In my December 2010 article, I discussed the (then) recent Florida Supreme Court case of Olmstead v. F.T.C. 44 So.3d 76 (Fla. 2010), and the implications of that case for practitioners.  Briefly, that case held that a creditor of a single-member LLC was not limited to the use of a charging order to satisfy a debt (as was previously believed), but could foreclose on the debtor’s ownership interest in the LLC as well.  The case did not address whether the holding applied to multi-member LLCs, but it was feared that the reasoning which the court had applied to single-member LLCs could be extended to allow foreclosure of a member’s interest in a multi-member LLC as well.  If that were to occur, the utility of the LLC as an entity and as a planning tool would be very much limited. 

Fortunately, the Florida legislature recognized the problem and took steps to address it in CS/HB 253.  That bill has been approved by both the Florida house and senate, and has been signed into law by the Governor.  It provides that: “[a] charging order constitutes a lien on the judgment debtor’s limited liability company interest or assignee rights.  Under a charging order the judgment creditor has only the rights of an assignee of a limited liability company interest to receive any distribution or distributions to which the judgment debtor would otherwise have been entitled to the limited liability company, to the extent of the judgment, including interest.”  Fla. Stat. 608.433 (4)(b).  It goes on to make this the exclusive remedy for collecting against a debtor’s LLC membership interest in stating that “Except as provided in subsections (6) and (7), a charging order is the sole and exclusive remedy by which a judgment creditor of a member or member's assignee may satisfy a judgment from the judgment debtor's interest in a limited liability company or rights to distributions from the limited liability company.”  Fla. Stat. 608.433 (5).  So, at least for multi-member LLCs, the legislature has resolved the uncertainty created by Olmstead and has clarified the scope of a creditor’s ability to collect against a debtor’s interest in a LLC.   

The legislature wouldn’t be doing its job, though, if it didn’t leave something for lawyers and the courts to fight over.  It fulfilled that obligation by amending Florida Statute 608.433(6) to read that “[i]n the case of a limited liability company having only one member, if a judgment creditor of a member or member's assignee establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, a charging order is not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of a limited liability company or the assignee of the sole member, and upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale. A judgment creditor may make a showing to the court that distributions under a charging order will not satisfy the judgment within a reasonable time at any time after the entry of the judgment and may do so at the same time that the judgment creditor applies for the entry of a charging order.”  The legislature, then, did give a nod to Olmstead in providing at least a limited additional remedy for creditors against a single-member LLC.  The task for the courts and for practitioners in the future is to define the standard by which a court may determine that “a charging order will not satisfy the judgment within a reasonable time.”  The legislature provided little guidance in interpreting that standard, and it will likely fall to the courts to fill in the gaps. 

Overall, the effect of Olmstead was short-lived and minor.  The legislature’s amendment cured the most troubling ambiguity surrounding the case (its applicability to multi-member LLCs), and constrained Olmstead’s holding as it applies to single-member LLCs.  Hopefully creditors and planners can now rely on some predictability in the treatment of LLCs going into the future.