Law School Case Brief
Wells Fargo Bank, Nat'l Ass'n v. Continuous Control Sols., Inc. - 821 N.W.2d 777 (Iowa Ct. App. 2012)
To effectuate a charging order, Iowa Code § 489.503 authorizes a court to order a limited liability company to disclose financial information to a court-appointed receiver only
Alex Komm, Ilya Markevich, Boris Pusin, Vadim Shapiro, and Dmitry Khots (collectively judgment creditors) obtained a judgment against Alex Shcharansky, Leonid (Lenny) Shcharansky, and Slava Staroselsky (collectively judgment debtors). In an effort to collect on the judgment, the judgment creditors applied for charging orders pursuant to Iowa Code section 489.503 against the judgment debtors' economic interests in three LLCs: Zorass Newco, L.L.C., owned by the three judgment debtors, and Global Energy Investments, L.L.C. and Continuous Control Solutions, L.L.C., owned in part by Alex Shcharansky. The judgment creditors also requested an order requiring the LLCs to disclose their cash flow statements or other documentation "in order to verify no distributions have been made to the judgment debtors or any other entity or person with an ownership interest in these limited liability companies." The LLCs filed a limited resistance to the application, not generally challenging the application for the issuance of a charging order, but resisting the request for disclosure of quarterly cash flow statements. After briefing and a hearing, the district court granted charging orders against each judgment debtor. Additionally, the court ordered the LLCs to provide to counsel for the judgment creditors or to the court "a cash flow statement every six months, beginning August 1, 2011, specifically outlining any and all disbursals, distributions, inflows, or payments in order to ensure compliance with this charging order." The court later granted a stay of the disclosure provisions of the charging orders pending appeal. The LLCs and judgment debtors appealed arguing that there was no statutory authority for the disclosure orders issued by the district court.
Did the district court have statutory authority to issue the disclosure orders?
The Court held that the trial court did not have the authority under Iowa Code § 489.503 to enter charging orders that required limited liability companies to provide periodic cash flow statements to judgment creditors. Iowa Code § 489.503 simply authorized the disclosure of financial information to a court-appointed receiver.
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