Charging Orders

Court Rules FDCPA Overrules Colorado LLC Charging Order Statute

In a criminal case opinion called U.S. vs. Wilhite issued by a Colorado federal District Court on November 17, 2017, the court ruled that a federal law called the Fair Debt Collection Practice Act (FDCPA) preempted Colorado’s limited liability company charging order statute

Michael David Wilhite owed the U.S. money.  He owned a membership interest in a Colorado LLC that transferred $200,000 that could have been distributed to Wilhite to Yahab Foundation.  Wilhite argued that there was a six year statute of limitations on collection of the debt and the Colorado LLC charging order statute prohibited the federal government from garnishing the $200,000 paid to the Yahab Foundation.

The court ruled that: (i) the twenty year federal statute of limitations on collecting a criminal restitution obligation overruled the six year state statute of limitations of the FDCPA and (ii) the FDCPA overruled Colorado’s LLC charging order statute Colorado Revised Statutes Title 7 Corporations and Associations § 7-80-703.

The Court said:

“the Court likewise rejects Mr. Wilhite’s argument that Colorado law requiring the issuance of a charging order before levying interest in an LLC limits the Government’s ability to collect Mr. Wilhite’s restitution here.”

The Court ruled that the federal government could levy on the $200,000 distribution made to Yahab Foundation by an LLC in which the debtor owned a membership interest.

Bottom Line

You want your LLC to be formed in a state like Arizona that has the charging order as the sole remedy of a creditor who gets a judgment against a member of the LLC, but if the creditor is the federal government collecting taxes, the state’s LLC charging order law will probably be overruled to allow the U.S. to collect money or property.

Arizona’s charging order statute is ARS Section 29-655.

2017-11-25T11:07:05-07:00November 25th, 2017|Asset Protection, Charging Orders|0 Comments

Does Your LLC’s Operating Agreement Say What Happens if a Member or the LLC Gets a Judgment Against a Member?

Homer Simpson and Ned Flanders owned 60% and 40%, respectively, of World Wide Widgets, LLC, an Arizona limited liability company.  WWW manufactures and sells widgets.  Without WWW’s knowledge or consent Ned began working for Arizona Widgets, LLC, a competitor of World Wide Widgets, LLC.

WWW sued Ned for breach of fiduciary duty and misappropriation of trade secrets by disclosing information to Arizona Widgets, LLC.  The Arizona court awarded WWW a judgment for $100,000 and ordered that Ned transfer his entire membership interest in the LLC to the LLC.

WWW can use the collection process to collect the money from Ned’s non-WWW assets, but can WWW acquire Ned’s membership interest in the LLC if Ned does not voluntarily transfer his membership interest to the LLC?  Arizona Revised Statutes Section 29-655 states:

“On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest in the limited liability company with payment of the unsatisfied amount of the judgment plus interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest. . . . This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.”

Emphasis added.

Section 29-655 seems to prevent WWW from forcing Ned to transfer his membership interest to the LLC because the charging order is WWW’s sole remedy.

The WWW fact pattern is similar to the facts in a recent Texas LLC case called “Gillet v. ZUPT LLC,” Houston 14th Court of Appeals, Case No. 14-15-01033-CV, 2/23/17.  In this case ZUPT, LLC, got a judgment that required its member Joel Gillet to transfer his entire membership interest to ZUPT, LLC.  Like Arizona, Texas LLC law provides that the charging order is the sole remedy of a creditor who gets a judgment against a member of a Texas LLC.

The Texas Court of Appeals ruled that the charging order exclusive remedy statute did not prevent a court order that Gillet transfer his membership interest to the LLC.  The Court stated:

“We hold that requiring turnover of a membership interest under these circumstances is proper for two reasons. First, the reasoning behind requiring a charging order as the exclusive remedy is inapposite when the judgment creditor seeking the membership interest is the entity from which the membership interest derives. Second, unlike a case in which a judgment creditor seeks to collect on its money judgment by forcing a sale of a membership interest, this case involves an explicit award of the membership interest itself from one party to the other as part of the judgment. For these reasons, we conclude that a charging order was not the exclusive remedy available to ZUPT, and the trial court did not abuse its discretion by ordering turnover of Gillet’s 45 percent interest in ZUPT.”

