Farmer v. Farmer and First Western v. Lakota Lake Camp, LLC and Farmer

#29624, #29685-aff in pt & rev in pt-PJD
2022 S.D. 47

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

****

JAMES W. FARMER, Plaintiff and Appellant,

v.

LORI A. FARMER, Defendant and Appellee.
------------------------------------------------------------
FIRST WESTERN FEDERAL
SAVINGS BANK, Plaintiff,

v.

LAKOTA LAKE CAMP, LLC and
JAMES W. FARMER, Defendants and Appellants.

****

APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA

****

THE HONORABLE HEIDI LINNGREN (#29624)
THE HONORABLE JANE WIPF PFEIFLE (#29685)
Judges
****

JAY C. SHULTZ
Rapid City, South Dakota Attorney for appellants James
W. Farmer and Lakota Lake
Camp, LLC.

PATRICIA A. MEYERS
Rapid City, South Dakota Attorney for appellee Lori A.
Farmer.

****

CONSIDERED ON BRIEFS
JANUARY 10, 2022
OPINION FILED 08/10/22
#29624, #29685

DEVANEY, Justice

[¶1.] In this consolidated appeal, James Farmer challenges orders entered

by two different circuit court judges related to his distributional interest in Lakota

Lake Camp, LLC. James and Lakota Lake also challenge orders related to the

release of funds to James’s wife, Lori Lieberman, previously held by the clerk of

courts following an execution sale of property owned by Lakota Lake. We affirm in

part, reverse in part, and remand for further proceedings.

Factual and Procedural Background

[¶2.] During their marriage, James and Lori acquired a significant amount

of land in the Black Hills and formed multiple legal entities for the development

and sale of the land. In 2014, James and Lori obtained a divorce, and the judgment

and decree of divorce incorporated the parties’ property settlement agreement

(Agreement). The Agreement addressed, among other matters, the division,

management, and sale of the properties owned by their companies.

[¶3.] In July 2016, Lori filed the first of many motions with the circuit court

(divorce court) seeking to compel James’s compliance with the judgment and decree

of divorce. For example, she alleged that James failed to pay their joint debts with

proceeds of land sales, improperly diluted her membership interest in their

company Lakota Lake, exceeded the limits under the Agreement that he could

spend on expenses, overpaid his management fees, and denied her access to the

companies’ financial records. After an evidentiary hearing in October 2016, the

divorce court found James in contempt and compelled his compliance with the

judgment and decree of divorce. However, James continued to refuse to comply

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with the terms of the parties’ Agreement and further refused to comply with the

directives as stated in the court’s order. James and Lori returned to court

frequently for hearings related to James’s actions or inactions.

[¶4.] Ultimately, in January 2018, the divorce court held an evidentiary

hearing to address James’s contempt and the remaining division of the parties’

property. In April 2018, the court issued findings of fact and conclusions of law, and

after considering objections and proposals by the parties, the court issued amended

findings and conclusions in July 2018. The court valued the parties’ remaining real

estate equity at $870,150 and divided it equally, resulting in $435,075 being

allocated to each party.

[¶5.] However, the court noted that James had refused to pay amounts owed

to Lori for items such as unauthorized travel expenses, overpayment of fees to

himself, and Lori’s share of the proceeds from the sale of certain real estate. The

court found that James’s refusal to pay the amounts owed was willful and

contumacious and continued to constitute contempt of the court’s orders. The court

identified that in total James owed Lori $331,184.81 for his contemptuous acts, and

the court awarded Lori that amount. The court determined that for James “[t]o

purge himself of contempt the [c]ourt will allow the satisfaction of the judgment by

a division of the remaining properties so that [Lori] is awarded property” reflecting

her share of $435,075 plus $331,184.81, for a total of $766,259.81. In particular, the

court awarded Lori a property owned by Lakota Lake named Big Granite, property

the parties referred to as the “cabin property,” and other parcels. To account for

what was left of James’s equal share of the property division after subtracting the

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$331,184.81 he owed to Lori, the court awarded James the value of the other

property owned by Lakota Lake named Granite Perch, the property at issue in this

appeal.

[¶6.] In August 2018, the divorce court entered a separate judgment in favor

of Lori for $331,184.81 and ordered James to satisfy this contempt judgment by

transferring to Lori the real estate interests identified in its findings and

conclusions. In particular, the court directed James, in his capacity as managing

member of Lakota Lake, to convey title of Big Granite to himself; “make

distributions of cash or property to the other members of Lakota as may be

necessary to comply with the distribution obligations of Lakota as set forth in

Lakota’s operating agreement or as otherwise required by law”; and then “execute

and deliver a warranty deed transferring the ownership of Big Granite Property to

[Lori] . . . free and clear of any rights, encumbrances or restrictions.”

[¶7.] James appealed the circuit court’s contempt order and one of his

arguments was that the circuit court “erred in conveying title to the real property

because the legal entities holding title to those assets are indispensable parties who

were not joined in this action, and thus, the court had no authority to require a non-

party legal entity to transfer Big Granite (albeit indirectly) to Lori.” Farmer v.

