First Citizens Bank & Trust Company, Inc. (“FCB”) won a Judgment of over $3 million against Mark Epstein, Andrew Kelly, and their company, Mahalo Investments III, LLC, in the State Court for Cobb County, Georgia.

During the post-judgment discovery of the debtors’ assets, FCB learned that Epstein and Kelly owned interests in several other LLCs (the “LLCs”) (which did not include Mahalo).

FCB then filed, in that same case and with the same case number, an Application for Charging Order against the debtors’ interests in the LLCs. The Application was granted, and the Charging Order was issued.

The Debtors appealed the decision to the Georgia Court of Appeals, arguing that it was improper for the State Court that had issued the Judgment to also issue the Charging Order, and instead (they argued) FCB should have brought a separate action against the LLCs in whatever states those LLCs had been formed (the Opinion doesn’t identify these states, and, as we shall see, it really doesn’t matter).

As to limited liability companies, Georgia law provides:

On application to a court of competent jurisdiction by any judgment creditor 

of a member or of any assignee of a member, the court may charge the limited liability company interest of the member or such assignee with payment of the unsatisfied amount of the judgment with interest . . ..

OCGA sec. 14-11-504(c). In an earlier case before the Georgia Supreme Court,Prodigy Centers/Atlanta v. T-C Assoc., Ltd., 269 Ga.. 522, 501 S.E.2d 209 (1998), the Peach State’s highest court commented upon the charging order provisions found in both the LLC and Limited Partnership statutes there:

[e]ach statute provides a means by which a judgment creditor or a partner may cause the diversion of monetary payments the partner expects to receive from the partnership to the partner’s judgment creditor. Under both statutory schemes, the judgment creditor must initiate a collateral proceeding in which the creditor seeks a court order charging the debtor partner’s partnership interest with payment of the unsatisfied amount of the judgment, or serves process of garnishment on the partnership. [] A judgment creditor must initiate the identical collateral proceedings in order to attach a lien to a chose in action. 

(citations omitted).

So what is a “collateral proceeding”? The debtors argued that it meant that FCB was required to bring a new lawsuit against the LLCs whose membership interests were to be charged.

No, said the Court of Appeals, that language only 

was required to bring a new lawsuit against the LLCs whose membership interests were to be charged.

No, said the Court of Appeals, that language only means that the creditor must bring a “proceeding” in the sense of an Application for Charging Order in the State Court. There is utterly no need to initiate a new case involving the same parties; instead, the same court can issue the Charging Order after a hearing on the Application.

Appellants next argued that the Georgia State Court was not “a court of competent jurisdiction” because the Georgia State Court did not have personal jurisdiction over the LLCs whose interests were charged.