While I have written many posts about the firm’s post-judgment collection practice, were you aware that Andre Law Firm P.A. does account receivable and pre-judgment collection as well? I am often retained by small business owners (and even other law firms) to collect on their delinquent accounts. This is among the most rewarding work I do. As a small business owner myself, I feel a lot of kinship with fellow small business owners, so helping them collect what they are owed for their hard work is especially fulfilling.
Attorneys’ Fees Provisions
One potential pitfall I constantly warn my small business clients about is the importance of having an attorneys’ fee provision in their contracts/invoices/terms and conditions. I have had clients justify excluding these provisions for fear of sounding too “litigious.” The bottom line is that if your delinquent account is fairly low (under $5k for instance), attempting to litigate to recover that amount without an attorneys’ fee provision is usually not cost effective. That means you will likely spend your valuable time trying to figure out how to collect in small claims court on a pro se basis.
I have a new client that tried navigating small claims court themselves on several of these types of cases only to be stymied by relatively basic rules of procedure and the machinations of the litigation process. While one of these delinquent accounts you might consider writing off, having a few of them really adds up against your bottom line. With an attorneys’ fee provision (and assuming the debtor is collectable), you can have a lawyer litigate the matter for you, and you can concentrate on serving paying clients and generating new business.
Do you have delinquent accounts you need to collect on? Andre Law Firm helps small businesses recover these accounts, in an efficient and cost-effective manner. Contact us today to discuss your AR needs.
Andre Law Firm P.A. wishes you and yours a healthy and prosperous 2022. This particular post is directed at my colleagues who may have acquired judgments or verdicts for their clients this year and have not yet been paid on them.
Threshold Question:
Have you perfected your judgment liens? In a previous post I discussed the importance and practical value of perfecting your client’s judgment lien in order to preserve lien priority as to the judgment debtor’s personal and real property. As a brief recap, to perfect a judgment lien in real property, one must record a certified copy of the final judgment or verdict in the County where the Debtor has real property. To perfect a lien in personal property one must file a judgment lien certificate with the Florida Department of State Division of Corporations.
Even if your practice does not have the desire or bandwidth to engage in active collection of a judgment, these steps are crucial in preserving lien priority. With the current economic times we are in, often judgment debtors have several creditors and preserving lien priority is crucial. In addition, aggressively pursuing collection on the judgment sets you apart from passive creditors and gets your client paid.
Review Your Files:
I urge my legal colleagues to review their files and make sure that the judgments you have worked so hard at acquiring for your clients are properly perfected. For 2022, I further urge you to review your files to see what can be done to get these unpaid judgments collected. My firm would love to help you do this. If you require a review on the potential collectability or assessment of your unpaid judgments, contact us.
I will tell you first and foremost I have mixed feelings about depositions in aid of execution. I have found in my years of taking these depositions that all but the most honest and scrupulous people will have zero issue with lying straight to your face. That is not the case in most depositions, but when faced with the possible deprivation of their property, the deponent in these depositions will flat out perjure themselves with no hesitation.
One such deposition I took, the debtor would not tell me who owned the house she lived in, even though: 1) I already knew that information and 2) it is a matter of public record. It was an exhausting deposition. I endeavored to make it as painful as possible on the deponent. I was able to create a good record, just in case I needed to show the court how deceptive and uncooperative the deponent was. Why take the deposition then? The deposition in aid can be necessary perhaps because you have exhausted all the fact finding you have made through third parties. It can also be valuable as a coercive tool for payment.
Get as Much Information as Possible from Third Parties
Due to the high level of self-interest, the deposition in aid is a somewhat unique creature. As a general rule, I do not like taking these depositions unless I have subpoenaed or questioned third parties for information first. Examples of third parties to subpoena before your deposition in aid are: 1) financial institutions the debtor might do business with; 2) mortgagees or landlords; and 3) employers or business associates. The list really is limitless. As discussed in our previous post, information is the most valuable tool in collecting a judgment.
