While sometimes viewed as the end, obtaining a judgment is merely the beginning of a new—and more challenging—phase of a lawsuit. This murky and idiosyncratic process often gets too little attention before costly efforts are undertaken and can yield both expensive and uncertain results. This alert provides some practical considerations to answer the question that most successful parties will ultimately confront when they win a case; how do I turn my judgment into dollars?
While enforcing a judgment against an entity with substantial resources is sometimes aided by its voluntary cooperation, many parties do not enjoy the luxury of having a defeated defendant simply write out a check. Instead, enforcing and collecting on judgments usually involves a complicated cost-benefit analysis which, distilled to its essence, involves a simple equation of the potential for recovery versus the legal spend on getting there. For those that want to “send a message” or obtain other forms of nonmonetary recompense, the examination may get even more complicated. The business and legal factors that enter into these determinations are rarely straightforward. Collecting on the judgment is almost always expensive and never guaranteed. Very rarely are collection efforts a “slam dunk.” As a result, thinking carefully through judgment enforcement is a critical component in the decision to commence the case itself.
Planning for Judgments Long Before They Enter
Ideally, especially in commercial transactions, the ability to collect from the other party should be considered long before any dispute arises. A party entering into a contract, for example, is well served by considering strategies that maximize recovery in the event that collection efforts ultimately have to take place, giving thought to provisions that will assist in collection (e.g., prejudgment remedy language, attorneys’ fee, venue and choice of law provisions, financial disclosure and reporting information, and corporate and/or personal guarantees). Adequately structuring these agreements before litigation arises can be crucial to maximizing collection if things go awry.
Prior to commencing litigation, a party should engage in a realistic assessment of the likelihood of ultimately turning a judgment into dollars. Similarly, parties should collaborate with their legal counsel to carefully consider not only options that may help win the case but also factors that will maximize the prospects for collection. These include such basic considerations as where to file the case (e.g., in state or federal court or in a jurisdiction that may be inconvenient but may also contain assets for recovery). Many jurisdictions allow for the attachment or “freezing” of assets while the case is pending (as noted in a prior alert, Connecticut even allows for this kind of attachment without a hearing if certain conditions are met), a powerful tool to collect if judgment eventually enters. Similarly, while it is often not possible to get a complete picture of a defendant’s assets for discovery in advance, prejudgment discovery may yield useful information that might also assist in postjudgment recovery. Skilled professionals will be thinking about collecting on a judgment long before it actually enters.
Assessing Goals Is Critical
In the face of these and other obstacles, assessing goals becomes critical. A party who simply seeks monetary recompense faces a significantly easier analysis (a comparison of the amount of potential recovery to the potential legal spend) than one that seeks justice or to send a message within the industry (which may merit an approach disproportionately aggressive to the monetary cost-benefit analysis). A potential litigant must work collaboratively with competent legal counsel to answer these questions early, as they will inevitably dictate the best path to achieving the desired goal and the methods employed and minimize the perception (or reality) that good money is being thrown after bad.
Once judgment enters, engaging in a blunderbuss approach to collecting is rarely conducive to anything but breeding frustration and expense. Rather, engaging in a thorough analysis and formulating a more focused collection strategy that considers potential sources of recovery and potential obstacles and expenses has a far higher likelihood of leading to a desired, or at the very least more palatable, result.
Postjudgment Discovery and Assessing and Collecting on Assets
Most jurisdictions allow for postjudgment discovery on a defendant, including written requests for asset information and depositions, putting defendant debtors under oath to discover asset information. While all of these mechanisms can be helpful, they can be expensive and usually rely in part on a defendant’s good faith to adequately disclose asset information, an often-imperfect method given that party’s interest in not sharing this information. Which of these mechanisms to employ, and when to employ them, should be based on a careful assessment of the plaintiff’s ultimate goal versus the potential spend, the known information, and the most cost-effective way to employ them.
Despite careful planning, in some situations, these tools may simply not work, and more aggressive approaches may need to be taken. For example, professional financial and asset investigators can be employed, strategies which may lead to more tangible results but at greater expense.
Once assets are identified, most jurisdictions also have various devices, ranging from bank and financial account executions, wage executions (in the case of individual defendants), judgment liens attached to real property, charging orders to attach to a judgment debtor’s ownership interest in a business entity, and a variety of other (often jurisdiction-specific) tools. While powerful in their own right, utilizing these tools can be expensive, particularly if there is not a targeted approach without a clear indication of where the assets are actually located. Judgment creditors should work with skilled practitioners to identify and assess which of these tools may be best employed to maximize recovery.
Enforcing judgments can be challenging, costly, and uncertain. Traps for the unwary are legion in this area. However, early consideration of these issues (including long before judgment actually enters or litigation is commenced), careful planning, and giving advance consideration to these issues can help minimize frustration, control legal costs, and maximize recovery.
The Thought Leadership Committee of Barclay Damon’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area issues alerts and blogs on an ongoing basis to keep clients, colleagues, and friends up to date on important developments in the insolvency space. If you have any questions regarding the content of this alert, please contact the author, Brian Rich, partner, at brich@barclaydamon.com; Janice Grubin or Jeff Dove, Restructuring, Bankruptcy & Creditors’ Rights Practices Area co-chairs, at jgrubin@barclaydamon.com and jdove@barclaydamon.com; or Robert Wonneberger, Thought Leadership Committee chair, at rwonneberger@barclaydamon.com.