Meyer et al v. Christie et al
MEMORANDUM AND ORDER denying as moot 394 Motion for Release of Supersedeas Bond; granting 395 Motion for Issuance of Charging Order; granting 397 Motion for Issuance of Order of Garnishment; granting 398 Motion for Issuance of Writ of General Execution; overruling in part and sustaining in part 414 Defendant's Objections to Form of Proposed Order for Disbursement of Supersedeas Bond; granting 427 Amended Motion for Order Directing Release of Supersedeas Bond; denying as moot 434 Motion for Status Conference. Signed by District Judge Carlos Murguia on 10/13/2011. (jw)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
ALAN E. MEYER, et al.,
DAVID J. CHRISTIE, et al.,
MEMORANDUM AND ORDER
Following remand from the Tenth Circuit’s decision in Meyer v. Christie, 634 F.3d 1152
(10th Cir. 2011) (affirming in part and reversing in part Meyer v. Christie, No. 07-2230-CM, 2009
WL 4782118 (D. Kan. Dec. 8, 2009)), this court entered a final amended judgment in favor of
plaintiffs Alan E. Meyer and John R. Pratt, and against defendants David Christie, Alexander Glenn,
and D.J. Christie, Inc., in the amount of $7,170,603, plus $100 in punitive damages, along with
costs. In an order dated July 18, 2011, the court addressed a number of motions, including:
Plaintiffs’ Motion for Release of Supersedeas Bond (Doc. 394); Plaintiffs’ Motion for Issuance of
Charging Orders (Doc. 395); Plaintiffs’ Motion for Issuance of Order of Garnishment (Doc. 397);
Plaintiffs’ Motion for Issuance of Writ of General Execution (Doc. 398); and Defendants’
Objections to Form of Proposed Order for Disbursement of Supersedeas Bond (Doc. 414). That
order was vacated as prematurely entered (Doc. 428), and the motions remain pending. Plaintiffs’
Motion for Release of Supersedeas Bond (Doc. 394) has been superseded by plaintiffs’ Amended
Motion for Order Directing Surety to Pay on Supersedeas Bond, and there has been additional
briefing on the motions. Also before the court is Plaintiffs’ Motion for Status Conference (Doc.
434). The motions are now ripe, and the court rules on them in the following manner.
D.J. Christie, Inc., Bankruptcy Petition and Adversary Proceeding
Defendant D.J. Christie, Inc., filed a Chapter 11 bankruptcy petition on May 20, 2011, in the
United States Bankruptcy Court for the District of Kansas, Case No. 11-40764. Filing of a
bankruptcy petition operates as stay against enforcement of judgment or proceedings against the
debtor. 11 U.S.C. § 362(a). Although partial relief from the automatic stay enabled this court to
enter a final amended journal entry of judgment pursuant to its July 15, 2011 Memorandum and
Order adjudicating the damage claim for lost contracting profits, the stay “does not allow for actual
post-judgment collection action nor any discovery process to aid in post-judgment collection.
However, the Debtor [D.J.Christie, Inc.,] may be required to respond to discovery propounded to it
the same as may be required of any other non-party witness.” Order Granting in Part Motion of
Alan E. Meyer and John R. Pratt to Modify the Automatic Stay, Case No. 11-40764-11 (Bkrtcy. D.
Kan. July 15, 2011).
On July 29, 2011, shortly after this court vacated its premature orders on the enforcement
motions, D.J. Christie, Inc., filed an adversary proceeding in the bankruptcy court naming Meyer,
Pratt, the surety (Washington International Insurance Company), Glenn, and Christie. In the
adversary proceeding, the debtor seeks, inter alia, a determination on whether it may offset certain
other judgments owed to it by Meyer and Pratt against the judgment it owes in this case. Case No.
11-07043. In this case, defendant has filed new responses to plaintiffs’ pending motions arguing
that the motions should be denied so that the bankruptcy court may determine whether the judgment
should be offset. Defendants suggest that failure to do so would result in an “absurdity,” and would
interfere with D.J. Christie, Inc.’s ability to reorganize in bankruptcy.
D.J. Christie, Inc., is protected by a stay in bankruptcy and to the extent plaintiffs seek relief
against D.J. Christie, Inc., plaintiffs’ motions are denied; that party shall not be subject to any writs
or orders entered as a result of this general order. However, the court concludes that the existence of
D.J. Christie, Inc.’s adversary proceeding in the bankruptcy court does not prevent this court from
entering orders enforcing the judgment against parties not subject to a stay in bankruptcy. Absurdity
or not, plaintiffs are entitled to seek satisfaction of their judgment. The offset issue is not before this
court, and will be decided only with respect to Debtor D.J. Christie, Inc., in its Chapter 11 case.
Supersedeas Bond (Docs. 394, 427)
Pursuant to an order of this court, defendants filed a supersedeas bond with the court in the
amount of $1.125 million. Plaintiffs ask the court to release the bond “to Meyer and Pratt” in partial
satisfaction of their judgment. They submitted a proposed order to this effect, to which defendants
objected on the basis that (1) it did not provide notice to the surety, as required by Rule 65.1; and (2)
it required payment to the “Bickle & Brewer IOLTA Account” rather than Meyer and Pratt, as
named in the motion and expressly named in the bond contract. In its July 18, 2011 Order, the court
denied the motion as moot in light of the fact that nothing of monetary value was deposited with the
court and at the time there was nothing for the clerk’s office to release.
