Think Twice: Charging Orders and Creditor Property Rights

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Think Twice: Charging Orders and Creditor Property Rights

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The Article concludes, then, that most lawyers’ belief that a charging order effectively precludes creditor recovery is significantly overstated and that, given the extraordinary prevalence of partnership entities today, this is an important point that lawyers, teachers, and students overlook at their own peril.

Creator

Chad J. Pomeroy

Publisher

Kentucky Law Journal

Date

2014

Relation

Kentucky Law Journal

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RFC3778

Language

English, en-US

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Text

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102KyLJ705

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Think Twice: Charging Orders and
Creditor Property Rights
Chad J. Pomeroy1
Introduction

W

hat do you do? As a lawyer (or prospective lawyer), I mean—what
do you do (or what will you do) in exchange for a salary or hourly
fee? You will probably be expecting a lot of money for your services; so what,
exactly, is it that you will do to justify that payment?
The answer, of course, is varied because lawyers do lots of different things.
And, among these activities, there are some things that only lawyers can do.
Chief among those is suing people. Suing people is something that only
lawyers do because states do not generally permit non–lawyers to appear
in court or file pleadings.2 Accordingly, doing so—whether in pursuit of
injunctive relief, declaratory relief, or a monetary remedy—is a significant
part of the current legal market.3 Indeed, it is the professional focus of the
many lawyers who practice commercial litigation or who perform collections
work. In these areas of the law, lawyers sue people in an attempt to validate
their clients’ rights and causes of actions with a money judgment.
So what you do very likely comes down to getting money. This is not
novel, of course: many people spend their time arguing about, dealing with,
or negotiating over money. What is somewhat unique, however, is just how
clean and abrupt a lawyer’s role is in this context: your job is (or will be)
to take property belonging to someone else and convert it into property
belonging to your client—in other words, to create a property interest for
your client.
Creditors have a unique ability in our legal system to acquire property
rights in assets belonging to debtors. This Article examines these “creditor
property rights,” in general, and those granted to creditors of debtors that

1 Assistant Professor of Law, St. Mary’s University School of Law. J.D., Brigham Young
University; B.A., Brigham Young University.
2 This prohibition does not, of course, apply to permitted pro se claimants.
3 Compare Occupational Outlook Handbook, 2012–13 Edition: What Lawyers Do, Bureau Lab.
Stat. http://www.bls.gov/ooh/legal/lawyers.htm#tab–2 (last visited Feb. 8, 2014) (stating that lawyers’ responsibilities include conducting legal research, preparing legal documents, and representing
parties at trial), with Occupational Outlook Handbook, 2012–13 Edition: What Paralegals and Legal
Assistants Do, Bureau Lab. Stat. http://www.bls.gov/ooh/legal/paralegals–and–legal–assistants.
htm#tab–2 (last visited Feb. 8, 2014) (describing paralegals’ and legal assistants’ responsibilities,
including fact investigation, drafting legal documents, and assisting lawyers at trial).

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own interests in partnerships, limited partnerships, and limited liability
companies, in particular.4 More specifically, this Article examines charging
orders—the redress granted to a creditor vis–à–vis a debtor’s interest in a
partnership entity—and argues that this remedy is a much more significant,
useful, and choate right than is generally acknowledged by either the
academy or the bar.
Part I begins this examination by looking at the history of creditor
property rights and the manner in which they have developed over the
years, culminating in our current system, which allows creditors to “convert”
debtor property to creditor property via execution. This redress represents
the ultimate creditor right, but it does not stand alone. Rather, the courts
have fashioned a number of remedies that grant creditors a “partial” property
right. Of chief interest here is the charging order, which is reviewed in
detail in Part II. This Part explains the function, history, and evolution
of this remedy from its inception. The charging order initially developed
in the partnership context, in response to a perceived unfairness existing
when a creditor gained unfettered rights in the partnership interest of a
debtor–partner and the partnership’s underlying assets. Based on this
inequity, the courts granted creditors a provisional right in partnership
property (a “quasi” property right) by permitting the creditor to intercept
certain distributions that would otherwise flow from the partnership to
the partner but prohibiting any interference with the partnership itself.
The remedy quickly spread to limited partnerships and was incorporated
into LLC law from its inception. This is particularly important given the
explosive popularity of the LLC over the last thirty–five years5 and the
fact that the charging order—and its attendant limitation on creditors
(whether real or perceived)—has had an enormous effect on planning, on
transactional work, and on litigation in general.
Part III expands upon Part II’s examination of the charging order
remedy and argues that creditors of partnership entity owners are not as
limited as is widely believed and that the perception of the charging order
as an effective barrier to collection is exaggerated. Part III focuses on the
underlying purpose of creditor property rights and charging orders and
analyzes the language of some of the statutes that create the charging order
remedy. By placing charging orders in their proper context (as a type of
4 Hereafter, limited liability companies are referred to as LLCs, and all three of these entities
are collectively referred to as “partnership entities.”
5 See, e.g., John R. Price & Samuel A. Donaldson, Price on Contemporary Estate
Planning § 11.1, at 11–5 (2011 ed. 2010) (“[T]he LLC has become the vehicle of choice.”); David
L. Cohen, Theories of the Corporation and the Limited Liability Company: How Should Courts and
Legislatures Articulate Rules for Piercing the Veil, Fiduciary Responsibility and Securities Regulation for
the Limited Liability Company?, 51 Okla. L. Rev. 427, 447 & n.108 (1998) (“The LLC has spread like
wildfire throughout the country.”); Howard M. Friedman, The Silent LLC Revolution—The Social
Cost of Academic Neglect, 38 Creighton L. Rev. 35, 35 (2004) (“The [LLC] has become the dominant form for newly–created small businesses in a clear majority of the states . . . .”).

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creditor property interest) and by focusing on actual statutory language,
this Part highlights the options available to holders charging orders. These
options are substantial and should be more aggressively utilized by courts
and lawyers. If that occurs, the charging order will assume a more rightful
place in the hierarchy of creditor rights and afford much greater creditor
protection than it presently does.
The Article concludes, then, that most lawyers’ belief that a charging
order effectively precludes creditor recovery is significantly overstated and
that, given the extraordinary prevalence of partnership entities today, this
is an important point that lawyers, teachers, and students overlook at their
own peril.
I. Creditor Property Rights
As indicated above, creditor property rights constitute a large part of our
legal system. They do so substantively, in that property is a significant part of the
legal world and property rights arising from creditors’ claims are a significant
subset of property. And they do so practically, in that much of our legal system
and the current practice of law focus on creditor rights and on creditors’
attempts to gain rights to debtor property. The award of a charging order as
a remedy constitutes a small, but significant, element of this story. As such, in
order to fully analyze charging orders, it is necessary to first focus more broadly
on creditor property rights generally. Looking at the history and evolution
of this area of the law—with a particular focus on execution, the ultimate
remedy available to a creditor seeking to lay claim to debtor property—lays the
foundation for understanding charging orders and the relief creditors should
achieve thereunder.
A. Historical Development of Creditor Property Rights
Modern creditor rights vary from jurisdiction to jurisdiction, but the
early history and nature of credit arose in the same way throughout human
societies.6 Early on, when trade was primarily an individual matter without
a strong underlying sense of custom or propriety, there was no real concern
about creating creditor property rights (or about doing anything else to
protect creditors) because there simply was no credit.7 There was no real
trust among people, and there was no large commercial class, so payment
was contemporaneous with the delivery of goods or services and no one
worried about how to collect on their debts.8
6 See generally Louis Edward Levinthal, The Early History of Bankruptcy Law, 66 U. Pa. L.
Rev. 223, 228–31 (1918) (examining how societies developed their understanding of credit).
7 Id. at 228.
8 Id.; see also Louis Edward Levinthal, The Early History of English Bankruptcy, 67 U. Pa. L.
Rev. 1, 3 (1919) (quoting Sir Frederick Pollock, English Law Before the Norman Conquest, in 1 Select

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At some point, however, this changed. Due to the increasingly complex
nature of society, and to the commercialization and specialization of trade,
suspension of payment was gradually introduced.9 At first, the willingness
of one party to a transaction to permit the other party to borrow (that is,
to extend credit to a borrower) was viewed as an exception, to be extended
only rarely or only to a privileged few.10 Soon, however, economic necessity
intruded, and credit became a commonplace element of commercial
exchange.11 However, creditors did not fear default because of sanctions
that developed and built up alongside the creation and normalization of
commercial debt.12
The first such sanction was generally religious in nature and was meant to
bring public approbation and spiritual pressure to bear.13 One illustration is
the method of “sitting d’harna,” traditionally utilized in India.14 Thereunder,
a creditor who was owed money simply sat on the debtor’s doorway, for
all of the debtor’s family and neighbors to see, until the debt was paid.15
Another example comes from Egypt. There, a debtor traditionally “pledged”
the mummified body of a near, deceased relative, especially one’s father.16
If the debtor defaulted, the creditor removed the mummy and closed the
family tomb against the debtor’s own burial.17 The second sanction related to
execution, though not the sort we traditionally think of. Here, non–paying
debtors were subject to severe, physical mistreatment, often culminating in
explicit violence.18 Under Hindu law, for example, a creditor could maim or
kill a debtor, enslave the debtor, or harm the debtor’s family.19 Under the
Code of Hammurabi, the debtor or the debtor’s family were regularly sold
into slavery,20 and, in Rome, the debtor was said to have pledged his own
body against repayment, with failure to honor the debt often resulting in
the execution of the person.21

Essays in Anglo–American Legal History 88, 104 (Ass’n of Am. Law Sch. ed., 1907)) (“Prior
to the Norman Conquest, ‘business had hardly got beyond ready money between parties both present,’ and there was not much room for trade confidences.”).
9 See Levinthal, The Early History of Bankruptcy Law, supra note 6, at 229.
10 See id.
11 See id.
12 See id.
13 See id.
14 Id.
15 Id.
16 Id.
17 Id.
18 Id. at 229–30.
19 Id. at 230.
20 Id.
21 Id. at 231.

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Credit in its early forms, then, was either non–existent or strenuously
enforced. It was not until later, as custom mellowed and formal law supplanted
tradition, that creditor protection solidified into a regulated whole. In the
English and American system, contingent creditor property rights were
created in debtor property. This was accomplished by turning execution
away from the person and toward their property, thereby protecting debtors’
freedom and physical safety but not their estate.22 Debtor protection was
not the sole basis for this change, however. Instead, this was “an instance of
the general evolution of legal process from the stage were [sic] retaliation is
the end in view to the stage where compensation is the chief desideratum.”23
So execution against property came to be the ultimate creditor remedy
in our system of laws—the option to which a creditor can turn when faced
with a non–paying debtor and when in need of recompense. This right to
reach out and convert another’s property to one’s own property is powerful
in its own right and is particularly interesting as it relates to charging
orders, a lesser (but related) remedy. Because of this relevance, it is worth
examining execution at greater length.
B. Execution, the Ultimate Creditor Remedy
The transition from personal execution to property–based (or proprietary)
execution was a relatively natural one, given the competing concerns regarding
the debtor’s safety and the creditor’s need for compensation and the historical
basis of execution existing in most systems of jurisprudence.24 These systems,
as indicated above, often viewed the debtor’s body as a direct pledge on the
debt.25 From there, it was a relatively natural transition to viewing the debtor’s
property as also serving as security.26 This leap, from person to property, created
22 It is important, here, to distinguish the remedy of execution from that of foreclosure. Foreclosure is similar to execution in that it permits creditors to convert debtor property to their own
and in that it is a result of “the power struggle between borrowers and lenders.” Basil H. Mattingly,
The Shift from Power to Process: A Functional Approach to Foreclosure Law, 80 Marq. L. Rev., Fall
1996, at 77, 89 (citing 4 American Law of Property: A Treatise on the Law of Property in
the United States 427–579 (A. James Casner ed., 1952)). The two are dissimilar, however, in that
foreclosure is the result of an express contractual agreement between the parties that a particular
piece of property (or multiple pieces of defined property) should be subject to the creditor’s potential property rights, whereas execution is the result of a statutorily granted right to generally seize
property that arises without the debtor’s consent or cooperation. This lack of debtor cooperation
parallels the granting of a charging order and draws the two together such that charging orders
can only be truly understood as part of the same spectrum of rights to which execution belongs.
23 Levinthal, The Early History of Bankruptcy Law, supra note 6, at 232.
24 See id. at 232–33.
25 See id. This view may well have arisen from a more explicit pledge of flesh in the context
of secured transactions. See, e.g., George Lee Flint, Jr., Secured Transactions History: The Fraudulent
Myth, 29 N.M. L. Rev. 363, 365 (1999) (“Primitive Roman law required human hostages providing
slave labor to the secured party.”).
26 See Levinthal, The Early History of Bankruptcy Law, supra note 6, at 232.

