Title: SE Property Holdings, LLC v. David L. Harrell

State: alabama

Issuer: Alabama Supreme Court

Document:

Rel: November 5, 2021
Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern Reporter. 
Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts, 300 Dexter Avenue,
Montgomery, Alabama 36104-3741 ((334) 229-0649), of any typographical or other errors, in order that corrections
may be made before the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2021-2022
____________________
1190814
____________________
Ex parte SE Property Holdings, LLC
PETITION FOR WRIT OF CERTIORARI
TO THE BALDWIN CIRCUIT COURT
(In re: SE Property Holdings, LLC
v.
David L. Harrell)
(Baldwin Circuit Court, CV-10-901862)
____________________
1190816
____________________
SE Property Holdings, LLC
v.
David L. Harrell
Appeal from Baldwin Circuit Court
(CV-10-901862)
SHAW, Justice.
In case no. 1190816, the appellant and plaintiff below, SE Property
Holdings, LLC ("SEPH"), has appealed the Baldwin Circuit Court's denial
of its petition seeking to hold the appellee and defendant below, David L.
Harrell, in contempt for failing to comply with the trial court's
postjudgment charging order entered in a previous action involving the
parties and its failure to hold a hearing on its contempt petition.  In case
no. 1190814, SEPH has also petitioned this Court for a writ of certiorari,
seeking the same relief.  This Court consolidated the proceedings ex mero
motu. In case no. 1190816, we reverse the trial court's decision and
remand the case; in case no. 1190814, we dismiss the certiorari petition. 
Facts and Procedural History
In December 2006, Water's Edge, LLC ("Water's Edge"), a real-estate
development company, entered into a construction-loan agreement ("the
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agreement") with a bank that later merged into SEPH for two
construction loans totaling $17,000,000. Some of Water's Edge's members,
including Harrell, served as guarantors on the loans and, pursuant to the
agreement, guaranteed timely payment of the two loans by November 30,
2010. According to SEPH, the last payment made by Water's Edge on both
loans occurred in May 2010. 
In October 2010, SEPH sued Water's Edge and the loan guarantors,
including Harrell. Following years of litigation, the trial court entered a
judgment against Water's Edge for $13,863,052.94. The trial court also
entered a judgment against the guarantors, including Harrell, for
$9,084,076.14 on one loan and for different amounts totaling $2,297,431 --
including $84,392 against Harrell -- on the other loan.
In February 2015, SEPH filed a motion in the previous action
seeking a charging order pursuant to § 10A-5A-5.03, Ala. Code 1975, on
the basis that Harrell had not satisfied the judgment against him.
According to SEPH, Harrell owned a membership interest in various
companies, including Southern Land Brokers, LLC ("SLB"), formerly
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known as Alabama Land Brokers. Thus, under § 10A-5A-5.03, SEPH
contended, it was entitled to an order
"charging the membership interest of Harrell in the subject
Companies with payment of the unsatisfied amount of
[SEPH's] judgment, with accrued interest and costs. Under the
Charging Order, a lien is created on Harrell's interest, and the
Companies would be required to report and distribute to
[SEPH] any amounts that become due or distributable."
The trial court granted SEPH's request and issued a charging order
directing SLB and the other companies to "distribute to the Clerk of Court
any income, officer's fees, bonuses, distributions, salaries or dividends
paid or otherwise conveyed to [Harrell] by reason of any interest [he]
own[s] in the Limited Liability Companies until [SEPH's] judgment is
satisfied in full." According to SEPH, despite the entry of the trial court's
charging order, the judgment has not been fully satisfied. 
On June 12, 2020, SEPH filed a petition asking the trial court to
hold Harrell in contempt and to sanction him for violating the charging
order. According to SEPH, Harrell and his wife, Carolyn, each owned 50%
of SLB.  SLB's operating agreement required that all distributions,
profits, and income be distributed to each member based on their
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ownership interest in the company.1 SEPH alleged that, after the trial
court had entered its charging order, Harrell, as SLB's managing member,
began making distributions solely to Carolyn in violation of SLB's
operating agreement. Those distributions to Carolyn, SEPH alleged,
included distributions actually owed to Harrell, thereby violating the trial
court's charging order. 
