How Can A Creditor Get Information From The Debtor's LLC? Let Me Count The Ways

Forbes

6 hours ago

A subpoena orders one to appear and testify
Let's say that a judgment creditor holds a charging order against a debtor's interest in an LLC. The charging order does two things: first, it creates a lien on the debtor's economic interest in the LLC and, second, it requires that any distributions due to the debtor be paid to the creditor instead. All well and good, but how does the creditor know if distributions are being made or what else is going on in the LLC?
As a mere lienholder, the creditor has no right to obtain information directly from the LLC. Nor does the order to pay over distributions to the creditor does create any information rights against the LLC. So no joy there. As an aside, even if the creditor forecloses upon the charging order lien, the purchaser of the debtor's interest at the judicial sale (who is usually the creditor) will become no more than an involuntary assignee of the interest and that will not entitle the purchaser to information from the LLC either ― although that purchaser will probably receive a form K-1 each year. This is the commonly-marketed asset protection viewpoint anyway.
But does this mean that the creditor is stuck with no means of getting information from the LLC? This question is answered, at least in Ohio, in the opinion issued in HDDA, LLC v. Vasani, 2025 Ohio 2000, 2025 WL 1587261 (Ohio App., June 5, 2025), which you can read for yourself here.
The facts of the HDDA case are pretty simple. The creditor held a judgment against two individual defendants, and the individual defendants held interests in nine different LLCs. The creditor served subpoenas upon the LLC which sought financial information about the defendants. The defendants and the nine LLCs filed a motion to quash the subpoenas and also moved for the imposition of a protective order to block the creditor from obtaining that information. For its part, the creditor filed a motion to compel the nine LLCs to comply with the subpoenas.
The lower court judge rejected the defendants' and LLCs' motions, but granted the creditor's motion to compel the nine LLCs to comply with the subpoenas. From that ruling, the defendants and the LLCs appealed to the Ohio Court of Appeals.
The Court of Appeals affirmed the rulings. Since Ohio law in post-judgment enforcement proceedings allows the issuance of subpoenas to third-parties to uncover the financial information of debtors, it was proper for the subpoenas to be issued to the nine LLCs since they might have information about the assets of the debtors. Plus, there was apparently some evidence presented to the trial court that the debtors and the nine LLCs had commingled funds and assets. This was all fair game for the creditor's subpoenas.
The debtors claimed that they were "only members" of the LLCs and that the creditor's sole and only recourse was to take a charging order against the debtors' interests in the LLCs, which would give the creditor rights against the debtors' interests but would not give the creditor any informational rights against the LLCs. To this point, the Court of Appeals noted that the third-party subpoenas were simply a different mechanism to obtain discovery against the LLCs and the subpoenas were not prohibited by the Ohio LLC law.
In the end, the Court of Appeals affirmed the trial court's issuance of the motion to compel, as well as its rejection of the motions to quash and for a protective order.
ANALYSIS
What this case basically illustrates is the old adage that there are "many ways to skin a cat". Creditors have many post-judgment enforcement tools available to them. They are not limited to just one tool where debtors hold LLC interests, the "exclusive remedy" language notwithstanding. Think of it as a creditor wanting to get into a city and there are several roads to get into that city. While the charging order road might be blocked, the third-party subpoena road is still wide open.
Where this may get weird is that some states categorize their post-judgment discovery provisions as a "remedy" and in those states there might be a question as to whether that means those provisions are then blocked by the "exclusive remedy" language of the local LLC law, but that is for another day. I could see the arguments both ways. On one hand, the legislature knew what the creditor's remedies were when it adopted the "exclusive remedy" language and so it should be binding on all post-judgment remedies including discovery. On the other hand, post-judgment discovery to third-parties is commonplace and does not cause the sort of interference with the business that the "exclusive remedy" language was meant to address, so it really doesn't make any sense to apply it in that context (similar to how courts get around the charging order statutes in the case of single-member LLCs).
It is worth noting that there is yet another way for a creditor to obtain information about an LLCs in which a debtor has an interest, which is to compel the debtor to obtain that information from the LLC and provide it to the creditor in a post-judgment debtor examination. As mentioned, when a creditor obtains a charging order against a debtor, the creditor only gets a lien and an order to pay. The debtor, however, remains a member in the LLC and (unless the LLC's operating agreement provides differently, and few of them do) is entitled to review all the books and records of the LLC. Thus, the creditor could compel the debtor to obtain that information and turn it over.
A slightly narrower road which provides a glimpse into the LLC's activities is the K-1 that most LLCs issue to their members. In all but a rare few jurisdictions, these tax returns are discoverable by creditors and they usually contain a wealth of useful information about the LLC.
Again, there are several roads available for a creditor to take, it is just a matter of the creditor following the road that is open and leads to the information sought by the debtor. In this case, the creditor seeks information of asset and fund commingling which, if proven, would allow the creditors to circumvent charging order exclusivity altogether and instead bring a motion to reverse-pierce the nine LLCs to get at their assets directly, instead of waiting around for distributions that might never be made. That is proper too, if the facts ultimately support it.
We thus see for the umpteenth time that charging order exclusivity really isn't that exclusive. But I've been saying that all along.
Hat tip to Tom Rutledge of Stoll Keenon Ogden PLLC in Louisville for telling me of this opinion.