A recent case that highlights the significance of “post-formation” action with respect to a limited liability company is Orix Re Holdings, LLC v. Collier, 2025 WL 2683986 (C.D. Cal. August 20, 2025).

The Orix case involved certain loan guarantees that Defendant Michael Collier (“Collier”) executed in 2014 and 2017 in connection with a loan Plaintiff Orix Re Holdings, LLC (“Orix”) made to HC Southfield LLC (“Southfield”) to operate an Embassy Suites hotel in Michigan. In 2018, Southfield breached its loan obligations. On June 26, 2024, Orix sued Collier on his loan guarantees in the United States District Court for the Eastern District of Michigan. On October 2, 2024, the United States District Court for the Eastern District of Michigan issued a default judgment in favor of Orix and against Collier in the amount of $7,923,173.47 (the “Judgment”). Orix proceeded to register the Judgment in the United States District Court for the Central District of California.

As additional relevant facts in the Orix case, on February 25, 2020, Articles of Organization were filed to form 1421 Kings Road, LLC, a California limited liability company (the “Kings Road LLC”). The Articles of Organization for the Kings Road LLC stated that the Kings Road LLC will be managed by all limited liability company members, and that Collier was a manager or member of the Kings Road LLC. On February 27, 2020, the Kings Road LLC purchased real property located in Newport Beach, California (the “Kings Road Property”).

Orix sought to enforce the Judgment by obtaining a charging order against Collier’s interest in the Kings Road LLC. Charging orders are a common remedy that judgment creditors use to attach the interests of judgment debtors in limited liability companies; the specific scope of the charging order remedy is discussed in the brief planning note below. The key issue in the Orix case was whether Collier had an interest in the Kings Road LLC against which Orix could assert a charging order.

The court in the Orix case stated:

“Neither the California Supreme Court nor the Ninth Circuit Court of Appeals has addressed the standard of proof required for the issuance of a charging order. . . . However, District Courts in California have held that, to obtain a charging order, a judgment creditor must present substantial evidence that the judgment debtor owns an interest in an LLC. . . .

In his opposition, Collier argued that he no longer owns an ownership interest in the Kings Road LLC. To support his opposition, Collier submitted his declaration stating that he is now only the manager of, and no longer a member of, the Kings Road LLC, and that he does not have a current ownership, membership or equity interest in the Kings Road LLC.

Attached to Collier’s declaration is a document entitled Assignment of Interest in Limited Liability Company [‘the Assignment’] and signed by Collier. The Assignment states, inter alia, that, for valuable consideration received, Collier assigned a 100 percent interest in the Kings Road LLC to his wife, Meegan Collier, as the trustee of the Collier Family Trust, dated January 19, 2015 [‘the Trust’]. Below the Assignment, on the same sheet of paper, is an Acceptance of Assignment, signed by Meegan Collier, as the trustee of the Trust [‘the Acceptance’]. The Assignment and Acceptance are both dated February 28, 2020.

In response to Collier’s opposition, Orix’s reply papers included a request for judicial notice of, inter alia, five documents executed by Collier on behalf of the Kings Road LLC and dated after the February 28, 2020, date of the Assignment.

. . .

The Court will take judicial notice of the following documents and facts:

1. On March 3, 2020, the Orange County Clerk-Recorder recorded a deed of trust against the Kings Road Property in favor of Lone Oak Fund, LLC. Collier signed that deed as the managing member of the Kings Road LLC.
2. On January 12, 2021, the Orange County Clerk-Recorder recorded a deed of trust against the Kings Road Property in favor of Sonar Capital, LLC. Collier signed that deed as the sole member of the Kings Road LLC.
3. On February 11, 2022, Collier filed a statement of information for the Kings Road LLC with the California Secretary of State. Collier signed that statement as the manager of the Kings Road LLC.
4. On March 15, 2022, the Orange County Clerk-Recorder recorded a deed of trust against the Kings Road Property in favor of Center Street Lending VII SPE, LLC [‘Center Street’]. Collier signed that deed as the managing member of the Kings Road LLC.
5. On October 15, 2024, the Orange County Clerk-Recorder recorded a deed of trust against the Kings Road Property in favor of Center Street. Collier signed that deed as the managing member of the Kings Road LLC.

The issue, now, is whether Orix has established, with substantial evidence, that Collier has a current ownership interest in the Kings Road LLC.

. . . Meegan Collier did not submit a declaration, here. It is telling that Meegan Collier did not declare that she – as the sole trustee of the Trust – has been the sole member of the Kings Road LLC since February 28, 2020, and that she has acted in a way since February 28, 2020, that would confirm that she is, indeed, the Kings Road LLC’s sole member.

. . . [N]o attorney . . . filed a declaration in support of Collier’s opposition to corroborate that the Assignment and Assumption were, indeed, prepared by that firm or that they were executed on or around February 28, 2020. Moreover, no attorney . . . declared that either of the Colliers have ever acted, in any way, that was in accordance with the executed Assignment and Acceptance. Counsels’ silence, here, is significant.

There is uncontroverted evidence that Collier continued to sign significant documents – after the date of the Assignment – as either a member or the managing member of the Kings Road LLC. The fact that Collier signed those significant documents as a member or managing member after the date of the Assignment creates significant doubt, here, as to whether the Assignment was, indeed, signed on the date that it was dated. At a minimum, there is a significant question as to whether the Assignment was simply ignored by Collier when it was convenient for him to ignore it.

