Court Opinion

ID: 5140878
Source: CourtListenerOpinion
Date Created: 2021-12-27 22:03:19.720557+00
Date Added: 2024-06-11T08:24:25.857140
License: Public Domain

Filed 12/27/21
            CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                    SECOND APPELLATE DISTRICT

                           DIVISION ONE

 WILLIAM E. RICE,                          B307780

           Plaintiff,                      (Los Angeles County
                                           Super. Ct. Nos. BC506921,
           v.                              BC619678)

 GARY P. DOWNS,

           Defendant and Respondent;

 GLASER WEIL FINK HOWARD
 AVCHEN & SHAPIRO, LLP,

           Appellant.

       *Pursuant to California Rules of Court,
rules 8.1105(b) and 8.1110, this opinion is certified for
publication, with the exception of part B.2 of the Discussion.
     APPEAL from an order of the Superior Court of
Los Angeles County, Rupert A. Byrdsong, Judge. Reversed and
remanded with directions.
     No appearance by Plaintiff.
     Glaser Weil Fink Howard Avchen & Shapiro,
Michael Cypers and Elizabeth G. Chilton for Appellant.
     Shaw Koepke & Satter, Jens B. Koepke and Anne M.
Huarte for Defendant and Respondent.
                  ____________________________

      Appellant Glaser Weil Fink Howard Avchen & Shapiro,
LLC (Glaser Weil), former counsel of plaintiff William Rice,
appeals from an order disgorging a $450,000 payment to Glaser
Weil by Triton Community Development LLC (Triton), an entity
owned and controlled by Rice. The trial court concluded the
payment should instead have gone to defendant and respondent
Gary Downs, who had obtained an order charging Rice’s interest
in Triton to satisfy an earlier judgment entered in Downs’ favor.1
      In contesting disgorgement, Rice and Glaser Weil asserted
that before Downs had moved for the charging order, Glaser Weil
had entered into agreements with Triton and Rice to ensure
payment of Glaser Weil’s legal fees, and those agreements took
precedence over the charging order. Specifically, Triton had
agreed to become co-obligor on Rice’s debt to Glaser Weil, and
Rice had also pledged his interest in Triton to Glaser Weil as
security on his debt. Although Rice and Glaser Weil did not
provide these agreements to the trial court, Rice and a Glaser

      1 This is the third appeal taken in this lawsuit. The first
two concerned the arbitrability of Rice’s causes of action. Rice is
not a party to this appeal.

                                    2
Weil partner submitted declarations attesting to the agreements,
along with a Uniform Commercial Code (UCC) financing
statement filed with the Secretary of State referencing, among
other things, Glaser Weil’s security interest in Triton.
       Glaser Weil argued that Triton made the $450,000
payment for its own obligations as co-obligor on Rice’s debt, and
therefore the payment was not a “distribution” to Rice subject to
the charging order. Alternatively, if the payment was a
distribution to Rice, Glaser Weil contended its security interest,
perfected before Downs moved for his charging order, had priority
over that order.
       The trial court found that Triton was Rice’s alter ego, and
rejected the argument that the payment was for Triton’s
obligation as opposed to Rice’s debt. The court agreed in theory
with Glaser Weil’s lien priority argument, but relied on its
equitable authority to place the charging order ahead of Glaser
Weil’s security interest.
       Like the trial court, we conclude that when Rice, as sole
managing member of Triton, directed the company to disburse
funds to pay his legal bills, it constituted a distribution to him
subject to the charging order.
       We disagree with the trial court on the lien priority
question, however, and hold that Glaser Weil’s security
agreement, perfected by the filing of a financing statement, has
priority over the later charging order. In the unpublished portion
of the opinion, we further conclude there was no equitable basis
to override Glaser Weil’s lien priority here, assuming arguendo a
trial court can override a statutory lien priority by exercising its
equitable power.

                                    3
       Because the trial court resolved the lien priority question
under its equitable authority, preferencing the charging order
regardless of whatever security interest Glaser Weil may have,
the court never made any factual findings as to the terms of the
security interest, including, among other issues, whether it
entitled Glaser Weil to the same property covered by the charging
order. We therefore reverse the disgorgement order and remand
for the trial court to make those findings in the first instance.

               PROCEDURAL BACKGROUND

1.    Downs’ judgment against Rice
       As alleged in Rice’s original complaint filed in this action,
Downs was Rice’s attorney. Rice and Downs joined with
Kristopher Kaufmann to form a company to develop affordable
housing. Problems arose, and Rice ultimately sued Downs
for legal malpractice, breach of fiduciary duty, breach of contract,
unjust enrichment, and rescission and restitution.
       Downs successfully moved to compel arbitration of Rice’s
complaint, which Rice then refiled as a cross-claim in an existing
arbitration initiated by Downs and Kaufmann. The arbitrator
issued an award that, as relevant here, obliged Rice to pay Downs
hundreds of thousands of dollars in attorney fees and costs. On
June 1, 2015, the trial court entered judgment confirming the
arbitration award with modifications not relevant to this appeal,
and awarded Downs additional fees and costs incurred in
obtaining that judgment.
       Rice and Downs both appealed. We held that the trial
court erred by compelling arbitration of Rice’s claims for legal
malpractice, breach of fiduciary duty, and rescission, but
otherwise affirmed the judgment. (Rice v. Downs (2016)

                                    4
248 Cal.App.4th 175, 179–180, 197 (Rice I).) The parties do not
dispute that our decision in Rice I implicitly affirmed the
judgment’s award of fees and costs to Downs, an award that Rice
did not challenge in Rice I.

2.    The charging order
       Rice I having revived Rice’s tort claims, the litigation
proceeded. In June 2017, Rice filed a first amended complaint
adding allegations related to transactions in Hawaii involving
Rice and Downs. Downs moved to compel arbitration of Rice’s
claims to the extent they arose from the new Hawaii allegations.
The trial court denied the motion, and Downs appealed. We will
refer to that appeal as Rice II.
       In the trial court, the parties disputed the scope of the
automatic stay triggered by the pending Rice II appeal under
Code of Civil Procedure section 916. Rice contended the stay
affected only his new Hawaii-based claims, the subject of Downs’
motion to compel arbitration, and the action otherwise should
proceed. Downs argued his appeal stayed the entire case. The
trial court agreed with Downs, and on January 30, 2018, issued
an order stating that “the entire action is stayed from proceeding
on the merits until the remittitur is issued.”
       Several months later, while Rice II was still pending,
Downs took action to enforce the June 1, 2015, judgment.
Specifically, on April 11, 2018, Downs moved for a charging order
directing various limited liability companies (LLCs) of which Rice
was a member to pay any distributions to which Rice was entitled
directly to Downs until the judgment was satisfied. Among the
listed companies was Triton, a company of which Rice was
founder and sole managing member.

