Mattingly Law Firm, P.C. v. Henson

• Decision Date: 10 May 2019
• Docket Number: Case No. 116,960
• Citation: 466 P.3d 590
• Parties: The MATTINGLY LAW FIRM, P.C., Plaintiff/Appellee, v. Melvin D. HENSON, Jr., a/k/a Dee Henson, Defendant/Appellant.
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

466 P.3d 590

The MATTINGLY LAW FIRM, P.C., Plaintiff/Appellee,

v.Melvin D. HENSON, Jr., a/k/a Dee Henson, Defendant/Appellant.

Case No. 116,960

Court of Civil Appeals of Oklahoma, Division No. 1.

FILED MAY 10, 2019

Rehearing Denied August 8, 2019

Mandate Issued: June 17, 2020

Erika Mattingly, MATTINGLY & ROSELIUS, P.L.L.C., Seminole, Oklahoma, for Plaintiff/Appellee,

Dan Little, LITTLE LAW FIRM, P.L.L.C., Madill, Oklahoma, for Defendant/Appellant.

Opinion by Kenneth L. Buettner, Judge:

¶1 Plaintiff/Appellee Mattingly & Roselius, P.L.L.C. (formerly known as Mattingly Law Firm) (the Firm) obtained a default judgment against Defendant/Appellant Melvin "Dee" Henson (Henson) in an action to collect unpaid attorneys' fees. After nearly three years of non-payment on the judgment, the Firm requested a hearing on Henson's assets. The Firm then sought a charging order assigning Henson's alleged interests in two limited liability companies (LLCs). The trial court granted the charging order, holding that the LLCs were "alter egos" of Henson and that the court should "pierce the corporate veil" of the entities. Henson appeals. We affirm.

¶2 The Firm filed suit against Henson March 20, 2014, alleging Henson had committed fraud in avoiding paying legal fees due for work performed by the Firm. After the Firm filed suit, the parties initially agreed upon a payment plan, but Henson soon stopped making payments. The Firm moved for default judgment September 12, 2014. Henson failed to appear at the hearing and the trial court granted default judgment in the Firm's favor October 8, 2014.

¶3 On April 25, 2017, after over two years of no payment on the judgment, the Firm filed an application for order to appear for hearing on assets. The first hearing was held May 16, 2017. The parties appeared before the trial court several times thereafter, though Henson continued to fail to present evidence of assets. At the December 5, 2017 hearing, the trial court ordered Henson to provide "corporate books of any and all LLC[s] [Henson] is associated with, including all records from Henson Farms, LLC and Henson Insurance Group, LLC. Henson to also provide all bank statements in which he has signing privileges."

¶4 At the December 27, 2018 hearing, Henson presented the operating agreement for Henson Insurance Group, LLC, bank statements from two bank accounts for the Insurance Group, and statements from one bank account for Henson Farms, LLC. Henson testified that although he worked "at the LLCs," he never drew a paycheck from either LLC. Henson further admitted that he sometimes used funds from the LLC bank accounts for personal purposes, such as buying groceries. Upon further questioning, Henson admitted that he and his wife essentially "lived out" of the LLC accounts. At the end of the hearing, the court issued a list of items Henson was to bring to the next hearing, including documentation of realty owned by the Insurance Group, a list of clients of the Insurance Group, and records of payment transactions by both LLCs.

¶5 The Firm filed a motion for charging order January 30, 2018, seeking to assign Henson's potential interest in the LLCs to the Firm for satisfaction of the judgment. Following the Firm's motion, on February 2, 2018, Henson was removed from having signing privileges for the bank accounts for both LLCs as a result of a "special meeting" of the LLCs' sole member—Henson's wife. The parties appeared before the trial court February 6, 2018, at which time the court continued the matter and ordered that Henson present the previously requested documentation.

¶6 A hearing on the motion for charging order was held February 20, 2018, and continued on March 9, 2018.¹ During the hearing, Erika Mattingly (Mattingly), counsel for the Firm, testified to her review of Henson's financial records. Mattingly testified that, according to the LLC bank account records provided, 53% of the account transactions were cash withdrawals, 99% of which were withdrawn by Henson (approximately $52,000 in cash withdrawals). Mattingly further testified that the accounts did not reflect any paychecks deposited or paid. The court also heard testimony from Henson and Henson's wife, who both maintained that Henson had never owned an interest in the LLCs and that the LLC bank accounts were not personal in nature.

¶7 Following the hearing, both parties submitted proposed journal entries of judgment. The trial court ruled in favor of the Firm and granted the charging order March 26, 2018. The court held that the LLCs were "alter egos" of Henson and that the court should pierce the corporate veil of the entities because (1) the LLCs were undercapitalized; (2) Henson failed to maintain books for the LLCs separate from his personal finances; (3) finances of the LLCs were not kept separate from Henson's finances and Henson had used LLC funds to pay personal obligations; and (4) Henson failed to maintain LLC formalities. Henson appeals.