SEPH also alleged that SLB had been making payments on Harrell's
American Express account for his personal expenses. Because those
expenses were not related to the business, SEPH alleged, those payments
were "de facto distributions" to Harrell that should have been paid to the
clerk of court in accordance with the charging order. In support of its
petition, SEPH attached numerous financial documents that it had
obtained from Harrell and SLB, including Schedule K-1 federal tax forms
on which Harrell declared that he had received distributions from SLB in
the years following the trial court's issuance of its charging order.
1A copy of the operating agreement was included in the record on
appeal.
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Harrell filed an objection to SEPH's petition in which he
acknowledged that, pursuant to § 10A-5A-5.03(a), the charging order
issued by the trial court gave SEPH the right to receive any distributions
from SLB to which Harrell would otherwise be entitled as a result of any
transferrable interest held by him in the company. He also acknowledged
that, pursuant to § 10A-5A-5.03(c), the charging order constituted a lien
on his transferrable interests and that § 10A-5A-5.03(f) provided the
exclusive remedy by which a judgment creditor of a member or transferee
could satisfy a judgment out of his transferrable interests. He asserted,
however, that SEPH's petition was due to be denied because, he said, he
had not transferred "any transferrable interest he maintains in and to
[SLB] and [he had] not received an actual cash distribution (K-1) from the
profits, if any, earned by [SLB]." No documentary evidence or affidavits
were filed with Harrell's objection.
After SEPH filed a response to Harrell's objection, the trial court,
without holding a hearing, issued an order on July 1, 2020, denying
SEPH's petition.
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As noted above, SEPH filed both an appeal and a petition for
certiorari review.  Before the adoption of Rule 70A(g), Ala. R. Civ. P., and
Rule 33.6, Ala. R. Crim. P., a trial court's contempt ruling was subject to
appellate review by a petition for a writ of certiorari.  Ex parte Dearman,
322 So. 3d 5, 9 n.5 (Ala. 2020) ("Before the adoption of Rule 33, Ala. R.
Crim. P., and its provision for the appeal of contempt findings, all
contempt findings were reviewed by petition for the writ of certiorari.").2 
Rule 70A(g), which was adopted in 1994 and is applicable in civil cases,
provides that an adjudication or finding of contempt is subject to direct
appeal.3  As SEPH correctly points out, the language of the rule
2Even when a party purported to appeal a trial court's contempt
ruling, our appellate courts treated those appeals as petitions for the writ
of certiorari. See, e.g., Thomas v. Thomas, 406 So. 2d 939, 941 (Ala. Civ.
App. 1981) ("Although the appropriate method of review of a contempt
order is by way of extraordinary writ, ... this court will treat the husband's
appeal as a petition for certiorari and consider his arguments
accordingly."). The same was true when a party appealed the denial of a
request for a finding of contempt, as was done in this case. See, e.g.,
Citicorp Person to Person Fin. Ctr., Inc. v. Sanderson, 421 So. 2d 1293,
1295 (Ala. Civ. App. 1982) ("Certiorari, and not an appeal, is the proper
method to review a trial court's action in refusing to hold a party in
contempt of court.").
3Rule 70A(g) provides:
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contemplates an appeal only when a party has been found in contempt; it
does not provide that an aggrieved party may appeal a trial court's order
denying a finding of contempt.  
However, our appellate courts have since clarified that, in many
cases, a petition seeking the imposition of sanctions based on a finding of
contempt initiates an independent proceeding that requires payment of a
filing fee. See, e.g., Morgan v. Morgan, 183 So. 3d 945 (Ala. Civ. App.