                                   5
      On June 19, 2018, the trial court denied Downs’ motion for
a charging order, finding that the January 30 order staying the
entire litigation pending appeal applied to Downs’ attempt to
enforce the judgment. The judge who denied the motion,
Judge Moreton, was not the same judge who issued the January
30 stay order, Judge Palazuelos. Downs filed an ex parte
application requesting that Judge Palazuelos clarify that the
January 30 order did not apply to efforts to collect the
June 1, 2015, judgment. Judge Palazuelos denied the request.
      We issued our opinion in Rice II in July 2019, affirming the
denial of Downs’ motion to compel arbitration. (Rice v. Downs
(July 23, 2019, B286296) [nonpub. opn.].) The remittitur was
issued on September 23, 2019.
      On October 3, 2019, Downs again moved for a charging
order seeking to charge Rice’s interest in several LLCs, including
Triton. The trial court granted the motion on October 30, 2019,
ordering that Rice’s interest in the companies was “charged with
the unpaid balance of the [June 1, 2015,] judgment,” and the
companies “shall pay any money or property due or to become
due to [Rice] directly to [Downs] until the amount remaining due
on the judgment, plus all accrued interest and costs thereon, is
paid in full.”

3.    Motion to enforce the charging order
      Rice filed for Chapter 11 bankruptcy on January 27, 2020.
During that proceeding, he filed a monthly operating report
disclosing that in February 2020, Triton had paid $450,000 to
Glaser Weil, the firm representing Rice in his litigation against
Downs.

                                   6
       The bankruptcy court dismissed Rice’s case on
April 14, 2020, finding that “in the interest of judicial economy,
the parties should continue to litigate in state court.”
       On May 1, 2020, Downs moved in the trial court to enforce
the charging order, contending that Triton’s $450,000 payment to
Glaser Weil violated the order. Downs proposed three alternative
remedies: first, that Rice reimburse Triton the $450,000; second,
that Rice pay Downs $450,000 directly from his personal account;
or third, that the trial court order the $450,000 disgorged from
Glaser Weil and given to Downs.
       Downs’ motion also sought to recover $75,000 loaned by
Triton to pay Rice’s bankruptcy counsel, and $45,000 transferred
from Triton directly to Rice. Those payments are not at issue in
this appeal.

4.    Rice’s opposition
      In opposition to Downs’ enforcement motion, Rice
contended that months before Downs moved for the charging
order in October 2019, Triton had entered into an agreement
with Glaser Weil under which Triton became a co-obligor on
Rice’s debt to the law firm. The payment to Glaser Weil thus was
not a distribution to Rice subject to the charging order, but rather
“a payment made by Triton to satisfy its own debt” as co-obligor
on Rice’s debt.
      Rice further argued that even if Triton’s payment could be
considered a distribution due to Rice, Glaser Weil had a
“perfected security interest in those funds which was senior to
Downs’ lien arising from the charging order.” Specifically, Rice
contended that on the same date that Triton became co-obligor on
Rice’s debt to Glaser Weil, Rice also granted Glaser Weil a
security interest in his membership in Triton, and Glaser Weil

                                    7
perfected that interest by filing a UCC financing statement with
the Secretary of State. Rice claimed this all took place before
Downs obtained his October 2019 charging order.
       In support of this contention, Rice filed a declaration
asserting that on June 27, 2019, Triton entered into an
agreement with Glaser Weil “under which Triton became a co-
obligor with [Rice] for past and future fees charged by the firm for
its services in certain judicial and arbitration proceedings
including the actions in the California Superior Court for the
County of Los Angeles captioned William E. Rice v. Gary P.
Downs et al., Case No. BC506921 and William E. Rice v. Gary P.
Downs et al., Case No. BC619678, the arbitration proceedings
before JAMS captioned Kaufmann v. Rice, et al, JAMS Ref
No. 120048799, and related confirmation, vacatur and appellate
proceedings (collectively, the ‘Legal Proceedings’).” Rice claimed
the $450,000 payment was “pursuant to the obligation [Triton]
had undertaken to Glaser Weil . . . in partial payment for legal
services that had previously been rendered by Glaser Weil in the
Legal Proceedings.”
       Rice further asserted that on June 27, 2019, he and Glaser
Weil also entered into a “Pledge and Security Agreement” to
“secure [Rice’s] obligation to pay Glaser Weil for its past and
future services in the Legal Proceedings.” The agreement
“granted Glaser Weil a security interest in all distributions due to
[Rice] from Triton.”
       A declaration filed by Michael Cypers, a Glaser Weil
partner, echoed Rice’s assertions concerning the pledge and
security agreement, and stated the agreement “granted Glaser
Weil a security interest in, among other things, Rice’s

                                    8
membership interest in Triton and Rice’s right to receive moneys
or distributions from Triton.”
       The agreement between Triton and Glaser Weil and the
pledge and security agreement between Rice and Glaser Weil
were not attached to Rice’s or Cypers’s declarations. Those
agreements do not appear in the appellate record, and there is no
indication they were ever provided to the trial court.
       Attached to Cypers’ declaration, however, was a UCC
financing statement filed by Glaser Weil with the Secretary of
State on July 15, 2019. The statement identified Rice as debtor
and Glaser Weil as the secured party. Exhibit A to the financing
statement described the collateral securing Rice’s debt to Glaser
Weil. The collateral included, inter alia, “All of Debtor’s right,
title and interest in the property described in that certain Pledge
and Security Agreement dated June 27, 2019,” and “100% of
Debtor’s membership interests in Triton Community
Development LLC, a California limited liability company,
together with the certificates (if any) evidencing the same . . . .”2

      2  The full description of the collateral is as follows: “All of
Debtor’s right, title and interest in the property described in that
certain Pledge and Security Agreement dated June 27, 2019, by
Debtor, as pledgor, for the benefit of the Secured Party (‘Pledge
and Security Agreement’), whether now owned by Debtor or
hereafter acquired and whether now existing or hereafter coming
into existence; 100% of Debtor’s membership interests in Triton
Community Development LLC, a California limited liability
company, together with the certificates (if any) evidencing the
same; All ownership interests, membership interests, shares,
securities, moneys, instruments or property representing a
dividend, a distribution or return of capital upon or in respect of
the Pledged Interests, or otherwise received in exchange therefor,
and any warrants, rights or options issued to the holders of, or

