Monday, June 28, 2010

Florida Supreme Court Expands Remedies Available Against Judgment Debtors Owning an Interest in a Single Member Limited Liability Company

In a ruling with far-reaching implications for judgment creditors and debtors, on June 24, 2010 the Florida Supreme Court decided the case of Olmstead v. Federal Trade Commission (SC08-1009). The case came to the Supreme Court as a result of a question certified by the Federal Eleventh Circuit in F.T.C. v. Olmstead, 528 F.3d 1310 (11th Cir. 2008): "Whether, pursuant to Fla. Stat. § 608.433(4), a court may order a judgment-debtor to surrender all “right, title, and interest” in the debtor's single-member limited liability company to satisfy an outstanding judgment."

A majority of the Florida Supreme Court answered the question in the affirmative (after rephrasing it). As a result, when a creditor obtains a judgment against an individual debtor who is a member of a single member Limited Liability Company, the judgment creditor may obtain an order from the court requiring the LLC to surrender its assets to satisfy the judgment against the member.

Prior to this ruling, a judgment creditor who wished to levy upon a judgment debtor's interest in a Limited Liability Company had to seek a charging order pursuant to Fla. Stat. § 608.433(4), which provides:

"On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the limited liability company membership interest of the member with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of such interest."

According to this statute, a court may order the LLC to apply distributions accruing to the judgment debtor toward satisfaction of the judgment. However, the court may not otherwise allow the judgment creditor to interfere with the operation of the LLC or take part in the decision to make distributions, because pursuant to Fla. Stat. § 608.432(1), a member's right to participate in the management of the LLC's affairs cannot be assigned unless the operating agreement provides for such an assignment and the other members of the LLC consent. This statute greatly limits the usefulness of the charging order as a creditor's remedy, because it leaves the decision to make distributions within the discretion of the members of the LLC, who have no duty to the judgment creditor and no interest in seeing the judgment get paid. A judgment creditor who wants to influence the decisions of the LLC can seek court appointment of a receiver (an extraordinary remedy that should rarely be granted), but otherwise the creditor has no control over the LLC.

After the Olmstead decision, however, the limitations created by § 608.432 no longer exist with respect to single member LLCs, as the charging order is not the only remedy available. When the judgment debtor is the sole member of an LLC, according to Olmstead, the judgment creditor may obtain an order under Chapter 56, Florida Statutes (the chapter generally covering Execution and Final Process), requiring the judgment debtor to surrender all title and interest in the LLC and to turn over the assets of the LLC to the judgment creditor. Thus, the affect of Olmstead is that a single member LLC provides no asset protection whatsoever for the member.

The Court's rationale for drawing a distinction between single member LLCs and multi-member LLCs is that the limitations placed on the assignability of the right to participate in the decisions of the LLC set forth in § 608.432 have no practical application to single member LLCs because there are no other members whose consent would be required in order to assign the right to participate. In other words, while a member's interest in a multi-member LLC is not freely transferable, a member's interest in a single member LLC is.

Obviously this holding should be of interest to judgment creditors and their attorneys. The dissenting opinion should also be of interest, because it discusses the remedies that may be available to judgment creditors in the context of both single member and multi-member LLCs- an order of insolvency of the judgment debtor, an order piercing the corporate veil of the LLC and attaching its property, and an order seeking judicial dissolution of the LLC. And the dissent does not necessarily disagree with the majority's holding that a single member LLC's property may be applied to a judgment against the member, it merely proscribes a procedure for reaching this property that does not require distinguishing between a single member and a multi-member LLC.

Remedies similar to those mentioned above are available to judgment creditors of partners in General Partnerships (Fla. Stat. § 620.8504) and Limited Partnerships (Fla. Stat. § 620.1703), although with respect to these entities, the charging order provides the exclusive remedy. And Chapter 56 sets forth the remedy available against a judgment debtor's shares of a corporation- levy and sale under execution pursuant to Fla. Stat. § 56.061. Jorge M. Abril, P.A.'s main practice areas include enforcing these and other creditor's remedies in state court and in Bankruptcy proceedings.

Wednesday, June 2, 2010

Upcoming Teleconference- Bankruptcy, Debt Collection, & Judgment Enforcement

Jorge Abril will speak at 12:00 Noon today at a Live Teleconference entitled Bankruptcy, Debt Collection, & Judgment Enforcement, presented by the Rossdale Group, LLC. A recording of the teleconference should be available for purchase from the Rossdale Group shortly thereafter. Jorge will speak on topics concerning the collection of assets, including locating assets, utilizing public records, debtor's examination, the ethical concerns of asset collection, the effect of Bankruptcy on recovering assets, "the Creditor's & Debtor's Perspective," pre-judgment remedies, and depositions in aid of execution.