Court Gets It Right- Limited Liability Company (LLC) Member Protection Works!

Many of our clients created LLCs to protect their assets inside the LLC from lawsuits by creditors against our clients individually. Prior to 2010 it was generally understood that if an LLC member was sued by an outside creditor and obtained a judgement against that member, then the creditor was limited to a charging order only and not to the assets inside the LLC. The charging order basically provides the creditor with monies only if the debtor member receives distributions from the LLC.

Unfortunately in 2010 a Florida Supreme Court decision questioned that protection…Olmstead v. The Federal Trade Commission. The Olmstead court determined that a creditor was not limited to a charging order but that the debtor had to surrender all “right, title and interest” in their single member LLCs. While this language applied to single member LLCs, other language in the case had many attorneys concerned that the exclusive remedy of the charging order would not apply to multi member LLCs.

The Legislature, in 2011, passed a “we really mean it” statute Fla. Stat. 608.433 which clarifies that the “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 distribution from the limited liability company”. There are still certain exceptions for single member LLCs.

The court in Young v. Leslie Couture Levy and Wear It’s At, LLC, considered this statute in an action to obtain a writ of garnishment against Young’s distributions in the LLC. Young  and Levy were owners in the LLC and later parted ways. Levy sued Young for attorney fees and the trial court enter an order issuing a writ of garnishment against Young’s membership interest in the LLC for such attorney fees.

Young asserted that the plain language of the Fla. Stat. 608.433 prohibited garnishment and the appellate court agreed. “When a statute is clear, this Court need not look behind the statute’s plain language for legislative intent or resort to rules of statutory construction to ascertain intent”.

The Court got it right and the “we really mean it” statute worked!

Advice: This is a wonderful case to show your clients as to how the charging order protection works. This case puts the LLC on par with the limited partnership charging order protection. Any time asset protection is an issue (and when isn’t it!) these entities should be considered. Also carefully review this statute to review the limitations on creditor protection as to single member LLCs.

GENEROSITY IS A KEY TO HAPPINESS…REACH OUT AND HELP SOMEONE TODAY! Cool

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