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After the Judgment – What Happens Now? Part 2

By Stephen E. Hyam, Esq.

I recently discussed the judgment debtor examination process in a Clarktalk post.  In this article, we address other post-judgment enforcement options available to creditors that will help increase the chances of satisfying  their judgments.

Options for Asset Investigation

In addition to judgment debtor examinations, there are other methods to investigate a judgment debtor’s assets. Similar to pre-judgment litigation, a judgment creditor may require that the judgment debtor answer a series of questions, called written interrogatories, and produce documents, called requests for production.  When served with interrogatories and requests for production, the receiving party must respond within 30 days.  If the debtor fails to respond, the judgment creditor may seek a Court order compelling the response and production.  Such order is obtained by filing a motion with the Court.  Bringing a motion will cause delays because, absent exigent circumstances, there is at least a 16 court day delay between filing the motion and hearing the motion.  Additionally, since the hearing must be set when the Court has availability, there can be a delay even greater than 16 court days.  While interrogatories and requests for production are initially less expensive than a judgment debtor examination, they may be less effective.

Once you have information related to the judgment debtor’s assets, the creditor can take a number of different steps to enforce the judgment.

Liens on Personal and Real Property

If a judgment debtor owns real property in California, a judgment creditor may record an Abstract of Judgment with the county recorder where the property is located. Recording the abstract provides a blanket lien on all real property in that county owned by the judgment debtor – even if the judgment creditor is unaware of the judgment debtor’s ownership of the property.  The lien generally lasts 10 years from the date of the judgment.  The lien gives the judgment creditor the right to foreclose upon the property.  The lien will also give notice to the public that the creditor has right to payment if the property is sold, creating a cloud on title.

A personal property lien can be asserted against certain business personal property by filing the appropriate form with the California Secretary of State. The lien gives notice of the judgment creditor’s priority over later lienholders.

Wage Garnishments

Wage garnishment orders compel the judgment debtor’s employer to withhold a portion of the judgment debtor’s earnings. Wages, in this case, include salary, bonuses, commissions, and the like.  Wage garnishments do not take every dollar that is paid to the employee.  Generally, at least 75% of take home/after tax earnings (after deductions for social security, federal and state taxes, state disability insurance, etc.) are automatically exempt from garnishment.  The judgment debtor may also seek a Court order to have even more of the take-home income exempted from the enforcement.  Conversely, on a motion to the Court, a judgment debtor may seek an equitable division of the judgment debtor’s earnings, but such order must factor in the needs of the judgment debtor and anyone who the judgment debtor is required to support.

Assignment Orders

If the judgment debtor has a right to payments due in the future that are not wages, a judgment creditor may apply to the Court for an assignment order. Assignment orders compel a third party to pay the judgment creditor instead of the judgment debtor.  Assignment orders may be useful for capturing payment streams from royalty agreements, rents, accounts receivable, and general intangibles, such as promissory notes.  A judgment creditor must file a motion with the Court for the assignment order.  The assignment order, if issued, must then be served on the third party.  Should the third party ignore the order and pay the judgment debtor, the third party is liable to the judgment creditor for the payment.

Charging Orders

Assets of a partnership or a limited liability company are not subject to enforcement of the judgment debtor partner’s/member’s liability. However, the judgment debtor’s partnership or membership interest is subject to enforcement.  A charging order charges the judgment debtor’s share of partnership or limited liability company profits and any other monies due, or to become due, to the debtor.  If a creditor wants to pursue those interests, the judgment creditor must file a motion with the Court.  Service of the motion creates a lien on the judgment debtor’s interests that lasts until the judgment becomes unenforceable.  Naturally, if the motion is denied, the lien is extinguished.  If the motion for a charging order is granted, the creditor may foreclose on the judgment debtor’s interest, applying the proceeds from the foreclosure to the amount of the judgment.

Conclusion

These are only a few of the options that judgment creditors have to enforce their judgment. With many options available, it is important that you and your counsel carefully consider which enforcement procedures are worthwhile.  Clark & Trevithick’s attorneys are skilled in enforcement procedures and can help you fashion a plan that will help you efficiently and effectively satisfy your judgment.


Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog. If you have any questions about judgment enforcement options , please feel free to contact Stephen E. Hyam at shyam@clarktrev.com by email or telephonically at (213) 629-5700.

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Judgment Debtor Examinations – After the Judgment – What Happens Now?

By Stephen E. Hyam, Esq.

You filed the lawsuit, litigated zealously, and now the judgment is in your favor. Once there is a final judgment in litigation, you are the judgment creditor and you going to be paid, right?  Not necessarily.  Often, the judgment debtor, the person who has been found to owe the money, will simply not make the payment.  This is when the next phase of the case must begin – enforcing the judgment.

Judgment Enforcement Seeks Assets

The purpose of judgment enforcement is to receive payment. First you need to find out if the judgment debtor has assets.  There are many different statutory rights that a judgment creditor can use to discover and execute against a judgment debtor’s assets.  One such right is a judgment debtor examination.  A judgment debtor examination compels a judgment debtor to testify about his or her assets.

Examination Is Under Oath

The judgment debtor examination is taken pursuant to a court order.  It is taken at the courthouse, after the witness has been sworn to tell the truth.  The witness can be the judgment debtor or a third party who has information about the judgment debtor’s assets or owes money to the judgment debtor.  Often, a court reporter is hired to take an accurate transcript of the examination.  The judgment debtor examination can be accompanied by a subpoena that orders the witness to produce documents.

Since the purpose of the examination is to obtain information concerning the judgment debtor’s assets, the party taking the examination is given a wide scope of inquiry. There are few restrictions on the subject matter of judgment debtor examinations if the inquiry could reveal the existence and location of a judgement debtor’s assets.  The purpose of a judgment debtor examination is “to leave no stone unturned in the search for assets which might be used to satisfy the judgment.”  Topics for examination include bank accounts; present employment; future employment prospects; questions about future or contingent interests such as inheritances; and payments due from third parties to the judgment debtor.  The judgment debtor can also be required to explain why real and personal property was transferred to third parties.

During litigation, there is a statutory privilege that one spouse/domestic partner cannot be compelled to testify against the other. However, this restriction is not applicable to judgment debtor examinations.  While the privilege applies to confidential communications between spouses/registered domestic partners, a judgment creditor may ask about property in which the debtor has an interest that is in the possession or control of the spouse/domestic partner, or any debt over $250 owed to the debtor by his or her spouse/domestic partner, because the existence of assets is not considered a confidential communication.

Disputes about the scope of the inquiry are often handled by the Court on the same day as the examination, so the investigation is not unduly delayed.

Third Parties May Be Ordered To Appear

Third parties often have information related to the judgment debtor’s assets. As a result, the post-judgment examination procedure may also be used with persons or entities who are not subject to the judgment, but may have information regarding the judgment debtor’s assets.  With a declaration establishing good cause, a judgment creditor may obtain a court order compelling a third party to attend an examination and (pursuant to a subpoena) bring documents.  The scope of the examination of a third party is essentially the same – to identify and locate a debtor’s assets.

Judgment Debtor Examinations Create An Automatic Lien on All Personal Property Assets

Judgment debtor examinations create an automatic lien on the debtor’s personal property, giving the creditor an advantage over unsecured creditors as long as the debtor does not file for bankruptcy or conduct an assignment for the benefit of creditors within 90 days of the examination.

Are Judgment Debtor Examinations The Best Choice?

The debtor examination gives the creditor the opportunity to ask questions and review documents. Bank records, for example, give clues about the sources of funds received by the judgment debtor and to whom the judgment debtor makes payments.  In certain situations, a judgment debtor examination may not be the best option.  Every case has unique facts and you should consult with legal counsel to determine the best way to collect on your judgment.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog. If you have any questions about judgment debtor examinations, please feel free to contact Stephen E. Hyam at shyam@clarktrev.com by email or telephonically at (213) 629-5700.

 

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Contracts In Today’s Sharing Economy: Limitation of Liability Clauses Have Come A Long Way

By Mhare O. Mouradian

This article was previously published in the Association of Business Trial Lawyers Report summer 2016 issue.

