[WSBARP] Execution on judgment

Tue Nov 7 10:55:14 PST 2017

The key here is the term "transferable interest."  As defined in Section
25.15.006(19) a 'transferable interest" means a member's or transferee's
right to receive distributions of the limited liability company's assets."
The holder or a mere transferable interest does not have the right, without
more, to be admitted as a member or to vote or otherwise exercise management
rights with respect to the company.

That said, yes, some courts have disregarded that distinction and allowed
the creditor to exercise the ownership and management rights of the debtor
member.  Subsection (5) is supposed to prevent that, but it does not always
work out.  Contrast some other versions of RULLCA, in which a specific
carve-out  from (5) is provided as to SMLLCs.  To your point, the creditor's
judgment might attach to liquidating distributions under 25.15.305, but how
would the creditor be able to bring about the dissolution of the LLC?  The
creditor is not a member or manager and has no standing to commence a
judicial dissolution under 25.15.274 and maybe not even 25.15.265.

This may be among the reasons that charging order lien foreclosures are
extremely rare in the real world. 

In re Huber, cited by Rob Rowley, is a bankruptcy case, which is a whole
different ball game.  It is same to assume that an SMLLC is toast in the
event of the member's bankruptcy.

Interesting discussion.

From: wsbarp-bounces at lists.wsbarppt.com
[mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Tuesday, November 07, 2017 8:49 AM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Execution on judgment

Wait, maybe I am all wet, but as I read that statute, it is possible to
foreclose on the member's transferable interest in the LLC, per RCW
25.15.256(2)
<http://app.leg.wa.gov/RCW/default.aspx?cite=25.15&full=true#25.15.256> .
Subsection 1 allows a charging order akin to a garnishment on the member's
interest, and subsection 2 allows foreclosure and sale/seizure of the
interest itself. Yes?

Admittedly the foreclosure only takes the debtor's "transferable interest,"
but if it's a single member LLC, if I represented a creditor I would
foreclose on the 100% transferable interest. Then the creditor would be a
100% transferee, there would be no existing "members" with voting rights,
and therefore the creditor has the right to vote to be admitted as a member
within 90 days after the transfer, per RCW 25.15.265(4)
<http://app.leg.wa.gov/RCW/default.aspx?cite=25.15&full=true#25.15.265> .
The judgment creditor would thus effectively seize ownership and control of
the LLC and its assets.

Do you think that would work?

Sincerely,

Eric

Eric C. Nelsen

SAYRE LAW OFFICES, PLLC

1417 31st Ave South

Seattle WA  98144-3909

phone 206-625-0092

fax 206-625-9040

From: wsbarp-bounces at lists.wsbarppt.com
<mailto:wsbarp-bounces at lists.wsbarppt.com>
[mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Robert Pampell
Sent: Monday, November 06, 2017 10:43 PM
To: 'WSBA Real Property Listserv'
Subject: Re: [WSBARP] Execution on judgement

No.  See RCW Sec. 25.15.256, esp. subsection (5).  Known as "charging order
exclusivity," this subsection was added in the amendments effective 1/1/16.

While you are at it, your client should be advised, as should all LLC
clients should be, that single member LLCs "make lousy asset protection
vehicles", to quote a prominent national creditor rights/asset protection
expert.  He was addressing the typical veil-piercing and alter ego flavor of
asset protection, rather than the so-called "reverse veil-piercing" variety
addressed by the section cited above.

Robert Pampell, Attorney

21st Century Law Office (r)

19125 Northcreek Parkway, Suite 120

Bothell, WA 98011

voice: 425-329-2629
fax: 877-640-6403
cell: 425-501-4784
email:  <mailto:rpampell at swcp.com> rpampell at swcp.com

 <http://www.linkedin.com/in/robertpampell>
http://www.linkedin.com/in/robertpampell

 <http://www.21stlawoffice.com/> www.21stLawOffice.com

From: wsbarp-bounces at lists.wsbarppt.com
<mailto:wsbarp-bounces at lists.wsbarppt.com>
[mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Craig Gourley
Sent: Monday, November 06, 2017 3:41 PM
To: wsbarp at lists.wsbarppt.com <mailto:wsbarp at lists.wsbarppt.com> 
Subject: [WSBARP] Execution on judgement

Listmates, 

Client has a judgment against him personally and wants to acquire real
property in a single member LLC.  I know the judgment does not attach
directly to the real property.  My recollection is that the creditor can
obtain a charging order against the LLC and any distributions to the member
would go to the judgment creditor.  Can the judgment creditor execute
against the personal property interest of the " membership" thereby taking
ownership of the LLC and the property it contains?   Thanks in advance for
your insight. 

Gourley Law Group

Snohomish Escrow

The Exchange Connection

1002 10th Street / PO Box 1091

Snohomish, WA 98291

360.568.5065

360.568.8092  fax

Craig at glgmail.com <mailto:Craig at glgmail.com> 

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