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JPMorgan Chase Bank, N.A. v. McClure

Supreme Court of Colorado, En Banc

April 10, 2017

JPMorgan Chase Bank, N.A., a national banking association, Petitioner:
Douglas and Nancy McClure, a married couple, and Spiral Broadcasting, L.L.C., an Arizona limited liability company. Respondents:

         Certiorari to the Colorado Court of Appeals Court of Appeals Case No. 14CA1775.

          Attorneys for Petitioner: Kutak Rock LLP John H. Bernstein Jeremy D. Peck Denver, Colorado

          Attorneys for Respondents: Carl H. Tessler, P.C. Carl H. Tessler Denver, Colorado


         ¶1 This case principally requires us to decide the relative priority of competing charging orders filed by multiple judgment creditors against a foreign judgment debtor's membership interests in several Colorado limited liability companies.[1]

         ¶2 We conclude first that for purposes of determining the enforceability of a charging order, a membership interest of a non-Colorado citizen in a Colorado limited liability company is located in Colorado. We further conclude that when, as here, a judgment creditor obtains a foreign charging order that compels certain action by a Colorado limited liability company, the charging order is ineffective as against the limited liability company until the creditor has taken sufficient steps to obligate the company to comply with that order. Although the authorities are not uniform as to the steps to be taken, under any of the applicable scenarios, the charging orders obtained by the petitioner, JPMorgan Chase Bank, N.A. ("Chase"), did not become effective until after the respondents had obtained and served competing charging orders. We thus conclude that the respondents' charging orders are entitled to priority over Chase's competing charging orders.

         ¶3 Accordingly, we affirm the judgment of the court of appeals.

         I. Facts and Procedural History

         ¶4 In July 2013, Chase obtained an Arizona judgment of over $20 million against several defendants, including Reginald Fowler, an Arizona resident. As part of its post-judgment collection efforts, Chase obtained Arizona orders charging Fowler's membership interests in three Colorado limited liability companies, Bridgeport Ethanol, LLC, Yuma Ethanol, LLC, and Sterling Ethanol, LLC ("the LLCs").[2]

         ¶5 On December 3, 2013, Chase served its Arizona charging orders on the LLCs and domesticated its Arizona judgment in the District Court for the City and County of Denver, Colorado, pursuant to the Uniform Enforcement of Foreign Judgments Act, §§ 13-53-101 to -108, C.R.S. (2016). As pertinent here, each of Chase's charging orders provided that until the judgment is paid in full, the LLC (1) "shall make no further Distributions of any kind to Judgment Debtor with respect to his interests" in the LLC and (2) "shall make to [Chase] any and all Distributions to which Judgment Debtor is or would be entitled, " with such distributions to be made within three business days following the date on which such distributions would or could have been made to Fowler or within three business days following the date on which Fowler would have been entitled to receive such distributions, whichever date is sooner.

         ¶6 Subsequently, in March 2014, the respondents, Douglas McClure, Nancy McClure, and Mr. McClure's wholly-owned company, Spiral Broadcasting, L.L.C. (collectively, "the McClures"), obtained a stipulated judgment for $1.5 million against Fowler, among others, in the Arizona Superior Court. In April 2014, the McClures domesticated their Arizona judgment in the District Court for Arapahoe County, Colorado, and between May and July 2014, they obtained and served Colorado orders charging Fowler's membership interests in the LLCs.

         ¶7 Now confronted with facially competing charging orders, the LLCs paid Fowler's then-due distributions into the Arapahoe County District Court registry. That same day, the McClures moved for release of the distribution funds to them, and several days later, Chase sought and obtained leave to intervene and opposed the McClures' motion.

         ¶8 The district court ultimately ordered the distribution funds released to the McClures. In so ruling, the court opined that Chase's domesticated Arizona judgment could only be enforced in Colorado by the means authorized by Colorado law, namely, by obtaining Colorado charging orders or by domesticating the Arizona charging orders.

         ¶9 Thereafter, on August 21, 2014, nunc pro tunc to August 11, 2014, Chase domesticated its Arizona charging orders in the Denver District Court.[3] Chase then moved for reconsideration of the release order, arguing that its newly-domesticated charging orders should be deemed effective as of the date they were issued in Arizona and that therefore, those orders were entitled to priority over the McClures' competing charging orders.

         ¶10 The district court, however, again ruled in the McClures' favor. Concluding that Chase's Arizona charging orders were unenforceable in Colorado until they were domesticated, the court ruled that the McClures' charging orders "were the first enforceable charging orders served on the [LLCs] and, hence, they have priority over [Chase's] Arizona charging orders."

         ¶11 Chase appealed, and in McClure v. JP Morgan Chase Bank NA, 2015 COA 117, ¶ 3, __ P.3d__, a unanimous division of the court of appeals affirmed. As pertinent here, the division held that as a matter of first impression in Colorado, the priority of charging orders issued against an out-of-state debtor's membership interests in Colorado LLCs is based on first-in-time service of charging orders that are enforceable in Colorado. Id. Because Chase did not domesticate its charging orders in Colorado before serving them, the division determined that the McClures' later-served but Colorado-issued charging orders had priority over Chase's charging orders. Id. at ¶¶ 2-3. ¶12 Chase then sought, and we granted, certiorari.

         II. Analysis

         ¶13 We begin by noting the applicable standard of review. We then explain the nature and purpose of charging orders generally, as well as the rules in Colorado for obtaining valid charging orders and determining priority among competing charging orders. Thereafter, we discuss the location of membership interests in Colorado-formed LLCs. We conclude by addressing the effectiveness of Chase's Arizona-issued charging orders and the resulting priorities of the competing charging orders at issue.

         A. Standard of Review

         ¶14 The material facts in this case are undisputed. The legal effect of those facts, including the effectiveness and relative priorities of the parties' competing charging orders, therefore presents a question of law. See Hicks v. Londre, 107 P.3d 1009, 1011 (Colo.App. 2004) (noting that when the controlling facts are undisputed, the legal effect of those facts constitutes a question of law), aff'd, 125 P.3d 452 (Colo. 2005). We review such legal questions de novo. See ...

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