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Colorado Court of Appeals Opinions || August 13, 2015 Colorado Court of Appeals -- August 13, 2015
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Court of Appeals No. 14CA1775 Douglas McClure; Nancy McClure; and Spiral Broadcasting LLC, Plaintiffs-Appellees, v. JP Morgan Chase Bank NA, Intervenor-Appellant. ORDER AFFIRMED
Division IV Announced August 13, 2015 Carl H. Tessler, PC, Carl H. Tessler, Denver, Colorado, for Plaintiffs-Appellees Kutak Rock, LLP, John H. Bernstein, Jeremy D. Peck, Denver, Colorado, for Intervenor-Appellant
¶2       The orders all charge the same debtorâs membership interest in Colorado limited liability companies (LLCs). Chaseâs charging orders were issued by an Arizona state court, and the McCluresâ charging orders were later issued by a Colorado district court. Chase served its charging orders on the LLCs before the McClures did so. ¶3       As a matter of first impression, we determine that priority of charging orders against membership interests in Colorado LLCs is based on first-in-time service of charging orders that are enforceable in Colorado. Because Chase failed to domesticate its charging orders in this state before serving them, they did not become enforceable here in time to establish priority over the McCluresâ charging orders. Therefore, we affirm. I. Background ¶4       The relevant facts are undisputed and reflected in this timeline:
¶5       Faced with the difficulty of determining which of the competing charging orders to honor, the LLCs paid Fowlerâs distributions into the Arapahoe County District Court registry. After the McClures filed a motion in that court for release of the funds, Chase intervened and opposed the McCluresâ motion. The district court ruled that because the McCluresâ charging orders were issued by a Colorado court, they âwere the first enforceable charging orders served on the [LLCs] and, hence, they have priority over [Chaseâs] Arizona charging orders.â II. Subject Matter Jurisdiction ¶6       As an initial matter, because a challenge to the courtâs subject matter jurisdiction is an issue that can be raised at any time, Town of Carbondale v. GSS Props., LLC, 169 P.3d 675, 681 (Colo. 2007), we consider Chaseâs contention (raised for the first time in its reply brief) that the district court lacked subject matter jurisdiction to settle the priority dispute between the parties. We reject this contention. ¶7       Colorado district courts are courts of general jurisdiction in âall civil, probate, and criminal casesâ subject to express statutory limitations. Colo. Const. art. VI, § 9; Wood v. People, 255 P.3d 1136, 1140 (Colo. 2011). Chase has not identified, and we are not aware of, any statutory limitation on jurisdiction that would apply here. Chase does not dispute that the district court had jurisdiction to enforce the McCluresâ domesticated judgment or to issue charging orders to the McClures, and Chase intervened in that proceeding for the express purpose of protecting Chaseâs rights. Therefore, the court had subject matter jurisdiction to decide the partiesâ priority dispute. III. Merits A. Whether the Arizona Charging Orders Were Enforceable ¶8       A charging order may be issued under section 7-80-703, C.R.S. 2014, against the membership interest of a judgment debtor who is also a member of a limited liability company. The order may be entered by a âcourt of competent jurisdictionâ to âchargeâ the membership interest âwith payment of the unsatisfied amount of the judgmentâ plus interest on the judgment. § 7-80-703. The McCluresâ charging orders were issued under this statute, while Chaseâs charging orders were issued under the comparable Arizona statute, Ariz. Rev. Stat. § 29-655 (2014). ¶9       Chase contends that the district court erred when it ruled that Chaseâs Arizona charging orders were unenforceable in Colorado until they had been domesticated in Colorado. We disagree. ¶10       Whether an undomesticated foreign charging order is enforceable in Colorado is a question of law. We review such issues de novo. Valdez v. People, 966 P.2d 587, 590 (Colo. 1998). ¶11       âUnder the Full Faith and Credit Clause of the United States Constitution, Colorado courts have always enforced judgments rendered in foreign jurisdictions subject to our courtsâ satisfaction that the judgments were duly rendered.