Opinion 2020 Florida Kostoglou Distributions Charging Order

 

Adkisson's

CHARGING ORDERS

The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership

 

2020 - Florida - Kostoglou

 

Kostoglou v. Fortuna, 2020 WL 813366 (Fla.App., Feb. 19, 2020).

 

NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL.

 

District Court of Appeal of Florida, Fourth District.

 

John A. KOSTOGLOU, Appellant,

 

v.

 

John FORTUNA, Appellee.

 

No. 4D19-168

 

[February 19, 2020]

 

Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm Beach County; Peter D. Blanc, Judge; L.T. Case No. 50-2018-CA-000777-XXXX-MB.

 

Attorneys and Law Firms

 

Matthew B. Weissberg of the Law Office of Matthew B. Weissberg, P.A., West Palm Beach, for appellant.

 

Mark E. Pena of the Law Office of Mark E. Pena, P.A., Tampa, for appellee.

 

Opinion

 

Damoorgian, J.

 

*1 John A. Kostoglou (“Creditor”) appeals an order granting him a charging order against John Fortuna’s (“Debtor”) interest in, but precluding any distributions from, a limited liability company (“LLC”). We affirm the order as to the granting of a charging order against Debtor’s interest without further comment. However, we reverse part of the order denying Creditor the right to receive Debtor’s distributions from the LLC.

 

By way of background, Creditor obtained a judgment against Debtor in Ohio. After domesticating the foreign judgment, Creditor sought to satisfy his judgment by obtaining a charging order against Debtor’s interest and rights to distributions in a multi-member LLC pursuant to section 605.0503, Florida Statutes. Debtor holds a 5% interest in the LLC, which entitles Debtor to receive a 5% distribution of earnings subject to working capital from the LLC. The court concluded that Creditor was entitled to a charging order against Debtor’s interest in the LLC but not to the right to distribution of earnings. This appeal follows.

 

Pursuant to section 605.0503(1), Florida Statutes, “a charging order constitutes a lien upon a judgment debtor’s transferable interest and requires the limited liability company to pay over to the judgment creditor a distribution that would otherwise be paid to the judgment debtor.” § 605.0503(1), Fla. Stat. (2019) (emphasis added). This concept is further reiterated in the statute under section 605.0502(2), Florida Statutes, which states that “[a] transferee has the right to receive, in accordance with the transfer, distributions to which the transferor would otherwise be entitled.” § 605.0502(2), Fla. Stat. (2019).

 

This Court has recognized that section 605.0503, Florida Statutes, authorizes the court to enter a charging order against a judgment debtor’s transferrable interest and requires an LLC to pay over to the judgment creditor any distribution that would otherwise be paid to the judgment debtor. See Panksy v. Barry S. Franklin & Assocs., P.A., 264 So. 3d 961, 962 (Fla. 4th DCA 2019). Our sister courts have also held the same. See McClandon v. Dakem & Assocs., LLC, 219 So. 3d 269, 271 (Fla. 5th DCA 2017) (“Under ... section 605.0503, the charging order entered by the court should have only directed the LLCs to divert [the debtor’s] rights to the LLCs’ profits and distributions to [the creditor].”); Capstone Bank v. Perry-Clifton Enters., LLC, 230 So. 3d 970, 971 (Fla. 1st DCA 2017) (“A charging order is ‘a remedy that a creditor of a member in an LLC ... can receive from a court that instructs the entity to give the creditor any distributions that would otherwise be paid to the ... member from the entity.’ ”) (quoting Alan S. Gassman et al., After Olmstead: Will a Multiple-member LLC Continue to Have Charging Order Protection?, FLA. B.J., Dec. 2010, at 8, 8).

 

Accordingly, we reverse in part the charging order to the extent that it denied Creditor’s claim to Debtor’s share of distributions from the LLC and remand for entry of a charging order requiring the LLC to pay over to Creditor any distribution that would otherwise be paid to Debtor.

 

*2 Affirmed in part, reversed in part, and remanded.

 

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2020.06.20 ... Payment Of Distributions Directly To Creditor Holding A Charging Order Deemed Appropriate In BMO Case

2020.04.30 ... Charging Order Denied For Lack Of Proof Of The Debtor's Interest In Dhillon

2020.02.29 ... Florida Charging Order Requires Distributions To Be Re-Directed To The Creditor In Kostoglou

 

 

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

WEBSITE CONTENTS

 

General Information

 

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

  • Charging Orders (Section 503) contains the general charging order provisions.
  • Transfers of Transferable Interests (Section 502) includes definitions of "transfer" (102(23)), "transferable interests" (102(24)), and "transferees" (102(25)) defines to what the charging order attaches.
  • Definition of Distribution (Section 102(4)) specifies the economic right obtained through a charging order lien and/or foreclosure.

 

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

 

Charging Order Example Sample Form

 

TOPICAL RESEARCH

 

NATURE OF REMEDY

     Distributions/Economic Rights - Creditors rights to distributional interests/economic rights

PREJUDGMENT

     Prejudgment Relief - Freezing the interest and distributions pending judgment

MOTION MECHANICS

     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

INTERSTATE

     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 RESTRICTIONS

     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

     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

     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

     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

SUNDRY OTHER

     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

 

= = = = =

 

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

OTHER INFORMATIONAL WEBSITES

by Jay Adkisson

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Creditor-Debtor Law - An overview of judgment enforcement tools and their uses by creditors, and possible defenses by debtors. Related topics include:

 

  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business.

 

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© 2020 Jay D. Adkisson. All Rights Reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site is https://chargingorder.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.