You won the case, and your client was awarded monetary damages! Now you need to execute on the judgment. Sometimes the losing party will pay up right away and be done with it. Often they don’t. To collect the monetary award, you must use the special rules and procedures for post-judgment collection proceedings.
May 03, 2022 View from the Bench
Post-Judgment Proceedings: Collecting a Monetary Judgment
What to do after you've won the case, and your client is awarded monetary damages
By Hon. Karen L. Stevenson
Commence after Final Judgment
Generally, a federal court cannot not enter final judgment until it has resolved all claims as to all parties. Federal Rule of Civil Procedure 54 provides that when an action involves multiple claims, whether a claim, counterclaim, cross-claim or third-party claim, or when multiple parties are involved, the court may direct entry of final judgment as to fewer than all claims or parties, but “only if the court expressly determines that there is no just reason for delay.” While it is not proper to commence collection proceedings prematurely, in cases where “there is no just reason for delay,” it may be prudent to request entry of final judgment as to a single claim on which your client has prevailed.
State and Federal Rules Apply
Federal Rule of Civil Procedure 69(a) provides that the procedure to execute on a money judgment “must accord with the procedure of the state where the court is located.” Thus, after winning a civil judgment, a judgment creditor will use state law procedures in supplemental federal proceedings to collect the award. State law might allow the judgment creditor to pursue a writ of execution, a writ of garnishment and order to garnish wages or bank accounts, or a lien on the judgment debtor’s property. These procedures must be followed precisely. It is essential that counsel be familiar with the applicable state rules, forms, and deadlines.
For example, in California, the district court may order an examination of a judgment debtor based on an ex parte application by the judgment creditor pursuant to California Code of Civil Procedure section 708.110. The judgment creditor must personally serve a copy of the order on the judgment debtor at least 10 days before the examination. California law also permits a judgment creditor to serve discovery on the judgment debtor, including requests for production or inspection of documents.
At the examination, the judgment debtor is required to testify about financial solvency and the location of any assets that may be used to satisfy the judgment. If the judgment creditor served document requests, the judgment debtor will typically bring the relevant documents to the examination, unless the parties agree to an earlier production date.
The courtroom portion of the proceeding is relatively brief. The case is called, and the parties state their appearances on the record. The court then explains the proceedings to the judgment debtor, and the judgment debtor is put under oath. The parties typically conduct the examination in a jury room or conference room at the courthouse but may do so over Zoom during COVID-19.
If a judgment debtor who has been properly served with a notice of examination fails to appear or refuses to answer the examination questions, the judgment creditor may seek an order of civil contempt against the judgment debtor.
What Information Is Discoverable?
The scope of a judgment-debtor examination is very broad. Federal Rule of Civil Procedure 69(a) states, “In aid of the judgment or execution, the judgment creditor or a successor in interest whose interest appears of record may obtain discovery from any person—including the judgment debtor—as provided in these rules or by the procedure of the state where the court is located.” Thus, even questions that may seem far afield from the subject matter of the underlying litigation are permitted if the information may lead to the identification of assets that may be available to satisfy the judgment.
Even questions that may seem far afield from the subject matter of the underlying litigation are permitted if the information may lead to the identification of assets
When the judgment creditor is a single individual or corporation with a readily identified representative, the examination and related discovery are usually straightforward. In the case of a corporation, an individual with sufficient knowledge of the company’s assets and finances must appear to respond to the judgment creditor’s questions, even if the company is no longer in business. Unless the judgment creditor has reason to believe that the representative has personal liability for the judgment creditor’s debts, e.g., as a personal guarantor, the scope of questioning at the examination and the scope of document discovery will not include information concerning the representative’s personal finances.
Third-Party Finances Protected from Discovery?
The analysis is more complex, however, where a judgment creditor is a closely held entity or when one spouse is the judgment debtor and the judgment creditor seeks to collect against the couple’s community property. Two examples illustrate how these issues can arise.
In the first example, a judgment creditor sought to collect on a multimillion-dollar breach of contract judgment against a company where a husband and wife were the only directors or officers. The wife was listed with the California secretary of state as the company’s registered agent and chief financial officer. The judgment creditor properly served the wife with notice of examination. She appeared but testified that she and her husband had been estranged for some time and were going through a divorce; he retained total control over all documents and information about the business; he had barred her from the business premises for months; and he had removed her from the secretary of state filings as the agent of service of process. In that case, there was no basis to permit discovery concerning the wife’s personal finances, her credit status, and/or her separate property as possible sources to satisfy the company’s debt.
In the second example, a judgment creditor sought to enforce a substantial judgment against an individual defendant and obtained orders for the defendant and his wife to appear for judgment-debtor and third-party examinations. At the third-party examination of the wife, the wife asserted that the judgment creditor could not inquire about her personal assets because two postnuptial agreements stated that she owned no property in common with the defendant (her husband). The wife sought a protective order shielding any personal records or personal financial records “related to her separate property” from production and an order prohibiting any question of her about “her separate owned property” at the examination. The court denied her request.
The court noted that Federal Rule of Civil Procedure 69(a) permits a judgment creditor to obtain discovery from “any person” and cited decisions allowing inquiry into a third party’s financial records in the spousal context. The court noted that both in corporate and spousal contexts, circumstances may arise that “raise a reasonable doubt about the bona fides of asset transfers between the judgment debtor and a third party.”
Thus, when conducting discovery to execute on a money judgment, the inquiry on behalf of a judgment creditor should target “any person,” not just the judgment debtor, who may have relevant information about assets or transfers of assets that should rightly be made available to satisfy the judgment. Key takeaways: Move quickly after entry of final judgment, and don’t overlook third parties who may be critical to identifying assets necessary to collect your client’s award.
Resources
- 28 U.S.C. § 1961(a), (b).
- Baker v. Limber, 647 F.2d 919, 919 (9th Cir 1981).
- Internet Direct Response, Inc. v. Fred Buckley, No. SACV 09-01335 ABC (MLGx) (C.D. Cal. Apr. 29, 2010).
- Credit Lyonnais, S.A. v. SGC Int’l, Inc., 160 F.3d 428, 430–31 (8th Cir. 1998).
Copyright © 2022, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Litigation Section, this committee, or the employer(s) of the author(s).