It is important that the information you receive is objective fact. This is so when you take the deposition of the debtor, you can have an idea if the deponent is not being truthful, or forthcoming. By having a general understanding of the assets, you can manage your expectations at the deposition. Also, if worst case scenario, you must go back to the court for something said (or not said) by the deponent you have proof of the statement’s veracity. It is good practice to have the debtor produce any documents (via request for production or subpoena duces tecum) prior to the deposition. This is so you have more information prior for preparation. In my experience however, the debtors rarely produce this information (thus necessitating the need to go to third parties FIRST).
Show the Debtor that Creditor is here to Stay
Another compelling reason to schedule the deposition of the debtor is to simply show the debtor that the creditor is serious. The reason most judgments go uncollected is because most judgment creditors do not have the desire or the counsel skilled or dedicated enough to do it. Judgment Debtors in turn, eventually forget about their obligation to pay. DO NOT LET THEM FORGET! In closing, a deposition in aid of execution can be a powerful tool in collecting a judgment. Contact Andre Law Firm, if you have any questions about this tool and the collection process.
We’ve had such an overwhelming response to our recent journal posts that we decided to a short FAQ, regarding questions people/colleagues have had regarding collection law and our practice. The FAQ’s will be answered by Andre Law Firm P.A. founder and managing shareholder Tony Andre.
Q: What is the hardest collection you ever did?
A: We are currently in it now. It involves a Debtor who was in the national news cycle in 2019 involving the then president of the United States (the debtor is NOT the former president). We had been trying to collect against the Debtor in that case for some time before the 2019 controversy and the case is still not wholly resolved and still has a way to go. It’s been a grueling ordeal, but the funnest case I’ve ever had also.
Q: What is the best part of Collections law
A: Achieving a tangible result for the client. The system can be so messed up when your client through no fault of their own loses money to a debtor who refuses to pay (and often can) after a litigation produces a judgment. Getting a result for the client makes the practice rewarding, because I know how frustrating the whole process was for them.
Q: What is the most frustrating part of collection law?
A: Florida is a debtor-friendly state! You always have to view collections from that lens. The laws favor the debtor generally so you usually have to go into court well briefed and laser focused because there are many avenues for the debtor to get out of paying. That being said, it is incumbent to be aggressive for your clients and put the Debtor on notice that they have a fight ahead of them, and they ought to work it out.
Q: Does Andre Law Firm have any other practice areas?
A: Yes! Our firm is a general commercial litigation and business law practice first and foremost. Tony Andre, Esq. learned under great legal minds in the area of creditor’s rights and commercial law. He also practices creditor’s rights, commercial landlord tenant law, business law litigation, employment, and general civil matters.
Q: When you get a new collections case do you serve a demand letter?
A: Post judgment? No, as a general matter. We almost always let our actions do the talking, that being said there’s a time and a place for everything. This practice takes a lot of creativity, so you never rule anything out. We like to usually “take a shot across the bow” in the form of some sort of targeted collection effort for maximum effect.
Q: Can you depose an individual debtor’s family members in aid of executing a judgment?
A: If it’s relevant.
Q: What do you think is the most important part of post judgment collection work?
A: Information (mostly in the form of discovery!). We speak to this in a prior post.
Q: How long has Tony Andre practiced law?
A: I have been a member of the Florida bar since September 2007 and have worked continuously since then. I am also admitted to New York (2010) but do not practice in that jurisdiction very much.
Q: Have you ever collected a judgment in another country?
A: A few times! Most notably we domesticated and enforced a judgment from Florida in Egypt and was able to collect on it. It was a really interesting process! Time consuming for sure.
Q: What’s the weirdest thing you ever levied?
A: The Unites States Patent for an anti-snore pillow. I will undoubtedly write about this in a future blog post, it was a really fun collection.
Q: Do you do debtor’s work?
A: Not really, too many conflicts, but we are always willing to talk about a case.
In an earlier post we discussed the process for levying a vehicle. In this post we will discuss the process for the levy of real property.
Threshold Issues
A couple of issues that must be addressed in any levy involves 1) is the property worth it and 2) is my judgment lien perfected? We have discussed the perfection issue in this past post, and for the purposes of this post we will assume that the lien was properly perfected. In a recent post, we also discussed some threshold issues as to determining whether an asset was worth levying and questions which need to be answered to make that determination. Principally, whether the Debtor owned the asset outright or whether the asset subject to certain interests (exemptions or liens). The analysis for real property levies is similar.
