BOONE CIRCUIT COURT 54TH JUDICIAL DISTRICT. Case No. 05-CI-436

Transcription

1 BOONE CIRCUIT COURT 54TH JUDICIAL DISTRICT Case No. 05-CI-436 MILDRED ABBOTT,et ai., PLAINTIFFS v. PLAINTIFFS' MOTION FOR ENTRY OF CHARGING ORDER AGAINST JUDGMENT DEBTOR, SmRLEY A. CUNNINGHAM, JR.'S, INTERESTS IN LIMITED LIABILITY COMPANIES STANLEY M. CHELSEY, et ai., ****** DEFENDANTS Pursuant to KRS , Plaintiffs, through counsel, respectfully move the Court for entry of a charging order, in favor of Plaintiffs, against the chargeable membership interests of the Judgment Debtor, Shirley A. Cunningham, Jr. ("'Cunningham") in the following limited liability companies: Shirley Allen Cunningham, Jr., PLLC; Tandy, LLC d/b/a Midnight Cry Stables; Hillcrest Farm I, LLC; Hillcrest Farm II, LLC; Kentucky Vineyard and Winery, LLC; Kentucky Basketball Academy, LLC; Jet Law, LLC; and against the chargeable membership interests of the Judgment Debtor William J. Gallion ("Gallion") in the following limited liability companies: Tandy, LLC d/b/a Midnight Cry Stables; Onyx One, LLC

2 Jet Law, LLC; WJG Holdings, LLC; WJG Investments, LLC; and in any and au other limited liability companies in which the Judgment Debtors, Cunningham and Gallion, may have an interest, with payment of the unsatisfied amount of the Judgment owing to the Plaintiffs, with interest thereon until paid. In support of their motion, the Plaintiffs rely upon the Memorandum of Law tendered herewith and incorporated herein by reference. NOTICE OF HEARING PLEASE TAKE NOTICE that the foregoing Motion shall be heard by the Boone Circuit Court, on Wednesday, October 31, 2007 at the hour of 11:00 am. or as soon as the parties can be heard. Respectfully submitted, "v1 Angt!fM~ Ford No Chevy Chase Plaza 836 Euclid Avenue, Suite 311 Lexington, Kentucky (859) Emai1: William T. Ramsey NEAL & HARWELL, PLC TBANo Fourth Avenue North Suite 2000 Nashville, TN (615) COUNSEL FOR PLAINTIFFS 2

3 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and accurate copy of the foregoing has been served by regular mail on the October 11, 2007 by U. S. mail to: Mary E. Meade-Mckenzie, 3290 Blazer Parkway Suite 150 Lexington, KY Esq. Michael L. Gay, Esq. Jeffrey J. Harmon, Esq. Cors & Bassett, LLC 537 East Pete Rose Way, Suite 400 Cincinnati, OH 45202~3578 Elizabeth R. Seif, Esq. Seif & Austin, PLLC 163 East Main Street, Suite 130 Lexington, KY Calvin R. Fulkerson, Esq. Lynn, Fulkerson, Nichols & Kinkel 267 West Short Street Lexington, KY James A. Shuffett, Esq. 271 West Short Street, Suite 400 Lexington,.KY C. Alex Rose, Esq. 471 West Main Street Suite 400 Louisville, KY Frank Benton, IV, Esq. P.O. Box Newport, KY Byron E. Leet, Esq. Wyatt, Tarrant & Combs, LLP 500 West Jefferson Street Suite 2800 Louisville, KY 40202

4 Luther C. Conner, Jr., Esq. 103 N. Cross Street Albany, KY RobinGwinn Assistant United States Attorney 260 West Vine Street, Suite 300 Lexington,lCl'

5 BOONE CIRCUIT COURT 54TH JUDICIAL DISTRICT Case No. 05-CI-436 MILDRED ABBOTT, et at, PLAINTIFFS v. PLAINTIFFS' MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR ENTRY OF CHARGING ORDER AGAINST LIMITED LIABILITY COMPANY INTERESTS OWNED BY JUDGMENT DEBTORS, SHIRLEY A. CUNNINGHAM. JR. AND WILLIAM J. GALLION STANLEY M. CHELSEY, et al., ****** DEFENDANTS The Plaintiffs, through counsel, respectfully submit the following memorandum of law in support of their motion for entry of a charging order against the judgment debtors, Shirley A. Cunningham, Jr. and William J. Gallion. In support of the motion, the Plaintiffs state as follows: FACTUAL AND PROCEDURAL BACKGROUND On August 1, 2007, this Court entered a joint and several judgment against Shirley A. Cunningham, Jr. ("Cunningham"), Melbourne Mills, Jr. ("Mills") and William J. Gallion ("Gallion") (collectively, the "Judgment Debtors"), in the principal amount of $42,000,000.00, exclusive of pre-judgment and post-judgment interest (the "Judgment"). On August 22,2007, this Court ordered that the Judgment be made fmal and appealable. All post-judgment motions brought by the Judgment Debtors have been considered by this Court and rejected. The Defendants have appealed the Judgment, but have not sought or posted a supersedeas bond in accordance with the terms of Rule of the Kentucky Rules of Civil Procedure. Accordingly, execution is ripe with respect to the Judgment. See Ky.R.Civ.P

