In our previous blog series on single-member LLCs and creditors’ rights (available here), we discussed charging order protection and courts’ application of the same to single-member LLCs. As we mentioned, the obvious purpose of charging order is to protect other members of an LLC from having involuntarily to share governance responsibilities with someone they did not choose or from having to accept a creditor of another member as a co-manager—that is, to protect the autonomy of the original members and their ability to manage their own enterprise. We then discussed the growing trend of drawing a distinction between single-member LLCs and multi-member LLCs in the context of bankruptcy and the legislative amendments to the LLC statute in several states following the outcry caused by Olmstead v. FTC.[1] We did not, however, discuss whether the charging order statute of one state would apply to a limited liability company formed in another.
Vision Marketing Resources, Inc. v. McMillin Group, LLC, the latest case in the evolving area of LLC charging orders, addressed precisely that question. The case involved a breach of contract and fraudulent misrepresentation arising out of the plaintiff’s purchase of several sets of golf clubs that were never delivered.[2] After obtaining a judgment from the court, plaintiff filed a request for charging order against the interests of the judgment debtors/defendants, McMillin Group, LLC, and James L. McMillin, in the limited liability company Buffalo Nickel trading, LLC, for the purpose of collection of the judgment.[3] There was only one problem: both the judgment debtors and the “garnishee” Buffalo Nickel Trading, LLC were located in Georgia, not in Kansas, where the action was.[4] This was problematic because, even though the court had jurisdiction (authority over certain matters, persons, or property) over the judgment debtors who were parties to the suit, it did not have jurisdiction over the non-party garnishee LLC, from which the judgment was to be collected and whose sole connection to Kansas was that one of its members was sued and had a judgment entered against him in Kansas.
This will be a two-part blog series on LLC charging orders. In our next post, we will discuss how the court ruled in Vision Marketing Resources, Inc. v. McMillin Group, LLC.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. R. Shawn can be contacted at: 407-517-0064; [email protected], or <a ” ” target=”_blank” href=”http://www.rshawnmcbridelaw.com”>www.mcbrideattorneys.com.
[1] Olmstead v. FTC, No. SC08-1009 (Fla. June 24, 2010).
[2] See generally Vision Mktg. Res., Inc. v. McMillin Group, LLC, No. 10-2252-KHV-TJJ (D. Kan. May 8, 2015).
[3] Id. at 4.
[4] Id.