Caution State Law Variances!
SECTION 404. ENFORCEMENT AGAINST NON-ASSOCIATED ASSET.
JayNote: It will be recalled that with a Series LLC there are two types of assets, being "associated assets" and "non-associated assets". The former are assets that have been properly titled to either the series organization or to some protected series, while the latter are those assets which have never been properly titled to either the series organization or a protected series. Associated assets are only and exclusively available to creditors of only particular protected series or the series organization to which they have been properly titled, while non-associated assets are available on a first-come, first-served basis to the creditors of any protected series or the series organization. What happens with non-associated assets is described in § 404.
(a) In this section:
(1) "Enforcement date" means 12:01 a.m. on the date on which a claimant first serves process on a series limited liability company or protected series in an action seeking to enforce under this section a claim against an asset of the company or protected series by attachment, levy, or the like.
JayNote: Section 404(a) provides two terms that are used throughout § 404. The first term is "enforcement date", which is the date when the creditor first serves judgment enforcement process on the series organization and/or the protected series. Interestingly, no matter what time of the day this actually occurs, it is said to occur at 12:01 a.m. on that date, to prevent somebody from backdating records to claim that the assets were properly associated earlier in the day.
(2) Subject to Section 608(b), "incurrence date" means the date on which a series limited liability company or protected series incurred the liability giving rise to a claim that a claimant seeks to enforce under this section.
Reporter's Comment to Subsection (a)(1) – An "enforcement date" begins at 12:01 a.m. to preclude a protected series or series limited liability company hurriedly rehabilitating its records after being served. The phrase "attachment, levy or the like" comes from the definition of "lien creditor" in UCC § 9-102(a)(52).
The second term is "incurrence date", which is the date on which the liability was incurred that gave rise to a claim against a protected series or the series organization. In this sense, liability is incurred when the defendant's car runs and red light and slams into the bus load of plastic surgeons, i.e., the liability was incurred at that time, and not a later time such as when somebody sent a demand letter or filed a lawsuit.
(b) If a claim against a series limited liability company or a protected series of the company has been reduced to judgment, in addition to any other remedy provided by law or equity, the judgment may be enforced in accordance with the following rules:
(1) A judgment against the company may be enforced against an asset of a protected series of the company if the asset:
(A) was a non-associated asset of the protected series on the incurrence date; or
(B) is a non-associated asset of the protected series on the enforcement date.
(2) A judgment against a protected series may be enforced against an asset of the company if the asset:
(A) was a non-associated asset of the company on the incurrence date; or
(B) is a non-associated asset of the company on the enforcement date.
(3) A judgment against a protected series may be enforced against an asset of another protected series of the company if the asset:
(A) was a non-associated asset of the other protected series on the incurrence date; or
(B) is a non-associated asset of the other protected series on the enforcement date.
Reporter's Comment to Subsection (b) – This subsection applies "asset by asset" and involves analysis at two points in time: when enforcement against the asset is first sought under this section ("enforcement date") and when the liability giving rise to the claim was incurred ("incurrence date").
When liability incurred (incurrence date):
When enforcement under this section first sought (enforcement date):
The concept of "liability incurred" has been part of uniform law since 1914. See Uniform Partnership Act (1997) (Last Amended 2013) § 306(b), cmt. This act does not determine when a liability is incurred.
This provision's lead-in reference to particular categories of "principles of law or equity" should not be interpreted as limiting the effect of Uniform Limited Liability Company Act (2006) (Last Amended 2013), Section 111 (stating that "[u]nless displaced by particular provisions of this ACT, the principles of law and equity supplement this ACT") (brackets in original) or of comparable provisions in other limited liability company acts.
JayNote: Paragraph (b) says that a creditor holding a claim against any protected series or the series organization may enforce the judgment against any non-associated asset of any protected series or series organization if that asset had not been property associated with a protected series or the series organization as of either the enforcement date or the incurrence date.
(c) In addition to any other remedy provided by law or equity, if a claim against a series limited liability company or a protected series has not been reduced to a judgment and law other than this ACT permits a prejudgment remedy by attachment, levy, or the like, the court may apply subsection (b) as a prejudgment remedy.
Reporter's Comment to Subsection (c) – This section does not affect the extent to which pre-judgment attachment is available. Other law governs that determination.
