Downtown Anchorage, Alaska
Lee R. Baker, Jr., of Alaska was involved in a business deal not related to his law practice with a fellow by the name of Kenneth Duffus. This deal related to a real estate project known as Marion Bowen, and it apparently crashed around the time of the 2008 downturn. In that year, Duffus sued Baker and Baker confessed to a judgment of $150,000 along with 10.5% compounded annual interest, which was to be paid if the Marion Bowen project did not sell within five years. But it did not sell and, in 2013, Duffus finally took final judgment against Baker for $252,585.
Meanwhile, Baker and his ex-wife, Patricia Baker, co-owned 50%-50% a limited liability company called Aurora Park LLC which owned only one asset, which was known as the Aurora Park apartment complex. Baker and Patricia had their own disputes about the Aurora Park project and Patricia ultimately herself sued Baker. Those two reached a settlement agreement in 2019 whereby Baker transferred his 50% interest in Aurora Park LLC to Patricia for which Patricia would pay $50,000 to Baker and $250,000 to the law firm representing Aurora Park LLC (Jones Law Group, known as “JLG”). This latter $250,000 was to be paid by Patricia by way of an initial $50,000 payment plus $3,000 per month until the balance of $200,000 had been paid in full.
When Duffus learned about the Baker-Patricia settlement, he was able to persuade the judge in the Baker-Patricia case to order the settlement funds to be deposited into the court registry while his claim to those funds was litigated. Ultimately, Patricia caused $300,000 to be ultimately deposited into the registry.
Before we go further, let’s stop and recap where we are at this point in 2019. There is $300,000 from the Baker-Patricia settlement relating to Aurora Park which is sitting in the court registry. Because of the 10.5% compounded interest payment, Baker now owes Duffus about $460,000 and Duffus wants the $300,000 as partial payment of his judgment. JLG presumably wants to be paid for its attorney fees and so wants the $250,000 of the Baker-Patricia settlement which was allocated to it.
With all that in mind, let’s move forward.
Duffus filed two motions. First, Duffus filed a motion to execute on his now $460,000 judgment against Baker’s assets which basically means the settlement proceeds. Second, Duffus filed a motion for a charging order against Baker’s (prior) interest in Aurora Park LLC. The court granted these motions, and a charging order was entered on December 9, 2019, which ordered Aurora Park LLC pay to Duffus any distributions owed to Baker ― and including the $300,000 proceeds to be paid according to the Baker-Patricia settlement.
So, Duffus gets the $300,000 right? Wrong. After the charging order had been issued, it came out that Baker’s law firm, JLG, had asserted a lien against the settlement fund on November 27, 2019, which was after the hearing on the charging order (October, 2019) but about 10 days before the charging order was entered (December 9, 2019).
The court held that Duffus was entitled to $50,000 of the settlement that was to be paid by Aurora Park LLC to Baker. This left $250,000 in dispute. Of that money, the court held that Baker’s charging order had priority over $122,000 of the funds. However, JLG’s attorney lien would apply to another $128,000 that ― by that time ― had yet to be deposited into the court registry by Aurora Park LLC.
Duffus appealed, unhappy at losing the $128,000 and claiming that his charging order lien was superior to that of JLG. Also unhappy was JLG at losing the $122,000 and so it cross-appealed arguing that the settlement funds did not constitute a “distribution” from Aurora Park LLC and thus Duffus’ charging order did not apply at all. This was Appeal No. 1 to the Alaska Supreme Court, which ruled that Duffus’ charging order could only apply to distributions to Baker and that JLG could assert its attorney lien only on its fees that were actually owed at the time of the lien by Baker. The Alaska Supreme Court punted on figuring out whether the facts would lead to a resolution of this conflict and thus remanded the case back to the trial court.
On remand, the trial court ruled that the Baker-Patricia settlement funds were an “interim distribution” from Aurora Park LLC to Baker and these should have been picked up by the charging order, and Duffus’ charging order had priority over JLG’s lien, such that the entire $300,000 should go to Duffus. The trial court essentially found that Baker and Patricia had attempted to craft the settlement agreement to avoid the $300,000 being a “distribution” but under Alaska LLC law the only lawful way for Baker to be bought out of his interest in Aurora Park LLC was by way of a distribution. It also did not help Baker’s case that all of the $300,000 was paid by Aurora Park LLC and not by Patricia personally.
As to JLG claim on its attorney fee lien, it’s case flopped entirely for lack of evidence:
“The court indicated that absent a fee agreement or billing records, ‘the $250,000 figure could have simply been the amount agreed to during the Aurora Park settlement.’ The court found that Baker’s and Jones’s testimony that Baker had agreed to pay JLG for the work performed in the Aurora Park litigation was not credible, so the lien did not secure any of the funds in the registry.”
Thus, on remand, the trial court entered a final judgment that finally gave Duffus the rights to the full $300,000 and Duffus sought the release of those funds and they were finally paid over to him. Not happy at all with this result, Baker then appealed to the Alaska Supreme Court which entered the opinion next to be discussed in Baker v. Duffus, 2025 WL 1416805 (Alaska, May 16, 2025), which you can read for yourself here.