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a new set of creditor rights, ranging from the right of an individual creditor to
execute against specific property (individual proprietary execution) to the right
of one or more creditors to seize the entire debtor’s estate and liquidate it for
the benefit of all creditors (general proprietary execution).27
Tracing these twin developments, individual proprietary execution goes
back at least as far as the Statute of Acton–Brunell, passed in 1283.28 In response
to merchant complaints regarding commercial losses, and a concomitant
refusal to come to England to trade, Edward I passed this law, intending to
create a speedy method for debt recovery.29 Thereunder, merchants in certain
cities gained the power to summon debtors before the Mayor and establish
the debt and default.30 Once done, if the debts were not then paid, the Mayor
had the right to order the debtor’s assets sold for the benefit of the creditor.31
This process has evolved significantly over the last 720 years, of course, but the
underlying premise remains. Creditors still have the right to summon debtors32
and to seize their assets to pay proven debts.33
General proprietary execution merely broadened and extended that right.
The general right of execution developed alongside individual proprietary
execution as a complementary element of the same basic scheme intended to
compensate creditors. Here, rather than permitting a single creditor to seize a
single item of property, the law provided that all of the debtor’s assets (or its
“estate”) should be seized, sold, and divided up amongst all creditors.34 This
protects creditors from debtor fraud35 and from each other36 and ultimately
27 See id. at 232–35.
28 See Levinthal, The Early History of English Bankruptcy, supra note 8, at 7.
29 Id. at 7–8.
30 Id. at 8.
31 Id.
32 Rather than prove the debt before the Mayor, creditors now prove the debt before a court.
Doing so results in a judgment against the debtor, in favor of the creditor.
33 See, e.g., Cal. Civ. Proc. Code §§ 699.010–.090 (West 2009 & Supp. 2013); Conn. Gen.
Stat. Ann. §§ 52–367a to –367b (West 2005); Del. Code Ann. tit. 10, §§ 4901–4987 (West 1999
& Supp. 2012); N.Y. C.P.L.R. 5230 (McKinney 2009); Tex. Civ. Prac. & Rem. Code Ann. §§
34.001–.076 (West 2008 & Supp. 2013).
34 See Levinthal, The Early History of Bankruptcy Law, supra note 6, at 235–37.
35 This occurs, where, for example, a debtor wrongfully favors one creditor over another. See,
e.g., W.T. Jones, The Foundations of English Bankruptcy: Statutes and Commissions in the Early Modern
Period, 69 Transactions of the American Philosophical Society, No. 3, New Series, 1, 30
& n.108 (1979) (discussing P.R.O., C.39/24, Muschamp v. Stoakes (1598), an early case wherein the
executrix of a debtor confessed judgment in favor of a select number of creditors, thereby entirely
frustrating all other creditors).
36 This occurs where, for example, the creditors have to “race to the courthouse” to establish
their rights. See, e.g., Harold S. Burman, Harmonization of International Bankruptcy Law: A United
States Perspective, 64 Fordham L. Rev. 2543, 2548 (1996) (citing Joint Project of UNCITRAL and
INSOL International on Cross–Border Insolvencies: Expert Committee’s Report on Cross–Border Insolvency Access and Recognition, 5 INSOL Int’l Insolvency Rev. 140, 143–44 (1996))
(“Unsecured creditors seek to maximize return by preventing exclusion of secured interests, and by

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served as the basis for modern bankruptcy law, which is essentially a full–scale
execution of all of a debtor’s (non–exempt) assets.37
What our system has ultimately settled on, then, is a spectrum of creditor
rights, transferring debtor property to creditors to varying degrees depending on
a host of factors and circumstances. The charging order is part of this spectrum.
Though not as powerful as individual proprietary execution (and certainly not
as broad as general proprietary execution), the charging order is part of a long
tradition that transfers real and actual rights in debtor property directly to
creditors. Its rightful place in the panoply of creditor property rights38 speaks
volumes and is relevant in analyzing the true depth and worth of this remedy.
Before considering that at length, however, it is useful to examine in detail the
nature and development of the charging order.
II. Property Form and the Numerus Clausus
So creditor property rights have developed over time, attempting to grant
creditors property rights as necessary to effect legitimate claims but also
balancing this creation (or conversion) of property with the legitimate concerns
and needs of the debtor.39 The charging order is part of this development,40 and

beating other unsecured creditors in the race to the court house, before a stay may be imposed.”).
37 See Levinthal, The Early History of Bankruptcy Law, supra note 6, at 225–27.
38 This spectrum should be seen as a whole series of rights and interests developed by the
law in order to compensate creditors with debtor property but to do so in a reasonable fashion that
balances the competing concerns of the opposing parties. Another right that exists along this spectrum, for example, is the claim of fraudulent transfer, originating in the Statute of 13 Elizabeth and
invalidating “covinous and fraudulent” transfers meant “to delay, hinder or defraud creditors and
others.” Fraudulent Conveyances Act, 1571, 13 Eliz., c. 5 (1570) (U.K.). Again, this permits creditors
to exercise control over a debtor’s property in order to ensure creditor payment.
39 And, as discussed below, the interests of third parties doing business with the debtor. See
infra text accompanying notes 51–63.
40 This development has lately culminated in a charging order that applies to debtor interests
in LLCs. See Unif. Ltd. Liab. Co. Act § 504 (1996), 6B U.L.A. 605 (2008). This section of the Uniform Limited Liability Company Act (ULLCA) addresses the creation and awarding of a charging
order. Id. ULLCA is a uniform act, adopted by the National Conference of Commissioners on
Uniform State Laws in 1996. See, e.g., J. William Callison, Charging Order Exclusivity: A Pragmatic
Approach to Olmstead v. Federal Trade Commission, 66 Bus. Law. 339, 345 (2011). The Revised Uniform Limited Liability Company Act (RULLCA) followed in 2006. Id.; Rev. Unif. Ltd. Liab. Co.
Act (2006), 6B U.L.A. 407 (2008). Though neither statute has been systematically adopted by the
various states, they both serve as reasonable and useful guidance as to how state LLC statutes generally function and so are referred to throughout this Article. See Callison, supra, at 345–46. Though
LLCs, general partnerships, and limited partnerships are all distinct types of business entities with
distinct rules, LLC charging orders have evolved directly from the general partnership and limited
partnership charging order concepts and all charging orders function in roughly the same manner.
See id. at 341–45. Accordingly, this Article frequently cites to the Uniform Partnership Act (UPA),
the Revised Uniform Partnership Act (RUPA), the Uniform Limited Partnership Act (ULPA),
and the Revised Uniform Limited Partnership Act (RULPA), and all of these acts may be relied
on herein to the extent relevant.

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the nature of the charging order is relevant because of what it tells us about
the placement and purpose of charging orders within the general penumbra
of creditor property rights, how that function has changed over time, and how
charging orders ought to be perceived and utilized by the bar and judiciary.
A. Description and Initial History
The charging order constitutes a distinctive part of the general suite of
creditor property rights. It arises only in the context of partnership entities
and effectively prevents creditors from directly seizing debtor interests in these
businesses.41 Instead of direct execution, a judgment creditor may use a charging
order to “reach only the debtor–member’s interest in the firm’s distributions,
somewhat like garnishment.”42 This means that the creditor is able to gain a
property interest in something (the right to distributions) but not the actual
interest in the entity itself.43 The charging order, then, constitutes a lien on the
debtor’s right to distributions,44 and it stays attached thereto until the judgment
is satisfied,45 but it does not affect any other rights the partner had before the
execution of the order (including managerial rights).46 If the judgment will not
be satisfied, or if the creditor can demonstrate a need, the relevant court may
ultimately appoint a receiver, order foreclosure, or make other orders, but these
remedies are rarely utilized.47
In this fashion, the law has effectively fashioned an “in between”
remedy—greater than a naked, unsecured claim but less than the right to
foreclose or otherwise seize an asset.48 Indeed, “[c]harging orders have been
41 See infra Part II.B.
42 Larry E. Ribstein, Reverse Limited Liability and the Design of Business Associations, 30 Del.
J. Corp. L. 199, 203 (2005); see also Carter G. Bishop, Desiderata: The Single Member Limited Liability
Company Olmstead Charging Order Statutory Lacuna, 16 Stan. J.L. Bus. & Fin. 222, 225 (2011) (referring to a charging order as “a perpetual garnishment order”).
43 This “bundle of rights” then, is considerably less than what one would have if one owned
the interest in the entity outright. The actual logistics of getting this lesser bundle of rights probably
varies from jurisdiction to jurisdiction. In general, the judgment creditor probably needs to obtain
and serve an order to show cause or some other sort of order from the court directing the partners
to either oppose the charging order or to consent to its direction that future profits be directed to
the creditor. See J. Gordon Gose, The Charging Order Under the Uniform Partnership Act, 28 Wash.
L. Rev. 1, 19 (1953).
44 Unif. Ltd. Liab. Co. Act § 504(b), 6B U.L.A. 605.
45 See Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging
Order Statutory Lacuna, supra note 42, at 225.
46 See, e.g., Weddell v. H2O, Inc., 271 P.3d 743, 750 (Nev. 2012) (“[T]he debtor member no
longer has the right to future LLC distributions to the extent of the charging order, but retains all
other rights . . . including managerial interests.”).
47 But see infra Part III.B. These additional rights are at the heart of what this Article is about
and are discussed at length below.
48 See, e.g., First Mid–Illinois Bank & Trust, N.A. v. Parker, 933 N.E.2d 1215, 1222 (Ill. App.
Ct. 2010) (internal quotation marks omitted) (“[The Illinois LLC Act Statute regarding charging

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described as ‘nothing more than a legislative means of providing a creditor
some means of getting at a debtor’s ill–defined interest in a statutory bastard,
surnamed ‘partnership,’ but corporately protecting participants by limiting their
liability as [ ] corporate shareholders.’”49 The charging order, then, is distinctive
and is not a full property right, but it still fits comfortably within the larger
galaxy of creditor property rights intended to aid creditors in their quest for
compensation. Just how this kind of remedy came about is both interesting
and relevant to this Article’s discussion regarding the legitimate scope and
application of the LLC charging order.
As with so many things, the charging order came from England, having
been incorporated into the English Partnership Act.50 The reason for this
half–step toward creditor ownership arises from the law’s struggle to define
and properly treat a partnership vis–à–vis its constituent partners. By its
very nature, a partnership requires more than one person.51 So who owns
what? Does each partner own a pro rata share of all property “belonging
to the partnership”? Or does each partner merely own its particular share
of the partnership, which in turn directly owns the property titled to the
entity? This question reflects a long–standing divergence in the treatment
of partnerships wherein a partnership is treated as either an entity or an
aggregate of the partners.52
Early law, as embodied in the Uniform Partnership Act of 191453 (UPA),
adopted the aggregate view, rejecting the idea that the partnership was a
separate legal entity and dictating that partnership assets were therefore
owned by the partners collectively.54 This led to significant confusion,
wherein courts and lawyers mistakenly believed that a partner’s interest was
a direct interest in the property of the firm, rather than an intangible share
orders] creates a special remedy that enables the creditor to realize the value of the judgment debtor’s distributional interest, while at the same time protecting both the limited liability company’s
ability to continue to operate and the interests of the other members.”).
49 Weddell, 271 P.3d at 750 (quoting Bank of Bethesda v. Koch, 408 A.2d 767, 770 (Md. Ct.
Spec. App. 1979)).
50 Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging Order
Statutory Lacuna, supra note 42, at 231; Gose, supra note 43, at 3; see also Rev. Unif. P’ship Act § 301
cmt. 2 (1997), 6 pt. I U.L.A. 101–02 (2001).
51 This is the case in the vast majority of situations. There is, however, an exception to virtually everything, and, technically, there may be a situation where a partnership continues on with
a single owner. See generally Robert W. Hillman & Donald J. Weidner, Partners Without Partners:
The Legal Status of Single Person Partnerships, 17 Fordham J. Corp. & Fin. L. 449 (2012). This minor
anomaly is not directly relevant here. For our purposes (and in the vast majority of situations), “[a]
partnership is formed whenever two or more persons voluntarily associate in the carrying on of a
business without forming some other business organization.” Id. at 471 (emphasis added).
52 See, e.g., Robert W. Hamilton et al., Cases and Materials on Corporations Including Partnerships and Limited Liability Companies 46–49 (11th ed. 2010).
53 Unif. P’ship Act (1914), 6 pt. I U.L.A. 275 (2001).
54 See, e.g., Hamilton et al., supra note 52, at 103 (discussing the “tenancy in partnership”
form of ownership effectively established by the UPA).