Unfortunately for Homer and World Wide Widgets, LLC, no Arizona appellate court has issued an opinion similar to the ZUPT, LLC, vs. Gillet opinion.  WWW will be forced to litigate the issue and hope to get an order at the appellate level requiring transfer of the membership interest to WWW.

Warning for Multi-Member Arizona LLCs

The lesson to be learned from the ZUPT, LLC, vs Gillet case is that all multi-member LLCs should have provisions in their Operating Agreements that provide appropriate remedies if a member of the LLC or the LLC get a judgment against another member.  The Operating Agreement should have language that creates remedies that allow the member or the LLC with the judgment  to get around the exclusive remedy of Section 29-655.  The remedies include a requirement that money be distributed to the creditor from funds payable to the debtor member and a requirement that the debtor member forfeit the debtor member’s membership interest in the LLC.

In an article called “Yet Another Intra-Member Dispute in ZUPT” debt collection attorney Jay Adkisson wrote:

“The decision by the Texas Court of Appeals is, in my humble opinion, right on target, but it by no means reflects (yet) anything like a majority rule or a judicial re-writing of the cold, hard language of the charging order statutes.

Practitioners who are drafting LLC and partnership agreements need to recognize this issue, and confer with the members as to what they want the outcome to be. If one member becomes indebted to the other members or the LLC, do they want to be restricted by a charging order or not? It should be relatively easy to draft around this issue, but in my experience almost nobody does so.”

As a result of ZUPT, LLC, vs Gillet and Jay Adkisson’s advice I have amended my multi-member LLC Operating Agreement to provide special remedies if a member or the LLC get a judgment against another member.

Enforcing Charging Order on Foreign LLC

Arizona, like Nevada, provides that the sole remedy of a creditor that gets a judgment against a member of an LLC formed in the state is to serve a charging order on the LLC.  The charging order is a court order that if money or property is to be distributed or paid to the debtor/member the money or property must be paid to the creditor instead.

The Kaplan vs. Miller case below illustrates how a creditor can win a judgment in state A against a member of an LLC formed in state B and get a court in state B to issue the charging order against the LLC.  The creditor domesticates the judgment in the state where the LLC was formed and then asks a court in state B to issue the charging order.

STEPHEN KAPLAN, P.C., Plaintiff(s),
v.
CAMERON L. MILLER, Defendant(s).

Case No. 2:15-CV-1395 JCM (PAL).
United States District Court, D. Nevada.
March 24, 2016.

ORDER

JAMES C. MAHAN, District Judge.

Presently before the court is plaintiff Stephen Kaplan, P.C.’s (“Kaplan”) motion for charging order. (Doc. # 6). Defendant Cameron L. Miller, who has not made an appearance in this matter, has not responded. The time for doing so has passed.

On March 6, 2015, plaintiff recovered a judgment against defendant in the U.S. District Court for the Northern District of Texas. (Doc. # 6-1). Plaintiff initiated the present matter by domesticating that judgment in this district. It filed a motion for a writ of execution with this court (doc. # 4), which the court granted. (Doc. # 5).

Plaintiff, as a judgment creditor, now moves the court for an order charging defendant’s ownership interests in two Nevada limited liability companies (“LLCs”) with the domesticated judgment. (Doc. # 6). Plaintiff represents that after conducting discovery of various public records, it has determined that Mr. Miller, as judgment debtor, has ownership interests in RW AND ASSOCIATES, LLC and CLM DEVELOPMENT SERVICES, LLC. Plaintiff attached search results from the Nevada Secretary of State’s website that indicate defendant holds one or more officer positions in each entity. (Doc. ## 6-2, 6-3).

Under Nevada Revised Statute (“NRS”) 86.401, a judgment creditor of a member of an LLC formed under Nevada law may apply to a court of competent jurisdiction for an order charging “the member’s interest [in the LLC] 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 the member’s interest. See NRS 86.401(1) (emphasis added).

The statute provides the exclusive remedy by which a judgment creditor of a member of such an LLC may satisfy a judgment out of the debtor’s interest in the LLC. See NRS 86.401(2)(a). A charging order issued under NRS 86.401 does not give the judgment creditor any rights in the assets, management, or control of the LLC. See Weddell v. H20, Inc., 271 P.3d 743, 750 (Nev. 2012).

