Some people collect stamps, others rare coins while many of us tend to assemble masses of Pez dispensers. When lawyers use the term “collecting” they are referring to a legal term – “enforcing a judgment”. The English translation of the term is “collecting the money that a court has determined is due his/her client”.
Laypeople are rarely acquainted with the manners in which attorneys can collect monies owed their victorious clients on those occasions when the losing party fails or resists simply paying the amount of the judgment to the winning party. (Many states, NY as an example, require an insurance company to pay a judgment in full within 30 days or suffer severe financial penalties). Surprisingly all too many lawyers have no idea how to collect the money that have won for their clients. They end up sending the judgments to attorneys who are skilled in collecting sums found by a court to be due, but for whatever reasons remain unpaid. Perhaps you have heard the cliché’ “Sure you won your case now try to collect”. Incredibly this is a skill that law schools rarely teach. Most law students naively believe that if you win a case for say $25,000 or $225,000 the loser will pay in full at dawn of the following day. Spouses of lawyers have been praying and lighting candles for centuries in the hopes that divine intervention will take over.
Here are just some of the methods employed by experienced attorneys who have obtained a judgment, but payment in full has not been made. Unpaid judgments are (understatedly) termed “unsatisfied”. For example purposes we’ll use a typical photo business scenario:
Jane Photographer has a contributor agreement with XYZ Stock Agency. The agency secures many licenses for her works but fails to pay the photographer or even send appropriate royalty statements to her, preferring to use the money received from the licensees and owed to Jane, to pay the agency’s rent, book a three week cruise for the CEO of the agency or buy the CEO’s mistress a condo. (All real life scenarios!)
Assume the judgement as determined by judge or jury is for $100,000 (that number being totally arbitrary as the methods below can be employed in most states regardless of the size of the judgement). State laws vary but the vast majority of judgements rendered by Federal and State Courts are enforceable (collectible) anywhere in the USA and often beyond our borders. If the agency is still operating and the lawyer knows what to do, then what he/she has to do is not particularly difficult.
Prior to employing any of the practices below, a lawyer or law firm para-legal, fills out some basic forms, which again vary from state to state, but rest assured only a minimal skill level is required. The appropriate form(s) coinciding with the collection technique(s) below is delivered to a local Sheriff, City Marshal or in some instances employed by the lawyer without outside assistance. Remember that a judgment is valid for at least 10 and often 20 years. A judgment can take days, weeks, months or years to be paid. Large judgments paid in monthly installments with interest are sometimes preferable to a single, prompt payment in full. Negotiations between attorneys over the methods to pay off a judgment are common.
Here are the techniques used by lawyers (whose winning clients are called “creditors”). The use of one or more methods simultaneously is typical. We have purposely omitted some of the technical requirements that must be met to employ one or more of these methods against the deadbeat a/k/a the “debtor”.
- File the Judgment in the County Where The Agency does business. Once done the losing party ie XYZ Stock will have difficulty securing credit or a loan. On some occasions the filing of a judgment against a company with an existing credit line or loan may serve to cut off that credit line and/or call in the pre-existing loan. If the judgment filed is against an individual, then it will show up on their credit report and should they seek a mortgage, car loan, government job or even an apartment or auto lease the unsatisfied judgment may prevent the transaction from going forward. If real property is owned by the debtor that property can not be sold or transferred without the holder of the judgment getting paid first as the judgment serves as a lien against the property;
- Serve and file a Restraining Order/Notice on the debtor’s bank. The effect of serving the debtor’s bank is to freeze at least the amount owed to the creditor. The banking institution is prevented from allowing at least that amount to leave the account. In some states the frozen amount may be double the amount due under the judgment. This often prevents the debtor from writing checks and/or will cause checks already sent to bounce higher than a Superball. A decent size judgment coupled with a frozen account in that sum (or greater) may prevent the agency from making payroll or paying Think of it as applying a tourniquet to an artery;
- Property Execution. Perhaps the most dramatic technique, this involves a County Sheriff or City Marshall quite literally walking onto the debtor’s premises for the purpose of inventorying and seizing the debtor’s property. Ed has on more than one occasion, used a Sheriff or City Marshall for this purpose. Typically, with badges in full view, they enter onto the debtor’s premises and commence an inventory of all items on the debtor’s property. Their staff applies stickers with bar codes to agency computers, monitors, furniture, images, printers, copiers and telephones. If the debtor is unable to provide a check, cash or money order to cover the amount due plus the Sheriff’s fees, physical removal of the items from the property commences. Failing payment covering the judgement and (now) the removal fees, the property may be auctioned, sold or simply given to the creditor as payment or part payment of the unsatisfied judgment. The fees owing to the sheriff for such executions are relatively minimal. If the images, computers and the like are seized, the agency’s website can’t operate, licenses can’t be made and effectively the company is shut down. Money to pay the outstanding judgment often appears out of thin air as if produced by Penn and Teller;
- Income Execution. This document when properly prepared and served, requires the debtor to pay the creditor upon the receipt of any monies of any kind regardless of the source of the payment. It works like an IRS garnishment (see below). So assume that Fox or Viacom has sent XYZ a check for $5,000 for the licensing of a photo shot by Jack Shutter who is an XYZ contributor and whose transaction has nothing whatsoever to do with Jane Photographer. Assume XYZ’s commission of that $5,000 is $2,500. That $2,500 less a small sheriff’s fee will be winging its way to the creditor’s attorney to help pay the unsatisfied judgment. These executions will continue in effect until the judgment is paid in full.
