Dad was a debtor and owned 49% LLC (Mom owned 49%, and Son owned the other 2%). Creditor first moved to reverse veil-pierce the LLC, and the Court denied this request.
Creditor then obtained a Charging Order against Dad's 49% interest in the LLC. Then, Dad dies.
Creditor claimed that when Dad died, the LLC dissolved and the 49% of the assets should have been distributed to Creditor as holder of the Charging Order. A dispute ensued as to whether LLC dissolved, and whether an election to keep the LLC alive was made timely, or was backdated.
To short-circuit the case and avoid the backdating issue, Dad's Estate, Mom, Son and the LLC all moved for summary judgment, claiming that in the interim the judgment had expired, and had not been revived by the Creditor.
In opposition, the Creditor argued something to the effect that since the Charging Order was put in place before the judgment expired, the Charging Order is still valid. This argument was based on a peculiarity of Delaware law, which basically says that a creditor cannot enforce a judgment after five years of its issuance, unless the creditors goes to court and obtains permission to enforce that judgment through what is known as a Writ of Scire Facias (what would be known in many states as a Motion to Show Cause). But that is different from the judgment expiring, and in Delaware judgments do not expire, they are just presumed to have been paid after 20 years, and of course a creditor can rebut that presumption.
The Master appointed by the Court of Chancery ruled that the Charging Order was still valid because it was issued within five years of the Judgment, and Summary Judgment was denied on that issue. The Master then instructed the parties to get on with discovery of the alleged backdating issue.
ANALYSIS
While this opinion does not get to this issue, it does bring up the novel question of whether a Charging Order would survive an expired judgment. The so-called Harmonized Acts (the Uniform Partnership Act, the Uniform Limited Partnership Act, and the Uniform Limited Liability Company Act, and all their revisions) do not speak to the issue, and thus we are left to look to local Enforcement of Judgment Laws (EJLs) for guidance. This of course means that the outcome may vary from state-to-state.
In general, a Charging Order effectuates a lien on the debtor's economic rights a/k/a right to distributions. A Charging Order lien should probably be considered in the nature of a "judgment lien", and judgment liens typically evaporate when the underlying judgment expires. U.S. Mortgage v. Laubach, 73 P.3d 887 (Okla., 2003). Thus, if a Creditor allows the judgment to expire, the Charging Order lien will presumably expire with it.
The point is that a creditor seeking to collect against a debtor' interest must keep the underlying judgment from expiring, and not simply rely upon the Charging Order lien to collect.
Note that such is not what happened in this case, since under Delaware law a judgment never expires, but many states do have 5- or 10-year periods within which a judgment must be renewed or it forever expires.
CITE AS
Delaware Acceptance Corp. v. Estate of Metzner, 2016 WL 632893 (Del.Ch., Unpublished, Feb. 17, 2016). Full opinion at https://chargingorder.com/opinion-2016-delaware-metzner-charging-order.html
This article at http://onforb.es/1QTmUQO