                                     9
      In reply, Downs argued that Triton’s payment to Glaser
Weil was for legal services provided to Rice, not Triton, and thus
was effectively a distribution to Rice subject to the charging
order. Downs offered numerous arguments as to why Glaser
Weil’s security interest did not take priority over the charging
order. He argued the security interest had no effect absent a
default, and “[n]o party is alleging a default here.” He contended
that his first motion for a charging order filed in April 2018
created a lien that took precedence over Glaser Weil’s July 2019

otherwise in respect of, the Pledged Interests; All rights of Debtor
under the Relevant Documents or any other agreement or
instrument relating to the Pledged Interests, including, without
limitation, (i) all rights of Debtor to receive moneys or
distributions with respect to the Pledged Interests due and to
become due under or pursuant to the Relevant Documents, (ii) all
rights of Debtor to receive proceeds of any indemnity, warranty
or guaranty with respect to the Pledged Interests, (iii) all claims
of Debtor for damages arising out of or for breach of or default
under a Relevant Document, and (iv) any right of Debtor to
perform thereunder and to compel performance and otherwise
exercise all rights and remedies thereunder; and all proceeds of
and to any of the property of Debtor described herein and in that
certain Pledge and Security Agreement and, to the extent
documenting any property described in said clauses or such
proceeds, all books, correspondence, credit files, records, invoices
and other papers. [¶] All Current Fees plus interest, all Costs
plus interest and all Deferred Fees plus interest as defined in
that certain Engagement Letter dated April 18, 2014,
December 10, 2014, June 4, 2015, May 2, 2017 and June 27, 2019,
by and between Debtor and Secured Party, as amended and
modified (collectively ‘Engagement Letter’). [¶] All terms made
here but not defined shall have the meaning given to such terms
in the Pledge and Security Agreement and the Engagement
Letter.”

                                   10
financing statement. He further argued Glaser Weil’s security
interest was unenforceable because the $450,000 payment had
nothing to do with Triton’s obligations to Glaser Weil and Glaser
Weil had provided no value to Triton. He complained that Glaser
Weil and Rice had given Downs no notice of the lien, and argued
the payment by Triton “appears to be a fraudulent conveyance
specifically designed to circumvent the Charging Order.” Downs
also contended “it would be highly inequitable to allow Rice to
use Triton to evade the Charging Order, since Triton is Rice’s
alter ego.”

5.    Hearings on the enforcement motion
       Downs’ enforcement motion was heard on June 25, 2020.
The trial court provided an oral tentative ruling granting the
motion, stating, “[T]he moving papers are well taken.” Following
argument, the court adopted its tentative ruling and granted the
motion “based on the grounds set forth in the moving papers.” It
ordered Rice and Downs to meet and confer regarding a proposed
order.
       The parties could not reach agreement on a proposed order
by the time of the next hearing on July 9, 2020. The court
ordered payment by August 14.
       The next hearing addressing the enforcement order was
held on August 17, 2020. Downs indicated Rice had yet to pay.
Rice represented that he was not defying the court’s order, but he
simply did not have the funds to pay it. Downs suggested the
trial court order Glaser Weil to transfer the $450,000 received
from Triton to him. The trial court agreed with this suggestion.
Cypers, the Glaser Weil partner representing Rice at the hearing,
noted that Glaser Weil was not a party to the litigation, and

                                  11
“[a]ny sort of a disgorgement would require a proceeding.” The
trial court set an “Evidentiary Hearing” for August 27, 2020.
       At the August 27, 2020, hearing, Rice was represented by
new counsel, with Glaser Weil specially appearing on its own
behalf. Rice’s former bankruptcy counsel also specially appeared
to contest disgorgement of the $75,000 paid to them. Rice
testified under oath that he had asked Glaser Weil to return the
$450,000 so he could meet the August 14 payment deadline.
       Glaser Weil’s argument focused on MDQ, LLC v. Gilbert,
Kelly, Crowley & Jennett LLP (2019) 32 Cal.App.5th 702 (MDQ),
a case involving priority between a charging order and a security
interest granted by a judgment debtor to his attorneys. (See id.
at pp. 704–705.) After taking a recess to review the case, the
trial court stated, “[I]t does appear that [Glaser Weil] is on the
right side of the law with regard to having the priority, even over
my charging order. However, I have concerns about the sworn
testimony of Mr. Rice, who instructed his former attorney[s] to
turn over that money to satisfy the charging order, [and]
which . . . did not occur.” The trial court noted the conflict
between Glaser Weil’s interest in collecting fees and the firm’s
obligation to shield Rice from “the wrath of the court.”
       The court rejected arguments from Rice’s former
bankruptcy counsel that the charging order did not reach funds
expended by Triton for its own operations, such as Triton’s
$75,000 loan to pay bankruptcy counsel. The court stated,
“[W]e’re not going to play with semantics with Triton being
separate from Mr. Rice. Legally, yeah. But if it doesn’t scream of
alter ego and one and the same, I don’t know what does.” While
acknowledging that the rules providing for the creation of LLCs
“are designed to help protect, generally, individual liability,”

                                   12
“those things are not to be abused to avoid being accountable for
your liability.” The court continued, “Especially when . . . [Rice]
is Triton. Triton isn’t anything but Mr. Rice.”
       After further argument, the trial court ruled in Downs’
favor. The court found MDQ “distinguishable,” and stated that
“under my equitable exercise of jurisdiction, it would be unfair to
allow [the money] to pass hands as it did and for—forgive my
vernacular again—for the Glaser firm to tell Mr. Rice, ‘Pound
sand. I got the money now. We perfected our lien. You have to
figure out something else.’ [¶] I do find it significant that, in
particular with the Glaser firm, the way Mr. Rice testified, under
oath, that he asked the firm to render that money to satisfy my
charging order.”

6.    The trial court’s written order
       Following the August 27, 2020, hearing, the trial court
issued a written order. It found that Triton was “100% owned
and operated by Rice,” and “amend[ed the] charging order to
make Triton jointly and severally liable [for] the monies owed to
Downs.” In so doing, the court cited its equitable authority under
Code of Civil Procedure section 187 “ ‘to amend a judgment to add
an alter ego of an original judgment debtor, and thereby make
the additional judgment debtor liable on the judgment.[’] ”
       The trial court stated, “Rice had the ability to fulfill the
charging order in favor of Downs but deliberately chose not to.
The Court further finds after examining Rice under oath, that he
directed, in particular, the Glaser firm to return the $450,000
disbursement so that he could satisfy the charging order.”
       The trial court found “[t]he disbursements from Triton to
the law firms should have never occurred” and “were a windfall
in light of a valid order from this Court that the monies should

                                   13
have been used to satisfy that charging order.” The court
declared that its “jurisdiction cannot be sanitized by moving
monies subject to an order to alleged non-parties like the law
firms.”
       Addressing Glaser Weil’s argument based on MDQ that its
security interest had priority over the charging order, the trial
court stated, “Theoretically the Glaser firm is correct and the
Court agrees with the analysis.” The court nevertheless found
that Downs’ original unsuccessful motion for a charging order
filed on April 11, 2018 created a lien under Code of Civil
Procedure section 708.320. Thus, “[u]nder the very analysis
applied by the Glaser firm, Downs has priority pursuant to [Code
of Civil Procedure section] 708.320. Nevertheless, for the reasons
stated above, the Court distinguishes MDQ and the instant case
on the issue of which party perfected its lien first. The Court
finds the disbursements were improper and in contravention of
the Court’s charging order in favor of Downs.”
       The trial court ordered Glaser Weil to pay Downs $450,000.
Glaser Weil timely appealed.
       On September 2, 2020, Downs filed with the Secretary of
State a notice of judgment lien on the June 2015 judgment
against Rice.