Is there a Mortgage? Is the Property Homestead?
I think the single most determinative issue on whether property is worth levying is whether it is subject to a mortgage. Often times debtors who fail to pay one creditor, often fail to pay numerous creditors. If you have a mortgage in default from the purchase money lender, your judgment lien will eventually be extinguished in a subsequent foreclosure. If the mortgage is in place and you levy that property Creditor takes that property subject to that mortgagee’s interest. It is not ideal. I’ve had investor clients do this with the purpose of renting the levied property to make money in the short term, but that strategy is not for everyone.
The easiest way to determine whether there is a mortgage is to order a title search or ownership and encumbrance report. There are many great companies that provide this service for cheap (less than $100) and quickly. In the best-case scenario, Debtor will own the property free and clear (or subject to minor junior liens). Taking subject to a mortgage can also be worth it, if the debtor has a lot of equity in the target property sought to be levied.
It should be noted our firm deals primarily with commercial collection matters, and for the purposes of this example we are assuming that the property sought to be levied is not subject to Florida’s very strong homestead exemption. Article X, Section 4 of the Florida Constitution. Obviously if the property is the Debtor’s homestead, a normal judgment lien would not be effective in levying this type of property.
Look to your Sheriff (again)
As we discussed in our prior post about levying vehicles, the process for levying real property is largely uniform but is subject to certain individual requirements of the local sheriff offices which may be conducting the levy. The Basic process is as follows.
1) Perfect of your judgment lien
2) Delivery of Documents to Sheriff. The documents that every sheriff will need for a levy are an original Writ of Execution from the Clerk of Court; Certified copy of the final Judgment; Certified copy of vesting deed; An an Affidavit of outstanding liens, and Levy Instructions for the Sheriff. Some sheriffs will also require title search (such as Broward County).
4) Publication of Levy by Sheriff.
5) Sale of property by the Sheriff.
Conclusion
Unlike car levies, the costs/deposits tend to be much more uniform in nature from county to county. I prefer real properties when available because the market for these sales tends to be more competitive and more sophisticated. This was probably due to the foreclosure crises from years ago. We have used real property levies to great effect in our practice. If the property is owned outright, it will often cover the cost of the judgment, or force the Debtor into immediate settlement unencumbered real property in Florida is a most valuable asset. If you have questions about real property levies contact Andre Law today.
In our last post, we discussed the process for attaching a Debtor’s interest in a closely held corporation. In that post we discussed the following example. Debtor, an individual, holds a 45% interest (non-controlling) in a corporation that rents luxury properties, and is cash flowing. Your Debtor’s other obvious assets (house and car) are exempt from levy. In that post we discussed what the procedure for attachment of his shares was. What if instead of a corporation the entity was a limited liability company? This poses a different issue, but the interest is attachable (in a way) and we will discuss.
Charging Order
A charging order is the primary way to collect upon the debtor’s business interest in a partnership, limited partnership or limited liability company (LLC). SeeFla. Stat. § 620.8504; Fla. Stat. § 620.1703;Fla. Stat. § 608.433(4)(a). Once a final judgment is entered, and the creditor has knowledge of the debtor’s business interest(s), the Creditor can motion the court for a charging order. The process is very straight forward.
Single Member Multi-Member Distinction
A charging order provides the creditor with only the rights of an assignee as to the Debtor’s interest. This allows the creditor to receive Debtor’s distributions but does not allow Creditor to assert control over the business through the Debtor’s interest. In the case of a partnership and a single-member LLC, however, the charging order creates a lien that Creditor can foreclose upon pursuant to a court-ordered foreclosure sale. See Fla. Stat. § 608.433(6); Fla. Stat. § 620.8504(2). A foreclosure sale via charging order is not available against an interest in a multi-member LLC or a limited partnership. Fla. Stat. § 620.1703(3).
