Charging Orders Against Foreign LLCs: Why Out-of-State Formation Is Not a Shield
The North Carolina Court of Appeals has affirmed a trial court’s decision to grant Universal Life Insurance Company (ULICO) a charging order against Greg Lindberg’s interest in a Delaware-based limited liability company, Global Growth Holdings, LLC. The ruling, detailed in Universal Life Ins. Co. v. Lindberg (2026), clarifies that a debtor’s personal jurisdiction within a state is sufficient for a court to issue a charging order, regardless of where the LLC is domiciled. The decision stems from a $524 million judgment held by ULICO against Lindberg following a 2020 breach of a guarantee.
The legal argument that a court cannot issue a charging order against an out-of-state LLC is known as the “Heather Apartments” argument, named after an unpublished Minnesota Court of Appeals opinion where the issue first emerged.
Why Jurisdiction Matters for Charging Orders
The North Carolina Court of Appeals determined that a charging order functions as a lien on a debtor’s interest rather than a direct attachment of the entity’s assets. Because Lindberg made a general appearance in the North Carolina Superior Court, the court maintained personal jurisdiction over him. According to the court’s opinion, so long as the trial court has personal jurisdiction over the interest owner, it may issue a charging order regardless of the LLC’s state of formation.
The ruling underscores a significant limitation of “debtor-friendly” jurisdictions. While some entities are formed in specific states to seek favorable charging order protections, those protections are often rendered irrelevant if the debtor is subject to the personal jurisdiction of a court in their home state or where they conduct business.
Potential Implications for Creditors
While the North Carolina order is binding on Lindberg, its impact on the Delaware-based Global Growth Holdings, LLC may be more complex. If the LLC lacks assets or business connections within North Carolina, ULICO may need to register the judgment in Delaware under the U.S. Constitution’s Full Faith & Credit clause to compel the entity to comply with the charging order. If the entity ignores the order and distributes funds to Lindberg, he could face contempt of court proceedings in North Carolina for failing to turn over those assets to his creditor.
Frequently Asked Questions
What is a charging order?
A charging order is a legal mechanism that places a lien on a debtor’s interest in a limited liability company, allowing a creditor to reach the debtor’s share of distributions from that entity.
Did the court need jurisdiction over the Delaware LLC to issue the order?
No. The Court of Appeals ruled that because a charging order targets the debtor’s interest—which is considered intangible personal property—the court only needs personal jurisdiction over the debtor to issue the order.
Can a debtor avoid a charging order by forming an LLC in a different state?
According to the analysis of the case, forming an LLC in a state known for “better” charging order protections does not necessarily shield a debtor if they are personally subject to the jurisdiction of a court in their home state.
How do you believe these jurisdictional standards will influence the way business owners approach entity formation in the future?