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in the business operations of the entity.55 Moreover, even when this concept
was properly understood, there simply was no procedure by which a creditor
could seize the debtor–partner’s intangible interest in the business.56 The
only available remedy was the writ of f ieri facias, which only addressed
the seizure of physical property.57 As such, “[s]ince it was practically
inconceivable that valuable partnership interests should be exempt from
creditors’ claims,” creditors were systematically permitted to seize assets
directly owned by the partnership.58
This meant that a debtor’s partners had a very direct, and very practical,
stake in the debtor’s affairs. Effectively, foreclosure of a partner’s interest
was a foreclosure of the partnership’s assets, and such a foreclosure often
resulted in a termination of the partnership’s business.59 An early English
case makes the point well:
When a creditor obtained a judgment against one partner and he wanted
to obtain the benefit of that judgment against the share of that partner
in the firm, the first thing was to issue a [writ of execution], and the
sheriff went down to the partnership place of business, seized everything,
stopped the business, drove the solvent partners wild, and caused the
execution creditor to bring an action in Chancery in order to get an
injunction to take an account and pay over that which was due by the
execution debtor. A more clumsy method of proceeding could hardly
have grown up.60

This result was not optimal for anyone. It was unfair to the non–debtor
partners, for obvious reasons.61 It was a loss to society, insofar as profitable
and contributing companies were put out of business due to non–market
externalities.62 And it was often harmful even to the “recovering” creditor

55 Gose, supra note 43, at 2.
56 Id.
57 See id.
58 See id. (citing Nixon & Chatfield v. Nash, 12 Ohio St. 647, 648 (1861)).
59 See Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging
Order Statutory Lacuna, supra note 42, at 231.
60 Id. (quoting Brown, Janson & Co. v. A. Hutchinson & Co., [1895] 1 Q.B. 737 (Eng. C.A.));
see also Gose, supra note 43, at 1 (“Substantially the same procedure prevailed throughout the United
States.”).
61 See Gose, supra note 43, at 2 (listing reasons as disruption of the business and dissolution
of the partnership).
62 See, e.g., Kenneth S. Klein, When Enough Is Not Enough: Correcting Market Inefficiencies in
the Purchase and Sale of Residential Property Insurance, 18 Va. J. Soc. Pol’y & L. 345, 346 n.2 (2011)
(“Inefficient markets are ones unnecessarily burdened with external costs or risks, such as a cost or
risk that could be eliminated with a solution costing less than the cost or risk itself, or a transactional cost or risk allocated to a party inadequately apprised of the allocation and thus without a
reasonable opportunity to account for the cost or risk when negotiating the transaction price.”);
cf. Richard A. Posner, Economic Analysis of Law 533 (8th ed. 2011) (discussing the negative
economic consequences associated with the impermanence of partnerships).

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because any cessation of business reduced the value of the partnership
interest the creditor had hoped to retrieve.63
In the United States, numerous reforms were instituted in an attempt to
address these difficulties. Texas, for example, passed a statute that permitted
a “symbolic seizure” of a partner’s business interest by physically exhibiting
the writ at the partnership place of business.64 In other jurisdictions, statutes
permitted the constructive seizure of partnership assets but forbade any
actual interference.65 But these new laws did not address the core problem—
distinguishing between a partner’s ownership in the business entity itself
and that entity’s ownership of property. This state of affairs gave rise to the
charging order.
The charging order was meant to directly address this problem, which
arose from the aggregate nature of the partnership, and to “protect the
partnership business from disruption at the hands of the creditors of an
individual partner.”66 As discussed above, it did so by permitting creditors
to theoretically salvage the worth of a partnership interest (i.e., the profit
arising therefrom) without directly seizing any assets.67 This intermediate
right seemed a reasonable attempt to balance competing interests by
providing aid to creditors and simultaneously preventing the harm
traditionally suffered by innocent third party partners.
Additionally, the charging order served a number of salutary purposes,
despite the difficulties arising from an aggregate view of partnerships.68 This
is because of the relatively small scale of most unincorporated entities and
what that implies for the owners thereof. Many, if not most, partnerships are
relatively small and do not involve significant professional management.69
Contrast this with some larger corporations wherein a large number of
owners—who do not necessarily know anything about each other—come

63 Gose, supra note 43, at 2 (“[G]ood will and going concern value might be impaired or
destroyed.”).
64 Id.
65 In Washington, for example, state law allowed the partnership to retain possession if the
non–debtor partners posted a bond. See id. at 3.
66 Daniel S. Kleinberger, Carter G. Bishop & Thomas Earl Geu, Charging Orders and the
New Uniform Limited Partnership Act: Dispelling Rumors of Disaster, Prob. & Prop., July–Aug. 2004,
at 30, 31; see also Gose, supra note 43, at 1.
67 See supra note 43 and accompanying text.
68 RUPA has adopted the entity view of partnerships but has nevertheless retained the
charging order as a remedy available to creditors of individual partners. See Hamilton et al.,
supra note 52, at 48; see also Rev. Unif. P’ship Act § 201 (1997), 6 pt. I U.L.A. 91 (2001). Similarly,
LLC law and limited partnership law both provide for charging orders, even though both sets of
doctrine clearly honor and accept the entity view. See Rev. Unif. Ltd. Liab. Co. Act § 503 (2006),
6B U.L.A. 498–99 (2008); Rev. Unif. Ltd. P’ship Act § 703 (2001), 6A U.L.A. 463 (2008).
69 See Lloyd Hitoshi Mayer, Nonprofits, Politics, and Privacy, 62 Case W. Res. L. Rev. 801,
828 (2012).

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together as investors in an entity run by highly compensated professionals.70
This generally means that the few owners in a given unincorporated entity
know each other and consciously choose to do business together. Permitting
a stranger to intrude into the partnership, then, would work a hardship on
all parties.71
The law recognizes this hardship and so has established the “pick your
partner principle,” which essentially dictates that no new partners can
be admitted into a partnership without the unanimous approval of all
other partners.72 The charging order effectively backstops this rule against
assignment,73 ensuring that involuntary assignees play by the same rules
70 See Kelli A. Alces, Strengthening Investment in Public Corporations Through the Uncorporation, 35 Seattle U. L. Rev. 1009, 1027 (2012) (“[T]he numerous, widely dispersed shareholders who
also invest in public corporations.”). But see infra note 76.
71 This is particularly so in a general partnership setting, wherein all partners have equal
management rights, all partners have apparent authority, all partners have personal liability, and any
partner can cause dissolution. See Steven O. Weise, PEB Commentary No. ____ Application of UCC
Sections 9–406 and 9–408 to Transfers of Interests in Unincorporated Business Organizations, ST044
A.L.I.–ABA 377, 380 (2012). Of course, this desire to be able to determine one’s own partners also
arises from simple human nature: people enter into business arrangements with specific individuals
based on trust and a belief that those individuals will make “good” partners. Permitting a debtor–
partner’s creditor to unilaterally interject forces a stranger into the mix, something people generally, and understandably, do not want. See J. Dennis Hynes, The Charging Order: Conflicts Between
Partners and Creditors, 25 Pac. L.J. 1, 12 (1993) (“The nondebtor partners in a charging order setting
have had a situation thrust upon them which occurred outside of the course of partnership business
and over which they had no control.”). Closely related to this generic desire, however, is a specific
concern about liability. See generally Hamilton et al., supra note 52, at 104–09. Partners have the
ability to bind the partnership. Unif. P’ship Act § 9 (1914), 6 pt. I U.L.A. 553 (2001); Rev. Unif.
P’ship Act § 301 (1997), 6 pt. I U.L.A. 101 (2001). And partners are, in turn, liable for partnership
liabilities. See also Unif. P’ship Act § 15, 6 pt. I U.L.A. 613 (2001); Rev. Unif. P’ship Act § 306,
6 pt. I U.L.A. 117 (2001). Accordingly, every partner is potentially liable for the acts of every other
partner, and the law generally holds that this potentially unlimited liability should only be incurred
voluntarily.
72 This “pick your partner” principle is considered “a fundamental characteristic of the law
and practice related to unincorporated business organizations . . . by which an owner can decide
who the owner’s business partner or partners may be through the use of those very transfer restrictions.” Weise, supra note 71, at 380. This principle is notably expressed in UPA sections 18, 27 and
RUPA section 401. See Callison, supra note 40, at 343 (“By preventing assignees (both voluntary and
involuntary) from participating in partnership business, the pick–your–partner principle avoids
undue and unbargained–for risk to the partnership business and the other partners posed by the admission of a stranger to the partnership.”). This principle is also at the “core” of LLC law. Daniel S.
Kleinberger & Carter G. Bishop, The Next Generation: The Revised Uniform Limited Liability Company Act, 62 Bus. Law. 515, 544 (2007); see also Rev. Unif. Ltd. Liab. Co. Act § 502 cmt. (2006), 6B
U.L.A. 497 (2008) (“One of the most fundamental characteristics of LLC law is its fidelity to the
‘pick your partner’ principle. This section is the core of the Act’s provisions reflecting and protecting that principle.”). And limited partnerships also reflect this principle. See Daniel S. Kleinberger,
A User’s Guide to the New Uniform Limited Partnership Act, 37 Suffolk U. L. Rev. 583, 597 (2004)
(“Article 7 . . . reflect[s] the ‘pick your partner’ approach that is characteristic of partnership law.”);
see also Rev. Unif. Ltd. P’ship Act § 703 cmt. (2001), 6A U.L.A. 464 (2008).
73 The law is actually a little more nuanced than this statement implies. A partner can transfer its “interest in the partnership.” See, e.g., Unif. P’ship Act § 26 (1914), 6 pt. II U.L.A. 349 (2001);

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such that both voluntary and involuntary assignees end up honoring the
“pick your partner” principle.74
The importance of this principle is further emphasized by contrasting
the charging order remedy with the remedy available to creditors of debtors
that own shares in a corporation. In that situation, if a debtor defaults,
the creditor can foreclose and obtain full and unfettered ownership of the
shareholders’ stock in the corporation.75 This right exists regardless of the
size or complexity of the corporation76 and gives the foreclosing party all of
the rights and elements of ownership associated with the foreclosed shares,

Rev. Unif. P’ship Act § 502 (1997), 6 pt. I U.L.A. 156 (2001). But this “interest in the partnership”
is not what we generally think of as a “partnership interest.” It is, instead, merely a share of profits,
losses, and rights to distributions. See id. It is only this “bare economic interest” (or “distributional
interest”) that is freely transferable as personal property—a “full partnership interest” (with its
attendant right to management, information, etc.) is not transferable without unanimous partner
approval. See, e.g., Unif. P’ship Act § 18, 6 pt. II U.L.A. 101 (2001); Rev. Unif. P’ship Act §§ 401,
501, 503, 6 pt. I U.L.A. 133, 155, 156–57 (2001).
74 See Rev. Unif. P’ship Act §§ 501, 504 (1997), 6 pt. I U.L.A. 133, 160 (2001); Rev. Unif.
Ltd. P’ship Act (2001) §§ 702, 703, 6A U.L.A. 461–62, 463 (2008); Rev. Unif. Ltd. Liab. Co. Act
§§ 502, 503 (2006), 6B U.L.A. 496–99 (2008); see also In re Lucas, 107 B.R. 332, 336 (Bankr. D.N.M.
1989) (“Any assignee of the partnership interest merely entitles the assignee to receive the profits
to which the partner would otherwise be entitled.”); Kellis v. Ring, 155 Cal. Rptr. 297, 299 (Ct. App.
1979) (internal quotation marks omitted) (“While [the creditor] has a right to receive the share of
the profits or other compensation by way of income, or the return of his contributions to which his
assignor would otherwise be entitled, he has no right to interfere in the management of the limited
partnership.”); Madison Hills Ltd. P’ship II v. Madison Hills, Inc., 644 A.2d 363, 367 (Conn. App.
Ct. 1994) (“[A] charging creditor does not become a full partner [and] is not entitled to manage
the partnership . . . .”); Brant v. Krilich, 835 N.E.2d 582, 592 n.20 (Ind. Ct. App. 2005) (“There is no
reason why our courts should disregard the intent of the General Assembly to protect the close–
knit structure of a LLC and violate the other members’ interests and rights by declaring that they
must accept a judgment creditor of a member into full membership with all the rights appurtenant
thereto when the judgment debtor could not transfer those rights himself.”); Green v. Bellerive
Condominiums Ltd. P’ship, 763 A.2d 252, 261–62 (Md. Ct. Spec. App. 2000) (holding that the fundamental management rights of a partner are not transferred to a judgment creditor by a charging
order); Zokaites v. Pittsburgh Irish Pubs, LLC, 962 A.2d 1220, 1226 n.4 (Pa. Super. Ct. 2008) (“There
is no justification for this Court to ignore the intent of our Legislature to protect the close–knit
structure of a limited liability company and violate the other members’ interests and rights by declaring that they must accept a judgment creditor of a member into full membership with all the
rights appurtenant thereto when the judgment debtor could not transfer those rights himself.”).
But see Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging Order
Statutory Lacuna, supra note 42, at 235 (“[T]he charging order never truly had anything to do with
the pick–your–partner principle and the anti–transfer restrictions.”).
75 See, e.g., Stephen R. Looney & Ronald A. Levin, Limited Liability Companies Classified as
S Corporations – Part II, SN067 A.L.I.–ABA 961, 971 (2008).
76 See, e.g., Citizens United v. FEC, 558 U.S. 310, 354 (2010). In this case the Court supported its reasoning with evidence that that “96% of the 3 million businesses that belong to the
U.S. Chamber of Commerce have fewer than 100 employees” and “more than 75% of corporations
whose income is taxed under federal law have less than $1 million in receipts per year.” Id. (citations
omitted).

