Law ex rel. Robert M. Law Profit Sharing Plan v. Zemp

368 P.3d 821, 276 Or. App. 652
CourtCourt of Appeals of Oregon
DecidedMay 2, 2016
DocketC121752CV; A153071
StatusPublished
Cited by3 cases

This text of 368 P.3d 821 (Law ex rel. Robert M. Law Profit Sharing Plan v. Zemp) is published on Counsel Stack Legal Research, covering Court of Appeals of Oregon primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Law ex rel. Robert M. Law Profit Sharing Plan v. Zemp, 368 P.3d 821, 276 Or. App. 652 (Or. Ct. App. 2016).

Opinion

LAGESEN, J.

Plaintiff, Law, in his capacity as the trustee for a trust, obtained a money judgment against defendant, Zemp. Zemp did not pay. To collect, Law asked the trial court to enter a charging order under ORS 70.295 against the four limited partnerships in which Zemp is a partner. Law also asked the court to enter a charging order under ORS 63.259 against the limited liability company in which Zemp is a member. The trial court granted Law’s request, and entered an order directing the limited partnerships and LLC (collectively, “the companies”) to pay to Law “any and all distributions, credits, drawings, or payments due to” Zemp.

The trial court’s order also did more. It imposed four additional obligations on the companies: (1) the companies were prohibited from making any loans until the judgment was paid; (2) the companies and their members were prohibited from transferring, modifying, or encumbering any partnership or membership interest without approval from the court or from Law until the judgment was paid; (3) the companies were required to open their books and certain tax records for inspection by Law; and (4) the companies were required to provide future financial statements to Law. The order also stated that Law was entitled to seek modification of the order to allow for the appointment of a receiver and the foreclosure of Zemp’s interests in the companies.

The companies have appealed the order. The issue on appeal is whether the trial court exceeded the scope of its authority under the statutes governing charging orders against limited partnerships and LLCs when it imposed the additional obligations on the companies. We conclude that it did, in part. Specifically, with respect to the charging order against the limited partnerships, we conclude that, under the pertinent statutes, the trial court was authorized to require the limited partnerships to disclose financial information to Law. On this record, however, the trial court acted outside of its authority by imposing the restrictions on loans and on the transfer or encumbrance of partnership interests. With respect to the charging order against the LLC, we conclude that the trial court was not authorized to impose [655]*655the additional obligations. Accordingly, we vacate the trial court’s order and remand for further proceedings.

I. BACKGROUND

This appeal requires us to determine the scope of a trial court’s authority when entering a charging order against a limited partnership or a limited liability company. As the parties accurately have observed, the case law discussing the charging order remedy in Oregon is spare, and does not provide much guidance even as to what a charging order is. For that reason, to provide context for our analysis, we provide a brief history of the development of the charging order remedy, and its adoption in the United States and in Oregon. We then address the order entered in this case, and the extent to which it was authorized by the pertinent statutory provisions.

A. The History of the Charging Order

The charging order is a remedy born to solve a particular problem: how to permit a judgment creditor of a partner to collect from the partner’s interest in a partnership without disrupting or destroying the partnership. Before the charging order, the remedies devised by courts to assist a judgment creditor of a partner often did more harm than good. As one commentator explains:

‘“When a creditor obtained a judgment against one partner and he wanted to obtain the benefit of that judgment against the share of that partner in the firm, the first thing was to issue a [writ of execution], and the sheriff went down to the partnership place of business, seized everything, stopped the business, drove the solvent partners wild, and caused the execution creditor to bring an action in Chancery in order to get an injunction to take an account and pay over that which was due by the execution debtor. A more clumsy method of proceeding could hardly have grown up.’”

J. Gordon Gose, The Charging Order Under the Uniform Partnership Act, 28 Wash L Rev 1, 1 (1953) (quoting Brown, Janson & Co. v. Hutchinson & Co., 1 QB 737 (1895)). Other judicially crafted remedies included:

[656]*656“(1) seizure of some or all of the partnership property under writ of execution; (2) sale of the debtor partner’s interest in the property; (3) acquisition of the debtor partner’s interest in the property by the purchaser at the execution sale, subject, however, to the payment of partnership debts and prior claims to the firm against the debtor partner; (4) compulsory dissolution and winding up of the partnership, and (5) distribution to the execution purchaser of the debtor partner’s share of any property remaining after the winding up process was completed.”

Id. at 1-2 (internal quotation marks omitted); see Francis M. Burdick, The Law of Partnership § 5.2, 269-77 (3rd ed 1917) (describing the traditional remedies available to judgment creditors of a partner). Thus, a judgment creditor could enforce a judgment against the judgment debtor’s intangible interest in a partnership only

“by a procedure commencing with the seizure of property but in its later stages converted into a proceeding whereby the debtor’s beneficial interest in the business is made available to his creditor. The final result, however, could be attained only at the expense of the disruption of the business and the compulsory dissolution of the partnership.”

Gose, 28 Wash L Rev at 2. In the end, the main consequence of such remedies was a devaluation of all of the partnership interests, including those from which the judgment creditor initially hoped to collect. Id.

Legislatures began to work on the problem, determined to find a solution where courts had failed. And in 1891, the British Parliament devised one: an order charging the debtor partner’s interest in partnership property and profits with the unpaid amount of the judgment against the partner — an order that has become known as a charging order. Burdick, The Law of Partnership § 5.2 at 276-77; Gose, 28 Wash L Rev at 2-3. As the Supreme Court has described it, a charging order is “a simple, effective method whereby a judgment creditor of a partner may have the latter’s interest in the partnership applied upon the judgment debt.” Scott v. Platt, 177 Or 515, 522, 163 P2d 293 (1945).

Legislatures in the United States soon followed Parliament’s lead in adopting the charging order. The National Conference of Commissioners on Uniform State [657]*657Laws promulgated the first Uniform Partnership Act (UPA) in 1914, and included the charging order remedy in the act:

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Related

Law v. Zemp
Oregon Supreme Court, 2018
Law v. Zemp
381 P.3d 1099 (Washington County Circuit Court, Oregon, 2016)

Cite This Page — Counsel Stack

Bluebook (online)
368 P.3d 821, 276 Or. App. 652, Counsel Stack Legal Research, https://law.counselstack.com/opinion/law-ex-rel-robert-m-law-profit-sharing-plan-v-zemp-orctapp-2016.