Court Permits Creditor Foreclosure Of Debtor Interest In Single Member Delaware LLC

A debtor owned a series of single member Delaware limited liability company. Delaware law provides that the charging lien is the exclusive creditor remedy to attack all LLCs regardless of the number of members. Most other states including Florida  provide that a creditor can foreclose the debtor’s interest in a single member LLC.

I recently learned of a case where a judgment was entered in Utah against a debtor who owned single member LLC interests in  Delaware LLCs doing business in Utah. The creditor sought to seize and foreclose the debtor’s LLC interest. The debtor argued that Delaware law applies to the creditor’s charging remedies because the LLCs were Delaware entities.

The Utah court issued an order that Utah law applies to all judgment execution proceeding including the creditor’s foreclosure of the debtor’s interests in limited liability companies whether such LLCs are domestic or foreign.

I previously written on this blog that I thought a Florida court would permit foreclosure of a Florida’s debtor’s LLC interests formed in more protective states such as Delaware, Utah, or Wyoming. This is the first court decision I have seen on the issue. I continue to believe a Florida court would agree with the Utah result. See, 2011 WL 1230074