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including the right to vote, to participate in management, and to request
information.77
The rights of a creditor who lends to a shareholder, then, are significantly
greater than the rights of a creditor who lends to a partnership. Given that
there is no reason to believe that creditors of partners would differ from
creditors of shareholders, the difference must lie within the nature of the
entity, so we come again to the pick your partner principle: because of the
structure of corporations and the manner in which they are governed,78 it
is simply more important to be able to pick your partner (for the reasons
discussed above) than it is to be able to pick your fellow shareholder. 79
Charging orders, then, are only necessary to weight the scales in favor of
business–owner debtors when the nature of the business entity exposes
other owners to unfair liability or liquidation.
These concerns and historical circumstances all work together to explain
the circumstances and legal issues that gave rise to the charging order
and its unique balancing of debtor and creditor interests. The law is not
stagnant, though, and the charging order has evolved significantly over
time, contracting in some ways and expanding in others. This evolution is
important to examine, as it lends additional insight into the current nature
and scope of the charging order.

77 See Model Bus. Corp. Act §§ 7,8 (4th ed. 2008). Corporations can issue many different
classes of shares with many different characteristics. See, e.g., Model Bus. Corp. Act § 6.01 (4th
ed. 2008). So it is conceivable that a given class of shares may not have some or any of the rights
we generally associate with traditional common stock (i.e., voting rights, profit participation, etc.).
And, of course, the foreclosing party only inherits the rights actually inherent in the foreclosed
stock.
78 An explanation of corporate governance is beyond the scope of this Article. Suffice it
to say that: (a) corporations are limited liability entities such that shareholders are not subject
to liability for the actions of their fellow shareholders in the same way that partners are, and (b)
shareholders have a less direct role in the management and control of a corporation, given that corporations are generally controlled by officers and directors. Cf. David G. Yosifon, Consumer Lock–in
and the Theory of the Firm, 35 Seattle U. L. Rev. 1429, 1442 n.58 (2012) (“[A]ll partners have a right
to control the partnership and can, unlike shareholders, attend directly to the value of their own
investment.”). See generally Larry E. Ribstein, Limited Liability and Theories of the Corporation, 50
Md. L. Rev. 80 (1991) (discussing corporate shareholder limited liability).
79 This is particularly true in the case of minority partners. That is because minority partners
do not have the level of organizational control necessary to deflect the potential predations of a
creditor that steps into a position of control. As an example, assume that three partners—X, Y,
and Z—each own 1/3 of XYZ Partnership. If A gets a judgment against X and thereafter takes X’s
interest in XYZ Partnership, neither Y nor Z is at an extreme disadvantage. While it is true that
both Y and Z likely still have a number of objections to A’s involvement (they may not know A,
they are potentially subject to liability, etc.), Y and Z continue to control the partnership, through
their 2/3 ownership. As a counter–example, assume the same arrangement, except that X owns 60%,
and Y and Z each own 20%. Now, if A gets a judgment against X and thereafter takes X’s interest
in XYZ Partnership, both Y and Z are at an extreme disadvantage. A, a stranger to the partnership,
now has the ability to control, and even terminate, the business entity.

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B. Early Adoption, Evolution, and Perception of the Charging Order
Gaining traction for all of the reasons set forth herein, the charging order
made its first appearance in an American uniform statute in the Uniform
Partnership Act of 1914 (UPA).80 This iteration codified the charging order,
limited its effect, and strongly protected the pick your partner principle:
[The] statute made clear that a judgment creditor of any partner could
seek a court order charging the interest of the partner with the amount
of the unsatisfied judgment. The statute granted the court the power
to appoint a receiver to receive the profit distributions and to make all
other orders, directions, accounts, and inquiries which the debtor partner
might have made. The same statute also contemplated the creditor
could foreclose on its charging order lien and the partnership interest
could be redeemed at any time before the foreclosure sale. However, the
purchaser–assignee could only become a partner with the consent of all
the remaining partners. While the original charging order statute was
silent regarding “other” rights acquired by the purchaser at a foreclosure
sale, other provisions made clear that the purchase did not dissolve
the partnership or entitle the assignee to (i) interfere in management
or administration of the partnership business or affairs, (ii) require
any information or account of partnership transactions, or (iii) inspect
partnership books. The foreclosure sale only entitled the purchaser–
assignee to receive the profits to which the assigning–selling partner
would otherwise have been entitled. Moreover to make matters even
more clear, a separate statute indicated that a partner’s right in specific
partnership property was not subject to attachment or execution except
on a claim against the partnership itself.81

This language was picked up in 1916 by the Limited Partnership Act,82
and, from there, the concept was statutorily cemented into American
jurisprudence. The Revised Uniform Limited Partnership Act of 1976 with
the 1985 amendments,83 the Revised Uniform Limited Partnership Act of
2001,84 and the Revised Uniform Partnership Act of 199785 (RUPA) all
adopted similar language.86 And the charging order made its way into LLC
law when it was adopted by the Uniform Limited Liability Company Act of
199687 and the Revised Uniform Limited Liability Company Act of 2006.88
As the various charging order statutes filtered through the various
uniform acts and throughout all fifty states, the manner in which
legislatures, courts, and lawyers viewed and utilized this remedy evolved.
80 Unif. P’ship Act § 28 (1914), 6 pt. II U.L.A. 341 (2001); Bishop, Desiderata: The Single
Member Limited Liability Company Olmstead Charging Order Statutory Lacuna, supra note 42, at 231.
81 Id. at 231–32 (footnotes omitted).
82 Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging Order
Statutory Lacuna, supra note 42, at 232.
83 Rev. Unif. Ltd. P’ship Act § 703 (amended 1985), 6B U.L.A. 313 (2008).
84 Rev. Unif. Ltd. P’ship Act § 703 (2001), 6A U.L.A. 463 (2008).
85 Rev. Unif. P’ship Act § 504 (1997), 6 pt. I U.L.A. 160 (2001).
86 There have been, however, a number of changes in that language as the charging order and
its underlying concepts evolved over time. See generally infra Part II.
87 Unif. Ltd. Liab. Co. Act § 504 (1996), 6B U.L.A. 605 (2008).
88 Rev. Unif. Ltd. Liab. Co. Act § 503 (2006), 6B U.L.A. 498–99 (2008); see supra note 40.

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Though it is outside the scope of this Article to trace this process precisely,89
it is possible to generally describe that evolution in the broader context of
how the perception and utilization of the remedy has changed over time.
In particular, it is possible to describe this development in the context of
two early philosophies of charging order interpretation.90 The divergence
of these two philosophies, one that viewed the charging order as a self–
contained remedy and one that viewed it as part of a broader package
of creditor rights, reflects (and ultimately explains) both the early lack
of certainty surrounding charging orders and the more recent, perceived
impotence of the remedy.
The view of the charging order as part of a broader range of remedies was
articulated by Lord Lindley in applying the charging order statute under
the English Partnership Act. 91 This philosophy dictated that the charging
order, in and of itself, “simply encumbers the interest [and] does not compel
the firm to do anything about paying the creditor.”92 A charging order was
merely a first step that imposed no obligation on the partnership or on
anyone else and that required any creditor desiring real compensation to
go back to the court for further help.93 The charging order alone, then, was
essentially worthless.94 This early, or English, view contrasts with a broader
view articulated by Professor William Lewis, the principal architect of the
UPA.95 This alternative, or American, view perceived the charging order as a
more useful remedy in that it affirmatively directed a debtor–partner’s share
of profits to the creditor.96 The other avenues of recourse described by the
charging order statutes were available, but primarily as a way to enforce the
primary charging order itself.97
These two lines of thought regarding the charging order predictably filtered
into state law, though not in the manner generally perceived. It is commonly
believed that the broader view of charging orders has been adopted and
that this view gives the remedy more substance.98 While the American view
has predominated legislatively, the English view has done so in the courts;
89 Various charging orders have been adopted in the various states hundreds of times over
the last 100 years.
90 See, e.g., Gose, supra note 43, at 7–11.
91 Lord Lindley was the author of the opinion in the Brown, Janson & Co. case, cited above.
See supra note 60 and accompanying text.
92 Gose, supra note 43, at 8.
93 This help could take the form of ordering a receiver, of ordering an accounting, or even of
selling the debtor’s interest in the partnership. Id. at 8–9.
94 See id. at 8.
95 Id. at 10.
96 See id. at 11.
97 See id. at 10.
98 See id. at 11 (“Generally the cases appear to proceed on the liberal philosophy of interpretation indicated by Professor Lewis rather than by the apparently narrower views suggested by
Lord Lindley.”).

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this mismatch of perception goes a long way toward explaining the weak
development and utilization of the charging order.
The American view is manifest in the statutes in a number of different
ways.99 In particular, modern statutes generally differ in two large and relevant
ways, and these differences seem to indicate that the statutes presume that the
charging order stands alone, in line with the philosophy of Professor Lewis.
These differences relate to exclusivity and the ultimate remedy of foreclosure.100
As to exclusivity in the context of LLCs, approximately thirty–four states
have indicated that the charging order is exclusive, while the other sixteen
have remained silent.101 Similarly, some jurisdictions have explicitly addressed
foreclosure, with twelve states102 (Alaska, Delaware, Florida, Georgia, Maine,
Michigan, New Hampshire, New Jersey, Oklahoma, South Dakota, Texas, and
Wyoming) specifically precluding it, and two others103 (Nevada, and Virginia)

99 See Carter G. Bishop, Fifty State Series: LLC Charging Order Statute Table 5–51 (Suffolk
Univ. Law Sch. Research, Working Paper No. 10–03, 2013), available at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1542244. As a matter of pure historical adoption, it appears that the following jurisdictions base their statute on the ULLCA: California, Colorado, Delaware, the District
of Columbia, Florida, Hawaii, Idaho, Iowa, Kentucky, Maine, Maryland, Michigan, Mississippi,
Montana, Nebraska, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, and West
Virginia. The rest of the jurisdictions (Alabama, Alaska, Arizona, Arkansas, Connecticut, Georgia,
Kansas, Louisiana, Massachusetts, Minnesota, Missouri, Nevada, New Hampshire, New Jersey,
New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Rhode Island,
Tennessee, Washington, Wisconsin, and Wyoming) appear to have based their statutes on RULPA.
See id. There are numerous differences laced throughout the various state statutes, and a review of
these differences is outside the scope of this Article. See id.; see also Bishop, Desiderata: The Single
Member Limited Liability Company Olmstead Charging Order Statutory Lacuna, supra note 42, at 236
(“While it is clear that every state partnership and LLC charging order statute was patterned after
one of the uniform law versions, the patchwork differences in language are difficult to explain.”).
100 Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging Order Statutory Lacuna, supra note 42, at 236–37. Therein, Professor Bishop identifies “three areas of
comparative importance.” In addition to the two discussed herein, he also discusses the fact that
some statutes make a distinction between a multi–member LLC and a single member LLC. Id.
101 See Bishop, Fifty State Series: LLC Charging Order Statute Table, supra note 99. These
statutes specify that the charging order is the exclusive remedy “by which a judgment creditor of
a partner or partner’s transferee may satisfy a judgment out of the judgment debtor’s transferable
interest in the partnership.” See id. (quoting Rev. Unif. P’ship Act § 504(e) (1997), 6 pt. I U.L.A.
160 (2001)).
102 Alaska Stat. § 10.50.380(c) (2008); Fla. Stat. Ann. § 608.433(8) (West Supp. 2013)
(expressly precluding foreclosure for non–single member LLCs); Ga. Code Ann. § 14–11–504(b)
(2003 & Supp. 2009) (prohibiting foreclosure “except as otherwise provided in the articles of organization or a written operating agreement”); Me. Rev. Stat. Ann. tit. 31, § 1573(3) (2011); Mich.
Comp. Laws Ann. § 450.4507(5) (West 2010); N.H. Rev. Stat. Ann. § 304–C:126 (LexisNexis
2012) (expressly precluding foreclosure for non–single member LLCs); N.J. Stat. Ann. § 42:2B–
45 (West 2004); Okla. Stat. tit. 18, § 2034 (West 1999 & Supp. 2010); S.D. Codified Laws §
47–34A–504(e) (2007 & Supp. 2009); Tex. Bus. Orgs. Code Ann. § 101.112(c) (West 2010); Wyo.
Stat. Ann. § 17–29–503(g) (2011).
103 See Del. Code Ann. tit. 6, § 18–703 (2005); Nev. Rev. Stat. § 86.401(2)(a) (2011); Va.
Code Ann. § 13.1–1041.1 (2006).

