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February 20, 2015

How a Florida District Court Allowed Enforcement of a Judgment against a Nevis Limited Liability Company Membership Interest

Authored by Eric (Rick) Rein

 in International Asset Recovery

Enforcement against foreign assets in a US court has been difficult. However, the Middle District of Florida in Wells Fargo Bank v. Barber, 2015 WL 470589 (M.D. Fla Feb 4, 2015), showed how it is possible.

There, plaintiffs had obtained a state court judgment and sought to enforce that judgment seeking injunctive relief, foreclosing on a membership interest in a Nevis LLC, and to avoid fraudulent transfers. Defendants sought to dismiss the complaint. As to the count to foreclose upon the membership interest, the defendants took the position that the Nevis LLC was beyond in rem or quasi in rem jurisdiction of the court. The court determined that a membership interest in a limited liability company is intangible personal property, which "accompanies the person of the owner." Since the defendant resides in Florida, her membership interest is located in Florida and is properly subject to in rem jurisdiction in Florida.

The court also had to consider whether the laws of Florida or Nevis applied as to enforcement against the membership interest. The court noted that the Florida LLC Act provides two avenues for a judgment creditor to recover from a judgment debtor's membership interest. First, a judgment creditor may apply for a charging order to receive distributions whenever the judgment debtor was entitled. Second, where the judgment debtor is the sole member of the LLC, the judgment creditor may apply to foreclose the interest in the company upon proper showing. By comparison, the Nevis LLC Ordinance allows for the entry of a charging order and as such, the court may charge the member's interest with payment of the judgment. To the extent so charged, the judgment creditor has the rights of an assignee of the member's interest. However, Nevis law is clear that such a charging order "shall be the sole remed(y) available to any creditor of a member's interest," thus excluding foreclosure on the membership interest regardless of circumstances. But, Nevis law allows the non-charged member to redeem a charged member's interest, while Florida LLC Act does not. Based on these distinctions, the court concluded that the remedies afforded to judgment creditors under the Florida LLC Act and the Nevis LLC Ordinance are not substantially similar and therefore, the court needed to complete a traditional conflicts-of-law analysis.

First, the court must characterize the legal issue. As stated earlier, membership interests are considered personal property, therefore, the legal issue sounds in property. Second, in Florida, the law of the situs of the property controls. Since the defendant resides in Florida, so does her membership interest in the Nevis LLC and Florida law applies. Because the defendant is the sole member of the Nevis LLC, foreclosure is a possible remedy and the motion to dismiss was denied.

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