JPMorgan Chase Bank, N.A. v. McClure, 2017 CO 22

Background

JPMorgan Chase obtained Arizona judgments (over $20M) against Reginald Fowler and secured Arizona charging orders against Fowler’s membership interests in three Colorado LLCs, served on the LLCs Dec. 3, 2013.
Chase domesticated its Arizona money judgment in Denver and later domesticated its Arizona charging orders in Colorado (nunc pro tunc to Aug. 11, 2014).
The McClures obtained a separate Arizona judgment against Fowler ($1.5M), domesticated it in Colorado, and obtained Colorado charging orders against the same Colorado LLC membership interests between May–July 2014.
The LLCs, faced with competing orders, paid distributions into the Arapahoe County registry; the district court released funds to the McClures after finding their Colorado charging orders were the first enforceable orders.
The Colorado Court of Appeals affirmed; the Colorado Supreme Court granted certiorari to resolve where LLC membership interests are located for charging-order enforcement and how priority between competing charging orders is determined.

Issues

Issue	Plaintiff's Argument (Chase)	Defendant's Argument (McClures)	Held
1) Where is a non-Colorado member’s membership interest located for charging-order enforcement?	Membership interest follows the owner (located with debtor in Arizona), so Arizona charging orders should bind the interest.	Membership interest is located where the LLC was formed (Colorado), so Colorado law controls enforceability.	Located in the state of formation: the membership interests are in Colorado.
2) Are foreign charging orders that command an LLC to act enforceable against the LLC before domestication?	An out-of-state court with jurisdiction over the debtor can issue an effective charging order that binds the interest without prior Colorado domestication.	A charging order that compels a Colorado LLC to make payments is not enforceable against the LLC until the creditor takes steps in Colorado to obligate the LLC (e.g., domesticate judgment and obtain a Colorado charging order).	A charging order that compels a Colorado LLC to act is ineffective against the LLC until the creditor takes sufficient steps to bind the LLC (domestication/Colorado court order); here Chase’s orders were ineffective until domestication.
3) Priority: Does first-served foreign charging order prevail over later Colorado-issued orders?	Chase: its Arizona charging orders (served earlier) should have priority as first-in-time liens.	McClures: priority goes to the first charging orders that were enforceable in Colorado (their Colorado orders, served before Chase’s orders were effective here).	Priority is determined by first-in-time service of charging orders that are enforceable in Colorado; McClures’ Colorado orders had priority over Chase’s later-effective orders.

Key Cases Cited

Union Colony Bank v. United Bank of Greeley Nat’l Ass’n, 832 P.2d 1112 (Colo. App. 1992) (charging-order lien typically attaches on service and priority is based on effective dates).
Koh v. Inno-Pacific Holdings, Ltd., 54 P.3d 1270 (Wash. Ct. App. 2002) (membership interest located in state of entity formation).
Severnoe Sec. Corp. v. London & Lancashire Ins. Co., 174 N.E. 299 (N.Y. 1931) (discussion of legal situs of intangibles and factors for selecting situs).
LaFond v. Sweeney, 343 P.3d 939 (Colo. 2015) (recognition of fiduciary duties among LLC members and practical consequences for LLC operations).
Hicks v. Londre, 125 P.3d 452 (Colo. 2005) (legal questions of effect of undisputed facts reviewed de novo).