2014) (recognizing that an action for contempt requires the payment of a
new filing fee, new service of process, and the addition of a new suffix to
the case number); Kyle v. Kyle, 128 So. 3d 766, 772 (Ala. Civ. App. 2013)
(recognizing that " '[a] motion or petition seeking the imposition of
sanctions based on a finding of contempt initiates an independent
"(1) Where Contemnor Is in Custody. An adjudication of
contempt is reviewable by appeal if the person found in
contempt is being held in custody pursuant to that
adjudication, unless the writ of habeas corpus is an available
remedy.
"(2) Where Contemnor Is Not in Custody. If the person
found in contempt is not being held in custody pursuant to the
adjudication of contempt, the adjudication is reviewable by
appeal."
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proceeding that requires the payment of a filing fee.' " (quoting Kaufman
v. Kaufman, 934 So. 2d 1073, 1082 (Ala. Civ. App. 2005))); and Wilcoxen
v. Wilcoxen, 907 So. 2d 447, 449 n.1 (Ala. Civ. App. 2005) (recognizing that
the filing of a contempt petition initiated a separate and independent
proceeding from the underlying action). Under § 12-22-2, Ala. Code 1975,
an appeal lies from "any" final judgment of a circuit court or a probate
court. See, e.g., Richburg v. Richburg, 895 So. 2d 311 (Ala. Civ. App. 2004)
(recognizing that a judgment is final and appealable if it disposes of all the
claims and controversies between the parties). Our appellate courts have
previously reviewed denials of contempt petitions on appeal -- instead of
by certiorari petition -- in cases in which those denials were part of final
judgments. See, e.g., J.S.S. v. D.P.S., 281 So. 3d 434 (Ala. Civ. App. 2019);
Hummer v. Loftis, 276 So. 3d 215 (Ala. Civ. App. 2018); and Seymour v.
Seymour, 241 So. 3d 733 (Ala. Civ. App. 2017).Therefore, the denial of a
petition for contempt that initiates an independent proceeding and is
adjudicated in a final judgment is subject to appeal.  
In the present case, SEPH filed the underlying petition for contempt
and paid a filing fee, thereby initiating an independent action below. The
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trial court's judgment adjudicated all the claims against all the parties
and was a final judgment for purposes of Rule 54, Ala. R. Civ. P.
Therefore, the trial court's ruling is properly reviewed by appeal;
therefore, we dismiss SEPH's separately filed certiorari petition in case
no. 1190814 as superfluous.
Standard of Review
" 'The issue whether to hold a party in contempt is solely
within the discretion of the trial court, and a trial court's
contempt determination will not be reversed on appeal absent
a showing that the trial court acted outside its discretion or
that its judgment is not supported by the evidence.' "
J.S.S. v. D.P.S., 281 So. 3d at 437-38 (quoting Poh v. Poh, 64 So. 3d 49, 61
(Ala. Civ. App. 2010)).  See also Hummer v. Loftis, 276 So. 3d at 225.  
Discussion
SEPH argues that the trial court, in denying its petition to hold
Harrell in contempt for failing to comply with the charging order,
exceeded its discretion because, it says, the record contains undisputed
evidence establishing that Harrell violated the charging order. It also
argues that the trial court erred in denying its petition without first
holding a hearing on that petition.
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1190814, 1190816
Under Alabama law, 
"[o]n application to a court of competent jurisdiction by any
judgment creditor of a member or transferee, the court may
charge the transferable interest of the judgment debtor with
payment of the unsatisfied amount of the judgment with
interest. To the extent so charged and after the limited
liability company has been served with the charging order, the
judgment creditor has only the right to receive any
distribution or distributions to which the judgment debtor
would otherwise be entitled in respect of the transferable
interest."
§ 10A-5A-5.03(a). A "transferrable interest" is "a member's right to receive
distributions from a limited liability company or a series thereof." § 10A-
5A-1.02(t), Ala. Code 1975. "Distribution" is defined as "a transfer of
money or other property from a limited liability company, or series
thereof, to another person on account of a transferable interest." § 10A-5A-
1.02(h). A "distribution" does not include "amounts constituting
reasonable compensation for present or past services or reasonable
payments made in the ordinary course of the limited liability company's
activities and affairs under a bona fide retirement plan or other benefits
program." § 10A-5A-4.06(e), Ala. Code 1975.
