[WSBARP] Execution on judgment

[Eric Nelsen]

I think I get that. I agree that with a multiple member LLC, the transferee of a transferable interest can't get in as a member (with voting and management and control rights) without more, because the other members still vote and do all the management.

But for a single member LLC, a foreclosure and transfer of the member's transferable interest means the LLC no longer has any members. The last (only) member is deemed to have dissociated because of the transfer, under RCW 25.15.131(1)(b)<http://app.leg.wa.gov/RCW/default.aspx?cite=25.15&full=true#25.15.131>. And if the LLC has no remaining members, then the transferee(s) can vote on membership, per RCW 25.15.265(4). Et voila, the transferee becomes a member. No?

Also, again per RCW 25.15.265(4), if 90 days pass post-foreclosure and the transferee(s) don't vote in at least one new member, then the LLC automatically dissolves because it no longer has any members. Then I think it's a fight on who is control of the winding up, based on interpretation of RCW 25.15.297<http://app.leg.wa.gov/RCW/default.aspx?cite=25.15.297> Subsections (3) versus (4). But I think the creditor should just vote itself in as a member within the first 90 days, and take control that way.

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] On Behalf Of Robert Pampell
Sent: Tuesday, November 07, 2017 10:55 AM
To: 'WSBA Real Property Listserv'
Subject: Re: [WSBARP] Execution on judgment

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> [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<mailto: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.


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Robert Pampell, Attorney
21st Century Law Office (r)
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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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