The Supreme Court of Florida ruled in Olmstead v. Federal Trade Commission, 44 So.3d 76 (2010), that a judgment debtor could surrender all right and title in the debtor’s limited liability company to satisfy an outstanding judgment.” 44 So.3d at 78. The Court recognized that a “LLC is a type of corporate entity, and an ownership interest in an LLC is personal property that is reasonably understood to fall within the scope of corporate stock.” Id. at 80. The Court in Olmstead reasoned “the general rule is that where one has an ‘interest in property which he may alien or assign, that interest, whether legal or equitable, is liable for the payment of his debts.’” Id. at 80 (quoting Bradshaw v. Am. Advent Christian Home & Orphanage, 199 So. 329, 332 (1940)).
Conclusion
While the Charging Order Remedy in our example would not allow for Creditor to take over the Debtor’s 45% interest outright, the Creditor would serve a copy of the charging order on the LLC and the business would be forced to pay the distributions that would flow to the debtor to Creditor until the judgment is satisfied. The Charging Order is a great tool when you have a profitable limited liability company or partnership. If you have any questions about the Charging Order process or any collection questions contact Andre Law today.
When we think of levying assets to satisfy a judgment we often think of things like cars and real property. A category of assets which are often ignored are business interests held by a Debtor. Most of the time those interests are either shares in a closely held corporation or an interest in a limited liability company. This post will deal with shares of stock.
Levying Debtor’s Shares in a Closely Held Corporation
In the situation where you might have a judgment against an individual (or entity) which owns shares in a cash flowing corporation, you have a potentially valuable asset. In our example let us assume Debtor (an individual) owns a 45% interest (non-controlling) in a Florida corporation that owns and manages luxury rental properties. Debtor refuses to pay the judgment but has no other tangible non-exempt assets (e.g. leases his car, rents his home or owns the home and bank accounts with his wife as tenants by the entireties, etc.). All hope is not lost however, as the Debtor owns these shares and you have searched the Florida Secretary of State Division of Corporations (www.sunbiz.org) and the corporate records tell you exactly the extent of that ownership.
Needle in a Haystack
These shares are absolutely subject to execution to satisfy the judgment of Creditor. The levy and sale of corporate stock on execution by a judgment creditor is specifically authorized by statute. See Fla. Stat. § 56.061. The statute states in relevant part “Lands and tenements, goods and chattels, equities of redemption in real and personal property, and stock in corporations, shall be subject to levy and sale under execution.” Id. As a practical matter however, the sheriff will not levy on shares as they are too difficult to locate. Often the “shares” in a closely held corporation have not been physically produced or in the rare event they have been they could be located anywhere (needle in a haystack). The workaround solution is that virtually every sheriff in the state of Florida requires Creditor to get a court order that either 1) compels the debtor to produce shares if they are in existence or 2) make the debtor (or company) actually issue those physical shares. I will warn you often you have to follow up such motions with motions to compel, but in our practice, we’ve found this stratagem as a good tool to produce a settlement (or obtaining the asset outright).
Conclusion
It should be noted, that while we are talking about shares of stock in a closely held business the debtor may draw income from, Fla. Stat. 56.061 also applies to actually shares of stock which may be traded on a stock exchange (e.g. Disney, Coca-Cola, etc.). Those are valuable assets subject to execution, however Fla. Stat. 56.061 still has not caught up to the age we are living in, if your Debtor owns assets such as this they are so easily transferrable Creditor would probably have to avail themselves of Fla. Stat. 56.29 to gain some sort of injunctive relief to levy assets such as this in today’s modern age (where one can dispose of stocks by just going online). If you have questions about levying stock, please contact our firm today.
In our practice, we find garnishing bank accounts to be the single most efficient way to collect on a judgment. While rarely does the amount garnished fully satisfy a judgment (though it happens from time to time), the garnishment’s ability to get the judgment debtor’s attention is indeed where its power lies.
What is a Garnishment?
A garnishment is slightly different from a levy. A garnishment is a collection tool which attaches to the contractual relationship between the judgment debtor and a third party. The relationships that are most often subject to garnishment are that of bank account holder (Debtor) and the bank, and the relationship between employer and employee (Debtor) for salary and wages. Basically, people or entities which owe money to the Debtor can be served with a writ of garnishment, and that money can bypass the debtor to be paid to the creditor directly (with the help of the Court and subject to certain exemptions from the debtor).