Farmer, 2020 S.D. 46, ¶ 46, 948 N.W.2d 29, 42. He also asserted that the circuit

court’s order directing him to transfer Lakota Lake property impermissibly modified

the parties’ property settlement agreement. Id. ¶ 49.

[¶8.] This Court rejected James’s first argument because the circuit court

did not order Lakota Lake to transfer real property; it ordered James to transfer Big

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Granite to himself in his capacity as managing member of Lakota Lake and then

ordered James, personally, to transfer title to Lori. We noted that “James does not

assert that he was without authority under Lakota Lake’s operating agreement to

take the specific actions ordered by the court.” Id. ¶ 46.

[¶9.] In regard to James’s second argument, this Court noted that “it is clear

under Lakota Lake’s operating agreement that James, as the managing member,

has the exclusive authority to dispose of company assets and thus convey Big

Granite to whomever he chooses so long as he makes other necessary distributions

to the rest of the Lakota Lake members.” Id. ¶ 47. Therefore, we concluded that

although the circuit court “modified the method of distribution of this marital

property, the court did not modify the equal division of the property required by the

Agreement.” Id. ¶ 49. We observed that “the record reflects that modifying the

method of distribution was necessary in this case to prevent James from further

dissipating the value of Lori’s interest in the Lakota Lake property in a manner

that benefited only James.” Id. Ultimately, this Court affirmed the circuit court’s

contempt decision and awarded Lori an additional $29,172.62 in appellate attorney

fees. Id. ¶¶ 54, 58, 948 N.W.2d at 44–45.

[¶10.] While James’s appeal was pending, First Western Bank instituted a

lawsuit against Lakota Lake and James, requesting a judgment of $40,757.15, plus

attorney fees and costs, after Lakota Lake defaulted on a note personally

guaranteed by James. The circuit court (collection court) granted First Western’s

motion for summary judgment in December 2018 and awarded First Western a

judgment against Lakota Lake and James for $44,603.93, which included costs and

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attorney fees. In May 2019, after Lori learned of First Western’s judgment, she

paid the bank $50,000 for an assignment of its judgment against Lakota Lake and

James. She claimed that she did so because First Western’s judgment attached to

properties she owned personally—Big Granite and the cabin property—and she

wanted to avoid an execution sale on the cabin by First Western. 1

[¶11.] As First Western’s assignee, Lori executed on the judgment against

Lakota Lake and James, and the Pennington County Sheriff’s Office held an

execution sale for Granite Perch, the last remaining property owned by Lakota

Lake, on February 17, 2020. Granite Perch sold for $92,000, and after satisfaction

of the judgment related to the debt owed to First Western and later assigned to

Lori, as well as costs and fees, the Sheriff’s Office deposited $38,652.46 in excess

proceeds with the Pennington County Clerk of Courts.

[¶12.] On February 19, 2020, Lori, “individually and as a member of Lakota

Lake[,]” filed an application with the collection court for a charging order against

James’s distributional interest in Lakota Lake. She noted that she had obtained an

assignment of First Western’s judgment against Lakota Lake and James and

further noted that she had individually obtained three separate judgments against

James in their divorce action. Lori filed documentation showing these debts and

requested that the collection court enter a charging order attaching a lien to

James’s distributional interest in Lakota Lake. Lori also requested that the court

direct the clerk of courts to release the excess sale proceeds from the execution sale

1. In his brief on appeal, James disputes Lori’s claim that the judgment
attached to the cabin property. However, he did not dispute or mention
whether the judgment attached to Big Granite.

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to her. James filed a brief in opposition, claiming that the collection court was

without jurisdiction and authority to charge James’s distributional interest in

Lakota Lake. He also asserted that the excess sale proceeds belong to Lakota Lake.

[¶13.] The record reflects that the collection court held a hearing on Lori’s

application. There is no transcript of this hearing in the record. On May 12, 2020,

the collection court granted Lori “a continuing lien against Defendant James

Farmer’s distributional share.” The court further ordered that the excess sale

proceeds “will remain with the [c]ourt until such time as the divorce court makes a

determination as to Defendant James Farmer’s distributional interest.”

[¶14.] On August 12, 2020, this Court issued its decision in the appeal of the

contempt decision issued in the divorce proceeding. See Farmer, 2020 S.D. 46, 948

N.W.2d 29. Lori then filed a motion in the divorce file on November 23, 2020,

requesting that the divorce court issue an order releasing the excess sale proceeds

held by the Pennington County Clerk of Courts to her. Lori informed the divorce

court that the collection court had issued an order leaving the excess sale proceeds

with the clerk of courts “until the South Dakota Supreme Court Appeal was

completed and further providing that the divorce court would determine the

appropriate disposition of the remaining funds.” In her affidavit in support of her

motion, Lori alleged, without citing any record evidence or attaching supporting

documentation, that “[t]o the best of [her] information and belief Lakota Lake

Camp, LLC has been administratively dissolved.” 2 Lori requested that “any

2. In an additional filing, Lori claimed, without citation to the record or
supporting documentation, that James failed to “keep Lakota Lake current
(continued . . .)
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remaining funds, that James may be entitled to, be paid to [her] and that they be

applied to the monies owed to [her] by James.”