6 At present, the entire amount of the Judgment remains unsatisfied. The Defendants, Gallion and Cunningham, own an interest in several limited liability companies, the earnings of which should be used to satisfy the Judgment. The Plaintiffs, through discovery and investigation,. have information that indicates that Cunningham owns an interest in the followinl limited liability companies: Shirley Allen Cunningham, Jr., PLLC, see Exhibit A; Tandy, LLC d/b/a Midnight Cry Stables, see Exhibit B; Hillcrest Farm I, LLC, see Exhibit C; Hillcrest Farm II, LLC, see E){]]ilJitp; Kentucky Vineyard and Winery, LLC, see Exhibit E; Kentucky Basketball Academy, LLC, see Exhibit E; Jet Law, LLC, see Exhibit G; Additionally, the Plaintiff is informed that Gallion possesses an interest in the following limited liability companies: Tandy, LLC d/b/a Midnight Cry Stables, see ~~1:)Jt B; Onyx One, LLC, see Exhibit H; Jet Law, LLC, see Exhibit G; WJG Holdings, LLC, see Exhibit I; WJG Investments, LLC, see ;gxlribit I; The Plaintiffs believe that both Gallion and Cunningham possess additional limited liability company interests which will be revealed through post-judgment discovery and made a portion of an amended or supplemental motion for charging order. 2

7 ARGUMENT KRS provides that a charging order may be entered to charge the interest of a judgment debtor member in a limited liability company towards the satisfaction of a judgment. The statute provides, in pertinent part: On application to a court of competent jurisdiction by a judgment creditor of a member or a member's assignee, a court may charge the judgment debtor's interest in the limited liability company with payment of the unsatisfied amount of the judgment. To the extent so charged, the judgment creditor has only the rights of an assignee and shall have no right to participate in the management or to cause the dissolution of the limited liability company. KRS (2). The statute further authorizes the Court to liquidate the interest of a judgment debtor in any limited liability company. "The court may order a foreclosure upon the limited liability company interest subject to the charging order at any time." KRS ( 4). The provisions ofkrs provide the "exclusive remedy by which the Judgment creditor of a member... may satisfy a Judgment out of the Judgment debtor's limited liability company interest." KRS (1) (emphasis provided). Accordingly, the Plaintiffs in this action can only gain any recovery out of the numerous assets the Judgment Debtors have chosen to shelter in wholly- or partially-owned LLCs if the Court enters an appropriate charging order. Such relief is particularly warranted under the present circumstances because each of the Judgment Debtors is a licensed attorney with an acute awareness of the various hurdles a tortfeasor/debtor can create for his creditors by executing an asset sheltering plan featuring, among other tactics, transfers of assets to separate limited liability companies. In this case, the Plaintiffs are already aware of several million dollars worth of assets held in the names of companies owned by Cunningham and Gallion. For example, Cunningham owns real property in Scott County through two wholly-owned limited liability companies named 3

