First Bank v. S&R Grandview, L.L.C. , 232 N.C. App. 544 ( 2014 )

NO. COA13-838
NORTH CAROLINA COURT OF APPEALS
Filed: 4 March 2014
FIRST BANK,
Plaintiff,
v. Montgomery County
No. 11 CVS 74
S&R GRANDVIEW, L.L.C.; DONALD J.
RHINE; JOEL R. RHINE; GORDON P.
FRIEZE, JR.; MAXINE GANER; SHARON
R. SILVERMAN, EXECUTRIX OF THE
ESTATE OF STEVEN S. SILVERMAN; and
MARTIN J. SILVERMAN,
Defendants.
Appeal by defendant Donald J. Rhine from order entered 26
February 2013 by Judge Vance Bradford Long in Montgomery County
Superior Court. Heard in the Court of Appeals 10 December 2013.
Nexsen Pruet, PLLC, by M. Jay DeVaney and Brian T. Pearce,
for plaintiff-appellee.
Wilson & Ratledge, PLLC, by Michael A. Ostrander, and Saffo
Law Firm, P.C., by Anthony A. Saffo, for defendant-
appellant.
HUNTER, Robert C., Judge.
Donald J. Rhine (“defendant”) appeals from a charging order
entered in favor of First Bank (“plaintiff”) charging
defendant’s membership interest in an LLC to satisfy payment of
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a judgment. On appeal, defendant argues that the trial court
erred by: (1) concluding that the charging order “effectuated an
assignment” of defendant’s membership interest in the LLC; and
(2) enjoining defendant from exercising his rights as a member
of the LLC and ordering that his membership rights “lie fallow”
until the judgment is satisfied.
After careful review, we reverse the trial court’s order
and remand for entry of a new charging order consistent with
this opinion.
Background
On 7 September 2012, the trial court entered monetary
judgment for plaintiff against defendant in excess of $3.5
million based on defendant’s default on various loans and
guaranty agreements. In an effort to collect on this judgment,
plaintiff filed a motion seeking a charging order against
defendant’s membership interest in S&R Grandview, LLC (“the
LLC”), a limited liability company of which defendant was a
member and manager. After a hearing on 18 February 2013, the
trial court granted plaintiff’s motion, and after concluding
that the charging order “effectuate[d] an assignment,” ordered
the following:
1. Defendant D. Rhine’s membership interest
in S&R Grandview, L.L.C. is hereby charged
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with payment of the unsatisfied amount of
First Bank’s Judgment, including interest
that has accrued after the date of the
Judgment.
2. First Bank shall hereafter have the
rights of an assignee of Defendant D.
Rhine’s membership interest in S&R
Grandview, L.L.C., and all members and
managers of S&R Grandview, L.L.C. shall
treat First Bank as such an assignee.
3. Until such time as the full amount of the
Judgment has been paid to First Bank,
Defendant D. Rhine shall be enjoined from
exercising any of the rights of a member of
S&R Grandview, L.L.C.
4. First Bank shall receive any and all
distributions and allocations from S&R
Grandview, L.L.C. to which Defendant D.
Rhine is entitled, until the full amount of
the Judgment has been paid to First Bank.
5. The members and managers of S&R
Grandview, L.L.C., shall not allow any
distribution or allocation to Defendant D.
Rhine unless and until First Bank’s Judgment
has been fully satisfied.
6. S&R Grandview, L.L.C. shall not allow
Defendant D. Rhine to circumvent the terms
or purpose of this Charging Order.
7. This order does not allow First Bank to
exercise any rights of a member of S and R
[sic] Grandview, LLC except as set out in
paragraph 4 above. Defendant D. Rhine’s
membership right shall lie fallow until the
judgement [sic] is satisfied except as set
out in paragraph 4 above.
Defendant filed timely notice of appeal from this order.
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Discussion
I. Effect of Charging Order on LLC Membership Interest
Defendant brings two related arguments on appeal: (1) the
trial court erred by concluding that the charging order
effectuated an assignment of his membership interest in the LLC
to plaintiff, and (2) the trial court erred by enjoining him
from exercising his management rights in the LLC and ruling that
these rights “lie fallow.” We agree as to both arguments and
reverse the trial court’s order.
