In an action by the FTC against an advance-fee credit card provider, the United States Court of Appeals for the Eleventh Circuit recently concluded that a court may order a judgment-debtor to surrender all "right, title, and interest" in a debtor's non-party single-member LLC to satisfy a judgment creditor's claims.
A copy of the opinion is available at: http://www.ca11.uscourts.gov/opinions/ops/200613254.cert.pdf
The defendants allegedly operated an advance-fee credit card scam that created an impression consumers could receive a "platinum" credit card like a VISA or MasterCard in exchange for payment of $45 or $49. Instead, consumers received a platinum colored card usable only for purchasing products from the defendants. Over ten million solicitations were mailed to consumers.
The FTC filed an action alleging violations of section 5(a) of the Federal Trade Commission Act, which prohibits unfair and deceptive trade practices. The district court granted the FTC's motion for summary judgment, entering a judgment for injunctive relief and for more than $10 million in restitution against the defendants. The defendants' assets, including several Florida LLCs in which the individual defendants were the sole member, were frozen and placed in receivership.
The defendants appealed the grant of summary judgment but did not seek a stay of execution. The FTC moved to compel defendants to surrender their membership interests in their non-party single member LLCs to the receiver. Defendants objected, arguing that the FTC only has the rights of an assignee under Florida law.
The defendants argued that the surrender order was contrary to Florida's LLC Act and that a charging order is the only remedy that a judgment-creditor may obtain against the membership interest of an LLC member, even if that member is the sole member of the LLC because of the plain language of Florida's LLC Act. No earlier Florida case had directly addressed the application of Fla. Stat. Section 608.433 (4) to single-member LLCs.
The Eleventh Circuit Court of Appeals certified a question to the Florida Supreme Court, to address state-law issues of judgment-debtor liability in light of Florida's LLC Act. The Florida Supreme Court concluded that Florida law permits a court to order a judgment-debtor to surrender all right, title, and interest in the debtor's single-member LLC to satisfy an outstanding judgment. The court explained that the charging-order remedy provided by Section 608.433(4) does not establish the exclusive remedy for judgment-creditors of single-member LLCs. The court stated "[w]here an LLC has only one member, no need exists to protect the interests of other members by restricting judgment-creditors to a charging-order remedy. So, a judgment-creditor is not barred from pursuing the remedy available under section 56.601, which allows a court to levy upon a defendant's interest in stock in a corporation, including a membership interest in an LLC."
Accordingly, the district court's order compelling the defendants to surrender all "right, title, and interest" in their single-member LLCs was affirmed.
Let me know if you have any questions. Thanks.
Michelle Druce
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (503) 425-9698
Fax: (866) 581-9302
NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.
Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com
