Zachary G. Newman

Part III

Recovering Judgments & Assets

Part III Recovering Judgments & Assets:

Conducting conventional discovery

Strategies on discovery

Developments in asset collection

What you need to know about the Fair Debt Collection Practice Act and similar statutes

Agenda

Conducting conventional judgment enforcement discovery

Material differences

Shotgun versus surgical approaches

Asset classes

Institutional discovery

Business, Friends & Family

Types of Discovery Methods

Isn’t All Discovery The Same?

Strategies on discovery

GATHERING ASSET INFORMATION

Information may be difficult to locate Trail of

corporations may be used to own and control assets

In some cases, it

simply may not be possible to obtain certain information

Public Sources

Dun & Bradstreet Reports

Credit Reports (if permitted under relevant law)

Publicly available internet (i.e., Google)

In-person visits to governmental record-keeping offices

UCC Filings

Lexis & Westlaw Public Database searches

SEC Filings

Parties may have exchanged financial disclosures

Private Sources

Documents possessed by client

Financial disclosures provided to client

Third party sources?

Private Investigator may have access to additional documents

The broad scope of permissible post-judgment discovery requests should be directed at identifying and locating assets which are subject to execution to satisfy the judgment. In an unpublished opinion, In re Platt, No. 05-01-01405-CV, 2001 WL 1352920 (Tex. App.–Dallas Nov. 5, 2001), a judgment debtor sought mandamus relief to avoid responding to post-judgment discovery which was issued by an assignee of the judgment creditor (the assignee was not a party to the trial court action). Denying the judgment debtor’s petition for writ of mandamus, the court of appeals held that the trial court had jurisdiction to determine ownership of the judgment for purposes of post-judgment discovery under local rules.

SCOPE

Despite this broad scope, however, the scope of post-judgment discovery has been restricted where the judgment creditor is attempting to re-litigate issues which were determined in the lawsuit.

LIMITATIONS

Pick Your Subpoena

A judgment creditor may serve a subpoena “upon any person” that the judgment creditor reasonably believes has property of the judgment creditor or information concerning the judgment debtor’s assets

Subpoena ad testifacandum – to appear at a specific time and place for a deposition

Subpoena duces tecum – requiring the production of books and papers

Information Subpoena – a simple questionnaire that must be responded to within seven days of receipt. Can be sent certified or registered mail, return receipt requested For information subpoenas, the judgment creditor must certify that there is a good faith basis for

serving the information subpoena on that particular entity

JURISDICTIONS DIFFER – KNOW BEFORE YOU GO

Failure to Respond to a Subpoena

Federal Courts

Rule 70 provides specific right to relief

Requires Clerk to provide writ of attachment and garnishment

Judge can simply convey real property in judgment

Contempt

New York

Contempt of court (CPLR § 5251) – Court may order sheriff to serve an arrest warrant upon the subpoena witness who fails to respond

Matter of Bobby D. Assoc. v. Park, 97 A.D.3d 815, 816, 949 N.Y.S.2d 134 (2d Dep't 2012)

CVL Real Estate Holding Co LLC v. Weinstein, 35 Misc. 3d 1215A (Sup. Ct. N.Y. Co. 2012)

Timing of Asset Investigation

Identify potential fraudulent conveyance claims Party may have transferred significant assets to other entities and other creditors Transfer may allow claim under applicable state law Uniform Fraudulent Transfer Act (“UFTA”)

Determine the proper forum

Action may be required to be brought in forum where the asset is located Bringing a claim in a specific forum can help avoid added expenses and time necessary to enforce

a foreign judgment

Aid Settlement Discussions Allows understanding about adversary’s ability and willingness to pay Allows understanding of adversary’s weak points Potential damage to lending relationships could prompt arrangement to avoid a significant

judgment Possible subjection of family and/or friends to lawsuits could prompt settlement

Discovery Targets

Public Documents

Your Litigation

Client Documents

Sourcing and organizing

Developments in Asset Collection

Categories of Assets

Limited Liability Companies

Charging order protection - lien against the debtor/member’s LLC interest, which lien lasts until the judgment is satisfied.