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eliminating foreclosure language with the intent of prohibiting it.104 The
importance of these limitations is subject to some doubt,105 but the implication
and intent are not. This cabining of remedies demonstrates an ongoing hostility
to creditors of members and a further willingness to reallocate rights from
owners of creditor property rights to non–debtor members. Importantly, it
also indicates that legislatures perceive the charging order as so broad and
potentially useful a tool that no other remedy is needed and that, in fact, it
needs explicit limitation.
That view, however, is not held by lawyers and courts. These participants,
instead, view the charging order in the context of the English view—as
a weak, unhelpful remedy that does little to nothing on its own. There
exists in the bar a general perception that people can place their assets into
an LLC and effectively put them beyond the reach of potential creditors
because charging orders provide so little satisfaction.106 In general, the
thinking goes, charging orders only allow creditors to claim certain, limited
distributions, and the debtor can avoid even that by ensuring that there are
no distributions.
These two contradictory philosophies applied in tandem have led to a toxic
situation in which charging orders are viewed as virtually impotent. On the
one hand, the operative statutes are drafted narrowly, reflecting the legislature’s
belief that the charging order is a broadly operative statute that needs to be
carefully restrained so that third party business owners are properly protected.
On the other hand, judges (and, concomitantly, lawyers) view the charging
order as weak and so view statutory restraints and claw–backs as even further
evidence of the relative uselessness of the remedy. This state of affairs has led to
a clear deterioration of the usefulness and legitimacy of the charging order as a
property right of any significant worth or value.
104 See Bishop, Fifty State Series: LLC Charging Order Statute Table, supra note 99. The remaining states either expressly permit foreclosure or are silent without any intent to eliminate
foreclosure as a possibility. See id.
105 See infra note 107 and accompanying text. But see infra Part III.B (discussing the utility of
various avenues available to the holder of a charging order, including foreclosure).
106 See, e.g., Susan Kalinka, Assignment of an Interest in a Limited Liability Company and the
Assignment of Income, 64 U. Cin. L. Rev. 443, 483 (1996) (“[A] judgment creditor who obtains a
charging order against a member’s interest in an LLC obtains only the right to receive the distributions to which the member was entitled. If neither the LLC’s operating agreement nor its members
authorize nonliquidating distributions from the LLC, the charging order may be worthless to the
judgment creditor.”); see also Jacob Stein, Building Stumbling Blocks: A Practical Take on Charging
Orders, Bus. Entities, Sept.–Oct. 2006, at 28, 64 (footnote omitted) (“As a practical matter, creditors rarely choose to pursue charging orders. A charging order is not a very effective debt collection
tool. A creditor may find itself holding a charging order, without any ability to determine when the
judgment will be paid off. Practitioners should remember that any uncertainty surrounding charging orders is uncertainty for both the debtor and the creditor. This uncertainty forces most creditors
to settle the judgment with the debtor, on terms more acceptable to the debtor, rather than pursue
the charging order remedy.”). In the end, then, the view is that charging orders provide protection
to debtors, not compensation to creditors.

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Moreover, this view of impotence has considerable academic support. In
fact, some scholars claim that these variations and different schools of thought
are not important because the very foundation of charging order simply is
not particularly meaningful.107 In particular, the first round of revised uniform
statutes that incorporated language limiting foreclosure rights and providing
for exclusivity can be read as merely underscoring then–existing law.108 This is
so for a couple of reasons.
First, partnerships (as well as limited partnerships, limited liability
partnerships, and LLCs) are, and were, treated as separate entities.109 This
is clear under RUPA,110 the limited partnership statutes,111 and the LLC
statutes.112 Interestingly, it was also true under UPA, the first iteration of
partnership law and the first American incorporation of the charging order.
As discussed above, UPA did not treat a partnership as a separate entity
for most purposes,113 which meant that partnership property was effectively
owned by the partners individually.114 Aggregate treatment of partnership
property did not, however, carry through to creditors of individual partners
in that those creditors were not permitted to attach or execute thereon.115
This prohibition on creditor interference arguably obviates at least some of
the need for the charging order remedy.
Similarly, to the extent the charging order was intended to protect the pick
your partner principle, pre–existing law may have already provided sufficient
protection. Recall that only “part” of a partnership interest is transferable.116
Under American law, partners have long had the right to transfer an economic
interest in their entity.117 This transferable interest, however, is distinctly limited.
107 See Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging
Order Statutory Lacuna, supra note 42, at 233–35, 237–40 (arguing that the charging order simply
displaces other collection procedures and does not accomplish anything significantly novel or important). But see infra note 159 and accompanying text (discussing the extent to which foreclosure
of a charging order is, in fact, a true danger).
108 See Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging
Order Statutory Lacuna, supra note 42, at 233–34.
109 Id. at 235 (“American law . . . regards a partnership or LLC as an entity separate from its
owners . . . .”).
110 Rev. Unif. P’ship Act § 201 (1997), 6 pt. I U.L.A. 91 (2001).
111 Unif. Ltd. P’ship Act § 104 (2001), 6A U.L.A. 366 (2008) (“A limited partnership is an
entity distinct from its partners.”).
112 Unif. Ltd. Liab. Co. Act § 201 (1996), 6B U.L.A. 574 (2008); Rev. Unif. Ltd. Liab. Co.
Act § 104 (2006), 6B U.L.A. 437 (2008) (“A limited liability company is an entity distinct from its
members.”).
113 Supra note 54 and accompanying text.
114 Unif. P’ship Act § 25(1) (1914), 6 pt. II U.L.A. 294 (2001) (“A partner is co–owner with
his partners of specific partnership property holding as a tenant in partnership.”).
115 Id. § 25(2)(c), 6 pt. II U.L.A. 294 (2001) (“A partner’s right in specific partnership property
is not subject to attachment or execution, except on a claim against the partnership.”).
116 Supra notes 73–74 and accompanying text.
117 Referred to as a “bare economic interest” above, this is referred to as a “transferable inter-

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In particular, it does not pass to the recipient the right to participate in the
management or conduct of the company.118 And this is the only interest that
an owner can pass to a third party without unanimous approval of all other
owners.119 As such, no one can enter into a partnership entity (in a full sense,
as a full member or partner, with the right to participate in—i.e., disrupt—
the conduct of the entity) without the non–transferring partners’ approval.
Accordingly, the argument goes, the charging order is not really needed to
protect the integrity of the pick your partner principle. Nobody, not even
involuntary assignees, can succeed to an owner’s interest, so there is no need
for a charging order to serve an intermediate role to prevent creditors from
intruding.
But this general view of impotence is incorrect. It is not that the charging
order is not needed or is not of independent value. Instead, the true nature
of the charging order has been forgotten as the entire system of partnership
law120 has grown over time in an organic, holistic sense, as opposed to a linear,
or direct, sense. What started out as an attempt to address serious concerns
with respect to partnerships, as utilized in early commercial settings, grew in
tandem with other elements of partnership law. These elements—viewing the
partnership as a separate entity and requiring unanimity for the admission of
additional partners—may ultimately affect the need for charging orders, but all
of these developed together.
Similarly, the other areas of law specifically concerned with business
associations other than general partnerships also developed alongside the
growth of the charging order, all the while borrowing from earlier concepts of
partnership law. For instance, the limited partnership and the LLC were created
with the specific intent to address a number of perceived weaknesses inherent
in general partnership and corporation law.121 They did this by strengthening
est” under both partnership law and LLC law. Rev. Unif. P’ship Act § 502 (1997), 6 pt. I U.L.A.
156 (2001); Rev. Unif. Ltd. P’ship Act § 701 (2001), 6A U.L.A. 461 (2008); Rev. Unif. Ltd. Liab.
Co. Act § 501 (2006), 6B U.L.A. 496 (2008).
118 See, e.g., Rev. Unif. Ltd. Liab. Co. Act § 502(a)(3)(A) (2006), 6B U.L.A. 496 (2008).
119 See, e.g., id. at § 401(d)(3), 6B U.L.A. 478 (2008) (stating the default rule that a third party
cannot become a member without approval of all members).
120 “Partnership law,” as used herein, refers generically to that body of law that has developed
with respect to non–corporate business entities. See, e.g., Saul Levmore, Uncorporations and the
Delaware Strategy, 2005 U. Ill. L. Rev. 195, 196 n.4 (“[T]he terms uncorporations and uncorporate
law interchangeably with expressions such as noncorporate forms, or partnership law and limited
liability company law, meaning always to refer to the law enabling and regulating noncorporate
forms of business activity.”). To the extent that it is important or relevant to focus on general partnerships (as opposed to limited partnerships or LLCs), this Article specifically states that “general
partnerships” are at issue.
121 See, e.g., William J. Carney, Limited Liability Companies: Origins and Antecedents, 66 U.
Colo. L. Rev. 855, 874–75 (1995) (footnotes omitted) (“Once the United States entered the era of
general corporation laws, demand for a noncorporate alternative did not disappear. Beginning in
1874, Pennsylvania, Michigan, New Jersey, and Ohio adopted statutes authorizing ‘limited partnership associations’ or ‘partnership associations,’ which gave members limited liability. These statutes

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the entity concept, restricting liability for limited partners and members, and by
mimicking general partnership law regarding admission of new owners.122 These
new concepts were not created out of whole cloth, however, and consistently
drew from UPA and/or RUPA as they were fashioned.123 This meant that, even
as the underlying law of partnership was changing, and even as the specifics
of the charging order concept were changing simultaneously, both were being
sampled and utilized in substantial measure for new entities with differing
concepts.
The result is a remedy well–grounded in real world concerns that has been
made practically moot by other areas of partnership law and laws applicable to
other business associations. The charging order began as a compromise intended
to protect uniquely vulnerable persons associated with general partnerships
(non–debtor partners) from the forced intrusions of third party creditors, but
it has ended up as a forgotten and nearly vestigial element of partnership law.
Of course, this circuitous, non–linear evolution is not new or novel.124
Indeed, it does not change the basic state of the law or the fact that we
now have the charging order, a distinct remedy unique to non–corporate
business associations, which grants a suite of privileges to creditors that
effectively constitute a choate property right. This is particularly so when
the charging order is viewed as what it truly is—a choate property right
intended to balance the rights of creditors, debtors, and third parties.125

were apparently adopted to relieve entrepreneurs of some of the burdens of the corporate form . .
. . Finally, the limited partnership appeared in its modern incarnation in 1916, with promulgation
of the Uniform Limited Partnership Act. While the limited partnership has enjoyed considerable
popularity, it has not become a viable substitute for the corporation . . . .”).
122 See, e.g., Rev. Unif. Ltd. P’ship Act § 301 (2001), 6A U.L.A. 416 (2008); Rev. Unif. Ltd.
Liab. Co. Act § 401 (2006), 6B U.L.A. 478 (2008).
123 See, e.g., Robert R. Keatinge, The Partnership Agreement and Third Parties: ReRULPA §
110(b)(13) v. RUPA § 103(b)(10), 37 Suffolk U. L. Rev. 873, 873–74 (2004) (footnote omitted) (“Unincorporated business organizations organized under [these] uniform acts . . . have several common
characteristics.”).
124 See Allan C. Hutchinson, Evolution and the Common Law 17–18 (2005) (arguing
that law develops from an amalgam of different means, as opposed to an organic, linear process).
125 The National Conference on Commissioners on Uniform State Laws’s (NCCUSL)
explanation of the role of the charging order supports this view:
This section balances the needs of a judgment creditor of a partner or transferee
with the needs of the limited partnership and non–debtor partners and transferees.
The section achieves that balance by allowing the judgment creditor to collect on the
judgment through the transferable interest of the judgment debtor while prohibiting
interference in the management and activities of the limited partnership.
Under this section, the judgment creditor of a partner or transferee is entitled to a
charging order against the relevant transferable interest. While in effect, that order
entitles the judgment creditor to whatever distributions would otherwise be due to the
partner or transferee whose interest is subject to the order. The creditor has no say in
the timing or amount of those distributions. The charging order does not entitle the
creditor to accelerate any distributions or to otherwise interfere with the management
and activities of the limited partnership.

Rev. Unif. Ltd. P’ship Act § 703 cmt. (2001), 6A U.L.A. 464 (2008).

