Wild Turkey Times

It’s hard not to think about turkeys this time of year. This is especially true around our office, where we have had a wild turkey living in and around our parking lot for the past several months. He’s become such a fixture around here that he’s been given an affectionate name: Bubbles. I’m not sure where that name comes from, except perhaps that our staff is either very friendly (which they are) or that’s their way of honoring the “no one curses around Jennifer” rule and so they refer to the tiny green blobs they have to walk around on their way into our office as “bubbles” and the name stuck. Whatever its derivation, over the past several months we have all grown attached to Bubbles and learned a thing or two about wild turkeys along the way.

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We now know, for instance, that wild turkeys can in fact fly.

Bubbles can often be spotted high among the trees that line our parking lot. We learned that seeing a wild turkey like Bubbles was not a unique occurrence in Greeley. Our fair city is home to a flock of wild turkeys who can often be seen gathering around the Poudre River Trail in West Greeley. Last year, a flock of wild turkeys held up traffic on Highway 85 on the east side of town. Apparently, wild turkeys are a thing, like Texas, that you just don’t mess with.

We don’t know if the rest of the wild turkeys that call Greeley home are as entertaining as Bubbles, but we have learned from Bubbles not to think of all turkeys as a part of the local school play or our Thanksgiving dinners. Bubbles has taught us that wild turkeys have personality.

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They apparently like to hang out on top of cars, in the backs of pickup trucks, and when the mood strikes, will play “chicken” with the people coming in and out of our office. We’ve watched Bubbles hide behind bushes, jump fences, and sit quietly watching his own reflection in our glass entry doors. Each day, we’ve all had an encounter with Bubbles, and wondered as Thanksgiving grew closer whether Bubbles would live to see it.

I’m glad to report he did. He was seen relaxing high up in a tree outside of Fred’s office just yesterday afternoon.

If you had told me last year that one of the things I’d be thankful for this year was to see a wild turkey after Thanksgiving, I would have laughed at you. Don’t get me wrong, I’m thankful for a whole host of things this year: my family, especially my brother and legal assistant Mike who turns 30 today (Happy Birthday Little Brother!), my friends (both of you), my business partner and mentor Fred L. Otis, our great staff Leigh, Pam, Candace, Mike, and Nate, and our new colleagues Tim and Cindy. I’m thankful for old mining roads in the San Juan Mountains, that the Avalanche have won 19 games, that Eli Manning finally remembered how to throw a touchdown to his own receiver and thus revived my fantasy football team (the Ghost Busters), and for new episodes of Homeland. But this year, I was also thankful to see a wild turkey survive Thanksgiving. And for what that wild turkey taught me.

You see, before Bubbles, turkeys to me were things we ate on Thanksgiving, and the drivers who cut me off on my way to court. Wild Turkey was something to enjoy in the company of good friends, not dodge as you walk to your car when you leave work. (Although it should be noted that not every tan colored liquid in my glass at the end of the work day is Wild Turkey…more often than not I prefer a simple Diet Snapple.)

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These encounters with Bubbles over the past several months has helped put things in perspective for me. Bubbles reminded me to check my perceptions at the door and to not judge something or someone based on what I knew about it previously. Such a change in perception can be an invaluable tool in a litigator’s toolbox, whether used to reevaluate a complex business dispute or to find a better, more compelling way to tell the client’s story in an appellate brief. Like most creative personalities, I find inspiration hits me in the strangest places and when I least expect it. I first discovered my creative side had a part to play in my complex litigation practice a few years ago when I was scouring an old bookstore in Amarillo, Texas, worrying about how I was going to get a witness I was about to depose to give me the information I needed when it hit me as I was skimming a new poetry book how many times my legal career had given me an opportunity to rely on my creative side to get the right results: the better closing argument, the creative cross-examination, the simple story that tied it all together, the off-beat strategy that might throw a deponent expecting a typical, organized attorney off just enough to get to the truth. That was a defining moment for me because it led me to embrace my creative side in my legal practice, and better results and a happier, more productive and efficient litigation practice followed.

