A Case Involving Single Member LLCs and Charging Order Protection – Meyer V. Christie


Posted on September 25th, by WebMaster in Blog. No Comments

Both books, The Asset Protection Manual and The Boston Tea Party both offers information about assets and how they should be utilized in terms of management and protection from unsuccessful business ventures or tax miscalculations. Here’s another case to look at, and it concerns asset protection.

The judgment in a case that involved a single member limited liability company (SMLLC) and a creditor being allowed to get ahold of the defendant’s business assets instigated controversial discussion among practitioners about whether SMLCC is secured by the same charging order protection that secures multi-member LLC. This and all about asset protection, a subject discussed responsibly and intelligently in my book, The Asset Protection Manual.

In the case of Meyer  V. Christie, the District Court of Kansas released a charging order against an SMLLC that allowed creditors to reach the assets of the debtor’s limited liability company (LLC). And now it is believed that the decision of the court in the issue of Meyer, if assessed in the proper perspective, should have been predicted.

The SMLLC Case Law

In the case of Albright[2], the Colorado court clarified that the charging order protections were not obtainable in the context of the SMLCC at issue, and this is as deduced in the Colorado statute. The court reached the same deduction in the case of Olmstead[3]. While the Supreme Court of Florida clarifies that its “charging order provision establishes a nonexclusive remedial mechanism,” going on say that “there is no express provision in the statutory text providing that the charging order is the only remedy that can be utilized.” There is more about explanation and application about this in the book, The Asset Protection Manual.

The courts that presided in both Albright and Olmstead were essentially explaining the LLC statutes in existence at the time in their particular states. In both state’s statute, no stated language makes it clear that the charging order is the only and exclusive solution of an LLC. I believe that the decision in both Albright and Olmstead are what will assist in the amendment of SMLLC law because they stress the point that the court must significantly seek answer from the governing statute to issue a solution. So, to foresee how a court will decide on charging order protections in SMLCC planning, we should just look at the statute of the state’s LLC for assistance.

The Meyer Court Gave the Right Analysis of the State Statute

The plaintiff in Meyer requested that the court issue a charging order against the defendant’s Kansas LLC and make it the decision of the court. In issuing the charging order, the court ruled in favor of the plaintiff. Is there a dilemma in here?  Isn’t the charging order the projected consequence of SMLLC set up? But the court allowed that LLC assets be garnished by the plaintiff. How could this happen?

It happened because the court observed that the Kansas Revised Limited Liability Act [4] (KRLLCA) contained a stipulation that distinguished the charging order as the one and only solution by which a judgment creditor can get hold of the member’s benefit in the LLC[5]. The court understands that the charging order solution came originally from the Uniform Partnership Act (UPA) in 1914 and was additionally amended by case law. In explaining the UPA, the court conceded that a charging order involves only the debtor’s partnership profit and does not allow the creditor to access company assets. The court also conceded that the creditor can only reach the partner’s portion of distributions and does not have any rights in the running of the company. But the court lectured that in the SMLLC’s rationale, an extended section of the KRLLCA related to charging orders stemmed from Kansas Law. That section of the KRLLCA grants that where the partner/debtor is the exclusive member of the LLC at the period of the appointment of the charging order, the assignee/creditor shall have the right to take part in the running of the company and dealings of the LLC as a partner.

Therefore, I see the conclusion in Meyer as the suitable conclusion that will keep contributing in developing SMLLC. And you will see the argument justified in my book, The Asset Protection Manual. It is correct in that the statute allowed the court to resort to a solution that has more basis than the charging order. The decision will assist the SMLCC foundation because it, like Albright and Olmstead, stress that courts must of necessity seek out the governing state statute to impose a solution to a case. Therefore, when planning for a client’s case that will affect an SMLLC, it is crucial for you to decide on a jurisdiction with explicit statutory requirements asserting that the charging order is the absolute solution of the court and that other sectors within the bill could not surpass the charging order solution.

There is more about instances of this kind of cases and about how to protect your assets from my book, The Asset Protection Manual. There is also information about your assets and taxes in my other book, The Boston Tea Party. Both books offer a wealth of crucial and intelligent information that help as tools to smart asset and tax management. Visit the websites now.

[1] Citation

[2] In re: Ashley Albright, Debtor, Case No. 10-11367 – ABC, Chapter No. 7 (2003 Bankr.D.Co.Lexis 291).

[3] Saun Olmstead vs. Federal Trade Commission, No. SC08 – 1009, June 24, 2010.

 





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