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LLC Member Unable to Use Garnishment to Recover Judgment from Terminated Member

gavel-moneyWhen the business relationships that underpin limited liability companies go sour, the results can be disappointment, anger, and complication. This was especially true in the case of two women who co-owned a Martin County-based business. When the majority owner forced the minority owner out, she wrongfully used garnishment to collect a judgment debt the minority owner owed her. The 4th District Court of Appeal threw out that garnishment, ruling that the law only allowed the majority owner to collect through a charging order, not garnishment.

Leslie Couture Levy and Darlene Young were co-owners of a business, Wear It’s At, LLC, in Stuart, Florida. Levy was a 51% owner of the LLC, and Young held the other 49% ownership. Eventually, the relationship between Levy and Young broke down due to differences of opinion regarding management style. Levy terminated Young from the business, locked her out of the premises, and denied her access to the company’s bank accounts.

Levy’s and Young’s dispute spilled into the courts, where Levy ultimately prevailed, including receiving an award of attorney’s fees in excess of $41,400. Levy then asked the trial court for a garnishment order to recoup the attorney’s fees judgment.

According to the business’ records, it held $44,100 that it owed to Young. The court order stated that Levy could garnish up to the full amount of the attorney’s fees from this sum and then distribute the remainder to Young, which would drop the payment to Young to less than $2,700. Young appealed, arguing that the trial court’s garnishment order violated the plain language of the Florida Statutes governing satisfying judgments through the use of a judgment debtor’s interest in an LLC.

The appeals court agreed with Young. Section 608.433(5) of the Florida Statutes explicitly sets out the appropriate methods for dealing with these situations, and garnishment was not a permissible means. The statute specifically states that “a charging order is the sole and exclusive remedy by which a judgment creditor … may satisfy a judgment from the judgment debtor’s interest in a limited liability company or rights to distributions from the limited liability company.” A charging order gives a judgment creditor the right to receive distributions owed to the judgment debtor from the LLC.

The court rejected Levy’s contention that the sums owed to Young were profits or dividends and, as a result, exempt from the restrictions imposed by Section 608.433. Chapter 608 of the Florida Statutes makes clear that interests covered by those statutes include the right to share in the profits or losses of an LLC. Thus, even if Levy was correct that the money owed to Young constituted profits, Section 608.433 still applied.

In the end, Wear It’s At was an LLC subject to the statutory rules of Section 608.433(5), meaning that Levy’s one and only legal option was to obtain a charging order. The garnishment order she secured from the trial court was prohibited by the statute, the appeals court ruled.

Dealing with the removal of a minority owner of an LLC can be complex and require detailed knowledge of and careful attention to Florida law. For your issues related to changes in the ownership of your LLC, talk to the Florida business law and commercial litigation attorneys at Stok Folk & Kon. Our attorneys can help you ensure that the steps you take are 100% compliant with the law.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

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