It is often ironic where the idea that becomes the crux of a case or that will form the theme of the case will come from, but it is usually from an unexpected source: like an encounter with a wild turkey in the parking lot of your office.

Attorney Tim Odil Joins Otis & Peters, LLC Litigation Team

Attorney Tim Odil

Otis & Peters, LLC is pleased to welcome attorney Timothy R. Odil to our team.

Mr. Odil is an experienced commercial litigation attorney. A former associate in the Denver office of McKenna Long & Aldridge LLP, a well-known international law firm, Mr. Odil began his legal career as a law clerk in the Weld County Courts, where he clerked for now-retired District Court judges J. Robert Lowenbach and Daniel S. Maus.

“We are excited to have an attorney of Tim’s caliber come back to the Northern Colorado community and join our team,” says Otis & Peters, LLC managing member Jennifer Lynn Peters.

Recognized as a Colorado Rising Star by Law & Politics, Mr. Odil has successfully defended entrepreneurs in business litigation involving claims of breach of contract, misappropriation of trade secrets, patent infringement, breach of fiduciary duty, ERISA and employment disputes, regulatory and licensing violations, campaign finance issues, and numerous claims for injunctive relief. Among his notable engagements, Mr. Odil successfully prosecuted a declaratory judgment action against the United States government challenging the government’s erroneous claim of ownership of a contractor’s production line, and successfully challenged a Colorado county’s mining regulations. He also has significant experience in presenting his clients’ interests in rulemaking proceedings before local and state regulators in the power, mining, healthcare, and government services industries.  Mr. Odil has represented financial institutions and corporations in construction litigation, mechanics’ lien disputes, insurance disputes, and collection matters. He has also assisted banks and corporate clients in receivership and foreclosure matters involving commercial properties, and represented creditors, lien claimants, loan servicers, and receivers in related matters.

A native of Colorado, Mr. Odil received his law degree from the University of Denver Sturm College of Law, where he was a member of the National Moot Court Traveling Team and the Transportation Law Journal. He received his Bachelor of Arts degree in Chemistry from Johns Hopkins University in Maryland, where he minored in Entrepreneurship and Management. He is licensed to practice law in Colorado, the U.S. District Court for the Districts of Colorado and the District of Columbia, the U.S. Court of Federal Claims, and the U.S. Court of Appeals for the Sixth, Tenth, and D.C. Circuits.

Mr. Odil’s practice focuses on disputes among private parties as well as disputes with local, state, or federal government agencies. He handles complex commercial litigation and appeals; government and commercial contract negotiation and disputes; regulatory compliance, licensing, and rulemaking issues; and employment law matters.

Welcome to the New Age

On November 18, 2013 my partner, Fred L. Otis, and I opened the doors to our new law firm, Otis & Peters, LLC. Well, we opened the same door we’ve opened for the past 12 years, but the name on the door changed officially. You see, Otis & Peters, LLC is not so much a new venture for Fred and I as it is a return to what we love most: a focus on the practice, rather than the business, of law.

Fred and I share the same belief that sometimes, bigger is not always better. This is not to say that we don’t believe businesses should grow or that we don’t plan to grow our firm: we do. We just believe that to provide the highest quality of legal services in the personal manner Fred and I are known for, the optimum size of a law firm is smaller and more focused on the clients and the law than anything else.

We are excited about what the future holds at Otis & Peters, LLC. We have been blessed to have our core staff remain with us and to have loyal clients who are making this transition with us. We see the beginning of Otis & Peters, LLC as an opportunity to retool and rebuild, much like a new coach of a professional sports team. As an avid Colorado Avalanche fan, I, like thousands others, have enjoyed watching the resurgence of our young hockey team under the leadership of Patrick Roy. As the new head coach, Roy brought his philosophy and applied it to a team of core players supported by new talent. The mantra at the Pepsi Center this season is Welcome to the New Age, based on the hit song Radioactive by Luke Malink. Otis & Peters is enjoying our own similar New Age.