JayNote: Paragraph (c) of § 404 applies the enforceability of a judgment against a non-associated asset to prejudgment actions by the creditor, such as a prejudgment attachment or injunction to prevent transfers, etc.
(d) In a proceeding under this section, the party asserting that an asset is or was an associated asset of a series limited liability company or a protected series of the company has the burden of proof on the issue.
Reporter's Comment to Subsection (d) – Various persons might assert that an asset is an associated asset, including the owner of the asset, a creditor of the owner of the asset, or the trustee in bankruptcy of the owner of the asset.
JayNote: Very importantly, paragraph (d) of § 404 says that whichever party claims that the asset has been properly associated with a protected series or the series organization, bears the burden of proving that association.
Example No. 1: Creditors attempts to levy on a car, claiming that the car is a non-associated asset of ABC Series LLC. In defense, ABC Series LLC Protected Series 117 claims that it is the owner of the car, and that the car was associated with Series 117 by a title filed with the DMV. In this case, Series 117 has the burden of proving that the car was titled in the name of Series 117 and is otherwise property associated with Series 117.
Example No. 2: Creditor A holds a judgment against Protected Series 8. Creditor B holds a judgment against Protected Series 13. Creditor B levies first, and claims that a valuable oil drill bit is a non-associated asset and subject to its levy. Creditor A claims that the drill bit is titled in the name of Protected Series 8 and otherwise is property associated with Protected Series 8, and thus is unavailable to Creditor B. Here, Creditor A has the burden of providing association with Protected Series 8 of the drill bit.
(e) This section applies to an asset of a foreign series limited liability company or foreign protected series if:
(1) the asset is real or tangible property located in this state;
(2) the claimant is a resident of this state or doing business or registered to do business in this state, or the claim under Section 404 is to enforce a judgment, or to seek a pre-judgment remedy, pertaining to a liability arising from law of this state other than this ACT or an act or omission in this state; and
Reporter's Comment to Subsection (e) – As does entity law generally, this act permits a business to exist under the law of foreign jurisdiction even while conducting some or all its activities in another state. This provision is thus necessary to prevent easy evasion of the act's asset-by-asset exposure rule.
Reporter's Comment to Subsection (e)(1)-(2) – These provisions are similar in effect and rationale to Section 402(c)(1) and (2).
(3) the asset is not identified in the records of the foreign series limited liability company or foreign protected series in a manner comparable to the manner required by Section 301.
Reporter's Comment to Subsection (e)(3) – "[A] manner comparable" is emphatically not "a manner exactly like." What matters is whether information exists and is sufficiently accessible to enable "to permit a disinterested, reasonable individual" to do the identification and make the determinations described in Section 404(a) and (b).
JayNote: Paragraph (e) applies § 404 to foreign series LLCs and their protected series, so long as either the asset is located within this state or the claimant resides or is doing business in this state, and the asset sought be enforced against has not been properly associated in a similar to matter as set forth in § 301. This latter reference to § 301 has a much larger ramification than seems at first glance, since it effectively means that to protect assets in a UPSA state, a Series LLC formed in a non-UPSA must have associated its assets as if § 301 applied to it as well for those assets to be protected in-state.
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Reporter's Comment to Section 404
This section pertains to the non-recourse rule explained in Prefatory Note, Part 7-B, and creates an important, novel inducement in support of the recordkeeping requirements of Section 301. Under this section, a creditor may enforce a judgment against one protected series of a series limited liability company by pursuing non-associated assets owned by the company or another protected series of the company. Comparable recourse exists for creditors of the company.
Put another way: an asset of a protected series of a series limited liability company is "up for grabs" not only to creditors of the protected series but also to creditors of the company and creditors of any other protected series of the company if the asset is non-associated at either of two testing moments.
Chronologically, the first testing moment is the "incurrence date" – when the underlying liability was incurred; second testing moment is the "enforcement date" – when a creditor first seeks enforcement under this section. "Up for grabs" exposure exists likewise for an asset of a series limited liability company that is non-associated at either of the testing moments.
