Louisiana Courtroom Of Appeals Rejects Busting Of One-Member LLC In AOK Property

Donald J. Boudreaux, Jr., was the sole proprietor of a 100% membership curiosity in SCI Leasing, LLC. On Oct 19, 2017, Donald transferred a 5% interest in SCI to his father, Donald, Sr. 6 months later on, on April 10, 2018, the 29th Judicial District Court for St. John the Baptist Parish in Louisiana entered judgment in favor of AOK Home Investments, LLC. A couple of months right after that, on July 19, 2018, Donald and SCI admitted Thomas LeBoeuf as a 10% member. The web result of all this is that Donald went from a 100% member to an 85% member of SCI inside of a calendar year.

AOK Property did not like this considerably, so it filed the Louisiana equal of an avoidable transaction lawsuit, identified as a “Revocatory Motion”, to void the 15% transfers from Donald to his father and LeBoeuf and thereby restore Donald to getting the 100% member of SCI Leasing, which would then presumably allow AOK Property to choose Donald’s complete interest in SCI and — as a single-member LLC — even further let AOK acquire command of SCI Leasing or execute on its property. Both of those Donald and AOK Assets moved for summary judgment.

The District Courtroom held that the Louisiana charging get statute did not utilize in the context of a single-member LLC owned by the debtor, considering the fact that in that circumstance that is no non-debtor member who has pursuits to secure from the creditor. To achieve this conclusion, the District Court fundamentally held that the Louisiana Supreme Court would stick to the ruling of the Florida Supreme Courtroom in Olmstead which held to that result.

On enchantment, the Louisiana Courtroom of Appeals reversed, in essence declaring that Louisiana charging get statute has the impact of limiting the legal rights to a judgment creditor to “only the rights of an assignee of the membership desire”, i.e., what is recognized as an “involuntary assignee”. The Courtroom of Appeals then extrapolated this to necessarily mean that the charging purchase is the only solution that is readily available to collectors from the LLC curiosity of a debtor, other than these kinds of equitable remedies as so-termed reverse veil-peircing. As a result:

“Simply because there has been no reverse piercing of the veil in this make any difference, we uncover that a simple reading of Louisiana’s charging provision for LLCs delivers the exclusive solution of a judgment creditor. Appropriately, we reverse the trial court’s June 25, 2020 judgment, uncover that a creditor is precluded by Louisiana charging purchase statutes from seizing a one-member LLC’s 100% membership desire in the LLC, and grant Mr. Boudreaux’s movement for summary judgment.”

This kind of was the ruling of the Louisiana Courtroom of Appeals, and I do not know irrespective of whether it will be even further appealed to the Louisiana Supreme Courtroom.

Assessment

This is just one of these opinions in which the Court docket of Appeals states something to the result that the statute says what the statute suggests, and if the point out legislature desires a diverse consequence then it demands to rewrite the statute. Apart from that the referenced statute listed here would not truly say that the Court docket of Appeals claims it does. Listed here is the comprehensive textual content of the statute:

“La.Stat. § 12:1331. Rights of judgment creditor. On software to a court docket of knowledgeable jurisdiction by any judgment creditor of a member, the court docket may perhaps cost the membership fascination of the member with payment of the unsatisfied volume of judgment with fascination. To the extent so billed, the judgment creditor shall have only the legal rights of an assignee of the membership curiosity. This Chapter shall not deprive any member of the profit of any exemption legal guidelines relevant to his membership desire.”

Compared with the statutes of some states, the higher than language does not prohibit the treatment of a creditor to a charging order, what is regarded as charging buy exclusivity. Nor does the language foreclose the District Court from building the choice that it did, which is that the full objective of the charging buy cure is to secure a non-debtor member from being pressured into an involuntary partnership with another member’s creditor, and this issue is utterly absent in the one-member LLC context.

Nevertheless, the Court of Appeals does have a valid stage in that this seriously is an challenge that really should not be fixed by judicial fiat, no issue how substantially feeling that would make, but in its place must be fixed by the Louisiana legislature. Notably, the newest iteration of the Uniform Constrained Liability Business Act (ULLCA) delivers for this kind of aid, pursuing the so-identified as Olmstead patch that was adopted by the Florida legislature to avert the owners of single-member LLCs from misusing these entities to defeat lenders. But the latest variation of the quoted Louisiana statute is at very best ambivalent and doesn’t genuinely deal with the situation at all.

So, Louisiana legislature, you should fix this.

CITE AS

AOK Residence Investments, LLC v. Boudreaux, ___ So.3d ____, 2020 WL 7240057, 20-237 (La.Application. 5 Cir. Dec. 9, 2020). Complete view at https://chargingorder.com/opinion-2020-louisiana-aok-residence-charging-purchase-late-arriving-member.html