The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
1998 - Florida - Givens
Givens v. National Loan Investors, L.P., 724 So.2d 610 (Fla.App. Dist.5 12/18/1998).
Florida Court of Appeals
CASE NO. 98-770
724 So.2d 610, 1998.FL.43185
December 18, 1998
CHARLES J. GIVENS, JR., ROBERT GIVENS, ET AL., APPELLANTS,
NATIONAL LOAN INVESTORS L.P., ETC., ET AL., APPELLEES.
* * *
The opinion of the court was delivered by: Cobb, J.
Non-Final Appeal from the Circuit Court for Orange County, R. James Stroker, Judge.
The issue on this appeal is whether Florida's Revised Uniform Limited Partnership Act allows a judgment creditor, with a charging order against a limited partnership interest, to foreclose by means of an execution sale.
In the instant case, a deficiency judgment was entered as a result of a previous mortgage foreclosure suit in favor of National Loan Investors, LP (National). Charles Givens, Jr. was one of the judgment debtors. Ultimately, National obtained charging orders charging the interests of Givens in two limited partnerships. National then asked the court to enter an order transferring Givens' interest to them for purposes of liquidation with the proceeds to be applied against the outstanding deficiency judgment. The trial court entered an order holding, contrary to the argument made by Givens, that an execution sale of a limited partnership interest was allowed under Florida law. We disagree.
The Act, section 620.153, Florida Statutes (1997), provides:
"On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the partnership interest. This act does not deprive any partner of the benefit of any exemption laws applicable to his or her partnership interest. Section 60.153, Fla. Stat. (1997)." (Emphasis added).
The straightforward language of the statute confers upon a judgment creditor the right to charge the limited partner's interest with payment of the unsatisfied amount of the judgment. The statute further provides that to the extent so charged the judgment creditor has "only the rights of an assignee of the partnership interest." Because the statute says that a judgment creditor has only the rights of an assignee of the partnership interest, it necessarily follows that the creditor may not resort to judicial foreclosure of the partnership interest. Nothing in the Revised Uniform Limited Partnership Act authorizes foreclosure of the charged interest and foreclosure is inconsistent with the statute's limitations upon the creditor's remedies.
The only reported decision in Florida concerning this issue, In Re Stocks, 110 B.R. 65 (Bankr. N.D. Fla. 1989), held that Florida's version of the revised Uniform Limited Partnership Act does not permit the execution sale of a limited partnership interest. The matter has been discussed in a Florida Bar Journal article entitled "Asset Protection in the Partnership Context: What's All the Hoopla?", 68 Feb. Fla. B. J. 43, 46 (1994):
"A judgment creditor may obtain a charging order against a debtor partner's interest in a limited partnership. However, in contrast to a judgment creditor's rights against a debtor partner's interest in a general partnership, a judgment creditor does not have the right to foreclose against the debtor partner's interest in a limited partnership. . . . The judgment creditor has only the rights of an assignee of the partnership interest. Unless the partnership agreement provides otherwise, an assignee is not entitled to become a partner in the limited partnership or exercise any rights or powers of a partner in the partnership. Further, the limited partnership agreement can restrict the amount and timing of distributions made to its partners and thereby limit the amount received by the judgment creditor under the charging order. Because a judgment creditor's rights against a debtor partner's interest in a general partnership are greater than those rights against a partner's interest in a limited partnership, practitioners who are concerned with asset protection generally should counsel their clients to consider operating as a limited partnership rather than a general partnership."
We believe the statute means what it says: The Florida Revised Uniform Limited Partnership Act specifically gives a judgment creditor the rights of an assignee *fn1 - - nothing more. Accordingly, the order of the trial court is reversed with instructions to follow section 620.153 of the Florida Revised Uniform Limited Partnership Act. *fn2
REVERSED WITH INSTRUCTIONS.
GRIFFIN, CJ. and THOMPSON, J., concur.
*fn1 See § 620.152(1)(b)(c), Fla. Stat.
*fn2 In concluding, we also note that there was ample evidence to support Judge Stroker in determining that Givens' limited partnership interests did not constitute entireties property.
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More Articles On Charging Orders click here
LAW REVIEW ARTICLES
by Jay Adkisson
For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487
Analysis of Uniform Limited Liability Company Act Sections re Charging Orders
The Uniform Acts re Charging Orders and Transferable Interests (without Jay's comments):
Effect of Bankruptcy On The Debtor-Member's LLC Interest here
Collected Court Opinions On Charging Orders here and below
NATURE OF REMEDY
Distributions/Economic Rights - Creditors rights to distributional interests/economic rights
Prejudgment Relief - Freezing the interest and distributions pending judgment
Procedure - The procedure for obtaining a charging order and ancillary provisions
Unknown Interest - Where the debtor's interest, if any, has not been ascertained
Order Form Generally - Most issues to the form of the charging order
Order Form Future Interests - How the charging order affects subsequently-acquired interests
Exemptions - Available state and federal protections that may apply to charging orders
Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute
Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs
Foreign Entities - Charging orders against out-of-state entities
Creditor Rights Restrictions - Limitations on creditors' management and informational rights
Information Rights - Creditors' ability to access information about the LLC
Management & Voting Rights - Rights of creditor after charging order issued
LIEN EFFECT AND PRIORITY
Lien - The lien effect of a charging order and priority issues
Compliance - Issues for the LLC and non-debtor members in complying with a charging order
Receiver - The role of the receiver in charging order proceedings
SINGLE MEMBER LLC
Single-Member LLCs - Enforcing the judgment against an LLC with a sole member
Foreclosure - Liquidation by judicial sale of the debtor's right to distributions
REPURCHASE AND REDEMPTION RIGHTS
Repurchase/Redemption Rights - Third-parties' ability to purchase the charged interest
Appeal - Issues relating to the appeal of a charging order
RELATION TO OTHER REMEDIES
Exclusivity - The charging order as the sole remedy available to creditors and exceptions
Voidable Transactions/Fraudulent Transfers - Issues relating to avoidable transfers of interests
Abstention - Attempts to collaterally attack the charging order in federal court
Bankruptcy - Treatment of the debtor/member's interest in bankruptcy
Intra-Member Disputes - Where one member obtains a charging order against another
Taxes - Tax issues relating to charging orders for all involved parties
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Additional Court Opinions About charging orders (unsorted)
THE CHARGING ORDERS PRACTICE GUIDE
The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more
Available for purchase directly from the ABA at https://goo.gl/faZzY6
Also available from Amazon at https://www.amazon.com/Charging-Orders-Practice-Guide-Understanding/dp/1641052643
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