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As noted previously, SEPH applied for and was granted a charging
order in 2015 after Harrell had failed to satisfy the judgment issued
against him. The trial court's charging order stated, in pertinent part:
"[A] lien is charged against the financial interests of David L.
Harrell in [SLB, Crystal Waters, LLC, Lowmar Properties,
LLC, and Harrell Development, LLC (the 'Limited Liability
Companies')] in the amount of $9,084,076.14 and $84,392.00,
being the unsatisfied judgment of December 17, 2014, plus
accrued interest on the judgment and that said [Limited
Liability] Companies are ORDERED to distribute to the Clerk
of Court any income, officer's fees, bonuses, distributions,
salaries or dividends paid or otherwise conveyed to [Harrell]
by reason of any interest [he] own[s] in the Limited Liability
Companies until [SEPH's] judgment is satisfied in full." 
The record before us indicates that Harrell and his wife, Carolyn,
each own 50% of SLB. SLB's operating agreement makes clear that the
profits and income earned by SLB must be distributed to Harrell and
Carolyn in proportion to their membership interests.
Despite the trial court's charging order requiring SLB to pay any
income or distributions that would normally be directed to Harrell to the
clerk of court until SEPH's judgment is satisfied in full, SEPH alleged
that, after the trial court entered its charging order, Harrell, as SLB's
managing member, began making distributions solely to Carolyn in
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1190814, 1190816
violation of SLB's operating agreement. SEPH further alleged that the
distributions Carolyn received included distributions owed to Harrell and,
thus, violated the trial court's charging order. Indeed, copies of Schedule
K-1 federal tax forms included in the record on appeal show that Harrell
and Carolyn each declared income and distributions from SLB for tax
years 2015-2017 -- the years following the issuance of the charging order --
in the total amount of approximately $415,000 each.
SEPH contends that this evidence demonstrates that Harrell and
SLB are intentionally evading the trial court's charging order and must,
therefore, be held in contempt. In his objection filed below, Harrell argued
that SEPH's petition was due to be denied because, he asserted, he had
not "received an actual cash distribution (K-1) from the profits, if any,
earned by [SLB]." However, Harrell did not provide any additional
information in support of that assertion. He also did not attach any
documentation or evidence to his objection showing that to be the case,
and there is nothing in the record before us, other than his conclusory
denial, supporting his assertion. There is nothing before us demonstrating
that he did not intentionally avoid otherwise required disbursements. In
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fact, as demonstrated above, the evidence before us indicates that the
opposite is true. 
In addressing civil-contempt issues, the Court of Civil Appeals
recently stated:
" ' " 'Civil contempt' is defined as a
'willful, continuing failure or refusal of
any person to comply with a court's
lawful writ, subpoena, process, order,
rule, or command that by its nature is
still capable of being complied with.'
Rule 70A(a)(2)(D), Ala. R. Civ. P...."
" 'Routzong v. Baker, 20 So. 3d 802, 810 (Ala. Civ.
App. 2009). " 'The failure to perform an act
required by the court for the benefit of an opposing
party constitutes civil contempt.' Carter v. State ex
rel. Bullock County, 393 So. 2d 1368, 1370 (Ala.
1981)." J.K.L.B. Farms, LLC v. Phillips, 975 So. 2d
1001, 1012 (Ala. Civ. App. 2007). Furthermore,
" '[t]he purpose of a civil contempt proceeding is to
effectuate compliance with court orders and not to
punish the contemnor.' Watts v. Watts, 706 So. 2d
749, 751 (Ala. Civ. App. 1997)." Hall v. Hall, 892
So. 2d 958, 962 (Ala. Civ. App. 2004).'
