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FLORIDA SUPREME COURT ISSUES OLMSTEAD DECISION AND FINDS THAT LLC INTERESTS IN SINGLE-MEMBER LLCs ARE VULNERABLE TO CREDITOR EXECUTION

06 / 25 / 2010

Olmstead v. Federal Trade Commission, 2010 Fla. LEXIS 990 (June 24, 2010)
 
In a bit of a surprise, in a 5-2 decision, the Florida Supreme Court has 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.  The case dealt with an effort by the FTC to shut down an advance-fee credit card scam, in which some of the assets that were made subject to a receivership were single-member Florida LLC interests.  After obtaining a judgment for injunctive relief and more than $10 million in restitution, the FTC sought to compel a court to endorse and surrender to the receiver all of their right, title, and interest in their LLCs.
 
The court found it legally significant that the statutes governing the issuance of charging liens in the Florida LLC Act did not make it specifically clear that a charging lien was the "exclusive remedy" available, as is the case with the changes made to RE-FRULPA, applicable to limited partnerships and limited liability limited partnerships.  Interestingly enough, the Florida Supreme Court appears to have found it significant that creditor's have a general remedy of levy and sale under execution on "stock in corporations" under F.S. Section 56.061, and noted that "at no point have the appellants contended that section 56.061 does not by its own terms extend to an ownership interest in an LLC" or that the order at issue "did not comport with the requirements of section 56.061."  Stated another way, the Florida Supreme Court suggests that "section 56.061 clearly does authorize" the transfer to a judgment creditor of all an LLC member's right, title and interest in an LLC, and the operation of this statute has not been limited by the Florida LLC Act as currently drafted.  A scathing dissent would have decided the case the other way.

It remains to be seen what kind of impact this decision will have on the remedies available to creditors, vis-a-vis, interests in LLCs in Florida.  

Click Here for Florida Supreme Court Opinion