SFG Commerical Aircraft Leasing Inc. v. Montgomery Equip. Co.

661 F.Supp.3d 561

SFG COMMERICAL AIRCRAFT LEASING INC., Plaintiff, v. MONTGOMERY EQUIPMENT COMPANY, INC., et al., Defendants.

CIVIL ACTION NO. 2:21-mc-00095

United States District Court, S.D. West Virginia, Charleston Division

Signed March 10, 2023

Ryan Marsteller, Bailes Craig Yon & Sellards, Huntington, WV, for Plaintiff.

Charles R. Bailey, Josef A. Horter, Bailey & Wyant, Charleston, WV, for Defendants.

MEMORANDUM OPINION AND ORDER

JOSEPH R. GOODWIN, UNITED STATES DISTRICT JUDGE

Pending before the court is a Motion for Charging Order filed by Plaintiff SFG Commercial Aircraft Leasing, Inc. ("SFG"). [ECF No. 28]. For the reasons set forth herein, SFG's Motion is GRANTED in part and DENIED in part.

I. Background

On March 27, 2018, the United States District Court for the Northern District of Indiana entered judgment in favor of SFG and against Montgomery Equipment Company, Inc. ("Montgomery Equipment") and Dr. A. Thomas Falbo ("Dr. Falbo") in the amount of $1,649,086.16 ($1,549,433.39 principal and $99,652.77 pre-judgment interest) with legal interest thereon at 2.06% per annum from the date of judgment until paid. [ECF No. 1-1]; see also SFG Com. Aircraft Leasing, Inc. v. Montgomery Equip. Co., No. 3:15-cv-324, 2018 WL 452361, at *7 (N.D. Ind. Jan. 16, 2018) ("SFG is entitled to summary judgment against Montgomery and Dr. Falbo, jointly and severally, in the amount of $1,549,433.39 . . . ."). The judgment was properly registered and certified by the Clerk in this District on July 14, 2021. [ECF No. 1]. SFG then applied for a writ of execution as to Dr. Falbo [ECF No. 3], which the Clerk issued on August 24, 2021 [ECF No. 5]. The judgment remains wholly unsatisfied. [ECF No. 28, ¶ 4].

After the writ was returned unexecuted, SFG moved this court to appoint a commissioner to conduct a proceeding in aid of execution. [ECF No. 8]. I granted that motion [ECF No. 9], and Magistrate Judge Cheryl A. Eifert conducted a debtor examination of Dr. Falbo on January 5, 2023 [ECF Nos. 26, 27]. SFG now moves the court for entry of an order charging the distributional interest(s) of Dr. Falbo in five West Virginia limited liability companies ("LLCs") to satisfy the judgment. [ECF No. 28].

II. Legal Standard

Federal Rule of Civil Procedure 69(a) provides the general guidelines by which a money judgment is to be executed. Namely, the "procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies." Fed. R. Civ. P. 69(a)(1). Because there is no specific federal statute on point, West Virginia law applies. Id.

SFG brings the instant Motion pursuant to West Virginia Code § 31B-5-504,¹ which provides as follows:

(a) On application by a judgment creditor of a member of a limited liability company or of a member's transferee, a court having jurisdiction may charge the distributional interest of the judgment debtor to satisfy the judgment. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor and make all other orders, directions, accounts and inquiries the judgment debtor might have made or which the circumstances may require to give effect to the charging order.

(b) A charging order constitutes a lien on the judgment debtor's distributional interest. The court may order a foreclosure of a lien on a distributional interest subject to the charging order at any time. A purchaser at the foreclosure sale has the rights of a transferee.

. . .

(e) This section provides the exclusive remedy by which a judgment creditor of a member or a transferee may satisfy a judgment out of the judgment debtor's distributional interest in a limited liability company.

Accordingly, the decision whether to grant a motion for charging order is left to the discretion of the court, which is further authorized to "make all other orders, directions, accounts and inquiries the judgment debtor might have made or which the circumstances may require to give effect to the charging order." Id.

III. Discussion

A. Charging Order

The record establishes that a judgment in the amount of $1,649,086.16, together with 2.06% interest thereon until satisfaction, was entered between Plaintiff SFG and Defendant Dr. Falbo on March 27, 2018. There is no evidence that the judgment has been satisfied.

The record further shows that judgment debtor Dr. Falbo is a member of the following five LLCs: The Faldent Group, PLLC, d/b/a Falbo Dental Office ("Faldent Group"); TXTXDX LLC ("TXTXDX"); MOEQCO LLC ("MOEQCO"); Montgomery Iron and Machine, LLC ("Montgomery Iron and Machine"); and Republic American USA LLC ("Republic American"). [ECF No. 28-1]. Judgment creditor SFG seeks to enforce its judgment against Dr. Falbo as a member of those LLCs. No opposition has been timely filed.

