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Zavodnick v. Leven

340 N.J. Super. 94, 773 A.2d 1170 (App. Div. 2001)

PARTNERSHIPS; CHARGING ORDERS—A charging order against a partner’s partnership interest may be subject to the same limits on collection as are imposed on wage executions.

Two associates at a law firm left that firm and took a substantial number of case files and client information cards with them. The owner of that law firm sued them for the work he had performed on the files taken from his office and for repayment of a personal loan to one of the associates. The parties agreed to submit both claims for arbitration. The arbitrator awarded the legal fees, the loan balance, and special damages. The Law Division entered final judgment confirming the award. On appeal, the Appellate Division set aside the award of special damages, but affirmed the judgment in all other respects. The firm collected the award representing the legal fees, but the loan remained unpaid. The associate to whom the loan was made became a partner in a different law firm. The judgment creditor filed a motion to charge the judgment debtor’s interest in his law firm with payment of the outstanding amount of the judgment. The lower court granted the motion and directed the new law firm to distribute all sums due to the judgment creditor’s law firm, “except such monies that are legally exempt from execution under the laws of the State of New Jersey.” A dispute arose as to whether the judgment debtor’s law firm was required to satisfy the judgment with all monies due to the partner or only ten percent of them, as provided under N.J.S. 2A:17-56. After several motions were filed, the lower court concluded that the charging lien did not entitle the judgment creditor’s law firm to collect all money the law firm was obligated to distribute to its partner until the judgment was satisfied. Rather, the Court held that the wage execution statute “modifies and limits the extent to which a judgment creditor can enforce a charging lien.” The judgment creditor appealed, arguing that a charging order against a partner entered in accordance with the Uniform Partnership Law is not subject to the limitation of executions under N.J.S. 2A:17-56. The issue was whether the exemption laws that N.J.S. 42:1-28(3) allows a debtor partner to invoke N.J.S. 2A:17-56, which provides “[i]n no case shall the amount specified in an execution . . . against the wages, . . . [or ] salary which may thereafter become due and owing to a judgment debtor, exceed 10 percent, unless the income of such debtor shall exceed the sum of $7,500 per annum.” The court recognized that “although the distributions to [the partner] from partnership profits are not ‘wages’ or ‘salary,’ they are unquestionably ‘profits due and owing.’ The court also reasoned that “a partner’s periodic receipt of distributions from a partnership . . . plays substantially the same role in the partner’s life as an employee’s wages. The partner typically depends on such distributions to purchase food, shelter and other necessities for himself and his family.” It went on, “if [the partner] were an associate rather than a partner any wage garnishment clearly would be subject to the limitations of N.J.S. 2A:17-56. Similarly, if [the partner] were a sole practitioner, the income he derived from his practice would constitute ‘earnings’ within the intent of N.J.S. 2A:17-56.” Therefore, the Court concluded, that “distributions from the partnership through which [the partner] has chosen to practice his profession are subject to the same limitation on executions under N.J.S. 2A:17-56 as an employee’s wages or a sole proprietor’s earnings.”

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