The Florida Legislature recently passed CS/HB 253 (the “Bill”) to address the uncertainty that the Florida Supreme Court created with its June 2010 decision in Olmstead v. Federal Trade Commission, 44 So. 3d 76 (Fla. 2010). Florida Statutes Section 608.433 provides that a judgment creditor may obtain a charging order against a judgment debtor’s limited liability company (“LLC”) membership interest in the amount of the judgment. However, the charging order only affords the judgment creditor certain economic rights, such as to receive LLC distributions that would otherwise be payable to the member/judgment debtor. Unlike other business entity statutes in Florida, Section 608.433 does not expressly state that the charging order is the exclusive remedy for judgment creditors as it pertains to membership interests (see Florida Statutes Sections 620.8504(5) and 620.1703(3)).
The Court in Olmstead reviewed the issue of whether Florida law permits an alternative remedy to the charging order when attempting to satisfy a judgment using a judgment debtor’s membership interest in a Florida single-member LLC. Holding that a charging order is not the exclusive remedy, the Court ordered the judgment debtor to surrender all of his right, title, and interest in the single-member LLC to the creditor in satisfaction of the judgment. The Olmstead decision invoked widespread uncertainty as to whether it was limited only to single-member LLCs or whether it extended to multiple-member LLCs. Additionally, the ruling was widely believed to be contrary to the common interpretation of Section 608.433 and the Florida Legislature’s intent.
The Bill specifically addresses the Olmstead decision’s ambiguities and amends Section 608.433. The amendment provides that a charging order is the sole and exclusive remedy by which a judgment creditor of an LLC member (in a single- or multiple-member LLC) may satisfy a judgment using the member’s membership interest. However, in the case of a single-member LLC, a court may order a foreclosure sale of the membership interest only where a creditor shows that distributions under the charging order will not satisfy the judgment within a reasonable time. The membership interest foreclosure remedy is not available in the case of a multiple-member LLC. Importantly, the Bill does not contain provisions for treating a multiple-member LLC as a single-member LLC where minority members hold nominal interests.
The amendment also elaborates on the definition of charging order. Additionally, the amendment provides that nothing in the statute shall limit (1) the rights of secured creditors; (2) fraudulent transfer principles; or (3) the ability of a court to apply certain equitable principles such as alter ego, equitable lien, or constructive trust.
If you have any questions regarding ownership rights in LLCs or LLC structuring, please contact Daniel Nunn at (904) 598-3100.
Florida Legislature Clarifies Creditor Rights Concerning LLC Members
