Charging Orders on Oregon Partnerships,

Limited Liability Partnerships and Limited Liability Companies

A charging order is the statutory vehicle which enables an Oregon judgment creditor to reach
their debtors limited liability company membership or partnership interest to satisfy a judgment
debt. ORS 63.259; 67.205; and, 70.295. In a recent decision, Law v. Zemp, 276 Or App 652
(2016), the Oregon Court of Appeals disregarded the applicable statutory language creating more
confusion than clarity concerning the proper nature and permissible scope of charging orders in
Oregon.
The judgment debtor in Zemp belonged to four limited partnerships and was a member in a
limited liability company. The trial court had entered a charging order on the creditors ex parte
motion which, among other things, required the limited partnerships and limited liability
company to: (1) pay all distributions and amounts otherwise due from the entity to its debtormember to the judgment creditor; (2) refrain from making any loans to members, partners or
third parties; (3) refrain from any transfer between or among members, partners or the business
entities of any equity interests without the approval of the creditor or the court; and, (4) give the
judgment creditor certified copies of financial and tax documents concerning past and future
ongoing financial affairs of each entity.
The Court of Appeals in Zemp held that the trial court had no authority to prohibit the limited
partnerships and limited liability company from making loans or to forbid their members from
transferring or encumbering their membership interests. Ibid. at 669. However, the Court of
Appeals held that the trial court had correctly ordered the limited partnerships to give the
judgment creditor certified copies of all of the specified past and future financial information
while holding that the trial court lacked the authority to order the limited liability company to
give the judgment creditor any such financial information. Ibid. 669-670.
The distinction between the permissible scope of the charging order against the limited liability
partnerships and the limited liability company is odd because the governing statutory language is
almost identical. That is, in the case of both a limited liability partnership and a limited liability
company, the judgment creditor of a limited partner or of a member simply holds the rights of an
assignee of the debtors interest. ORS 63.259; 70.295. An assignee of a members limited
liability company membership has . . . the assignors right to receive and retain, to the extent
assigned, the distributions, as and when made, and allocations of profits and losses to which the
assignor would be entitled, but shall not exercise any other rights of a member, including without
limitation, the right to vote or otherwise participate in the management and affairs of the limited
liability company. ORS 63.249(3) (emphasis added)
In almost identical terms ORS 70.290 governing the assignability of limited partnership interests
states that, An assignment of a partnership interest does not dissolve a limited partnership or
entitle the assignee to become or to exercise any rights of a partner. An assignment entitles the
assignee to receive, to the extent assigned, only the distribution to which the assignor would be
entitled. Emphasis added.
Among the rights of a limited partner is the right to obtain true and full financial information
concerning the partnerships affairs. ORS 70.145. That the judgment creditor who obtains a
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charging order against a limited partnership interest, thus becoming an assignee of their
debtors interest, is statutorily barred from obtaining the financial information to which the
member, as a member, has a statutory right, seems obvious.
The limited liability partnership statutes do not specifically define the permissible scope of a
charging order against a limited partners interest. The Zemp court, relying on ORS 70.615 which
directs a court to apply the general partnership statute, ORS Chapter 67, to resolve any case not
provided for in the limited liability partnership statute, therefore applied ORS 67.205, defining
the permissible scope of a charging order against a general partnership interest, to also define the
permissible scope of a charging order against a limited partnership interest. Ibid. at 667.
Yet even ORS 67.205 limits the permissible scope of a charging order against a general partners
partnership interest to the debtors transferable interest. In a general partnership, a partners
only transferable interest is: . . . the partners share of the profits and losses of the partnership
and the partners right to receive distributions. ORS 67.005(17). So too, with respect to a
limited partnership, the limited partners only transferable interest is the right to receive such
distributions as their assignor would be entitled to receive. ORS 70.290. The limited partners
right as a partner to gain access to the partnerships financial records is not transferable and
thus not properly subject to any charging order if the language of ORS 67.205 is strictly applied.
Finally, the Court in Zemp wholly ignored the importance of contract in determining the rights of
both the creditor and, more importantly, the limited liability company and the limited liability
partnerships. Yet both the limited liability companys operating agreement and the limited
partnerships partnership agreements are the primary source defining the rights and obligations of
the members in those entities. ORS 63.057 explicitly notes the primacy of the operating
agreement in defining the rights and obligations of members in an LLC. Although the limited
liability partnership statute, ORS Chapter 70, is not so concisely explicit, it is nonetheless
permeated with the recognition that the statute is generally subordinate to the provisions of the
partnership agreement: e.g., ORS 70.130 (voting rights); 70.175 (admission of additional general
partners); 70.185 (rights, restrictions and liabilities of general partner); 70.230 (Obligation of
partner); 70.235 (allocation of profits and losses); etc.
In short, the Court of Appeals in Zemp created a muddle inconsistent with the statutory language
on which it based its conclusion. It did not coherently apply the applicable statutes nor did it
even acknowledge the contractual provisions governing the rights of members belonging to
entities which are uniquely creatures of contract. Hopefully a cure for this decision waits in the
future. In the meantime, it seems as though Oregon courts will be more respectful of LLCs than
of limited partnerships, at least in crafting the scope of charging orders to such entities.
4/12/2016 Lawrence B. Hunt of Hunt & Associates, P.C. All rights reserved.

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