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III. The Charging Order as a
Choate Creditor Property Right
As we can see, charging orders have changed over time. They came into
existence in the long tradition of creditor property rights, that area of law that
seeks to grant to creditors ownership of debtor property. Their very creation,
though, constitutes a compromise, an attempt to accommodate unique
partnership issues and to balance creditor needs with those of debtors and
innocent third parties. But this initial balancing has come to favor debtor
rights too heavily in the context of LLC charging orders, at least in practice,
and the charging order remedy has become increasingly unmoored from its
historical roots as a creditor remedy. Indeed, rather than being viewed as a
limited deviation from the larger suite of creditor rights, too often the charging
order is viewed as a throw–away remedy, a non–right that effectively offers no
real solace or value to a creditor.
This is neither appropriate nor inevitable. Emphasizing the nature of the
charging order, as part of the broader galaxy of creditor property rights, refocuses
our analysis on the purpose of those rights and stresses the principle underlying
charging orders. Re–casting of the nature and aim of the remedy is significant
because, once one accepts charging orders as a choate creditor property right,
they gain substance, possessing the various attributes that generally flow from
property ownership and vastly increasing in both scope and reach.
A. Purpose of Charging Orders and Creditor Property Rights
Property has been famously described as “that sole and despotic dominion
which one man claims and exercises over the external things of the world, in
total exclusion of the right of any other individual in the universe.”126 It is that
individualized right of exploitation that creates value, and the creation and
recognition of creditor property rights takes that value from the debtor and
takes it for the benefit of the creditor. As discussed above, this institutionalized
expropriation (or “execution”) arose directly in response to the need to
protect creditors by granting them a useful remedy and thereby stimulating
commercially beneficial economic activity.127 In other words, the creation of
creditor property rights is meant to make creditors whole, and its focus is quite
rightly not on debtors, third parties, or society. Instead, its focus is on creditors
and on how the law can effectively guard their interests by ensuring that they
get as close as possible to the position they would have occupied had the debtor
fully performed all of its obligations.128
126 2 William Blackstone, Commentaries *2.
127 See supra Part I.B.
128 See, e.g., 3 Debtor–Creditor Law § 27.03 (Matthew Bender 2010) (explaining that
creditors can pursue execution and so reach debtor assets in order to satisfy properly effected judgments).

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Recognizing that the charging order is a type of creditor property right
is a useful insight because it brings the focus back to the real purpose behind
charging orders: taking property from debtors and transferring it to creditors.
Now, it is of course true that charging orders represent a compromise, as
discussed above, and that partnership law and charging orders developed
such that debtor and third party interests receive more consideration in this
context than they do in the context of other creditor property rights. But that
re–balancing of competing interests does not change the fundamental nature of
the charging order as a creditor property right.
One can see this by again contrasting the charging order with execution
on a debtor’s ownership in a corporation. Both a charging order that affects
a partner’s interest in a partnership, and a writ of execution that affects a
shareholder’s interest in a corporation, create creditor property rights by
transferring the ownership of a business entity from the debtor to the creditor.
Both also expose third parties (third party partners and shareholders) to the
potential risks associated with being forced to do business with the creditor, a
stranger to the business venture.129 The law has given additional protection to
partners due to the unique nature of that entity, but the underlying circumstances
are effectively identical: valuable assets owned by defaulting debtors should be
seized and liquidated so that the value thereof can be transferred to deserving
creditors. The fact that a quirk of partnership law has resulted in a lessening
of the harsh manner in which the creditor achieves recompense should not
distract from the underlying goal of creating creditor property rights.
Unfortunately, that is precisely what has happened in this area of the law.
Instead of recognizing that the charging order is meant to compensate creditors
by creating property rights in debtor business interests, judges, lawyers, and even
academics have instead focused on debtor rights and the actual and perceived
weaknesses associated with the remedy.130 From a practical standpoint, most
parties simply believe that they can avoid the effects of a pure charging
order simply by stopping distributions or recharacterizing them as salary or
something else.131 If, instead, these parties would focus on the underlying nature
of the charging order as a creditor property right, they would perceive just how
concrete this remedy is and how significantly it can advance creditors’ positions
(and, conversely, hurt debtors’ positions).132 The next section develops this in
129 See supra note 71–72 and accompanying text.
130 See supra note 106.
131 Id. Indeed, this is a significant part of the reason that LLCs have become so important in
modern planning and commercial contexts. See, e.g., John T. Mulligan, Asset–Protection Strategies for
Physicians, Am. Bankr. Inst. J., Oct. 2003, at 22, 50 (emphasis added) (“Family limited partnerships
or limited–liability companies can offer significant asset protection in that, if properly structured,
on an ongoing basis the creditor of a partner or member could only receive a charging order against
the individual’s interest in the partnership or LLC.”).
132 See Carter G. Bishop, LLC Charging Orders: A Jurisdictional and Governing Law Quagmire, Bus. Entities, May–June 2010, at 14, 17–18 (quoting Taylor v. S & M Lamp Co., 12 Cal. Rptr.
323, 328 (Dist. Ct. App. 1961) (“Charging orders ‘are not intended to protect a debtor partner against

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greater detail, focusing on the nature of the charging order as a property interest
and analyzing the sorts of concrete rights and remedies that traditionally flow
out of such rights.
B. Giving Charging Orders the Weight of “Real” Property
Recognizing charging orders for what they are should reverse the existing
view of their impotence. Instead of viewing them as a way of preventing creditors
from interrupting partnerships, courts should seek to uphold them in the same
way that they do numerous other types of property interests. Of course, they do
not constitute a full and unfettered property interest, but that does not matter.
In this sense, they are analogous to other “compromised” property interests,
which are generally zealously protected by our legal system.
One example is property with an attached restraint on alienation. This can
arise in connection with real or personal property, and, just like the charging
order, this specific sort of ownership constitutes a compromised set of rights
creating a need to balance rights of competing parties.133 On the one hand, the
party who owns the property seeks full and free alienability, and, on the other
hand, the party who imposed the restraint seeks its enforcement. And courts
will generally enforce the restriction.134 But they do so hesitantly.135 The law
claims of his judgment creditors where no legitimate interest of the partnership, or of the remaining
or former partners is to be served.’”)).
133 See, e.g., Linda L. Kreicher, Note, Much Ado About Due–on–Sale: Avoiding the Tempest in
New York, 10 Hofstra L. Rev. 1229, 1235 (1982). Therein, Ms. Kreicher notes that the due–on–sale
clause is a reasonable restraint on alienation, which balances the competing interests of lenders and
borrowers.
The criticism that the clause is an unreasonable restraint on alienation likewise fails to
distinguish reasonable restraints that can be removed by private agreement from those
that cannot. The due–on–sale clause only “shifts to the lender the advantage from the
increase in interest rates which would otherwise belong to the seller.”

Id. at 1260 (footnotes omitted) (quoting Richard A. Epstein, Unconscionability: A Critical
Reappraisal, 18 J.L. & Econ. 293, 312 (1975)).
134 12 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Corporations § 5455 (2011) (footnote omitted) (“Courts applying common law principles have held
that transfer restrictions constitute restraints on alienation and should be strictly construed. Under
the rule of strict construction, the transfer restriction generally will be upheld if it is reasonable
and lawful.”).
135 See Restatement (Third) of Prop. (Servitudes) § 3.4 (2000) (“A servitude that imposes a direct restraint on alienation of the burdened estate is invalid if the restraint is unreasonable.”); 61 Am. Jur. 2d Perpetuities and Restraints on Alienation § 90 (2002); see also First Bank &
Trust v. Novak, 747 P.2d 850, 855 (Kan. Ct. App. 1987) (“A restriction against assignment is a restraint
on alienation, and as such it is strictly construed against the party urging the restriction.”); Wright
v. Rub–a–Dub Car Wash, Inc., 740 So. 2d 891, 903 n.2 (Miss. 1999) (“[A] restriction against assignments in that it acts as a restraint on alienation is not favored by the law and should be strictly
construed against the lessor.”); Johnson v. Yousoofian, 930 P.2d 921, 924 (Wash. Ct. App. 1996)
(“[L]ease covenants requiring the landlord’s consent to assignment are restraints on alienation and
should be strictly construed.”).

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favors full and unfettered ownership and the rights that accompany it136 and so
seeks to find and encourage that wherever possible.
There are many examples in property law, situations where courts or
legislatures have crafted a property interest that marks a middle course between
or among competing interests by giving an owner something less than full and
unfettered rights to property.137 And, time and again, the courts reflexively favor
the holder of the property.138 They recognize that these are property interests and
seek to honor them, attempting to magnify owner rights, simplify ownership,
and therefore permit market forces to take effect. Even with a restraint on
alienation, or subject to a covenant or restriction, property is still property. It is
still a valuable right, hard fought over and jealously guarded once obtained, and
the law seeks to maximize it by construing it, to the extent possible, as a limited
departure from its roots.
When it comes to charging orders, however, this independent regard and
fealty to property rights (along with the judicial desire to adhere to the roots
of ownership) vanishes.139 Rather than focusing on the creditor’s ownership
interest in the debtor’s business entity, the law focuses on all the ways in which
creditors have no effective recourse and all the ways that debtors can escape
paying what they owe.140 This odd fixation on debtor rights, arising as it does
136 See William A. Dreier, The Restatement (Third) of Torts: Products Liability and New
Jersey Law—Not Quite Perfect Together, 50 Rutgers L. Rev. 2059, 2124 n.402 (1998) (quoting
Restatement (Third) of Torts: Prods. Liab. § 12 cmt. a (1998)) (“[C]orporate law ‘favors
the free alienability of corporate assets and limits shareholders’ exposures to liability in order
to facilitate the formation and investment of capital.’”); John P. Strohm, Comment, Writings
in the Margin (of Error): The Authorship Status of Sound Recordings Under United States Copyright Law, 34 Cumb. L. Rev. 127, 135 (2003) (“In essence, as with property in general, the law
favors free alienability of copyright ownership . . . .”).
137 One such additional example is property fettered by real covenants and restrictions. As
with property subject to restraints on alienation, the law reflexively favors the unconstrained use of
law, not subject to these sorts of restrictions. See Patrick J. Rohan, Preparing Community Associations
for the Twenty–First Century: Anticipating the Legal Problems and Possible Solutions, 73 St. John’s L.
Rev. 3, 11 (1999) (“[Covenants and restrictions] continue to be regarded with disfavor as isolated attempts by inept or mean–spirited grantors to interfere with the right of every person to enjoy their
property to the absolute fullest.”).
138 See, e.g., 9 Richard R. Powell, Powell on Real Property § 67.03[3] (Michael Allan
Wolf ed., 2000) (discussing the law’s policy favoring unfettered use of land).
139 Part of this unique resistance to acknowledging the nature of charging orders perhaps
arises from the long–standing confusion surrounding charging orders. See, e.g., Gose, supra note
43, at 5 (“Casual conversations with American judges and lawyers reveal not only a general unfamiliarity with the statute but also a lack of familiarity with its theory and its meaning on the part
of those who try to apply it. Such confusion is wholly understandable.”). And part of it perhaps
arises because charging orders tend to arise in a limited set of circumstances that usually involve
egregious acts of debtors. See, e.g., Elizabeth N. Kozlow, Comment, A Charging Order Conundrum:
Is It Really the “Exclusive Remedy” of an LLC Member Judgment Creditor?, 63 Baylor L. Rev. 884, 897
(2011) (“[C]ourts seem to balance stringent statutory language of the charging order remedy with
the equitable result based on egregious facts.”). Whatever the cause, it is clear that charging orders
are given significantly less respect than most other types of property interests.
140 See Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging

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from a failure to view the charging order as an actual property right, results
in a hodge–podge of rules created to address this unique situation, creating
substantial uncertainty and inefficiency.141 But this state of affairs is neither
appropriate nor necessary. If courts and practitioners more clearly understood
the underlying nature of charging orders and focused on enlarging those rights
rather than minimizing them, then the use and scope of these rights would
solidify and begin to serve the purpose of creditor protection, for which they
were created.
This can be done in a number of ways. Initially, courts and practitioners
can simply begin to give full effect to the clear statutory language associated
with most charging orders. Charging order statutes generally provide that a
judgment creditor can charge the debtor’s transferable interest and that the
court itself can (1) appoint a receiver of the distributions due or to become
due, (2) make “all other orders, directions, accounts, and inquiries the judgment
debtor might have made or which the circumstances . . . may require,” and
(3) order a foreclosure of the interest subject to the charging order.142 This
language is not all–encompassing, but it does afford a number of potential
remedies for which lawyers can advocate, and that courts can countenance, in
seeking to establish and protect creditor interests.143
For instance, charging order recipients can seek to protect the underlying
value of the partnership by setting aside mortgages and liens that insiders have
placed on partnership property.144 This can substantially increase the value and
worth of a charging order, as it may effectively terminate a prior claimant to
Order Statutory Lacuna, supra note 42, at 222 (“Since the member alone retains discretionary control
over when and if such distributions will be made, the charging order is usually ineffective because
the member simply accumulates distributions.”).
141 See Alan M. Weinberger, Making Partners Pay Child Support: The Charging Order at
100, 27 Hous. L. Rev. 297, 306 (1990) (footnotes omitted) (discussing the charging order in
the context of “the considerable confusion surrounding th[e] procedure, its circuitous nature,
and the uncertainty of recovery in the end”).
142 See, e.g., Rev. Unif. P’ship Act § 504 (1997), 6 pt. I U.L.A. 160 (2001); Rev. Unif. Ltd.
P’ship Act § 703 (2001), 6A U.L.A. 463 (2008); Unif. Ltd. Liab. Co. Act § 504 (1996), 6B U.L.A.
605 (2008); Rev. Unif. Ltd. Liab. Co. Act § 503 (2006), 6B U.L.A. 498–99 (2008). Of course, not
every state has statutes matching these, but these serve as useful models.
143 Note that, here, there is no necessary distinction among LLCs, partnerships, and limited
partnerships—lawyers and courts can give weight to enabling statutes regardless of the underlying
entity, and many of the relevant statutes are similar among the various types of entities. This is not
necessarily true of all of the arguments made in this section. See infra note 164 and accompanying
text.
144 Gose, supra note 43, at 12–13 (citing Windom Nat’l Bank v. Klein, 254 N.W. 602 (Minn.
1934)) (discussing the right of an appointed receiver to set aside insider security interests). Windom
National Bank specifically states:
[A] receiver . . . has the right in a proper action to have adjudicated the nullity of any
mortgage or other assignment by some but not all of the partners of their interest in
specific property of the partnership less than the whole. Such a receiver is entitled to
any relief under the language of the statute “which the circumstances of the case may
require” to accomplish justice under the law. Obviously, a part of such relief is the
avoidance of any unauthorized attempt to dispose of partnership property.