- Information Subpoenas These are questionnaires served by the creditor’s attorneys which must be filled out by the debtor under oath, specifying the location of all assets, names of clients, outstanding invoices, other creditors, location of bank accounts and so on. The answers tell the creditor’s lawyer where funds are located and/or the sources of funds due the debtor in the future. Omitted information, lies, misrepresentations if proven, is punishable by fine or imprisonment by the Courts as “contempt”. That applies to #7 below as well;
- Restraining Notice Served on Clients Applicable in many instances, this technique allows for the service a restraining notice on a client of the debtor XYZ notifying that Jane Photographer is owed money by XYZ pursuant to a court judgment and thus any money intended to be sent from client to stock agency must be reported to and disbursed according to that state’s law via the Sheriffs’ office. So in real life let’s assume that The Washington Post pays XYZ $2,000 per month, every month. The notice is served on The Washington Post, which then typically notifies XYZ that it can no longer legally send checks to XYZ but rather to the Sheriff. This is similar to an IRS notice sent to your agency when you owe taxes. In those instances, your agency can’t send you the portion owed to you; rather it must send it to the IRS if it has a judgment against you for taxes, penalties and/or interest due.
- Deposition of Debtor The debtor must physically appear in a courthouse or lawyer’s office to testify under oath at which time the creditor’s lawyer may inquire as to all matters of a financial nature which might be used to pay the judgment. Do you own a boat? Do you have frequent flyer miles in your account? How do you pay your kid’s tuition? Why have you flown to the Cayman Islands 5 times in the last year? Does your girlfriend use your Black AMEX card? The examination – if done right – is invasive, unsettling and typically yields useful information about where assets may be located and/or where income is coming from.
- Depositions of Third Parties Real life example from Ed’s files, while taking the deposition of the debtor:
Q: “You claim that you make no money, pay no rent, have no credit cards and rely solely of your social security check of $1,300 per month, do I have that correct”?
Q: “The answers that you provided in the information subpoena I served on you states that your leased Mercedes costs you over $1,000 a month just for the lease and insurance and your parking lot on 96th Street runs another $400 a month, gas and oil $150 a month and all this without accounting for eating – do I have that correct”?
Q: 1. “Can you teach my wife how to do stretch money like that; and
Q: 2. Who pays for your food, clothes, rent, toothpaste and the occasional pizza”?
A: “My girlfriend”
Simultaneously with the taking of that testimony, Ed’s clerk served a subpoena on the debtor’s girlfriend requesting that she appear for her deposition. The debtor received a phone call from her within minutes thereafter and a check was delivered that day. In short, under certain circumstances you can ask for voluntary assistance by third parties or compel their cooperation if they have relevant information.
- Fraudulent Transfers State laws vary wildly but the overly simplified gist of the concept is this: you win your trial on a Monday, the loser transfers all of his/its assets on Tuesday so that by Wednesday he/she/it is “broke”. The courts have the power to nullify and reverse such transactions and award the creditor even more – sometimes a lot more money than was awarded in the original action.
The above 9 techniques are just the most popular items on the collection menu. There are other methods that can be legally employed each with its own level of subtlety.
In a recent NY case Ed collected monies on and off for years after the defendant stock agency went out of business. Any business including but not limited to a stock agency, that boasts of its lack of assets or that it is “judgment proof” is not one that you would be wise to deal with. Any attorney who says collection of a judgment from a stock agency is “problematic” or “difficult” is very likely well in over his/her level of expertise. A decent para-legal knows the procedures employed and often does 90% of the legal work required by the local Sheriff or Marshal.
There is an abundance of law firms in every corner of America, which specialize in the collection of judgments in exchange for a percentage of the recovered funds. Knowledge of IP or the photo business is helpful but not critical. The creditor’s knowledge of the debtor coupled with a phone call between your trial attorney and the collection attorney will often suffice.
It bears emphasizing that most experienced IP trial attorneys who represent creatives should not need the assistance of another collection law firm. If however, your trial attorney makes such suggestion to you because he/she is not confident of collection, by all means get your judgment to a law firm that specializes in collections (NEVER A COLLECTION AGENCY) and let it go after your money.
A caveat here: there are both federal and state collection laws. Consult a local attorney well versed in these techniques so you can be advised as to which ones will be employed and why. This is not a do it yourself project under any circumstances nor one which you should assign to a lawyer fresh out of law school. Experience counts.
Final note – the best collection attorneys tend to be older, cynical, don’t have fancy offices, have learned to assume every that every debtor is a liar and won’t be seeing anything in your case that he/she hasn’t seen many times before going back to the 20th Century.