Both issues on appeal involve interpretation of N.C. Gen.
Stat. §§ 57C-5-02, -03 (2011). Questions of statutory
interpretation are questions of law, which are reviewed de novo
by this Court. Dare Cnty. Bd. of Educ. v. Sakaria, 127 N.C. App.
585, 588, 492 S.E.2d 369, 371 (1997); Carolina Power & Light Co.
v. City of Asheville, 358 N.C. 512, 517, 597 S.E.2d 717, 721
(2004). The primary objective of statutory interpretation is to
give effect to the intent of the legislature. Polaroid Corp. v.
Offerman, 349 N.C. 290, 297, 507 S.E.2d 284, 290 (1998). The
plain language of a statute is the primary indicator of
legislative intent. Begley v. Emp’t Sec. Comm’n, 50 N.C. App.
432, 436, 274 S.E.2d 370, 373 (1981). However, where the plain
language is unclear, this Court may also glean the General
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Assembly’s intent from legislative history. Lenox, Inc. v.
Tolson, 353 N.C. 659, 664, 548 S.E.2d 513, 517 (2001).
Likewise, “[l]ater statutory amendments provide useful evidence
of the legislative intent guiding the prior version of the
statute.” Wells v. Consol. Judicial Ret. Sys., 354 N.C. 313,
318, 553 S.E.2d 877, 880 (2001). Finally, statutory provisions
must be read in context: “Statutes dealing with the same subject
matter must be construed in pari materia, as together
constituting one law, and harmonized to give effect to each.”
Williams v. Williams, 299 N.C. 174, 180–81, 261 S.E.2d 849, 854
(1980) (internal citations omitted).
Section 57C-5-03 allows a judgment creditor to seek a
charging order against a debtor-member’s interest in an LLC to
satisfy the judgment. It provides:
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 the judgment with
interest. To the extent so charged, the
judgment creditor has only the rights of an
assignee of the membership interest. This
Chapter does not deprive any member of the
benefit of any exemption laws applicable to
his membership interest.
N.C. Gen. Stat. § 57C-5-03 (emphasis added). Because section
57C-5-03 states that the judgment creditor “has only the rights
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of an assignee of the membership interest,” it is proper to read
section 57C-5-03 together with section 57C-5-02, which sets out
the rights of an assignee of an LLC membership interest. See
Williams, 299 N.C. at 180-81, 261 S.E.2d at 854. Section 57C-5-
02 provides:
Except as provided in the articles of
organization or a written operating
agreement, a membership interest is
assignable in whole or in part. An
assignment of a membership interest does not
dissolve the limited liability company or
entitle the assignee to become or exercise
any rights of a member. An assignment
entitles the assignee to receive, to the
extent assigned, only the distributions and
allocations to which the assignor would be
entitled but for the assignment. Except as
provided in the articles of organization or
a written operating agreement, a member
ceases to be a member upon assignment of all
of his membership interest. Except as
provided in the articles of organization or
a written operating agreement, the pledge
of, or granting of a security interest,
lien, or other encumbrance in or against,
all or any part of the membership interest
of a member shall not cause the member to
cease to be a member or the secured party to
have the power to exercise any rights or
powers of a member.
N.C. Gen. Stat. § 57C-5-02 (emphasis added). Membership
interests are defined by N.C. Gen. Stat. § 57C-1-03(15) (2011)
as “[a]ll of a member’s rights in the limited liability company,
including without limitation the member’s share of the profits
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and losses of the limited liability company, the right to
receive distributions of the limited liability company assets,
any right to vote, and any right to participate in management.”
Plaintiff argues that “[t]he only reasonable way to read
N.C. Gen. Stat. § 57C-5-02 and N.C. Gen. Stat. § 57C-5-03
together and to give import to each of the clauses included in
each statute is to conclude that the entry of a charging order
amounts to an assignment of the debtor’s membership interest”
and after entry of a charging order “a debtor ceases to be a
member in the limited liability company to which the charging
order applies.” To reach this conclusion, plaintiff argues
that: (1) a charging order assigns a debtor’s economic interest
in an LLC to a judgment creditor; (2) the only LLC membership
rights that are freely transferable are economic rights, and
thus, assignment of economic rights “effectuates a full and
complete assignment of a limited liability company interest”;
and (3) because “a member ceases to be a member upon assignment
of all of his membership interest,” N.C. Gen. Stat. § 57C-5-02,
a charging order terminates the debtor-member’s membership in
the LLC.
