The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership
2021 - Florida - O'Neal - Jurisdiction
O'Neal v. CDB American Franchise System, Inc., 2021 WL 3709716 (M.D.Fla., Aug. 20, 2021).
United States District Court, M.D. Florida, Tampa Division.
Thomas O’NEAL, Plaintiff,
CDB AMERICAN FRANCHISE SYSTEM, INC.; CDB American Shaman, LLC; Shaman Botanicals, Inc.; Florida Shaman Properties, LLC; Brandon Carnes; and Katelyn Sigman, Defendants.
Case No. 8:20-cv-936-KKM-AAS
Attorneys and Law Firms
Wolfgang M. Florin, Scott L. Terry, Florin Gray Bouzas Owens, LLC, Lutz, FL, for Plaintiff.
AMANDA ARNOLD SANSONE, United States Magistrate Judge
*1 Plaintiff Thomas O’Neal moves for the entry of a charging lien on Defendant Brandon Carnes’s membership interest in these nine Missouri limited liability companies: (1) F&B, LLC; (2) BC Convenience, LLC; (3) Dynamic Distribution, LLC; (4) Missouri A.S. Properties, LLC; (5) AS Mission Wellness, LLC; (6) Arizona AS Properties, LLC; (7) Colorado Shaman Properties, LLC; (8) Eighty8 Investments, LLC; and (9) Vast Distribution, LLC (collectively, the Missouri LLCs). (Doc. 82, p.1).
Mr. O’Neal obtained judgment against Mr. Carnes and others for $608,400.00. (Doc. 78). Under Federal Rule of Civil Procedure 69(a), the procedure for executing judgment “must accord with the procedure of the state where the court is located.” Fed. R. Civ. P. 69(a)(1). Thus, Florida procedure for executing judgments applies here.
Florida Statute 605.0503(1) provides:
On application to a court of competent jurisdiction by a judgment creditor of a member or a transferee, the court may enter a charging order against the transferable interest of the member or transferee for payment of the unsatisfied amount of the judgment with interest. Except as provided in subsection (5), 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.
This court must therefore determine whether it has competent jurisdiction to issue a charging order against Mr. Carnes’s membership interests in the Missouri LLCs.
Florida Statute § 605.0501 states that transferable interests in limited liability companies, like membership interests, are personal property. Florida courts have established that membership and other transferable interests in limited liability companies are intangible personal property that “accompan[y] the person of the owner.” Wells Fargo Bank, N.A. v. Barber, 85 F. Supp. 3d 1308, 1315–16 (M.D. Fla. 2015) (citing Beverly Beach Props. v. Nelson, 68 So.2d 604, 611 (Fla. 1953)). As such, membership interests in foreign LLCs (like the Missouri LLCs here) may be subject to a charging order issued by a Florida court if the other jurisdictional requirements are satisfied.
“Florida courts do not have in rem or quasi in rem jurisdiction over foreign property.” Sargeant v. Al–Saleh, 137 So.3d 432, 434 (Fla. Dist. Ct. App. 2014) (citations omitted). The cases favorably cited by Mr. O’Neal in his motion confirm this requirement. See Wells Fargo Bank, N.A. v. Barber, 85 F. Supp. 3d 1308, 1315 (M.D. Fla. 2015) (“Therefore, because Barber resides in Florida, Barber’s membership interest in Blaker is located with her in Florida and is properly subject to in rem jurisdiction in this state”); In re McCuan, 2018 WL 11206025, *5 (Bankr. M.D. Fla. Feb. 13, 2018) (“Here, there is no dispute that this Court has personal jurisdiction over Jill McCuan because her primary residence is in Florida”).
Mr. O’Neal failed to establish Mr. Carnes’s membership interests in the Missouri LLCs are sufficiently domestic to Florida to establish in rem or quasi in rem jurisdiction. Instead, Mr. Carnes is a Kansas resident with membership interests in limited liability companies solely domestic to Missouri. (See Doc. 6, Doc. 82–1). As such, this court cannot exercise jurisdiction over Mr. Carnes’s membership interests in the Missouri LLCs.
*2 Accordingly, Mr. O’Neal’s motion for a charging lien on Mr. Carnes’s limited liability company interests in the Missouri LLCs is DENIED.
ORDERED in Tampa, Florida on August 20, 2021.
by Jay Adkisson
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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
Entities - The types of legal entities amenable to charging orders, or not
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
Abstention - Collateral attacks on charging orders in federal court
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
OTHER INFORMATIONAL WEBSITES
by Jay Adkisson
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