By default, LLCs are member-managed, unless an LLC’s articles of organization state that it is manager-managed. Cal Corp. Code § 17704.07(a). The Kings Road LLC’s articles of organization stated that it was to be managed by all of its members. There is no evidence that the Kings Road LLC changed its management method to become a manager managed LLC. Consequently, anything signed by Collier as the manager of the Kings Road LLC after the date of the Assignment further solidifies the position that he signed those documents as an LLC member who managed the LLC.

Finally, the judicially noticed documents that Collier signed in 2020, 2021, 2022, and 2024 as either the managing member or the sole member of the Kings Road LLC, by themselves, are significant evidence that he is, still, an LLC member, and that the Assignment and Acceptance had no legal effect or consequence.

Therefore, the Court finds that Orix had presented substantial evidence that Collier continues to own an interest in the Kings Road LLC.”

As a result, the court in the Orix case ordered that Orix had a charging order against Collier’s interest in the Kings Road LLC for the unsatisfied amount of the Judgment.

The Orix case tells us that “actions speak louder than words” with limited liability companies. The “words” of the “formation” documents in the Orix case (for purposes of this discussion, as the Assignment and the Acceptance were dated only three days after the Articles of Organization were filed for the Kings Road LLC (February 28, 2020 and February 25, 2020, respectively), all of the Assignment, the Acceptance, and the Articles of Organization can be treated as “formation” documents) appeared to indicate that the Kings Road LLC had a single member – the Trust; based on these “words”, Collier had no interest in the Kings Road LLC that could be subject to a charging order. However, the “actions” of Collier were inconsistent with these “words”. Based on the five documents highlighted by the court in the Orix case, the “post-formation actions” of Collier with respect to the Kings Road LLC suggested that Collier was a member of the Kings Road LLC and therefore had an interest in the Kings Road LLC that could be subject to a charging order. In the Orix case, faced with an inconsistency between “formation words” and “post formation actions”, the court found that “post-formation actions” controlled over “formation words”.

The decision in the Orix case can be applied more broadly to other “post-formation actions” concerning limited liability companies, including without limitation, as follows:

• Filing the limited liability company’s annual report with the applicable Secretary of State;
• Filing the limited liability company’s annual tax return with the Internal Revenue Service and the applicable state tax authority;
• Preparing annual minutes for the limited liability company;
• Treating the ownership of assets and property in a manner consistent with the intent of “formation words”. If a certain property is intended from “formation words” to be owned by a certain limited liability company, “post-formation actions” (in terms of such issues as expensing and tax reporting) should treat such property as being owned by such limited liability company, and not by an individual or other entity; and
• Treating the management of assets and property in a manner consistent with the intent of “formation words”. If a certain property is intended from “formation words” to be managed by a certain person, “post-formation actions” (in terms of such issues as signing documents and decision-making) should treat such property as being managed by such person, and not by another person.

The point is not that “formation words” are irrelevant. It remains critical that a limited liability company be properly formed, including that the proper “words” are used in the Articles of Organization (or whatever the document used to form the limited liability company is named in the applicable state), Operating Agreement, and other “formation” documents. However, unless “post-formation actions” are consistent with these “formation words”, the “formation words” can be undermined, and the effectiveness of the limited liability company will not be achieved.

To the extent that it is often the case that the professional who helped the client form the limited liability company (and use the proper “formation words”) is not involved with the client on a regular basis to oversee all “post-formation actions”, it can become even more of an issue for the client to make certain that proper “post-formation actions” are being undertaken. If the client is not certain about any “post-formation action”, it is prudent for the client to engage a professional and obtain advice concerning such “post-formation action” before a significant mistake is made.

If you have any questions concerning the Orix case, or any issue concerning any “post-formation action” with respect to a limited liability company, please discuss these matters with your advisers.

Note – Decision of What State to Use to Form a Limited Liability Company

There is a second key point to note from the Orix case. In ordering that Orix had a charging order against Collier’s interest in the Kings Road LLC for the unsatisfied amount of the Judgment, the Orix court also gave Orix “permission to foreclose on that interest”. Charging orders are usually viewed as a limited creditor remedy (and therefore a “debtor favorable” remedy), as they generally only give a creditor the right to attach distributions being made from the limited liability company to the debtor member. Such distributions can be avoided or deferred, weakening the creditor remedy. Some states, such as Delaware and Nevada, generally recognize the charging order as the exclusive remedy available to a judgment creditor with respect to a limited liability company. Other states, such as California (applicable in the Orix case), do not recognize the charging order as an exclusive remedy, and instead allow more “creditor favorable” remedies, by a judgment creditor with respect to a limited liability company, such as foreclosure on a membership interest. This distinction becomes significant in deciding in what state to form a limited liability company. If you want to maximize the asset protection from your limited liability company, the Orix case suggests that California is not a favorable jurisdiction to use; other states, such as Delaware and Nevada, offer a better alternative on the “charging order/foreclosure” issue.

If you have any questions concerning the decision of what state to use to form a limited liability company, please discuss these issues with your advisers.

If you wish to discuss any of the above, find Pen Pal Gary’s contact info here.

Disclaimer: please note that nothing in this article is intended to be, or should be relied on as, legal advice of any kind. Neither LHBR Consulting, LLC nor Gary Stern provides legal services of any kind.