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McElroy v. Sumrall
Factual and Procedural Background
The plaintiff obtained a judgment in the Eastern District of Pennsylvania against the defendant and others in excess of $3 million, which judgment was registered in the Southern District of Alabama. The plaintiff moved for enforcement of that judgment by means of a charging order against the defendant's membership interest in Diamond Scaffold Services, L.L.C. ("Diamond"). Diamond was formed under Louisiana law and remains a Louisiana LLC; its principal place of business is in Baldwin County, Alabama, the defendant's county of residence. The defendant filed a response and the plaintiff a reply; the motion was ripe for resolution.
Legal Issues Presented
- Whether Alabama Code § 10A-5A-5.03 permits issuance of a charging order against Diamond's membership interest—i.e., whether Diamond qualifies as a "limited liability company" subject to that Alabama charging-order provision.
- Whether La. Stat. Ann. § 12:1331 authorizes this Alabama federal court (which has subject-matter and personal jurisdiction over the defendant) to issue a charging order against a Louisiana LLC—that is, whether this court is a "court of competent jurisdiction" under the Louisiana statute and whether such relief would accord with Rule 69(a)'s requirement to follow the execution procedure of the state where the court is located.
Arguments of the Parties
Plaintiff's Arguments
- Diamond is "existing under" Alabama law because it is qualified to do business in Alabama and thus applied for registration, bringing it within the scope of Ala. Code § 10A-5A-5.03.
- The statutory revision changing phrasing from "and" to "or" when defining entities suggests the legislature intended to subject foreign limited liability companies to Alabama charging orders.
- Alternatively, under La. Stat. Ann. § 12:1331 this court is a "court of competent jurisdiction" capable of charging a Louisiana LLC member's interest because the court has the requisite subject-matter and personal jurisdiction.
- Plaintiff acknowledged Rule 69(a)'s provision that execution procedure must accord with the procedure of the state where the court is located, implying the requested remedy is intended as execution on the judgment.
The opinion does not contain a detailed account of any specific arguments advanced by the defendant beyond the filing of a response.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ex parte Tulley, 199 So. 3d 812, 821 (Ala. 2015) | Illustration that an entity "existing under" a State connotes dependency on the State (example: a municipal corporation as a creature of the State). | Used to support the conclusion that "existing under" in Alabama's LLC definition should be given a restrictive construction tied to domestic (not foreign) status, undermining the plaintiff's argument that qualification to do business in Alabama makes a foreign LLC "existing under" Alabama law. |
Court's Reasoning and Analysis
The court analyzed the plaintiff's request under both Alabama and Louisiana law.
Under Alabama law, the court observed that Ala. Code § 10A-5A-5.03 permits a charging order against the transferable interest of a judgment debtor in a "limited liability company." The court examined the statutory definition of "limited liability company" in Ala. Code § 10A-5A-1.02(k), the comments to that section, and the statutory history. The comments and the defined term indicate that "limited liability company" is to be read as domestic only and expressly exclude "foreign limited liability companies." Because the plaintiff conceded that Diamond is a foreign LLC (formed under Louisiana law), the court concluded Diamond is not a "limited liability company" for purposes of the Alabama charging-order statute. The court rejected the plaintiff's arguments that (a) Diamond's qualification to do business in Alabama renders it "existing under" Alabama law and (b) the legislative change from "and" to "or" altered the scope to include foreign LLCs—finding no authority or textual basis to treat a registered foreign LLC as domestic and construing "existing under" restrictively (illustrated by the municipal-corporation example in Ex parte Tulley).
Under Louisiana law, the court reviewed La. Stat. Ann. § 12:1331, which permits a court of competent jurisdiction to charge a membership interest. The plaintiff argued this Alabama court is such a court. The court noted the plaintiff provided no Louisiana authority construing § 12:1331 to allow a charging order from an Alabama federal court and declined to adopt the plaintiff's reliance on general authority from other jurisdictions. The court also observed that Rule 69(a) requires that execution procedures accord with the procedure of the state where the court sits and found that the plaintiff failed to explain how issuance of a charging order under a Louisiana statute would constitute execution in accordance with Alabama procedure. On these bases the court declined to treat this court as a "court of competent jurisdiction" for purposes of § 12:1331.
Holding and Implications
The plaintiff's motion for a charging order is DENIED.
Implications: The direct effect is that the plaintiff may not obtain a charging order against the defendant's membership interest in Diamond from this court. The opinion does not announce or adopt a novel, binding rule extending Alabama charging-order relief to foreign LLCs or declare that an Alabama federal court is a "court of competent jurisdiction" under La. Stat. Ann. § 12:1331; no broader precedent was established by this order.
WILLIAM H. STEELE UNITED STATES DISTRICT JUDGE
ORDERThis matter is before the Court on the plaintiff's motion for enforcement of judgment by means of a charging order. (Doc. 18). The defendant has filed a response and the plaintiff a reply, (Docs. 20, 24), and the motion is ripe for resolution. After careful consideration, the Court concludes the motion is due to be denied.