We disagree with plaintiff’s interpretation of these
statutes. First, we do not read sections 57C-5-02 and 57C-5-03
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as effectuating an assignment of the debtor’s membership rights,
either in whole or in part. Section 57C-5-03 clearly states
that “the judgment creditor has only the rights of an assignee
of the membership interest.” An assignee has the right “to
receive, to the extent assigned, only the distributions and
allocations to which the assignor would be entitled but for the
assignment.” N.C. Gen. Stat. § 57C-5-02. Thus, under the plain
language of these statutes, a charging order gives a judgment
creditor the right to receive distributions and allocations to
which the debtor-member would have been entitled until the
judgment is satisfied. Nowhere in these provisions does the
General Assembly mandate an assignment of membership interests
from a debtor to a judgment creditor through a charging order.
“Where the language of a statute is clear and unambiguous, there
is no room for judicial construction and the courts must
construe the statute using its plain meaning.” Burgess v. Your
House of Raleigh, Inc., 326 N.C. 205, 209, 388 S.E.2d 134, 136
(1990) (citation omitted). Section 57C-5-03 does exactly what
it says; it “charge[s] the membership interest of the member
with payment of the unsatisfied amount of the judgment with
interest.” Had the General Assembly intended a charging order
to assign all membership interests and terminate a debtor’s
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membership in an LLC, as plaintiff contends, it could have
easily included language to that effect. Absent such language,
we are bound by the words used by the General Assembly, and we
hold that a charging order does not effectuate an assignment of
a debtor-member’s total interest in an LLC.
Recent amendments to the North Carolina Limited Liability
Company Act support our conclusion that a charging order does
not effectuate an assignment. Effective 1 January 2014, the
General Assembly repealed Chapter 57C and enacted a new North
Carolina Limited Liability Company Act in Chapter 57D. See 2013
Sess. Laws 157, §§ 1,2. N.C. Gen. Stat. § 57D-5-03 clarifies
the rights of a judgment creditor seeking a charging order as
follows:
(a) On application to a court of competent
jurisdiction by any judgment creditor of an
interest owner, the court may charge the
economic interest of an interest owner with
the payment of the unsatisfied amount of the
judgment with interest. To the extent so
charged, the judgment creditor has only the
right to receive the distributions that
otherwise would be paid to the interest
owner with respect to the economic interest.
(b) A charging order is a lien on the
judgment debtor’s economic interest to the
extent provided in this section from the
time that such charging order is served upon
the LLC in accordance with Rule 4(j)(8) of
the Rules of Civil Procedure. . . .
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(c) This Chapter does not deprive any
interest owner of a right, including any
benefit of any exemption law applicable to
the interest owner’s ownership interest.
(d) The entry of a charging order is the
exclusive remedy by which a judgment
creditor of an interest owner may satisfy
the judgment from or with the judgment
debtor’s ownership interest.
N.C. Gen. Stat. § 57D-5-03 (2013) (emphasis added). Although
the newly revised North Carolina Limited Liability Company Act
does not apply to this case, see N.C. Gen. Stat. § 57D-11-03,
the clarified portions of section 57D-5-03 support our
conclusion that the General Assembly did not intend for section
57C-5-03 to effectuate an assignment, enjoin a debtor-member
from exercising managerial rights, or cause the debtor-member to
cease to be a member in the LLC.
Although plaintiff contends that this conclusion leads to
irreconcilable results, again we disagree.
First, plaintiff argues that to conclude that a charging
order does not effectuate a total assignment, this Court would
have to reconcile “why the interest received by a party
receiving a charging order is identical to the interest received
by a party who is otherwise assigned a membership interest in a
limited liability company.” We disagree with plaintiff’s
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contention that these interests are identical. Section 57C-5-03
provides that a trial court “may charge the membership interest
of the member with payment of the unsatisfied amount of the
judgment with interest.” N.C. Gen. Stat. § 57C-5-03 (emphasis
added). Inherent in the concept of a charging order is that
once the judgment is paid, the debtor-member’s interest in the
LLC is no longer charged. An assignee of a member’s LLC
membership interest has no such limitation. Thus, contrary to
plaintiff’s argument, although a judgment creditor has the
economic rights of an assignee until the judgment is satisfied,
the interests that the two parties have are not identical.