The judgment creditor-defendant in this matter appears to possess ownership interests in both of the above-referenced LLCs. He has not appeared in the case, despite apparently being properly served, and has therefore not presented any evidence to the contrary. Accordingly, the court will charge any ownership interests the judgment debtor-defendant owns in either LLC with satisfaction of the March 6, 2015, Texas judgment under NRS 86.401. See Weddell, 271 P.3d at 750.

Accordingly,

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that plaintiff Stephen Kaplan, P.C.’s motion for charging order (doc. # 6) be, and the same hereby is, GRANTED.

IT IS FURTHER ORDERED that defendant Cameron L. Miller’s ownership interests in RW AND ASSOCIATES, LLC be, and the same hereby are, CHARGED with satisfaction of the March 6, 2015, judgment (doc. # 6-1) against him pursuant to NRS § 86.401(1).

IT IS FURTHER ORDERED that defendant Cameron L. Miller’s ownership interest, if any, in CLM DEVELOPMENT SERVICES, LLC be, and the same hereby are, CHARGED with satisfaction of the March 6, 2015, judgment (doc. # 6-1) against him pursuant to NRS § 86.401(1).

2016-04-02T13:49:07-07:00April 2nd, 2016|Charging Orders|0 Comments

We Need Your Help to Save Arizona’s LLC Law

A small group of Arizona lawyers who think they know what is best for Arizona and the members of Arizona limited liability companies has the goal of replacing Arizona’s good LLC law entirely with a terrible uniform model law called the “Revised Uniform Limited Liability Company Act” aka “RULLCA.”  Without doing an in depth analysis of the pros and cons of existing Arizona LLC law with the pros and cons of RULLCA or another model LLC act promulgated by the American Bar Association (the group never considered the ABA model) this group of self-appointed “LLC experts” decided:

  • Arizona’s existing LLC law should be replaced.
  • Arizona’s existing LLC law should be based on RULLCA.
  • RULLCA is deficient so the group must substantially revise RULLCA to their satisfaction.
  • The asset protection feature of Arizona Revised Statutes Section 29-655 that prevents the foreclosure of a member’s economic interest in an Arizona LLC should be eliminated and creditors of the member should be allowed to foreclose on that interest.

I am a member of this group of Arizona lawyers, but I have been opposed to the group and its goal from day one.  The last straw for me occurred on October 4, 2012, when the group voted 11 – 4 to eliminate the charging order sole remedy and allow for the foreclosure of a member’s economic interest in an Arizona LLC.  Because I fear that this group might be successful in replacing Arizona’s good LLC law that isn’t broken with an entirely new act that would move Arizona from a good LLC law state to a bad LLC law state I created a website called Save Arizona’s LLC Law.  It would be a terrible mistake to replace our good LLC law.

2018-05-20T08:54:53-07:00October 28th, 2012|Asset Protection, Charging Orders|1 Comment

An Examination of the Charging Order Under Kentucky’s LLC and Partnership Acts

Attorneys Thomas E. Rutledge and Sarah Sloan Wilson wrote an excellent and very comprehensive two part article called “An Examination of the Charging Order Under Kentucky’s LLC and Partnership Acts.”  Although the article is based on Kentucky limited liability company and partnership law, it covers many concepts and legal issues that apply to partnerships and LLCs in all fifty states.  The two part article is a must read for attorneys and lay people who want to understand the important LLC charging order issue.

2017-08-25T15:30:44-07:00December 3rd, 2011|Charging Orders|0 Comments

50 State LLC Charging Order Table

Carter G. Bishop, Professor of Law at Suffolk University Law School compiled a summary of the status of limited liability company charging order protection or lack thereof in all fifty states.  His work entitled “Fifty State Series: LLC Charging Order Statutes” is dated October 6, 2011.  The table reflects the statutory charging order language of all fifty states.  It also classifies each state’s charging order statutes in one of four classes.  All links in the table are live to Westlaw and the table is updated a new legislative activity occurs.

Arizona’s LLC charging order statute is Arizona Revised Statute Section 29-655, which states in part:

” This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.”

