.”). However, an individual’s interest in an LLC is unlike
other forms of intangible personal property since the typical levying
procedures available to creditors for similar forms of intangible personal
property are unavailable to creditors seeking to levy an individual’s
interest in an LLC. Iowa and Florida both have adopted forms of the
Revised Uniform Limited Liability Company Act (RULLCA). See Iowa Code
§ 489.101 (2017); Fla. Stat. Ann. § 605.0101 (West, Westlaw through 2019
1st Reg. Sess. through Mar. 18, 2019). Under the RULLCA in Iowa, a
charging order is “the exclusive remedy by which a person seeking to
enforce a judgment against a member or transferee may, in the capacity
1An individual’s interest in an LLC is considered personal property under Iowa
law. Iowa Code § 489.501 (“A transferable interest is personal property.”).
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of judgment creditor, satisfy the judgment from the judgment debtor’s
transferable interest.” Iowa Code § 489.503(7). Likewise, in Florida,
a charging order is the sole and exclusive remedy by which a
judgment creditor of a member or member’s transferee may
satisfy a judgment from the judgment debtor’s interest in a
limited liability company or rights to distributions from the
limited liability company
unless the limited liability has only one member. Fla. Stat. Ann.
§ 605.0503(3).
Charging orders provide a judgment creditor with the ability to
satisfy a judgment from the judgment debtor’s transferable interest in an
LLC while simultaneously allowing the LLC to protect its other members’
interests and continue operating. 51 Am. Jur. 2d Limited Liability
Companies § 23, at 858–59 (2011). A charging order allows a judgment
creditor to obtain “a lien on a judgment debtor’s transferable interest and
requires the limited liability company to pay over to the person to which
the charging order was issued any distribution that would otherwise be
paid to the judgment debtor.” Iowa Code § 489.503(1); see also Fla. Stat.
Ann. § 605.0503(1) (“[A] charging order constitutes a lien upon a judgment
debtor’s transferable interest and requires the limited liability company to
pay over to the judgment creditor a distribution that would otherwise be
paid to the judgment debtor.”). This remedy is unique to an interest in an
LLC, as it is premised upon the distinct ability to separate the individual’s
economic interest in an LLC from the LLC’s operations and the interests
of its other members. See 51 Am. Jur. 2d Limited Liability Companies § 23,
at 858–59.
Charging orders are not available for other forms of intangible
personal property. Moreover, both Iowa and Florida law concerning a
“transferable interest” in an LLC characterizes the LLC as the core of the
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interest. Specifically, Iowa law defines a “transferable interest” in an LLC
as
the right, as originally associated with a person’s capacity as
a member, to receive distributions from a limited liability
company in accordance with the operating agreement,
whether or not the person remains a member or continues to
own any part of the right.
Iowa Code § 489.102(24) (emphasis added). Florida similarly defines a
“transferable interest” as
the right, as initially owned by a person in the person’s
capacity as a member, to receive distributions from a limited
liability in accordance with the operating agreement, whether
the person remains a member or continues to own a part of
the right.
Fla. Stat. Ann. § 605.0102(66). The individual LLC member, and thus the
location of the member, is secondary to the member’s transferable interest
in the LLC. See Iowa Code § 489.102(24); see also Fla. Stat. Ann.
§ 605.0102(66). Consequently, while the Retteraths are correct to note
their Homeland interests are personal property under the law, there are
unique attributes of a membership interest in an LLC that render our
traditional debtor-domicile analysis applied to other forms of intangible
personal property inadequate with regard to the situs of a membership
interest in an LLC.
For the purposes of determining the enforceability of a charging
order, we hold that a member’s membership interest is located where the
LLC was formed. Our holding aligns with the anomalous characteristics
of a membership interest in an LLC, particularly because a charging order
is directed to the LLC rather than the individual member since it requires
the LLC to redirect the debtor-member’s distributions to the creditor. See
Iowa Code § 489.503(1); see also Fla. Stat. Ann. § 605.0503(1).
Additionally, Iowa law governs an LLC’s “internal affairs” and “[t]he liability
of a member as member and a manager as manager for the debts,
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obligations, or other liabilities” of the LLC. Iowa Code § 489.106. Locating
the membership interest in the state in which the LLC was formed
recognizes this authority and promotes uniformity. “To conclude
otherwise (i.e., that the interest lies wherever the debtor happens to be
domiciled) could result in substantial uncertainty and confusion,” as an
LLC could become subject to various and competing charging orders from
differing foreign jurisdictions. JPMorgan Chase Bank, N.A., 393 P.3d at
959. Likewise, our holding creates certainty for creditors because it
provides them with a fixed jurisdiction to pursue charging orders.