Second, plaintiff argues that because the term “charging
order” is not included in the last sentence of section 57C-5-02,
which prescribes situations where a member loses some economic
rights but retains membership in the LLC, the General Assembly
could not have intended this provision to apply to charging
orders. Although the term “charging order” is not specifically
mentioned by name, we find that it fits within the “other
encumbrance[s] in or against, all or any part of the membership
interest” for which the provision applies. See N.C. Gen. Stat.
§ 57C-5-02 (“[T]he pledge of, or granting of a security
interest, lien, or other encumbrance in or against, all or any
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part of the membership interest of a member shall not cause the
member to cease to be a member or the secured party to have the
power to exercise any rights or powers of a member.”) (emphasis
added). Plaintiff argues that because encumbrances do not
include actual transfer of rights until they are enforced, and
charging orders permit the judgment creditor to actually receive
distributions and allocations, charging orders cannot be
encumbrances. The flaw in this logic is the assumption that
charging orders are never “enforced.” The plain language of
sections 57C-5-02 and 57C-5-03, specifically that the debtor’s
membership interest is “charge[d]” and the judgment creditor has
the right to “receive . . . the distributions and allocations to
which the assignor would be entitled,” demonstrates a
legislative intent for charging orders to act as encumbrances
that are “enforced” whenever the debtor-member would have
received distributions or allocations from the LLC.
Furthermore, the General Assembly has clarified that charging
orders are encumbrances, not assignments, and that the
imposition of a charging order does not affect a member’s
managerial rights. Specifically, section 57D-5-03(b) states that
“A charging order is a lien on the judgment debtor’s economic
interest[.]” The subsequent amendment of the charging order
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statute is strong evidence that the General Assembly intended
charging orders under 57C-5-03 to be encumbrances that do not
affect a debtor’s managerial interest, contrary to plaintiff’s
contention and the trial court’s order. See Wells, 354 N.C. at
318, 553 S.E.2d at 880.
Third, plaintiff argues that because section 57C-5-03 is
included in the Article of the North Carolina Limited Liability
Company Act entitled “Assignment of Membership Interests;
Withdrawal,” charging orders must be interpreted to effectuate
assignments. Although we agree that the title of an Article in
which a statute is placed can be relevant when interpreting the
statute, the placement of a statute within an Act is less
probative of legislative intent than the plain language of the
statute itself. “[I]n interpreting a statute, we first look to
understand the legislative intent behind the statute by
examining the plain language of the statute.” State v. Moore,
167 N.C. App. 495, 503, 606 S.E.2d 127, 132 (2004) (emphasis
added) (citing Elec. Supply Co. v. Swain Elec. Co., 328 N.C.
651, 656, 403 S.E.2d 291, 294 (1991)). “[W]hen confronted with
a clear and unambiguous statute, courts are without power to
interpolate, or superimpose, provisions and limitations not
contained therein.” In re Hamilton, __ N.C. App. __, __, 725
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S.E.2d 393, 396 (2012). Here, the plain language of section
57C-5-03 unambiguously states that a charging order gives the
judgment creditor the rights of an assignee. N.C. Gen. Stat. §
57C-5-03. It does not provide for actual assignment of
membership rights from debtor to judgment creditor. The fact
that section 57C-5-03 was placed by the General Assembly in an
Article entitled “Assignment of Membership Interests;
Withdrawal” does not change this outcome.
Conclusion
After careful review, we hold that under the plain language
of section 57C-5-03, a charging order does not effectuate an
assignment of a debtor’s membership interest in an LLC and does
not cause a debtor to cease being a member in an LLC. Thus, we
reverse the trial court’s charging order enjoining defendant
from exercising his membership rights in the LLC and ordering
that his membership rights “lie fallow” and remand for entry of
a charging order consistent with this opinion.
REVERSED AND REMANDED.
Judges MCGEE and ELMORE concur.