Charging Orders

Florida Determines Charging Order is Exclusive Remedy

Florida’s Fourth District Court of Appeals recently published an important LLC opinion in Young v. Levy.  The issue in this case was whether a writ of garnishment could be used against distributions by the limited liability company.  Specifically, this case interpreted “exclusive remedy” within the charging order provisions to decide the outcome.  This opinion is not only relevant to Florida LLC members and managers, but also to the LLC members and managers in 15 states that have similar charging order “exclusive remedy” language in their state’s LLC statutes.  FYI:  California LLC law is not one of the states that has the charging as the exclusive remedy for a creditor who gets a judgment against a member of a California LLC.  It is undetermined if other states will follow in Florida’s footsteps, but an understanding of the Young v. Levy decision would benefit LLCs who are looking to determine what remedies are available in a cases similar to Young v. Levy.

In this case, Levy owned 51% of the LLC, while Young owned the other 49%.  Due to business-management differences, Levy removed Young from the business.  This led Young to sue Levy for injunctive relief and damages.  Initially, the trial court granted Young’s requests.  However, Levy soon after filed a motion to dissolve the injunction, which was granted.  Then Levy moved for damages regarding attorneys’ fees.  These fees were awarded to Levy, totaling $41,409.45.

To obtain this money, Levy looked to use a writ of garnishment on distributions by the LLC.  The garnishee (LLC) owed over $44,000 to Young.  Young claimed that he was exempt from the garnishment, while Levy filed objections, stating that the garnishment was proper.  This was the key issue analyzed by Florida’s Fourth District Court of Appeals.

Young asserted that the language in Section 608.433 (5) in Florida Statues (2011) did not allow garnishments as a proper remedy.  This section states:

“Except as provided in subsections (6) and (7), a charging order is the sole and exclusive remedy by which a judgment creditor of a member or member’s assignee may satisfy a judgment from the judgment debtor’s interest in a limited liability company or rights to distributions from the limited liability company.”

Levy argued that the distributions owed to Young were “profits” or “dividends”; and thus, a writ of garnishment would be an acceptable remedy.  The Fourth District Court of Appeals did not accept this argument, because the term “interest” is defined as share of profits and the right to receive distributions.  This led the court to hold that a garnishment of distributions is not a proper remedy to satisfy judgment.  The court reiterated the importance of the plain language of Florida Statues which emphasized that “

[A] charging order is the sole and exclusive remedy by which a judgment creditor of a member . . . may satisfy a judgment from the judgment debtor’s interest in a limited liability company or rights to distributions.”

The interpretation of “exclusive remedy” only allows plaintiffs to obtain charging orders on the members’ distributions by the LLC.  Plaintiffs cannot obtain a garnishment on these distributions.  As stated earlier, a similar “exclusive remedy” provision exists in 15 states, besides Florida.  If these other states rule similarly, it will be more difficult for the LLC to collect judgment from a member.

By | 2016-12-13T21:20:14+00:00 June 28th, 2014|Categories: Charging Orders, Lawsuits|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.

California LLC law is different from Florida’s LLC law.  California’s LLC member charging order protection is contained in California Corporations Code Section 17705.03, which states:

On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. A charging order constitutes a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that would otherwise be paid to the judgment debtor.

See “Olmstead Decision Does Not Make All Single Member LLCs Useless.”

By | 2016-12-13T21:20:23+00:00 June 24th, 2010|Categories: Asset Protection, Charging Orders, Lawsuits|0 Comments