979 N.W.2d 173
S.D.2022Background
- James and Lori Farmer acquired Black Hills land through entities including Lakota Lake Camp, LLC and divorced in 2014; their property settlement agreement governed disposition of company assets.
- Divorce court found James in contempt for misappropriating funds and ordered him (as Lakota Lake’s managing member) to effect distributions conveying certain parcels to satisfy Lori; the court valued remaining equity and allocated Granite Perch to James.
- First Western obtained a judgment against Lakota Lake and James; Lori bought the judgment and caused an execution sale of Granite Perch, producing $92,000; after satisfaction of the judgment, $38,652.46 in excess proceeds were deposited with the clerk.
- Lori filed an application in the collection action for a charging order against James’s distributional interest in Lakota Lake and sought release of the excess proceeds; the collection court granted a continuing lien and held the surplus pending the divorce court’s decision.
- The divorce court ordered release of the excess proceeds to Lori, citing its prior contempt/distribution orders; James and Lakota Lake appealed the collection-court and divorce-court rulings, consolidated on appeal.
Issues
| Issue | Plaintiff's Argument (James/Lakota) | Defendant's Argument (Lori) | Held |
|---|---|---|---|
| 1. Could the collection court hear Lori’s charging-order application? | Lori lacked standing in the collection action because she was not a party to First Western’s suit after the debt was satisfied; thus court lacked authority. | Lori filed as First Western’s assignee and as a separate judgment creditor of James; court with jurisdiction over the LLC and parties could hear the application. | Collection court could entertain the charging-order application under SDCL 47-34A-504 and applicable execution statutes; affirmed. |
| 2. Did the divorce court err by ordering release of the excess sale proceeds to Lori? | Divorce court lacked authority to order release of funds held in a separate collection action; proceeds belonged to Lakota Lake, not James, and remedies are limited to charging-order relief. | The divorce court could enforce its contempt/distribution orders by directing James (as managing member) to cause distributions to satisfy Lori. | Divorce court erred: it could not order release of Lakota Lake’s property to satisfy a member’s creditor under SDCL 47-34A-504; release order reversed. |
| 3. Did the collection court err in denying Lakota Lake’s motion to release the surplus to the company? | Lakota Lake, as record owner, was entitled to the surplus once First Western’s lien was satisfied; court should have released funds to the company. | Lori opposed release, relying on her charging-order lien against James’s distributional interest and the collection court’s discretion. | Court vacated the collection-court denial and remanded for further proceedings to determine proper disposition of the surplus in light of reversal of the divorce-court release. |
Key Cases Cited
- Farmer v. Farmer, 948 N.W.2d 29 (S.D. 2020) (affirming contempt order and explaining managing member authority and the court’s modification of distribution methods)
- Spates v. Office of Att’y Gen., Child Support Div., 485 S.W.3d 546 (Tex. App. 2016) (a court having jurisdiction may grant a charging order even if the judgment creditor was not a party to the underlying suit)
- Mahalo Investments III, LLC v. First Citizens Bank & Trust Co., Inc., 769 S.E.2d 154 (Ga. Ct. App. 2015) (charging order attaches distributions but does not permit creditor to replace members or interfere with LLC governance)