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

362 Or. 302

408 P.3d 1045

Robert LAW, ON BEHALF OF the ROBERT M. LAW PROFIT SHARING PLAN, Respondent on Review,

v.Ronald ZEMP, Defendant,andForever Young Oregon, LLC; The Ron Zemp Family 1 Limited Partnership; The Ron Zemp Family 2 Limited Partnership; The Ron Zemp 3 Family Limited Partnership; and The Ron Zemp 4 Family Limited Partnership, Petitioners on Review.

Robert Law, on behalf of the Robert M. Law Profit Sharing Plan, Petitioner on Review,

v.Ronald Zemp, Defendant,andForever Young Oregon, LLC; The Ron Zemp Family 1 Limited Partnership; The Ron Zemp Family 2 Limited Partnership; The Ron Zemp 3 Family Limited Partnership; and The Ron Zemp 4 Family Limited Partnership, Respondents on Review.

SC S064387 (Control), S064415

CC C12-1752CV

Supreme Court of Oregon.

Argued and submitted May 11, 2017.

January 11, 2018

Natalie C. Scott, The Scott Law Group, Eugene, argued the cause and filed the briefs on behalf of Forever Young Oregon, LLC, and the Ron Zemp Family Limited Partnerships.

Bruce H. Orr, Wyse Kadish, LLP, Portland, argued the cause and filed the briefs on behalf of Robert Law.

Before Balmer, Chief Justice, and Kistler, Walters, and Nakamoto, Justices, and Landau Senior Justice pro tempore, and Ortega, Judge of the Court of Appeals, Justice pro tempore.^**

WALTERS, J.

This review proceeding arises out of a post-judgment order charging a judgment debtor's interests in four limited partnerships and a limited liability company to satisfy the judgment creditor's judgment against him. The charging order was issued over the limited partnerships' and limited liability company's objections that ancillary provisions included in the charging order, which required them to refrain from certain kinds of transactions and provide extensive financial information to the judgment creditor, were not authorized under the controlling statutes. On appeal, the Court of Appeals held that some, but not all, of the ancillary provisions were authorized. Law v. Zemp , 276 Or. App. 652, 368 P.3d 821, adh'd to on recons , 279 Or. App. 808, 381 P.3d 1099 (2016). We hold that a trial court has either general or specific statutory authority to include, in a charging order, ancillary provisions that it finds necessary to allow a judgment creditor access to a debtor-partner's distributional interest in a company, as long as those provisions do not unduly interfere with the company's management. We further hold that, in this case, the record does not establish that that standard was met and, therefore, that the trial court erred in imposing the challenged ancillary provisions. We reverse the decision of the Court of Appeals and vacate the circuit court order, and remand to the circuit court for further proceedings.

I. HISTORICAL FACTS

In 2012, plaintiff obtained a money judgment against defendant Ronald Zemp. After his initial attempts to collect the judgment were unsuccessful, plaintiff moved the trial court under ORS 70.295 and ORS 63.259 for an order directing Zemp to show cause why an order charging his interest in certain named companies to satisfy the judgment should not be entered.¹ The named companies were four limited partnerships (LPs), The Ron Zemp Family Limited Partnership 1, 2, 3 and 4, and a limited liability company (LLC), Forever Young Oregon, LLC. In support of the motion, plaintiff submitted copies of public business registry records which identified Zemp as the general partner of each of the LPs and as the manager of the LLC. Plaintiff also submitted a proposed charging order which required the companies to pay all "distributions, credits, drawings or payments" they otherwise would have paid to Zemp to plaintiff until plaintiff's judgment against Zemp was satisfied in full. The proposed charging order also included the following ancillary provisions:

"3. Until said judgments are satisfied in full, *** the companies shall make no loans to any partner or anyone else.

"4. Until said judgments are satisfied in full, *** the companies shall make no capital acquisitions without either Court approval or the approval of [plaintiff].

"5. Until said judgments are satisfied in full, *** neither the companies nor its members shall undertake, enter into, or consummate any sale, encumbrance, hypothecation, or modification of any partnership interest without either Court approval or the approval of [plaintiff].

