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Enforcement: Post-Judgment Proceedings & Collections
SERIES: NEWBIE LITIGATOR SCHOOL IIIPremiere Date: 11/8/2017
This webinar is sponsored by: Signal Funding & EisnerAmper
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MODERATORRobert Michaels Goldstein & McClintock
PANELISTSBeau Hays Hays, Potter & Martin, LLPJohn C. Martin Sugar, Felsenthal, Grais & HammerLance Broberg Tiffany & Bosco, Phoenix
MEET THE FACULTY
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SERIES SPONSORS
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ABOUT THIS WEBINAR
Obtaining a final and enforceable judgment is often just the first phase of the civil litigation process; without effective enforcement and collection, a judgment is merely a piece of paper (or electronic docket entry). This webinar provides an overview of the technical, procedural and strategic considerations necessary to monetize judgments and make litigation worthwhile.
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ABOUT THIS SERIES
This series is one of several series (together with the other “Newbie Litigator School” series) that Financial Poise designed specifically for attorneys who are just starting to get involved in civil litigation or who could use a refresher on some litigation fundamentals. The purpose is to introduce to different components and phases of litigation, from the basic rules of civil procedure and evidence, to dispositive motions, through trial, and on to appeal and post-judgment collection work.
Each episode is delivered in Plain English understandable to business owners and executives without much background in these areas. Yet, each episode is proven to be valuable to seasoned professionals. As with all Financial Poise Webinars, each episode in the series brings you into engaging, sometimes humorous, conversations designed to entertain as it teaches. And, as with all Financial Poise Webinars, each episode in the series is designed to be viewed independently of the other episodes, so that participants will enhance their knowledge of this area whether they attend one, some, or all of the episodes.
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EPISODES IN THIS SERIES
EPISODE #1 Appellate Practice 101 10/11/2017EPISODE #2 Enforcement: Post-Judgment 11/8/2017
Proceedings & CollectionsEPISODE #3 Paying for Litigation- Hourly, 12/6/2017
Contingency, Third Party Financing & More
Dates shown are premiere dates; all webinars will be available on demand after premiere date
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TOPICS
• Final and Valid Judgment• Wage Deduction Proceeding• Nonwage Garnishment • Citation to Discover Assets• Charging Orders• Levies Against Personal and Real Property
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Introductory Notes
While statutory post-judgment enforcement and collection laws and practices may vary by state, the tools used are generally consistent. As a point of reference, this presentation will cite post-judgment enforcement law in Illinois.
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Final and Valid Judgment
• To be enforceable, judgment must be final and valid • Partial final judgment may be obtained against one or more
defendants even though claims remain pending against other defendants
• Consult FRCP Rule 54(b) and equivalent state law
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Domesticating Foreign Judgments
• Creditor must domesticate an out-of-state judgment before enforcing
• Once domesticated, judgment will have the same effect as other judgments in that jurisdiction
• Most states have adopted the Uniform Enforcement of Foreign Judgments Act – allows creditor to obtain an effective judgment in different state by filing proof of judgment (certified or exemplified copy), providing last known address of the debtor and creditor, and paying filing fees
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Citation to Discover Assets (A)
• Introduction:ü Citation to discover assets is the most flexible enforcement tool – it can
perform most actions associated with other post-judgment proceduresü More powerful than garnishment because it imposes a continuing lien
and is a better tool to obtain discovery ü May be served on debtor or third parties who may have information
about debtor’s assets or owe debtor moneyü Referred to as a ‘supplementary proceeding’ü Allows judgment creditor to go on fishing expedition if creditor
reasonably believes respondent possesses assets of the judgment debtor
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Citation to Discover Assets (B)
• Form of Citation:ü Citation must contain cautionary language informing respondent that
failure to comply is subject to contemptü Citation notice must include language informing the debtor of his or her
right to an exemption hearing and how to exercise this rightü Citation must contain a certification of judgment balanceü Citation to an individual must be served with citation notice and income
and asset form
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Citation to Discover Assets (C)
• Sample required cautionary language in Illinois:
“IF YOU FAIL TO APPEAR IN COURT AS DIRECTED IN THIS NOTICE, YOU MAY BE ARRESTED AND BROUGHT BEFORE THE COURT TO ANSWER TO A CHARGE OF CONTEMPT OF COURT, WHICH MAY BE PUNISHABLE BY IMPRISONMENT IN THE COUNTY JAIL” 735 ILCS 5/2-1402(a)
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Citation to Discover Assets (D)• Issuing and Serving a Citation:
ü A supplementary proceeding is commenced by the service of citation:o Service may be made by any method provided by law for service of summons o By prepaid certified or registered mail addressed to the party, return receipt requested,
