Enforcement of Judgments

Collections versus Enforcement of Judgments

            The public and even the legal profession generally lumps the enforcement of judgments in with the term “collections”, but they are quite different and require different techniques. 

            “Collections” more properly refers to the techniques used to coerce a debtor to pay his debts before litigation is begun.  Enforcement of judgments refers to the investigation and legal techniques necessary to force a losing litigant to pay a judgment. 

Basic Background on the Legal Profession

            Most people are mystified by the intricacies and inefficiencies of the legal system.  Our adversary system of justice virtually assures that every dispute takes a maximum amount of effort to resolve.  Nearly every step of the resolution requires an order from a judge before the litigants can proceed.  To receive an order, a lawyer has to file a motion.  And, for every motion, the moving party must file an extensive brief, which is then opposed by the other side with another brief, which is, again, replied to by the moving party.  A single motion may require dozens of hours of time of lawyers who presently charge anywhere from $150 to $400 an hour (there are a few lawyers in some of the largest cities who charge even more than this).

            In traditional litigation, which still dominates in most areas of the country, even when opposing lawyers work together with a minimum of animosity, the simplest matter will cost the litigant upwards of $20,000 to resolve if that matter proceeds all the way to trial.  Imagine a litigant’s surprise when, upon receiving a judgment, it isn’t automatically carried out and enforced by the courts.

            If the losing side is covered by insurance, there is a relatively good chance that the judgment will be paid in a timely manner.  This isn’t to say that insurance companies always pay promptly.  One can also be relatively certain of payment if the losing side is a well established company with easily identifiable assets.  Well established companies frequently understand that litigation is a part of business and pay a judgment rather than risk the negative public relations or other consequences that may come with refusal to pay a judgment.  Of course, if the judgment is too large, the company may well choose to appeal the judgment. 

            If, after receiving a judgment, and there is no insurance or the opposing side isn’t a well established company, the winning litigant may be in for a second surprise.  Not only do the courts not automatically help out, the losing side frequently refuses to pay voluntarily.  The equivalent of a second lawsuit is now required to find the assets of the loser and then take the necessary legal steps for turning those assets over to the winning litigant.

Enforcing a judgment

            Our firm has traditionally provided counsel and litigation services to the construction industry.  This frequently consists of receiving a judgment for defective construction when we represent owners, or receiving a judgment for failure to pay when representing contractors or subcontractors.  For years we secured judgments against unscrupulous contractors and/or subcontractors and then, like most attorneys, set the client free to either find a lawyer who specialized in enforcement of judgments or hire a collection agency.  Many of our clients, however, became discouraged when they were turned down by the attorneys or the judgment simply languished forever with the collection agency.  A familiar refrain we heard was that it was simply too difficult to collect against a self-employed contractor.  At the request of our clients, we slowly developed an expertise in enforcing judgments against these notoriously difficult judgment debtors. 

            This is not to say that we are always successful (some judgment debtors are truly “judgment proof”).  Nevertheless, we have successfully challenged judgment debtors even after they have resorted to the bankruptcy court for protection.  Most importantly, we have learned where to look for hidden assets.

            Hiring an attorney isn’t your only option, though.  Collection agencies are utilized by businesses to harangue debtors into paying.  This is usually accomplished by way of demanding letters and frequent phone calls.  The tenacity and severity of collection agencies against consumers, however, has been significantly tempered by state and federal law.  For all the bad press that collection agencies receive, they continue to exist because their techniques work to a fair degree.  Nearly all collection agencies charge the client a percentage of the debt collected.  This percentage varies, but usually ranges from 33% to 50%.

            Collection agencies prefer to avoid bringing suit to collect on a debt.  This is because litigation requires the hiring of lawyers, costs a lot and eats into their profit.  If, however, a litigant brings a judgment to a collection agency, they will treat it in the same manner as a debt before litigation.  In our experience, though, the traditional techniques of a collection agency are ill suited for the enforcement of most judgments.  A judgment debtor has already demonstrated a fair degree of recalcitrance by allowing a judgment to be taken against himself rather than pay the debt.  Harassing phone calls and letters are not as likely to intimidate a judgment debtor as a procrastinating debtor.  This isn’t to say that collection agencies have no success against judgment debtors.  They remain a viable option for you.