                          DISCUSSION
      On appeal, Glaser Weil repeats two arguments raised
below. First, it contends that Triton’s $450,000 payment did not
constitute a distribution to Rice subject to the charging order.
Second, assuming the payment did constitute a distribution,
Glaser Weil argues it had a security interest in Rice’s
distributions from Triton, and that security interest had priority
over the charging order.

                                   14
       Glaser Weil’s arguments implicate both the trial court’s
factual findings and legal conclusions. “[W]e review the court’s
implied and express factual findings for substantial evidence, and
review its statutory interpretation independently.” (Benninghoff
v. Superior Court (2006) 136 Cal.App.4th 61, 66.) We review the
trial court’s exercise of its equitable authority for abuse of
discretion. (Lickiss v. Financial Industry Regulatory Authority
(2012) 208 Cal.App.4th 1125, 1132.)

A.    The Payment Was a Distribution Subject to the
      Charging Order
       For the reasons that follow, we reject Glaser Weil’s position
that the $450,000 payment was not a distribution subject to the
charging order.
       When a “money judgment is rendered against” a member of
an LLC, but not against the LLC itself, the member’s interest in
the LLC “may be applied toward the satisfaction of the judgment
by an order charging the judgment debtor’s interest pursuant to
Section . . . 17705.03 of the Corporations Code.” (Code Civ.
Proc.,3 § 708.310.)
       Corporations Code section 17705.03, subdivision (a),
empowers a court to “enter a charging order against the
transferable interest of the judgment debtor for the unsatisfied
amount of the judgment. A charging order constitutes a lien on a
judgment debtor’s transferable 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.”

      3Unspecified statutory citations are to the Code of Civil
Procedure.

                                    15
       As used in Corporations Code section 17705.03, a
“transferable interest” is “the right, as originally associated with
a person’s capacity as a member, to receive distributions from a
limited liability company in accordance with the operating
agreement, whether or not the person remains a member or
continues to own any part of the right.” (Corp. Code, § 17701.02,
subd. (aa).) A “distribution” is “a transfer of money or other
property from a limited liability company to another person on
account of a transferable interest.” (Id., subd. (f).)
       Glaser Weil argues that under this language, a charging
order “is not a net thrown over any and all money or property due
or payable from the LLC to the judgment debtor.” Rather, the
charging order reaches “only that money or property due or
payable . . . as a distribution pursuant to the LLC’s
operating agreement.” Glaser Weil notes that “Downs did not
proffer Triton’s operating agreement or its books and records (or
any other evidence) to establish that the payment was a
distribution to Rice and thus subject to a charging order.”
Nor, contends Glaser Weil, did Downs prove the payment was not
for Triton’s own expenses as co-obligor on Rice’s debt.
       By emphasizing the statutory language referring to the
LLC’s operating agreement, Glaser Weil appears to be limiting
the reach of a charging order to distributions formalized under
that agreement, such as dividends or other entitlements granted
to members. This narrow reading disregards the reality that
many LLCs, like Triton, are completely controlled by a single
person who may distribute funds at his or her discretion. (See
Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214,
224 [managing member with “near complete interest” in LLC
“effectively has complete control over what [the LLC] does and

                                   16
does not do, including whether it makes any disbursements to its
members”].) Under Glaser Weil’s interpretation, such entities
easily could evade charging orders by eschewing formal
distributions and instead taking funds out of the LLC as the need
arose.
       The language of the applicable statutes does not compel
this result. Again, a charging order is against an LLC’s
member’s “transferable interest,” defined as “the right, as
originally associated with a person’s capacity as a member, to
receive distributions from a limited liability company in
accordance with the operating agreement . . . .” (Corp. Code,
§ 17701.02, subd. (aa).) When a managing member of an LLC
directs the LLC to disburse funds for the managing member’s
own purposes, the managing member does so based on the
“right . . . associated with [his or her] capacity as a member,”
invoking powers “in accordance with the operating agreement.”
(See ibid.) Put another way, the managing member has access to
that money only by virtue of his or her status as managing
member, just as members have the right to formal distributions
by virtue of their status as members.4 We see no basis to treat
the two types of disbursements differently, particularly when
doing so would encourage evasion of charging orders.

     4   We express no opinion as to how a charging order might
affect disbursements made to a member for reasons other than
membership, for example if the member were also an employee
drawing a salary. Nor do we suggest that a charging order
compels a managing member to disburse funds from an LLC, only
that when the managing member does so for his or her own
purposes, that disbursement is subject to a charging order.

                                  17
       Under this analysis, it is clear that had Rice disbursed the
$450,000 to himself to pay his legal bills, that disbursement
would constitute a distribution. Rice acknowledged in his
declaration that he was “the founder and sole Managing Member”
of Triton, and the trial court found that Triton was “100% owned
and operated by Rice.” This evidence supports the trial court’s
finding that “Rice had the ability to fulfill the charging order in
favor of Downs,” that is, Rice had full control over Triton’s
distributions.
       The added wrinkle here is that Triton did not disburse the
funds to Rice, but instead paid Glaser Weil directly pursuant to
an agreement Rice and Glaser Weil claim made Triton jointly and
severally liable for Rice’s debt. Glaser Weil contends the money
therefore was a “payment by Triton of its own expenses.”
       Even if Triton made the payment pursuant to its own
contractual obligation to Glaser Weil, the fact remains that the
payment was for Rice’s legal expenses. Rice’s declaration stated
the payment was “pursuant to the obligation [Triton] had
undertaken to Glaser Weil,” referring to the agreement “under
which Triton became a co-obligor with [Rice] for past and future
fees charged by the firm.” This testimony establishes that Triton
paid not because Glaser Weil provided services to Triton, but
because Triton had agreed to become “co-obligor” on Rice’s
obligation.
       Thus, although Triton may have been paying for the
obligation it had assumed, the result was that Rice personally
was relieved of a portion of his debt. The payment effectively was
money in Rice’s pocket, because anything Triton paid for the legal
expenses owed by Rice was something Rice would not have to pay

