Forbes has published an article, “Collateral Attack On Charging Order Via Federal Court Fails In Kerr,” which discusses how debtors will sometimes attempt to collaterally attack a charging order and are usually futile due to abstention doctrines used in federal court. The article, which uses Kerr v. Collier, 2021 WL 972529 (N.D.Ohio, March 16, 2021) as a case illustration, includes the following commentary:
What this case illustrates is how debtors will sometimes attempt to collaterally attack a charging order, a “collateral attack” in English meaning a challenge to a judgment or order other than by the appropriate appeal. In very rare cases, collateral attacks can succeed, but in federal court they have to overcome a number of so-called abstention doctrines whereby the federal courts will (as here) decline to hear certain cases because they have the effect of interfering with either ongoing state court proceedings or final judgments and orders of the state courts. There is also the Federal Anti-Injunction Act which operates to largely the same purpose.
These collateral attacks on charging orders may seem silly at a distance, but they are not as uncommon as one might think. A judgment debtor actually has very little in the way of possible defenses against a charging order in the court that issues it, and so starts to look for creative ways to try to undermine the charging order once it has been issued. These collateral attacks are not confined to the federal courts: A debtor who has a charging order issued by the courts of State A against the debtor’s interest in an LLC formed in State B will often attempt to bring some sort of action in State B to negate State A’s charging order. The Full Faith & Credit clause of the U.S. Constitution usually puts the kabosh to such efforts, but it doesn’t keep the debtor from trying, to the great annoyance and expense of the creditor, and often to the annoyance of the judge back in State A as well.
To download the full opinion, click here: Kerr v. Collier, 2021 WL 972529 (N.D.Ohio, March 16, 2021)
To view the full article, click here: “Collateral Attack On Charging Order Via Federal Court Fails In Kerr”
Posted by Elise Kim, Managing Associate Editor, Wealth Strategies Journal.