Court Opinion

ID: 3200586
Source: CourtListenerOpinion
Date Created: 2016-05-04 21:12:14.162797+00
Date Added: 2024-06-11T13:31:27.574002
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                               AT NASHVILLE
                                         April 12, 2016 Session

                   ROGERS GROUP, INC. v. PHILLIP E. GILBERT

                    Appeal from the Chancery Court for Davidson County
                      No. 131540IV Russell T. Perkins, Chancellor

                               ________________________________

                      No. M2015-01044-COA-R3-CV – Filed May 3, 2016
                           _________________________________

Judgment debtor appeals the entry of a charging order which subjected the debtor’s interest
in a limited liability company to satisfaction of the judgment debt. Finding that the charging
order is not a final judgment for purposes of appeal, we dismiss the appeal and remand the
case for further proceedings.

    Tenn. R. App. P. 3 Appeal as of Right; Appeal Dismissed and Case Remanded

RICHARD H. DINKINS, J., delivered the opinion of the court, in which W. NEAL MCBRAYER
and ARNOLD B. GOLDIN, JJ. joined.

Philip L. Robertson and Katherine Garro McCain, Franklin, Tennessee, for the appellants,
Stealth Group, Inc. and Phillip E. Gilbert1

Daniel H. Puryear and Mike Dillon, Nashville, Tennessee, for the appellee, Rogers Group,
Inc.

                                                  OPINION

       On April 10, 2014, the Davidson County Chancery Court granted Rogers Group, Inc.,
(“Rogers”) judgment in the amount of $214,071.62 against Stealth Group, Inc., and Phillip
Gilbert. The judgment became final, and on March 2, 2015, Rogers filed a motion for an
order charging Mr. Gilbert’s interest in a Limited Liability Company known as Grandview
Farms, LLC, (“Grandview”) in satisfaction of the judgment. Mr. Gilbert filed an objection to
the motion, asserting that his interest in Grandview was held as tenants by the entirety and
not subject to such an order. The Court entered the order on May 7, 2015. Mr. Gilbert

1
  Although Phillip E. Gilbert and Stealth Group, Inc. were the defendants in the trial court, the notice of appeal
in this case was only filed on behalf of Phillip E. Gilbert; notwithstanding this, briefs were filed on behalf of
both defendants. No issue pertaining to Stealth Group, Inc., is raised in this appeal.
appealed, asserting that the trial court erred in entering the order because he and his wife hold
their membership interests in Grandview as tenants by the entirety.

        Rogers has filed a motion to dismiss the appeal, contending that this Court does not
have subject matter jurisdiction over the appeal because the charging order “does not dispose
of all the issues pending in the Chancery Court” and, accordingly, the order is not a final
judgment appealable as of right as required by Tenn. R. App. P. 3. Mr. Gilbert opposed the
motion, and we reserved judgment pending briefing and oral argument.

      As a threshold matter, we consider whether the charging order at issue is a final
judgment, such that we have jurisdiction to consider the appeal. We begin our analysis with
an understanding of the purpose of a charging order:

        A charging order constitutes a lien on the judgment debtor’s distributional
        interest and requires the limited liability company to pay over to the person to
        which the charging order was issued any distribution that would otherwise be
        paid to the judgment debtor. The “limited liability company (LLC) charging
        order remedy” is a remedy derived from the charging order remedy created for
        the personal creditors of partners and affords a judgment creditor access to a
        judgment debtor’s rights to profits and distributions from the business entity in
        which the debtor has an ownership interest and precludes a judgment creditor
        from securing more than repayment of his or her debt. A charging order is the
        postjudgment remedy specifically tailored to obtain and enforce a lien on the
        economic value that flows from membership in an LLC. Under the Revised
        Uniform Limited Liability Company Act, a charging order is the exclusive
        remedy by which a person seeking to enforce a judgment against a member or
        transferee may, in the capacity of judgment creditor, satisfy the judgment from
        the judgment debtor’s transferable interest.