Except when a claimant invokes subsection (c) (pre-judgment remedy), a proceeding under this section is to enforce a judgment and is not a separate action to establish or re-litigate the underlying liability which resulted in that judgment. See, e.g., David C. Olson, Inc. v. Denver & Rio Grande W. R. Co., 789 P.2d 492, 494-95 (Colo. App. 1990) ("The liability arising from a judgment is a new one, distinct from the liability upon which the judgment is based, and any prior liability merges into that judgment."). Therefore, a claim under this section is timely so long as the judgment is viable.
Section 404 exposure is "asset by asset" and does not otherwise implicate the internal, horizontal shields created by Section 401(b). However, this section will be largely moot if a piercing claim succeeds against an internal shield. For example, suppose that, as a result of a piercing claim, a series limited liability company is held liable for a judgment against a protected series of the company. Whether an asset of the company is an associated asset of the company is, at least in the first instance, immaterial to the judgment creditor. The judgment creditor will be enforcing a judgment against the company itself; all the company's assets are subject to enforcement regardless of whether associated with the company.
In fact, the judgment creditor would prefer for each asset of the company to be an associated asset. If so, the asset is not "up for grabs" – i.e., the asset is available only to creditors of the company, including (given the successful piercing claim) the judgment creditor.
Other law determines what, if any, claims a protected series or the company has, and against whom, if the protected series or the company loses an asset under this section due to inadequate recordkeeping. See Prefatory Note, Part 7-C (Non-Liability and Non-Recourse Rules), note 19.
The rules stated in this section and the recordkeeping requirements stated in Section 301 sharply distinguish the protected series construct from more traditional affiliate relationships – e.g., a holding company with subsidiaries. Although concepts of affiliate liability apply in both contexts, see Section 402(a), traditional affiliate relationships face neither the recordkeeping requirements of Section 301 nor the asset-by-asset exposures consequences of this section.
Section 404 exposure does not "run with" the asset. Subject to any applicable statute on voidable transfer, if a protected series or series limited liability company transfers an asset to another person, the transfer ends any existing Section 404 exposure. Of course, if the transferee is the series limited liability company or a protected series of the company, Section 404 applies to the asset anew.
UPSA AND WEBSITE CONTENTS
ARTICLE 1. GENERAL PROVISIONS
SECTION 101. SHORT TITLE. SECTION 102. DEFINITIONS. SECTION 103. NATURE OF PROTECTED SERIES. SECTION 104. POWERS AND DURATION OF PROTECTED SERIES. SECTION 105. GOVERNING LAW. SECTION 106. RELATION OF OPERATING AGREEMENT, THIS ACT, AND LIMITED LIABILITY COMPANY ACT. SECTION 107. ADDITIONAL LIMITATIONS ON OPERATING AGREEMENT. SECTION 108. RULES FOR APPLYING LIMITED LIABILITY COMPANY ACT TO SPECIFIED PROVISIONS OF ACT.
ARTICLE 2. ESTABLISHING PROTECTED SERIES
SECTION 201. PROTECTED SERIES DESIGNATION; AMENDMENT. SECTION 202. NAME. SECTION 203. REGISTERED AGENT. SECTION 204. SERVICE OF PROCESS, NOTICE, DEMAND, OR OTHER RECORD. SECTION 205. CERTIFICATE OF GOOD STANDING FOR PROTECTED SERIES. SECTION 206. INFORMATION REQUIRED IN ANNUAL BIENNIAL REPORT; EFFECT OF FAILURE TO PROVIDE.
ARTICLE 3. ASSOCIATED ASSET; ASSOCIATED MEMBER; PROTECTED-SERIES TRANSFERABLE INTEREST; MANAGEMENT; RIGHT OF INFORMATION
SECTION 301. ASSOCIATED ASSET. SECTION 302. ASSOCIATED MEMBER. SECTION 303. PROTECTED-SERIES TRANSFERABLE INTEREST. SECTION 304. MANAGEMENT. SECTION 305. RIGHT OF PERSON NOT ASSOCIATED MEMBER OF PROTECTED SERIES TO INFORMATION CONCERNING PROTECTED SERIES.
ARTICLE 4. LIMITATION ON LIABILITY AND ENFORCEMENT OF CLAIMS
SECTION 401. LIMITATIONS ON LIABILITY. SECTION 402. CLAIM SEEKING TO DISREGARD LIMITATION OF LIABILITY. SECTION 403. REMEDIES OF JUDGMENT CREDITOR OF ASSOCIATED MEMBER OR PROTECTED-SERIES TRANSFEREE. SECTION 404. ENFORCEMENT AGAINST NON-ASSOCIATED ASSET.
