Olmstead v. FTC Case Analysis

In Olmstead v. FTC, 44 So. 3d 76 (Fla. 2010), the Florida Supreme Court held that a judgment debtor can be ordered to surrender all right, title, and interest in a single-member LLC to satisfy a judgment.

The holding reaches single-member LLCs only. Within a year the Florida Legislature made the charging order, a lien limited to LLC distributions, the sole and exclusive remedy against a multi-member LLC interest. A single-member interest can be foreclosed when a charging order would not satisfy the judgment within a reasonable time, and Florida’s creditor remedies reach a Florida resident’s LLC interest wherever the LLC was organized.

The Facts

Shaun Olmstead and Julie Connell ran an advance-fee credit card scam through a group of companies. More than 200,000 consumers paid for the cards, and what arrived was not a major credit card. The Federal Trade Commission sued them in the U.S. District Court for the Middle District of Florida for deceptive and unfair trade practices. The court froze their assets, placed them in receivership, and entered a judgment for more than $10 million in restitution.

The defendants’ assets included several Florida single-member LLCs. To partially satisfy the judgment, the FTC obtained an order compelling Olmstead and Connell to surrender all right, title, and interest in their LLCs to the receiver. The defendants appealed to the Eleventh Circuit, arguing that Florida’s LLC Act limited the FTC to a charging order.

The Eleventh Circuit found no controlling Florida precedent and certified the question to the Florida Supreme Court.

The Certified Question

The Eleventh Circuit asked whether, under Florida Statutes § 608.433(4), a court could order a judgment debtor to surrender all interests in a single-member LLC to satisfy a judgment.

The Florida Supreme Court accepted the question but rephrased it. The original question asked what § 608.433(4) permitted. The rephrased question asked what “Florida law” permitted, which let the majority look past the charging order statute to other creditor remedies, including the levy and sale under execution that § 56.061 allows. Justice Lewis objected in dissent that the chapter 56 argument had been neither raised by the parties nor discussed by the federal court.

The Majority Opinion

The Florida Supreme Court, in a 5-2 decision written by Justice Canady, held that the charging order was not the exclusive remedy for creditors of single-member LLC owners. The court said its conclusion rested on two facts: a sole member can transfer the whole membership interest without anyone else’s consent, and the LLC Act never took away the creditor’s long-standing right of levy and sale.

Florida’s Revised Uniform Partnership Act and Revised Uniform Limited Partnership Act both said the charging order “provides the exclusive remedy” for a judgment creditor of a partner. The LLC Act’s charging order provision in § 608.433(4) contained no such language. It stated only that a court “may charge” a member’s interest with payment of a judgment. The majority treated the omission as deliberate, concluding that the legislature intended charging orders for LLCs to be different from charging orders for partnerships.

The majority then reached § 56.061, which makes “stock in corporations” subject to levy and sale under execution. The opinion called an LLC “a type of corporate entity” and said a membership interest is personal property “reasonably understood to fall within the scope of ‘corporate stock.'” That reading brought the interest inside a creditor’s remedy Florida has had since 1889.

The corporate-stock step is the weakest part of the opinion. The same opinion describes an LLC as an entity created to pair partnership tax treatment with corporate limited liability, and notes that LLCs restrict the transfer of management rights. Florida’s own definition of a membership interest bundled voting and management rights with the right to profits and distributions. The dissent said the majority “obliterates the distinction between economic and governance rights.”

The majority acknowledged that the core language of all three charging-order provisions is strikingly similar. The dissent went further, calling the Revised Uniform Limited Partnership Act’s language virtually identical to the language the Uniform Limited Liability Company Act and the Florida LLC Act use. 44 So. 3d at 89 (Lewis, J., dissenting).

Why Charging Orders Never Fit Single-Member LLCs

The charging order originated in partnership law to solve a specific problem: protecting co-partners from having an outsider forced into their business. If a creditor could seize a partner’s full interest and become a partner, the remaining partners would be stuck with someone they never agreed to work with. The charging order prevented that by limiting the creditor to a lien on distributions, leaving management and governance untouched.

That logic breaks down when there is only one member. There are no co-members to protect, no outside relationship to preserve, and no one but the debtor deciding whether a distribution is ever made. A charging order against a sole member’s interest therefore delivers whatever the debtor chooses to distribute, which can be nothing.

The Olmstead majority did not decide the case on that ground. It framed the question as whether the statute made the charging order exclusive, and said the provision’s purpose was not the relevant question. 44 So. 3d at 81. In dissent, Justice Lewis said the charging order provision was never meant only to protect innocent members. 44 So. 3d at 91 (Lewis, J., dissenting).

The Dissent

Justice Lewis authored a detailed dissent joined by Justice Polston; Chief Justice Quince concurred in the majority. The dissent argued that the majority misread the statute and created consequences that extended far beyond single-member LLCs.