                                   18
to Glaser Weil. The payment therefore constituted a
“distribution” as much as had Rice received the money himself.
       Glaser Weil’s argument also fails in light of the trial court’s
conclusion that Triton was Rice’s alter ego, a finding Glaser Weil
does not contest or even address on appeal.5 “Under the alter ego
doctrine, . . . when the corporate form is used to perpetrate a
fraud, circumvent a statute, or accomplish some other wrongful
or inequitable purpose, the courts will ignore the corporate entity
and deem the corporation’s acts to be those of the persons or
organizations actually controlling the corporation, in most
instances the equitable owners.” (Sonora Diamond Corp. v.
Superior Court (2000) 83 Cal.App.4th 523, 538.) At the
disgorgement hearing, the trial court referred to this doctrine in
rejecting the argument that Triton’s payments were for its own
expenses and not for Rice’s legal fees.6
       Given its unchallenged finding that Triton was Rice’s alter
ego, the trial court could look past the corporate formalities and
deem the transaction as Rice distributing money to himself from
Triton to pay his legal bills. The fact that as a technical matter it
was Triton that made the payment pursuant to its own purported

      5  Because Glaser Weil does not challenge the alter ego
finding, we need not determine whether the finding was
supported by substantial evidence. (Sierra Palms Homeowners
Assn. v. Metro Gold Line Foothill Extension Construction
Authority (2018) 19 Cal.App.5th 1127, 1136 [issue not raised in
appellate briefing forfeited].)
      6  The trial court’s comments were directed to Rice’s former
bankruptcy counsel’s argument that Triton’s loan to pay their
fees was a Triton expense, but the reasoning applies equally to
Triton’s payment to Glaser Weil.

                                     19
obligations was immaterial because Triton and Rice were
effectively one and the same.
        Glaser Weil contends that the trial court in fact found
Triton was jointly and severally liable for Rice’s legal bills, thus
“siding with Glaser Weil on the issue of whether Triton was
paying its own expenses.” As we have explained, even if Triton
was “paying its own expenses” in the sense of satisfying its
obligation as co-obligor on Rice’s debt, that disbursement would
still constitute a distribution to Rice.
        Glaser Weil, moreover, reads too much into an offhand
comment by the trial court as it was wrapping up the
disgorgement hearing. After the trial court orally announced its
ruling, it invited “any final comments for your record and
objections on the record.” During the subsequent colloquy,
Cypers of Glaser Weil stated, “The other point that I’d like to
make at this point is Triton is and was a client of Glaser Weil and
charging—I should say the U.C.C.-1 [financing statement] goes to
Bill Rice’s interest in Triton. [¶] So I think that’s already part of
the record and I just wanted to make sure that—that it is, that
Triton and Mr. Rice are jointly and severably liable for the fees to
our law firm.”
        The trial court responded, “Absolutely. I mean, I imagine
one day you will get paid. Just not going to get paid today.
Mr. Downs needs to have his judgment satisfied. [¶] And I’ll be
the first one to say of course, Mr. Cypers has earned his money.
Of course the firm needs to be paid. If you end up coming back in
here and Mr. Rice is saying he doesn’t want to pay you, I’ll be the
first one saying, ‘Oh, no you don’t.’ [¶] So I’m not in dispute with
you on that issue.”

                                    20
       Glaser Weil argues the trial court’s comments indicate
“[t]he trial court found that Triton was ‘absolutely’ jointly and
severally liable with Rice for Glaser Weil’s fees.” We reject this
reading. The trial court’s comments immediately following its
“Absolutely” remark all pertain to whether Glaser Weil earned its
fees and deserved to get paid, suggesting that it was addressing
nothing more than that issue. It said nothing about Triton or
joint and several liability, and the court certainly did not indicate
that it found that Triton had paid the $450,000 for its own
expenses. As noted, earlier in the hearing the trial court had
expressly rejected arguments that Triton’s payments for Rice’s
legal bills constituted expenditures for Triton’s own operations.
Thus, Glaser Weil’s strained interpretation of the trial court’s
comment is unpersuasive.

B.    Glaser Weil’s Security Interest Has Priority Over the
      Charging Order, But Remand Is Necessary To
      Determine the Terms of That Security Interest
       Turning to Glaser Weil’s second argument, we agree that
Glaser Weil’s security interest, perfected by filing the financing
statement with the Secretary of State, has priority over the
charging order that Downs later requested and obtained. We
further agree there was no equitable basis for the trial court to
override that priority. We therefore reverse the disgorgement
order. Remand is necessary, however, for the trial court to
determine the terms of Glaser Weil’s security interest. The trial
court has yet to make this determination, having instead relied
on its equitable authority to place the charging order ahead of
Glaser Weil’s security interest.

                                    21
      1.    Glaser Weil’s security interest takes priority
            over the charging order
       The first question we must address is how priority is
determined between a charging order and a competing perfected
security interest. For purposes of this subpart of our Discussion,
we assume arguendo that Glaser Weil’s security interest is in the
same property covered by the charging order, namely Rice’s
distributions from Triton, an issue the trial court has yet to
determine.
       “Other things being equal, different liens upon the
same property have priority according to the time of their
creation . . . .” (Civ. Code, § 2897.) Numerous statutes apply this
general first-in-time principle to specific types of liens or security
interests. For example, Commercial Code section 9322 governs
priorities between competing security interests, ranking them
“according to priority in time of filing or perfection.” (Com. Code,
§ 9322, subd. (a)(1).) Similarly, Code of Civil Procedure
section 697.590 governs priorities between judgment liens on
personal property and security interests in the same property,
ranking those interests “according to priority in time of filing or
perfection.” (§ 697.590, subd. (b).)
       We have not found, nor have the parties identified, a
statute specifically addressing the priority of charging orders in
relation to other liens and security interests. Glaser Weil argues
that it “had priority over Downs pursuant to §697.590(b).”
Downs also contends that section 697.590 applies, although he
believes that statute favors his position.
       As Glaser Weil correctly notes elsewhere, however, a
charging order is not equivalent to a judgment lien on personal
property, the subject of section 697.590. Judgment liens on