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the funds that would otherwise be distributed to the debtor partner. Similarly,
a debtor can protect its relative rights to partnership profits by blocking an
attempted dissolution of the partnership in order to defeat the creditor’s claim.145
This could frustrate attempts by the debtor, and the debtor’s partners, to avoid
a direct distribution subject to the charging order, but they would nevertheless
receive funds associated with a termination of the partnership entity. Moreover,
if such an attempt to block dissolution fails, then the creditor can attempt to
dictate the manner in which a sale of the partnership interest is to be made.146
Again, this power gives the creditor the ability to frustrate debtor attempts
to somehow extract value out of the entity (by colluding to sale assets for less
than fair market value or by transferring the assets to a controlled person or
entity or in some other creative way) without creating a distribution available
to the holder of the charging order. These individual remedies fall within the
general ambit of a court’s power to make “orders, directions, accounts [sic] and
inquiries . . . which the circumstances . . . may require” and may or may not
involve the appointment of a receiver.147 That right—the ability to appoint an
independent party with its own powers, prerogatives, and the capacity to review
and monitor business activities—is an extremely powerful remedy because it
will significantly frustrate and inhibit the normal operations of an entity.
Indeed, even more than the fact that these various sorts of actions give
creditors specific tools to block specific misdeeds and avoidance strategies,
the general right of a creditor to intrude into a business entity’s affairs and
affect its course of operations will affect the balance of power between debtors
and creditors holding a charging order. This ability to interject is anathema
to business. It exposes private business activity to scrutiny, prevents speedy
deliberation, and ultimately harms an entity’s ability to conduct business. In
fact, it effectively creates the very sort of situation that the charging order was
meant to prevent: one wherein the creditor interrupts the entity and the solvent
partners.148 Of course, exposing partners to scrutiny is not the same as taking
away their property, but it still upsets non–debtors and the entity at large. This
creates leverage because creditors who can affect partnership operations should
be able to pressure the entity, the non–debtor partners, and the debtor partner
to make chargeable distributions and thereby satisfy the creditor’s claims.
And creditors have this power even without considering their statutory
right to foreclose. This right creates additional leverage, involving the
creditor even more intimately in the affairs of the business entity and
the non–debtor partners. However, foreclosure in this context is not as
straightforward as in most other circumstances, and it is important here to
understand precisely what rights the creditor possesses. Notably, foreclosure
Windom Nat’l Bank v. Klein, 254 N.W. 602, 605 (Minn. 1934).
145 Gose, supra note 43, at 15.
146 See id. at 17.
147 See id. at 16 (internal quotation marks omitted).
148 See supra note 58 and accompanying text.

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does not constitute a wholesale transfer of ownership to a judgment creditor
(or to a purchaser at a foreclosure sale). This is because, in line with the
discussion above regarding a “bare economic interest,” the creditor (or
purchaser at the foreclosure sale) does not receive what we commonly think
of as a “full membership interest.”149 Instead, the creditor receives what is
known as a distributional interest.150 This interest is something less than
a full membership interest in that it does not entitle the holder thereof
to participate in the management of the LLC, demand information, or
inspect company records.151 So the creditor receives all economic rights of
the LLC (rather than just the temporary right to receive distributions until
the underlying judgment is satisfied), but it cannot dissolve the company to
gain access to the underlying assets or otherwise control the entity.152
Additionally, even if one could put aside the underlying nature of
what a foreclosure sale yields, gaining ownership in a debtor’s interest in
a partnership entity is likely to be compromised due to transferability and
liquidity issues. For example, the interest is likely to be worth less than fair
market value in the creditor’s hands because most LLCs are not publicly
traded.153 The vast majority of foreclosed LLC interests involve small,
149 See Unif. Ltd. Liab. Co. Act §§ 503(d)–(e), 601 (1996), 6B U.L.A. 604, 607–08 (2008).
150 See id. § 503(a), 6B U.L.A. 603 (2008).
151 Id. § 503(d), 6B U.L.A. 604 (2008). This holds under the current, strict view of charging
orders. If courts were to more creatively utilize the discretion granted to them in most charging
order statutes by ordering a transfer of management and economic rights, as is advocated above,
then many of these arguments would be entirely moot.
152 Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging Order Statutory Lacuna, supra note 42, at 226. Professor Bishop discusses this difficulty in the context
of a single member LLC, specifically, though he likely exaggerates its significance. Still, there is
no getting around the fact that the creditor essentially becomes a “naked assignee” instead of a
member and so is not protected by fiduciary duties or entitled to “meddle” with the management
of the company. See Kleinberger, Bishop & Geu, supra note 66, at 32 (analyzing charging orders in
the substantially similar realm of limited partnerships). Additionally, a number of commentators
believe that receiving a charging order exposes the creditor to adverse tax consequences insofar as
the creditor may be taxed for entity–level profits notwithstanding its failure to receive any distributions. Id. at 32–33 (citing Rev. Rul. 77–137, 1977–1 C.B. 178); Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging Order Statutory Lacuna, supra note 42, at 226–27
(same). Again, though, this concern seems exaggerated. While it is true that any potential of adverse tax consequences is likely to trouble creditors, it appears that Revenue Ruling 77–137 is being
interpreted too broadly. That Ruling (which addresses limited partnerships and limited partners)
indicates that assignees can be held as tax partners under federal income tax law, even if they are
not full partners, under state law. See Rev. Rul. 77–137, 1977–1 C.B. 178. However, this only occurs if
the assignee acquires “substantially all of the dominion and control over the limited partnership.”
Id. That does not occur in connection with a foreclosure, for all of the reasons addressed above. The
creditor does not become a “full member,” with all the attendant rights, so the level of dominion
and control necessary to create tax partner status simply does not exist. See Arthur B. Willis et
al., Partnership Taxation ¶ 1.03[7] (7th ed. 2011) (citing I.R.S. Gen. Couns. Mem. 36,960 (Dec.
20, 1976)). Nevertheless, the fear of adverse tax consequences persists and is often promulgated as a
reason why foreclosure is not useful and so not likely to be widely utilized.
153 Indeed, it is very rare for an LLC to ever be publicly traded. The vast majority of publicly

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relatively closely held LLCs such that there is no way to establish, much less
receive, fair value.154
Additionally, even if there were a market for the interest, many closely
held partnerships and LLCs are laced with contractual provisions that
restrict the manner in which partners or members can sell or transfer their
interests.155 These restrictions mean that even if a creditor could find a
willing buyer, the creditor would not be able to freely transfer the interest to
that buyer. Such restrictions chill the market and restrict liquidity, thereby
diminishing value. As such, even after gaining ownership of a partnership
interest, a creditor will be unlikely to sell the LLC interest at anything
approaching fair market value.156
So foreclosure is not perfect and does not completely transfer power
from the debtor to the creditor. But it does not need to. Many commentators
who examined charging order foreclosure have more or less scorned the
danger of foreclosure by pointing out the imperfections inherent therein,157
but these arguments are only partially correct. The ULLCA, which provides
for foreclosure, also gives a significant bite to that remedy, despite the
“bare economic” nature of a member’s transferable interest, by specifically
providing that “[a] transferee who does not become a member is entitled to
. . . seek . . . a judicial determination that it is equitable to dissolve and wind
up the company’s business.”158 This right, when coupled with the power to
traded companies are corporations, not LLCs or any other type of entity. See Robert C. Micheletto,
Comment, The Poison Pill: A Panacea for the Hostile Corporate Takeover, 21 J. Marshall L. Rev. 107,
119 (1987) (citing Leo Herzel & Laura D. Richman, Delaware’s Preeminence by Design—Foreword to
R. Franklin Balotti & Jesse A. Finkelstein, Delaware Law of Corporations & Business
Organizations, at ix (1986)).
154 See, e.g., Eyler v. Comm’r, 69 T.C.M. (CCH) 2200, 2207 (1995) (“[I]n determining the
value of unlisted stocks, actual sales made in reasonable amounts at arm’s length, in the normal
course of business, within a reasonable time before or after the valuation date, are the best criteria
of market value.”).
155 See, e.g., Weise, supra note 71, at 382 (“Many partnership agreements and operating agreements also contain contractual transfer restrictions. Sometimes these transfer restrictions merely
repeat the statutory restrictions on the transfer of governance rights, but many agreements go further. For example, a partnership or operating agreement might provide a ‘first refusal’ or other ‘buy–
sell’ mechanism or otherwise limit or even prohibit the assignment of economic rights even though
under the relevant statutory provisions the economic rights are otherwise freely transferable.”).
156 See Bishop, Desiderata: The Single Member Limited Liability Company Olmstead Charging
Order Statutory Lacuna, supra note 42, at 225 (focusing on “the lack of liquidity, marketability, and
transferability” of single member LLCs). Contrast this with foreclosure of real property and tangible personal property. While foreclosure in those circumstances is often costly and time–consuming, those types of property are relatively easy to seize, value, and sell. If nothing else, the foreclosing
creditor can generally bid some or all of the obligation owing to it, thereby exchanging debt for an
asset. This is generally called a “credit bid” and results in the creditor possessing an actual, tangible
asset that can be sold or otherwise utilized.
157 See, e.g., id.
158 See Unif. Ltd. Liab. Co. Act § 503(e)(3) (1996), 6B U.L.A. 604 (2008). Hawaii, Montana, South Carolina, Vermont, and West Virginia have adopted this provision.

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foreclose, means that recipients of a charging order can, in fact, terminate
the business operations of an LLC.159
Moreover, even in jurisdictions that do not permit a foreclosing creditor
to seek dissolution, the imperfect practicalities of foreclosure simply do
not change the basic structure of the law, which transfers some right or
ownership of the debtor to the creditor.160 Pointing out that the process
is not ideal does not diminish the legal reality that foreclosure permits
creditors to gain a foothold in the business entity and its operations in that
they now have a specific ownership right to something, whatever it is. Third
party partners must know, and account for, the fact that after a foreclosure,
there is now a stranger to the original partnership that owns some explicit
part of the partnership and to whom some duties or obligations are owed.
Foreclosure, then, introduces uncertainty. Again, it is this sort of
involvement and uncertainty that entities and third party partners want to
avoid. When the possibility of foreclosure is present, no one can count on
an assured barrier to protect LLC assets from creditors. Instead, everyone
must anticipate that creditors might foreclose, thrusting all parties into
an area of ambiguity and indecision, wherein neither the debtor nor the
creditor seems to have a full ownership interest in anything. This lack of
certainty is a powerful element that should be explicitly recognized by those
utilizing LLCs161 and gives creditors significant leverage, going far beyond
the toothless remedy many describe.
Thus, there are a number of mainstream remedies contained within
charging order statutes that permit lawyers and judges to give charging
orders their due weight as real property and thereby shift their focus to
maximizing the utility and scope of this unique creditor property right.
There is, in addition, a significantly more aggressive argument available to
holders of charging orders in the context of LLCs, wherein creditors can
seek to push beyond the type of foreclosure typically available in the LLC
context and therefore expand their rights to true ownership status.
Initially, it is important to note that this argument to expand foreclosure
rights may not work in those states that have adopted exclusivity language

159 See In re Canney, 284 F.3d 362, 369 (2d Cir. 2002); Provident Bank v. Lewitt, 852 A.2d 852,
855–56 (Conn. App. Ct. 2004). Under Connecticut law, a court can order a strict foreclosure rather
than a standard sale. Upon doing so, the court will normally give the debtor a set period of time in
which to pay off or redeem the debt. If the debtor fails to do so in the allotted time, the creditor is
granted immediate ownership and possession of the property. Provident Bank, 852 A.2d at 855–56.
Vermont law is similar, also permitting strict foreclosure. See, e.g., In re Canney, 284 F.3d at 369.
160 For instance, it is clear that the purchaser at a foreclosure sale has inspection rights. See
Kozlow, supra note 139, at 888 (footnotes omitted) (“The rights of an assignee include reasonable
inspections of the LLC’s books and records, a right to reasonable information or a reasonable account of the transactions of the company, as well as the right to receive distributions.”).
161 See Gregory S. Alexander, Freedom, Coercion, and the Law of Servitudes, 73 Cornell L.
Rev. 883, 893 (1988) (discussing the “importance of legal certainty ex ante to . . . private planning”).