showing to whom delivered and the date and address of deliveryo Personal or substitute service is required for a citation issued on an individual debtor
• Where to Issue the Citationü A citation proceeding against a third party must be initiated where that person residesü Proceedings against the judgment debtor typically also must proceed in the same venue
• When and Where the Citation Can be Held:ü While citation proceedings are normally held in the courthouse, statutory law may authorize
the judgment creditor to hold the citation proceeding in the judgment creditor’s attorney’s law office
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Citation to Discover Assets (E)
• Effect of service of citation:ü Lien attaches to all non-exempt property of debtor upon service of citationü Lien reaches all property in the hands of respondent until the citation is
dischargedü Any transfers of funds after receipt of citation are in violation of citation lien
unless court permission is obtained for their disbursement
• The judgment creditor may request the production of documents in its citation and/or that recipient of citation appear to testify under oath
• A citation should be not used to determine the whereabouts of debtor
• Any false statements made in a citation proceeding may serve as the basis for perjury
• A citation automatically expires six months after the respondent appears unless the citation is extended by the court for good cause
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Citation to Discover Assets (F)• Steps for preparing/issuing a citation:
ü Prepare citation and citation notice with a copy for the debtor, court file, counsel’s file, and third-party respondent (if any)
ü Have the clerk of the court issue citationü If serving an individual, attach and serve a copy of citation notice and an income and asset
formü If serving a third-party respondent, serve a copy of the citation and citation notice on the
defendant within three daysü Serve the citationü On return date, examine debtor-respondent to determine if there are any assets subject
to turnoverü If judgment debtor or third party fails to cooperate or appear, court may enter an order
for rule to show cause, an order of contempt, issue an arrest warrant, and order imprisonment
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Citation to Discover Assets (G)
• Subpoenas: State law may allow the use of subpoenas in conjunction with a citation. If a citation is pending to a debtor, a judgment creditor may also issue a subpoena on a bank for additional documents
• Land trusts: if the debtor has an interest in a land trust, a citation to discover assets validly served on both the trustee of the land trust and the judgment debtor creates a lien in any interest held by judgment debtor in that land trust
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Wage Deduction Proceeding (A)
• Statutory proceeding for payment of judgments by wage earnersü Non-exempt wages paid over to creditor by order of the courtü Wage deduction order has the same force and effect as a judgment
• Under Illinois law, for instance, creditor may garnish 15% of gross wages or the amount by which disposable earnings for a week exceed 45 times the greater of the federal and Illinois minimum wage
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Wage Deduction Proceeding (B)
• Due process applies to wage deduction proceedings because judgment debtor is being separated from his or her property
• Due process related issues:ü Is there a proper final and enforceable judgment order?ü Did the defendant receive a proper statutory wage deduction notice?ü Are the judgment creditor’s calculations of court costs, interest, and
balance due correct?ü Is the employer’s calculation of sums to be paid over to the judgment
creditor correct?
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Wage Deduction Proceeding (C)
• Service of a wage deduction summons creates a lien on debtor’s wages from moment of service on the employer
• Priorities:ü Spouse and child support deduction orders have priority over all wage
deduction ordersü Multiple wage deductions: honored in the order in which employers
receives themü State and federal liens have no particular priority over a wage deduction
proceeding – critical dates are dates of service on employer and dates tax liens were recorded o IRS tax lien, for instance, is considered perfected on the date the lien
is filed with the county recorder
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Wage Deduction Proceeding (D)
• If a debtor works for a national employer, but moves out of the state, Illinois courts have jurisdiction over the employer notwithstanding the lack of ability to garnish wages in an out-of-state jurisdiction
• However, if the employee/judgment debtor lives in Illinois but works in another state, federal law requires that the judgment be registered and domesticated in the foreign state
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Nonwage Garnishment (A)
• Procedures that enable the creditor, or garnishor, to stand in the debtor’s shoes and recover assets of debtor in the hands of another, the garnishee.
• Two classes of assets:ü A debt owed to garnishee
o Debt must be presently due – cannot be debts that are contingent or that become due in the future
ü Property belonging to the judgment debtor in the possession of garnishee o Property sought to be garnished must be of legal, and not equitable
(i.e., intangible property), character.
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Nonwage Garnishment (B)
• Other notes:ü Garnishment does not permit a judgment creditor to go on a fishing
expeditionü Garnishment cannot be converted into a citation proceedingü Garnishment lien extends only to those funds in the hands of the
garnishee at the time of service of the garnishment. See, e.g.,735 ILCS 5/12-707(a) in Illinois.
