New Ruling on Single Member LLCs

Judgment Debtor’s Ownership Interest in a Florida Single Member Limited Liability Company is Subject to the Satisfaction of an Outstanding Judgment

Florida’s lower courts have previously held that the issuance of a charging order was the only method of subjecting a judgment debtor’s ownership interest in a single member Florida limited liability company (“LLC”) to the satisfaction of the judgment debt. This approach has been under attack in various federal bankruptcy courts.

The Federal Trade Commission had sued various defendants for deceptive and unfair trade practices and, having obtained judgments against them, sought to force the turnover of the defendants’ interests in a number of single member LLCs. As the name suggests, a single member LLC has only one owner. The trial court ordered the turnovers, and the matter was appealed to the United States Eleventh Circuit Court of Appeals, which sought an answer from the Florida supreme court as to whether Florida law allows a court to order a judgment debtor to turn over its interest in an LLC to satisfy a judgment debt. The case is Shaun Olmstead v. Federal Trade Commission,  (Fla. S. Ct. Case No. SC08-1009, June 24, 2010)

In answering the certified question, the Florida supreme court determined that a membership interest in an LLC is the same type of personal property as corporate stock and could be subject to levy and sale under Florida law to satisfy a judgment debt in the same manner as corporate stock. Therefore, it held that 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, and that a charging order is one, but not the exclusive remedy, available to a judgment creditor.

Single member LLC owners should consult with a licensed attorney to determine what impact this ruling may have upon their particular situation.

 

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