Costa Rican Sociedad Anónima Not Amenable To Pennsylvania Charging Order In Estate Of Lieberman

The Property of Dr. Richard Lieberman obtained a judgment for about $1.8 million in opposition to a Costa Rica company known as Playa Dulce Vida, S.A., in an motion earlier than the U.S. District Court docket for the Japanese District of Pennsylvania. The Property then utilized to the Court docket for a charging order in opposition to the Costa Rica company, arguing {that a} Costa Rica “S.A”, or Sociedad Anónima, is akin to a U.S. restricted legal responsibility firm, and thus ought to be topic to a charging order beneath the Pennsylvania charging order statute. So, the query earlier than the Court docket was whether or not a charging order ought to be issued in opposition to a Sociedad Anónima, which is a very fashionable type of entity nationwide.

The Court docket in a Memorandum Opinion in Property of Lieberman v. Playa Dulce Vida, S.A., 2023 WL 138317 (E.D.Pa., Jan. 9, 2023), answered this query within the adverse, and denied the applying for a charging order. There have been two causes for this denial, each of that are fascinating in their very own method.

First, it’s clear {that a} Sociedad Anónima is a type of company and never an LLC. Thus, the Pennsylvania Uniform Restricted Legal responsibility Firm Act wouldn’t apply to an S.A. usually, nor would the charging order provision apply to an S.A. extra particularly. That is fascinating as a result of, simply as america has varied forms of enterprise entities, so do different nations have their very own varied forms of enterprise entities. Thus, what may cross for an company or partnership in a single nation is perhaps handled as one thing else totally overseas.

When one begins to think about the worldwide economic system in opposition to the backdrop of the myriad of forms of entities arising out of Anglo-American widespread regulation, European and Latin American civil regulation, broadly differing types of Asian regulation and extra, then one can start to know the magnitude of the problem. Within the U.S. at the very least, we clear up that drawback by hammering unusual non-U.S. entities into acquainted U.S. pigeonholes, primarily based on such components as how they actually function, their historic background, how they’re handled for tax functions, and quite a few different components. With the Sociedad Anónima, nonetheless, it’s comparatively simple as a result of it’s clear that S.A.’s are merely types of companies, and never LLCs or partnerships or trusts or the rest.

The second concern recognized by the Court docket is fascinating in a totally completely different and rather more sensible method. Essentially, a charging order is a treatment that’s utilized by a judgment creditor to ascertain a lien on the financial rights of an LLC or partnership curiosity that’s owned by the judgment debtor. On this case, nonetheless, the Property sought a charging order in opposition to the judgment debtor itself, PDV, which makes completely no sense if one even minimally comprehends how a charging order is meant to work.

In different phrases, you do not get a charging order in opposition to the debtor itself ― it doesn’t matter what kind of entity it’s ― however as an alternative you get a charging order in opposition to issues which can be owned by the debtor, if these issues are pursuits in different LLCs or partnerships. The charging order then creates a lien on these LLC or partnership pursuits which can be owned by the debtor, and redirects any funds to the creditor to successfully scale back these liens. For the Property right here to use for a charging order in opposition to the debtor itself demonstrates that the Property’s attorneys very basically misunderstood the treatment of a charging order and its operation.

This now brings us to but a 3rd concern raised by the Court docket’s Memorandum, however not mentioned by it: What does the Property have to do to gather on its judgment in opposition to PDV? The Property’s judgment is a U.S. judgment, which implies that it is just good within the U.S. until acknowledged elsewhere. Thus, until and till the Property has the judgment acknowledged someplace else, it is going to be caught with accumulating solely in opposition to PDV’s property. Nonetheless, as a overseas firm, PDV may or may not have any property throughout the U.S. to gather in opposition to ― the Memorandum simply doesn’t say both method.

What the Memorandum does say is that PDV owns and operates a resort in Costa Rica, which would appear like a juicy asset for any creditor. Can the Property get on the Costa Rica resort with its U.S. judgment? The reply right here is probably going within the adverse, until there are different issues happening that we do not learn about. A U.S. judgment, and even a judgment by a U.S. District Court docket, sometimes has no assortment worth outdoors the borders of the U.S., for the reason that Court docket’s jurisdiction and thus its enforcement means stops on the border.

With particular person debtors, typically a U.S. court docket can order the person debtor to carry (“repatriate”) sure forms of property again to the U.S. in order that these property might be made accessible to collectors. If the person debtor refuses, the U.S. court docket can maintain the debtor in contempt and even incarcerate the debtor till the repatriation is made. Nonetheless, that is often solely good for liquid property, comparable to moneys in financial institution accounts, and never actual property ― though in some circumstances, a court docket may order the debtor to liquidate the property overseas and return the proceeds to the U.S.

The issue with entity debtors, comparable to PDV, is that they whereas they are often held in contempt, they can’t be incarcerated, so the one factor {that a} court docket can do to an entity within the occasion of contempt is to impose financial fines. However this then places the debtor again to Sq. One when it comes to discovering property to fulfill the superb.

Thus, on this case, if the Property needs to gather in opposition to PDV, it should have its U.S. judgment acknowledged in Costa Rica. However that is not fairly as simple because it sounds. Costa Rica is just not managed by the U.S. Structure which has a “Full Religion and Credit score” clause that makes the registration of most judgments between states and with the federal authorities a breeze generally. Thus, until there may be some treaty in impact between the U.S. and Costa Rica, the latter would not must routinely register the U.S. judgment as a matter in fact.

What this implies is that the Property should search to register its U.S. judgment in Costa Rica. I’ve completely no thought what this entails beneath Costa Rican regulation, however sometimes most nations both have a statute that enables for the registration of overseas cash judgments or they require a brand new lawsuit on the overseas judgment to be introduced domestically to ascertain it as a neighborhood judgment. However some nations don’t permit both of those procedures, and as an alternative require that the entire lawsuit be tried ab initio as if the overseas proceedings by no means occurred.

Assuming that the Property can acquire a Costa Rican judgment in opposition to PDV a technique or one other, then the judgment enforcement proceedings will happen within the Costa Rican courts and can make the most of Costa Rican procedures. Once more, who is aware of what these procedures is perhaps like, however being a civil regulation nation they’re in all probability radically completely different in kind, however maybe not a lot in consequence, than a levy beneath Anglo-American regulation. After all, native Costa Rican counsel should be retained to undertake this judgment enforcement.

It may also be attainable for the Property to attempt to intercept moneys paid by U.S. vacationers to PDV in New York, by which most such worldwide transactions cross. In that occasion, the Property must register its judgment from the Japanese District of Pennsylvania to the Southern District of New York, after which it must work out how such moneys stream. Presumably, an project order might be obtained to then choose up bank card funds to PDV. Not simple, however not unattainable both. Such intercepted funds may or may not pay the judgment totally, however they could carry PDV to the desk for a settlement lengthy prematurely of Costa Rican proceedings threatening the sale of the resort.

Anyway, these are the kinds of points that judgment enforcement attorneys comparable to myself must take care of often, and this case on the very least has given me the chance for instance them for many who are in any other case unfamiliar.