[¶15.] James filed a brief in opposition, asserting that the collection court’s

order did not “authorize or empower” the divorce court to determine how the excess

sale proceeds should be applied. He also asserted that Lori has no right to levy on

or obtain the excess sale proceeds through her motion for a release of funds because

Lakota Lake is the owner of those funds, not James, and any distribution of those

funds by Lakota Lake would be governed by the company’s operating agreement.

[¶16.] Lori’s reply brief contained a request that the divorce court determine

James’s distributional interest. She then proposed a specific calculation and

asserted that the divorce court could, as part of its contempt powers, issue an order

directing James, in his capacity as managing member of Lakota Lake, to make a

distribution of the excess proceeds from the sale of Granite Perch and any checking

account funds to himself, Lori, and the remaining members. She further claimed

that the court could direct that James turn over his distributional interest to Lori.

Of note, however, Lori’s reply brief made no mention of the divorce court’s specific

findings and directives in its prior contempt ruling wherein the value of Granite

Perch was awarded to James.

[¶17.] After holding a hearing on January 19, 2021, of which there is no

transcript in the record, the divorce court issued a letter decision on March 8, 2021.

The court noted that the collection court had granted Lori’s application for a

________________________
(. . . continued)
with the [S]ecretary of [S]tate and, as a result, Lakota Lake was
administratively dissolved.”

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charging order and ordered that the excess sale proceeds be held by the clerk of

courts until the divorce court made a determination as to James’s distributional

interest. However, instead of determining James’s current distributional interest in

Lakota Lake, the divorce court referred to its prior contempt decision modifying the

method of distribution of the parties’ property. In particular, the court referred to

the process whereby it had ordered James, as managing member of Lakota Lake, to

transfer property owned by Lakota Lake to himself and then to Lori. The court

concluded in regard to Lori’s current request “that it would not be improper to

release the funds being held to [Lori] pursuant to its previously ordered

distribution.” The court further noted that “releasing the funds is within [its]

discretion to enforce the underlying objectives of the parties’ property settlement as

set forth in the Agreement” and that “the release is proper to satisfy the [c]ourt’s

order that has since been affirmed by the South Dakota Supreme Court.” The

divorce court then granted Lori’s motion for release of funds and issued an order

directing that the funds held by the Pennington County Clerk of Courts as part of

the collection action be released to Lori “in further satisfaction of the funds owed by

[James] to [Lori].”

[¶18.] On April 23, 2021, James filed his notice of appeal of the divorce

court’s order. On the same day, he filed a motion with the collection court to

dismiss Lori’s application for a charging order—the application the collection court

had previously granted. James claimed that the collection court did not have

jurisdiction to consider or grant the application because Lori, who was never a party

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to the underlying suit initiated by First Western, lacked standing to file the

application.

[¶19.] Also on April 23, 2021, Lakota Lake, via the same counsel representing

James, filed a motion with the collection court requesting an order releasing the

excess sale proceeds to Lakota Lake. It claimed that the collection court’s order

granting Lori’s application for a charging order “acknowledged that the excess funds

belong to the judgment debtor, Lakota Lake Camp LLC.” It further asserted that

the collection court was required to release the funds to Lakota Lake because its

debt with First Western had been satisfied by the sale and no outstanding

executions existed against Lakota Lake.

[¶20.] In her reply, Lori noted that contrary to James’s characterization, she

did not file her application for a charging order only in her capacity as an assignee

of First Western. She noted that she also filed the application in her individual

capacity in light of the three judgments she had personally obtained against James

in the divorce action. Lori further asserted that she was not required to intervene

as a party in the collection action to obtain a charging order. Finally, she argued

that because “the sole asset owned by Lakota Lake would be the excess funds from

the sale of its remaining asset[,]” the collection court properly “requested that the

divorce court determine James’ distributional interest in Lakota Lake and granted

Lori a continuing lien on James’ interest.” She therefore requested that the court

deny James’s and Lakota Lake’s motions.

[¶21.] James and Lakota Lake filed a joint reply, directing the collection

court to the language in SDCL 47-34A-504(a). They noted that the statute refers to

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the filing of an application for a charging order with “a court having jurisdiction[,]”

see id., and then asserted that because Lori obtained her status as a judgment

creditor from the divorce court, she was required to file her application for a

charging order with that court, not the collection court.

[¶22.] The collection court held a hearing on June 3, 2021, and at the

conclusion of the hearing, the court issued an oral ruling denying James’s motion.

The court found that it had jurisdiction to consider Lori’s application for a charging

order and alternatively determined that, if necessary, it would treat Lori’s

application as a constructive motion to intervene based on the factors relevant to

intervention. The collection court also denied Lakota Lake’s motion for the release

of the excess sale proceeds, concluding that “it is appropriate that those funds go to

Lori[.]” The collection court entered a written order dismissing both motions on

June 8, 2021, and on June 14, James appealed this order.

