Opinion
No. C-06-5590 EMC.
March 17, 2008
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR ISSUANCE OF CHARGING ORDERS AND APPOINTMENT OF RECEIVER (Docket No. 49)
Having considered the parties' briefs and accompanying submissions, as well as the oral argument of counsel, the Court hereby GRANTS in part and DENIES in part Plaintiffs' motion for issuance of charging orders and appointment of receiver.
I. DISCUSSION
A. Issuance of Charging Orders
Plaintiffs ask the Court to issue an order charging the partnership or membership interests held by Mr. Guglielmo and Mr. Nurisso with the amount of the judgment. In their opposition, Mr. Guglielmo and Mr. Nurisso do not really dispute that a charging order is an appropriate remedy. In addition, at the hearing on Plaintiffs' motion, both Mr. Guglielmo and Mr. Nurisso confirmed that there was no opposition to the request for a charging order.
The Court agrees with the parties that a charging order is an appropriate remedy, at least with respect to assets held by Mr. Guglielmo and Mr. Nurisso that constitute partnership or membership interests. California Code of Civil Procedure § 708.310 provides that, "[i]f a money judgment is rendered against a partner or member but not against the partnership or limited liability company, the judgment debtor's interest in the partnership or limited liability company may be applied toward the satisfaction of the judgment by an order charging the judgment debtor's interest pursuant to Section 15673 [part of the California Revised Limited Partnership Act (RLPA)], 16504 [part of the Revised Uniform Partnership Act (RUPA), or 17302 [applicable to limited liability companies] of the Corporations Code." Cal. Code Civ. Proc. § 708.310. In the instant case, the following assets held by Mr. Guglielmo and/or Mr. Nurisso constitute partnership or membership interests.
Because the Court previously found that there were fraudulent transfers by Mr. Guglielmo and Mr. Nurisso in setting up Guggs and Wild Horse, respectively, the Court deems it appropriate to include charging orders against the specific partnership or membership interests held by Guggs and Wild Horse. In short, the Court voids the transfers that were made by Mr. Guglielmo and Mr. Nurisso to Guggs and Wild Horse, respectively.
B. Appointment of Receiver
Plaintiffs also ask that the Court appoint a receiver. This is the issue contested by Defendants.As a preliminary matter, the Court notes that it is not clear from the parties' briefs whether they believe that federal or state law on receiverships should apply — although, in the end, it does not matter because federal and state law do not substantially or materially differ in one important respect. Under federal law, a receivership is an equitable remedy, see View Crest Garden Apartments, Inc. v. United States, 281 F.2d 844, 849 (9th Cir. 1960), and "[a] receiver will be appointed only in those situations when the circumstances are extreme and the property interests of the parties are clearly at risk." More's § 66.04[2][a]. Similarly, under state law, a receivership is considered an equitable remedy and so "the equitable considerations governing injunction proceedings apply — i.e., there must be a showing of irreparable injury and inadequacy of other legal or equitable remedies." Rutter Group, Cal. Prac. Guide Enf. J. Debt ¶ 4:891 (emphasis in original).
Given this high standard, the Court concludes that Plaintiffs have failed to show that a receivership is necessary in the instant case. Although the Court did previously find that there were fraudulent transfers by Mr. Guglielmo and Mr. Nurisso, it determined that there was constructive fraud only; and, in so finding, the Court did not conclude that Defendants had actually concealed their assets but rather had only undervalued them. Moreover, since the judgment was entered against Defendants, Plaintiffs have not shown that Defendants have engaged in any further fraud, constructive or otherwise. It is also notable that the value of the partnerships and members at issue ( e.g., McKinley) — and even Defendants' interests in those entities — exceeds the value of the judgment against Defendants.
It appears that Plaintiffs want a receivership over all of Mr. Guglielmo and Mr. Nurisso's interests, i.e., not just the partnership and membership interests. Their request for a receivership, however, seems most acute with respect to the partnership and membership interests.
That being said, the Court acknowledges Plaintiffs' concern that the partnerships and memberships will have no incentive to make distributions because of the outstanding judgment against Defendants. To address this concern, Defendants should produce to Plaintiffs the K-1s for the partnerships and memberships at issue ( e.g., McKinley, Able Taylor, Westwood Property) for the years 2005-2007. In addition, the Court orders the parties to meet and confer to work out an auditing system for the 2008 period and on (until judgment is satisfied). If the parties are unable to work out an auditing system, then they should report back to the Court no later than April 15, 2008.
II. CONCLUSION
For the foregoing reasons, Plaintiffs' motion is granted in part and denied in part. The Court hereby orders that:
Plaintiffs appear to seek only post-judgment interest, and that rate is determined by federal law. See Onink v. Cardelucci (In re Cardelucci), 285 F.3d 1231, 1235 (9th Cir. 2002) ("In diversity actions brought in federal court a prevailing plaintiff is entitled to pre-judgment interest at state law rates while post-judgment interest is determined by federal law.").