The court hereby GRANTS judgment creditor SFG a Charging Order upon judgment debtor Dr. Falbo's distributional interests in each of the five above-named LLCs to satisfy SFG's judgment against Dr. Falbo. Each LLC must report and distribute to counsel for SFG all amounts to which Dr. Falbo is entitled or that become due or distributable to Dr. Falbo, and must continue to do so until the judgment is satisfied, including accrued interest, or until further order of the court. This Charging Order constitutes a lien on Dr. Falbo's distributional interests in the five LLCs. The court DIRECTS SFG to serve a copy of this Charging Order on each LLC and file a Notice of Compliance.

B. Ancillary Relief

SFG further requests the court to "enjoin [the LLCs] from transferring, conveying, assigning or otherwise disposing of any money or property in which Falbo has distributional interest(s)," and to order the LLCs to "provide SFG's attorney an accounting of all future distributions made to Falbo or could have been made to Falbo." [ECF No. 28, ¶ 8]. Such additional relief may be included as ancillary provisions in a charging order, pursuant to the court's authority to "make all other orders, directions, accounts and inquiries the judgment debtor might have made or which the circumstances may require to give effect to the charging order." W. Va. Code § 31B-5-504(a).

Absent such ancillary provisions, a judgment creditor's rights under a charging order are akin to those of a transferee. See id. §§ 31B-5-501-504. Under West Virginia law, "transfer of a distributional interest does not entitle the transferee to become or to exercise any rights of a member." Id. § 31B-5-502. A transferee is entitled to receive "only the distributions to which the transferor would be entitled," id., and "is not entitled to participate in the management or conduct of the limited liability company's business, require access to information concerning the company's transactions or inspect or copy any of the company's records," id. § 31B-5-503(d).

With this framework in mind, I turn to the additional relief sought in this case, noting at the outset that both of SFG's requests suffer from some ambiguity.

I first address SFG's request that the LLCs be enjoined "from transferring, conveying, assigning or otherwise disposing of any money or property in which Falbo has distributional interest(s)." [ECF No. 28, ¶ 8]. A distributional interest in an LLC is itself a form of personal property which may be transferred, but a member of an LLC "is not a coowner of, and has no transferable interest in, property of" the LLC. W. Va. Code § 31B-5-501. An LLC member does not have any possessory right to LLC assets until the LLC takes affirmative action to make a distribution to its members and the members approve such distribution. Pflueger Haw., Inc. v. Haw. Auto., LLC, No. 15-1-1524-08, 2017 WL 11436675, at *2 (Haw. Cir. Ct. Jan. 23, 2017) (comparing a distributional interest in an LLC to a corporate dividend). Accordingly, "any money or property in which Falbo has distributional interest(s)" can refer, tautologically, only to distributions themselves. SFG essentially requests that once an LLC decides to make a distribution to Dr. Falbo, the LLC may not then transfer, convey, assign, or otherwise dispose of that distribution. Because SFG is already entitled to receive such distributions by virtue of this Charging Order, this ancillary request appears duplicative of the overall request for a charging order, except to the extent that other creditors may be entitled to those distributions.

Construed as a request for priority over any other possible creditor(s), the relief is DENIED. Although West Virginia law does not specify the priorities to be given to multiple creditors that obtain charging orders directed to the same LLC interest, generally a lien that is first in time has priority and is entitled to prior satisfaction out of the property it binds. See City of Parkersburg v. Carpenter, 203 W.Va. 242, 507 S.E.2d 120, 122 (1998) ("The general rule in establishing priority of liens is 'first in time, first in right.' "). The court is not presently aware of any other creditors who may be claiming rights to Dr. Falbo's distributional interests in the LLCs. See Direct Examination of Defendant Thomas Falbo at 10:22, 10:32, SFG Com. Aircraft Leasing, Inc. v. Montgomery Equip. Co., No. 2:21-mc-00095, 2022 WL 2079877 (S.D. W. Va. Jan. 5, 2023) (testifying that creditors hold liens on debtor's ownership interest in his residence, and on real estate owned by the corporation Montgomery Equipment, but identifying no liens on his interests in any LLCs or on any LLC assets). Unless such creditors already exist, SFG has the first claim to those interests, and will maintain priority over any future lienholders. Furthermore, even if other lienholders presently exist, I see no reason to subordinate their claim(s) to SFG's. See generally Carpenter, 507 S.E.2d at 123 (explaining that the doctrine of equitable subordination does not apply absent "inequitable conduct by a claimant resulting in...