¶8 The single issue on appeal is whether the trial court properly granted the charging order by determining the LLCs were Henson's "alter egos" and the court should pierce the corporate veil of the entities. In making this determination, we consider whether the trial court correctly applied 18 O.S. Supp. 2017 § 2034, which enumerates the circumstances in which a court may assign a debtor's capital interest in an LLC to a creditor. Southlake Equip. Co. v. Henson Gravel & Sand, LLC , 2013 OK CIV APP 87, ¶ 5, 313 P.3d 289. "A legal question involving statutory interpretation is subject to de novo review ... i.e., a non-deferential, plenary and independent review of the trial court's ruling." Id. (citing Duncan v. Okla. Dep't of Corrs ., 2004 OK 58, ¶ 3, 95 P.3d 1076 (quoting Fulsom v. Fulsom , 2003 OK 96, ¶ 2, 81 P.3d 652 )). We also consider whether the trial court properly applied the equitable doctrine of piercing the corporate veil. We will not reverse an equitable ruling of a trial court unless the judgment is clearly against the weight of the evidence. Puckett v. Cornelson , 1995 OK CIV APP 72, ¶ 7, 897 P.2d 1154 (citing Marshall v. Marshall, 1961 OK 86, ¶ 19, 364 P.2d 891 ).

¶9 "Under Oklahoma's limited liability company statutes, the exclusive remedy of a creditor of a member in a limited liability company with respect to the member's interest is a ‘charging order,’ which may not be foreclosed upon." Scottsdale Ins. Co. v. Tolliver , No. 04-CV-0227-CVE-FHM, 2012 WL 524421, at *3 (N.D. Okla. Jan. 11, 2012) (citing 18 O.S. Supp. 2017 § 2034 ). At trial, the Firm argued that it should be permitted to attach the LLCs' assets in satisfaction of the judgment against Henson based upon the doctrine of "piercing the corporate veil." The trial court agreed and held that the court should be able to pierce the corporate veil of the LLCs and granted a charging order upon Henson's "50% interest" in the entities.

¶10 The doctrine the Firm attempts to employ in this case is not a traditional piercing of the corporate veil, wherein shareholders or members of a corporate entity are held liable for the debts or obligations of the corporate entity. Fanning v. Brown , 2004 OK 7, ¶ 16, 85 P.3d 841 (citing Frazier v. Bryan Mem'l Hosp. Auth. , 1989 OK 73, ¶ 16, 775 P.2d 281 ). Instead, the legal tool the Firm proposes here is a distinct equitable mechanism referred to as "reverse piercing," wherein a business entity—such as an LLC or corporation—is held responsible for the liabilities of an individual member or shareholder (i.e., the opposite of traditional piercing). U.S. v. Badger , 818 F.3d 563 (10th Cir. 2016). Reverse piercing has never been explicitly recognized in Oklahoma. Lind v. Barnes Tag Agency, Inc. , 2018 OK 35, ¶ 22, 418 P.3d 698.

¶11 Additionally, the Oklahoma Supreme Court has never applied any form of veil piercing to LLCs. While the doctrine of traditional piercing the veil of corporations is well established in Oklahoma, see, e.g., Fanning , 2004 OK 7, ¶ 16, 85 P.3d 841 (citing Mid-Continent Life Ins. Co. v. Goforth , 1943 OK 244, ¶ 10, 193 Okla. 314, 143 P.2d 154 ), Oklahoma has yet to apply this doctrine to the newer entity structure of LLCs.²

¶12 Henson strenuously argues that he was not a member of either of the LLCs, but was, ostensibly, a manager of the businesses. Under Oklahoma law, charging orders are normally granted regarding a member's interest in an LLC. 18 O.S. Supp. 2017 § 2034. Non-member managers of LLCs are not traditionally deemed to have a "membership interest" against which a charging order may be granted. Id. Oklahoma has also not yet recognized piercing the corporate veil against an individual who holds no formal financial interest in the business entity.

¶13 The trial court order combined the equitable doctrine of piercing the corporate veil with the statutory mechanism of an LLC charging order. The traditional piercing the veil analysis is an equitable tool created in common law to allow courts to ignore the corporate shield and "hold stockholders personally liable for corporate obligations or corporate conduct under the legal doctrines of fraud, alter ego and when necessary to protect the rights of third persons and accomplish justice." Fanning , 2004 OK 7, ¶ 16, 85 P.3d 841 (citing Goforth , 1943 OK 244, ¶ 10, 193 Okla. 314, 143 P.2d 154 ). Reverse piercing—also arising out of common law—was created to achieve a similar goal: to prevent shareholders and members of business entities from defrauding creditors by maintaining a sham business in which an individual could dishonestly shield his or her personal assets. In re Denton , No. 99-6059, 2000 WL 107376, at *3 n. 1 (10th Cir. Jan. 31, 2000) (citing Gregory S. Crespi, The Reverse Pierce Doctrine: Applying Appropriate Standards , 16 J. Corp. L. 33, 36 (1991) ).

¶14 Piercing and reverse piercing of the corporate veil allows an obligee to access all of the assets of the individual or entity on the other side of the veil, treating the pierced entity as synonymous with the...