Del 1986 -- MacDonald v. MacDonald

[Riser Adkisson LLP]

Felicia MacDonald v. Robert B. MacDonald and HKM Associates, LP, 1986 DE 412 (DE. 05/09/1986)

COURT OF CHANCERY OF DELAWARE, WILMINGTON

Civil Action No. 8146

1986.DE.412

May 9, 1986

FELICIA MACDONALD PLAINTIFF,

v.

ROBERT B. MACDONALD, AND HKM ASSOCIATES, L.P., A DELAWARE LIMITED PARTNERSHIP, DEFENDANTS

* * *

The opinion of the court was delivered by: Allen

ALLEN, Chancellor

This action, brought by the former wife of defendant MacDonald, seeks to enforce rights to the payment of spousal support and other amounts arising from a California decree of divorce. Specifically, the complaint seeks an order under Section 17-703 of the Delaware Uniform Limited Partnership Act, 6 Del.C. § 17-703, charging defendant MacDonald's interest in HKM Associates, L.P., a Delaware limited partnership, with payment, from distributions to be made to MacDonald from time to time, of amounts owing to plaintiff as the result of the foreign judgment. In addition, the complaint seeks levy, execution and sale of defendant MacDonald's interest in HKM Associates.

MacDonald has moved to dismiss the complaint for lack of subject matter jurisdiction in this court, asserting that the legal remedy available in the Superior Court is adequate in this instance and thus this court, by reason of the provisions of 10 Del.C. § 342, is without jurisdiction.

For the reasons that follow, I conclude that the individual defendant's argument is sound and that this court lacks subject matter jurisdiction. As a consequence, this matter will be transferred to the Superior Court for such proceedings as may be appropriate.

I.

A careful review of the complaint in this matter leads to two Conclusions that form the predicate for the analysis that dictates the result here reached. First, it is clear that plaintiff seeks in this action to achieve the payment of money through two alternative procedural devices: the execution sale of defendant MacDonald's limited partnership interest in HKM, and the imposition of an order charging defendant's share in distributions from HKM with the obligation to satisfy amounts due to plaintiff under the California divorce decree. The complaint is specific: "In sum . . . plaintiff MacDonald is now seeking to collect from defendant MacDonald, excluding their interest in HKM . . . in the amount of . . . $481,496.57".

The second fundamental predicate for the result here reached is the Conclusion, evident from the face of the complaint, that the source of the asserted legal right entitling plaintiff to this relief is the judgment of the California court that granted the parties' divorce. Thus, this action must be regarded as an action on a foreign judgment seeking the award of money.

II.

Before turning to an analysis of the applicable law, it may be helpful to sketch the factual background of the matter as disclosed by the complaint.

Plaintiff and defendant were divorced and their community property apportioned, after a 33-day trial in the Superior Court of the State of California. Defendant was ordered to pay spousal support of $15,000 per month for a limited period and to reimburse plaintiff $40,000 for certain separate property. The Court divided $480,000 of community property (the propriety of such division is now apparently on appeal and is not involved in this case) and found that defendant's interest in HKM was community property.

HKM had been formed as a Delaware limited partnership with defendant MacDonald owning legal title to a 50% partnership interest and acting as the general partner. Two other individuals owned legal title to the remaining limited partnership interest. The only assets of HKM are apparently 12% interests in each of two Hong Kong corporations -- Nuirhill, Ltd, and New Hey, Ltd. Those Hong Kong corporations apparently operate a joint venture to furnish and/or operate two ferry boats to be used between Hong Kong and Macau, China. Defendant MacDonald had been managing director of Nuirhill and New Hey, but has now been removed from those offices. He apparently remains a general partner of HKM. The California Superior Court has, however, enjoined defendant MacDonald from taking any action with respect to HKM except pursuant to subsequent order of that Court. That Court has as well ordered defendant to notify the appropriate officers of Nuirhill and New Hey to make any distributions due to MacDonald, as a principal in HKM, payable one-half to him and one-half to plaintiff. The complaint contains no allegation that HKM has received any distributions from Nuirhill or New Hey and thus plaintiff does not currently allege that HKM is currently in breach of any asserted obligation to her.

Because the California Court was unable to value the 50% interest in HKM legally owned by defendant MacDonald, it ordered that "each party is awarded an undivided interest in respondent's 12% interest in the joint venture. . . held through HKM . . .".

Finally, the California Court awarded plaintiff $30,786 reimbursement of accounting expenses.

The complaint paints an unflattering picture of defendant. It alleges that he has attempted to avoid his obligation under the orders of the California Court, that he has been, on several occasions, held to be in contempt of orders of that court, that warrants have been issued for his arrest in that state and that he is currently sentenced to serve 60 days in jail for his contemptuous conduct.

III.

Unless unusual circumstances demonstrating the unavailability or inadequacy of the legal remedy are presented (see, e.g., McElroy v. McElroy, Del. Ch., 256 A.2d 763 (1969)), an action seeking to recover spousal support payments arising from a foreign divorce decree is considered an action at law over which Chancery will decline to exercise jurisdiction. Potter v. Potter, Del. Ch., 251 A.2d 578 (1968). Cf., Coxe v. Coxe, Del. Ch., 180 A. 612 (1935); Equitable Trust Co. v. Moseley, Del. Ch., 187 A. 23 (1936).

