Charging Order And Receiver Intersect In CRABAR/GBF

Sandhills of Nebraska Judges usually do not do things unless requested by one of the litigants. Once in a while, however, a judge will come to a determination that something needs to be done in a case that is not requested by anybody. This is known as a action, which is roughly translated as being of “one’s own accord”.

The action taken by the court may be very minor, such as resetting a hearing, but it can also be something quite significant — and when that happens it is usually very bad for at least one of the litigants. A company called CRABAR/GBF, Inc. (Crabar), won a judgment against Wright Printing in the amount of $1 million and against Mark Wright personally in the amount of $1.

75 million. The judgment was entered in the U. S.

District Court for the District of Nebraska. Wright (and presumably also Wright Printing) appealed the judgment on the merits. Meanwhile, Crabar decided to enforce its judgment pending Wright’s appeal.

It is important to know that the mere filing of an appeal does not stop a judgment creditor from attempting to enforce a judgment while the appeal of that judgment is pending. If a debtor wants to stop the creditor from enforcing the judgment, the debtor must post with the court an appeal bond (sometimes called a ) in an amount sufficient to pay the judgment, interest that will accrue during the appeal, costs of the appeal, etc. Such appeal bonds are sold by insurance companies which require that the debtor pledge sufficient collateral to make sure the insurance company is itself made whole should the debtor lose the case and the insurance company has to pay on the bond.

Coming up with that collateral is often not easy for debtors, as we shall see in regard to the aforementioned Mark Wright. Wright owned interests in two Nebraska LLCs, being 121 Court, LLC and 11616 “I” Street, LLC. Crabar applied to the court for charging order against Wright’s interest in these two LLCs.

Wright objected to the charging order, and then he and Wright Printing jointly sought a stay of enforcement without having to post an appeal bond. Wright and Wright Printing argued that Wright intended to sell some of the property owned by 121 Court, LLC, to raise money to the appeal bond, and the charging order sought by Crabar would effectively block Wright from raising that money. Resolution of these issues lead to the Memorandum and Order of the U.

S. District Court in , 2023 WL 8110737 (D. Neb.

, Nov. 22, 2023), that will next be discussed. The court first noted that the key factor in determining whether to grant a stay of enforcement of a judgment is whether the debtor has funds available to pay the judgment.

Here, the court was doubtful that even if 121 Court, LLC, sold a property that Wright would even get the cash much less timely post the bond — considering that the other members of 121 Court, LLC, would have to distribute the sale proceeds to Wright and this was also uncertain. The biggest consideration, however, was that several months had elapsed since the judgment was entered and Wright offered no explanation as to why he had not already attempted to have 121 Court, LLC, sell the property and get cash out of the entity. In other words, it appeared to the court that Wright was deliberately delaying things.

Under these circumstances, the court denied the stay of enforcement. Now we come to Wright’s objection to the Carbar’s application for a charging order against Wright’s interest in the two LLCs. Since the U.

S. District Court was in Nebraska, it was Nebraska law that applied to the charging order application. Like most other states, the entry of a charging order is discretionary and here Wright argued that the court should exercise its discretion to not enter the charging order so that he could obtain the collateral necessary to obtain an appeal bond.

And this is exactly where things start to go south for Wright in a hurry, for the court noted that: “Crabar represents—and brought the receipts to prove—that Mark Wright is actively concealing his assets to prevent Crabar’s collection of its judgment. [] Such evidence demonstrates a charging order is appropriate. [] In fact, such evidence indicates additional measures may be warranted to ensure Crabar can collect its judgment.

[] Federal law allows the Court to appoint a receiver in cases like this, in ‘accord with the historical practice in federal courts or with a local rule. ‘ []” The court then went on to note that the appointment of a receiver is an extraordinary remedy that is available only in extreme situations and that the court should first explore whether there were less drastic remedies available and whether the appointment of a receiver would end up doing more harm than good. Nevertheless, the court found that: “The present situation meets the criteria of an ‘extreme case.

‘ Crabar has presented evidence that there is a high ‘probability that fraudulent conduct has occurred,’ and there is ‘imminent danger that property will be concealed, lost, or diminished in value. ‘ [] Crabar has evidence that Mark Wright violated the Uniform Voidable Transactions Act, []. And a receivership ‘may be necessary when a judgment debtor is using LLCs .