51 Am. Jur. 2d Limited Liability Companies § 23 (footnotes omitted).2

        Charging orders are authorized by Tenn. Code Ann. § 48–249–509, which states:

2
  This section of American Jurisprudence 2d discusses the Uniform Limited Liability Company Act and the
Revised Uniform Limited Liability Company Act, neither of which has been adopted in toto in Tennessee. In
this case, we construe the Tennessee Revised Limited Liability Company Act, found at Tenn. Code Ann. §§
48-249-101 et. seq., which applies to “every domestic LLC formed on or after January 1, 2006.” Tenn. Code
Ann. § 48-249-1002. The authority from American Jurisprudence 2d is instructive as we interpret and apply
the Tennessee statutes.
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       Rights of judgment creditor

       On application to a court of competent jurisdiction by any judgment creditor of
       a member or holder of financial rights, the court may charge such person's
       financial rights with payment of the unsatisfied amount of the judgment with
       interest. To the extent so charged, the judgment creditor has only the rights of
       a transferee of such person’s financial rights under § 48-249-507. This section
       does not deprive any member, holder or transferee of financial rights of the
       benefit of any exemption laws applicable to the membership interest or
       financial rights. This section is the sole and exclusive remedy of a judgment
       creditor with respect to the judgment debtor’s membership interest or financial
       rights.

       No other statute guides how a member’s interest may be executed upon to satisfy a
judgment against the member. We have been cited to no Tennessee cases addressing the
issue of finality of a charging order for purposes of appeal, and our research has revealed
none. In light of the function of a charging order, as explained at 51 Am. Jur. 2d, as well as
the cases discussed below, we deem it appropriate to look to the statutes, rules, and cases
pertaining to other forms of execution procedures, such as those involving garnishments.

      The similarity between a garnishment and a charging order was discussed in Arvest
Bank v. Byrd thusly:

       The charging order effectively acts to garnish the judgment debtor’s financial
       rights in the limited liability company; a judgment creditor can only collect
       when the limited liability company makes a distribution or other payment to
       the judgment debtor with respect to the judgment debtor’s transferable interest
       in the company.

No. 10-02004, 2014 WL 4161987, at *2 (W.D. Tenn. Aug. 19, 2014) (citing Tenn. Code
Ann. § 48-249-509). Garnishments are governed by Tenn. Code. Ann. §§ 26-2-201 et. seq.,
§§ 29-7-101 et. seq., and Tenn. R. Civ. P. 69.

       We also find guidance in following language from this Court’s opinion in Smith v.
Smith relative to the nature of a garnishment and the procedure a garnishee is to follow when
served:

       “Garnishment is in the nature of an attachment of a debt due the judgment
       debtor from the garnishee; and, service of the garnishment upon the garnishee
       is a warning to the garnishee not to pay the debt but to answer the garnishment
       and hold the fund subject to the orders of the Court.” Meadows v. Meadows,
       [Davidson Probate App. No. 88-135-II] 1988 WL 116382, at *3 (Tenn. Ct.
       App. Nov. 2, 1988) (quoting Stonecipher v. Knoxville Sav. & Loan, 42 Tenn.
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      App. 86, 298 S.W.2d 785 (1957)). If a garnishee answers the garnishment and
      admits a certain indebtedness to the judgment debtor, then a judgment against
      the garnishee in the amount of the admitted debt may be entered. See Tenn.
      Code Ann. § 29–7–112; Meadows, 1988 WL 116382, at *3. However,
      evidence may be offered to show that a different amount of indebtedness is
      due. After the trial court ascertains the proper amount of the garnishee’s
      indebtedness to the judgment debtor, it may enter a judgment on the
      garnishment against the garnishee. Meadows, 1988 WL 116382, at *3.

