Henderson v. Chrisman

Justices Bridges (Opinion), Lang-Miers, and Schenck

Holly Henderson and her husband settled the Chrismans’ lawsuit against them, undertaking to pay $266,000 over time pursuant to an agreed judgment. When the couple divorced, Holly’s husband agreed to be responsible for the payments. Alas, he defaulted. Having learned Holly owned an interest in Henderson Properties, LLC, and had received some hefty distributions from it, the Chrismans obtained an order directing Holly to turn over “all monies, distributions, or assets” she received from the LLC, as well as an injunction prohibiting her from selling her interest in the LLC, until the Agreed Judgment was paid in full. Holly appealed, arguing that the exclusive method by which the Chrismans could recover from her interest in the LLC is through a charging order, which would entitle a judgment creditor to receive her share of the LLC’s profits directly from the LLC. She cited § 101.112 of the Texas Business Organizations Code, applicable to LLCs, which says, “The entry of a charging order is the exclusive remedy by which a judgment creditor of a member or of any other owner of a membership interest may satisfy a judgment out of the judgment debtor’s membership interest.” But the Dallas Court of Appeals disagreed and affirmed the turnover order.

Unfortunately for Holly, the Dallas Court had rejected a similar argument in Stanley v. Reef Securities, Inc., 314 S.W.3d 659 (Tex. App.—Dallas 2010, no pet.), in the face of substantially identical language in TBOC § 153.256(d), applicable to partnerships. In Stanley, the Court explained that “once a partnership distribution has been made to a partner, it ceases to be the partner's ‘partnership interest’ (i.e. the partner’s right to receive his share of the profits) and becomes that partner’s personal property,” and so the charging-order statute no longer applies. Similarly with respect to the LLC here, the Court said, “[T]here is nothing in the plain language of section 101.112 that precludes a judgment creditor from seeking the turnover of proceeds from a membership distribution if and when such a distribution is made and in the judgment debtor’s possession.”