A recent decision by the Court of Appeals of Virginia has clarified that creditors who obtain charging orders against business interests in limited liability companies may not foreclose on those interests, limiting their remedy to receiving distributions. This outcome affects how creditors can enforce judgments when debtors hold assets in single-member or multi-member LLCs.
The appeal was filed by Robert L. Vaughn, Jr., who brought the case before the Court of Appeals of Virginia after the Circuit Court of Westmoreland County declined his request to foreclose on Isam Farhat’s interests in several LLCs. The opinion, issued April 21, 2026, names Isam Farhat as the defendant and details Vaughn’s efforts to collect a judgment awarded in his favor.
According to court documents, Vaughn originally filed a complaint against Farhat alleging fraud in the inducement, actual fraud, breach of contract, and failure to repay a loan. Vaughn stated that he hired Farhat to build a house and made payments exceeding $1 million by February 2024 for construction that began in December 2022. Despite requests for invoices and receipts, Vaughn alleged that Farhat did not provide documentation for materials or labor expenses. Further investigation revealed that some material orders were never placed and one supplier did not exist. Vaughn also claimed that Farhat was not licensed as a contractor in Virginia.
After entering into an additional agreement with Farhat for $200,000 more with a two-month completion deadline—which was missed—Vaughn sought damages totaling $2 million in compensatory damages and $350,000 in punitive damages. The circuit court ultimately found Farhat liable for actual fraud and fraud in the inducement after striking his answer due to procedural issues and barring him from opposing claims for damages as a sanction under Rule 4:12.
The final order awarded Vaughn $6,350,000 after trebling compensatory damages pursuant to Code § 59.1-204(A) of the Virginia Consumer Protection Act based on willful conduct by Farhat.
To enforce this judgment, Vaughn applied for charging orders under Code § 13.1-1041.1 seeking liens on Farhat’s transferable interests in four LLCs: Farhat Group LLC (sole member), IF&MM LLC (shared membership), Family Traditions Auto Repair LLC (shared membership), and Oak Grove Towing LLC (sole member). Vaughn specifically requested foreclosure by public auction through the sheriff following statutory procedures applicable to property sales by judgment debtors.
The circuit court granted charging orders imposing liens on all four entities and ordered any rent, payments, distributions or other consideration due from these interests be paid directly to Vaughn. However, it declined to allow foreclosure on those interests—particularly those where Farhat was sole member—prompting this appeal.
On appeal, Vaughn argued that Code § 13.1-1041.1 does not prohibit foreclosure against single-member LLCs and warned that refusing such remedies could enable debtors to shield assets indefinitely within an LLC structure without generating income or making distributions accessible to creditors.
The appellate opinion reviewed statutory language closely: “A charging order constitutes a lien on the judgment debtor’s transferable interest in the [LLC],” but “the entry of a charging order is the exclusive remedy by which a judgment creditor…may satisfy a judgment out of the judgment debtor’s transferable interest.” The opinion further noted that creditors do not have rights “to obtain possession of…property of the [LLC].”
Judge Mary Bennett Malveaux wrote: “To hold that a court may foreclose on the interest would defy the plain meaning of the words in the statute by allowing judgment creditors another means of pursuing the judgment debtor’s interest.” The opinion also referenced legislative history showing prior versions of Virginia law explicitly allowed foreclosure but such provisions were removed in amendments enacted in 2006: “We assume that the General Assembly intended to remove this foreclosure provision and therefore disallow judgment creditors the foreclosure remedy.”
As such, while acknowledging concerns about asset protection strategies using LLCs raised by Vaughn, Judge Malveaux concluded courts are bound by current statutory language: “We are unable to rewrite the statute at issue…our only task here is to interpret its plain language.”
In summary, because state law now makes entry of a charging order—the right to receive distributions—the exclusive remedy available when enforcing judgments against members’ interests in an LLC, courts cannot authorize foreclosure sales even where there is only one member involved.
Robert L. Vaughn, Jr., representing himself pro se with The Vaughn Law Firm PLC listed on brief, argued before Chief Judge Decker and Judges Malveaux and Duffan at Richmond. No attorney appeared or submitted argument for appellee Isam Farhat. The case is identified as Record No. 0162-25-2.
Source: 0162252_Vaughn_Jr_v_Farhat_Opinion_Virginia_Court_of_Appeals.pdf