Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-01678/USCOURTS-casd-3_15-cv-01678-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

TEXTRON FINANCIAL CORPORATION,

Plaintiff,

CASE NO. 15cv1678-LAB (DHB)

ORDER DENYING TEXTRON'S

MOTION TO CHARGE GALLEGOS'

MEMBERSHIP INTEREST

vs.

MICHAEL S. GALLEGOS,

Defendant.

Textron obtained a $21,921,165.45 judgment against Gallegos in the U.S. District

Court for the District of Rhode Island, but has only collected $10,484.99. (Docket nos. 40-1

and 40-6.) Its assignee, SPE LO Holdings, seeks a charging order against Gallegos' interest

in two entities: Pacific Pearl Hotels, LLC and Pacific Pearl Hotel Management, LLC. (Docket

no. 40.) SPE LO relies on California Secretary of State documents to establish Gallegos'

interest in the LLCs. (Docket nos. 40-2, 40-3, and 40-4.) Gallegos' name is listed on line 9

of the Secretary of State documents, which require the "name . . . of any manager . . . , or

if none have been appointed or elected, . . . the name . . . of each member." (Docket nos.

40-2 and 40-3.) His name is also listed on line 15, where he's identified as the "manager"

of both LLCs. SPE LO served the motion by mail on Gallegos and the LLCs. (Docket nos.

40-9 and 41.) 

Gallegos opposes the motion, arguing: (1) the Secretary of State records aren't

admissible; (2) Textron failed to serve the LLCs; and (3) Textron hasn't shown that he is a

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member of the LLCs. (Docket no. 47.) He doesn't contend that the Secretary of State

records are inaccurate. Nor does he deny that he's a member of the LLCs. He just argues

that SPE LO hasn't proved it.

Admissibility of Secretary of State Records

The Secretary of State filings are matters of public record whose accuracy cannot be

reasonably disputed. Potocki v. Wells Fargo Bank, NA, 2014 WL 2949286, at *1 n.1 (E.D.

Cal. June 30, 2014). The Court takes judicial notice of them.

Sufficiency of Service

When there's a money judgment against an LLC member personally, but not against

the LLC, the member's interest may be reached by a charging order. Cal. Code of Civ. P.

§ 708.310. A charging order is a lien on the member's distributional interest. 51 Am. Jur.

2d Limited Liability Companies § 23. It only allows the judgment creditor to receive

distributions to which the member would otherwise be entitled; it doesn't entitle the creditor

to participate in the LLC's management or exercise the rights of a member. Cal. Corp. Code

§§ 17701.02(aa), 17705.02, and 17705.03. It thereby "protect[s] other members of an LLC

from being forced to involuntarily share governance responsibilities with someone they did

not choose, or from being forced to accept a creditor of another member as a co-manager." 

In re First Prot., Inc., 440 B.R. 821, 829–30 (B.A.P. 9th Cir. 2010). 

Because the other LLC members are protected, a judgment creditor can obtain a

charging order under § 17705.03(a) without serving the LLC or making it a party. See Bank

of Am., NA v. Freed, 983 N.E.2d 509, 522 (Dec. 28, 2012) ("[C]harging orders on

distributional interests do not affect the rights or interests of the LLC to the degree necessary

to require that it be made a party. . . . It would be impractical and unnecessarily costly to

require a lender seeking charging orders to serve all of the entities in which a borrower has

an interest."). But, to obtain a lien on a judgment debtor's interest in an LLC before the court

issues a charging order, the judgment creditor must serve a notice of motion for charging

order on (1) the debtor and (2) the LLC or all of its members. Cal. Code of Civ. P. §

708.320(a). Service by mail is sufficient to satisfy § 708.320(a); personal service isn't

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required. See, e,g., Choice Hotels Int'l, Inc. v. Penta Denver LLC, No. 3:13-mc-80249, 2014

WL 458069, at *4 (N.D. Cal. Jan. 27, 2014); see also id. at Docket no. 8. Textron adequately

served Gallegos and the LLCs.

Gallegos' Interest in the Pacific Pearl Entities 

Entry of a charging order requires "substantial evidence" that the debtor is a partner

or member of the entity. See Ribero v. Callaway, 87 Cal. App. 2d 135, 139 (1948); Cf.

Regions Bank v. Alverne Associates, LLC, 456 S.W.3d 52, 58 (Mo. Ct. App. 2014). 

"Substantial evidence" means "such relevant evidence as a reasonable mind might accept

as adequate to support a conclusion." Braewood Convalescent Hosp. v. Workers' Comp.

Appeals Bd., 34 Cal. 3d 159, 164 (1983). It has been found where the debtor's interest was

evidenced by a certificate of limited copartnership, Ribero v. Callaway, 87 Cal. App. 2d at

137, and by previous declarations of the debtor and his partner, Safeco Ins. Co. of Am. v.

Raisch Co., 2013 U.S. Dist. LEXIS 39658, *2 (N.D. Cal March 20, 2013). 

Here, the Secretary of State documents establish that Gallegos is a manager of the

LLCs. But, an LLC can be managed by a non-member. Cal. Corp. Code §§ 17701.02 and

17704.07. While Gallegos' name is listed on line 9 of the Secretary of State documents,

where the LLCs could have listed a member if no manager had been appointed, line 15

establishes that a manager was appointed. Thus, the Secretary of State documents don't

prove Gallegos' membership interest in the LLCs, and SPE LO offers no other evidence that

Gallegos is a member. While they argue that he is a member in their motion, "statements

made in briefs are not evidence"—let alone substantial evidence. In re Heritage Bond Litig.,

2004 WL 1970058, at *4 (C.D. Cal. July 23, 2004).

Conclusion

SPE LO's motion for a charging order is DENIED WITHOUT PREJUDICE. It may

bring the motion again once it has substantial evidence of Gallegos' membership interest in

/ / /

/ / /

/ / /

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the LLCs. To avoid the possibility that Gallegos has avoided entry of a charging order by

playing coy, the Court authorizes SPE LO to pursue postjudgment discovery to determine

whether Gallegos is, in fact, a member of the LLCs.

IT IS SO ORDERED.

DATED: October 7, 2015

HONORABLE LARRY ALAN BURNS

United States District Judge

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