Summary
The Oregon Supreme Court considered whether a trial court could impose ancillary requirements in a charging order directed at a judgment debtor’s interests in limited partnerships and a limited liability company. The court held that such orders may be authorized when necessary to provide access to the debtor’s distributional interest without unduly interfering with company management, but concluded that the record did not support the requirements imposed in this case.
Topics
Practice areas
Questions Presented
- Whether ORS 70.295, through ORS 70.615 and ORS 67.205, authorizes a court to impose ancillary orders in aid of a charging order directed at a general partner's interest in a limited partnership.
- Whether ORS 63.259 or another source of law, including ORS 1.160, authorizes ancillary orders in aid of a charging order directed at an LLC member's interest.
- What standard governs ancillary orders that restrict entity transactions or require financial disclosures in connection with a charging order.
- Whether the record supported the ancillary provisions imposed by the circuit court.
Holdings
- ORS 70.295 incorporates the ancillary-order authority in ORS 67.205 through ORS 70.615. A court may issue ancillary orders in aid of a limited-partnership charging order when the orders are required to allow the judgment creditor access to the debtor-partner's distributional interest without unduly interfering with partnership management.
- Although ORS 63.259 does not itself expressly authorize ancillary orders, ORS 1.160 authorizes a court to employ additional means necessary to effectuate the charging-order jurisdiction conferred by ORS 63.259, subject to the same limitation against undue interference with LLC management.
- Ancillary orders are authorized only when the court determines that they are necessary to effectuate the judgment creditor's access to the debtor's distributional interest while avoiding undue interference with the partnership or LLC's management.
- The challenged ancillary provisions were unauthorized on the record because the evidence did not support a determination that they were necessary to make the charging order effective without undue interference with entity management.
Key quotations
“We hold that a trial court has either general or specific statutory authority to include, in a charging order, ancillary provisions that it finds necessary to allow a judgment creditor access to a debtor-partner’s distributional interest in a company, as long as those provisions do not unduly interfere with the company’s management.” (at 304)
“We conclude that such orders must be ones that allow a judgment creditor to reach a general partner’s financial interest in the partnership without unduly interfering with the partnership management.” (at 326-27)
“An ancillary order is authorized by ORS 1.160, in this context, if it is needed to effectuate those objectives.” (at 330)
Factual background
In 2012, Robert Law obtained a money judgment against Ronald Zemp. After unsuccessful collection attempts, Law sought orders charging Zemp's interests in four limited partnerships and Forever Young Oregon, LLC. The proposed and ultimately issued charging order required the entities to redirect distributions to Law and imposed additional restrictions on loans, transactions involving partnership interests, and disclosure of extensive financial information. The record before the circuit court principally established that Zemp was general partner of the limited partnerships and manager of the LLC, but did not establish that the ancillary provisions were necessary to reach Zemp's distributional interests without undue interference with entity management.
Procedural history
Law obtained a money judgment against Ronald Zemp and sought charging orders under ORS 70.295 and ORS 63.259. The circuit court issued a charging order containing ancillary restrictions on company transactions and financial-disclosure requirements. The Court of Appeals held that some ancillary provisions were authorized for the limited partnerships but none were authorized for the LLC. The Oregon Supreme Court reversed the Court of Appeals, reversed or vacated the circuit court order, and remanded for further proceedings under the standard announced in the opinion.
Remand instructions
The case is remanded to the circuit court for further proceedings. Law may present evidence satisfying the announced necessity-and-undue-interference standard or propose a new charging order with different, adequately supported ancillary requirements.