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.
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 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.
We are regularly retained by out-of-state creditors to go after local debtors. We often domesticate foreign judgments for our clients here in Florida. Often, those creditors already have an idea on what they want to do from a collection standpoint. Perhaps these creditors might have analysts or have already used a private investigator to research the Debtor before they come to us. Often creditors may have identified assets they seek to levy before they contact us
Look More Closely at the Asset
The Creditor might say “I can see the Debtor owns a 2020 Mercedes AMG GT Coupe (MSRP $116,000); can I take that?” My answer, which is often maddening to my clients, is often “it depends.” “What do you mean? I want that car!”
Locating certain assets which may be subject to execution is a relatively straight-forward process (assuming there hasn’t been fraudulent transfers that is). Things like cars require title registrations that come up easily in public records searches. The questions that are rarely considered after a client locates such an asset are: 1) is the asset owned outright by Debtor (or is it being leased or financed); 2) Is that asset owned individually owned or subject to an exemption or claim of another; and 3) are the costs associated with levying this asset worth what the asset will get you at a levy sale.
One thing that many are not readily clear about. A levy is when the county sheriff seizes an asset and sells it an auction. The sale proceeds are then used towards satisfying the judgment. I know many know this, but you’d be surprised how some folks think it means you get the asset handed to you. While judgment creditors are usually entitled to a credit bid up to the amount of their judgment, it’s important to know this. Assuming you have perfected your judgment lien as we discussed here, other considerations must be made before the levy is effectuated.
Levy Considerations
In your 2020 Mercedes example, if your car is leased, you cannot take it because title belongs to the lessor (though if the lease is pre-paid there might be an argument that the pre-paid lease is an asset, but this hyper technicality will not be discussed here). What if our debtor owns the vehicle jointly with her spouse or domestic partner? Again, you may not be able to levy the asset if it is subject to an exemption like tenancy by the entireties. Is the car subject to financing? If so you would take subject to the car note. Finally, would the asset be worth it even if these hurdles are not present?
The Auction
In our 2021 Mercedes example, if the debtor owns the car outright (high roller) it most likely worth it. If you levy the car, the car will then be in auctioned. Then, if the auction is competitive, you may be able to collect a good amount. It is important to note: often auctions are not well publicized, and bidding can be outright pathetic.
If you have specialized assets like art or collectibles, you might need to market the auction so bidding can be competitive. Otherwise, at the sale you will have a bunch of bargain shoppers, looking for a deal. In this instance, you might want to reach out to car dealers in the area and notify them of the levy sale in an attempt to raise competitive bidding. Of course, check with Florida Bar to determine what information you can provide and in which manner you can provide it.
We had one levy where we levied the contents of a storage unit and someone purchased boxes/personal effects and asked me for the contact information of the debtor so he could sell the guy’s family photos back to him…. I of course did not cooperate, but man it’s a dog-eat-dog world out there friends.
It’s my hope this article was able to illustrate some of the numerous issues tangential to a levy. Contact our firm today to discuss any post judgment collection questions you have.
I would like to pose this premise to you. You have worked hard and spent money to obtain a final judgment, but the judgment debtor will not voluntarily pay. How do you collect? Perhaps this is the wrong question to ask. The fundamental question should be “Can you collect?”
Obviously, if you are the meritorious party in a lawsuit against a company like AT&T or Suntrust, you can rest assured, you will likely be paid. The issue of non-payment most often comes against lawsuits against closely-held companies, individuals, or family-owned operations.
Often to even obtain a modest judgment (let’s say $50k), it can take five figures worth of money spent on attorneys’ fees (and court costs) to obtain that modest result. Combine that with the fact judgment creditors can get so emotionally invested in the outcome of a litigation they often get irrational regarding their own case’s potential for collection.
Research the Debtor
In order to determine whether a judgment can be collected, it takes a global view of the judgment debtor and its finances. While no mathematic formula exists in determining whether a judgment is collectable you should start with some threshold questions:
Has the law firm that obtained the judgment perfected your judgment lien?
Did your judgment require the judgment debtor to serve a fact information sheet?
If the Judgment Debtor is a business entity, is that entity still operating?
What type of assets does the Judgment Debtor own (e.g. real property, vehicles, assets of the variety that would show up on an asset search (like certain equipment)).
Has the judgment debtor made any transfers of assets lately?
These considerations may seem obvious, but I can’t even tell you how often people come to me to collect judgments that are obviously uncollectable. Often people do not want to hear that the judgment is not collectable (even when you provide evidence on why it is not collectable). Perhaps they do not care the judgment is uncollectable and they just want someone working on it for a contingent fee hoping for a miracle.
The general fiscal health of the judgment debtor (and if an entity, the principals comprising the management of the judgment debtor) helps paint a picture of collectability. There are many tools you can utilize to help paint that picture, such as asset searches, public records searches (like UCC Lien searches, or searches of the official public records), and simple internet searches. Sometimes it is even advisable to hire a private investigator to research your debtor’s finances.
Lien Perfection and Passive Collection
Keep in mind that a judgment that is not collectable now might not always be uncollectable. That’s why judgment lien perfection is so important. “Has the lawyer that obtained the judgment perfected your judgment lien?” In a previous journal entry, we discuss the process and importance of perfecting your judgment lien as soon as possible. Preserving the priority of your lien may allow you to collect passively (e.g. judgment debtor trying to sell or refinance real property has to address your judgment lien).
Moreover, you might even find 2 or 3 years down the road, the judgment debtor has gotten back on their feet and you can now actively collect your judgment. If the judgment is currently uncollectable, it is advisable to keep an eye on the judgment debtor from time to time. Often judgment debtors (particularly individuals) are very entrepreneurial and will move on to the next hopefully profitable venture.
Not having a realistic assessment or expectation of the collectability of a judgment is often a recipe for disaster. Contact Andre Law today to figure out if your money judgment is one which you can collect against.
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.
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.
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.