We are refocusing, applying our philosophy, and rebuilding with a crop of new talent. Exciting things are coming for Otis & Peters, LLC. Stay tuned.

The Business Judgment Rule: The First Line of Defense

BY JENNIFER LYNN PETERS, ESQ.
As the economy plunged and debtors looked for ways to avoid paying their obligations to lenders across the country, the courts saw an explosion of cases alleging breach of fiduciary duty, breach of the duty of good faith and fair dealing, and other “mismanagement” by directors, officers, and/or managers of financial institutions and other entities. A growing number of such claims by shareholders and others affected by the closure of a financial institution are also being filed. So what is a director, officer, or manager to do when faced with such claims? Often, the legal doctrine known as the Business Judgment Rule can provide the best, most effective, and first line of defense.

The Business Judgment Rule is a legal presumption that provides that so long as a director or officer of a company is disinterested, has acted on an informed basis, in good faith, and with an honest belief that the action taken was in the best interests of the company, the decisions made are not subject to challenge. In adopting the Business Judgment Rule, the Colorado Supreme Court described it as follows: the “business judgment doctrine bars judicial inquiry into the actions of [a manager] taken in good faith and in the exercise of honest judgment in furtherance of a lawful and legitimate corporate purpose.” Hirsch v. Jones Intercable, Inc., 984 P.2d 629 (Colo. 1999). When the Business Judgment Rule applies, decisions and actions of disinterested directors and officers will not be disturbed or questioned by a court if they can be attributed to “any rational business purpose.” Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984). The rule is meant to preclude a court from imposing its own judgment on the business and affairs of a company.

In order to demonstrate that the Business Judgment Rule applies, an officer, director, or manager must generally show three things. First, it must be shown that the officer, director, or manager is independent or disinterested. This typically involves a review of the financial interests of the officer, director, or manager whose actions are being challenged to show she did not have a financial interest in the underlying transaction. Second, it must be shown that the decision being challenged was made in good faith. This usually involves a simple showing that there was a reason for the decision or action and what the stated motivation for the decision or action was. Third, it must be shown that the decision or action was “informed” or exercised with “due care.” This typically requires some evidence that there was a reasonable effort to ascertain and consider all relevant information prior to the decision being made or action being taken.

It is important to keep in mind that the Business Judgment Rule does not apply where a director, officer, or manager being sued is shown to have an interest, usually a financial stake of some sort, in the transaction in dispute. A director, officer, or manager is not “disinterested” if they either stand on both sides of a transaction or expect to derive a personal financial benefit from it. In other words, if the director, officer, or manager is engaged in self-dealing, she cannot claim the benefit of the Business Judgment Rule as a defense to claims of mismanagement. However, self-interest alone is not sufficient to disqualify an officer, director, or manager from using the Business Judgment Rule as a defense. Merely alleging complete dominion or control over business decisions is also not enough to defeat the Business Judgment Rule. There must be evidence that there was disloyalty to the organization, and that the benefit received was material or significant, rather than minimal. Thus, where it is shown by some tangible evidence that a director, officer, or manager either received or could have received a direct and substantial benefit from the transaction, the Business Judgment Rule will not be available as a defense.

Under the Business Judgment Rule, the mere fact that, in hindsight, an officer, director, manager, or management group made a bad decision or a mistake is not sufficient to challenge that decision or allege breach of fiduciary duty or other mismanagement claims. Courts acknowledge that, while shareholders might disagree with a management decision, and while it may be apparent in hindsight that the decision was wrong, the decision can withstand an attack because it was made in good faith by disinterested persons. In the absence of fraud or bad faith, the Business Judgment Rule thus often provides a complete defense to rising claims of breach of fiduciary or other obligations being levied against directors, officers, and managers.