2016-11-16T08:23:51-07:00December 3rd, 2011|Asset Protection, Charging Orders|0 Comments

Alaska Asset Protection Trust Funded By Solvent Settlor Completely Fails To Protect Assets In Bankruptcy Against Future Creditors

Forbes:  “In 2005, an Alaska resident, Mortensen, who was solvent and liquid at the time, settled a self-settled Alaska Domestic Asset Protection Trust (“DAPT” or “APT”) for his own benefit and the benefit of his heirs, and contributed a $60,000 piece of property to the trust, along with $80,000 in cash that was a gift from his mother. . . . the Mortensen opinion basically says that under Bankruptcy Code section 548(e), Asset Protection Trusts do not provide protection in bankruptcy for a period of at least 10 years from the date the Trust was settled, where a purpose of the trust was to protect the trust assets from creditors of the settlor/beneficiary.”

Nationally recognized Nevada domestic asset protection trust lawyer Steve Oshins says this about the Mortenson case:

” I have looked through the facts of the case carefully and there is absolutely no doubt in my mind that the judge would have been crazy to have ruled differently than he did.  Other than some subtle inner-issues regarding how the judge looked at the 10-year bankruptcy clawback, this case was really a non-issue for DAPTs.  We all knew since 2005 that there’s a bankruptcy clawback.  One of the reasons Bob and I are doing the teleseminar is to make sure the public doesn’t misinterpret the case as being meaningful.  With the viral effect of the Internet, those who don’t do DAPTs could easily misinterpret this case.  I think it is important for people to take note of what was done wrong in the case which is helpful because “what not to do” is a good training tool. “

Read “Trust Experts Say Judge Made “Bad Law” in Landmark Asset Protection Case,” which states:

“But trust companies that rely on asset protection as a selling point say the ruling is a fluke that won’t affect truly well-constructed vehicles of this type — and the estate planners who know most about the field agree.  . . .’If there was ever an illustration of how extreme facts contradict the law, this might be it,’ says Wisconsin estate planner Bob Keebler.  ‘The sky is not falling on domestic asset protection trusts,’ he says. ‘This is really not a surprise to anyone’.”

The case is Battley v. Mortensen, Adv. D.Alaska, No. A09-90036-DMD, May 26, 2011.

2011-12-03T10:37:33-07:00October 22nd, 2011|Asset Protection, Charging Orders|0 Comments

Nevada Attorney Steve Oshins Discusses Nevada’s New Law that Protects Single Member LLCs

Provident Trust:  “Steve Oshins is a nationally acclaimed estate planning and asset protection attorney . . . renowned for his efforts at providing innovative solutions for the asset protection concerns of clients. He has played a unique role in designing legislation that has made Nevada a leading trust and asset protection jurisdiction. According to Forbes Magazine, Nevada has the most favorable asset protection trust laws of any state in the country. Recently, Mr. Oshins was instrumental in the drafting of the part of Senate Bill 405, signed into law on June 16, 2011, that specifies charging order protection as the exclusive remedy for creditors of a debtor who is the sole member of a single member limited liability company (SMLLC).”

2017-10-07T07:38:04-07:00August 28th, 2011|Asset Protection, Charging Orders|0 Comments

Do Single Member LLCs Provide any Asset Protection?

Question:  Some people, including some lawyers, say that a single member limited liability company does not give the member/owner any asset protection.  Is that true?

Answer:  No.  People say this to me all the time.  I also see a lot of articles on the internet that make the same erroneous statement.  I even know of lawyers who spread this myth.

People who claim single member LLCs do not provide any asset protection are ignorant of both asset protection law and LLC law.  If a person or entity forms a single member Arizona LLC to operate a business or to own investment real estate and if the LLC is operated in compliance with applicable laws, the LLC gives its owner the same protection from the LLC’s debts and obligations that Arizona law gives to multi-member LLCs and single shareholder corporations.

Example 1:  Homer Simpson forms an Arizona LLC and owns it as his sole and separate property.  He is the only member.  Homer writes a check to the LLC for $50,000 that the LLC uses to buy a rental home.  The tenant’s mother slips on stairs in the home and dies.  Victim’s family sues the LLC and Homer and attempts to pierce the company veil and hold both the LLC and Homer liable for the family’s damages.  If Homer’s LLC has complied with applicable laws and if Homer did not have anything to do with causing or knowing of the problem with the stairs, Arizona law should protect Homer from any judgment rendered against the LLC that owns the home.  If you think this example is ridiculous, see Kerege v. Viscount Hotel Suite, one of the ten largest Arizona jury awards in 2010 that involved an elderly woman who fell down carpeted stairs in a hotel atrium and died.  The jury awarded the plaintiff $3,000,000.