. . to shield assets and income from creditors by keeping assets undistributed or otherwise out of reach.

‘ [] That appears to be exactly what Mark Wright is doing here. []” While the court did not appoint a receiver immediately, the court essentially invited Crabar to request the appointment of a receiver and encouraged the parties to confer about a mutually-agreeable receiver to be appointed in the case. In the meantime, the court overruled Wrights objections to Crabar’s charging order application, which was then granted.

This is a situation where a debtor’s objection to a creditor’s remedy (the charging order) not only failed, but made things worse for the debtor. If Wright had not objected to the charging order, then the court would not have reviewed whatever evidence Crabar put before the court, and the court would not have started thinking about a receiver. The lesson here for debtors is to not just object to everything that a creditor attempts to do, but simply let the creditor have whatever remedies the court is probably going to grant anyway.

It is true that charging orders are a discretionary remedy for the court, as opposed to things like levies and garnishments which are not discretionary but available to creditors as matter of course. The first sentence of section 503(a) of the Uniform Limited Liability Company Act provides that” “On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. ” The use of the term denotes that the matter is discretionary and not mandatory.

The instances where courts have declined to use their discretion to enter a charging order is, however, few and far between. The courts usually decline to enter a charging order where the creditor has failed to prove that the debtor has an interest in the LLC or partnership whose interest is being charged. Other situations where charging orders are denied are much more rare.

Note that a good argument can be made (and I frequently make it to drafting committees) that a charging order should be mandatory and not discretionary, and I can’t say that I’ve ever heard a compelling argument to the contrary. The point being that Wright’s chances of successfully objecting to the charging order were very low. His motion to stay enforcement so that he could raise collateral to post an appeal bond was also very low due.

If a debtor doesn’t want his assets taken and sold while he appeals, the normal course is to obtain the aforementioned appeal bond. If the debtor doesn’t have enough assets to post as collateral for an appeal bond for the full amount of the judgment, the debtor — upon showing the court his limited resources — can ask for a reduction of the bond. If a debtor is going to make such a request, however, the debtor needs to do so immediately and not mess around for a few months as Wright did here, since otherwise the court will wonder (as here) why the debtor didn’t take immediate action.

Which is to say that if a debtor is going to be rounding up collateral for an appeal bond, the debtor had better start the next morning after the verdict (or ruling of liability) comes back and not mess around. So what are Wright’s options now? If the court is going to appoint a receiver anyway, and it sure seems like this judge will, it is at least theoretically possible that Wright could ask the judge to instruct the receiver to help facilitate the sale of property out of 121 Court, LLC, for the purpose of then using whatever proceeds come to Wright to post an appeal bond. I’ve never heard of this being done, but then again I have never researched the issue and it is within the realm of possibility.

Crabar will probably not want to wait to be paid on its judgment and will object, but the judge could take into account the possibility that Wright will win his appeal and in that event Crabar would be made whole (including interest) by the appeal bond. Alternatively, Wright could ask the judge to instruct the receiver to simply hold whatever money is collected pending his appeal; this is also within the realm of possibility. The court does not elaborate on what Wright has done post-judgment, but it sounds pretty bad.

What Wright has to be careful of here is that some states have a which posits that if a party seeking to appeal has committed misconduct post-judgment then the appellate court may dismiss the appeal on equitable grounds — this amounts to a “don’t come into the Court of Appeals with dirty hands” sort of theory. Otherwise stated, the Court of Appeals through judicial fiat will disallow a party from both appealing and hiding assets at the same time. I don’t know about Nebraska law, but presumably Crabar’s counsel will be looking into this.

All of this illustrates that it is very difficult to represent a debtor in post-judgment proceedings, and especially so where the debtor is also trying to appeal on the merits. There are a lot of considerations, including whether to object to certain relief sought by the creditor, and staying out of court generally since the longer the post-judgment proceedings go on the more upset the judge will usually become with the debtor for wasting the court’s time (unless the creditor is just totally inept, and then the court can turn on the creditor just as easily). We probably have not heard the end of this case, so stay tuned.

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