Last October, California decided a legal case involving a jurisdictional question regarding charging order protection.  In the case of Global Money Management v. McDonnold, the California court ruled that it had the jurisdiction to issue a charging order against the distributions of Delaware limited partnership.  According to the decision, the court determined that it has the personal jurisdiction over the individual defendant in the case, resulting in the decision that it had “power to affect out-of-state property by means of decree”.

In the case, the creditor, Global Money Management, sought an order that would require Steven McDonnold to assign his interest in any payments due to him from a limited partnership and other businesses.  The debtor, McDonnold, opposed the motion on two grounds.  First, he was not a resident of California - and the limited partnership was not formed in California.  Second, the debtor claimed that the creditor was attempting to improperly compel nonresident third parties to perform certain acts.

In ruling against McDonnold, the California court determined that Federal Rule of Civil Procedure 69 provides that a money judgment enforced by court “must accord with the procedure of the state where the court is located”.  Because earlier legal proceedings between the two parties had taken place in California, the court rejected McDonnold’s claim, and asserted personal jurisdiction over the matter.

So what does this mean?  It means that a court is able to exercise personal jurisdiction over a debtor/defendant in order to compel him to act in relation to his properties and assets located outside the state.  That isn’t really news, and doesn’t significantly change the status quo.

It does not, however, change the reality that in order for a charging order to be enforced against an out-of-state business entity, it would need to be domesticated within the state of origin.  This case does not establish the court’s jurisdiction over the out-of-state business entity, but only over the individual.  The issue is merely one of enforcement power by police action or by contempt against the individual.

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