Garnishments are governed by Chapter 77 of the Florida Statutes. The Garnishment statute while straight forward, requires strict construction, and attention to detail, as there are many procedural pitfalls that may cause the garnishment to fail.
The basic process for a garnishment is as follows: The Creditor files a motion and has the clerk issue the writ for a small fee (in the case a continuing writ against salary and wages a judge will issue). The Creditor then serves the writ on the Garnishee. Soon thereafter, Creditor must serve a notice of service or notice of garnishment on the Judgment Debtor of the Writ of Garnishment (very important this is done in accordance with the statute or the garnishment will fail); The Debtor than has 20 days from service of the notice to respond and assert any exemption from garnishment. An exemption is a statutory excuse for why the debtor should not be garnished. If an exemption is raised and served by the Debtor, Creditor then has 14 days (or 8 days if the exemption was hand delivered to creditor’s lawyer) to respond to the exemption (by verified motion) or the writ is automatically dissolved by the clerk without any hearing (so beware). In addition, the Garnishee has 20 days from service of the writ to answer. When the Garnishee answers, Creditor must then serve another notice to the debtor attaching a copy of the Garnishee’s answer. Debtor then has 20 days to respond as to whether answer is correct/the garnishment is true. These deadlines overlap and addressing each deadline/response requires a skilled collection lawyer to navigate.
Locating Assets Subject to Garnishment
The beauty of garnishment is that its a streamlined way to enforce a judgment. However, if you do not know where the debtor banks, or where the debtor works (in the case of an individual), a garnishment is useless. In a prior post, we discussed the importance of post-judgment discovery and why it is vital to collecting a judgment. A skilled collection firm like Andre Law can not only help you find such assets, but it also can use tools like garnishment to help collect that judgment. Contact Andre Law today to discuss any questions you have about garnishment or collections.
In a prior post we posed the question of “My Debtor has a Valuable Asset How do I Collect?” In that post we focused on whether the levy of a particular asset was indeed worthwhile, and in that post, we used a 2020 Mercedes AMG GT Coupe (MSRP $116,000) as our example. For this post we are going to assume that Creditor wants to levy that 2020 Mercedes AMG GT Coupe. How exactly does one levy a vehicle in Florida?
Threshold Issue- Perfection
We have discussed in a prior journal post, that judgment lien perfection is the first collection step which should happen immediately after the judgment is entered. In short, a creditor must obtain a judgment lien certificate to perfect a judgment lien on personal property and to preserve judgment lien priority. A vehicle, being personal property (as opposed to real property), is one that would be affected by such a lien interest.
Look to your Sheriff’s Office
While the process for a vehicle levy is uniform throughout the state in large part, the particulars of any specific levy can vary fairly widely from county to county. This is were having a skilled collection law firm like ours is crucial. Each sheriff’s office has different cost deposits, and slightly different requirements for a levy, so it is important that your lawyer know what some of these issues are and how to deal with them.
That being said the basic procedure is as follows:
1) Perfect of your judgment lien
2) Locate the vehicle! (it is the responsibility of the creditor to locate the vehicle not the sheriff)
3) Delivery of Documents to Sheriff. The documents that every sheriff will need for a levy are an original Writ of Execution from the Clerk of Court; Certified copy of the final Judgment; An affidavit of Judgment lien Priority (F.S. 56.27), an Affidavit of outstanding liens, and Levy Instructions for the Sheriff. Every sheriff we ever dealt with also required title work showing that the car is indeed owned by the judgment debtor (this can be ordered from the state of Florida Department of Highway Safety and Motor Vehicles).
4) Publication of Levy by Sheriff.
5) Sale of vehicle by the Sheriff.