In this case, the Retteraths’ interests in Homeland exist under Iowa
law, and their creditor’s remedies are also limited by Iowa law.
Accordingly, we hold membership interests in an LLC are located in the
state where the LLC is formed. The district court correctly concluded Iowa
law applies to this case. Further, the district court correctly dismissed the
Retteraths’ petition to vacate the charging order since Iowa law does not
recognize the ownership of property by a married couple as tenants in the
entireties. See Fay v. Smiley, 201 Iowa 1290, 1294, 207 N.W. 369, 371
(Iowa 1926) (“Assuming for the purpose of this division of this opinion, that
this deed, in the eyes of the common-law rule, would create an estate in
entirety, we have to say that such a construction has never been
recognized under the Iowa practice; and, when attempts have been made
to induce the court to make such construction, it has refused to do so.”).
Given this lack of recognition of the doctrine of tenants in the entireties,
the district court also correctly found the foreign judgments were properly
registered and the charging order was properly issued. Similarly, we need
not address Analia’s due process claim since Iowa does not recognize her
right to own Homeland interests jointly with her husband as a tenancy by
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the entireties. She was not entitled to notice since she is not a judgment
debtor of WFEFI.
B. Registration of Foreign Judgments. The Retteraths contend
the district court erred in concluding the foreign judgments were properly
registered and the charging order was properly issued. When a judgment
creditor files a foreign judgment, “the judgment creditor or the creditor’s
lawyer shall make and file with the clerk of court an affidavit setting forth
the name and last known post office address of the judgment debtor, and
the judgment creditor.” Iowa Code § 626A.3(1). Additionally,
[p]romptly upon the filing of the foreign judgment and the
affidavit as provided in subsection 1, the clerk shall mail
notice of the filing of the foreign judgment to the judgment
debtor at the address given and shall make a note of the
mailing in the docket. The notice shall include the name and
post office address of the judgment creditor and the judgment
creditor’s lawyer, if any, in this state.
Id. § 626A.3(2).
When WFEFI filed its foreign judgment in district court on December
22, 2015, it also filed an affidavit in support of the foreign judgment that
listed Jason’s name and last known address pursuant to section
626A.3(1). WFEFI also mailed a copy of its application for charging order
on January 6, 2016, which included notice of the filing of the Florida
judgments. Further, WFEFI mailed Jason a copy of its vice president’s
affidavit of the amounts due on the judgment on January 8. However, the
clerk of court never made a note of the mailing of the filing of the foreign
judgment in the docket as required under section 626A.3(2).
Consequently, the Retteraths maintain the foreign judgments were not
properly registered and the district court acted in excess of its jurisdiction
by issuing the charging order.
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“[N]ot all departures from the literal language of [a] rule have been
held to be fatal.” Gordon v. Doden, 261 Iowa 285, 288, 154 N.W.2d 146,
147 (1967). “[M]ere irregularities relating principally to the form of the
notice or to technical or clerical errors will not be fatal to the jurisdiction
of the court[.]” Id. at 288, 147–48. For example, in Buena Vista Manor v.
Century Manufacturing Co., we held the plaintiff sufficiently complied with
a statute to establish jurisdiction over a nonresident of Iowa even though
plaintiff did not comply with all of the statutory notice requirements. 221
N.W.2d 286, 288 (Iowa 1974). There, the statute required the plaintiff to
make original notice by mailing the original notice to the defendant within
ten days after filing the notice with the secretary of state. Id. The
defendant received the notice more than ten days after it was filed with the
secretary of state because the plaintiff’s letter was returned and marked
“unclaimed” the first time it was sent to the defendants. Id. The plaintiff
sent an identical notice to an updated address the day after its first notice
was returned, and the defendant received this notice. Id.
In concluding the plaintiff adequately provided the defendant with
notice in order for the Iowa district court to secure jurisdiction over the
nonresident defendant, we explained that the plaintiff fulfilled the
legislature’s intent for the defendant to receive the notice. Id. We also
noted the plaintiff “gave defendant notice of when, where and what to
defend,” and “[t]he only reason defendant failed to receive notice was
beyond the control of plaintiff.” Id. Similarly, regardless of whether the
clerk of court noted the mailing of the filing of the foreign judgment, WFEFI
provided Jason with notice of the filing and application for charging order.