â Wells Fargo Bank, Natâl Assân v. Kopfman, 226 P.3d 1068, 1071 (Colo. 2010) (emphasis added). ¶12       The primary methods available to foreign judgment creditors seeking to enforce foreign-state judgments in Colorado are (1) filing a complaint in a Colorado court asserting the existence, details, and enforceability of the foreign judgment; or (2) domesticating the foreign judgment in a Colorado court under the Uniform Enforcement of Foreign Judgments Act (Enforcement Act), §§ 13-53-101 to -108, C.R.S. 2014. Kopfman, 226 P.3d at 1071; see also Griggs v. Gibson, 754 P.2d 783, 785 (Colo. App. 1988) (Under the Enforcement Act, âthe filing of [an] authenticated copy of [a] foreign judgment is . . . the equivalent of the entry of an original judgment by the domestic court, and, thus, is a necessary condition precedent to the domestic enforcement of [the] judgmentâ in Colorado.). Although there are other statutory methods for enforcing foreign-country judgments, see §§ 13-62-101 to -112, C.R.S. 2014, and foreign family-support orders, see §§ 14-5-101 to - 903, C.R.S. 2014, those methods are inapplicable here. ¶13       A charging order is a judgment subject to the Enforcement Act. See § 13-53-102, C.R.S. 2014 (including orders of courts of the United States in definition of âforeign judgmentsâ entitled to full faith and credit). ¶14       Chase argues that its Arizona-issued charging orders are enforceable in Colorado because the Arizona court was a âcourt of competent jurisdictionâ under the Colorado charging order statute, § 7-80-703, and the Arizona charging orders complied with Colorado law. However, unless one of the Kopfman procedures has been complied with, foreign charging orders are not enforceable here. Specifically, to enforce a foreign charging order against a Colorado LLC based on domestication, the creditor would have to domesticate the charging order and not just the judgment on which the charging order is based. This is so because the charging order â unlike the judgment on which it is based â requires the Colorado LLC to take action, namely, to pay LLC distributions to the judgment creditor. ¶15       Chase did establish the enforceability of the Arizona charging orders by domesticating them here; however, at the relevant time â i.e., before service of the McCluresâ charging orders â Chaseâs charging orders were not yet enforceable in this state. B. First Party to Serve Colorado-Enforceable Charging Order Has Priority ¶16       The next question is: between Chaseâs first-in-time but (not yet) domesticated Arizona charging orders, on the one hand, and the McCluresâ later-in-time but Colorado-issued charging orders, on the other hand, which have priority? We review this issue of law de novo. Valdez, 966 P.2d at 590. ¶17       We hold that the priority of charging orders issued against Colorado LLCs is determined by first-in-time service of charging orders enforceable in Colorado. Charging orders that are enforceable in Colorado include both those issued by Colorado courts as well as foreign charging orders that have been domesticated in Colorado courts. See Kopfman, 226 P.3d at 1071. ¶18       As demonstrated in the Colorado Limited Liability Company Act, §§ 7-80-101 to -1101, C.R.S. 2014, Colorado has an interest in limited liability companies organized in this state, and the priority rule we announce today furthers that interest. Cf. In re Blixseth, 484 B.R. 360, 369 (B.A.P. 9th Cir. 2012) (â[W]e are persuaded that because [the debtorâs] interests in the LLC and [limited liability limited partnership] were created and exist under, and his creditorâs remedies are limited by, Nevada state law, that is sufficient reason to deem [the debtorâs] interests to be located in Nevada.â); Koh v. Inno-Pac. Holdings, Ltd., 54 P.3d 1270, 1272 (Wash. Ct. App. 2002) (â[W]here a partnership organizes under the laws of a state, the partnership interest is located within that state.â); see also Carter G. Bishop, LLC Charging Orders: A Jurisdictional and Governing Law Quagmire, J. Bus. Entities, May/June 2010, at *14,*16-17, available at 2010 WL 2594393 (noting that state where the charging order is issued is important in enforceability of charging orders against limited liability companies, and describing adverse impacts to those companies based on enforcement of charging orders). ¶19       Though Colorado appellate courts have not previously addressed a case involving priority among foreign and domestic charging orders, in Union Colony Bank v. United Bank of Greeley National Association, 832 P.2d 1112 (Colo. App. 1992), a division of this court addressed the rule for determining priority between competing Colorado charging orders. United Bank obtained its judgment against the debtor more than a month before Union Colony Bank got its own judgment, but the latter bank served its charging order first on the debtor. Id. at 1113-14. The division held that a creditorâs lien on a partnership interest attaches on the date of service of a charging order on the partnership, and that the service date establishes priority over a later-served charging order, regardless of the dates of the competing creditorsâ judgments. Id. at 1115. Therefore, the court held that Union Colonyâs lien had priority over United Bankâs lien. Id. at 1117. ¶20       Citing Union Colony, Chase contends that the district court erred in determining that the McCluresâ later-issued