First Bank v. S&R Grandview, L.L.C.

• Decision Date: 04 March 2014
• Docket Number: No. COA13–838.,COA13–838.
• Citation: 755 S.E.2d 393
• Court: North Carolina Court of Appeals
• Parties: FIRST BANK, Plaintiff, v. 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.

755 S.E.2d 393

FIRST BANK, Plaintiff,

v.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.

No. COA13–838.

Court of Appeals of North Carolina.

March 4, 2014.

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, Greensboro, by M. Jay DeVaney and Brian T. Pearce, for plaintiff-appellee.

Wilson & Ratledge, PLLC, Raleigh, 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 a judgment. On appeal, defendantargues 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 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.

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 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 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 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 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 extentassigned, 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...