Opinion
No. CV 00 0093186 S
October 12, 2006
MEMORANDUM OF DECISION
FACTS
This action was tried to the court, which found the following facts. See Goldberg v. Winogradow, Superior Court, judicial district of Middlesex, Docket No. CV 00 0093186 (December 18, 2002, Aurigemnia, J.). The plaintiffs, Neal Goldberg and Ann Thompson, instituted this action to collect on a promissory note signed by the defendant, Victor Winogradow, dated December 23, 1993. As written, the note was payable on December 31, 1994, in the amount of $100,000, with a balance of $53,000 due on June 30, 1995. When the $100,000 became due, the defendant had made no payments. Thereafter, the defendant made two payments totaling $30,000. In 1998, Goldberg assigned the note to himself and Thompson as tenants in common. In 2002, the note still remaining unpaid, the plaintiffs filed suit. At trial, judgment was rendered in favor of the plaintiffs and against the defendant in the amount of $215,787.64. On April 28, 2003, after a hearing awarding attorneys fees in the amount of $7,025, plus costs taxed by the court, the total judgment against the defendant was $223,273.12.
This sum included $92,257.64 in interest.
In an attempt to collect on the judgment, the plaintiffs filed an application for a financial institution execution on January 18, 2005, which was returned unsatisfied on May 24, 2005. On May 18, 2006, the judgment still remaining wholly unsatisfied, the plaintiffs filed an application for an execution and an application for an order in aid of the execution, ordering the defendant to turn over to the levying officer: a) possession of the defendant's shares of Front Line Apparel Group, LLC (Front Line); b) possession of the defendant's shares of 313 Mill Street Associates, LLC (Mill Street); c) the defendant's 51 percent share of any funds due from DSP Holdings, Inc. (DSP); and d) possession of documentary evidence of debts owed to the defendant from DSP. A hearing on this matter was held on June 19, 2006.
DISCUSSION
"The law of turnover orders is entirely statutory." Sarasota CCM, Inc. v. Golf Marketing, LLC, 94 Conn.App. 34, 37, 891 A.2d 72 (2006). "[Turnover] statutes have not been extensively litigated." Id., 38. The Appellate Court has noted that the trial court has supervisory control over the process of a property execution. See Anthony Julian Railroad Construction Co. v. Mary Ellen Drive Associates, 50 Conn.App. 289, 294, 717 A.2d 294 (1998). In the present case, two statutes are controlling, General Statutes §§ 52-356b and 34-171. General Statutes § 52-356b(a) provides that "[i]f a judgment is unsatisfied, the judgment creditor may apply to the court for an execution and an order in aid of the execution directing the judgment debtor . . . to transfer to the levying officer either or both of the following: (1) Possession of specified personal property that is sought to be levied on; or (2) possession of documentary evidence of title to property of, or a debt owed to, the judgment debtor that is sought to be levied on." "The court may issue a turnover pursuant to this section, after notice and hearing . . ." General Statutes § 52-356b(b).
Because the present case also involves the defendant's ownership interests in various limited liability companies (LLCs), the provisions of the Connecticut Limited Liability Company Act (act), which sets forth requirements and guidelines for the operation of LLCs in the state of Connecticut, are relevant. General Statutes § 34-171 provides rights and remedies to judgment creditors against judgment debtors owning an interest in an LLC. In relevant part, General Statutes § 34-171 states, "[o]n application . . . by any judgment creditor of a member, the court may charge the member's limited liability company interest 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 member's limited liability company interest."
Codified at General Statutes § 34-100 et seq., no portion of the act was cited by the plaintiffs in their application for order. Consideration of specific portions of the Act is appropriate, as "[i]t is plain error for a trial court to fail to apply an applicable statute, even in the absence of the statute having been brought to its attention by the parties." (Internal quotation marks omitted.) Location Realty, Inc., v. General Financial Services, Inc., 273 Conn. 766, 771 n. 8, 873 A.2d 163 (2005). In the present case, because parts "a," "b," and "c" of the application for order concern the defendant's ownership interest in LLCs, provisions of the act are clearly applicable, and are necessary for a proper determination of this application. Further, because the plaintiffs fail to mention the act, they also fail to use the correct terminology for requesting a defendant's interest in an LLC, known as a charging order.
The definition in General Statutes § 34-101(11) of a limited liability company membership interest, made available under General Statutes § 34-171 for satisfaction of a judgment, encompasses "a member's share of the profits and losses of the limited liability company and a member's right to receive distributions of the limited liability company's assets . . ." In the present case, because the plaintiffs are seeking to satisfy their judgment through an order charging the defendant's LLC interests, analysis of the plaintiffs' claims must be made not only in the context of General Statutes § 52-356b, but also based on the limitations and guidelines set forth in the act.
I LLC INTEREST REQUESTS
In parts "a" and "b" of the May 18, 2006 application for order in aid of execution, the plaintiffs ask the court to transfer or assign to them possession of the defendant's shares of both Front Line and Mill Street. Further in the application, the plaintiffs specifically ask the court to assign or transfer the defendant's ownership interest of 51 percent in Front Line and 31 percent of Mill Street. General Statutes § 34-170(a)(3) states, "an assignment of a limited liability company membership interest does not dissolve the limited liability company or entitle the assignee to participate in the management and affairs of the limited liability company or to become or exercise any rights of a member . . ."