ü Creditors often prefer using citations to discover assets as opposed to nonwage garnishments, particularly for payments due to independent contractors
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Nonwage Garnishment (C)
• Two outcomes on the garnishment return date:ü Garnishee has answered the garnishmentü Garnishee fails to answer the garnishment
o If garnishee fails to answer, a conditional judgment may be entered against the garnishee. Creditor then issues a summons on garnishee to give them another opportunity to respond. If no response prior to the summons’ return date, a final judgment will be entered against garnishee for the unpaid judgment balance
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Charging Orders (A)
• A charging order is a mechanism employed to enforce a judgment against a member’s distributive interest
• A charging order is made on the debtor’s distributive interest in the entity
• It does not reach other payments to the debtor by way of a salary, commissions, or reimbursements
• Generally, charging order entered after the service of a citation by another creditor has priority over the citation lien as to the debtor’s distributive interest
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Charging Orders (B)
• Enforcing a charging order:ü Once obtained, a charging order must be enforced by foreclosing on the
debtor’s distributive interestü Purchaser’s rights are determined by the entity’s operating agreement
which may or may not have detrimental provisions such as tax or capital call consequences
ü Attorneys often use both charging orders and citations due to the limitations of the lien of the charging over and the expansive lien of the citation to discover assets
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Levies Against Personal and Real Property (A)
• A levy authorizes the sale of debtor’s property to satisfy a judgment
• Essentially, the sheriff is ordered to seize and sell debtor’s property and account for the proceeds to the creditor
• Recording a memorandum of judgment with the county recorder establishes a lien against all real property of the debtor in the county
• A creditor cannot establish a lien on personal property of debtor until certified copy of judgment is delivered to sheriff
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Levies Against Personal and Real Property (B)• Personal property:
ü To direct a personal property levy, judgment creditor needs two documents: (1) certified copy of the judgment order, and (2) a completed indemnifying bond with corporate surety (typically in twice the amount of the judgment and the costs)
ü The judgment creditor must inform the sheriff where to levy and what to levy onü Date for the sale of levied personal property is set at the sheriff’s office, and the debtor’s and
creditor’s attorneys are given notice by mailü Satisfaction or release of levy – possible returns of service:
o Judgment debtor not found, no property found, released, no part satisfiedo Judgment debtor served, no property found, released, no part satisfiedo Debtor served, property levied, satisfied in parto Debtor served, property levied, satisfied in fullo Defendant served, no property found, returned at order of judgment creditor, no part
satisfied
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Levies Against Personal and Real Property (C)
• Real property:ü Record a certified final judgment or a memorandum of judgment with
the county recorder in the county where the debtor is believed to own property
ü Determine whether documents evidence debtor’s ownership of propertyü Determine whether debtor has equity in the propertyü Proceed with the levy sale (note: most real property levies never go to
sale as the parties normally settle before the sale date)
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Levies Against Personal and Real Property (D)
• Real property cont.:ü Acts necessary to effect levy and sale:
o Judgment creditor’s counsel prepares a direction to levy and notice of the levy with sufficient copies for service and delivers them to the sheriff of the county where the property is located
o Levy must also be served on the judgment debtoro Notice must be served on the judgment debtor stating he or she
must pay the surplus over and above $15,000 (IL homestead exemption) on the judgment amount within 60 days, or the premises will be sold
o If judgment debtor pays the balance of the claim, he or she will retain the property and the sale will be cancelled
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Levies Against Personal and Real Property (E)
• Real property cont.:ü Bidding procedures:
o Judgment creditor has a right to bid whatever portion of the judgment is appropriate
o Generally, judgment creditor will also submit a separate bid to cover the homestead exemption
o For example, if the judgment amount was $5,000 and there was only one homestead, the judgment creditor would bid $5,000, plus $15,000 for the homestead, for a total of $20,000
ü At the sale, a certificate of sale will be given to the successful bidder
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Levies Against Personal and Real Property (F)
• Foreclosure of a Judgment Lien:ü In Illinois, for instance, 735 ILCS 5/12-101:
o Authorizes the foreclosure of a judgment lien in the same manner as a mortgage foreclosure
o Lien may be foreclosed by an action brought in the name of the judgment creditor or its assignee of record
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ABOUT THE FACULTY
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RobMichaelsisaPartneratGoldstein&McClintockLLLPinChicago.
Robisaskilledandexperiencedlitigatorwhorepresentsindividual,corporate,andgovernmentalclientsinawiderangeofcommercialdisputes.Ascounselforreceivers,trusteesandshareholders,Robhasprosecutednumerousfraud,breachoffiduciaryduty,andprofessionalliabilitycases,recovering tensofmillionsofdollarsforhisclients.Robhasalsosuccessfullyrepresentedbusinessesinarangeofdisputesinvolvinginformationtechnologyandtheinternet,includingclaimsfortrademarkandcopyrightinfringement,tradesecrettheft,andonlinedefamation.Healsocounselsandlitigatesforexecutivesinchange-of-controlandcompensationsdisputes.Robhaspracticedinstateandfederalcourtsaroundthecountry,andsuccessfullyarguedmultiplefederalappeals.
