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My Debtor Started a New Company how do I Collect Against that New Company?

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.

Post-Judgment Detective Work

Value of Information

Post-judgment collection, like most litigation, is more art that science.  Often, successfully collecting on a non-paying judgment debtor is made possible by the proper pressure point being leveraged into a positive result for your client.  Most of time, a collection is not made because you found some hidden asset or bank account to levy or garnish.

More often than not it is information you discover, that leads to your collection.  In the bulk of our collections practice,  we deal with closely-held concerns who can nimbly hide or conceal assets. Treating these debtors like they are Fortune 500 company is an exercise in futility.  Judgment Debtors consisting of closely-held entities or individuals are some of the hardest to collect against. They routinely ignore post-judgment discovery requests and subpoenas with little fear or respect of court sanction.

Third-Party Discovery

The key to finding valuable information starts with obtaining as much third-party discovery as possible to paint a picture of your debtor’s financial condition.  In our experience, we have found even the most “scrupulous” of people, when faced for a debtor’s exam or deposition in aid of execution (or any post-judgment discovery), will gladly lie to the examining lawyer’s face or flatly perjure themselves in their interrogatory responses or fact information sheet.

It is incumbent upon the judgment creditor’s attorney to get as much information from third parties who have no incentive to lie about the financial information requested.  Obviously, if you are aware of where the judgment debtor has banking relationships, banks are a perfect place to start, but a lot of useful financial information can be held by customers, utility companies, title agents, etc.  The list of possible valuable information is quite simply endless.  Only when you have a lot of verifiable third-party information is a good deposition in aid of execution of the judgment debtor recommended, and most often it is still more often used as a tool of coercion (they are typically not pleasant, so debtor’s seek to avoid them especially if they plan on perjuring themselves anyway).   So, in this respect the collection attorney turns into part private investigator to find useful information and piece it together.  In the best cases this may lead to an asset or a pressure point.

Use of Third-Party Discovery

For example, recently our firm was hired by another law firm to collect a modest judgment against an auto body shop.  We were able to quickly satisfy a portion of our judgment via quick garnishment, but the trail went cold thereafter.  Our firm then sprang into action and researched the debtor closely and found a real estate transaction where the judgment debtor was seller.  A subpoena was served on the purchaser for documents regarding the sale (how the purchaser purchased the property and the like).  When we were speaking to the subpoenaed deponent about the document production, the deponent mentioned that the judgment debtor moved its business across the street and renamed it.  A quick search with the Florida Department of State Division of Corporations found that the judgment debtor had started a whole new business incorporated by its principal’s wife across the street, giving rise to a successor liability claim (successor liability to be discussed in future blog).  We then approached judgment debtor’s counsel with this information and a signed and finalized motion to commence proceeding supplementary (which impleaded the wife and the successor entity, which we threatened to file) a full settlement was reached shortly thereafter.

It was not the court or sheriff that led to this settlement.  Not a garnishment or levy.  It was confronting the judgment debtor with its actions and the threat of putting other creditors on notice of the judgment debtor’s essentially fraudulent transfer in the form of successor liability that led to the positive result for our client. 

Andre Law Firm P.A. is well-versed on creative and sophisticated methods of debt collection that assists our clients (and other law firms) in collecting against judgment debtors.  Please contact us today, to see how we may be of service.

Florida Statute 56.29: A Judgment Creditor’s Not-so-Secret Weapon

If winning a lawsuit guaranteed recovery to the prevailing party, there would not be law firms such as Andre Law specializing in post-judgment collection.  Often the entry of a judgment or a verdict is just the first step in complete recovery.  Take the following and all too common example: Plaintiff seeks to recover, after a lengthy lawsuit and trial, from a Defendant who borrowed a large sum of money from Plaintiff and never paid it back.  A judgment is awarded in favor of Plaintiff for $500,000.00.  Defendant, in order to protect his assets from garnishment and levy, creates shell limited liability companies in order to hold bank accounts which are solely for personal use and to otherwise hide non-exempt assets subject to execution.  How does Plaintiff recover?  A simple of writ of garnishment in the name of Defendant would not freeze the assets held in the name of the shell companies, nor would a sheriff levy on tangible property titled in the name of a shell company.

Fla. Stat. 56.29 Proceedings Supplementary

The answer is found in Fla. stat. 56.29 which governs supplemental proceedings to execution in Florida.  This statute is a powerful tool which grants the Court equitable powers to make the judgment creditor whole.  The Court has the power to examine the judgment debtor and third parties regarding any possible property which may be subject to execution by the judgment creditor.