                                     22
personal property are created pursuant to section 697.510 by
filing a notice with the Secretary of State. (§ 697.510, subd. (a);
§ 697.590, subd. (a)(1)(A).) Charging order liens, in contrast, are
created under section 708.320 “by service of a notice of motion for
a charging order . . . .” (§ 708.320, subd. (a).) “If a charging order
is issued, the lien . . . continues under the terms of the order. If
issuance of the charging order is denied, the lien is extinguished.”
(Id., subd. (b).)
       In the absence of a statute specifically addressing the
priority of charging orders, we rely on the general first-in-time
rule stated in Civil Code section 2897.7 (See Bluxome Street
Associates v. Fireman’s Fund Ins. Co. (1988) 206 Cal.App.3d
1149, 1158; cf. Ahart, Cal. Prac. Guide: Enforcement of
Judgments and Debts (The Rutter Group 2015) ¶ 6:1472.1 [citing
Civil Code section 2897 in support of proposition that “Where
judgment creditors have obtained charging order liens on the
same interests, priority should be given to the first creditor that
obtained a lien”].)
       Under this principle, it is evident that Glaser Weil’s
security interest has priority over Downs’ charging order. As
stated, the priority of a security interest is determined “according
to priority in time of filing or perfection.” (Com. Code, § 9322,
subd. (a)(1).) A security interest is perfected by filing a financing
statement with the Secretary of State. (Id., § 9310, subd. (a); id.,

      7  Although we rely on Civil Code section 2897 for the first-
in-time principle, we do not suggest that general statute
overrides more specific statutes dictating that a security
interest’s priority is based on time of filing or perfection, not time
of creation. (See, e.g., Code Civ. Proc., § 697.590, subd. (b);
Com. Code, § 9322, subd. (a)(1).)

                                     23
§ 9501, subd. (a)(2); MDQ, supra, 32 Cal.App.5th at p. 711.)
Glaser Weil filed a financing statement with the Secretary of
State in July 2019.
       Downs obtained his lien several months later, in
October 2019, when he served notice of his second motion for a
charging order, which motion—in contrast to his first motion—
was granted. (§ 708.320, subd. (a).)8 Glaser Weil’s earlier
perfected security interest therefore has priority.
       The trial court concluded otherwise, stating that Downs
had the senior lien by virtue of serving notice of his first motion
for a charging order in April 2018. This was error, for under
section 708.320, subdivision (b), Downs’ earlier lien was
extinguished when the trial court “denied” “issuance of the
charging order” in light of the automatic stay pending appeal.
“Priority can exist only if the lien exists.” (Messerall v.
Fulwider (1988) 199 Cal.App.3d 1324, 1330.)
       Our conclusion that Glaser Weil’s security interest has
priority over the charging order is supported by MDQ, which to
some degree presents the converse of the factual pattern in the
instant case. The underlying litigation in MDQ concerned
plaintiff Cleopatra Records, Inc. (Cleopatra), and defendant Floyd
Mutrux. (MDQ, supra, 32 Cal.App.5th at p. 705.) The trial court
issued a proposed statement of decision awarding Cleopatra over
a million dollars. (Ibid.) Shortly thereafter, Mutrux assigned to
his attorneys, the law firm of Gilbert, Kelly, Crowley & Jennett

      8  We assume without deciding that the priority of a lien
under section 708.320 is determined from the time of service of
notice of a charging order motion, and that the lien holder need
not take any further steps to perfect or otherwise establish the
priority of that lien.

                                   24
LLP (Gilbert Kelly), a portion of his economic interests in four
LLCs “ ‘[i]n consideration for legal services provided . . . and to be
provided hereafter . . . .’ ” (Ibid.) In the assignment, Mutrux
directed the LLCs to make specified percentages of payments due
to Mutrux to Gilbert Kelly instead. (Ibid.) Gilbert Kelly did not
file a UCC financing statement. (Id. at p. 707.)
       Months later, the trial court entered judgment of just
under a million dollars in favor of Cleopatra. (MDQ, supra,
32 Cal.App.5th at p. 706.) Cleopatra recorded a judgment lien
under section 697.590. (Id. at p. 707.) Cleopatra then moved for
a charging order against Mutrux’s interests in the LLCs, which
the trial court granted, directing the LLCs “ ‘to pay any and all
profits, distributions, disbursements or other payments otherwise
due to” Mutrux to Cleopatra. (Id. at 706.)
       The LLCs filed an interpleader action to resolve the
competing interests of Cleopatra and Gilbert Kelly. (MDQ,
supra, 32 Cal.App.5th at p. 706.) The trial court found that
because Gilbert Kelly had never filed a financing statement,
Cleopatra’s judgment lien had priority over Gilbert Kelly’s
assignment. (Id. at p. 707.)
       Our colleagues in Division Eight affirmed the trial court’s
ruling. (MDQ, supra, 32 Cal.App.5th at p. 704.) The appellate
court rejected Gilbert Kelly’s argument that the assignment was
not a security interest: “While Gilbert Kelly’s assignment may
differ from some other secured transactions, in that the collateral
securing Mutrux’s obligation to Gilbert Kelly is being paid as it
accrues to satisfy that obligation, rather than securing payment
from another source, Gilbert Kelly offers us no rationale under
which we can conclude that it is not a security interest within the

                                     25
meaning of the California Uniform Commercial Code.” (Id. at
p. 710.)
       The appellate court further agreed with the trial court that
Gilbert Kelly had failed to perfect its security agreement by filing
a financing statement. “[B]ecause Gilbert Kelly did not file a
financing statement, Cleopatra’s judgment lien has ‘priority in
time of filing or perfection.’ ” (MDQ, supra, 32 Cal.App.5th at
p. 711, quoting § 697.590, subd. (b).) “Had Gilbert Kelly perfected
its security interest, this would be another story, and
the charging order could not be applied to that first-in-time,
perfected security interest. But Gilbert Kelly did not do so.”
(Id. at p. 712.)
       The instant case presents the counterfactual scenario
described by the MDQ court in these last quoted comments. Like
Gilbert Kelly, Glaser Weil obtained a security interest in its
client’s interest in an LLC prior to the judgment creditor moving
for a charging order against that same interest. Unlike Gilbert
Kelly, Glaser Weil filed a financing statement before Downs
served notice of his second, ultimately successful charging order
motion. Accordingly, under MDQ, “the charging order c[annot] be
applied to that first-in-time, perfected security interest.”9 (MDQ,
supra, 32 Cal.App.5th at p. 712.)

      9  We note that in MDQ, Cleopatra’s priority was
determined not by its charging order but by its recorded
judgment lien, which predated the charging order. This does not
affect our analysis. The significance of MDQ for purposes of the
instant case is its observation that a charging order would not
take precedence over a security interest perfected before any
judgment lien or charging order lien was in place.

