April 22, 2019

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.

Colorado Court of Appeals: Genuine Issues of Material Fact Precluded Judicial Dissolution of LLC

The Colorado Court of Appeals issued its opinion in Gagne v. Gagne on Thursday, September 25, 2014.

Limited Liability Company—Summary Judgment—Judicial Dissolution—Declaratory Judgment—Notice—Attorney Fees.

Paula and Richard Gagne, mother and son, are the sole members of the four limited liability companies (LLCs), each of which owns multi-unit apartment complexes. Richard initiated this action, alleging that he and Paula had been unable to agree on the continued operation and management of the LLCs and had reached an impasse as to an equitable distribution of the LLCs or their assets. Richard requested judicial dissolution of the LLCs, a declaratory judgment regarding their respective rights, and the appointment of a receiver. The district court issued a declaratory judgment, granted partial summary judgment to Paula on Richard’s judicial dissolution claim, denied Richard’s request to require Paula to disgorge the attorney fees that the LLCs paid on her behalf, and denied Richard’s requests for attorney fees.

On appeal, Richard contended that the district court erred in granting partial summary judgment to Paula on his claim for judicial dissolution. The Court of Appeals was unable to determine, as a matter of law, whether the LLC Agreements provide an effective means for resolving the disagreements between Paula and Richard. Because there were genuine issues of material fact precluding the entry of partial summary judgment on Richard’s judicial dissolution claim, the partial summary judgment on that claim was reversed.

Paula and Richard both asserted that the district court erred in its resolution of the parties’ declaratory judgment claims regarding the management of the properties. Because the LLC Agreements are ambiguous regarding these issues, the case was remanded for further findings regarding the parties’ intent.

Paula contended that the district court erred in entering a declaratory judgment regarding (and imposing remedies for her conduct as to) an employment contract she entered into with another son, Jay Gagne, and a loan she made to one of the LLCs in which Paula signed the paperwork as both lender and borrower. Because Richard never asserted any such claims for relief, and because the parties have not argued (and the record does not show) that such claims were tried by implied consent, Paula did not have proper notice of these claims and the court erred in entering a declaratory judgment on these claims.

Richard also contended that the district court erred in denying his motion to disgorge the attorney fees that the LLCs paid on Paula’s behalf in this case. Richard’s action represented an attempt to “undo” the LLCs and distribute their assets, and Paula, acting as Chief Executive Manager of the LLCs, defended against Richard’s efforts to do so. In these circumstances, Paula’s using of LLC funds to defend against Richard’s claims was not improper.

Richard further contended that the district court erred in denying his requests for attorney fees based on the dismissal of Paula’s counterclaims. However, Richard failed to establish that he is entitled to recover fees pursuant to CRS §13-17-201 on the facts of this case. The judgment was affirmed in part, reversed in part, and vacated in part, and the case was remanded with directions.

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