If a creditor has an alternative avenue to attack an LLC, such as by the assertion of an alter ego theory or whatnot, if it is not defined as a “remedy” then it is not blocked by the limitation of remedy to a charging order

Single member LLCs. In 2010, the Florida Supreme Court surprised the asset protection world with its decision in the Olmstead v. Federal Trade Commission. The court held that the charging order remedy did not apply to single member LLCs.

Does a charging order constituted an assignment of the member’s interest and caused him to lose his management rights while the order was in effect.? First Bank v. S & R Grandview, L.L.C., No. COA 13-838, 2014 WL 846671 (N.C. Ct. App. Mar. 4, 2014). The court held that under the plain language of Section 57C-5-03, “a charging order does not effectuate an assignment of a debtor’s membership interest in an LLC and does not cause a debtor to cease being a member in an LLC.” The court reversed the trial court’s order enjoining Rhine from exercising his membership rights in the LLC and ordering that his membership rights “lie fallow.” Id. at *6.

Only a minority of the state statutes go further and expressly allow foreclosure of the debtor’s LLC interest, as South Carolina’s Section 504 does.

Asset Classes Recovery of Stock & Corporate Ownership

Jeng Cheng Ho v. Shih Ming Hsieh

A court cannot compel a corporation to issue new stock certificates to a judgment creditor if the old certificates have not been surrendered and none of the statutory exceptions for issuing new certificates apply.

Reynolds v. Reynolds (1960) 54 Cal.2d 669, 679-681

Detox Industries, Inc. v. Gullett (Tex.App.1989) 770 S.W.2d 954 [holding that Texas's statutory equivalent of Uniform Commercial Code section 8-317, the predecessor to section 8-112, did not authorize an order to cancel and reissue a stock certificate in the name of a court-appointed receiver for delivery to a levying officer to be sold at an execution sale to satisfy a money judgment].

Sargeant v. Al-Saleh

$28M judgment debtors argued that the stock certificates “concerned assets located abroad” (in The Bahamas, Netherlands, Jordan, Isle of Man and Dominican Republic) and that the Florida state court, therefore, lacked jurisdiction to compel the turnover. Trial court entered an order directing the judgment debtors to turn the stock certificates over to their counsel. The 4th District Court of Appeal reversed the trial court’s turnover order, holding that “the court lacked jurisdiction to compel the turnover of property located outside the state of Florida.” Found no basis for extraterritoriality enforcement based on “policy considerations and the lack of controlling case law.”

Distinguishes NY law holding to the contrary:

Commonwealth of N. Mariana Islands v. Canadian Imperial Bank of Commerce12 N.Y.3d 533 (N.Y. 2009)

The court stated that “CPLR Article 52 contains no express territorial limitation barring the entry of a turnover order that requires a garnishee to transfer money or property into New York from another state or country.”

Social Media

• 497 Page Opinion

• Equitable Relief With Respect to Fraudulent Judgments

• “Fraud in its procurement is an ancient basis for enjoining enforcement of or granting other equitable relief with respect to a judgment where other requisites of the exercise of equitable power are present.”

• Fraud on the Court – Corruption and Coercion of Judges and Judicial Official

• Fraud – Ghostwriting and Deception

Way Over The Line

Patton Boggs has ended its role in long-running, multibillion environmental litigation against Chevron involving Ecuador with the announcement that it agreed to pay the oil giant $15 million and admitted regret for its role in the case. Why?

The controversy arises from a $9.5 billion verdict from an Ecuadorean court in 2011, won by Ecuadorian citizens represented by New York lawyer Steven Donziger who claim they were affected by toxic oil sludge in the Lago Agrio Amazon region. They claimed Chevron was liable for environmental damages. In 2010, Patton Boggs signed on to represent the plaintiffs alongside Donziger, their lead U.S. counsel. The Patton Boggs team helped the plaintiffs draft a post-trial brief, which concerned the effects of toxic sludge. That brief included testimony from experts, who vouched for the findings in a supposedly independent environmental report that Chevron claims was ghostwritten by the plaintiffs' team. Patton Boggs also advised the plaintiffs on their efforts to enforce the judgment across the world. According to Wednesday's settlement agreement, Patton Boggs was entitled to up to 5 percent of any proceeds from the judgment. Chevron sued Donziger in 2011, claiming he obtained the judgment through bribery and collusion in Ecuador. In that case, Kaplan on March 4 held that Donziger corrupted and defrauded the judiciary in Ecuador to secure the judgment, and issued an injunction against Donziger's efforts to enforce it.