I am not aware of any Arizona court case that has found the owner of a single member Arizona LLC liable under the fact pattern described above.  If you know of such a case, please send it to me.

I am not saying that the owner of a single member LLC cannot be liable for causing harm in connection with the LLC’s activities.  Never forget this important fact of life:

A person is always liable for harm caused by the person’s acts or omissions even if the acts or omissions arise while acting on behalf of a limited liability company.

Example 2:  Same facts as in Example 1 above except Homer installed the carpeting on the stairs and his installation made a bump on the stairs that caused the tenant’s mother to trip when her foot hit the bump.  Homer’s botched installation job caused the accident so he will be liable for the harm he caused and so will the LLC because he was acting on behalf of the LLC when he installed the carpet.

The result in Example 2 does not mean that a single member LLC does not provide any asset protection.  Homer would not have escaped liability for causing the accident if the LLC had been a multi-member LLC.  The number of members of the LLC is irrelevant in this scenario because Homer’s liability arises because of his bad act.

What is the Source of this Myth?

The reason some people mistakenly claim the single member LLC does not offer any asset protection arises from a misunderstanding of the legal implications of a famous (in LLC lawyer circles) bankruptcy case called “In re Albright,” No. 01-11367 (Colo. Bkrpt. April 4, 2003).  This case involved a woman who was the only member of an LLC that had assets.  She argued that the bankruptcy court could not give the assets of the LLC to her creditors because Colorado LLC law provided that the creditors’ remedy for claims against its sole member was a charging order.  The bankruptcy court rejected that argument and allowed the bankruptcy trustee to sell the LLC’s assets and give the proceeds to Albright’s creditors.

The court made some statements that it may not have liquidated the LLC if it had multiple members.  It said:

“To the extent a debtor intends to hinder, delay or defraud creditors through a multi-member LLC with ‘peppercorn’ co-members, bankruptcy avoidance provisions and fraudulent transfer law would provide creditors or a bankruptcy trustee with recourse.”

This off the cuff statement (called “dictum”*) are the basis on which the nonbelievers claim that single member LLCs do not provide any asset protection.

*Latin for “remark,” a comment by a judge in a decision or ruling which is not required to reach the decision, but may state a related legal principle as the judge understands it. While it may be cited in legal argument, it does not have the full force of a precedent (previous court decisions or interpretations) since the comment was not part of the legal basis for judgment. The standard counter argument is: “it is only dictum (or dicta).”

The Albright case did not involve a claim made against the LLC that arose from the LLC’s activities.  I call this type of claim a bottom up creditor claim.  Instead, the Albright case involved claims MADE AGAINST THE SOLE MEMBER ARISING FROM THE MEMBER’S ACTS OR OMISSIONS.  IT DID NOT INVOLVE A CLAIM THAT AROSE FROM THE ACTIVITIES OF THE LLC AND AN ATTEMPT BY THE CREDITOR TO PIERCE THE VEIL AND HOLD THE SOLE MEMBER LIABLE FOR THE DEBTS OF THE LLC.  See my graphical depiction of bottom up and top down creditors.

It takes quite a leap of ignorant faith to conclude from In re Albright that it stands for the proposition that single member LLCs lack asset protection.  Nationally known asset protection attorney Jay Adkinson says the following about single member LLCs, In re Albright and asset protection on his great website called “Asset Protection Book:”

Based on Albright, sometimes I hear planners blurt out, “Single Member LLCs provide no asset protection!” This is wrong. The lack of charging order protection is a far cry from concluding that SMLLCs are “worthless” as asset protection vehicles. SMLLCs may still provide substantial protection for owners against the liabilities of the entity itself, which are so-called “internal liabilities”.

For example: SMLLC owns a strip mall and is successfully sued by one of the tenants. If the SMLLC is adequately capitalized, is not the alter ego of the sole member, and is not used to perpetuate a fraud, the tenant may not assert liability against the member.

There is no reason that a SMLLC should be treated much differently from a sole shareholder corporation. Historically, sole shareholder corporations have contained liability within the entity and shielded the liability away from its owners.