One circumstance present in this action that might arguably take this case out of the operation of this general rule is the fact that the ultimate relief sought is execution sale of or a charging order against defendant's interest in a Delaware limited partnership. Plaintiff characterizes this action as one "between partners historically a topic for the courts of equity to address", citing this Court's opinion in Boxer v. Husky Oil Co., Del. Ch., 429 A.2d 995 (1981). But the fact that defendant qua general partner of HKM has a fiduciary duty to plaintiff qua a limited partner (by reason of the California decree) of that firm, has no bearing on this matter, as the claim here asserted does not arise from any alleged breach of such duty but rather from the alleged failure of defendant to satisfy the terms of the foreign judgment. Thus, the fact that equity has historically taken jurisdiction over matters between partners itself supplies no basis for jurisdiction in this instance.

Plaintiff complains that relegating her to the law courts will not provide her with an adequate remedy but rather with simply another judgment that defendant would ignore as he has contemptuously ignored the order of the California court. There is, however, no basis to conclude that this court will be more effective than the law court in achieving the relief sought if that relief is legally justified. The real question is what relief, to which the plaintiff is shown ultimately to be entitled, may the Superior Court grant.

In that connection it is noteworthy that of the remedies sought, it may be that only the charging order is available to plaintiff in Delaware. Execution sale of a limited partnership interest may be an unavailable remedy in any court. At least the reported cases I have located touching upon the subject have so held in construing statutes of other states. See, Chrysler Credit Corporation v. Peterson, Minn. App., 342 N.W.2d 170 (1984); Matter of Smith, Bankr. M.D. Ga., 17 B.R. 541, 547 (1982); Matter of Pischke, Bankr. E.D. Va., 11 B.R. 913, 917 (1981). See generally, Gose, The Charging Order Under the Uniform Partnership Act, 28 Wash.L.Rev. 1, 20 (1953).

For example, in construing the Virginia version of the Uniform Limited Partnership Act, the Bankruptcy Court for the Eastern District of Virginia stated as follows:

The Supreme Court of California in Baum v. Baum, 51 Cal.2d 610, 335 P.2d 481 (1959) construed that state's "non-limited" partnership charging order statute. The Baum court found that a charging order on a partnership interest replaced "levies of execution as the remedy for reaching such interests." Id. 335 P.2d at 483. In reaffirming the rationale enunciated in an earlier decision by a California intermediate appellate court, Sherwood v. Jackson, 121 Cal.App. 354, 8 P.2d 943 (1932), the court in Baum, (supra) , 335 P.2d at 483, determined that a creditor could not "levy attachment or execution on a partner's right in specific partnership property. . . or on his interest in the partnership . . . but may only, after first obtaining judgment, pursue the statutory remedy of seeking a charging order [under the applicable California statute]." The decisions of other courts are in accord with the line of reasoning enunciated in Baum. 11 B.R. at 917.

No Delaware case has addressed the question whether a writ of fieri facias is effective to seize a limited partnership interest in a Delaware limited partnership and I need not do so now, although the legislative directive to interpret the Uniform Limited Partnership Act in a way to promote uniformity (6 Del.C. § 17-1101) together with the foregoing authority may be suggestive on that topic.

I turn then to the statute authorizing the issuance of charging orders which really is at the center of plaintiff's theory. It provides in full as follows:

On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the partnership interest. This chapter does not deprive any partner of the benefit of any exemption laws applicable to his partnership interest. 6 Del.C. § 17-703.

It is apparent that § 17-703 provides a form of execution permitting a judgment creditor to divert a flow of payments from the judgment debtor to the party obtaining the charging order. The dispositive issue is whether the Superior Court is a court of "competent jurisdiction" with respect to the entry of such an order: a secondary issue is whether plaintiff -- the holder of a foreign judgment that has not been reduced to a domestic -- judgment is a "judgment creditor" within the meaning of the statute. As to the latter issue, it would seem apparent that to successfully invoke the provisions of Section 17-703 plaintiff must reduce her foreign judgment to a domestic judgment bearing an "amount". To hold otherwise would be to go far beyond the requisites of full faith and credit and would erode, if not eviscerate the protections accorded by the rule that execution may not be issued directly on a foreign judgment. See, Riley v. New York Trust Co., 315 U.S. 343 (1942); Lutz v. Roberts Cotton Oil Co., Del. Super., 82 A. 601 (1912). As indicated above, the action necessary to reduce the foreign judgment to a Delaware judgment is essentially an action for money damages.

As to the dispositive issue, the Superior Court seems clearly the appropriate court to reduce the foreign judgment to a Delaware judgment stating an "amount" and nothing has been advanced, nor has anything occurred to me independently, suggesting that once Superior Court reduces the California judgment to a Delaware judgment bearing a stated amount, it may not then charge the defendant's interest in HKM as contemplated by Section 17-703. The charging order remedy has been held to be analogous to a garnishment, Grenada Bank v. Willey, 5th Cir., 694 F.2d 85 (1982), a remedy traditionally available from the Superior Court. See, 2 Woolley on Delaware Practice §§ 993, 1154, 1166 (1906); John Julian Construction Co. v. Monarch Builders, Inc., Del. Super., 306 A.2d 29 (1973), aff'd, Del. Supr., 324 A.2d 208 (1974)).

Thus, I conclude that this case presents no circumstance taking the matter out of the purview of the rule applied in Potter v. Potter, (supra) , and that jurisdiction over this matter therefore resides in the Superior Court. This matter will therefore be transferred to the Superior Court upon the filing in this court, within sixty days of this date, of an election to transfer the file to that court and the timely taking of such other action as required by the provisions of 10 Del.C. § 1901. Should plaintiff not so elect within such time, the case will be dismissed without prejudice.

IT IS SO ORDERED.