June 27, 2017

Colorado Supreme Court: Membership Interest of Non-Colorado LLC Member Located in Colorado for Charging Order Purposes

The Colorado Supreme Court issued its opinion in JP Morgan Chase Bank, N.A. v. McClure on Monday, April 10, 2017.

Limited Liability Companies—Membership Interests—Charging Orders—Priority.

This case concerns the relative priority of competing charging orders filed by multiple judgment creditors against a foreign judgment debtor’s membership interests in several Colorado limited liability companies (LLCs). The Colorado Supreme Court concluded that for purposes of determining the enforceability of a charging order, a membership interest of a non-Colorado citizen in a Colorado LLC is located in Colorado, where the LLC was formed. The court further concluded that when, as here, a judgment creditor obtains a foreign charging order that compels certain action by a Colorado LLC, the charging order is ineffective as against the LLC until the creditor has taken sufficient steps to obligate the company to comply with that order. Although the authorities are not uniform as to the steps to be taken, under any of the applicable scenarios, the charging orders obtained by the petitioner did not become effective until after the respondents had obtained and served their competing charging orders. Accordingly, the court concluded that respondents’ charging orders are entitled to priority over petitioner’s competing charging orders and therefore affirmed the judgment of the court of appeals.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: First in Time Charging Order Issued in Colorado Takes Priority

The Colorado Court of Appeals issued its opinion in McClure v. JP Morgan Chase Bank, NA on Thursday, August 13, 2015.

Charging Order Priority.

In July 2013, JP Morgan Chase Bank NA (Chase) obtained an Arizona judgment of roughly $20 million against Reginald D. Fowler and Spiral, an Arizona corporation. In November 2013, the Arizona court issued charging orders in favor of Chase, charging Fowler’s membership interests in three Colorado LLCs. In December 2013, the Chase charging orders were served on the LLCs, and the Denver District Court entered an order domesticating Chase’s Arizona judgment. In March 2014, the McClures obtained a $1.5 million judgment in Arizona against Fowler and Spiral. In April 2014, the McClures domesticated their Arizona judgment in Colorado by filing it in the Arapahoe County District Court. During May through June 2014, the Arapahoe Court issued charging orders in favor of the McClures, charging Fowler’s and Spiral’s membership interests in the same Colorado LLCs as those charged in the Chase charging orders, and the McClures served the orders on the LLCs. In August 2014, the Denver District Court entered an order domesticating Chase’s Arizona charging orders.

The LLCs paid Fowler’s distributions into the Arapahoe County District Court registry. The McClures filed a motion for release of the funds and Chase intervened in opposition. The district court ruled that because the McClures’ charging orders were issued by a Colorado court, they “were the first enforceable charging orders served on the [LLCs] and, hence, they have priority over [Chase’s] Arizona charging orders.”

On appeal, Chase argued it was error to rule that its Arizona charging orders were unenforceable in Colorado until they had been domesticated. The Court disagreed, holding that until it had domesticated the charging orders, they were unenforceable in Colorado.

Chase also argued that its first-in-time but (not yet) domesticated charging orders took priority over the McClure’s later-in-time but Colorado-issued charging orders. The Court held the priority of charging orders issued against Colorado LLCs is determined by first-in-time service of charging orders enforceable in Colorado. The order was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.