Bombay Development, LLC v. Jivana, LLC

Bombay Development, LLC v. Jivana, LLC, No. 1029-9-13 Cncv (Toor, J., Feb. 25, 2015).
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is not guaranteed.]
VERMONT SUPERIOR COURT
CHITTENDEN UNIT
CIVIL DIVISION
│
BOMBAY DEVELOPMENT LLC │
Plaintiff │
│
v. │ Docket No. 1029-9-13 Cncv
│
│
JIVANA, LLC and KATHLEEN │
HANSEN-BARRE │
Defendants │
│
RULING ON MOTION FOR SUMMARY JUDGMENT
Plaintiff in this case seeks to collect on two judgments previously issued against
Defendant Hansen-Barre totaling over $140,000. Plaintiff seeks, inter alia, a “charging order”
awarding it certain interests of Hansen-Barre in Defendant Jivana. Plaintiff has moved for
summary judgment. Chad Bonnani, Esq. represents Plaintiff; Mark Weiner, Esq. represents
Defendants.
Findings of Fact
Plaintiff filed a Statement of Undisputed Material facts as required by V.R.C.P. 56.
Defendants failed to file a response. Thus, the court deems all the facts admitted. V.R.C.P.
56(e)(2). Those undisputed facts establish the following.
Plaintiff Bombay obtained two judgments against Hansen-Barre, one for $19,121.47 and
one for $123,641.44. Hansen-Barre is the sole member of Jivana LLC, an active Vermont limited
liability company operating a spa on Church Street in Burlington. The LLC has no operating
agreement.
Hansen-Barre has stated that she intends never to pay the judgments against her. She
claims that the LLC has no financial statements, no annual reports, and no copies of any bills or
records of accounts receivable.
Conclusions of Law
Under Vermont law, a “charging order” may be obtained by a judgment creditor against a
member of a limited liability company. 11 V.S.A. § 3074. “A charging order is the postjudgment
remedy specifically tailored to obtain and enforce a lien on the economic value that flows from
membership in an LLC.” 51 Am. Jur. 2d Limited Liability Companies § 23 (WL updated Feb.
2015). The court may “charge the distributional interest of the judgment debtor to satisfy the
judgment.” 11 V.S.A. § 3014. The court “may appoint a receiver of the share of the distributions
due to the judgment debtor and make all other orders, direction, accounts and inquiries the
judgment debtor might have made or which the circumstances may require to give effect to the
charging order.” Id. Under the statute, a charging order is a “lien on the judgment debtor’s
distributional interest,” and the court may “order a foreclosure of [that] lien . . . at any time.” Id.
The statute goes on to say that it provides “the exclusive remedy by which a judgment creditor of
a member [of an LLC] may satisfy a judgment out of the judgment debtor’s distributional
interest in a limited liability company.” Id.
Plaintiff asks the court to move right to foreclosure, as well as appointing a receiver to
manage the assets of the LLC, arguing that other courts have found that all of a debtor’s interests
in a single-member LLC may be transferred to a creditor to satisfy a judgment. There appear to
be no Vermont cases applying or construing our statute. However, the court reads the cases
Plaintiff cites from other jurisdictions as turning either on separate statutes permitting execution
on an interest in an LLC, or on special procedures applicable in bankruptcy. See, e.g., Olmstead
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v. FTC, 44 So. 3d 76, 80-83 (Fla. 2010) (charging order is not the exclusive remedy; statutory
execution is also available); In re Albright, 291 B.R. 538, 541 (Bankr. D. Colo. 2003)(“Upon the
Debtor’s bankruptcy filing, she effectively transferred her membership interest to the estate”).
However, because our statute expressly says it is the only remedy for satisfying a creditor’s
interests in this situation, the court rejects that approach. Accord, 91st St. Joint Venture v.
Goldstein, 691 A.2d 272, 276 (Md. App. 1997)(In analogous partnership context, “there is
general agreement that the charging order is now the judgment creditor’s exclusive method of
reaching a partner’s interest in a partnership and that the creditor may no longer execute directly
on partnership property.”).
Under “charging order” statutes, the first step should be transfer of the distributional
interest. Foreclosure should be a second step, if the distributions are not sufficient to pay the
judgment in a reasonable time. See, e.g., 91st St., 691 A.2d at 278 (“[T]here seems to be at least
implicit agreement [in the case law] that the charging order statute provides two basic collection
methods: (1) the diversion of the debtor partner’s profits to the judgment creditor; and (2) the
ultimate transfer of the debtor partner’s interest should the first collection method prove
unsatisfactory.”)(emphasis added); Nigri v. Lotz, 453 S.E.2d 780, 783 (Ga. App. 1995)(“In
general, a charging order is considered the primary method of satisfying the creditor’s judgment,
but the further step of ordering a sale may be considered appropriate where it is apparent that
distributions under the charging order will not pay the judgment debt within a reasonable period
of time.”).
Defendants do not dispute the facts or the law discussed above. They merely argue that
there are significant debts against the LLC already, and thus no distributions can occur at this
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time. That may be, but nothing in the statute requires the court to deny a charging order in this
circumstance.1
Thus, the court concludes that it is appropriate at this time to grant the request for a
charging order against the distributional interests of Hansen-Barre, but that foreclosure should
not occur unless it appears that the distributional interest will not be a satisfactory solution.
Moreover, because of the claim that the LLC essentially keeps no records, and Hansen-Barre’s
expressed intent to never pay the judgments at issue, a third party is required to monitor the
business income and expenses to determine what is available to distribute. The court therefore
agrees that a receiver is necessary. As Defendants have expressed no objection to the accountant
proposed by Plaintiff, and do not challenge the proposed fees for the accountant, the court will
adopt Plaintiff’s proposal. The fees shall be paid out of the income of the LLC.
Order
The motion for summary judgment is granted. The court will issue a charging order.
Dated at Burlington this 25th day of February, 2015.
_____________________________
Helen M. Toor
Superior Court Judge
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Hansen-Barre also raises claims of exemptions. The court does not find them relevant to issuance of a charging
order. The issue may be raised if actual distributions are being made for which Hansen-Barre seeks an exemption. In
that instance, the Receiver shall hold the funds pending resolution by the court.
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