Prodigy Centers/Atlanta v. TC ASSOCS.

• Court: Georgia Supreme Court
• Writing for the Court: BENHAM, Chief Justice.
• Citation: Prodigy Centers/Atlanta v. TC ASSOCS., 501 S.E.2d 209, 269 Ga. 522 (Ga. 1998)
• Decision Date: 08 June 1998
• Docket Number: No. S98Q0326.,S98Q0326.
• Parties: PRODIGY CENTERS/ATLANTA et al. v. T-C ASSOCIATES et al.

501 S.E.2d 209

269 Ga. 522

PRODIGY CENTERS/ATLANTA et al. v. T-C ASSOCIATES et al.

No. S98Q0326.

Supreme Court of Georgia.

June 8, 1998.

Sarah K. Knutson, Loretta C. Argrett, Asst. Atty. Gen., Washington, DC, Janet Fuller King, U.S. Attorney, U.S. Attorney's Office, Atlanta, for Prodigy Centers/Atlanta et al.

Alfred A. Lindseth, William R. Wildman, Amanda Barber Scott, Sutherland, Asbill & Brennan, Atlanta, for T-C Associates, et al.

BENHAM, Chief Justice.

The United States Court of Appeals for the Eleventh Circuit has certified a question of Georgia law to this Court pursuant to Georgia constitutional and statutory authorization. 1983 Ga. Const., Art. VI, Sec. VI, Para. IV; OCGA § 15-2-9(a). The question arises in an appeal from the grant of summary judgment by the United States District Court for the Northern District of Georgia which gave priority to a judgment lien over a federal tax lien filed by the Internal Revenue Service. We have been asked to determine "whether a partnership interest in a limited partnership is a chose in action under Georgia law." Prodigy Centers/Atlanta v. T-C Assoc., 127 F.3d 1021 (11th Cir.1997).

The factual background which gives rise to this case is as follows: In January 1992, appellee T-C Associates (TCA) obtained a judgment against Prodigy Child Development Centers (PCDC) in the Superior Court of Fulton County, but did not record its judgment lien until May 1994. Shortly after recording its judgment lien, TCA applied for a charging order in DeKalb County seeking to charge PCDC's partnership interests in two limited partnerships,¹ appellants Prodigy Centers/Atlanta No. 1 L.P., and Prodigy Centers No. 2, with payment of the unsatisfied judgment. By consent order, the limited partnerships were ordered to pay any income owed to PCDC to an escrow agent until TCA's judgment was paid in full.

Between the time TCA obtained the judgment against PCDC and the time it recorded its judgment lien, the IRS filed a federal tax lien against PCDC in the Superior Court of Fulton County. In light of the federal tax lien against PCDC and the De-Kalb County charging order requiring payment to TCA of any money owed to PCDC, the limited partnerships filed a complaint in the Superior Court of Fulton County against TCA and the United States for equitable and statutory interpleader. The interpleader action was removed to the Northern District of Georgia, where the government moved for summary judgment on the ground that its tax lien had been filed before TCA had recorded its judgment. TCA filed a cross-motion for summary judgment because its January 1992 judgment against PCDC was issued before the federal tax lien was filed. The government responded by asserting that the interpled funds constituted a chose in action to which TCA's general judgment could not attach without a charging order, garnishment, or some other collateral proceeding, which action had not taken place until after the government had filed its federal tax lien.² Concluding that Georgia case law did not require TCA to record its judgment or to levy on or seize the monies owed PCDC by the limited partnerships in order to render the judgment effective against a third party acquiring a lien on PCDC's property, the district court granted TCA's cross-motion for summary judgment. The district court responded to the government's contention that the interpled funds were a chose in action by way of a footnote in which the court stated that the interpled funds were "proceeds payable to PCDC as a result of its status as a partner in the partnerships" and did not represent PCDC's interest in the partnerships. Concluding that TCA's judgment was effective and perfected as to the income from the partnership interest the day the judgment was issued, the district court ruled that TCA's lien had priority over the tax lien. ³

On appeal to the 11th Circuit, the government continued to argue that PCDC's partnership interests in the appellants were choses in action to which the judgment lien did not attach until the initiation of a collateral proceeding. In its certification opinion, the 11th Circuit recognized that this Court may have implicitly held that a partnership interest was a chose in action in Ivey v. Gatlin, 194 Ga. 27, 20 S.E.2d 592 (1942), but expressed concern whether the issue was squarely before the Ivey court. Noting the relatively recent evolution of Georgia partnership policies, the federal appellate court described itself as "hesitant to rely on Ivey to predict the position that the Supreme Court of Georgia would take on this issue today." Accordingly, the 11th Circuit asked this Court to determine whether a partnership interest is a chose in action.

