Opinion ID: 6500405
Heading Depth: 2
Heading Rank: 3

Heading: Harvest Properties Litigation

Text: Baker and Duffus were personally liable for a large bank loan to their LLC that financed the Harvest Properties venture.14 In 2007, after the venture failed, the bank sued to recoup its money.15 Duffus and Baker each settled with the bank, but litigation between the two proceeded to a jury trial in 2016.16 Duffus obtained a roughly $1.2 million judgment against Baker,17 and Baker appealed.18 While the case was on appeal, in May 2017 the Harvest Properties court granted Duffus a charging order against LLC distributions flowing from Baker’s 50% membership in Aurora Park. D. Aurora Park Lawsuit And Further Harvest Properties Action Taking the Harvest Properties and Marion Bowen judgments together, by 2017 Baker owed Duffus roughly $1.5 million, excluding interest. Duffus’s path to recovery soon got more complicated. Northern Trust Real Estate, Inc. is a corporation; its purpose is managing Aurora Park and it is owned 100% by Patricia Baker, Baker’s ex-wife and the other 50% member of Aurora Park.19 Northern Trust and Aurora Park sued Baker in August 2016, alleging that Baker had violated his fiduciary duties to Aurora Park and failed to make 14 Baker v. Duffus, 441 P.3d 432, 434 (Alaska 2019). 15 Id. 16 Id. at 434-35. 17 Id. at 435. 18 Id. 19 To avoid confusion, we hereafter refer to Patricia by her first name. We intend no disrespect. -6- 7602 capital contributions. Patricia joined as an individual plaintiff in early 2018. Part of the dispute concerned the effect of Duffus’s 2017 Harvest Properties charging order on Baker’s interest in Aurora Park. The charging order potentially triggered a clause in Aurora Park’s operating agreement that would allow Aurora Park to acquire Duffus’s interest in the charging order. Duffus, Patricia, and Aurora Park agreed that Aurora Park would sell the Apartments and distribute Baker’s share of the proceeds (50%) to Duffus. But Baker argued that the Aurora Park operating agreement did not authorize such a sale; the sale never happened. Instead, in September 2018 the parties settled, without including Duffus, and the case was dismissed with prejudice. The settlement agreement set out four contingencies depending on whether Patricia and Aurora Park could sell or refinance the Apartments. The parties ended up within the contingency applicable if Patricia were “unable to refinance the [Apartments] by April 1, 2019.” Under this contingency, Baker agreed to quitclaim his interest in Aurora Park to Patricia in exchange for a $50,000 payment. Patricia and Northern Trust additionally agreed to pay $250,000 to Jones Law Group (JLG), the firm representing Baker in the Aurora Park lawsuit and other litigation. The settlement was structured with initial $50,000 payments to Baker and to JLG, with subsequent $3,000 monthly payments to JLG until the remaining $200,000 was paid in full. Patricia and Northern Trust also agreed to execute a $200,000 confession of judgment in JLG’s favor in case of missed payments. The two initial $50,000 payments were, by agreement, deposited with the court registry. After the Aurora Park settlement, Duffus attempted to intervene in that lawsuit; he argued that the Harvest Properties charging order applied to the settlement funds because Aurora Park had violated its agreement to sell the Apartments and give him 50% of the proceeds. In January 2019 the Aurora Park court told Duffus to seek relief from the Harvest Properties court that had issued the charging order. Duffus then -7- 7602 returned to the Harvest Properties court; in April that court held that the charging order applied to the entirety of the settlement funds.20 The Harvest Properties court ordered the settlement funds paid to the court registry for distribution to Duffus. In May we reversed the Harvest Properties judgment underlying the charging order and remanded for a new trial.21 Duffus then returned to the Marion Bowen litigation, where Baker’s unpaid $150,000 confession of judgment from 2008, with interest, had ballooned to an outstanding debt of roughly $460,000. Duffus asked the Marion Bowen court to issue its own charging order against the Aurora Park settlement funds.22 E. Proceedings Underlying This Appeal The Marion Bowen court held an October hearing on Duffus’s request for a charging order and granted the order in December. The court directed the entirety of 20 The Harvest Properties court reasoned that its charging order “include[d] language intended to ensure that it applie[d] to a broad set of payments that might be made on behalf of [Baker]” and pointed out that the charging order characterized “[d]irect or indirect payments” to Baker as “distributions.” The Harvest Properties court concluded that the $50,000 paid to Baker was a direct payment while the $250,000 payable to JLG was an indirect payment because it would “benefit[] [Baker] by eliminating or reducing his debt to his lawyers.” The Harvest Properties court also concluded that the payments were Aurora Park distributions, despite coming from Patricia and Northern Trust, because “[t]he sale proceeds of the transaction that eliminated [Baker’s] interest in Aurora [Park] were an asset of Aurora [Park] that are to be transferred to [Baker].” 21 Baker, 441 P.3d at 438. 22 After we reversed the Harvest Properties judgment, the Harvest Properties court ordered the settlement funds to remain in the court registry until their status could be determined by the Marion Bowen court. Baker disputes the propriety of this action, but the Harvest Properties court’s order is not before us in this appeal, which comes only from the Marion Bowen litigation. -8- 7602 Baker’s Aurora Park settlement funds be distributed to Duffus. The court’s reasoning echoed that of the Harvest Properties court; the settlement funds Patricia and Northern Trust paid Baker were Aurora Park “[buying out] . . . Baker’s interest and, thus, the payments constitute[d] distributions.” The court also reasoned that the payments to JLG were covered by the charging order as “indirect” payments to Baker because they reduced his debt to his attorneys. The Marion Bowen court appears to have concluded that, for purposes of the charging order, payments made by Patricia and Northern Trust counted as distributions from Aurora Park. For example, the Marion Bowen court cited an order from the Harvest Properties court to support the position that “Aurora Park paid the first $100,000 [of the settlement funds] to the court registry.” But the Harvest Properties court order states that Patricia paid these funds. The Marion Bowen court also wrote that Aurora Park “or its other princip[al], . . . Patricia[,] . . . agreed to pay [the settlement funds].” As we explain later, the distinctions matter. After granting Duffus’s charging order, the Marion Bowen court learned that another lien had been filed against Baker’s settlement funds. During the October hearing the court had asked whether there was an attorney’s lien in the Aurora Park lawsuit and had been correctly told there was not. But in November JLG filed an attorney’s lien in the Aurora Park lawsuit. Upon learning about the lien, the Marion Bowen court invited the parties to submit additional briefing regarding which instrument should take priority. The Marion Bowen court later concluded that it had authority to enforce the attorney’s lien even though the lien was filed in the Aurora Park lawsuit. The Marion Bowen court ultimately determined that the funds already in the court registry before the attorney’s lien was filed (roughly $122,000) could not be subject to the attorney’s lien but that the attorney’s lien took priority for the funds not yet paid (roughly $128,000). -9- 7602 The Marion Bowen court decided the charging order and attorney’s lien issues on the parties’ briefing; it did not conduct an evidentiary hearing about the source of the Aurora Park settlement funds or the value of the legal services JLG provided Baker in the Aurora Park lawsuit, although Baker and Duffus disputed key underlying facts. Duffus appeals, arguing the attorney’s lien is invalid, but, if valid, should not take priority over his charging order. Baker cross-appeals, arguing the charging order is invalid, but, if valid, should not take priority over the attorney’s lien.