The plaintiffs' application, and the February 6, 2006 transcript of the examination of the defendant, both state that the defendant's ownership interest in Mill Street is 33 percent. In its prayer for order, however, the plaintiff states the ownership interest as 31 percent, and requests an interest in that amount. It is assumed that this is in error.
Based on the wording in the plaintiffs' application, it appears that the plaintiffs are asking for a more substantial interest than that of an assignee. The plaintiffs are attempting to assume the defendant's ownership, rather than just the shares or profits to which the defendant may be entitled. The transfer of an ownership interest entails participation in the "management and affairs" of the LLC. This request is specifically proscribed by the language of General Statutes § 170(a)(3). Because the plaintiffs are seeking an ownership interest, rather than merely than the right of an assignee of the defendant's profits, the plaintiffs' requests exceed the scope allowable for a charging order under General Statutes § 34-171. Consequently, this court denies parts "a" and "b" of the application for order in aid of execution.
Part "c" of the application asks the court to transfer or assign to the plaintiffs the defendant's 51% share of any funds due from DSP. "A limited liability company membership interest is personal property"; General Statutes § 34-169; and is assignable. General Statutes § 34-170. Connecticut courts have previously issued charging orders against a defendant's interest in an LLC under General Statutes § 34-171. See, e.g., PB Real Estate, Inc. v. DEM II Properties, 50 Conn.App. 741, 719 A.2d 73 (1998); Merchants Bank v. Chestnut Tree Hill, Superior Court, judicial district of Ansonia-Milford, Docket No. CV 90 0033304 (June 6, 2003, Curran, J.T.R.) ( 35 Conn. L. Rptr. 160); Cadle Company v. Ginsburg, Superior Court, judicial district of Ansonia-Milford, Docket No. CV 95 0076811 (March 28, 2002, Alander, J.) ( 31 Conn. L. Rptr. 597). From the transcript of the examination of the defendant, dated February 6, 2006, it was averred that the defendant is under a contact with DSP, whereby he is indirectly paid $6,000 monthly for his consulting services. Because the defendant owns 51 percent of Front Line, his "interest" for purposes of General Statutes § 34-171 would be 51 percent of any funds paid to Front Line, including those funds paid by DSP.
Under General Statutes § 34-101(11), the request in part "c" appears to properly demand "[the defendant's] share of the profits . . . of the limited liability company and [the defendant's] right to receive distributions of the limited liability company's assets . . ." Unlike parts "a" and "b" of the application, part "c" only appears to be requesting the requisite portion of sums due to the defendant from a third party. The court grants the application as to part "c."
II DOCUMENTARY EVIDENCE REQUEST
In part "d" of the application, the plaintiffs request possession of documentary evidence of the debts owed to the defendant from DSP. Under General Statutes § 52-356b(a), a judgment creditor is entitled to apply to the court and ask for "[p]ossession of documentary evidence . . . of a debt owed to . . . the judgment debtor that is sought to be levied on." General Statutes § 52-356a(4)(C) provides a procedure for providing notice to a third person in such a case. As the plain language of General Statutes § 52-356b(a) indicates, the motion for turnover of documentary evidence of debts owed to the defendant will issue after a proper application and hearing. In the present case, a hearing took place on June 19, 2006. Because it is undisputed that DSP owes certain funds to the defendant as part of a continuing business relationship, the plaintiffs' request in part "d" for documentary evidence of debts owed to the defendant from DSP properly complies with the requirements for such requests under General Statutes § 52-356b(a), and may, as such, be granted.
General Statutes § 52-356a(4)(C) provides in relevant part that when personal property "is in the possession of a third person, the levying officer shall serve that person with two copies of the execution, required notices and claim forms. On receipt of such papers, the third person shall forthwith mail a copy thereof postage prepaid to the judgment debtor at the last-known address of record . . ." The state marshal's return, filed on June 14, 2006, stated that he left "a verified . . . copy of the within original [execution, notices, and claim forms]." Further, the state marshal specified that his service was being executed pursuant to General Statutes § 33-929. General Statutes § 33-929 concerns service of process on a foreign corporation. While DSP is undoubtedly a foreign corporation, it was not being served with process; rather, it was to be served with a property execution pursuant to General Statutes § 52-356a(4)(C), the statute under which the plaintiffs have filed the present order. Service under General Statutes § 33-929 requires only one copy. From the record, it appears that the plaintiffs have not complied with the requirements for service set forth in General Statutes § 52-356a(4)(C).
It is manifest from a reading of General Statutes § 52-356a(4)(C) that the purpose of serving two copies on the third party was so that the third party could send a copy to the judgment debtor. Despite the fact that the marshal only served one copy with DSP, the marshal's return also specifies that he served the defendant at his last known address. Notwithstanding the procedural defect in service of the property execution, all relevant parties were served with the proper documents. Consequently, this is not a basis for denying the application with respect to part "d." See Mucci Construction, LLC v. Oxford Conservation Commission, Superior Court, judicial district of Ansonia-Milford, Docket No. CV 05 4002344 (May 5, 2005, Shluger, J.) ( 39 Conn. L. Rptr. 296) (serving one copy of appeal with town clerk and one with commission was not a fatal error when statutory language required service of two copies to the town clerk, who would then forward a copy to the chairperson of the board).
CONCLUSION
For the foregoing reasons, the court denies the application with respect to parts "a" and "b," and grants the application with respect to parts "c" and "d."