What you need to know about the Fair Debt Collection Practice Act

and similar statutes

Top Ten List Or About Ten

Consumer attorneys filed more than 10,400 FDCPA lawsuits against collection agencies and collection attorneys in federal courts in 2013; and experts predict that federal courts will see more than 12,000 cases this year.

FDCPA addresses personal / consumer debt. Applies to commercial lenders? No.

Prohibition against contact during unreasonable hours of the early morning and late evening.

Verify the debt. It is a violation to demand more than is due. 15 USC 1692e § 807(2)(a).

Threaten to sue or file charges, garnish wages, take property, cause job loss, or ruin your credit when the creditor cannot or does not intend to take the action. 15 USC 1692e § 807(5).

Unless agreed, to disclose the debt except to counsel, credit agencies, spouses or parents for minors. 15 USC 1692c § 805(b).

The List Continues

McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014)

This decision held that a dunning letter offering to settle a claim without litigation could state a claim under the FDCPA where the debt was no longer legally enforceable due to the expiration of a statute of limitations.

Does voluntary payment moot any objections for violations of fair credit and collection acts?

Voluntary Payment Rule: Voluntary payment of a judgment moots an appeal of that judgment only if the payment is made without an expressed intent to continue the appeal. BMG Direct Mktg., Inc. v. Peake, 178 S.W.3d 763, 770 (Tex. 2005)

The basis of the voluntary payment rule is "to prevent a party who has freely decided to pay a judgment from changing his mind and seeking the court's aid in recovering the payment.”

“A party should not be allowed to mislead his opponent into believing that the controversy is over and then contest the payment and seek recovery.” Highland Church of Christ v. Powell, 640 S.W.2d 235, 236 (Tex. 1982)

Payment & Mootness

The Telephone Consumer Protection Act of 1991 (TCPA) makes it unlawful for a person to make a call using any automatic telephone dialing system or an artificial or prerecorded voice to any telephone number assigned to a cellular telephone service or any service for which the called party is charged for the call.

Courts that have determined that a person has standing even if the person is not the "intended recipient" of the call and even if the person is not the person who pays for the cell phone service.

Automatic Dialing & Repetitive Calls

$24.1 million settlement based on auto-dialed debt collection calls to cell phones not listed on loan application. Arthur v. Sallie Mae, 2:10-cv-00198 (W.D. Wa.)

A person who has received more than one telephone call within a 12-month period by or on behalf of the same entity in violation of 227(c) may bring an action in state court (a) seeking to enjoin violation; (b) seeking actual monetary loss or $500 for “each such violation,” or (c) both. If violations were willful or knowing, damages may be increased by three ($1500). § 227(c)(5).

It is an affirmative defense that the defendant has established and implemented, with due care, reasonable practices and procedures to effectively prevent telephone solicitations that would violate 227(c). § 227(c)(5).

Ninth circuit affirmed district court’s class certification, even though it was unclear whether some class members might have agreed to be contacted at a telephone number obtained after the original transaction, holding “prior express consent is deemed granted only if…provided by the consumer to the creditor, and only if it was provided at the time of the transaction that resulted in the debt….” In December, this was amended to “prior express consent is consent to call a particular telephone number…given before the call is placed.” Meyer v. Portfolio Recovery Assocs., 696 F.3d 943 (9th Cir. Oct. 15, 2012), amended __F.3d__ (Dec. 28, 2012).

Enforcement

Discover Financial Services has struck an $8.7 million settlement of claims that it failed to obtain proper consent from up to 9 million credit card holders before contacting their cellphones with automated calls and prerecorded messages, according to papers filed Friday in California federal court.

Discover maintained that under FCC rules, prior express consent could be given at any point in time during the credit relationship, saying that the FCC did not intend that prior consent come at the time of origination in the context of credit and mortgage relationships that last for many years.

$8.7 Million Slap on the Wrist Robo-Calling Settlement