Closing
While the basic procedure is easily explainable, total process can be somewhat difficult/labor intensive. The devil is definitely in the details here. One thing we have not discussed here, is the “break order” which you must petition the court for. A break order allows you to access the property you seek to levy if it’s in an enclosure or locked area. It allows the creditor to take reasonable measures (e.g. a locksmith) to access such an enclosure (like a garage in this case). It should also be noted that some sheriff’s offices can make the whole process more tedious than others. Please keep in mind that the deposit required for levying a vehicle can vary wildly (from as low as $700 to as much as $5000) depending on the county you are dealing with. Contact Andre Law Firm today to discuss any collection related issues or questions you might have.
In a recent journal post, I explained how my firm achieved a full settlement when through the aid of discovery, we were able to determine that the judgment debtor closed its old company and started a new one, running the exact same type of business.
This is essentially a fraudulent transfer, but the character of the transfer is a little different from you typical Debtor-conveys-property-to-third-party situation. When a debtor forms a new entity, which is opened for the sake of defrauding a creditor and is essentially the old entity in a different name, you have what is called successor liability.
While there may be legitimate circumstances where a company is transferred or purchased without the purchasing company or transferring company assuming the liabilities of the selling/transferor company, often in our context, we find that these transactions are more often than not just per se fraudulent.
General Rule Regarding Successor Liability
In Bernard v. Kee Mfg. Co., Inc., 409 So.2d 1047 (Fla. 1982), Florida’s Supreme Court adopted the traditional corporate law rule and its exceptions by holding that the liabilities of the selling predecessor will not be imposed on the buying successor company “unless (1) the successor expressly or impliedly assumes obligations of the predecessor, (2) the transaction is a de facto merger, (3) the successor is a mere continuation of the predecessor, or (4) the transaction is a fraudulent effort to avoid liabilities of the predecessor.” 409 So.2d at 1049. This rule is meant to protect companies that sell their businesses in proper arm’s-length transactions. More often than not, entity judgment debtors who try to defraud creditors by opening a new business, start new entities in a much more haphazard fashion without any sort of formality.
De Facto Merger and Mere Continuation
An exception to the above rule in Bernard is the focus of this journal entry. Courts will find successor liability if there is either a De Facto Merger or a Mere Continuation regarding the business entities.
A de facto merger occurs where a business is absorbed by another without complying with the statutory requirements for a merger. Lab. Corp of America, 813 So.2d at 270. In finding de facto merger, a court can look to numerous factors reasonably indicative of commonality or of distinctiveness with the main focus being “whether there has been a change in form, but not in substance.” Id. Courts have identified a few of the more significant factors. “To find a de facto merger there must be continuity of the selling corporation evidenced by the same management, personnel, assets and physical location; a continuity of the stockholders, accomplished by paying for the acquired corporation with shares of stock; a dissolution of the selling corporation; and assumption of the liabilities.” Amjad Munim, M.D., P.A. v. Azar, 648 So.2d 145, 154 (Fla. 4th DCA 1994).
This exception exists when the successor business is merely a “continuation or reincarnation of the predecessor corporation under a different name,” such as when the “purchasing corporation is merely a ‘new hat’ for the seller, with the same or similar entity or ownership.” Bud Antle, Inc. v. Eastern Foods, Inc., 758 F.2d 1451, 1458 (11th Cir. 1985). Thus, some key factors in finding a continuation of the predecessor business include a “common identity of the officers, directors and stockholders in the selling and purchasing corporation.” Munim, 648 So.2d at 154. Florida’s Fourth District Court of Appeal also explained that “while having common attributes does not automatically impose liability on a successor corporation, merely repainting the sign on the door and using new letterhead certainly gives the appearance that the new corporation is simply a continuation of the predecessor corporation.” Lab. Corp. of America, 813 So.2d at 270.
This Mere Continuation theory is what we often find in our collection practice. The principals of the Judgment Debtor “merely repaint” the sign on the door. When this occurs, a creditor can avail itself of Fla. Stat. 726.105 and these factors can be “badges of fraud,” can guide the court in its analysis of whether to unwind the transaction or assess new liability on the transferee. Typically, our firm prosecutes these matters under the umbrella of Fla. Stat. 56.29 (check out our post on that). Our firm is very familiar with this collection situation and would be happy to assist you in such matters. Contact Andre Law Firm today.
