Florida Surpreme Court Eliminates Asset Protection Benefit Of Single-Member Florida LLC (And Maybe All LLCs)

Here is some interesting information – The Florida Supreme Court’s holding in the Olmstead v. Federal Trade Commission case, issued June 24, 2010, wherein the Court held that judgment creditors are not limited to the charging lien as their only tool to attack a debtor’s interest in a single member LLC. Creditors have other remedies available to them including, without limitation, levy and sale proceedings under Florida Statute 56.061. The ruling, at a minimum, denies single member LLCs the same asset protection benefits as multi member LLCs.

The court’s ruling is based on two features of Florida’s LLC statutes. First, cites Section 608.433(1) to show why a charging lien is the appropriate collection tool against a debtor who owns a membership interest in a multi-member LLC. That statute states the basic rule absent contrary provisions in the LLC operating agreement that an assignee (creditors are assignees) of a membership interest may become a member only if all other members so consent. If a judgment creditor were to levy on a multimember interest the creditor could not take over the debtor’s interest and could exercise no management powers without the consent of the non-debtor members. This provision, the court said, is irrelevant in a single-member LLC because that member’s creditor takes the full title and powers of the debtor member upon levy without the consent of anyone other than the debtor.

Second, the court said that although the LLC statute states that a creditor may apply for a charging lien against a debtor member the statute does not state that the charging lien is an exclusive remedy. Other creditor remedies, such as levy and sale under Section 56.061 or the appointment of a receiver, are not excluded by Florida’s LLC statute. The court contrast Florida’s partnership acts which expressly provide that a charging lien is the creditor’s exclusive remedy against a debtor’s partnership interest. (Of course, there is no such thing as a single-member partnership).

The Olmstead LLC case was decided 3-2. The majority opinion was about 14 pages long. Justice Lewis wrote a strong dissenting opinion which was almost 30 pages long. Justice Lewis argued that the court’s ruling that the charging lien is a non-exclusive remedy affect not just single-member LLCs but all LLCs organized in Florida regardless of the number of members. He said that, “The majority opinion now eliminates the charging order remedy for multimember LLCs under its theory of “nonexclusivity” which is a disaster for those entities.”