October 19, 2017

MONTH-IN-BRIEF: Corporations, LLCs & Partnerships

Tarik Haskins

Limited Liability Companies

In a Dispute as to the Priority of Charging Orders, the Colorado Supreme Court Holds that the Membership Interest of a Non-Colorado Citizen in a Colorado LLC is Located in Colorado

By Elizabeth Miller, Baylor University Law School

In JPMorgan Chase Bank, N.A. v. McClure, 393 P.3d 955 (Colo. 2017), the Colorado Supreme Court addressed the relative priority of competing charging orders against a foreign judgment debtor’s membership interests in several Colorado LLCs. The court held that the membership interest of a non-Colorado citizen in a Colorado LLC is located in Colorado, and that a foreign charging order that compels action by a Colorado LLC is ineffective until the judgment creditor has taken sufficient steps in Colorado to obligate the LLC to comply with the order. In this case, the Colorado charging orders obtained by the respondents after domestication of a foreign judgment took priority over the petitioner’s foreign charging orders because the petitioner did not obtain Colorado charging orders and did not domesticate its foreign charging orders until after the respondent obtained and served Colorado charging orders.

Corporate Law

Catlin and “Fraudulent Scheme”

By Thomas E. Hanson, Jr., Barnes & Thornburg LLP

In Catlin Specialty Ins. Co. v. CBL & Assocs. Properties, Inc., 2017 WL 4173511 (Del. Super. Sept. 20, 2017), the Complex Commercial Litigation Division of the Delaware Superior Court decided whether insurance coverage was available, under a Professional Liability policy, for claims arising from alleged intentional misconduct. The insurer in Catlin sought a declaration that it had no duty to defend or indemnify the insured in an action filed by a third party, because its policy covered only “negligent acts, errors, or omissions” and excluded, among other things, dishonest, fraudulent, and intentional misconduct. Based on an argument that the underlying claims could be construed as sounding in negligence, the insured asserted that coverage should be available. Rejecting the insured’s argument, the court found the claims involved allegations that the insured engaged in a “fraudulent scheme” to overcharge its tenants across the country for electricity. As such, the policy exclusion for “dishonest, fraudulent, criminal, or intentionally or knowingly wrongful or malicious act, error, or omission” applied. The court stated: “The Underlying Action alleges no negligent (or even grossly negligent) conduct. Instead, it is based on a plainly pled theory that [the insured] engaged in a pattern of intentional, knowing, wrongful, fraudulent conduct. There is no hint in the Underlying Action’s claims that [the insured] acted in a negligent fashion.” Accordingly, coverage was not available for the claims asserted. 

Tarik Haskins

Partner; Morris, Nichols, Arsht & Tunnell LLP

Tarik is a partner in the Commercial Law Counseling Group. His practice covers a range of commercial transactions including mergers and acquisitions, secured financings, joint ventures, and business counseling.