Supplemental proceedings provide a “useful, efficacious, and salutary remedy at law enabling the judgment creditor not only to discover assets which may be subject to his judgment, but to subject them thereto by a speedy and direct proceeding in the same court in which the judgment was recovered.” Regent Bank v. Woodcox, 636 So. 2d 885, 886 (Fla. 4th DCA 1994) (citation omitted).  

Threshold Requirements

The requirements in opening a supplemental proceeding are minimal.  There should be an unsatisfied Florida judgment and/or lien for this tool to be available.  Also, upon filing of the motion for supplemental proceedings, the Judgment Creditor should have a valid and outstanding writ of execution issued, and an affidavit from the judgment creditor accompanying the motion for relief.  To initiate the supplemental proceedings, the judgment creditor must file a motion and an affidavit in the court that the original action arose.  The motion must (1) describe the judgment debtor’s nonexempt property or obligation to be used to satisfy the judgment; and (2) identify the third party in possession of the nonexempt property or who owes the obligation.  Additionally, the affidavit must provide general information about the case, the parties, and the outstanding judgment, such as a statement that the execution on the judgment is “valid and outstanding.”  After the motion and affidavit have been filed, the judgment creditor is entitled to proceedings supplementary as a matter of law.

Equitable Remedies

As previously mentioned, Fla. Stat. 56.29 is equitable, which means courts have the discretion to come up with an equitable remedy that affords a judgment creditor complete relief. See Donan v. Dolce Vita Sa, Inc., 992 So. 2d 859, 861 (Fla. 4th DCA 2008). A court can even enter a money judgment against any third parties who may hold the property subject to execution. Fla. Stat. §§ 56.29(6), 56.19 (2016); and if a third-party transferee retains the property solely for purposes of delaying satisfaction of the judgment, the court may award an additional 20 percent of the value of the property in damages. Fla. Stat. § 56.18 (2016). 

Going back to our hypothetical posed above:  A supplemental proceeding in this instance, assuming that the debtor had no plausible defenses (they hardly ever do), a money judgment could be entered against the shell companies, the Court could order the turnover of the property held by companies, and order any other such proper relief.  Obviously, the Court would have to fashion a remedy powerful and flexible enough to deter the debtor from further devising assets to defraud creditors.  The beauty of Fla. Stat. 56.29 is that it does allow for this creativity, by the court and the creditor.

Conclusion

Andre Law Firm has used this tool time and again to help its clients recover assets and coerce payment of judgments by judgment debtors.  While Florida is generally a debtor friendly state, Fla. Stat. 56.29 is one the most powerful tools available at the creditor’s disposal.  If you have any questions regarding this tool, contact us today.

Miami Collections Attorney- Perfecting Judgment Liens

Commercial Litigation Lawyer Miami

Preserving Lien Priority

You have been involved in a long and contentious litigation and your lawyers obtained a money judgment in your favor. What happens next? The Debtor has to pay right? If it were only that easy! Collecting on a judgment is often a cat and mouse game.

The honest truth is that many judgments are not paid voluntarily. You have to enforce your creditor’s rights. Many firms are not equipped to handle cases once it gets to post judgment, and often neglect the first step in enforcing a judgment. Perfecting a judgment lien is the first step toward collecting on the judgment.

We get many cases that involve judgments obtained by other law firms that did not bother to perfect the client’s judgment lien interest. If you have a judgment entered in your favor and you need to collect, contact Andre Law to determine how you can get your rights enforced, and to make sure your judgment lien is perfected.

What is “perfecting” a judgment lien? Essentially this is the process you take to make sure your judgment acts as a lien on the debtor’s assets. Perfecting the lien preserves your priority in regard to competing creditors. It requires a few easy steps, but often firms do not even bother to do this for their clients. Collecting on a judgment is a complicated process and not observing technical rules could be disastrous.

Judgment Liens on Real Property

In Florida, you essentially have two different forms of judgment liens. One is for real property and one is for personal property. First we will address the real property judgment lien. When your judgment is entered, you must obtain a certified copy of that judgment. You then record judgment in whatever county your judgment debtor owns real property. (An experienced collection firm like Andre Law can locate real property assets). Only a recorded certified judgment will act as a lien on all of the debtor’s property in that county. Further, the lien is perfected as of the date of recording. This means it will take priority over most liens recorded after (there are a few exceptions). You must perfect your judgment lien in this fashion if you seek to levy specific non-exempt real property belonging to the debtor.