[¶23.] The issues asserted by James and Lakota Lake in the appeals from the

divorce court and collection court decisions are consolidated and restated as

follows: 3

1. Whether the collection court could hear and determine
Lori’s application for a charging order.

2. Whether the divorce court erred in ordering the release of
the excess sale proceeds to Lori.

3. Whether the collection court erred in denying Lakota
Lake’s motion to release to the company the excess
proceeds from the sale of Granite Perch.

3. For ease of reading, James and Lakota Lake will collectively be referred to as
James unless it is necessary to distinguish between the two.

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Analysis and Decision

1. Whether the collection court could hear and
determine Lori’s application for a charging order.

[¶24.] James notes that the judgments Lori seeks to satisfy via her

application for a charging order and the corresponding lien on James’s

distributional interest in Lakota Lake are outside the subject matter addressed in

First Western’s lawsuit against James and Lakota Lake. He further notes that

beyond her standing to collect the judgment owed to First Western as its assignee,

Lori was never a party to the underlying lawsuit (or the ancillary collection

proceedings) in her own right. In his view, therefore, after the execution sale

satisfied First Western’s judgment in full (and likewise James’s secondary liability

as a personal guarantor), Lori, as First Western’s assignee, had no further standing

(based on her unsatisfied executions against James in the separate divorce action)

as a judgment creditor in the collection action. He then reasons that because Lori

did not have standing, the collection court did not have subject matter jurisdiction

to hear and determine her application for a charging order.

[¶25.] “A challenge to the subject matter jurisdiction of a court is a question

of law that we review de novo.” Estate of Ducheneaux v. Ducheneaux, 2015 S.D. 11,

¶ 7, 861 N.W.2d 519, 521. Similarly, “[w]hether a party has standing to maintain

an action is a question of law reviewable by this Court de novo.” Arnoldy v.

Mahoney, 2010 S.D. 89, ¶ 12, 791 N.W.2d 645, 652. Under SDCL 47-34A-504, “[o]n

application by a judgment creditor of a member of a limited liability company or of a

member’s transferee, and following notice to the limited liability company of such

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application, a court having jurisdiction may charge the distributional interest of the

judgment debtor to satisfy the judgment.” 4 (Emphasis added.)

[¶26.] Here, Lori filed her application with the collection court, not just as an

assignee of First Western’s judgment against Lakota Lake and James (both of

whom were judgment debtors in the collection action), but also as a judgment

creditor of James (a member of Lakota Lake) against whom Lori, personally, had

three outstanding judgments entered in the divorce proceeding. It is undisputed

that both Lakota Lake and James were parties to the collection action and had

notice of Lori’s application filed with the collection court. Thus, the question is

whether, after the extinguishment of the underlying debt to First Western, Lori

must have party status in the collection action in her own right (as opposed to her

participation as an assignee of First Western’s debt) in order to invoke the court’s

statutory authority to grant her a charging order pertaining to unsatisfied

executions from a separate proceeding.

[¶27.] James does not cite statutory authority or case law to support his

contention that Lori needed to be a named party to the civil lawsuit initiated by

First Western in order to file an application for a charging order during the

ancillary collection proceedings associated with First Western’s suit. Notably, the

language in SDCL 47-34A-504 does not state or imply that a judgment creditor

4. Although James characterizes his argument as a challenge to the collection
court’s subject matter jurisdiction, he does not appear to dispute that all
circuit courts within this State have subject matter jurisdiction under SDCL
47-34A-504 to determine applications for charging orders by judgment
creditors. See S.D. Const. art. V, § 5 (providing that “circuit courts have
original jurisdiction in all cases except as to any limited original jurisdiction
granted to other courts by the Legislature”).

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must be a party to the pending suit in which the creditor’s application for a

charging order is filed. A review of decisions from other courts addressing this issue

supports that a judgment creditor need not have party status to seek a charging

order.

[¶28.] For example, in a case from a Texas court of appeals, the Office of the

Attorney General, Child Support Division (AGO) filed an application for a charging

order against Christopher Spates’s distributional interest in a limited liability

company (LLC) in a lawsuit filed by the LLC against a third party for breach of

contract and tortious interference with a contract. See Spates v. Office of Att’y Gen.,

Child Support Div., 485 S.W.3d 546, 549 (Tex. App. 2016). 5 Ultimately, the LLC

settled its lawsuit against the third party, and the proceeds of the settlement were

released to the LLC. 6 Thereafter, the same court that had approved the settlement

in the underlying suit and ordered the release of funds to the LLC granted the

5. Although the caption of the appeal suggests the action is between Spates and
the AGO, it is undisputed that the AGO filed its application for and obtained
its charging order in the underlying action between the LLC and third party.
That underlying action was captioned: “Prodigy Services LLC [v]. ENI
Operating Co., Inc., Cause No. 201235849[.]”

