Earlier this year the 11th Circuit Court of Appeals asked the Florida Supreme Court to consider whether a charging order lien was a judgment creditor’s sole remedy against a debtor’s membership interest in a single member LLC.(A charging order is a lien placed by a judgement creditor on the membership interest of an LLC member. Charging order protections provide asset protection for individuals by removing assets beyond the immediate reach of future unknown personal creditors.) The Florida Supreme Court held oral argument on this case in January of 2009 and a decision should be issued soon. The case is Shaun Olmstead v. Federal Trade Commission, SC08-1009. The Florida Statutes, like those of many other states (Be sure to check out how your state handles charging order protections in our Platinum Member’s section), provide that a creditor’s remedy against an LLC member is limited to a charging lien against the member’s interest in the LLC. i.e. any distributions that are made from the LLC will not go to the member, but rather to the member’s creditor. What is particularly interesting about this case is Florida Statutes do not distinguish between multi-member LLCs and single member LLCs in this regard. In fact, most states do not make this distinction in their statutes. I listened to a recording of the oral argument. (You can too by clicking here mms://220.127.116.11/Archives3wm/08-1009.wmv or go to the Documents of Interest section to read a copy of the transcript). Most justices expressed the opinion that the charging lien remedy was designed to protect innocent members/partners in an LLC or partnership, and that the charging lien restriction did not serve its intended purpose when there were no members other than the debtor. It is unfortunate to see how little the justices actually knew about charging orders and LLCs in general. In fact, Justice Pariente referred to the Limited Liability Company as a Limited Liability Corporation when addressing the Appellant’s Attorney. However, Appellant’s Attorney did not do himself any favors by not fully understanding himself the relation of an economic interest of a member vis a vis a creditor with a charging order.
A decision should be issued soon and I will keep you updated on this important case that could have far reaching implications for many LLCs.
Posted by Clint Coons, asset protection attorney, Seattle, Washington