            In our experience, however, contacting the debtor often works to your detriment in enforcing a judgment.  This is because the debtor is reminded that someone is trying to tap his assets and will actively try to hide those assets.  Although the law provides many supposed tools for enforcing the judgment, many of these tools, at least in California, require the cooperation of the debtor.  This simply isn’t likely to happen.  For example, it is our experience that a judgment debtor examination is more likely to be a waste of time than a valuable tool for discovering assets.

            We have found that successful enforcement of a judgment requires a lot of investigation that is specifically designed to not inform the judgment debtor that you are looking to enforce the debt.  At some point, you may not be able to avoid tipping off the judgment debtor, but the point is to let him know as late as possible.  Enforcement of judgments is much more about investigation than about lawyering. 

            There are a number of online asset search companies.  These are good for a start, but even the best public records databases are woefully incomplete and are very frequently inaccurate.  It’s easy enough to test how accurate a web based information agency is.  Simply do a search on yourself.  Assuming you have some assets that should show up in a public records database, see if the search turns up those assets or even if simple information is accurate.  You’ll find that these services are nearly always incomplete and/or inaccurate.  Nevertheless, they are a place to start and are relatively inexpensive.

            To really find out anything about a debtor, nothing replaces shoe leather.  Where to look and what to look for is a skill that is developed by quality investigators over time.  And, of course, this effort is expensive and time consuming.  Once an asset is discovered (it can’t be exempt from enforcement), the legal steps necessary to turn it over to you to satisfy your judgment are relatively simple.  If a judgment debtor has enough assets, however, he might be able to thwart some of these enforcement attempts. 

            Most of the public is aware of the O. J. Simpson case.  Although Simpson was found not guilty in the criminal case, the civil case found him liable for the deaths of his wife and Mr. Goldman.  A large judgment was entered against Simpson.  Some of the attorneys who commentated on the case said that nothing would ever be collected.  This struck those of us who have performed enforcement of judgments as strange.  Simpson was a classic case of a judgment debtor who could be collected from, at least to a degree.  True, much of his fortune was depleted by legal fees and Simpson had some excellent lawyers assure that the most significant assets remaining were exempt from enforcement, but Simpson still owned valuable personal property that could be auctioned for sale.

            Most judgment creditors don’t have the wherewithal to fund the investigation to find a judgment debtor’s assets.  Therefore, most attorneys who do enforcement of judgments will take the case on a contingency basis fronting the costs.  This doesn’t mean, however, that an attorney will take every case on a contingency.  Most, such as our firm, perform a preliminary investigation to see what the chances of enforcement are.  We require a $500 deposit to pay for the preliminary investigation.  At the end of the investigation, we make a determination if it is likely that we can collect.  If we believe it is possible, we will enter into a contingency arrangement where we front all other costs and charge a 33% to 40% fee, depending upon certain variables, for any moneys actually collected.  If we believe that enforcement will be very difficult, we will offer the client our services on an hourly basis.  We report to the client the difficulties that we find and it is then up to the client whether he/she wishes to pursue enforcement. 

            Many attorneys who do enforcement of judgments deal exclusively with judgments against commercial entities.  It is notoriously difficult to enforce judgments against individuals and, although we regularly pursue and enforce against individuals, it is not unusual for us to discourage a client from pursuing enforcement against an individual.  The profile of an individual who is exceedingly difficult to collect from is one who is self employed, never owned real estate, or moves frequently. 

            Another difficulty encountered in enforcement of judgments is if the judgment debtor has moved to another state.  Each state has its own laws regarding the enforcement of judgments.  Moreover, states don’t automatically recognize one another’s judgments (unless the judgment is from a federal court).  And, since lawyers can only practice in the state where they are licensed, this means that the client has to hire an out of state lawyer to assist the in state lawyer.  We are presently only accepting cases in California.  If you have an unsatisfied judgment, please feel free to email or call.