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in their charging order statutes.162 To the extent that there is no exclusivity
rule that preempts the field, however, holders of charging orders should
consider arguing that foreclosure entitles them to more than a mere
transferable interest. As discussed above, partnership law has long protected
the business entity and non–debtor partners by limiting the nature of a
partnership interest that is foreclosed upon. And there is no question
that this approach has traditionally applied to LLCs as well.163 However,
it is conceivable that shifting the perception of the charging order to a
property–based remedy, which should be construed broadly, will entice the
courts to expand upon this concept, as well.
Courts could utilize the concept of a property–based remedy by
ordering foreclosure and dictating that such process transfer full and
complete ownership (instead of a mere transferable interest). Conceptually,
this makes sense in the context of LLCs.164 LLCs are, in relevant ways,
much more like corporations than like partnerships. In particular, a
member of an LLC enjoys limited liability and is not liable for the acts
of its co–members beyond its initial investment.165 Additionally, LLCs
can be managed by a non–member manager, who functions like an officer
of a corporation and controls the company on behalf of its constituent
owners.166 These similarities to corporations are important because they
162 See supra note 101 and accompanying text. A number of LLC charging order statutes
explicitly provide that the rights contained therein constitute “the exclusive remedy by which a person seeking to enforce a judgment against a member or transferee may, in the capacity of judgment
creditor, satisfy the judgment from the judgment debtor’s transferable interest.” Rev. Unif. Ltd.
Liab. Co. Act § 503(g) (2006), 6B U.L.A. 499 (2008). As discussed above, there is some question
about the nature of this exclusivity. See Callison, supra note 40, at 343 n.22 (“Although courts have
implied that charging orders are the exclusive remedy under the UPA, the various rationales for
that conclusion are unclear.”); see also Kleinberger, Bishop & Geu, supra note 66, at 33. Determining
the true impact of this language is beyond the scope of this Article, however. The remedy described
in the remainder of this Article is likely only available in those states with statutes that do not truly
exclude other remedies.
163 See supra note 118–119 and accompanying text. It is clear that the transferable interest
referred to in RULLCA section 502 comes from partnership law. See Carol R. Goforth, Why Arkansas Should Adopt the Revised Uniform Limited Liability Company Act, 30 U. Ark. Little Rock
L. Rev. 31, 68 (2007) (following “the lead of traditional partnership law in specifying that an owner’s
transferable interest in an LLC is personal property”).
164 This wide view of charging order foreclosure may make sense in the context of limited
partnerships, as well, though these entities combine the corporate and partnership elements at play
in this analysis.
165 See Jonathan R. Macey, The Limited Liability Company: Lessons for Corporate Law, 73
Wash. U. L.Q. 433, 434 (1995) (“[T]he purpose of forming a limited liability company is to create
an entity that offers investors the protections of limited liability and the flow–through tax status
of partnerships.”).
166 See William H. Clark, Jr., The Relationship of the Model Business Corporation Act to Other
Entity Laws, Law & Contemp. Probs., Winter 2011, at 57, 71 (“A manager of an LLC has a position that can combine elements of the functions of directors and officers in a corporation.”). Not
all LLCs are run by managers, and managers are often also members. Nonetheless, it is accurate to

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are what gave rise to the charging order in the partnership context. Recall
from above that charging orders were created to honor the pick your
partner principle and to ensure that partnerships, as relatively small and
personally managed enterprises, were not disrupted by the intrusion of an
unwanted third party.167 These concerns, however, are largely absent in the
context of LLCs. It is true that most LLCs are relatively small entities168
and that it is unlikely that any member wants to be forced to do business
with an unknown, third–party creditor. However, the direct need to avoid
this—the danger to a partnership arising from every partner’s ability to create
entity–wide liability and to routinely participate in management—simply
is not present.
Again, return to creditor property rights in the context of corporations.169
There, as in all business settings, the entity owners (the shareholders) have
chosen their compatriots carefully and likely do not welcome outside
intrusion. Nevertheless, the law permits it, applying execution concepts as
a matter of course,170 because there are no partnership–centric issues that
precipitate against doing so. And the same should apply here, where there is
no explicit statutory prohibition: acknowledging the property nature of the
charging order, judges should construe it broadly and permit it to foreclose
an entire LLC interest, analogous to corporate law.171
Moreover, this extension is not so bold. Some courts have already begun
to move along this path in certain circumstances. Florida, in particular,
started down this route in Olmstead v. Federal Trade Commission.172 There, the
state supreme court held that a court of competent jurisdiction could “order
a judgment debtor to surrender all right, title, and interest in the debtor’s
single–member LLC to satisfy an outstanding judgment.”173 Now, it is true that
characterize LLCs as being designed with a more professional, detached leadership style than that
associated with partnerships.
167 See supra Part II.A.
168 See Michael McCord, LCC Changes Coming Jan. 1: Act’s Author Says New Law Has Wide
Range of Benefits, Seacoastonline (Dec. 10, 2012, 2:00 AM), http://www.seacoastonline.com/articles/20121210–BIZ–212100303 (stating that the average size of an LLC is three members, but that
around half of all LLCs are single member entities).
169 See supra note 75 and accompanying text.
170 See id.
171 Courts could also chart numerous middle courses, expanding current foreclosure powers
but stopping short of doing so uniformly in all LLC contexts. One of many potential examples
would be to permit a foreclosing charging order holder to gain complete ownership if the charging
order attached to a majority interest (or, perhaps a “quasi majority interest” in the case of a family or sham entity) in the LLC. This would only expose minority interest holders to a third party
participant, something that they were potentially exposed to, in any event, given their exposure to
the vagaries of minority ownership. Or, perhaps, courts could only permit a foreclosing charging
order holder to gain complete ownership if the charging order attached to a single member LLC.
See infra note 177.
172 See Olmstead v. FTC, 44 So. 3d 76, 78 (Fla. 2010).
173 See id. at 78. The case law from Olmstead is actually derived from three related cases. In

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the holding was limited to single member LLCs174 and that Florida legislature
has since cemented this distinction.175 However, some of the reasoning
underlying this conclusion applies just as forcefully to multi–member LLCs.
Olmstead, for instance, focused on a single member’s right to transfer assets
and the fact that an interest in an LLC is similar to “corporate stock.”176 These
characteristics do not necessarily change just because additional members have
ownership in the entity.177 Regardless of how many members there are, an LLC
interest is very much like a corporate interest, and there are many circumstances
under which the two should be treated similarly. As such, it is within a court’s
power, and within an established conceptual framework, to broadly construe
the foreclosure power afforded a charging order holder and so give concrete
effect to the property nature of the charging order remedy.178
the first case, the trade commission sued operators of an alleged credit card scam, resulting in a
federal judgment. See FTC v. Peoples Credit First, LLC, No. 8:03–CV–2353–T–TBM, 2006 WL
1169677, at *1 (M.D. Fla. May 3, 2006); see also Louis T.M. Conti, The New Olmstead Patch Legislation: A Case Study in the Art of Compromise for Florida LLC Law, Fla. B.J., Dec. 2011, at 49, 49. In
attempting to effect the judgment ultimately granted to the FTC, the federal court went beyond
a traditional charging order and required defendants to surrender assets held by non–party, single
member LLCs. See Peoples Credit First, 2006 WL 1169677, at *2 & n.5. Upon appeal, the 11th Circuit
certified to the Florida Supreme Court whether such an order was permissible under Florida law.
See FTC v. Olmstead, 528 F.3d 1310, 1314 (11th Cir. 2008). The Florida Supreme Court responded,
ruling that “Florida law permits a court to order a judgment debtor to surrender all right, title, and
interest in the debtor’s single–member limited liability company to satisfy an outstanding judgment.” See Olmstead, 44 So. 3d at 78 (internal quotation mark omitted).
174 See Olmstead, 44 So. 3d at 81 (“The limitation on assignee rights in section 608.433(1) [of
Fla. Stat. (2008)] has no application to the transfer of rights in a single–member LLC. In such an
entity, the set of ‘all members other than the member assigning the interest’ is empty. Accordingly,
an assignee of the membership interest of the sole member in a single–member LLC becomes
a member—and takes the full right, title, and interest of the transferor—without the consent of
anyone other than the transferor.”).
175 See Fla. Stat. Ann. § 608.433(5)–(7) (West Supp. 2013). Other states have similarly made
this distinction, with some reaching the same conclusion and others, the opposite. Compare Utah
Code. Ann. § 48–2c–1103(2)(d) (LexisNexis 2010) (“Notwithstanding Subsection (2)(c), if the
member whose interest is charged under this section is the sole member of the company when the
charging order was entered: (i) the purchaser at a foreclosure sale acquires all rights of the member,
including voting rights; and (ii) the member is considered to have consented to the admission of
the purchaser as a member of the company.”), with Wyo. Stat. Ann. § 17–29–503(g) (2011) (“This
section provides the exclusive remedy by which a person seeking to enforce a judgment against a
judgment debtor, including any judgment debtor who may be the sole member, dissociated member
or transferee, may, in the capacity of the judgment creditor, satisfy the judgment from the judgment
debtor’s transferable interest or from the assets of the limited liability company.”).
176 See Olmstead, 44 So. 3d at 80.
177 It is likely that most LLCs with multiple members would have some sort of transfer
restriction. However, this only holds for non–controlling interests in a truly arm’s–length entity. To
the extent that the debtor retains actual or constructive control, this element is just as applicable,
regardless of the number of members.
178 See In re Albright, 291 B.R. 538, 541 (Bankr. D. Colo. 2003) (“A charging order protects the
autonomy of the original members, and their ability to manage their own enterprise. In a single–
member entity, there are no non–debtor members to protect. The charging order limitation serves

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Conclusion
This Article seeks to untangle and lay bare the true nature of charging
orders. Long viewed as a toothless remedy, hopelessly transferring the balance
of power from debtors to creditors, a charging order is much more than that. It
is property, and understanding and focusing on that basic fact is important. Its
underlying intent is to transfer ownership from a debtor to a creditor. While it
is true that a charging order is not a wholesale transfer of rights and was, in fact,
created in the context of partnership law as a compromise interest, that does not
change its fundamental nature. Recognizing the charging order’s genesis within
the greater constellation of creditor property rights and its inherent nature as
a true and legitimate property interest means that the focus should be upon
maximizing the value of this remedy, not minimizing it.
And there are many ways in which this could be done. In particular, a
renewed focus on the powers granted to courts and charging order holders
and a more aggressive attempt to utilize foreclosure in certain circumstances
both seem conceptually and philosophically legitimate. The result of this
shift in perception and execution will, of course, re–shift the current balance
of power between debtors and creditors and could permanently alter the
manner in which partnerships, limited partnerships, and LLCs are utilized.
Courts, practitioners, and academics should all take note, as this would
constitute a significant and important change affecting many areas of the
law and practice.

no purpose in a single member limited liability company, because there are no other parties’ interests affected.”). Again, there is a conceptual basis to expand this beyond mere single member LLCs,
given that the “autonomy of the original [owners] and their ability to manage their own enterprise”
in multi–member LLCs is no less exposed than in corporations. But see id. at 541 n.9 (“The harder
question would involve an LLC where one member effectively controls and dominates the membership and management of an LLC that also involves a passive member with a minimal interest.
If the dominant member files bankruptcy, would a trustee obtain the right to govern the LLC?
Pursuant to Colo. Rev. Stat. § 7–80–702, if the non–debtor member did not consent, even if she
held only an infinitesimal interest, the answer would be no. The Trustee would only be entitled to
a share of distributions, and would have no role in the voting or governance of the company.”).

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Citation

Chad J. Pomeroy, “Think Twice: Charging Orders and Creditor Property Rights,” St. Mary's Law Digital Repository, accessed November 22, 2017, http://lawspace.stmarytx.edu/item/102KyLJ705.

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