Garnishment Of Non-Party LLC’s Bank Account Disallowed In McLeod

Plaintiff, Richard McLeod, obtained a default judgment for $62,640 in the U.S. District Court for the Middle District of Georgia against defendants Robert Bruce, Mark Nichols and Clint Nichols. Seeking to be paid on his judgment, McLeod send garnishment summons to three banks for any accounts held by the defendants. McLeod also filed a motion for the entry of a charging order against Robert Bruce’s farming business, which was Robert Bruce Land & Cattle, LLC. Even without getting the charging order actually issued, McLeod attempted to levy on the LLC’s bank account at CNB, and this prompted CNB to deposit $1,000 found in the LLC’s bank account into the court registry. A later levy on the same account netted another $20,456 which was also deposited by CNB into the court registry.

Bruce then filed individually a motion to quash the garnishment summons. The LLC itself filed a motion to intervene, and when that granted it moved for a temporary restraining order and to dismiss the garnishment proceedings against its accounts. The court resolved these motion in the order that I shall next discuss.

The court first noted that it is not necessary for the LLC to be a party to a charging order proceeding, because the LLC itself has “no right or direct interest” that is affected by the charging order. However, here McLeod levied on the LLC’s bank account directly, and so this made intervention by the LLC permissible since the company’s own assets had been taken and not those of Robert Bruce individually.

Next, the court pointed out that there were serious procedural flaws in the issuance of the garnishment summons, so severe in fact that the garnishment of the funds was ipso facto invalid and the funds would have to be returned to the LLC. However, despite having issued to McLeod “a strong warning against continuing to attempt to circumvent the law on his mission to collect the default judgment,” the court would not grant a temporary restraining order keeping McLeod from attempting other collection actions against Robert Bruce’s interest in the LLC, at least not yet anyway.

ANALYSIS

What makes this case interesting is not what particularly happened in this case, or even the court’s ruling, but instead it illustrates a very common error by creditors. That error is to simply presume that an LLC of which a debtor is a member (or even the sole member) may have its assets executed upon as if it were the debtor. Too many times to count, I have seen this exact same thing happen: The creditor levies on the bank account of the debtor’s LLC, the LLC goes before the court and complains, and the court then has to unwind the mess. This usually happens with the low-dollar judgments, as here, but I’ve also seen it happen from time-to-time in the bigger dollar cases.

Within our laws are what is known as juridical persons, meaning one who is respected as his, hers or its own person in the eyes of the law. A juridical person can sue or be sued in their own name, and have their own rights separate from all others. An individual is a juridical person, but a corporation, an LLC, a limited partnership, and a general partnership (in some states) are all also juridical persons. By contrast, a trust is not a juridical person but rather a fiduciary relationship, so you can’t sue a trust in its own name but must instead sue the person of the trustee in his, her or its fiduciary capacity as the trustee.

Here, McLeod has a judgment against the juridical person of Robert Bruce, but not against the juridical person of the LLC. McLeod can thus enforce his judgment against Robert Bruce individually, but cannot enforce his judgment against the LLC because it is its own juridical person that is not a judgment debtor. Instead, McLeod’s “exclusive remedy” under the Georgia LLC statute is to take a lien against Robert Bruce’s distributional interest in the LLC, which is what the charging order procedure is all about.

This may all seem very basic, but (again) even otherwise skilled litigators occasionally mess this up.

CITE AS

McLeod v. Bruce, 2022 WL 731517 (M.D.Ga., March 10, 2022).

ChargingorderOpinion – 2022 – Georgia – McLeod – Exclusivity Source: Forbes