Charging Orders and Two Kinds of Exclusivity

I have already noted Thursday’s opinion of the Florida Supreme Court in Olmstead v. FTC that a statutory charging order is not the exclusive remedy available to creditors of a member of an LLC.  That opinion was in response to a certified question from the U.S. Court of Appeals for 11th Circuit.  Whether you agree, or disagree, with the holding in Olmstead, at least the lawyers, and the 11th-Circuit panel, recognized the existence of the charging order.  The same cannot be said of theat least 11  lawyers and 13 judges involved in the opinions in  Hotel 71 Mezz. Lender LLC v. Falor, 2010, No. 9 (N.Y. Feb. 16, 2010), rev’g 2008 NY Slip Op 09848 (NY AD [1st], December 16, 2008).  In Falor, the sole issue raised on appeal was the jurisdiction of New York courts to apply New York general creditors’ remedies to reach interests in LLCs formed under the laws of other states.  As I’ve discussed earlier, at least the Appellate Division panel recognized, via forum non conveniens, that it might be better to litigate in other states.

So there are two different exclusivity issues that should be addressed by legislatures drafting LLE statutes that include a charging order remedy.   To a large extent, both turn on the same a question:  are charging orders intended to be an integral component of an interest in an LLE, rather than merely a remedy?  If the answer is “yes,” then the local charging order should be exclusive, both locally, and in other states.  If the answer is “n0,” then the only reason to have a charging order at all is as one way to gets courts recognize the difference between ownership interests in corporations, and in LLEs.

The question of how to handle single-member LLCs is a different question.  Unfortunately, neither the Olmsread majority opinion does not do that as clearly as I would like.  That just makes it harder to keep everyone from conflating the two questions.

posted by Gary Rosin

Leave a Reply