Judgment Liens on Personal Property

When it comes to personal property (which is non real estate property), perfecting your judgment lien requires applying for a judgment lien certificate with the Florida Department of State Division of Corporations. For a small fee, a judgment creditor can register for a judgment lien certificate which lasts for five years (which can be extended prior to expiration). This registration acts as a lien on the debtor’s personal property in the state. When your personal property lien is perfected you are able to levy personal property under the Florida Statutes with a county sheriff or federal marshal. This can be especially useful in instances where the debtor has valuable property like vehicles or vessels you seek to levy.

Do Not Delay!

It is crucial that your lien is perfected by your attorney when the judgment is entered. Even if your attorney will not do the post-judgment collection work for you, this is essential. Protect your rights or a competing creditor can step ahead in lien priority despite obtaining his judgment later.

Do you need a Debt Collection Attorney in Miami or the rest of Florida? Contact Tony Andre of Andre Law Firm P.A. today.

Domesticating or Registering an Out of State Judgment

Commercial Litigation Lawyer Miami

Often an out-of-state creditor contacts our firm regarding going after a debtor who lives in Florida. What can a creditor do to obtain relief in Florida Courts? Here is a brief overview:

State Court Judgments

While counties in Florida do the domestication process slightly differently, the overall process is universal. The out of state creditor will require an “exemplified” of the original out of state final judgment. An exemplified copy is essentially a certified copy of a judgment that is also signed by a judge verifying the clerk’s certification. A judgment creditor’s affidavit is also required in support of the domestication. A local attorney should prepare a judgment creditor’s affidavit. The affidavit should offer details about the judgment and the contact information for creditor and debtor. These two items are filed with the local clerk’s office, along with a filing fee. While you can file the judgment in any county in Florida, it is best practice to file in the county in which the assets you would like to seize or take a lien against are located. Having an experienced collection firm like Andre Law is crucial in navigating any potential pitfalls.

The clerk will record the judgment and affidavit in the county official records and send a formal statutory notice to the judgment debtor. The judgment debtor then has 30 days after the notice is provided in which he or she can challenge the validity of the judgment. This will only happen in very rare instances. If the judgment debtor takes no action, the judgment will be considered final and will have the same effect as a judgment made in Florida. No collection activity can occur during this 30-day window, something that the client should be well aware of. After the 30-day window has lapsed, the creditor can use every Florida judicial collection tool at his or her disposal to collect on the judgment.

Federal Court Judgments

“Domesticating” a federal court final judgment rendered in an out-of-state federal court is a bit easier of a process and is governed by federal statute. The process is also referred to as “registering.” Typically, a certified copy of the original final judgment, a form called a “Clerk’s Certification of a Judgment to be Registered in Another District,” along with a small fee is all you technically need to register your judgment in Florida. Again, you should do this in the District Court division that services the area your judgment debtor’s assets can be found in (e.g. for a debtor residing in Boca Raton with assets there, it would be ideal to register in the Southern District of Florida West Palm Beach Division).

Once the judgment is registered, the federal rules of procedure allow the creditor to use either applicable federal procedure or state procedure/laws for the collection of the judgment. Andre Law, with its vast experience in this area, can guide creditors on what procedures or tools are available to best effectuate enforcement of the out-of-state judgment. Learn more about our foreign judgment domestication practice.

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Commercial Litigation Lawyer Miami

 

 

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Small and medium sized businesses in particular are faced with a myriad of legal issues on a daily or weekly basis.  These issues can take valuable time away from the entity’s principal business practice.  Hiring a law firm on a per hour basis and/or hiring an in house attorney are rarely worth the cost.

A such as Andre Law Firm P.A. gives a client immediate access to an attorney to answer their legal questions and attack routine legal issues (such as routine drafting and contract/document review).  Having readily available legal advice not only frees clients to focus on being productive in their business, but it also gives the client the confidence necessary to take certain actions in furtherance of their business.

Subscription legal service is just another modern and efficient way Andre Law Firm is bringing top notch legal services to its clients.  Call Andre Law today to find out how our Subscription Legal Service can help your business.

Commercial Litigation Lawyer Miami

Out With the Old

Running a Modern Commercial Litigation Firm

I attended law school from 2004 to 2007 and entered the legal work force in 2007.  This was an interesting time to learn the law trade. While the legal principles and seminal cases have not changed much in the study of law, the way we studied changed markedly with the proliferation of modern electronic research methods.  The old ways of researching and learning the law was all but gone when I started my 1L year.

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