Excerpts: “Charging Orders: The Creditors’ Primary Remedy Against A Debtor’s Interest In A Limited Liability Company Or Partnership.”

  • Reference Buckeye Retirement Co. v. Buffa, 2011 WL 6299681 (D.Conn., Dec. 16 2011).
  • On January 6, 2009, plaintiff next filed its Motion for Order Re: Post–Judgment Discovery (Dkt.# 59), which sought post-judgment discovery under CONN. GEN. STAT. sec. 52–351b, namely production of defendant’s tax returns, both state and federal, along with documents supporting those returns and the tax returns of Endeavor, LLC. Defendant opposed this motion, on the grounds that neither Endeavor, LLC nor defendant’s wife, Nancy Haar, were a judgment debtor, so that their tax returns and other financial information were not subject to discovery by plaintiff under Conn. Gen.Stat. sec. 52–351b, and that circumstances had not changed since the June 2007 Ruling. (Dkt. # 60, at 1–3).
  • Based upon “the simple language” of Conn. Gen.Stat. sec. 52–351b(a) that “[a] judgment creditor may obtain discovery from the judgment debtor, or from any third person the judgment creditor reasonably believes, in good faith, may have assets of the judgment debtor …” (emphasis added), and given that “[n]ot a dime of [the] judgment has been paid by [defendant],” despite the multiple post-judgment motions filed by plaintiff, this Magistrate Judge held in her Ruling on Plaintiff’s Motion for Order Re: Post–Judgment Discovery, filed January 27, 2009 (Dkt.# 62)[“January 2009 Ruling”] that it was “appropriate for defendant, his wife, and Endeavor, LLC to submit the requested documents to this Magistrate Judge for her in camera review, to determine if indeed Ms. Haar and/or Endeavor, LLC are third persons who may have assets of the judgment debtor.
  • However, in Endeavor, LLC’s 2006 Form 1065 and 2007 Form 1065, there are significant travel expenses, especially in comparison to the total expenses and gross receipts. In light of the deduction for “Haar Buffa Vacation Expense,” there is enough of a red flag to require supplemental documentation justifying such large sums as genuine business travel, as opposed to personal travel.
  • The August 2011 Ruling recounted that the parties agreed that defendant Buffa is a private equity investor employed on a fulltime basis by Endeavor, LLC; defendant Buffa has a ninety-nine percent ownership in Endeavor, LLC while his wife, Nancy Haar owns the remaining one percent interest; Haar works on less than a full time basis for Endeavor, LLC, which is the only source of income for the couple. ( Id. at 5)(internal citations omitted).
  • At the second deposition of defendant Buffa, taken on May 12, 2011, at which he appeared without counsel, defendant Buffa testified that he works more than fifty hours per week for Endeavor, LLC, including travel, consisting of ten to twelve hours per day, five days a week, plus four to six hours during the weekend, which adds up to fifty-four to sixty-six hours per week, for which he receives an annual salary of $20,000; he further testified that he has not received any income from Endeavor, LLC for the last five to six months.
  • Plaintiff’s counsel is correct that defendant’s testimony was indeed “clear [ ] and unequivocal[,]” did not reflect any confusion or misunderstanding regarding six separate questions posed to him (particularly given defendant’s line of work and experience), and is clearly at variance with the IRS filings made by defendant, Haar and Endeavor, LLC.
  • According to plaintiff’s calculations, Endeavor, LLC “has done very well over the last [five] years[,]” with total receipts from 2006 to 2010 of $2,704,818, of which ” ‘Other Deductions’ … ate up about [eighty percent] of the income[,]” or $1,803,620.00. ( Id. at 7–8 & Exhs. E–I). Particularly troubling to plaintiff are the “professional fees” to accountants, lawyers, or consultants, totaling $1,316,749.00, without back-up information, speculating that “[i]t would be easy enough to report $25,000 going to a ‘consultant’ who turns out to be … Haar.” ( Id. at 8 & Exhs. E–I).
  • Plaintiff continues that “one of the most disturbing aspects of the [t]ax [r]eturns is that they reveal precipitous increases in expenses that curiously occur contemporaneously with [plaintiff’s] efforts and its focus on [defendant] Buffa’s income from Endeavor, LLC[,]” namely the doubling of “professional” fees of $130,239 in 2006, to $266,478 in 2007, with a slight decrease in 2008 to $239,637, and then rising to $322,789 in 2009 and $357,706 in 2010. ( Id. at 8–9 & Exhs. E–I).FN9 Plaintiff argues that despite an agreement to provide supporting documents for the “big ticket” items, like professional fees, etc., such documents have not been provided yet. ( Id. at 9–10).
  • While defendant Buffa is correct that a review of the entire transcript of May 12, 2011 reflects that defendant is in very deep financial trouble, with debts that grossly exceed his assets, plaintiff’s counsel and defendant Buffa had an additional dialogue about Haar receiving $120,000 in salary (con’t).

Source: ChargingOrder.com