"Reed v. Dyas, 28 So. 3d 6, 8 (Ala. Civ. App. 2009) (emphasis
added)."
Cheshire v. Cheshire, 296 So. 3d 851, 862 (Ala. Civ. App. 2019). In the
present case, the evidence in the record demonstrates that Harrell
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"fail[ed] to perform an act required by the court for the benefit of an
opposing party."  Carter v. State ex rel. Bullock Cnty., 393 So. 2d 1368,
1370 (Ala. 1981). Thus, the trial court exceeded its discretion in denying
SEPH's petition based on the materials in the record.  
Further, our caselaw makes clear that "[a] person cannot be found
in contempt without a hearing."  Thompson v. Thompson, 649 So. 2d 208,
210 (Ala. Civ. App. 1994) (citing Rule 70A(c)(2), Ala. R. Civ. P.) . Indeed,
Rule 70A(c)(2) provides:
"Upon the filing of a contempt petition, the clerk shall issue
process in accordance with these rules, unless the petition is
initiated by a counterclaim or cross-claim authorized under
Rule 13[, Ala. R. Civ. P.]. In any case, the person against
whom the petition is directed shall be notified (1) of the time
and place for the hearing on the petition and (2) that failure to
appear at the hearing may result in the issuance of a writ of
arrest pursuant to Rule 70A(d), to compel the presence of the
alleged contemnor."
Nothing in the record before us indicates that a hearing was held or that,
if one was held, Harrell was "notified ... of the time and place for the
hearing on the petition." Thus, in case no. 1190816, we reverse the trial
court's judgment and remand the case for further proceedings consistent
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with this decision, including a hearing pursuant to Rule 70A(c)(2), at
which the parties may present their evidence. 
1190814 -- PETITION DISMISSED.
Parker, C.J., and Bryan, Mendheim, and Mitchell, JJ., concur.
1190816 -- REVERSED AND REMANDED.
Bryan, Mendheim, and Mitchell, JJ., concur.  
Parker, C.J., concurs in part and concurs in the result.
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PARKER, Chief Justice (concurring in part and concurring in the result
in case no. 1190816).
I agree that we have jurisdiction and that the judgment must be
reversed. SE Property Holdings, LLC ("SEPH"), filed legally sufficient
allegations of contempt, so the circuit court could not deny the claim
without holding the hearing required by Rule 70A(c)(2), Ala. R. Civ. P.
Thus, the circuit court's error was not holding David L. Harrell in
contempt without a hearing or proper notice, as the main opinion seems
to suggest, but denying the contempt claim without a hearing.
Moreover, within the context of contempt procedure, I believe that
Rule 70A(c)(2) contemplates an evidentiary hearing -- essentially a trial
on the contempt claim. As this Court has said, 
"[w]here an individual is charged with indirect or constructive
contempt [(which is now governed by Rule 70A(c))], due
process requires that he be given ... the right to call witnesses
and confront his accuser[] and the right to give testimony
relevant either to complete exculpation or to extenuation of the
offense and evidence in mitigation of the penalty to be
imposed."
State v. Thomas, 550 So. 2d 1067, 1073 (Ala. 1989). See, e.g.,
Augmentation, Inc. v. Harris, 225 So. 3d 103, 104-10 (Ala. Civ. App. 2016)
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1190814, 1190816
(illustrating evidentiary nature of hearing). Thus, to be in evidence,
documents supporting or opposing a finding of contempt must be
presented at that hearing.4 Therefore, contrary to the main opinion's
characterization, the documents filed in support of SEPH's contempt claim
were not evidence, and Harrell had no duty to respond by filing contrary
documents before a hearing. Accordingly, I disagree with the main opinion
where it indicates that the "evidence" established that Harrell was in
contempt and also faults Harrell for not filing contrary documents.
4Conceivably, at the evidentiary hearing a trial court could consider
previously filed documents as evidence if the opposing party does not
object, but that did not happen here because there was no evidentiary
hearing.
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