Failure Of Charging Orders Leads To Receiver Taking Over LLCs In Verrichia

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📝 usncan Note: Failure Of Charging Orders Leads To Receiver Taking Over LLCs In Verrichia

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After winning an arbitration award, creditor obtained a judgment in excess of $16.5 million against Thomas F. Verrichia and Tonnelle North Bergen, LLC. Later, creditor obtained a judgment of just under $3 million against Thomas’ wife, Nancy Verrichia. As part of its efforts to collect the judgment, the creditor obtained charging orders against Thomas’ interests in numerous LLCs. The creditor apparently did not, however, realize any benefit from these charging orders since the entities made no distributions.

The creditor next obtained the appointment of a receiver for Thomas. The receiver was apparently not able to identify any property of Thomas to enforce the judgment against, other than the LLC interests that were subject to the charging order. Thus, the creditor sought an expansion of the receivership to also essentially take over all the Verrichias’ assets, including the Verrichias’ LLC that were already subject to the charging orders. This attempted expansion of the receivership lead to the opinion in SB PB Victory, L.P., v. Tonnelle North Bergen, LLC, 2025 WL 2394042 (E.D.Pa., Aug. 18, 2025), that is the subject of today’s discussion.

The court began its opinion by noting that a receivership to enforce a judgment is an extraordinary remedy to be employed only in extreme situations. Two of those situations are where it is necessary for whatever reason for the receiver to take over a debtor’s property or to set aside fraudulent transfers, although of course there may be other situations as well.

As applied to this case, the court found that the expansion of the receivership was warranted:

” First, legal remedies have been insufficient. Petitioner has obtained judgments now totaling over $30,000,000 against Respondents, which Petitioner has been unable to satisfy for approximately two years. * * * In aid of executing the judgments, Petitioner procured charging liens over numerous entities controlled by and affiliated with the Verrichias. * * * However, Petitioner’s forensics expert report (“the Scherf Report”) reveals that although those entities have been collecting rents, that income is not being paid towards the judgments. * * * Furthermore, in state court proceedings initiated to execute the judgments, Respondent Thomas Verrichia has ignored court orders, failed to participate in discovery, and been held in contempt.”

Second, the court also found that assets were in danger of being lost or diminished in value. Thomas had caused transfers of at least $4.8 million to be made from himself and various entities to his wife Nancy, along with a property that was purchased for $1.15 million that was transferred from Thomas to Nancy for $1. Further, Thomas controlled over 100 entities which moved money between them by loans and intermingled bank accounts and other means to avoid paying the judgment. This included the Verrichia Company, LLC, which the court stated to be the parent company of a network of affiliated entities.

Third, the charging orders against LLCs held by Thomas had been ineffective in paying the judgment, even though at least some of the LLCs were collecting rents. The Verrichias also just seem to have totally blown off the creditor’s discovery by not responding to interrogatories or appearing to be examined.

The court would the expand the receivership to take over the Verrichias’ existing assets and LLCs. However, the court would not expand the receivership to take over any future LLCs the Verrichias might form ― at least not yet, although the court indicated a willingness to revisit the issue should the Verrichias dodging of their creditor continue. The Verrichias were also ordered to cooperate with and not frustrate the receiver. Thus, the court continued:

“Combined, these measures address the chief concerns identified by Petitioner: the loss of assets due to transfers among Thomas and Nancy Verrichia, the seemingly sham nature of the Verrichias’ network of entities, and the inefficacy of charging orders.”

ANALYSIS

Here is something that might surprise you: While a creditor will get its charging orders in place so as to create liens on the debtor/member’s interest in an LLC or partnership, the creditor often does not want the charging order to be effective. The reason for this is illustrated by this case: The creditor would rather use the ineffectiveness of the charging orders to get a receiver in place to really take down the debtor.

By itself, a charging order is a very poor remedy for a creditor. A charging order only does two things, which is to create a lien on the debtor/member’s right to distribution and to order the LLC or partnership to pay distributions to the creditor instead of the debtor/member. A charging order lien even if foreclosed upon does not allow a creditor to get at the assets of the LLC or partnership, unless it only has a single member which is the debtor.

Creditors would much rather have the assets of the LLC or partnership than sit around waiting for distributions. This is what receivers are for, insofar as a receiver can in many circumstances invade an LLC or partnership and cause the assets to be sold to satisfy the creditor’s judgment.

As I have mentioned in other articles, getting a receiver appointed is often the end-game for a creditor. A receiver is simultaneously an officer of the court, the holder of a general power of attorney for the debtor, and a trustee for the benefit of creditors. Subject to the supervision of the court, a receiver has the legal power to do about anything that the debtor could do, including signing documents, demanding bank records as if the debtor, and even cause the postal service to redirect mail to the receiver’s address where the receiver can open and read it. In my experience, most debtors can stand a receiver only a couple of weeks before they settle with their creditor or file for bankruptcy (which is even worse because a bankruptcy trustee is essentially a “super receiver” of sorts).

Because receivers are so intrusive, courts say that they are an “extreme remedy” and a “remedy of last resort”. Courts say it, but don’t really mean it. A creditor can usually get a receiver appointing if they can show the court that the creditor has tried other reasonable steps to obtain payment on the judgment, but the judgment is unpaid and the debtor has been taking steps to dodge the collection efforts. Thus, as in this case, a creditor will do a number of things which are intended to set the stage to ask the court to appoint a receiver, and here it worked.

Changing gears, in footnote 2 of the opinion in this case, the court makes an interesting observation. The court discusses state charging order law as providing useful guidance for a federal court, but ultimately the appointment of a receiver is one of federal law. This of course disables so-called charging order exclusivity, or the notion (as expressed in nearly all state charging order statutes) that the charging order is an exclusive remedy, at least as it applies to the appointment of a receiver.

In other words, if a creditor can obtain the judgment in federal court or somehow maneuver it there, then charging order exclusivity goes out the window or at least will be relegated to no more than a footnote to its irrelevancy.

The bottom line is that the next time you hear somebody say that a creditor will always be stuck with a charging order, you can give them this reply:

Yeah, No.