PriortojoiningGoldsteinandMcClintockLLLP,RobwasashareholderatRobinsonCurley&Clayton,P.C.HealsoservedasaStaffAttorneyandProjectDirectorattheMidwest’spremierenvironmentaladvocacyorganization(EnvironmentalLaw&PolicyCenter)andanassociateatMayerBrownLLP.
ABOUT THE FACULTY
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LanceBroberg isaShareholderatTiffany&BoscoP.A.inPhoenix.Lanceiscommittedtoservinghisclientswiththeirdiverseandcomplexlitigationandtrialneeds.Lancefocusesextensivelyinmattersregardingintra-corporatedisputes,contractdisputes,realestatedisputes,commerciallandlord-tenantdisputes,andtrademisappropriation.Lance’strialandlitigationexperienceextendsfromprovisionalreliefobtainedimmediatelyonthefilingofacomplaintthroughbankruptcyandappellatematters. Lancehasdistinguishedhimselfby,amongotherthings,successfullyobtainingmultiplejuryverdictsawardingpunitivedamagesinthecontextofbusinessdisputes.
BeforejoiningTiffany&Bosco,LanceservedasajudicialclerkintheU.S.BankruptcyCourtsfortheDistrictofArizona.LanceservedasanexternfortheExecutiveOfficeofthePresidentoftheUnitedStates,OfficeofNationalDrugControlPolicy,andOfficeofLegislativeAffairs. Atthetime,theheadoftheONDCPwasJohnP.Walterwhoheldacabinet-levelpositionwiththeadministrationofPresidentGeorgeW.Bush. Inaddition,hewasthePublicRelationsEditorfortheJournalofInternationalandComparativeLawattheUniversityofArizona.
ABOUT THE FACULTY
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BeauHaysisa1986graduateoftheNorthCarolinaSchoolofLaw,afterreceivingaB.A.inPoliticalSciencefromUNCin1983.HeisadmittedinGeorgia,allthreefederaldistrictsinGeorgiaandvariousotherdistrictsaroundthecountry.Hehasactedasleadcounselinlitigationmattersforalmostthirtyyears,specializingincommercialdisputesandbankruptcylaw.HeisaPastPresidentoftheCommercialLawLeagueofAmericaandanAssociateMemberoftheNationalAssociationofBankruptcyTrustees;hehasbeenapresentertothatorganizationandnumerouscreditgroupsoncreditors’rightsissues.HehasservedasLegislativeLiaisonfortheGeorgiaBar’sCreditor’sRightsSectionandasaneditorfortheNationalAssociationofCreditManagement’sHandbookofCreditandCommercialLaws,chaptersrelatedtomaterialman’sliensandconstructionbonds.AnAtlantanative,Mr.Haysisalong-timepatronoftheartsandhaswrittenscriptsforone-manandfullstageperformancesofDicken’sAChristmasCarolandanadaptationofShakespeare’sHamlet.
ABOUT THE FACULTY
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JohnMartin’slawpracticeisdevotedtoprovidingrepresentationandcounselincomplexbusinessdisputes,includingcontractual,fiduciary,andattorneyprofessionalresponsibilitymatters.Hehasservedasprincipalcounselinmulti-milliondollarcommerciallitigation,includingopposingmultistateclassandshareholderlitigationandthedefenseofdirectandderivativeclaimsagainstcorporateandERISAfiduciaries.
John’sclientsrangefromindividualsandsmallbusinessestomultinationalcorporations,andherepresentsbothplaintiffsanddefendantsinawidevarietyofcommercialdisputes,includingcorporategovernancesuits,trustlitigation,andmattersarisingoutoflendingandotherfinancialrelationships.HehasextensivetrialandappellateexperiencebeforetheStateandFederalcourtsinChicago,andfrequentlycollaborateswithotherfirmsaslocalcounsel.
John’spracticealsoextendstoattorneyprofessionalresponsibilitymatters. Herepresentsandadvisesbothattorneysandclientsinconnectionwithprofessionalresponsibilitymattersandfeedisputes. HeisanactivememberofboththeAmericanBarAssociationSectionofLitigation’sEthicsandProfessionalismCommittee(whichheco-chairedfrom2010-2013)andtheChicagoBarAssociation’sProfessionalResponsibilityandProfessionalFeesCommittees(whichhechairedduringthe2015-2016baryears).
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