1. "A chose in action is personalty to which the owner has a right of possession in the future or a right of immediate possession which is being wrongfully withheld." OCGA § 44-12-20. A chose in action includes the proceeds from a contract performance, and is also the right of a creditor to be paid on a debt owed by a debtor. Paulsen Street Investors v. EBCO General Agencies, 224 Ga.App. 507, 509, 481 S.E.2d 246 (1997). See also Water Processing Co. v. Toporek, 158 Ga.App. 502, 503, 280 S.E.2d 901 (1981 ) (rev'd on other grounds sub nom. Water Processing Co. v. Southern Builders, 248 Ga. 597, 285 S.E.2d 21 (1981)), where the Court of Appeals noted that "[t]he chose in action is the right of the creditor to be paid...." A partnership interest in a limited partnership is personal property. OCGA § 14-9-701; OCGA § 14-9A-49.⁴ See also Maxco v. Volpe, 247 Ga. 212, 274 S.E.2d 561 (1981). The question is whether a "partnership interest" is property to which the partner has a right of possession in the future.

2. The Georgia Revised Uniform Limited Partnership Act ("RULPA") defines "partnership interest" as "a partner's share of the capital and profits and losses of a limited partnership, the right to receive distributions of partnership assets, and the right to receive any allocation of income, gain, loss, deduction, credit, or similar items." OCGA § 14-9-101(11). The definition covers all of a partner's financial rights (OCGA § 14-9-101, Comment), and does not include a partner's management rights. See OCGA §§ 14-9-302; 14-9-403. Under the Uniform Limited Partnership Act ("ULPA"), a limited partner has "the right to receive a share of the profits or other compensation by way of income and to the return of his contribution..." (OCGA § 14-9A-42 (b)), as well as the managerial rights to inspect and copy the partnership books; to demand true and full information concerning the partnership and a formal accounting, and to seek judicial dissolution and winding up of the partnership. Id. A general partner⁵ in a ULPA limited partnership has an "interest in the partnership" which is the partner's "share of the profits and surplus...." OCGA § 14-8-26. See OCGA § 14-9A-70. The "interest in the partnership" is but one of the general partner's property rights: the general partner also has rights in specific partnership property and the right to participate in the management of the limited partnership. OCGA § 14-8-24.

3. From the above, it can be seen that, where statutorily defined, a "partnership interest" denotes the financial aspect of partnership, and we limit our analysis accordingly. The personalty at issue in the case before us is the accumulation of monies paid by the limited partnerships of which PCDC is a partner, as a result of PCDC's partnership interest. Under the Georgia RULPA and the Georgia ULPA, the partnership agreement or the limited partnership's certificate of formation must contain the method of allocating financial items (i.e., deductions, credits, income, gains, losses, and distributions); in the absence of a written provision, the allocation of financial items is statutorily set. The Georgia RULPA requires that allocations be made on the basis of the amount of the partner's contributions, in the absence of a written method of allocation (OCGA § 14-9-503), and the Georgia ULPA provides for equal allocation among the partners if the formation certificate does not make provisions to the contrary. OCGA §§ 14-9A-45; 14-9A-20 (a)(I). Thus, a partner in a limited partnership has a contractual or statutory right to a portion of the financial items produced by the limited partnership. While neither the partnership agreements nor the certificates of formation are contained in the appellate record, the existence of the interpled funds and the limited partnerships' complaint for interpleader make it clear that payments have been made by the limited partnerships as a result of PCDC being a partner in the limited partnerships. We believe we are safe in concluding that the funds at issue are those to which PCDC had a contractual or statutory right to possession but for the charging order which required the limited partnerships to make the contractual or statutory payments into the fund at issue. As proceeds from a contract performance or as a creditor's right to be paid, the interpled funds constituted a chose in action. Paulsen Street Investors v. EBCO General Agencies, supra, 224 Ga.App. at 509, 481 S.E.2d 246.

4. Our conclusion that the...