Forbes has published an article, “Debtor’s Failure To Object To Charging Order Has Dire Consequences In Red Lion”, which discusses how Red Lion Hotels Franchising, Inc. has obtained a judgement in 2019 for about $1.3 million against First Capital Real Investments, LLC, and its original owners, arising from the breech of a franchise agreement. The article begins as follows:
Red Lion Hotels Franchising, Inc., obtained a judgment in 2019 for about $1.3 million against First Capital Real Estate Investments, LLC, and its individual owners, Suneet Singal and Majique Ladnier, arising from the breach of a franchise agreement. Four years previously, Singal and Ladnier had formed a revocable trust (a/k/a living trust), which held their interests in two LLCs, being First Capital Master Advisor, LLC (“FCMA”) and SRS, LLC (“SRS”). Because a revocable trust is essentially looked-through as if it doesn’t exist for creditor purposes, Red Lion sought a charging order directly against the interests in FCMA and SRS and — very importantly as we shall soon see — the defendants did file an objection to the charging order.
With no objection being filed by the defendants, the U.S. District Court for the Eastern District of California granted Red Lion’s motion and entered a charging order against Singal’s and Ladnier’s interests in FCMA and SRS. The charging order, as charging orders do, slapped a lien upon Singal’s and Ladnier’s interests in FCMA and SRS and directed that all distributions made to their interests be forwarded to Red Lion instead until the judgment has been satisfied. This is all well and good, and utterly unremarkable so far, as it is exactly what happens with charging orders quite routinely.
Where this gets interesting is that FCMA and SRS themselves held valuable assets, although FCMA and SRS were not parties to the judgment and only the interests of Singal and Ladnier (via the revocable trust) were subject to the charging order lien. FCMA was owed a $25 million payment obligation from a third-party called StHealth Capital Partners Group, LLC, and SRS held shares in a company called Gadsen Growth Properties, Inc.
Posted by Mallory Wentz, Associate Editor, Wealth Strategies Journal.