6. Similar to Lori’s application here, the AGO in Spates had requested that the
trial court release the proceeds directly to the creditor (the AGO’s Child
Support Division), not the LLC. Before the trial court ruled on the AGO’s
request, the LLC filed a writ of mandamus, arguing in part that the trial
court was required to disburse the settlement proceeds to the LLC. In the
writ proceeding, In re Prodigy Services, LLC, a Texas court determined that
although the trial court could charge Spates’s membership interest in the
LLC, it could not “foreclos[e] on any future charging order it may obtain” and
could not force the LLC “to make distributions to its members[.]” No. 14-14-
00248 CV, 2014 WL 2936928 (Tex. App. June 6, 2014). The appeals court
therefore held that the AGO would “have to wait for [the LLC] to make such
distributions before it can attempt to satisfy the child support judgment
against Spates.” Spates, 485 S.W.3d at 549.

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AGO’s application (as a judgment creditor of a member of the LLC) for a charging

order against the member’s distributional interest in the company.

[¶29.] On appeal, the LLC asserted a claim similar to the one James asserts

here. The LLC claimed that because the AGO had obtained its judgments in a

separate proceeding before different courts, “only those courts and not the [current

court], had jurisdiction to grant the [AGO’s] request for a charging order.” Id. at

554. The Texas court quoted its charging order statute, which is nearly identical to

SDCL 47-34A-504, and noted that it “does not specify any jurisdictional

requirements for filing an application for a charging order.” 7 Id. at 555 (emphasis

added). The court then explained that “[i]n the usual case, a judgment [creditor]

would seek a charging order in the same court in which the underlying judgment

was obtained, either during the original suit or in a subsequent ancillary

proceeding. It is conceivable, however, that in certain circumstances, the judgment

creditor may find it expedient or necessary to file the application for a charging

order in another court that has jurisdiction over the limited liability company of

which the judgment debtor is a member, especially if the judgment debtor lacks

other assets or has taken affirmative actions to avoid the creditor’s collection

efforts.” Id. The court therefore concluded that the trial court had subject matter

jurisdiction to hear and determine the judgment creditor’s application for a

charging order against the member’s distributional interest.

7. The court quoted the Texas statute as follows: “[o]n application by a
judgment creditor of a member of a limited liability company . . . a court
having jurisdiction may charge the membership interest of the judgment
debtor to satisfy the judgment.” See id. (quoting Tex. Bus. Orgs. Code §
101.112(a)).

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[¶30.] Here, it is undisputed that the collection court had subject matter

jurisdiction over the disposition of the excess sale proceeds. The court also had

personal jurisdiction over James and Lakota Lake, both parties to the underlying

lawsuit, at the time Lori filed her application seeking a charging order and the

release of the excess sale proceeds. 8 Moreover, the statutes governing collection

proceedings following an execution sale further support that the collection court had

subject matter jurisdiction here. These statutes, like the charging order statutes, do

not state or imply that only named parties in the collection suit giving rise to an

execution sale may assert a right to the excess proceeds, as Lori did here. In fact,

they state just the opposite. Under SDCL 15-18-39, “[i]f there be any surplus and if

the officer has other unsatisfied executions against the debtor, he may apply such

surplus towards satisfaction of the same in the order of their respective priorities

and account for any final surplus as provided in § 15-18-40.” (Emphasis added.)

Further, under SDCL 15-19-35, “[e]very officer or person who conducts an execution

sale shall apply the proceeds of such sale: . . . (3) To the satisfaction of any other

execution in the officer’s or person’s hands, to which such proceeds may be lawfully

applied;” and “(4) To pay the surplus, if any, to the defendant, or into court for the

use of the defendant or the person entitled thereto, subject to the order of the court.”

(Emphasis added.)

8. We have not been asked on appeal to decide whether personal jurisdiction
must exist over both the judgment debtor and limited liability company or
one in particular. See, e.g., 1 Ribstein and Keatinge on Ltd. Liab. Cos. § 10:2
(observing that the nature of personal jurisdiction required varies). Because
it is undisputed that the collection court had personal jurisdiction over both
James and Lakota Lake, we leave the resolution to that question for another
day.

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[¶31.] We conclude that the collection court could, under SDCL 47-34A-504

and SDCL chapters 15-18 and 15-19, consider and grant Lori’s application as a

judgment creditor of James for a charging order against James’s distributional

interest in the Lakota Lake funds.

2. Whether the divorce court erred in ordering the
release of the excess sale proceeds to Lori.

[¶32.] James asserts that the divorce court had no authority to order the

release of the excess sale proceeds because the collection court did not authorize the

divorce court to determine how and to whom the excess sale proceeds held by the

Pennington County Clerk of Courts in a separate civil case file should be applied.

In his view, the collection court had the sole authority to apply the excess proceeds

based on the laws governing execution sales. He further claims that the divorce

court erred in ordering the release of the excess sale proceeds to Lori because the

proceeds belong to Lakota Lake, not James; and Lori, as a judgment creditor of

James’s distributional interest in Lakota Lake, could not levy upon or seize

property belonging to Lakota Lake. 9 He contends that Lori’s remedies were limited

to those available to judgment creditors under SDCL 47-34A-504.