                                   26
       Downs raises a number of arguments as to why his lien
should have priority. Downs contends that section 708.320,
subdivision (b), which provides, “If issuance of the charging order
is denied, the lien is extinguished,” should apply only to denials
of charging orders on the merits. Accordingly, because Downs’
first motion for a charging order in April 2018 was denied on
procedural grounds, namely the stay pending appeal, Downs
argues the lien created by service of that motion was never
extinguished. He asserts that section 708.320, subdivision (b)
indicates “the Legislature believed that the lien should remain in
place until a trial court determines that a creditor is not entitled
to one—meaning not entitled to one on the merits.” Absent such
an interpretation, Downs cautions, a judgment debtor could take
advantage of procedural obstacles to “drain the LLC of funds
while the procedural issues were being worked out, even though
the creditor was fully entitled to a charging order.”
       We decline to adopt Downs’ interpretation. The statutory
language is straightforward, and admits of no exceptions. (See
McGroarty v. Los Angeles Unified School Dist. (2021)
61 Cal.App.5th 258, 266 [“ ‘If the [statutory] language is
unambiguous, “then the Legislature is presumed to have meant
what it said, and the plain meaning of the language
governs.” ’ ”].)
       Downs’ suggested interpretation, moreover, would make it
unreasonably difficult for creditors and others to determine
whether a lien under section 708.320 exists or not. It is a
relatively simple matter to determine whether a charging order
motion has been denied. It is far more difficult, and in some
cases impossible, to determine the basis of that denial,
particularly for third parties uninvolved in the litigation. A

                                    27
bright line rule is preferable, and consistent with the
unambiguous language of the statute.
       Downs contends that other provisions of the Code of Civil
Procedure and Corporations Code state that charging orders are
extinguished upon satisfaction of the judgment. He argues, “It
would be inconsistent with this statutory scheme to interpret a
procedural denial due to a stay to be the same as a substantive
denial on the merits, or the same as a satisfaction of the
underlying judgment that led to the charging order.” We
disagree. It is not inconsistent for different statutory sections to
provide different means by which a lien might be extinguished.
Regardless, the language concerning lien extinguishment in
section 708.320, subdivision (b) is unambiguous, and there is no
need to look for guidance from other statutory sections.
       Downs cites the 1982 Law Revision Commission comments
to section 708.320, which state that the provision for creation of a
lien upon service of notice of a motion for a charging order “is
analogous to the creation of a lien in an examination proceeding
under Article 2 (commencing with section 708.110) by service of
the order of examination.” Downs notes that the lien created
under section 708.110 lasts for one year unless extended or
terminated earlier by the court. (§ 708.110, subd. (d).)
       To the extent Downs is suggesting that we should read the
provisions of section 708.110 into section 708.320, we see no basis
in the language of either statute or the Law Revision Commission
comments to do so. The only analogy the comments draw
between the two statutes is that both allow for the creation of a
lien upon service of notice, not that the liens have similar
durations or conditions under which they may be extinguished.

                                   28
       Downs further argues that service of notice of his first
charging order motion created lien priority under
section 697.590, subdivision (b), which provides that “[i]n the case
of a judgment lien, priority dates from the time filing is first
made covering the personal property.” This argument fails for
two reasons. First, as we have explained, the cited section
governs judgment liens on personal property created under
section 697.510, not charging order liens created under section
708.320. Second, even if section 697.590, subdivision (b) did
apply to this case, “ ‘filing’ ” under that statute requires filing of a
notice of the judgment lien with the Secretary of State (see
§ 697.590, subd. (a)(1)(A)), which Downs did not do until
September 2020, over a year after Glaser Weil had perfected its
security interest.
       Downs argues that MDQ supports his position that his first
motion for a charging order gave him priority over Glaser Weil’s
security interest. MDQ did not involve an unsuccessful first
attempt at a charging order—the trial court granted Cleopatra’s
motion from the outset. (MDQ, supra, 32 Cal.App.5th at p. 706.)
MDQ did not address the circumstances under which a charging
order lien is extinguished, and indeed did not cite or discuss
section 708.320. MDQ is of no help to Downs on this issue.
       Downs argues that if the automatic stay triggered by the
Rice II appeal extinguished the lien created by his first motion for
a charging order, it also barred Glaser Weil from perfecting its
security interest by filing the UCC financing statement. Downs
relies on section 697.040, subdivision (a), which provides, “If
enforcement of the judgment is stayed on appeal by the giving of
a sufficient undertaking,” then “[e]xisting liens created under this

                                     29
division are extinguished” and “[n]ew liens may not be created
under this division during the period of the stay.”
       The trial court docket does not indicate any deposit or
appeal bond in regard to Rice II, and therefore it would appear
there was no “undertaking” that would trigger section 697.040,
subdivision (a). Assuming arguendo Rice provided an
undertaking, section 697.040 nonetheless applies only to liens
“created under this division,” that is, Part 2, Title 9, Division 2 of
the Code of Civil Procedure. That division governs enforcement
of money judgments, including, inter alia, judgment liens and
charging order liens. (See §§ 697.510, 708.320.) Glaser Weil’s
lien is not based on a money judgment, but on a private
agreement between Glaser Weil and Rice. Section 697.040 is
inapplicable.
       Downs argues that the charging order takes priority
because it immediately entitles him to Triton’s “distributable
cash,” whereas Glaser Weil cannot collect on its security interest
absent a showing that Rice has defaulted on his debt. We note
that one of the statutes Downs cites in support of this proposition
provides that secured parties may take certain actions to enforce
or collect on their security interests “[i]f so agreed, and in any
event after default.” (Com. Code, § 6907, subd. (a).) This
language indicates that default is not necessarily required before
a secured party may enforce a security interest if the parties have
agreed otherwise. As we discuss post in part B.3, however, the
trial court has yet to make any findings regarding the terms of
Glaser Weil’s security interest, including under what conditions
Glaser Weil may collect on that interest and whether those
conditions have been met. We leave it to the trial court to
address those questions in the first instance. We express no

                                    30
opinion as to whether Glaser Weil must establish a default before
it can enforce its security interest.