8 ''Hillcrest Farm I, LLC" and ''Hillcrest Farm n, LLC." See Exhibits C and D. The Hillcrest Farms companies are not judgment debtors and, therefore, the assets owned by those companies are not subject to execution. However, the membership units of both companies are the property of the judgment debtor, Cunniugb~ro, and the Court is free to charge his ownership interest in any fashion it sees fit to reach the end goal of satisfaction of the Plaintiffs' Judgment. The Plaintiffs' need for a charging order is pressing. In the absence of a charging order the Judgment Debtors remain uninhibited from pursuing asset sheltering techniques that undermine the Plaintiffs' efforts to recover amounts this Court has awarded them. Again, an example best proves the dangers endemic to delay. C<Hiebtors Gallion and Cunningham own Tandy, LLC, the company that underlies its better~lmown assumed name "Midnight Cry Stables." Midnight Cry Stables, in turn, owns a partial interest in the celebmted thoroughbred, Curlin; a racehorse that has recently earned a substantial purse by winning the Grade IJockey Club Gold Cup at Belmont Park and is scheduled to compete again in the Grade I, $5 million Breeder's Cup Classic at Monmouth Park in less than three weeks. Presumably, cash has already been distributed to Tandy for Curlin's success at Belmont Park. Without a charging order the Judgment Debtors are free to extract from Tandy all cash awarded from the Gold Cup purse and distribute the funds in such a manner as to insure the Plaintiffs will never see a cent. If Curlin's upcoming performance holds true to form, substantial additional cash will be distributed to Tandy following the Breeder's Cup. Tandy's owners have absolutely no motivation to retain any of Curlin's earnings. To the contrary, it is in Gallion's and Cunningham's interest for Tandy to make cash distributions as soon as cash is available and dispense it as best they can, thus creating additional hardship for the Plaintiffs in achieving their goal of realizing recovery. Such an unjust 4

9 result is furthered by any delay in the entry of a charging order directing that all of Tandy's cash distributions be paid over to the Plaintiffs. Moreover, the immediate entry of charging orders sets the stage for future actions by this Court aimed at satisfaction ofthe Judgment. The Court's discretion includes the authority to sell the debtors' interest in any company at a foreclosure sale or to sell assets owned by the company and distribute the proceeds to judgment holders. Both remedies are highly appropriate in the case of companies that are wholly owned by one or more of the judgment debtors because sale of 100% interest in a company often maximizes its value and because no damage can possibly be inflicted on innocent stakeholders in the sold company by virtue of an unconsented-to sale. However, because post-judgment discovery is in its infancy, Plaintiffs' counsel are presently unable to discern which companies should be subject to additional collection-oriented orders in order to maximize recovery to the injured Plaintiffs. As discovery proceeds regarding the ownership structure and income-producing nature of each of the Judgment Debtor's business ventures, the Plaintiffs will be better positioned to seek additional relief from the Court in the form of liquidation or foreclosure orders. Absent a charging order, however, the judgment debtors could easily convert assets owned by the companies to cash and distribute the same leaving the aggrieved Plaintiffs with nothing meaningful to liquidate. In sum, the Plaintiffs have followed the statutorily prescribed method for recovering against a judgment debtor possessing an interest in a limited liability company. ruled that the Plaintiffs are entitled to $42,000,000 from the judgment debtors. This Court has It should now enter the charging orders that will permit them to recover a portion of that sum. 5

10 CONCLUSION For the foregoing reasons, the Plaintiffs respectfully request that the Court enter orders charging any ownership interests of the judgment debtors, William J. Gallion and Shirley A. Cunningham, Jr., in any limited liability company identified in the motion accompanying this memorandum, and applying all distributions to the unsatisfied amount of the judgment debt owing to the Plaintiffs. Respectfully submitted, hgel KBJ'No.8151O Chevy Chase Plaza 836 Euclid Avenue, Suite 311 Lexington, Kentucky (859) William T. Ramsey NEAL & HARWELL, PLC TBANo Fourth Avenue North Suite 2000 Nashville, TN (615) COUNSEL FOR PLAINTIFFS CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and accurate copy of the foregoing has been served by regular mail on the October 11, 2007 by U. S. mail to: Mary E. Meade-Mckenzie, 3290 Blazer Parkway Suite 150 Lexington, KY Esq. 6

11 Michael L. Gay~ Esq. Jeffi:ey J. Harmon~ Esq. Cors & Basset4 LLC 537 East Pete Rose Way~ Suite 400 Cincinnati, OH Elizabeth R. Seif, Esq. Seif & Austin, PLLC 163 East Main Street, Suite 130 Lexington, KY Calvin R. Fulkerson, Esq. Lynn, Fulkerson, Nichols & Kinkel 267 West Short Street Lexington,lClr James A. Shuffett, Esq. 271 West Short Street, Suite 400 Lexington, KY C. Alex Rose, Esq. 471 West Main Street, Suite 400 Louisville, KY Frank: Benton~ IV, Esq. P.O. Box Newport, Klr Byron E. Leet, Esq. Wyatt, Tarrant & Combs, LLP 500 West Jefferson Street Suite 2800 Louisville, KY Luther C. Conner, Jr., Esq. 103 N. Cross Street Albany, KY RobinGwinn Assistant United States Attorney 260 West Vine Street, Suite 300 Lexington, KY 40507

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