165 S.W.3d 285, 293 (Tenn. Ct. App. 2004) (footnotes omitted).

      The pertinent language of the charging order we review reads as follows:

      1. The interest of Defendant [Philip Gilbert] as a member in the LLC
      [Grandview Farms, LLC] be and hereby is subjected to an encumbrance and
      Charging Order in favor of and for the benefit of Plaintiff;

      2. Plaintiff shall serve a copy of this order on the LLC;

      3. Within 30 days of said service, the LLC is hereby directed to file with the
      Clerk of this Court a sworn answer reporting to the Court all amounts
      distributable or payable to Defendant at the time of service of this Order and at
      all subsequent times attributable to any interest owned in the LLC; and in such
      sworn answer and report, the LLC shall state the value, at the time of service
      of this Order and at all subsequent times, of both the capital and income
      accounts attributable to the interest of Defendant in the LLC.

      4. The LLC shall not distribute to Defendant any funds or assets whatsoever
      by virtue of Defendant’s interest as a member in or owner of any interest in the
      LLC, but instead shall pay over to Plaintiff all funds and assets whatsoever
      which, by virtue of Defendant’s interest as a member in or owner of an interest
      in the LLC would have been distributed to Defendant in the normal course of
      business of the LLC, up to the amount of the Plaintiff s judgment, plus all
      post-judgment interest that accrues on same.

      Rogers contends that the order is not final because Grandview has not filed the sworn
answer as ordered in paragraph 3, stating:

      The whole point of such an accounting report is to allow both the Chancery
      Court and the Plaintiff to examine the information contained in the report, and
      to respond with any action deemed necessary to effect the objective of the
      charging order. There is no value in obtaining information from a party, if no
      action is contemplated upon receipt of the information. In this case, the
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       required accounting report from the LLC is intended to aid the Chancery Court
       to make a determination as to the exact amount of money, if any, that the LLC
       owes to the Plaintiff once the LLC’s report is filed and rending the charging
       order not a final judgment.

Mr. Gilbert contends that the charging order is final and appealable “[b]ecause there are no
further merits for the trial court’s consideration.”

       Paragraph 1 of the charging order is declaratory in nature, establishing a lien on Mr.
Gilbert’s interest in Grandview to be used to satisfy Rogers’ judgment. Paragraph 3 specifies
the manner by which Grandview is to respond to the obligation imposed on it to implement
the “exclusive remedy . . . with respect to the judgment debtor’s membership interest or
financial rights.” Tenn. Code Ann. § 48-249-509. Paragraph 4 requires Grandview to pay to
Rogers those funds which would have been distributed to Mr. Gilbert in the ordinary course
of business. This process is similar to that at Tenn. R. Civ. P. 69.05(3). Significantly, where
the garnishee fails to answer or pay the funds into court, a conditional judgment may be
entered against the garnishee and, upon becoming final and a writ of execution issue, for the
total amount owed to the judgment creditor. Tenn. R. Civ. P. 69.05(4).

       In the case at bar, Grandview has not filed an answer as ordered. As noted in Smith,
the purpose of an answer is to determine “the proper amount of the garnishee’s indebtedness
to the judgment debtor” which may lead to the entry of a judgment on the garnishment
against the garnishee.” Smith, 165 S.W.3d 285, 293. Grandview stands in the position of
such a garnishee and, because it has not yet filed an answer, the trial court does not know the
value of Mr. Gilbert’s capital and income accounts or any amounts payable to him in the
ordinary course of business. In addition, Rogers has not had the opportunity to respond to the
same such that the court is able to craft the appropriate order to effectuate the rights granted
Rogers under Tenn. Code Ann. § 48-249-509. Thus, there are matters left for the parties and
the court to accomplish prior to entering an order which would provide the remedy which is
contemplated by Tenn. Code Ann. § 48-249-509; this renders this particular charging order
not final. See Ball v. McDowell, 288 S.W.3d 833, 836-37 (Tenn. 2009).

      We dismiss this appeal for lack of a final order and remand the case for Grandview to
comply with the charging order, thereby permitting the court to make the appropriate
determinations and to enter a final order in accordance with the rights granted Rogers, as
judgment creditor, under the statute.

                                                   RICHARD H. DINKINS, JUDGE

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