      2.    There was no equitable basis to override the
            priority of Glaser Weil’s security interest
      Although the trial court acknowledged that Glaser Weil’s
lien priority argument was “[t]heoretically” correct, it exercised
its equitable authority to place the charging order first in line.
The parties dispute whether trial courts have the equitable
authority to override the statutory priority of a security interest.
We decline to reach that question. Assuming arguendo the trial
court had such authority, there was no basis to exercise it here.
      At the outset, we must reject Downs’ contention that Glaser
Weil acted “surreptitiously” to “jump the line in front of Downs’s
charging order enforcement.” Glaser Weil jumped no line. At the
time it obtained its security interest, there was no competing lien
or charging order in place. Nor does Downs or anyone else
suggest it is inappropriate for a law firm to obtain a security
interest to ensure payment of its fees, assuming the firm
complies with all ethical and other requirements concerning
contracts with clients.
      Downs argues that Glaser Weil did not notify him of the
security interest, but he identifies no authority that Glaser Weil
had an obligation to do so. As discussed, the law requires that a
secured party perfect its interest by filing a financing statement
with the Secretary of State, a rule “premised upon the
assumption that the filing . . . will permit prospective purchasers
and encumbrancers to ascertain the existence of security interest
in the property by checking a centralized record system.” (T & O
Mobile Homes, Inc. v. United California Bank (1985) 40 Cal.3d
441, 448.) Thus Downs, like any other creditor, could look to that

                                   31
“centralized record system” to determine if there were any
competing claims to Rice’s interest in Triton.
       Downs suggests that it was inequitable for Glaser Weil to
contest his first motion for a charging order on the basis of the
stay pending appeal, then take advantage of that procedural bar
to obtain its own lien ahead of his. There was no unfairness.
There is no indication Glaser Weil argued for the stay for the
purpose of obtaining a lien ahead of Downs. Glaser Weil was
advocating on behalf of Rice, who himself had reason to defeat
Downs’ efforts to obtain a charging order. Glaser Weil did not
obtain its security interest until a full year after the trial court
denied Downs’ first motion for a charging order, which further
belies any suggestion that Glaser Weil’s enforcement of the stay
was orchestrated so Glaser Weil could obtain lien priority.10
       More important, Downs could have, but did not, file a
judgment lien or move for a charging order earlier in the
litigation, which would have secured his priority over other
creditors and avoided the instant dispute. The trial court entered
judgment in June 2015; Downs did not move for his first charging
order until April 2018, almost three years later. Even assuming
arguendo the Rice I appeal stayed enforcement immediately after
the judgment was issued, Downs could have filed a judgment lien
or sought a charging order in the 14 months between the
remittitur in Rice I and the appeal in Rice II, a period in which
there was no appellate stay. Downs also could have sought

      10  We express no opinion whether it is inequitable for a
law firm to argue for a stay of enforcement of a judgment against
a client and shortly thereafter obtain its own lien on the client’s
interests. We merely note that circumstance is not present here.

                                   32
review of the order denying his first charging order, thus
potentially restoring his lien.11
      In a similar vein, Downs argues that because Glaser Weil
had actual notice of the judgment in his favor, and also had
notice of the lien created by his first attempt to obtain a charging
order, he is equitably entitled to lien priority. If mere notice of a
judgment was sufficient to establish a judgment lien, the
provision in section 697.510 requiring notice to be filed with the
Secretary of State would be a nullity. Similarly, Downs’
argument would render meaningless the provision in section
708.320 extinguishing a charging order lien when the underlying
motion for a charging order is denied.
      Downs contends it was inequitable for Glaser Weil to
persuade Rice to pay the firm the $450,000 in February 2020
despite knowing of the charging order entered in October 2019.
This argument presumes the payment violated the charging
order. The trial court has yet to determine if Glaser Weil’s first-
in-time security interest entitles the firm to Rice’s distributions
from Triton; if the trial court so finds, then Glaser Weil did
nothing wrong by accepting or even encouraging that payment.12
For this reason, the trial court was premature to conclude that

      11  The automatic stay under section 916 does not apply to
enforcement of money judgments “[u]nless an undertaking is
given.” (§ 917.1, subd. (a); see § 916, subd. (a).) As discussed, the
trial court docket does not indicate any deposit or appeal bond in
regard to Rice II.
      12  This is not to say that if the trial court ultimately
concludes Glaser Weil’s security interest does not entitle the firm
to distributions from Triton, Glaser Weil necessarily acted
inequitably. On that question we express no opinion.

                                    33
the payment was a “windfall” to Glaser Weil in contravention of
the charging order.
      Downs suggests as a basis for an equitable ruling in his
favor Glaser Weil’s two contradictory arguments below, namely
that the $450,000 payment was on the one hand Triton’s
payment as co-obligor, and on the other a distribution to Rice to
which Glaser Weil was entitled under its security agreement.
Glaser Weil did nothing inappropriate in raising these
arguments. The firm asserted as its primary argument that the
payments were pursuant to Triton’s agreement to become co-
obligor, and put forth its lien priority argument in the alternative
should a court reject the first argument (as we have done here).
      Downs contends Glaser Weil’s actions were “clandestine”
and in “bad faith” because neither Rice nor Glaser Weil informed
Downs or the trial court of the competing security interest at the
time Downs filed his second motion for a charging order. We do
not condone Glaser Weil’s failure to inform the court of the firm’s
security interest when Downs filed his motion. This was
information the trial court certainly would have appreciated in
considering and crafting a charging order. This being said,
Glaser Weil’s failure to disclose that information did not
prejudice Downs who, as discussed, could have determined his
priority through a review of the Secretary of State’s records. The
lack of disclosure to the trial court, therefore, is not a
counterweight in Downs’ favor in balancing the equities.
      For similar reasons, we must disagree with the trial court’s
conclusion that Glaser Weil’s refusal to return the money at
Rice’s request justified prioritizing the charging order under
principles of equity. Were Rice the party seeking disgorgement,
the equities between him and his former attorneys might require

                                    34
a different balance. Here, it was Downs seeking disgorgement.
Thus, the appropriate question is whether Glaser Weil’s refusal
to return the money was inequitable to him. Again, as we have
explained, Downs’ failure to obtain lien priority was not the
product of Glaser Weil asserting its statutory creditor rights, but
instead, the product of his own failure to obtain an earlier lien.

      3.    Remand is necessary for the trial court to
            determine the terms of Glaser Weil’s security
            interest
       Thus far in this Discussion we have assumed for purposes
of argument that Glaser Weil’s security interest entitles it to the
same property that is subject to the charging order, specifically
Rice’s distributions from Triton. Rice and Glaser Weil offered
some evidence in support of this position, namely Rice’s and
Cypers’ declarations and the UCC financing statement. As far as
we can determine, however, the trial court never made any
findings in regard to that evidence. This is understandable given
the trial court’s ruling that the charging order took precedence
under principles of equity, regardless of whatever agreements
might exist between Glaser Weil, Rice, and Triton.
       Given our holding that the trial court’s ruling was in error,
remand is necessary for the trial court to determine the terms of
Glaser Weil’s security interest. We express no opinion as to the
scope of that inquiry, including whether the trial court may or
should allow additional evidence.

                                    35
                          DISPOSITION
      The order is reversed and the matter remanded for further
proceedings consistent with this opinion. Appellant Glaser Weil
Fink Howard Avchen & Shapiro, LLC is awarded its costs on
appeal.
      CERTIFIED FOR PARTIAL PUBLICATION.

                                        BENDIX, J.

We concur:

             ROTHSCHILD, P. J.

             CHANEY, J.

                                 36