First Bank v. S&R Grandview, L.L.C.
232 N.C. App. 544
| N.C. Ct. App. | 2014Background
- First Bank obtained a monetary judgment (over $3.5 million) against defendant Donald J. Rhine for loan defaults and guaranties.
- First Bank sought a charging order against Rhine’s membership interest in S&R Grandview, LLC to collect the judgment.
- The trial court entered a charging order and concluded it "effectuated an assignment," treating First Bank as an assignee and enjoining Rhine from exercising any member/manager rights until the judgment was satisfied.
- Rhine appealed the charging order, challenging (1) that the charging order amounted to an assignment of his LLC membership interest and (2) that the court could enjoin his managerial/member rights (“lie fallow”).
- The Court of Appeals reviewed statutory interpretation of N.C. Gen. Stat. §§ 57C-5-02 and 57C-5-03 and examined subsequent statutory amendments (Chapter 57D) for legislative intent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a charging order effects an assignment of a debtor-member’s LLC membership interest | Charging order assigns the debtor’s economic rights, and assignment of those economic rights amounts to a full assignment that terminates membership | A charging order only grants the judgment creditor the rights of an assignee (i.e., to receive distributions) and does not assign membership or terminate membership status | Charging order does not effectuate an assignment of the membership interest; it grants only assignee-style economic rights to receive distributions until judgment is satisfied |
| Whether the court may enjoin the debtor-member from exercising member/managerial rights while the charging order is in place | Because assignment follows from the charging order, the judgment creditor can take the member’s rights and the debtor ceases to be a member | Charging orders are encumbrances/lien-like; they do not transfer managerial rights or cause the member to cease membership; member retains managerial rights | Court erred in enjoining Rhine’s exercise of membership/managerial rights and ordering his rights to "lie fallow"; that injunction reversed and matter remanded for a charging order consistent with opinion |
Key Cases Cited
- Dare Cnty. Bd. of Educ. v. Sakaria, 127 N.C. App. 585 (review of statutory interpretation is de novo)
- Polaroid Corp. v. Offerman, 349 N.C. 290 (plain language of statute is primary indicator of legislative intent)
- Williams v. Williams, 299 N.C. 174 (statutes dealing with same subject matter must be read in pari materia)
- Burgess v. Your House of Raleigh, Inc., 326 N.C. 205 (clear and unambiguous statutory language controls)
- Lenox, Inc. v. Tolson, 353 N.C. 659 (use legislative history and amendments when plain language is unclear)