9. According to James, the divorce court erred in not joining Lakota Lake as an
indispensable party “given the final outcome of the circuit court’s action”
allowing Lori to seize the excess sale proceeds belonging to Lakota Lake. The
divorce court’s letter decision with respect to the motion for release of funds
does not indicate that James asked the court to join Lakota Lake as an
indispensable party. As this Court has often said, it is the appellant’s duty to
present an adequate record on appeal, and a “lack of a transcript may well be
fatal to an appeal if it prevents complete and meaningful review of an issue.”
See, e.g., Graff v. Children’s Care Hosp. & Sch., 2020 S.D. 26, ¶ 16, 943
N.W.2d 484, 489 (citation omitted). Because the record before this Court does
(continued . . .)
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[¶33.] In response, Lori does not address whether her remedies as a judgment

creditor of James’s distributional interest are limited to those stated in SDCL 47-

34A-504. She also does not respond to James’s argument that the divorce court

could not order the release of funds held pursuant to an order by a different circuit

court judge in a different civil action. Lori instead offers a conclusory argument

based on an inferential reading of the divorce court’s letter opinion. She asserts

that “the divorce court’s order releasing the funds to Lori was valid and enforceable”

because the “court had the authority under its powers of contempt to compel James

as the managing member of Lakota Lake to make a distribution of the remaining

proceeds to James, who in turn was required to turn them over to Lori.”

[¶34.] Whether the divorce court had authority to order the release of the

excess sale proceeds requires an interpretation and application of statutory

provisions. “Questions of statutory interpretation and application are reviewed

under the de novo standard of review with no deference to the circuit court’s

decision.” McKie Ford Lincoln, Inc. v. Hanna, 2018 S.D. 14, ¶ 10, 907 N.W.2d 795,

798 (citation omitted).

[¶35.] It is unclear from the language of the divorce court’s letter decision on

what factual or legal basis it ordered the release of all the excess sale proceeds to

Lori. The divorce court declared, without entering any orders modifying its prior

contempt order or directing that James take any action with respect to the excess

proceeds from the sale of Granite Perch, that releasing the excess sale proceeds “is

________________________
(. . . continued)
not reflect that James raised this issue before the divorce court, we decline to
address it on appeal.

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proper to satisfy the [c]ourt’s order that has since been affirmed by the South

Dakota Supreme Court.” Cf. Farmer, 2020 S.D. 46, ¶ 27, 948 N.W.2d at 37 (“as a

general rule, courts retain jurisdiction to make such further orders as are

appropriate to compel compliance with its judgment”). In so ruling, the court also

indicated that “[t]his property transfer is no different” than what had been ordered

in the prior divorce proceeding. On the contrary, the court’s order releasing the

proceeds of the sale of Granite Perch to Lori is unlike the specific directives in the

court’s prior contempt order and amended findings and conclusions relating to Big

Granite, the other Lakota Lake property.

[¶36.] Moreover, in the prior order, the court “awarded” Granite Perch to

James “free and clear without any further cash disbursements made to Lori” and

directed that Lori “shall not prevent or seek any interest in the Granite Perch

Property if [James] causes the distribution of [the] Granite Perch Property to

himself in accordance with applicable law.” 10 Importantly, the divorce court’s

current letter decision does not identify any evidence that James, as managing

member of Lakota Lake, ever caused the distribution of Granite Perch to himself in

accord with applicable law. Rather, it appears from James’s and Lori’s written

submissions to the collection court that Lakota Lake held title to Granite Perch

when it was sold at the execution sale.

[¶37.] Lori’s motion for release of these funds filed with the divorce court

refers solely to her status as a judgment creditor of James with a continuing lien on

10. A more accurate characterization would be that the court awarded James the
value of Granite Perch.

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James’s distributional interest in Lakota Lake as a result of the collection court

granting her application for a charging order. Therefore, her rights and remedies

before the divorce court were governed by SDCL 47-34A-504, which provides, in

relevant part:

(a) On application by a judgment creditor of a member of a
limited liability company or of a member’s transferee, and
following notice to the limited liability company of such
application, a court having jurisdiction may charge the
distributional interest of the judgment debtor to satisfy the
judgment.

(b) A charging order constitutes a lien on the judgment debtor’s
distributional interest.

(c) A distributional interest in a limited liability company which
is charged may be redeemed:

(1) By the judgment debtor;
(2) With property other than the company’s property, by
one or more of the other members; or
(3) With the company’s property, but only if permitted by
the operating agreement.

...

(e) This section provides the exclusive remedy that a judgment
creditor of a member’s distributional interest or a member’s
assignee may use to satisfy a judgment out of the judgment
debtor’s interest in a limited liability company. No other
remedy, including foreclosure on the member’s distributional
interest or a court order for directions, accounts, and inquiries
that the debtor, member might have made, is available to the
judgment creditor attempting to satisfy the judgment out of the
judgment debtor’s interest in the limited liability company.

(f) No creditor of a member or a member’s assignee has any right
to obtain possession of, or otherwise exercise legal or equitable
remedies with respect to, the property of the company.
....

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[¶38.] In Mahalo Investments III, LLC v. First Citizens Bank & Trust Co.,

Inc., the Court of Appeal of Georgia aptly explained the scope of a charging order.