Colorado charging orders had priority over Chaseâs earlier-issued, but then-undomesticated, Arizona charging orders. According to Chase, Union Colony established a rule of first-in-time, first-in-right for charging orders. We are not persuaded that Union Colony established such a rule that would apply to charging orders entered by courts of different states. Both orders in that case were entered by Colorado courts, and the decisionâs precedential value with respect to enforceability of foreign judgments is accordingly limited. ¶21       In the context presented here, Union Colonyâs first-in-time rule must be viewed through the prism of enforceability established by Kopfman. Thus, the first creditor to obtain a charging order that has been rendered enforceable through one of the means discussed in Kopfman, 226 P.3d at 1071, is the first in right. Here, the McClures established their primacy as creditors by being the first to obtain Colorado-enforceable charging orders. ¶22       Our holding will not unfairly burden foreign judgment creditors because Colorado has a simplified procedure for rendering foreign judgments enforceable in Colorado: domestication under the Enforcement Act. See Kopfman, 226 P.3d at 1071. As relevant here, foreign judgment creditors need not anticipate every jurisdiction where their priority might be challenged; but if they seek to establish priority in charging a Colorado LLC, they must follow the Kopfman procedures. ¶23       Because the McClures were the first to serve charging orders that were enforceable in Colorado, the trial court was correct to declare that the McCluresâ charging orders had priority over the Chase charging orders. ¶24       Further, because we have concluded that that McCluresâ charging orders have priority over those of Chase, the McClures will not be affected by the Chase charging orders, and we need not address the McCluresâ argument that the Arizona court lacked authority to enter the charging orders in favor of Chase. IV. Full Faith and Credit ¶25       Finally, Chase contends that the district courtâs order constitutes a collateral attack on Chaseâs Arizona charging orders in violation of the Full Faith and Credit Clause, U.S. Const. art. IV, § 1. We review this question of law de novo, Valdez, 966 P.2d at 590, and disagree with Chase. ¶26       The Full Faith and Credit Clause protects the final judgments of one state from collateral attack in another state. See Marworth, Inc. v. McGuire, 810 P.2d 653, 655-56 (Colo. 1991). However, no such collateral attack occurred here. ¶27       As the Supreme Court has explained, Full faith and credit . . . does not mean that States must adopt the practices of other States regarding the time, manner, and mechanisms for enforcing judgments. Enforcement measures do not travel with the sister state judgment as preclusive effects do; such measures remain subject to the evenhanded control of forum law. Baker ex rel. Thomas v. Gen. Motors Corp., 522 U.S. 222, 235 (1998). ¶28       The trial court did not deny full faith and credit to Chaseâs Arizona charging orders. It simply and correctly determined the enforceability and priority of the competing statesâ charging orders, applying the elements described in Kopfman, 226 P.3d at 1071. ¶29       We are not persuaded to rule otherwise based on Pardee v. Mostow, 757 P.2d 1148 (Colo. App. 1988), which is distinguishable from the circumstances here. In Pardee, a division of this court held that certain tax refund checks awarded to a wife in an Illinois marriage dissolution order could not later be attached in Colorado by one of her ex-husbandâs Colorado creditors without running afoul of the Full Faith and Credit Clause. Id. However, neither the marriage dissolution order nor the tax refund checks in Pardee had any connection with Colorado, whereas here the orders issued by the Arizona court on behalf of Chase required Colorado LLCs to make payments of limited liability company distributions or face possible contempt charges. Subjecting the wife in Pardee to the Kopfman procedural requirements for obtaining full faith and credit, just so that she could receive the proceeds of the refund checks that had been awarded to her, would have been unfairly burdensome. In contrast, here, it is reasonable to require Chase to domesticate its Arizona charging orders in the state where the charged LLCs are organized in order to obtain priority over beneficiaries of competing charging orders. V. Conclusion ¶30       The order is affirmed. JUDGE WEBB and JUDGE GRAHAM concur. These opinions are not final. They may be modified, changed or withdrawn in accordance with Rules 40 and 49 of the Colorado Appellate Rules. Changes to or modifications of these opinions resulting from any action taken by the Court of Appeals or the Supreme Court are not incorporated here. Colorado Court of Appeals Opinions || August 13, 2015 Back |