Baker’s first argument was that the term “distributions” should have been defined under the terms of Aurora Park LLC’s operating agreement, and not under the Alaska LLC Act. Or, in other words, the operating agreement controls when it conflicts with the Alaska LLC Act.
The court disagreed, noting that allowing an LLC’s operating agreement to define what constitutes a “distribution” would “undermine the statutory scheme” ― including allowing creditors to be cheated in the process. Yet, the court did not make a firm decision on this issue because it found that even under the Aurora Park LLC operating agreement, “distributions” included amounts paid by the company to its members: “These requirements do not purport to redefine whether a transfer of assets does or does not qualify as an interim distribution.” Because Aurora Park LLC made the payments to Baker, and not from Patricia personally, these payments were clearly distributions as the court viewed the matter.
Next, Baker raised the fact that he was not a member at the time the trial court finally issued its charging order because by then he had been bought out by Patricia for the $300,000. Thus, Baker argued, by the time that Patricia paid the $300,000 into the court fund the charging order could not have attached to his interest in Aurora Park LLC because by that time he did not have a membership interest to which it could attach.
The court noted, however, that Patricia had agreed to pay the $300,000 (the distribution) to Baker sometime earlier when he was a member although at that time Aurora Park LLC simply didn’t have the cash to actually pay the $300,000 ― yet, this meant that Baker had enforceable agreement with Patricia that the $300,000 would be paid while he was still a member. Thus:
“Baker’s right to future payments vested when it proved impossible to refinance the property, which triggered his and Patricia Baker’s promises to exchange his interest in the LLC for $300,000 in payments. Alternatively, his right to the payments vested when he actually quitclaimed his interest in the LLC to Patricia Baker on April 3, 2019, in accordance with their agreement.
“Either way, these payments were distributions of Aurora Park, LLC’s assets to one of its members. As we explained in the previous appeal, ‘[s]tructuring the settlement as monthly installments occurring in part after Baker transferred his Aurora Park interest rather than as a lump sum does not meaningfully impact the analysis.’ “
Now turning to the $250,000 that was to be paid to JLG, Baker argued that this amount could not have been a distribution because he was never to receive it personally. This of course overlooked that the deal between Baker and Patricia required that Aurora Park LLC pay JLG instead of Baker, i.e., it was to Baker’s benefit that JLG would be paid. The court thus noted that: “Baker and JLG cannot avoid Duffus’s charging order simply by structuring the settlement agreement to avoid mentioning the assignment of Baker’s rights in the distributions to JLG.”
To this end, the court further held that JLG had failed to prove that its attorney lien had any value, since that lien could be for no more than what the law firm was actually then owed and JLG had failed woefully to present more than nominal proof that it was actually owed anything. Even Patricia in her testimony noted that there “wasn’t enough legal work done to cover” the $250,000 figure. The court noted that it had even warned JLG in the first appeal that it needed to provide hard evidence that it was owed the $250,000 but JLG on remand still came up well short in its proof.
The bottom line was that the Alaska Supreme Court ruled that the trial court was correct when it awarded to Duffus the $300,000 held in the court registry.
ANALYSIS
There are two important takeaways from this opinion. The first is that when it comes to distributions that may be subject to a creditor’s charging orders, the LLC members are not allowed to draft a creative definition of “distributions” to defeat the rights of creditors. This is simply not allowed, although I’ve had not just a few attorneys claim to me over the years that they have engaged in such drafting (and like so much of their creative drafting, it was ultimately just a waste of time).
The second takeaway is that a distribution can be subject to a charging order, as here, even if the member has since been disassociated from the LLC and is no longer a member. The charging order statutes nowhere require a debtor to be a current member for a charging order to be effective, only that the distribution still exists.
But let’s say that the charging order didn’t apply? In that case, the distribution would be owned by the member and not subject to so-called charging order exclusivity. This means that a creditor, such as Duffus, would then be allowed to levy on the distribution completely unfettered by the charging order statute. Or, in other words, either way the creditor will be able to execute against the distribution.
These facts were a little odd because the distribution was still in the process of being paid after Baker had been disassociated from the LLC, but yet they remained a distribution nonetheless. It was very good lawyering by Duffus’ counsel to recognize this and get a charging order down against the $300.000. Note that Duffus might also have attacked Baker’s shenanigans through a fraudulent transfer lawsuit, but the charging order route turned out to be much shorter.
Something else to be remarked upon is that JLG was playing a dangerous game in asserting its $250,000 lien without having hardly any documentation to back their lien up. There have been court opinions in other states where attorneys who have attempted to tie up their client’s money with such liens to keep it away from creditors have been the subject of disciplinary proceedings and also successfully sued on civil conspiracy and similar theories for the attorney’s fees caused by the exacerbated litigation. For an attorney, this is like striking matches to give a client just a little bit of light ― while standing in a pool of gasoline. It is a very poor idea and any attorney who represents debtors must be careful not to let their client talk them into such foolishness.
Don’t strike those matches. For that matter, don’t stand in a pool of gasoline to begin with.