769 S.E.2d 154, 158 (Ga. Ct. App. 2015).

We glean from these provisions that the charging order is a
mechanism by which a judgment creditor can attach a member’s
limited liability company interest to satisfy an unpaid judgment,
but that the charging order does not permit the judgment
creditor to replace the member or otherwise interfere in the
governance of the limited liability company. Moreover, it is the
judgment debtor’s right to possession of distributions in the
future that is essentially being levied or charged. Thus, from
the limited liability company’s standpoint, it is business as usual
except that any distributions to the member subject to the
charging order are diverted to the judgment creditor.

Id. Secondary sources have also explained charging orders. See, e.g., 51 Am. Jur.

2d Limited Liability Companies § 23; Mark Sargent and Walter Scheidetzky,

Limited Liability Company Handbook § 3:104; 1 Ribstein and Keatinge on Ltd.

Liab. Cos. § 10:2. The purpose of a charging order is to provide “a special remedy

that enables the judgment creditor to realize the value of the judgment debtor-

member’s distributional interest, while at the same time protecting both the LLC’s

ability to continue to operate and the interests of the other members.” 51 Am. Jur.

2d Limited Liability Companies § 23.

[¶39.] The charging order becomes a lien on the member’s distributional

interest and “requires the limited liability company to pay over to the person to

which the charging order was issued any distribution that would otherwise be paid

to the judgment debtor.” Id.; accord 1 Ribstein and Keatinge on Ltd. Liab. Cos. §

10:2 (“The charging order is a remedy provided to the judgment-creditor of a

member or assignee by which the distributions (interim and liquidating) made to a

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member or assignee are attached and diverted to the judgment-creditor in

satisfaction of the judgment.”). As one secondary source explained, although the

creditor has a lien on the member’s share of distributions, “[i]n many states a

receiver may be appointed to safeguard the creditor’s interest.” See Mark Sargent

and Walter Scheidetzky, Limited Liability Company Handbook § 3:104.

[¶40.] Assuming Lakota Lake held title to Granite Perch at the time of the

execution sale, the divorce court could not, under SDCL 47-34A-504, order the

release of the excess sale proceeds—Lakota Lake’s property—to James’s judgment

creditor, Lori. The divorce court therefore erred when it granted Lori’s motion, and

we reverse the court’s order releasing the funds held by the collection court to her.

3. Whether the collection court erred in denying
Lakota Lake’s motion to release to the company the
excess proceeds from the sale of Granite Perch.

[¶41.] Connected to James’s claim that the divorce court was without

authority to order the release of the excess sale proceeds from the sale of Granite

Perch to Lori, Lakota Lake (represented by James’s counsel) asserts that the

collection court erred in denying its motion to release the excess sale proceeds to the

company. Lakota Lake contends that it is undisputed that it was the record owner

of Granite Perch at the time of the execution sale. It then contends that once First

Western’s judgment lien was satisfied in full, James’s liability as a guarantor “was

extinguished” and First Western (or Lori as its assignee) was no longer a judgment

creditor of Lakota Lake. In its view, under SDCL 15-18-40 and SDCL 15-19-35, the

collection court was required to release the funds to Lakota Lake.

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[¶42.] There is no dispute that in accord with SDCL 15-18-38, the sheriff paid

to Lori, as First Western’s assignee, the funds sufficient to satisfy the execution of

the judgment obtained by First Western. Under SDCL 15-18-39, “[i]f there be any

surplus and if the officer has other unsatisfied executions against the debtor, he

may apply such surplus towards satisfaction of the same in the order of their

respective priorities and account for any final surplus as provided in § 15-18-40.”

The record does not indicate that any unsatisfied executions existed against Lakota

Lake. But Lori did file as attachments to her application for a charging order the

unsatisfied executions against James in the divorce proceeding, and at the time of

the execution sale, James was a judgment debtor in the collection action along with

Lakota Lake. Also, James’s interest in, and ability to access, the proceeds from the

sale of property presumably owned by Lakota Lake would not have been apparent

to the sheriff in determining how or whether to apply the excess proceeds to the

judgments against James.

[¶43.] SDCL 15-18-40 provides that “[i]f there be any surplus, and the officer

has no other executions against the debtor, the officer shall forthwith deposit it in

the court from which the execution issued and notify the execution debtor by

registered or certified mail at his last known post office address of such deposit, and

make report thereof in his return of the execution.” Here, the sheriff properly

deposited the surplus with the collection court—the court from which the execution

issued—and notified both James and Lakota Lake.

[¶44.] Similar statutory language is contained in SDCL 15-19-35 governing

execution sales. That statute provides:

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Every officer or person who conducts an execution sale shall
apply the proceeds of such sale:
(1) To the payment of the costs and expenses of the sale,
including any actual out-of-pocket expenses and
reasonable costs incurred by a sheriff;
(2) To the satisfaction of the execution under which the
sale is made;
(3) To the satisfaction of any other execution in the officer’s
or person’s hands, to which such proceeds may be lawfully
applied;
(4) To pay the surplus, if any, to the defendant, or into
court for the use of the defendant or the person entitled
thereto, subject to the order of the court. If such surplus
or any part thereof remains in the court for the term of
three months without being applied for, the court may
direct the same to be put out at interest for the benefit of
the defendant, the defendant’s representatives, or
assigns, subject to the order of the court.