ARTICLE 5. DISSOLUTION AND WINDING UP OF PROTECTED SERIES
SECTION 501. EVENTS CAUSING DISSOLUTION OF PROTECTED SERIES. SECTION 502. WINDING UP DISSOLVED PROTECTED SERIES. SECTION 503. EFFECT OF REINSTATEMENT OF SERIES LIMITED LIABILITY COMPANY OR REVOCATION OF VOLUNTARY DISSOLUTION.
ARTICLE 6. ENTITY TRANSACTIONS RESTRICTED
SECTION 601. DEFINITIONS. SECTION 602. PROTECTED SERIES MAY NOT BE PARTY TO ENTITY TRANSACTION. SECTION 603. RESTRICTION ON ENTITY TRANSACTION INVOLVING PROTECTED SERIES. SECTION 604. MERGER AUTHORIZED; PARTIES RESTRICTED. SECTION 605. PLAN OF MERGER. SECTION 606. STATEMENT OF MERGER. SECTION 607. EFFECT OF MERGER. SECTION 608. APPLICATION OF SECTION 404 AFTER MERGER.
ARTICLE 7. FOREIGN PROTECTED SERIES
SECTION 701. GOVERNING LAW. SECTION 702. NO ATTRIBUTION OF ACTIVITIES CONSTITUTING DOING BUSINESS OR FOR ESTABLISHING JURISDICTION. SECTION 703. REGISTRATION OF FOREIGN PROTECTED SERIES. SECTION 704. DISCLOSURE REQUIRED WHEN FOREIGN SERIES LIMITED LIABILITY COMPANY OR FOREIGN PROTECTED SERIES PARTY TO PROCEEDING.
ARTICLE 8. MISCELLANEOUS PROVISIONS
SECTION 801. UNIFORMITY OF APPLICATION AND CONSTRUCTION. SECTION 802. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT. SECTION 803. TRANSITIONAL PROVISIONS. SECTION 804. SAVINGS CLAUSE. SECTION 805. SEVERABILITY CLAUSE. SECTION 806. REPEALS; CONFORMING AMENDMENTS. SECTION 807. EFFECTIVE DATE.
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Protected Series Agreements and Forms -- A list of the "best practices" agreements and records that all protected series structures should have.
SERIES LLC COURT OPINIONS
UPSA COURT OPINIONS
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NON-UPSA COURT OPINIONS
191212 ... Ohio ... Delaware Act .. MSP Recovery Claims, Series LLC v. Phoenix Ins. Co., 2019 WL 6770981 (N.D. Ohio, 2019).
181019 ... Florida ... Delaware Act ... MRP Recovery Claims, Series LLC v. USAA General Indemnity Co., 2018 WL 5112998 (S.D.Fla., Oct. 19, 2018).
SERIES LLC ARTICLES BY JAY ADKISSON
2020.03.17 ... Series LLC Not Allowed To Play Pea-Shell Game In City Of Urbana Opinion
2020.02.16 ... Talisman Casualty Denied Diversity Jurisdiction Of Protected Cell Series LLC In National WW II Museum Case
2019.01.28 ... Understanding The Protected Series Act: Article 8 And Final Thoughts
2018.11.24 ... Understanding The Protected Series Act: Treating Out-Of-State Series
2018.11.18 ... Understanding The Protected Series Act: Mergers
2018.10.29 ... Understanding The Protected Series Act: Dissolution And Winding Up Of Protected Series
2018.10.21 ... Understanding The Protected Series Act: Liability Limitations And Claims
2018.08.30 ... Understanding The Protected Series Act: Assets, Members And Management
2018.08.28 ... Understanding The Protected Series Act: Creating A Protected Series And Service Of Process
2018.07.18 ... Understanding The Protected Series Act: The Framework of UPSA - Part 2 of a Series
2018.06.18 ... Understanding The Protected Series Act: What Is A Protected Series?
More articles on Series LLCs by Jay Adkisson click here
THE CHARGING ORDER PRACTICE GUIDE
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The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association
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