Florida Brings About (Not Enough) Change to its LLC Statute
Last Summer the Florida Supreme Court created a legal Tsunami that washed over the legal community when it handed down it’s opinion in Olmstead v. FTC. In that case, the FTC had obtained a judgment for more than $10 million against Olmstead for operating a credit card scam. The FTC obtained an order requiring the Olmstead to hand over his single member LLC to the FTC (Olmstead’s LLC held several million dollars in cash).
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Understandably, Olmstead was not pleased with this order and hence appealed the decision arguing that the only remedy available against his ownership interest in his single-member LLCs was a charging order per the Florida Statutes which provide:
On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the limited liability company membership interest of the member with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of such interest. This chapter does not deprive any member of the benefit of any exemption laws applicable to the member’s interest. FL Statue 608.433
Based on the Florida Supreme Court’s reading of this statute it found that the charging order was “not the exclusive remedy” available to a creditor holding a judgment against the sole member of a Florida single-member LLC and ordered Olmstead to turn over his LLC and all of its cash to the FTC. In reaching its conclusion, the Court reasoned that the “Legislature has shown . . . that it knows how to make clear that a charging order remedy is an exclusive remedy” as it has provided in the Florida Limited Partnership Act; therefore, the absence of exclusivity language in Section 608.433 did not tie the Court’s hands and it was free to make law from the bench.
The Court’s opinion failed to distinguish between single or multiple member LLCs and by so doing created significant confusion. This uncertainty resulted in many Florida LLC holders running for higher ground to convert out of their LLCs into Limited Partnerships or move to other jurisdictions where a charging order was clearly the sole and exclusive remedy e.g., Nevada, Wyoming, Delaware, etc.
It would now appear that much of the uncertainty surrounding Florida LLCs is about to be abated with recent legislation that is awaiting the Governor’s signature. The bill in front of the Governor will make the charging order the sole and exclusive remedy available to a judgment creditor of a member of a multi-member LLC but not a single member LLC. So some but not all the protection I would have liked to seen will be made available to Florida LLC members. Thus, out of state planning remains alive and well and the use of Nevada or Wyoming holding LLCs for Florida investors is, and will remain, an important component.