Shaun Olmstead vs. Federal Trade Commission, No. SC08-1009, June 24, 2010

In this case, several individuals perpetrated a credit card scam through several corporate entities.  In response to this crime, the FTC sued them and the corporate entities for unfair and deceptive trade practices.  The assets of the defendants were frozen and placed into receivership.  Among the assets placed in receivership were several single-member Florida LLCs.  The FTC obtained an order compelling the defendants to endorse and surrender all of their right, title and interest in the LLCs. The court’s reasoning was that because the Florida LLC charging order statute does not expressly provide that a charging order is the exclusive remedy (whereas the Florida general and limited partnership statutes do provide that a charging order is the exclusive remedy), the LLC charging order is not the exclusive remedy and a creditor may levy on the LLC interest. Some states allow foreclosure of an LLC interest, others provide that a charging order is the exclusive remedy of a creditor, and others (like Florida) are silent on the issue. This case is making waves throughout the country because all those states which are silent on the issue may end up with a similar interpretation.  To make matters worse, the court seemed to indicate that the holding in this case may also apply to multi-member LLCs in addition to single-member LLCs. From this case we learn the following: (1) Some states provide much better asset protection than others for LLCs and limited partnerships.  In those states which mention a charging order as one remedy but remain silent as to whether it is the sole remedy, it is possible that a creditor will be able to foreclose or levy on the interest.  (2) As we have learned from previous cases, including In re Albright, 291 B.R. 538, 540 (D. Colo. 2003), you cannot rely on a single member LLC to provide charging order protection.  This does NOT mean that a single member LLC cannot provide asset protection to the members against the inside liabilities of the LLC, it only means that it cannot be relied on to protect the assets of an LLC from the outside liabilities of a member.