To summarize, even if SMLLCs do not offer the same charging order protection as multiple-member LLCs, they can still be very valuable business planning vehicles. Certainly, it is preferable from a liability standpoint to own one’s business in a SMLLC than to run it as a sole proprietorship. But of course, where external liability is a concern and it is feasible to add another member, that should be done so that charging order protection arises.”

To learn more about this topic and attacks by creditors on the charging order protection offered by LLC laws in states outside Arizona, read my article called “Beware of the Single Member LLC.”

For People Who Want to Form an LLC Themselves

If you think you might want to create a do-it-yourself Arizona LLC you must read Arizona LLC attorney Richard Keyt’s article called “Step by Step Guide: How to Form Arizona LLC 2019 in (6 Easy Steps).”

Bankruptcy Court Sells Debtor’s Arizona Limited Partnership Interest

In July of 2010, the U.S. Bankruptcy Court for Arizona ordered the sale of a debtor’s limited partnership interest in an Arizona limited partnership in disregard of Arizona Revised Statues Section 29-655.  This Arizona statute that says that the sole remedy of a creditor who gets a judgment against a partner of an Arizona limited partnership is a charging order.  A charging order is a court order served on the limited partnership that orders the limited partnership to make any payments of money or distributions of property intended for the judgment debtor to the creditor.  When served with a charging order, the limited partnership usually ceases making payments and distributions to the partner who is the judgment debtor, which means the creditor gets nothing from the limited partnership.

In re Michael L. Gauvin, the United States Bankruptcy Court ordered the sale of the debtor’s fifty percent interest as a limited partner of an Arizona limited partnership called “Draco Enterprises II, an Arizona limited partnership.”  See the Notice of Sale.

Here is the text of Arizona’s charging order statute applicable to Arizona limited partnerships:

29-341. Rights of judgment creditor

On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interest of the partner 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 the partner’s partnership interest. This chapter does not deprive any partner of the benefit of any exemption laws applicable to his partnership interest. This section provides the exclusive remedy by which a judgment creditor of a partner may satisfy a judgment out of the judgment debtor’s interest in the partnership.

Arizona Revised Statutes Section 29-655 is the equivalent law for Arizona limited liability companies.  This statute states:

29-655. Rights of judgment creditors of a member

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

B. This chapter does not deprive any member of the benefit of any exemption laws applicable to his interest in the limited liability company.

C. This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.

Bottom line:  Despite these two Arizona statutes that state that the charging order is the exclusive remedy of a creditor that gets a judgment against a partner of an Arizona limited partnership or a member of an Arizona limited liability company, if the partner or member is a debtor in bankruptcy, the bankruptcy court can and probably will sell the interest and give the proceeds to creditors unless the interest is worthless.

2011-12-03T10:39:17-07:00August 17th, 2010|Asset Protection, Charging Orders|0 Comments

Olmstead vs. Federal Trade Commission

This Florida Supreme Court case involved the attempt by the Federal Trade Commission to enforce collection of a $10 million judgment it got against Shaun Olmstead and Julie Connell for their involvement with entities that operated an advance-fee credit card scam. The issue before the court was:

“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.”

Olmstead argued that the issue should be answered in the negative because the only remedy available to a creditor who has a judgment against a member of a Florida single-member LLC is a charging order.  The court said:

“we rephrase the certified question as follows: ―Whether Florida law permits a court to 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. We answer the rephrased question in the affirmative.”

The reason the court allowed the creditor to get to the assets of the single member Florida LLCs is because the court ruled:

“that there is no reasonable basis for inferring that the provision authorizing the use of charging orders under section 608.433(4) establishes the sole remedy for a judgment creditor against a judgment debtor‘s interest in single-member LLC.

Arizona LLC law is different from Florida’s LLC law.  Arizona’s LLC member charging order protection is contained in Arizona Revised Statutes Section 29-655 which states:

“A. On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest in the limited liability company with payment of the unsatisfied amount of the judgment plus interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest.

B. This chapter does not deprive any member of the benefit of any exemption laws applicable to his interest in the limited liability company.

C. This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.”

Because of this statute, an Arizona court should not reach the result of the Florida Supreme Court in Olmstead vs. FTC.  See “Olmstead Decision Does Not Make All Single Member LLCs Useless.”