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This article was published in the September/October 2011 edition of The Independent Report, the official newsletter of the Independent Bankers of Colorado and the June 2012 edition of the Colorado Bar Association Business Law Section Newsletter.

Charging Orders and the LLC: How to Reach the Assets Hidden by a Judgment Debtor in a Limited Liability Company

BY JENNIFER LYNN PETERS, ESQ.
Often the hard work of collecting money you are owed starts after a judgment is entered. Wise collection strategies are crucial in the current real estate market where it may no longer be a practical option to record a transcript of the judgment (thus obtaining a judgment lien), wait for the judgment-debtor’s property to be refinanced or sold, and collect from the equity. Today, the creditor who pushes the hardest and uses all available legal tools often is the first and only one who gets paid. So … what is a creditor to do when a judgment debtor has hidden all of his assets in a limited liability company? Charge!

How do I get to the debtor’s interest in the company? Use a charging order.

A common chant at sporting events, “Charge!” has become the mantra of lawyers advising creditor clients trying to collect a debt from an individual who holds limited liability company (LLC) interests.

A charging order is a court order directing the charged LLC to pay all assets or distributions of the LLC due to the judgment debtor to the creditor instead. Colorado Revised Statute §7-80-703 authorizes any creditor to obtain a charging order “on application.” In 1997 when this section was first added, the statute said “upon due application”, which was interpreted by the courts to require prior notice to anyone affected by the charging order. See First Nat’l Bank of Denver v. District Court, 652 P.2d 613 (Colo. 1982). In 1998, this provision was amended to simply say “on application,” leaving open the question of whether prior notice is still required. The charging order is effective upon service to the LLC and then creates a lien on the debtor’s membership interest. Here, service means personal service pursuant to Colorado Rule of Civil Procedure 4. Such service can be accomplished several ways: by personal delivery to the LLC’s registered agent or an officer or member of the LLC, or even to a direct secretary or assistant of the registered agent, officer or member. See In re Goodman Associates, LLC v. WP Mountain Properties, LLC, 222 P.3d 310 (Colo. 2010). Service by certified mail may also suffice if the registered agent cannot easily be found; however, if serving in this manner, one should obtain a court order approving such service and setting the date of service as five days from the date of mailing. See § 7-90-704(2), C.R.S.

A creditor with a charging order may seek appointment of a receiver to oversee the profits or other money due or to become due to the judgment-debtor member. An appointed receiver can ensure that a creditor can easily and without further court orders access information such as the financial records of the LLC. Additionally, the charged membership interest can be foreclosed, or ordered sold by the court, and the proceeds paid to the charging creditor. The statute also authorizes the sale of the charged membership interest by consent of all other members. Neither scenario triggers mandatory dissolution.

Historically, if the debtor’s membership interest was not sold, the charging creditor could not step into the shoes of the judgment debtor, but instead assumed the role of an assignee or transferee of the membership interest, meaning that the creditor could not control the LLC even if the charged membership interest was the majority interest or the judgment debtor was the manager of the LLC. Absent consent, even if the only other interest remaining in the LLC was infinitesimal, the creditor had no management or governance rights in the LLC, but only a right to payment of monies owed by the LLC to the judgment debtor. See In re Albright, 291 B.R. 538 (Bankr.D.Colo. 2003), citing § 7-80-702, C.R.S.

However, in 1998, language was added to the charging order statutes allowing a court to “make all other orders, directions, accounts and inquiries that the debtor member might have made or that the circumstances of the case may require.” While there are not yet any Colorado cases interpreting this change, it appears that there may be more flexibility for courts to order additional relief to the creditor as part of the charging order, including providing for additional or greater rights than historically allowed if the circumstances justify it. One example of such flexibility has recently arisen in the context of single-member LLCs. In a single-member LLC, the purpose and benefit of the charging order, derived from the Uniform Partnership Law and intended to benefit the non-debtor partners, is not applicable. The charging order is intended to avoid forcing partners of a judgment debtor becoming business partners with, or to involuntarily share governance of their business with, a creditor. Single-member LLCs need no such protection. Additionally, in a single-member LLC the effect of a charging order would be to leave the LLC without any disinterested person to manage it. As such, courts now appear willing simply to order a judgment debtor holding an interest in a single-member LLC to forfeit or assign the interest in the LLC to the creditor, rather than requiring foreclosure of the interest. See Olmstead v. Federal Trade Commission, 44 So.3d 76 (Fla. 2010) (court could order debtor to surrender all right, title and interest in debtor’s single-member LLC to satisfy an outstanding judgment). Since the management aspect is the same in multi-member LLCs where the judgment debtor is the only manager, the courts may also, given the flexibility in the current statute, provide such relief for multi-member LLCs.

