In Olmstead v. FTC, SC01-109 (Fla. June 24, 2010), the Supreme Court of Florida ruling that a charging order is not the exclusive remedy available to creditors of a member of an LLC. In part, the Court relied on differences between the statutory language of the charging order remedy in Florida’s partnership and limited partnership statutes, both of which expressly make charging orders a creditor’s exclusive remedy, and the LLC provision, which does not. Slip Op., at 11-13.
More significant is the Court’s analysis of the assignment and charging order portions of the Florida LLC Act. The dissent argues that the majority treats the charging order as applying only to single-member LLCs. Id.at 15-35. To be sure, the majority opinion is not amodel of clarity. On first read, the Court seems to suggest a difference between the assignment and charging portions of the LLC statute, so that the general creditors’ remedy has a broader reach than the charging order–”all right, title, and interest in the debtor‘s single-member LLC,” rather than only “rights to profits and distributions.” Id. at 3-4.
Ultimately, the Court finds no difference in the assignment and charging order provisions. In the view of the court, while an assignee does not generally does not become a member, except upon the consent “of the remaining members,” id. at 5-7, in the case of a single-member LLC:
The limitation on assignee rights … has no application to the transfer of rights in a single-member LLC. In such an entity, the set of “all members other than the member assigning the interest” is empty. Accordingly, an assignee of the membership interest of the sole member in a single-member LLC becomes a member—and takes the full right, title, and interest of the transferor— without the consent of anyone other than the transferor.
Id. at 9. To this extent, the majority views the statute as treating all assignments of the entire LLC iunterest of a SMLLCs differently than it treats a similar assignment by one member in a multi-member LLC. That said, the court views the charging order in the same manner:
[stating that] a “judgment creditor has only the rights of an assignee of [an LLC] interest” simply acknowledges that a judgment creditor cannot defeat the rights of nondebtor members of an LLC to withhold consent to the transfer of management rights. The provision does not, however, support an interpretation which gives a judgment creditor of the sole owner of an LLC less extensive rights than the rights that are freely assignable by the judgment debtor.
Id. at 10 (emphasis added).
Even though the majority continually phrases the issue as the exclusivity of the charging order in the context of an SMLLC, it views a charging order as having the same effect as an assignment, which is what would happen under the general creditors’ remedy. The majority then turns to the differing approaches to exclusivity among the charging order provisions of the vrious UBE statutes.
To a certain extent, the problem is further confused by the fact that the LLC charging order follows the “rights of an assignee” approach of the Revised Uniform Limited Partnership Act, rather than the lien approach of the Revised Uniform Partnership Act. The former seems inherently less nuanced and flexible than the latter.
There has been extensive discussion of this on LNET-LLC, under the thread Olmstead Case Decided. Prof. Larry Ribstein also discusses Olmstead on Truth on the Market.
Hat tip to Carter Bishop.
Partnership Property & Continuation. Faegre & Benson, LLP v. R & R Investors (Minn. Ct. App. 2009)
October 9th, 2009Faegre & Benson, LLP v. R & R Investors, No. A08-1899 (Minn. Ct. App. Sept. 29, 2009) involves the same issue as Putnam v. Shoaf, 620 S.W.2d 510 (Tenn. App. 1981): a dispute over a partnership claim against a third person after the sale of an interest in the partnership. Putnam involved an unknown claim, while R & R Investors involved claims against the federal government related to a pending lawsuit in which the trial court had found in favor of the government.
The partnership, R & R Investors, which owned and operated an apartment complex. Over the years, several groups of partners came and went. The “appellants” sold their interest in the business via several documents:
Slip Op., at 5-6. Unlike an earlier sale (id. at 4), no deeds or bills of sale seemed to have been used. It is clear that the Purchase Agreement for the purchase and sale of the property was the primary document. The Purchase Agreement provided that the purchase of the partnership was “[t]o facilitate the sale of this property”. Id. at 5.
In Putnam, the Court rejected a claim that, because an existing, but unknown, claim was not included in the list of property being sold, the selling partner retained ownership of it. The selling partners in R & R Investors took a different approach. The sellers argued that
Id. at 13-14. The Minnesota Court of Appeals held that, under the Minnesota version of the UPA
Id. at 15-16. Although the Court cited (Slip Op., at 16 n.6) only one portion of my article, The Entity-Aggregate Dispute: Conceptualism and Formalism in Partnership Law,42 Ark. L. Rev. 395 (1989), its reasoning largely parallels my discussion of the treatment of partnership property in a continuation (id. at 427-43).
Gary Rosin
Tags: continuation of business, dissolution, partnership property, RUPA, transfers of partnership interest, UPA
Posted in Cases, Commentary, Partnerships | No Comments »