Arrowhead Capital Finance, Ltd. v. Seven Arts Entertainment, Inc.

Background

The court had previously entered judgment for Arrowhead Capital Finance, Ltd. against Seven Arts Entertainment, Inc. (SAE) and Seven Arts Filmed Entertainment Louisiana LLC for $2,496,159.50, plus interest at nine percent annually from October 10, 2012. The judgment was affirmed on appeal.

Arrowhead later sought post-judgment discovery and, on December 27, 2024, moved for an order requiring SAE to turn over its membership and other ownership interests in Picture Pro, LLC (PPL). PPL participated as an intervenor. SAE did not oppose the motion. The court also explained that counsel for PPL was authorized to represent PPL, but not SAE, in the relevant proceedings.

Applicable Law

Federal Rule of Civil Procedure 69 requires enforcement of a money judgment to follow the law of the state where the federal court is located unless a federal statute applies. Because no applicable federal statute governed, the court applied New York law, including Article 52 of New York’s Civil Practice Law and Rules.

Under New York Civil Practice Law and Rules § 5225(b), a judgment creditor may seek property belonging to a judgment debtor but held by a third party. The creditor must first show that the debtor has an interest in the property. The creditor must then show either that the debtor is entitled to possess it or that the creditor’s rights are superior to those of the person holding it. Ownership and membership interests in a limited liability company are property that may be assigned or transferred and may be subject to enforcement of a money judgment.

Court’s Analysis

The court found that service on SAE was proper based on Arrowhead’s efforts to serve SAE and PPL through current and former counsel. The court also concluded that SAE waived any arguments it might have made by failing to respond to Arrowhead’s motion. Nevertheless, the court considered PPL’s arguments because PPL’s rights could be affected by the requested turnover.

The court found that Arrowhead presented conclusive evidence that SAE had a property interest in PPL. PPL’s operating agreement and amendments showed that SAE had been a PPL member since January 2, 2018. The documents also showed that SAE had rights involving profits, stock, capital-account treatment, 250 of PPL’s 2,000 units, income from film-rights licensing or sales, and distributions.

The court rejected PPL’s argument that Arrowhead first had to register its judgment in Colorado. It held that New York law allows a New York court to order the turnover of a membership interest in an out-of-state limited liability company through a supplemental enforcement proceeding. The court also rejected PPL’s argument that Colorado law limited Arrowhead to receiving only distributions or a charging lien. For this enforcement proceeding involving a judgment debtor’s property, the court held that New York law applied.

Disposition

The court ordered SAE, within five business days, to turn over and assign to Arrowhead and its successors and assigns all rights, titles, and interests in SAE’s membership and other ownership interests in PPL, including all distribution rights. SAE also had to provide certificates and other documents showing those interests, complete the transfer and vesting of the interests in Arrowhead, and deliver a signed assignment from SAE’s managing member confirming that SAE had transferred all such interests and retained none.