It has generally been assumed that when a creditor of an LLC member gets a judgment against that member, the only thing the creditor can do is to get a so-called "charging order". Such an order does not give the creditor control of the LLC — just a right to receive distributions if and when they are made. This is one of the advantages of an LLC over a corporation for asset protection purposes. If you own shares of a corporation, a creditor can generally gain control of those shares much more easily than it could gain control of an LLC interest.
But on June 24, 2010, the Florida Supreme Court ruled in the case of Olmstead v. Federal Trade Commission that because the Florida Limited Liability Company Act does not specifically make a charging order the exclusive remedy of a creditor, the creditor can use other remedies to gain control of a single member LLC interest. This means a creditor can gain total control of the LLC. Even worse, the Court’s logic raises at least some concern about protection of multi-member Florida LLC interests. Two dissenting justices on the Florida Supreme Court strongly disagreed with the decision and accused the majority of justices of rewriting the Florida statute.
Some states (like Delaware) make clear in their state statute that a charging order is the exclusive remedy of a judgment creditor. So this recent Florida decision is of no concern to owners of single member Delaware LLC’s. But it does raise concerns about single member LLC interests in various other states.
Like many other asset protection attorneys, I will be studying this decision in much greater detail in the coming weeks.
This case is a reminder that asset protection law is constantly evolving, so it is advisable to periodically consult with an attorney even if you already have an asset protection plan in place.