Olmstead v. Federal Trade Commission

In Olmstead v. Federal Trade Commission, 44 So. 3d 76 (Fla. Jun 24, 2010) , the Federal Trade Commission obtained a judgment for restitution in excess of $10 million for unfair and deceptive trade practices against Olmstead and Connell, who owned several single member LLCs organized under Florida law. Olmstead and Connell argued that the FTC was limited to obtaining a charging order with respect to the LLCs. The FTC contended that because the LLCs were single-member entities, the FTC should be entitled to all of the respective owner‘s right, title and interest in each LLC that was a target of its judgment enforcement action.

The majority (four justices concurring) concluded that, under Florida law, the charging order is not the exclusive remedy available to the creditor of a person with respect to that person‘s interest in a single member LLC. The majority based its decision on the difference between the Florida LLC statute provision concerning charging orders [Florida Statutes Section 608.433] and the Florida partnership and limited partnership statutes‘ charging order provisions. These latter two statutes specifically state that the charging order is the —exclusive? remedy a creditor has when attempting to satisfy a claim against the debtor‘s interest in a partnership or limited partnership. The Florida LLC statute does not provide that a charging order is the exclusive remedy, thus allowing the majority to conclude that the legislature intended that a creditor could pursue remedies other than charging orders, specifically Florida Statute § 56.061 which provides that properties of debtor, including —stock in corporations,? —shall be subject to levy and sale under execution.? This remedy allows the judgment creditor to obtain control of the LLC interest, sell and liquidate the assets and obtain more than just rights to the economic interest. But in the words of the dissent, —a complete surrender of the membership interest and the subsequent liquidation of the LLC assets are not contemplated by the LLC Act.? 44 So. 3d at 91.

A very lengthy dissent was filed by two justices. The dissent recognized that the LLC act did not expressly say that the charging order was exclusive as the partnership and limited partnership statutes did. However, the main concern expressed by the dissent seems to be that the reasoning of the majority would apply in the multi-member LLC situation as well as in the single member context. —The Florida statute simply does not create a different mechanism for obtaining the assets of a single member LLC as opposed to a multimember LLC and, therefore, there is no room in the statutory language for different rules.? 44 So. 3d at 87. Olmstead has been the occasion for extensive discussion, both within bar groups and the academic literature, of the questions of the exclusivity of the charging order remedy, whether member-protection rules in alternative entities are appropriate in single-member LLCs, and even the question of whether charging orders are an —internal affair? such that the law of state of organization rather than the state of operation, should govern the creditor‘s rights.

 


 
     
 
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