Business Disputes

Evaluating the Latest Developments in the World of Single-Member LLCs


Special regard may need to be given in Florida to single-member LLCs.  While it is true that there is nothing that recognizes single-member LLCs to be any less deserving of their outer liability protections, no different than a wholly-owned corporation, there are considerations.  Certainly, Florida's Revised LLC Act recognizes that one can form a LLC, by and through an authorized representative and operate with only one member.  See F.S. § 605.0201(1)(“One or more persons may act as authorized representatives to form a limited liability company by signing and delivering articles of organization to the department for filing.”); F.S. § 605.0401(1)(“If a LLC is to have only one member upon formation, the person becomes a member as agreed by that person and the authorized representative of the company.  That person and the authorized representative may be, but need not be, different persons.  If different persons, the authorized representative acts on behalf of the initial member”).

Florida's charging order provisions need to be reviewed.  

Consumers and practitioners must still deal with the fact that with the Florida Supreme Court's decision in Olmstead v. FTC, 2010 Fla. LEXIS 990 (June 24, 2010), courts are permitted 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.  See F.S. Section 605.0503 (Charging Order).  Under Section 605.0503(4), in the case of a LLC that has only one member, if a judgment creditor of a member or a member's transferee establishes to the satisfaction of a court that distributions from the LLC will not satisfy a judgment within a reasonable time, then a charging order is not the sole and exclusive remedy upon which the judgment creditor can seek to satisfy the judgment.  Upon such a showing, the court MAY order the sale of the LLC interest pursuant to foreclosure sale.  See also Regions Bank v. Hyman, 2015 WL 1912251 (M.D. Fla. 2015); Wells Fargo Bank, N.A. v. Barber, 85 F.Supp.3d 1308 (M.D. Fla. 2015)(interpretation of predecessor Section 608.433).  

In a recent case, Saadi v. Maroun, the Middle District of Florida suggests that in making a determination as to whether or not there is a single-member LLC in Florida, an evidentiary hearing may be needed.  The facts of the Saadi case inform as to when an evidentiary hearing might be needed.  

On October 1, 2009, a jury awarded Plaintiff Edward T. Saadi $90,000 in compensatory and punitive damages for his claims against Defendant Pierre A. Maroun, but he was unable to collect on this judgment.  He then filed filed various motions to aid in collection on this judgment, but to no avail. This then compelled the Plaintiff Saadi to seek a judicial sale of Defendant's interest in this LLC, called Maroun's International, LLC (“MILLC”), or alternatively, have a charging order issued against Defendant's interest in MILLC.

The Federal Court duly noted that Florida Statute § 605.0503 controls the appropriate resolution of Plaintiff's motion for judicial sale or a charging order against Defendant's interest in MILLC. Section 605.0503(4) provides that if MILLC has only one member (i.e., Defendant), then the remedy of a judicial sale may be available. However, if the MILLC has more than one member, as Defendant contends, then a judicial sale is not an available remedy and Plaintiff can only seek a charging order. Fla. Stat. § 605.0503(1) & (6).

The Magistrate Judge held an evidentiary hearing to determine whether Defendant was the sole member of MILLC.

Thereafter, the Magistrate Judge allowed Defendant to supplement the record with the following: (1) an affidavit and a corrected affidavit of Omar Al-Qawasmi, who allegedly holds a 49% interest in MILLC; (2) an application for use of the fictitious name, “MI7USA,” by MILLC dated October 31, 2011; (3) eight letters between various dignitaries in the Jordanian government and MI7USA that purportedly show that MILLC is a viable business entity; (4) a copy of the original mortgage that Omar Al-Qawasmi took out on his house in Jordan dated August 29, 2012; (5) a copy of the wire transfer evidencing that Omar Al-Qawasmi deposited money into MILLC's Regions Bank account on September 6, 2012; (6) a copy of a promissory note from MILLC to Omar Al-Qawasmi that was presented at the hearing but has now been filed with the Pinellas County Clerk of Court; (7) the deed to the condominium owned by MILLC; and (8) sworn affidavits from the other alleged members of MILLC (Ahmad Kameh who allegedly owns 15% and Jean Maroun who allegedly owns 15%). (Doc. No. 340, Ex. A-E; Doc. No. 354, Ex. A-E).

In the Report and Recommendation, the Magistrate Judge found that neither Plaintiff's nor Defendant's evidence was persuasive. As a result, the Magistrate Judge concluded that Plaintiff failed to show that Defendant was the sole member of MILLC. Therefore, the Magistrate Judge found that the only remedy available to Plaintiff was a charging order against Defendant's interest in MILLC, and the Magistrate Judge recommended such relief.  

When reviewing the decision, it was noted that Plaintiff's evidence for proving that Defendant was the sole member of MILLC was that Defendant never listed any other members of MILLC in any of its filings on Sunbiz, that Defendant used MILLC's bank account for personal expenses and titled it similar to his personal account, that the MILLC failed to file tax returns, and that Defendant lived rent-free in the condominium owned by MILLC.

The Magistrate Judge properly concluded that this evidence was not sufficient. Specifically, the Magistrate Judge stated the following:

Saadi says the LLC is just Maroun, relying primarily upon Florida Department of State records and Maroun’s and the LLC’s responses to Saadi’s interrogatories. For example, the Electronic Articles of Organization for Maroun’s International, LLC filed with the Secretary of State on May 6, 2006, and the annual reports for Maroun’s International, LLC for the years 2007-2017 mention only Maroun and no one else. See doc. 335, Ex. 3, 4, and 5. From this, he posits the LLC is a single entity structure—and Maroun is the only stakeholder. 

But that conclusion assumes that Florida’s LLC scheme requires an LLC to list all its members in such filings. And that is not the case. In fact, the process for setting up an LLC in Florida can be unsophisticated.... Nothing in the Act required the LLC to identify in its articles of organization all its members of the LLC. Similarly, the LLC’s annual reports show Maroun as the “Managing Member/Manager” for the years 2009-2012 and the “Authorized Person” for the years 2013-2017. But as with the articles of organization, the legislative scheme did not require the LLC to list in the annual report all its members. Fla. Stat § 6-5.0212. 

 

That makes Saadi’s conclusion that these filings evince a single-member LLC unconvincing.

(Doc. No. 356, p. 3-4).

*3 Considering only Plaintiff's evidence and disregarding all of Defendant's evidence, this Court concludes that Plaintiff has not shown that there are no other members of MILLC. Plaintiff's evidence simply showed that Defendant may have been improperly using MILLC's assets as his own, but that alone is not the same as showing that there are no other members of MILLC. Therefore, the Court overrules Plaintiff's objection to the Magistrate Judge's conclusion that Plaintiff has not shown that there are no other members of MILLC, and as such, a judicial sale is not an available remedy.

If you are an owner of a closely-held business entity and want to know more about piercing of the veil and charging order liens, or if you are wanting to evaluate whether or not an LLC is or is not a single-member LLC, please contact us.
 
If you have concerns or questions about any of these alternative legal theories and wish to consult with the Tufts Law Firm, please contact us.