Opinion ID: 2537285
Heading Depth: 1
Heading Rank: 5

Heading: Judgment Creditor Can Charge the Debtor Member's Interest in the LLC With Payment of the Unsatisfied Judgment

Text: As a construct of statutory creation, an LLC is an entity separate and distinct from its members, and thus the liability of the LLC is not directly imputed to its members. In a similar manner, the liability of individual members is not directly imposed separately upon the LLC. Although a member's interest in an LLC is considered to be personal property, see § 608.431, Fla. Stat. (2008), and personal property is generally an asset that may be levied upon by a judgment creditor under Florida law, see § 56.061, Fla. Stat. (2008), there are statutory restrictions in the LLC context. Any rights that a judgment creditor has to the personal property of a judgment debtor are limited to those provided by the applicable creating statute. The appellants contend that if a judgment creditor may seek satisfaction of a member's personal debt from a non-party LLC, the plain language of the LLC Act limits the judgment creditor to a charging order. See § 608.433(4), Fla. Stat. (2008). A charging order is a statutory procedure whereby a creditor of an individual member can satisfy its claim from the member's interest in the limited liability company. See Black's Law Dictionary 266 (9th ed.2009) (defining term in the context of partnership law). It is understandable that the FTC challenges the charging order concept being deemed a remedy for a judgment creditor because, from the creditor's perspective, a charging order may not be as attractive as just seizing the LLC assets. For example, a creditor may not receive any satisfaction of the judgment if there are no actual distributions from the LLC to the judgment creditor through the debtor-member's economic interest. See Elizabeth M. Schurig & Amy P. Jetel, A Shocking Revelation! Fact or Fiction? A Charging Order is the Exclusive Remedy Against a Partnership Interest, Probate & Property, Nov.-Dec.2003, at 57, 58. The preferred creditor's remedy would be a transfer and surrender of the membership interest that is subject to the charging order, which is a more permanent remedy and may increase the creditor's chances of having the debt satisfied. See id. The application of the charging order provision, including its consequences and implications, has been hotly debated in the context of both partnership and LLC law because of the similarities of these entities. The language of the charging order provision in the Revised Uniform Limited Partnership Act (1976), as amended in 1985, is virtually identical to that used in the Uniform Limited Liability Company Act, as well as in the Florida LLC Act. See §§ 608.433(4), 620.153, Fla. Stat. (2008). The Uniform Limited Partnership Act of 2001 significantly changed this provision by explicitly allowing execution upon a judgment debtor's partnership interest. See Schurig & Jetel, supra, at 58. However, the Florida Partnership Act provides that a charging order is the exclusive remedy for judgment creditors. See § 620.8504(5), Fla. Stat. (2008) (stating the charging order provision provides the exclusive remedy by which a judgment creditor of a partner or partner's transferee may satisfy a judgment out of the judgment debtor's transferable interest in the partnership). In the context of partnership interests, Florida courts have also determined that a charging order is the exclusive remedy for judgment creditors based on the straightforward language of the statute. See Givens v. Nat'l Loan Investors L.P., 724 So.2d 610, 612 (Fla. 5th DCA 1998) (holding that charging order is the exclusive remedy for a judgment creditor of a partner); Myrick v. Second Nat'l Bank of Clearwater, 335 So.2d 343, 345 (Fla. 2d DCA 1976) (substantially similar). The Florida LLC Act has neither adopted an explicit surrender-and-transfer remedy nor does it include a provision explicitly stating that the charging order is the exclusive remedy of the judgment creditor. The plain language of the charging order provision only provides one remedy that a judgment creditor may choose to request from a court and that the court may, in its discretion, choose to impose. See § 608.433(4), Fla. Stat. (2008). To support its conclusion that charging orders are inapplicable to single-member LLCs, the majority compares the provision in the partnership statute that mandates a charging order as an exclusive remedy to the non-exclusive provision in the LLC Act. The exclusivity of the remedy is irrelevant to this analysis. By relying on an inapplicable statute, the majority ignores the plain language of the LLC Act and the other restrictions of the statute, which universally apply the use of a charging order to judgment creditors of all LLCs, regardless of the composition of the membership. The majority opinion now eliminates the charging order remedy for multimember LLCs under its theory of nonexclusivity which is a disaster for those entities.