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ASSET PROTECTION BENEFITS OF AN OFFSHORE LLC MAY BE INTANGIBLE

The recent case of Wells Fargo v. Barber illustrates that holding assets offshore does not necessarily mean that those assets are any better protected from creditor claims. The protection provided by the offshore nature of the asset can be largely dependent on the domicile of the individual who owns the asset.

In Wells Fargo v. Barber, a deficiency judgment in the amount of $62,491,162.98 was entered against Sabrina Barber (“Barber”) by a Florida state court. While trying to collect the deficiency judgment, Wells Fargo discovered certain transfers of money by Barber that involved the formation of Blaker, LLC, a Nevis Islands limited liability company, of which Barber was the sole member (“Blaker”). Accordingly, Wells Fargo attempted to reach the assets of Blaker through a foreclosure of Barber’s interest in Blaker, or arguing in the alternative, through the issuance of a charging order against such interest.

Like many other jurisdictions, Florida has provided by statute that a charging order is the sole and exclusive remedy by which a judgment creditor may satisfy a judgment from a member’s interest in a limited liability company. There is a major exception; that is, if the limited liability company has only one member, then a judgment creditor may foreclose the member’s interest in the company upon establishing that distributions under a charging order will not satisfy the judgment within a reasonable time.

Relying on the case of Sargeant v. Al-Saleh (discussed in our July 2, 2014 blog post), Barber argued that the district court lacked any authority to grant Wells Fargo any access to Barber’s interest in the LLC, whether by way of a foreclosure or charging order, because the LLC was located offshore. As such, the Florida court had no jurisdiction over Barber’s ownership in the Nevis LLC. Wells Fargo countered that Barber’s reliance on the Sargeant case was misplaced because the Sargeant case concerned only interests in a corporation, which are legally distinguishable in many respects from interests in a limited liability company.

The district court agreed with Wells Fargo. Citing the Restatement (Second) Conflicts of Laws § 65 (among other authorities), the District Court reasoned that unlike stock certificates in a corporation, a membership interest in a limited liability company is intangible personal property, which accompanies the person of the owner. Therefore, the district court held that because Barber resided in Florida, her membership interest in Blaker was located with her in Florida and was properly subject to in rem jurisdiction in Florida. Hence, Barber did not receive the protection she anticipated simply by forming a Nevis limited liability company, primarily because her membership interest was intangible personal property rather than tangible personal property.

- Edward D. Brown, Esq.

 

NEVIS AMENDS ITS LIMITED LIABILITY COMPANY ORDINAN...
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Barry S. Engel
Email: info@engelreiman.com