A charging order is a post-judgment creditor’s remedy that allows the creditor to place a lien on the debtor’s economic interest in a limited liability company or a partnership. To get a charging order, the creditor must show that the debtor has a current interest, today, in the LLC or partnership. But what happens if there is a dispute as to whether the debtor holds such an interest or not?
This issue came up recently in Orix Re Holdings, LLC v. Collier, 2025 WL 2683986 (C.D.Cal., August 20, 2025). This matter involved, as so many of these cases do, a personal guarantee which was called by the creditor (there is a lesson in there about entering into personal guarantees). The creditor obtained a judgment against the debtor and commenced judgment enforcement proceedings.
The debtor owned an interest in Kings Road LLC, and the Articles of Organization stated that Kings Road LLC would be managed by its members (as opposed to a manager-managed LLC). When the creditor filed a motion for a charging order, however, the debtor claimed that he was no longer a member of Kings Road LLC, but only a manager. What happened, the debtor claimed, is that he had assigned his interest, which was 100% of the total interest, to his family trust back in 2020.
For the debtor, the problem was that even after he had assigned his interest back in 2020, he had continued to sign documents on behalf of Kings Road LLC even though he was no longer a member. For instance, the very day after the debtor purportedly made his assignment, the debtor signed a deed as the “managing member” of Kings Road LLC.
There were other factors which tended to indicate that the purported 2020 assignment had not really been made at that time. The debtor’s wife as the trustee of the family trust did not give a declaration stating that she as trustee was now the sole member. The law firm that ostensibly prepared the assignment did not give a declaration that it was executed in 2020. Thus the court:
“There is uncontroverted evidence that Collier continued to sign significant documents – after the date of the Assignment – as either a member or the managing member of the Kings Road LLC. The fact that Collier signed those significant documents as a member or managing member after the date of the Assignment creates significant doubt, here, as to whether the Assignment was, indeed, signed on the date that it was dated. At a minimum, there is a significant question as to whether the Assignment was simply ignored by Collier when it was convenient for him to ignore it.”
Further, the Articles of Organization for Kings Road LLC stated that it was to be member-managed, and there was never any amendment to those Articles to make it manager-managed. Thus, the only logical conclusion was that the debtor was still the member of Kings Road LLC notwithstanding the alleged assignment of his interest.
The court then found, based on all of this, that the creditor had presented “substantial evidence” that the debtor was still the owner of the interest. This made the grant of a charging order to the creditor appropriate, and since the debtor owned a 100% interest in Kings Road LLC, it made sense for the creditor to also seek the judicial sale of the debtor’s interest (foreclosure of the charging order lien), which the court also granted.
ANALYSIS
Pigs get fat, hogs get slaughtered. This principle applies to creditor-debtor law with as much force as it does elsewhere within the law. If the debtor had claimed that he had assigned say 50% of his interest in Kings Road LLC, instead of claiming that he had assigned his entire interest, the debtor’s argument would have been much tougher for the creditor to beat. In that case, the debtor’s continuing to sign for Kings Road LLC would have been consistent with the other facts and the creditor would have been stuck with a charging order of dubious value ― including if the interest was foreclosed.
In my debtor-creditor practice, debtors coming up with all sorts of documents to fend off the enforcement of a judgment is common. The problem is that documents, such as the debtor’s assignment, do not exist in the abstract and they will not block the creditor’s execution if they are contrary to other established facts. This particular attempt was quite sophomoric because of all these other facts and the judge saw right through it.
But we do get something much more important out of this opinion, which is that the burden of proof to be applied on whether a creditor should be granted a charging order is one of “substantial evidence”. This is a pretty low burden: If a creditor can come up with some admissible evidence that the debtor owns an interest in an LLC or partnership, then the charging order should be granted.
Which makes sense when viewed from a slightly difference angle: Why not grant the charging order if there is a dispute as to the debtor’s membership interest? If the debtor really doesn’t own an interest, then the charging order lien doesn’t attach to anything. This is very similar to a creditor filing an abstract of judgment: If the debtor doesn’t own any real property in the county, then the abstract lien doesn’t attach to any property. So why not just grant it?
Of course, a charging order has an additional component to the lien effect, which is that there is also an order to pay directed to the LLC or partnership. But the LLC or partnership is not a party to the debtor’s case, and thus should have an opportunity to contest the payment order if the debtor really doesn’t have an interest in the entity ― if nothing else, then at the order to show cause for a contempt citation against the entity.