Plaintiffs’ amended motion seeks entry of an order directing the surety to pay its liability
under the supersedeas bond, Doc. 373. In response, defendants argue that the surety’s obligation is
essentially void because defendants are entitled to have the instant judgment offset by judgments
owed by plaintiffs to defendants. They argue that “permitting Meyer and Pratt to collect on the bond
before the offset issue is determined by the United States Bankruptcy Court could interfere” with
defendant D. J. Christie, Inc.’s ability to reorganize in bankruptcy. As discussed previously, this
argument is unavailing. Plaintiffs are entitled to an order directing the surety to pay its liability
under the supersedeas bond. The amended motion (Doc. 427) is granted; the previous motion (Doc.
394) is denied as moot; and the court will promptly issue an order to this effect.
Charging Order (Doc. 395)
As previously set out by the court, plaintiffs ask this court to issue a charging order against
defendants’ Kansas limited liability company (“LLC”) interests as authorized by Fed. R. Civ. P. 69
and Kan. Stat. Ann. § 17-76,113.
Plaintiffs submitted a proposed order with the motion. Defendants object to the proposed
order to the extent that it (1) purports to reach non-Kansas LLCs; (2) may conflict with the terms of
the LLCs’ operating agreements relating to assignability; and (3) purports to be applicable to
subsequently-acquired member interests.
First, the proposed order specifically describes only defendants’ Kansas LLCs.
Second, although an operating agreement may absolutely prohibit transfers or assignments,
such prohibition cannot prevail over applicable law. See Kan. Stat. Ann. § 17-76,106 (stating:
“Notwithstanding anything to the contrary under applicable law, the operating agreement may
provide that a limited liability company interest may not be assigned prior to the dissolution and
winding up of the limited liability company.”)
The Kansas Revised Limited Liability Company Act (“KRLLCA”), Kan. Stat. Ann. § 177662 et seq., contains a provision recognizing the charging order as a remedy by which a judgment
creditor of a member can seek satisfaction by petitioning a court to charge the member’s LLC
interest with the amount of the judgment. Kan. Stat. Ann. § 17-76,113. The KRLLCA makes clear
that the charging order is the only remedy by which a judgment creditor of a member can reach the
member’s interest in the LLC. Id. The KRLLCA language was taken directly from limited
partnership law, and simply authorizes the charging order and states that the charging creditor has
the rights of an assignee of the LLC interest. See Hecker, Jr., Edwin W., The Revised Kansas
Limited Liability Company Act, 69 J. Kan. B. Assoc. 16, 25–26 (Dec. 2000) (citing the Uniform
Partnership Act § 28 (1914); Kan. Stat. Ann. § 56-la403; Kan. Stat. Ann. § 17-76,113).
The charging order remedy originated in the Uniform Partnership Act in 1914 (“UPA”). Id.
Under UPA § 28 and interpreting case law, a charging order affects only the debtor’s partnership
interest and does not permit the creditor to reach partnership assets. After obtaining a charging
order, the creditor is entitled only to the partner’s share of distributions and the partner’s share of
assets on liquidation after all partnership debts have been paid. See P’Ship L. & Prac. § 7:20 (citing
City of Ark. City v. Anderson, 752 P.2d 673 (Kan. 1988)). After the entry of a charging order, the
debtor partner continues to be a partner and retains all rights and obligations of a partner except the
right to receive partnership distributions until the creditor has been paid its judgment and interest
thereon. The creditor is not not entitled to participate in the management of the partnership. See id.
(citing Green v. Bellerive Condos. Ltd. P’ship, 763 A.2d 252 (Md. App. 2000), cert. denied, 768
A.2d 55 (Md. 2001) and cert. denied, 534 U.S. 824 (2001) (ruling that a charging order creditor does
not step into the debtor limited partner’s shoes with respect to management rights and information
rights and that the creditor could not participate in decisions concerning partnership opportunities).
However, as set out in the KRLLCA, where the member/debtor is the sole member of the LLC at the
time of the assignment under the charging order, the assignee/creditor shall have the right to
participate in the management of the business and affairs of the LLC as a member. Kan. Stat. Ann. §
17-76,112(f). The court believes these tenets of law apply to charging orders issued under Kan. Stat.
Ann. § 17-76,113.
The court does not believe it is appropriate, at this time, to issue a charging order purporting
to reach subsequently-acquired LLC interests. Plaintiffs may apply to the court to reach other
interests in satisfaction of their judgment as such interests materialize and are disclosed pursuant to
post-judgment discovery requests.
The court has reviewed the proposed order submitted by plaintiffs. With modifications as set
out above, the court finds that the order is appropriate. Plaintiffs’ Motion for Issuance of Charging
Orders (Doc. 395) is granted. Defendants’ objections are overruled in part and sustained in part.
For the reasons set out previously, defendants’ additional arguments based on the existence of
bankruptcy proceedings are unavailing. The court will issue a charging order promptly.
Garnishment (Doc. 397)
Plaintiffs’ motion (Doc. 397) is granted and the Clerk of the Court is directed to enter a writ
of garnishment in accord with applicable rules.
Writ of Execution (Doc. 398)
Plaintiffs’ motion (Doc. 398) is granted, and the Clerk of the Court is directed to enter a writ
of execution in accord with applicable rules.
Motion for Status Conference (Doc. 434)
In light of the foregoing, plaintiffs’ motion (Doc. 434) is denied as moot.
IT IS SO ORDERED.
Dated this 13th day of October 2011, at Kansas City, Kansas.
s/ Carlos Murguia
United States District Judge
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