BACKGROUNDThe plaintiff obtained in the Eastern District of Pennsylvania a judgment against the defendant and others in excess of $3 million, which judgment has been properly registered in this District. (Doc. 1). The plaintiff now seeks a charging order against the defendant's membership interest in Diamond Scaffold Services, L.L.C. ("Diamond"). Diamond was formed under the laws of Louisiana, (Doc. 14), and it remains a Louisiana LLC. (Doc. 15 at 2; Doc. 18 at 9). Diamond's principal place of business is in Baldwin County, (id.), the defendant's county of residence. (Id. at 7).
DISCUSSIONThe plaintiff seeks a charging order pursuant to Alabama Code § 10A-5A-5.03. In the alternative, the plaintiff seeks a charging order pursuant to Louisiana Revised Statutes 12:1331. (Doc. 18 at 3).
I. Alabama.Alabama law permits the issuance of a charging order against the transferable interest of a judgment debtor in a "limited liability company." Ala. Code § 10A-5A-5.03(a). The parties disagree over whether Diamond is a "limited liability company" for purposes of this provision.
A "transferable interest" is defined as "a member's right to receive distributions from a limited liability company ...". Ala. Code § 10A-5A-1.02(t). --------
"'Limited liability company,' except in the phrase 'foreign limited liability company,' means an entity formed or existing under this chapter." Ala. Code § 10A-5A-1.02(k). The plaintiff concedes that Diamond was formed under Louisiana law. (Doc. 18 at 8). The plaintiff contends, however, that Diamond is "existing under" Chapter 5A, on the grounds that it is qualified to do business in Alabama, which qualification required it to apply for registration. (Id. at 10-11). For several reasons, the Court rejects the plaintiff's argument.
Most importantly, the comments to Section 10A-5A-1.02 confirm that "'[l]imited liability company' is defined as domestic only" and that the phrase purposely excludes "foreign limited liability companies." The plaintiff expressly concedes that Diamond "is a foreign limited liability company." (Doc. 18 at 8). Diamond cannot simultaneously be both a domestic LLC and a foreign LLC, so the plaintiff's concession is fatal to its position.
The plaintiff stresses that, under the predecessor to Section 10A-5A-1.02, a limited liability company was defined as "[a]n organization that is formed and existing under this chapter." Ala. Code § 10A-5-102(6) (emphasis added) (superseded by statute). The plaintiff believes the change from the conjunctive "and" to the disjunctive "or" must signal the legislature's intent to subject foreign limited liability companies to charging orders issued under Alabama law. (Doc. 18 at 9-11). As noted, however, the defined term "limited liability company" excludes foreign LLC's and thus limits the range of entities subject to charging orders to domestic LLC's. Whatever the significance of the change from "and" to "or," it does not expose foreign LLC's to charging orders.
Nor is there reason to believe that Diamond is "existing under" Alabama law simply because it is qualified to do business here. The plaintiff cites no authority to support its position, and it seems clear that the phrase connotes the entity's dependency on the state for its existence. For example, "[a] municipal corporation is but a creature of the State, existing under and by virtue of authority and power granted by the State." Ex parte Tulley, 199 So. 3d 812, 821 (Ala. 2015) (internal quotes omitted). As a Louisiana LLC, Diamond does not depend on Alabama for its existence but only for permission to do business in this state. The commentary's clear restriction of "limited liability company" to "domestic" LLC's underscores that "existing under" must be given a restrictive construction consistent with domestic LLC status.
II. Louisiana."On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the membership interest of the member with payment of the unsatisfied amount of judgment with interest." La. Stat. Ann. § 12:1331. The plaintiff argues that this is a "court of competent jurisdiction" within the contemplation of Section 12:1331. The plaintiff assumes that the phrase means possession of subject matter jurisdiction and personal jurisdiction over the defendant, which it says exist here. (Doc. 18 at 6-8, 11-12).
The plaintiff offers no legal or other authority construing the Louisiana statute, and the Court declines to conclude, based on the general language from other jurisdictions on which the plaintiff relies, that Louisiana considers an Alabama federal court to be a "court of competent jurisdiction" to issue a charging order against a Louisiana LLC. Moreover, the plaintiff acknowledges that, pursuant to Rule 69(a), "[t]he procedure on execution ... must accord with the procedure of the state where the court is located," (Doc. 18 at 4), and it has failed to explain how issuance of a charging order under a Louisiana statute could constitute execution in accordance with Alabama procedure.
CONCLUSIONFor the reasons set forth above, the plaintiff's motion for charging order is denied.
DONE and ORDERED this 3rd day of May, 2021.
s/ WILLIAM H. STEELE
UNITED STATES DISTRICT JUDGE
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