The use of a charging order in the context of LLC interests is not yet well guided by case law. Consequently, courts look to the Uniform Partnership Law for guidance on issues such as priority of competing charging orders and the availability of other means to collect a judgment by going after the judgment debtor’s interest in an entity.

So what happens if more than one creditor serves a charging order?

With competing charging orders, he who serves first is prior. See Union Colony Bank v. United Bank of Greeley NA, 832 P.2d 1112 (Colo.App. 1992). The priority of charging orders is determined by the date of service of the order upon the LLC, and not by the date judgment was obtained or a transcript of judgment was recorded. Being the first to obtain and serve a charging order is critical in achieving the first and prior lien against the judgment debtor’s membership interest.

Is a charging order my only option?

The principal difference between the LLC and partnership statutes is that the Uniform Partnership Law specifies that the charging order is the only remedy available to a creditor to enforce the judgment against a partner’s interest. See § 7-64-504(5), C.R.S. The LLC statutes do not contain such a provision. Some creditors thus argue that a charging order is not the exclusive remedy available when pursuing a judgment-debtor’s LLC interest. Although Colorado courts have not yet opined about whether a charging order is the exclusive remedy for reaching a judgment debtor’s LLC interests, recent decisions from other states indicate that it is not . See Olmstead, supra; see also F.T.C. v. Peoples First Credit, LLC, 621 F.3d 1327 (11th Cir. 2010). A recent decision by the Colorado Bankruptcy Court and an early Colorado Supreme Court decision both indicate Colorado would follow these other states. See In re Albright, supra (noting the charging order statute serves no purpose in a single-member LLC) and Collard v. Hohnster, 174 P. 396 (Colo. 1918) (remedy provided by one statute does not abolish another or common law unless specifically provided).

So what other options do I have?

With the rising use of LLCs in Colorado, the ability to collect a judgment through LLC assets can mean the difference between getting paid or not. Often the charging order is the best option for pursuing collection against a judgment debtor hiding assets in an LLC. Unlike a garnishment, which expires 180 days after service and after which a competing creditor could step in front of you, charging orders do not expire and attach to all distributions or assets due or that become due to the judgment debtor until the judgment is satisfied. However, charging orders can be avoided if an LLC doesn’t make distributions. They are also often misunderstood by LLC managers, and achieving compliance can be difficult without cooperating non-debtor members or managers. Thus, garnishments can also be an effective tool when used in conjunction with the charging order.

A creditor can also foreclose the interest, but this can be tricky, time-consuming, and expensive. Colorado law is not clear about how to foreclose an LLC membership interest, what effect the foreclosure has on the LLC, and whether the foreclosing creditor can then demand dissolution and liquidation of the LLC from which the judgment might be satisfied.

In pursuing collection of judgments against debtors with assets tied up in LLCs, a charging order can be a powerful and useful tool. It is important to be sure your charging order contains sufficiently comprehensive enforcement mechanisms and provisions allowing a creditor to obtain information about the financial status of the LLC, however, to obtain the maximum benefit. Using the charging order in conjunction with other available collection remedies will greatly increase the likelihood of recovery. If you are interested in pursuing a charging order, or have received on and have questions about it, contact Jennifer Lynn Peters, Esq. 970-330-6700.

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