The dissent’s core argument was textual. Reading chapter 608 as a whole, Justice Lewis found that the Legislature had not amended the charging-order provision when it authorized single-member LLCs, and that a court cannot write into a statute an exception the Legislature left out. On that reading the majority’s comparison did no work: “[t]he exclusivity of the remedy is irrelevant to this analysis.” 44 So. 3d at 90 (Lewis, J., dissenting).

The dissent also warned that the majority’s reasoning had no logical stopping point. The statute drew no distinction between single-member and multi-member LLCs, so the nonexclusivity theory reached both. Justice Lewis wrote that the same theory of nonexclusivity eliminated the charging order remedy for multi-member LLCs too, and called that “a disaster for those entities.” 44 So. 3d at 90.

The Legislative Response

The Florida Legislature passed the Olmstead patch in April 2011, 112-1 in the House and 39-0 in the Senate. The governor signed it on May 31, 2011. The act calls the amendment clarifying and remedial, and applies it retroactively. Its preamble says the Legislature acted because the dissenters had warned the holding was not limited to single-member LLCs, and because uncertainty about the decision’s reach might persuade Florida businesses and investors to organize LLCs under another jurisdiction’s law.

The 2011 amendment added exclusive-remedy language that the original LLC statute had lacked. For multi-member LLCs, the charging order became the sole and exclusive remedy. For single-member LLCs, the amendment created a statutory foreclosure route, available only if the creditor could show that a charging order alone would not satisfy the judgment within a reasonable time.

The Florida Revised Limited Liability Company Act, enacted in 2013, created chapter 605. Chapter 605 governed LLCs formed on or after January 1, 2014. It reached every other Florida LLC on January 1, 2015, the day chapter 608 was repealed. Section 605.0503 carries the post-Olmstead rules forward and governs LLC creditor remedies today.

Single-Member vs. Multi-Member LLCs Under Current Law

Florida law now draws a hard line between multi-member and single-member LLCs. Under § 605.0503(3), a creditor’s sole and exclusive remedy against a member’s interest in a multi-member LLC is the charging order. Section 605.0503(6) bars a court from ordering foreclosure of that interest. The charging order is a lien on the debtor’s distributions and nothing more, carrying no management rights and no role in governance. Florida’s appellate courts have held creditors to that limit, reversing orders that transferred the interest, froze the LLC’s assets, or garnished distributions.

Section 605.0503(4) provides a different rule for single-member LLCs. If the creditor establishes to the court’s satisfaction that distributions under a charging order will not satisfy the judgment within a reasonable time, the court may order the interest sold at a foreclosure sale. Under subsection (5) the purchaser takes the member’s entire interest, not just a right to distributions, becomes the member, and the debtor ceases to be one.

A multi-member LLC with a properly drafted operating agreement and a manager exercising discretion over distributions can make a charging order functionally worthless to the creditor. A single-member LLC cannot offer the same resistance, because foreclosure gives the creditor everything the debtor had.

What Olmstead Means for LLC Planning

The practical consequence of Olmstead and the current statute is that an LLC meant to hold assets in Florida needs a real second member. Florida law sets no minimum percentage, and no Florida court has said how small a second interest can be. A second member who paid nothing for the interest, takes no distributions, and plays no part in the business gives a creditor an obvious argument that the second membership is on paper only. A stake with real economic value, documented in the operating agreement, is far harder to challenge.

One common strategy is adding an irrevocable trust as the second member. Under § 605.0503(3), the presence of a second member invokes the exclusive-remedy charging order protection. The trust holds a minority interest, the original owner retains management control through the operating agreement, and the charging order becomes the creditor’s only path.

In bankruptcy the operating agreement can decide the outcome, because a trustee may override state-law transfer restrictions. Courts have held that an operating agreement imposing no real obligation on its members is not an executory contract, which leaves the trustee holding everything the debtor held. An agreement that imposes capital call requirements, management duties, and supermajority approval for major decisions gives the debtor a real argument that the agreement is executory, which limits what the trustee can do with the interest.

Forming a single-member LLC in Wyoming, Nevada, or another state with stronger charging order protections does not solve the problem for Florida residents. The court in Wells Fargo Bank v. Barber (M.D. Fla. 2015) held that a membership interest in an LLC is intangible personal property that accompanies its owner. A Florida resident’s interest in a Nevis LLC was therefore located in Florida, and Florida’s creditor remedies governed it. The same reasoning reaches an LLC formed in another state, which is why the foreign-LLC route buys a Florida resident little.

When a multi-member LLC is insufficient, or when the creditor threat is too aggressive for a charging order to deter, the analysis moves to offshore trusts with independent foreign trustees outside U.S. court jurisdiction.