Friday, June 25, 2010
Key Victory for Creditors in Florida Supreme Court
Today the Florida Supreme Court ruled in favor of the Federal Trade Commission (FTC) in the pivotal case Olmstead v Federal Trade Commission. The decision greatly favors creditors in their attempts to collect personal debts from debtors with assets held in single member Limited Liability Corporations (LLCs). LLCs are business entities created to provide tax benefits similar to that of a partnership, and liability protection similar to that of a corporation. The ruling of Olmstead threatens these benefits and protections for LLCs that have only one member (owner).
The issue before the Court stems from an advanced-fee credit card scam being operated by the appellants (Olmstead). This prompted suit by the FTC for unfair or deceptive trade practices. The assets of the appellants were frozen and placed in receivership. Several single-member LLCs were among the assets which were placed in receivership. Ultimately, the FTC was awarded over $10 million in restitution. The FTC was then granted an order compelling the appellants to forfeit all of their right, title, and interest in their respective LLCs to partially satisfy this judgment. Olmstead appealed this decision, claiming that this violated their statutory rights under the Limited Liability Corporation Act.
The Florida Supreme Court rejected this contention, stating that "Florida law permits a court to order a judgment debtor to surrender all right, title, and interest in the debtor's single-member LLC to satisfy an outstanding judgment." The ruling was not passed unanimously. Supreme Court Justice Lewis dissented, arguing that this could potentially have adverse effects on multimember LLCs and "render the assets of all LLCs vulnerable".
In light of the foreclosure epidemic and that Florida is a recourse state (banks can pursue mortgage deficiency often referred to as deficiency judgments), the Olmstead case would make mortgage borrowers' LLCs susceptible to bank deficiency judgments stemming from short sales, foreclosures and deed-in-lieu of foreclosure. If you have any questions regarding assets that may be vulnerable to judgment creditors, please contact Yesner & Boss, P.L. for a free consultation or visit www.yesnerboss.com.