Id. (emphasis added).

[¶45.] Given the circumstances here, the sheriff took all four steps, and on

the fourth step, paid the surplus into the court. The day after the execution sale,

Lori filed her application with the collection court for a charging order and

requested that the collection court release to her the excess sale proceeds. While

James and Lakota Lake filed an objection to Lori’s request, neither requested that

the court release the excess sale proceeds to Lakota Lake. But even if they had

made such a request, the collection court could not have simply ordered the release

of the excess proceeds (presumably Lakota Lake’s property) to Lori via granting

Lori’s application for a charging order on James’s distributional interest in Lakota

Lake. As previously explained, Lori’s lien only attaches to James’s (an LLC

member’s) distributional interest in these proceeds, and the charging order alone

does not give an issuing court (here, the collection court) authority to dictate when a

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limited liability company makes distributions to its members. 11 The company’s

operating agreement would control, and there may be other members of Lakota

Lake who retain a membership interest, albeit small, that must be accounted for. 12

[¶46.] However, contrary to Lakota Lake’s claim, the circuit court was not

required to release the funds to Lakota Lake simply because First Western’s

judgment lien against James was satisfied in full. Under SDCL 15-19-35(4), the

collection court could retain the funds subject to a determination of who is entitled

to them. This is presumably what the collection court attempted to do by including

11. As Sargent and Scheidtzky explained, that some courts do not strictly follow
the rules governing charging orders (i.e., that such is a judgment creditor’s
exclusive remedy) because such rules lead to an injustice when, for example,
the limited liability company is in reality the member. See Limited Liability
Company Handbook § 3:104. The reason for making a charging order the
exclusive remedy is to protect the other members of the company from being
forced into an involuntary relationship with a creditor. However, when the
company is really the alter ego of the debtor and the debtor is using the
company to avoid paying on a judgment, the legal separation of the company
and debtor can, depending on the circumstances, be disregarded. See Curci
Invest., LLC v. Baldwin, 221 Cal. Rptr. 3d 847, 850–51 (Cal. Ct. App. 2017).
Notably, however, the California statute at issue in Baldwin is not the same
as SDCL 47-34A-504. The court in California reasoned that under its
statute, the judgment creditor with a charging order has available the
equitable remedy of reverse veil piercing, in which the debt of an individual is
satisfied through the assets of an entity of which the individual is an insider.
See id. at 852–54.

12. Lori acknowledged in her brief to the collection court, in opposition to Lakota
Lake’s motion for release of the excess proceeds, that the divorce court had in
the prior contempt proceeding “determined that James would be the sole
owner of Lakota Lake’s remaining asset Granite Perch.” She then asserted
that “James simply never made the distribution of this asset to himself” and
that he is now “pretending that Lakota Lake is the owner of the remaining
asset, knowing that the trial court has determined otherwise.” Because there
is no transcript of the related hearing before the divorce court, whether these
topics were addressed or resolved by the divorce court cannot be ascertained
from the record.

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in its order granting Lori’s application a directive that the excess sale proceeds “will

remain with the [c]ourt until such time as the divorce court makes a determination

as to Defendant James Farmer’s distributional interest.” But the record does not

contain a transcript of the initial hearing on Lori’s application. It is therefore

unclear whether the collection court and parties discussed who owns the excess sale

proceeds in light of Lakota Lake’s existing membership interests and the divorce

court’s directives in its prior amended findings and conclusions and contempt

judgment.

[¶47.] Nevertheless, we need not decide at this juncture whether the

collection court erred in denying Lakota Lake’s motion for release of funds because

at the time Lakota Lake filed the motion with the collection court, the divorce court

had already ordered that the funds be released to Lori. Having now concluded that

the divorce court erred in ordering the release of the funds, the proper disposition of

the excess sale proceeds remains to be determined. 13 We therefore vacate the

collection court’s order denying Lakota Lake’s motion and remand for further

proceedings before the collection court related to the proper disposition of the funds

at issue.

13. A court determining the proper disposition of proceeds may consider SDCL
chapter 15-20, which governs proceeds supplementary to an execution.
Under SDCL 15-20-14, the circuit court may appoint a receiver of the
property of the judgment debtor in the same manner as if the appointment
was made in accord with the rules governing receiverships under chapter 21-
21. Pursuant to SDCL 21-21-1, “[a] receiver may be appointed by the court in
which an action is pending, or by the judge thereof, on the application of the
plaintiff or of any party whose right to or interest in the property, funds, or
proceeds thereof is probable, and where it is shown that the property or fund
is in danger of being lost, removed, or materially injured . . . .”

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[¶48.] Affirmed in part, reversed in part, and remanded.

[¶49.] JENSEN, Chief Justice, and KERN, SALTER, and MYREN, Justices,

concur.

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