Tampa attorney Edward McGinty has a piece in the March 2011 issue of the Florida Bar Journal on the Olmstead decision, which I wrote about last year. The article doesn’t add anything remarkable to the analysis, but it does provide perhaps the clearest statement of facts, legal issues, and holding that I have seen.
Olmstead involved a judgment by the FTC against the sole member of a number of LLCs. The member claimed that the LLC assets should be outside the reach of the judgment creditor. Instead, the member claimed that the sole remedy available to the creditor is Florida’s LLC charging order statute, 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. This chapter does not deprive any member of the benefit of any exemption laws applicable to the member’s interest.
As Mr. McGinty’s article points out, the rationale behind the charging order remedy is intended to “protect nondebtor partners from being forced unwillingly into partnership with a creditor of a debtor-partner.” In other words, creditors aren’t allowed to seize or control the LLC assets because doing so would be unfair to the other members of the LLC. This rationale comes apart when the LLC has only one member. This has lead many asset protection planners to caution against counting on a single-member LLC as a charging-order protected entity.
But even more detrimental to the debtor in Olmstead was language of the Florida LLC charging order statute. Unlike the corresponding provisions of Florida partnership law, which provide that the charging order is the exclusive remedy in the partnership context, the LLC charging order statute does not state that the charging order is the exclusive remedy for creditors of LLC members. This means that the charging order protection isn’t available for any LLCs, even if there are multiple members.
If you aren’t up to speed on this important case, McGinty’s article is worth a read.