Although the Retteraths argue the district court was incorrect when
it found Jason was provided notice of the filing of the foreign judgment and
Jason’s affidavit stated he did not “receive service of process or otherwise
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receive notice of the proceedings that resulted in the Charging Order,”
there is substantial evidence to support the district court’s finding. See In
re Tr. of Killian, 494 N.W.2d at 675. “Proof that a document was properly
mailed raises a presumption that it was received.” Montgomery Ward, Inc.
v. Davis, 398 N.W.2d 869, 870 (Iowa 1987). Here, WFEFI offered the proofs
of service contained in both the application for the charging order and the
affidavit regarding the amounts due, which were sent on different dates.
WFEFI also properly registered its foreign judgments in Iowa. Based on
this evidence, there was substantial evidence to support the district court’s
conclusion that Jason had adequate notice of the filing of the foreign
judgment. Thus, the clerical error was not fatal to the district court’s
jurisdiction to issue the charging order. See Gordon, 261 Iowa at 288, 154
N.W.2d at 147 (“[M]ere irregularities relating principally to the form of the
notice or to technical or clerical errors will not be fatal to the jurisdiction
of the court[.]”). We affirm the district court decision to uphold the validity
of the charging order on jurisdictional grounds.
C. Due Process. The Retteraths argue the district court erred in
concluding there were no state or federal due process grounds to vacate
the charging order because the statutory scheme of Iowa Code chapter
626A, the Uniform Enforcement of Foreign Judgments Act (UEFJA),
violates their right to procedural due process. As we have already noted,
Iowa Code section 626A.3(2) requires the clerk of court to “mail notice of
the filing of the foreign judgment to the judgment debtor at the address
given,” and this “notice shall include the name and post office address of
the judgment creditor and the judgment creditor’s lawyer, if any, in this
state.” Iowa Code § 626A.3(2). The Retteraths argue the notice
requirements of chapter 626A are unconstitutional because they only
require service by regular mail and mandate that service is complete upon
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mailing and entry of the mailing in the docket without any certification of
where the mailing went.
The Iowa Constitution’s due process provision establishes that “no
person shall be deprived of life, liberty, or property, without due process
of law.” Iowa Const. art. I, § 9. Similarly, the Fourteenth Amendment to
the United States Constitution provides that “[n]o state shall . . . deprive
any person of life, liberty, or property, without due process of law.” U.S.
Const. amend. XIV, § 1. Neither party argues the alleged due process
violation should be analyzed differently under the Iowa Constitution than
under the United States Constitution, so “we will rely on the principles
developed in the federal case law in analyzing [the Retteraths’] state due
process claim.” War Eagle Vill. Apartments v. Plummer, 775 N.W.2d 714,
719 (Iowa 2009). Due process entitles an individual whose property
interests are at stake “to adequate notice and a reasonable opportunity to
be heard.” Id. We apply a two-step analysis “[t]o determine whether the
individual is entitled to these protections,” asking first whether “the
individual has been deprived of a protected liberty interest or property
interest,” and “[i]f so, . . . what process is due for that specific interest.”
Id.
The Retteraths rely on our holding in War Eagle Village Apartments
in which we held the service of original notice of a forcible entry and
detainer by certified mail without requiring a signed return receipt violated
the Due Process Clauses of the Iowa Constitution and the United States
Constitution. Id. at 720–21. In doing so, we proclaimed, “[D]ropping a
letter in a mailbox is not notice . . . . It is mere lip service to meaningful
notice.” Id. at 721. Nevertheless, the Retteraths’ reliance on War Eagle
Village Apartments is misplaced because the mailing of original notice of a
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forcible entry and detainer in War Eagle Village Apartments is different
from the postjudgment collections procedure at issue in this case.
Although the Retteraths are similarly being deprived of a property
interest through the filing of the foreign judgments and subsequent
charging order, the basic due process requirements of notice and a hearing
were already met by the Florida court when it entered the judgments.
WFEFI is merely seeking to enforce these judgments against Jason.
“[W]hen the creditor’s interest in collecting a valid judgment is balanced
against the debtor’s interest in keeping his property, which has already
been protected by prior notice and hearing,” due process is satisfied under
the State and Federal Constitutions by the procedures of the UEFJA.
Gedeon v. Gedeon, 630 P.2d 579, 583 (Colo. 1981). Therefore, we affirm
the judgment of the district court.
IV. Conclusion.
We affirm the judgment of the district court for the aforementioned
reasons.
AFFIRMED.
All justices concur except Waterman and Mansfield, JJ., who take
no part.