"6. *** [T]he companies *** shall supply to [plaintiff] full, complete, and accurate copies of the applicable membership or partnership agreements, including any and all amendments or modifications thereto; true, complete and accurate copies of any and all Federal and State income tax or informational income tax returns filed within the past two years; balance sheets and profit and loss statements for the past two years; and balance sheets and profit and loss statements for the most recent present periods for which same has been computed. Further, upon ten (10) days notice ***, all books and records shall be produced for inspection, copying examination in the office of [plaintiff].

"7. Until said judgments are satisfied in full, *** all future statements reflecting cash position, balance sheet position, and profit and loss, the companies shall supply to [plaintiff] within thirty (30) days of the close of their respect accounting periods for which said data is or may be generated.² "

The trial court issued the requested show cause order, setting a hearing date on the proposed charging order some three weeks out. The order was served on Zemp through each of the companies' registered agent.

Although Zemp himself did not appear in the ensuing proceeding, the companies filed objections and attended the hearing. The companies initially sought to establish, through a declaration by Zemp's business advisor, that Zemp had no personal ownership interest in any of the companies. Plaintiff moved to strike the declaration on a variety of grounds and also argued, on the merits, that the declaration did not disprove Zemp's status vis-à -vis the companies. The trial court granted plaintiff's motion to strike and moved on to the companies' second objection to the charging order—that, insofar as plaintiff's proposed charging order included ancillary provisions that would affect the companies' operations, it went beyond what the charging order statutes authorized. In response to that objection, plaintiff had argued that the provisions would help insure that Zemp did not use his control of the companies to keep his interests in them out of plaintiff's reach, without plaintiff having any way to know what had been done.³ The companies insisted, however, that the provisions would invade the rights of the companies' other partners and members, and that, at the very least, they should not be allowed without the posting of a bond and a protective order. Thereafter, the hearing evolved into a more practical editorial session, with the trial court removing one provision (paragraph 4) in the proposed order, adjusting certain due dates set in the proposed order, and instructing the parties to devise a protective order for the financial disclosure requirements. The court approved and issued the charging order as edited.

The companies later filed a motion for reconsideration, arguing that, insofar as the provisions that remained affected the rights of partners in the companies who had not been made parties to the proceedings, inclusion of those provisions, particularly on such short notice, amounted to a violation of due process. But plaintiff responded, and the trial court agreed, that the companies could have and should have raised those objections in the original hearing, and that they presented no basis for reconsideration. Accordingly, the motion for reconsideration was denied.

II. THE COURT OF APPEALS DECISION

The companies decided to appeal and moved for a stay of the charging order as issued. Unable to persuade the trial court or the Court of Appeals to grant such a stay, they finally reached a partial settlement with plaintiff, under which plaintiff agreed to a stay of the objectionable ancillary provisions that remained in the order (paragraphs 3, 5, 6, and 7) in return for certain concessions, including the company's waiver of any right to challenge the basic provisions of the charging order (and, thus, to argue that Zemp was not a member or partner in the companies). The resulting stipulated order specified, however, that the companies "may argue on appeal that the trial court was without authority to include paragraphs 3, 5, 6, and 7 in the Charging Order [i.e ., the ancillary provisions barring certain transactions and requiring financial disclosures] because such paragraphs exceed what is allowable under the Oregon [Limited Liability Company] Act, Oregon's limited partnership statutes, or any other applicable law."

The companies then made that argument on appeal, and the Court of Appeals was persuaded in part. In a nut-shell, the Court of Appeals held, with regard to the charging order as it applied to the LPs, that (1) the court's authority is controlled by a provision of the limited partnership statute, ORS 70.295, which impliedly incorporates a provision in the general partnership statutes, ORS 67.205, under which courts issuing charging orders are authorized to "make all other orders, directions, accounts and inquiries the judgment debtor might have made or that the circumstances of the case might require"; (2) because the ancillary provisions in the charging order requiring disclosure of financial information (paragraphs 6 and 7) were ones that the judgment debtor might have made as a general partner in the limited partnership, the court was authorized to include those provisions in the charging order against the LPs; (3) because the ancillary provisions restricting the limited partnerships from making loans and transferring partnership interests (paragraphs 3 and 5) were not ones that the judgment debtor might have made, and because the trial court had n...