By Larry R. Rothenberg, Partner
A limited liability company (LLC) is a form of business association that was created to provide limited liability as well as tax benefits. Ohio’s LLC statutes, which were originally enacted in 1994, have been amended several times since. New amendments[1] that became effective on May 4, 2012, bring about significant changes.
Among the changes is a clarification and limitation on the rights of a judgment creditor. The amendments add to the statute[2] which provided that upon application for a “charging order”, a court could charge an LLC member’s membership interest in the LLC with payment of the unsatisfied amount of the judgment, and that to the extent the membership interest was so charged, the judgment creditor could have the rights of an assignee of the membership interest. But is that the creditor’s only remedy, or could the creditor also be entitled to levy on and take ownership of, the member’s interest, and demand that distributions be made or to participate in management of the Ohio LLC?
Prior to the amendments, Ohio’s statute was substantially similar to Florida’s corresponding statute[3] . In 2010, the Florida Supreme Court decided a case[4] holding that the remedy provided by the statute for a charging order was not the creditor’s only available remedy. The Court held that the judgment creditor could also make use of a separate statute whereby various categories of real and personal property, including “stock in corporations,” are subject to levy and sale under execution. Hence, the creditor in the Florida case was entitled to take over the management of the single-member LLC. Although that case is binding only in Florida and it dealt with a single-member LLC, the implication was that a similar remedy may also be available in the context of a multi-member LLC.
Perhaps in order to preclude an Ohio court from interpreting Ohio’s statute similar to the Florida case’s holding, the new amendments to Ohio’s statutes close the door to any alternative remedy. In clear terms, the amended statute now states that a charging order is the sole and exclusive remedy that a judgment creditor may seek to satisfy a judgment against the membership interest of a member or a member’s assignee. The amended statute further states that no creditor of a member of an LLC or a member’s assignee shall have any right to obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property of the LLC.
Any hope of convincing an Ohio court to follow the Florida decision is now gone. Based on Ohio’s amendments, judgment creditors of a member of an Ohio LLC are clearly limited to a charging order on the member’s interest. The charging order will entitle the creditor to LLC distributions, if and when made, but the creditor will not be permitted to take over LLC assets or participate in the management of the LLC.
The amendments to Ohio’s statutes also change, among other things, provisions with regard to operating agreements, a member withdrawing from the LLC, and the fiduciary duties of the members.
If you have any questions on this matter, please contact Larry R. Rothenberg, Esq. Larry is the partner in charge of the Real Estate Default Group in the Cleveland office of Weltman, Weinberg & Reis Co., LPA who focuses on complex foreclosures, evictions and title insurance issues. He is the author of the Ohio Jurisdictional Section within the treatise, “The Law of Distressed Real Estate”, and was a contributing author to “Ohio Foreclosures, What You Need To Know Now”, published by The West Group. He can be reached at 216.685.1135 or lrothenberg@weltman.com.
[1] H.B. 48.
[2] Ohio Revised Code §1705.19.
[3] Fla. Stat. §608.433 (4).
[4] Olmstead v. Federal Trade Commission, No. SC08-1009.
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