Florida Determines Charging Order is Exclusive Remedy
Florida’s Fourth District Court of Appeals recently published an important LLC opinion in Young v. Levy. The issue in this case was whether a writ of garnishment could be used against distributions by the limited liability company. Specifically, this case interpreted “exclusive remedy” within the charging order provisions to decide the outcome. This opinion is not only relevant to Florida LLC members and managers, but also to the LLC members and managers in 15 states that have similar charging order “exclusive remedy” language in their state’s LLC statutes. FYI: California LLC law is not one of the states that has the charging as the exclusive remedy for a creditor who gets a judgment against a member of a California LLC. It is undetermined if other states will follow in Florida’s footsteps, but an understanding of the Young v. Levy decision would benefit LLCs who are looking to determine what remedies are available in a cases similar to Young v. Levy.
In this case, Levy owned 51% of the LLC, while Young owned the other 49%. Due to business-management differences, Levy removed Young from the business. This led Young to sue Levy for injunctive relief and damages. Initially, the trial court granted Young’s requests. However, Levy soon after filed a motion to dissolve the injunction, which was granted. Then Levy moved for damages regarding attorneys’ fees. These fees were awarded to Levy, totaling $41,409.45.
To obtain this money, Levy looked to use a writ of garnishment on distributions by the LLC. The garnishee (LLC) owed over $44,000 to Young. Young claimed that he was exempt from the garnishment, while Levy filed objections, stating that the garnishment was proper. This was the key issue analyzed by Florida’s Fourth District Court of Appeals.
Young asserted that the language in Section 608.433 (5) in Florida Statues (2011) did not allow garnishments as a proper remedy. This section states:
“Except as provided in subsections (6) and (7), a charging order is the sole and exclusive remedy by which a judgment creditor of a member or member’s assignee may satisfy a judgment from the judgment debtor’s interest in a limited liability company or rights to distributions from the limited liability company.”
Levy argued that the distributions owed to Young were “profits” or “dividends”; and thus, a writ of garnishment would be an acceptable remedy. The Fourth District Court of Appeals did not accept this argument, because the term “interest” is defined as share of profits and the right to receive distributions. This led the court to hold that a garnishment of distributions is not a proper remedy to satisfy judgment. The court reiterated the importance of the plain language of Florida Statues which emphasized that “
The interpretation of “exclusive remedy” only allows plaintiffs to obtain charging orders on the members’ distributions by the LLC. Plaintiffs cannot obtain a garnishment on these distributions. As stated earlier, a similar “exclusive remedy” provision exists in 15 states, besides Florida. If these other states rule similarly, it will be more difficult for the LLC to collect judgment from a member.