On June 24, 2010, the Florida Supreme Court, in Olmstead v. FTC (1), ordered a debtor to surrender his interest in his single-member limited liability company (“LLC”) to satisfy an outstanding judgment against him individually. The debtor argued that the proper remedy is a charging order, which is an order whereby a creditor is entitled solely to distributions from the entity to satisfy his judgment and is not afforded management or control of the entity. In support of this argument, the debtor cited Florida law which provides that a charging order is the exclusive remedy for a creditor when the debtor’s interest is either a partnership or limited partnership interest. However, the Court concluded that unlike the partnership and limited partnership laws, the LLC laws do not provide that a charging order be the exclusive remedy and the judgment-debtor was ordered to surrender his LLC interest.
The implications of Olmstead with respect to LLCs governed by Pennsylvania law are uncertain. Pennsylvania statutes, unlike Florida statutes, do not state that a charging order is the exclusive remedy for a creditor in executing on a partnership or limited partnership interest. Interestingly, the Pennsylvania Superior Court, in Zokaites v. Pittsburgh Irish Pubs LLC (2), stated that a charging order is the exclusive remedy as to a LLC member’s interest. However, in reaching this conclusion, the Court relied upon the facts that (a) the entity was a multi-member LLC and (b) Pennsylvania law provides that a LLC member’s interest can only be assigned with unanimous consent of the non-transferring members. Olmstead noted that Florida has a similar law providing that a LLC member’s interest can only be assigned with unanimous consent of the non-transferring members, but stated that the set of the “non-transferring members” is void in a single-member LLC and this law is inapplicable. Therefore, Pennsylvania courts have not yet addressed this issue as to a single-member LLC and the impact of Olmstead in Pennsylvania is yet to be determined.
(1) Olmstead v. FTC, 2010 Fla. LEXIS 990 (June 24, 2010)
(2) Zokaites v. Pittsburgh Irish Pubs, LLC, 2008 Pa. Super. 281, 962 A.2d 1220 (2008)
Additional contributions from Melanie M. LaSota
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