With the explosion of smartphones, tablets and laptops, innovative tech startups are being created in the sharing economy marketplace. Sharing economy services include ridesharing and house hiring, with companies like Uber, Lyft and Airbnb dominating their respective industries.  The sharing economy marketplace is also evolving and infiltrating other industries, including the banking industry—referred to as  “fintech,” short for financial technology—with companies like SoFi.   They are conducting business at light speed through the use of “apps” on your smartphone.  Most of these tech startups attempt to limit their liability through Terms of Service or Terms and Conditions (collectively, “TOS”).

The term “sharing economy” refers to a new economic model in which individuals and companies are able to use or rent physical assets owned by someone else in exchange for money. A contract can be entered into by a simple mouse click on a laptop or  the touch of a finger on a smartphone or tablet.  With certain exceptions, such a written contract between two parties is binding and enforceable and may be a trap for the unwary.  An individual or company will be bound by the terms of such contracts.  Therefore, it is important to review and understand such contract provisions.  This article discusses contracts in the sharing economy space, particularly limitation of liability clauses, to help illustrate the need to carefully review contract terms in the TOS.  Doing so will help to safeguard  a business and eliminate potential litigation.

Sharing economy companies use the Internet to facilitate the connection between users and providers in the sharing economy. Sharing economy companies are part of the fabric of today’s culture, providing more efficient, affordable and attractive services than their traditional counterparts.  However, contractual implications may arise when conducting business with a sharing economy company.   Most people download the company’s application (“app”), complete the registration process,  quickly zip through and agree to the TOS without reading them, and are ready to use the app within minutes.  But these contracts contain many protections for the sharing economy companies and limitations of user rights.  Although the TOS are not negotiable, an understanding of how these contracts can affect liability is important.

The TOS typically limit the sharing economy company’s liability exposure through limitation of liability clauses. These provisions “ ‘have long been recognized as valid in California.’ ” (Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 125.)  In Lewis, a user sued the video-sharing service operator YouTube for breach of contract, alleging that YouTube temporarily removed users’ videos from public view and permanently removed records of the videos having been watched and commented upon by other users.  (Id. at pp 121-122.)   YouTube’s TOS provided that YouTube was not liable for any damages for any omissions in any “content,” and defined “content” to include the “text, software, scripts, graphics, photos, sounds, music, videos, audiovisual combinations, interactive features and other materials” that the user “may view on, access through, or contribute to the Service.”  (Id. at  pp. 125-126.)  The trial court sustained YouTube’s demurrer without leave to amend, and the user appealed.  The Court of Appeal affirmed holding that (1) the limitation of liability clause in the TOS precluded the user from establishing the damages element of her breach of contract claim, and (2) the TOS did not require YouTube to continue displaying comments or an accurate view count for the user’s videos.  (Id. at pp. 125-127.)

Sharing economy tech companies also limit their liability by distancing themselves from the person who owns the physical asset. The TOS typically state that the sharing economy company does not endorse third-party services and content and in no event shall be responsible or liable for any products or services of such third-party providers. For example, if a rider uses Uber’s mobile app for transportation, the TOS distance Uber from the driver of the vehicle by stating that Uber “does not provide transportation logistics services or function as a transportation carrier.”  Uber’s TOS also attempt to insulate Uber from any liability from the driver’s wrongful conduct.

Additionally, the TOS typically state that the agreement a user enters into to use the third party’s asset is only between the user and the owner of the physical asset. The sharing economy company is not a party to that agreement.  For example, if a user books an apartment using the mobile app, the TOS state that the agreement is between the user (whom Airbnb refers to as the Guest) and the owner of the apartment (whom Airbnb refers to as the Host).

Sharing economy companies also utilize several provisions requiring a user to indemnify the sharing economy company and limit its liability to a nominal amount or an amount no greater than the amount a user has paid or owes for using the asset. For example, Uber’s TOS limit its total liability “to an amount that shall not exceed $500.00.”  Airbnb’s TOS also limit its liability to either $100 or an amount not to exceed the amount a user paid or owes for bookings, whichever is less.

Limitation of liability clauses in TOS are not a guaranteed constraint. They are not enforceable if they are unconscionable—that is, the improper result of unequal bargaining power—or contrary to public policy. (Food Safety Net Services, Inc. v. Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 1118, 1126 (Food Safety Net Services); Markborough California, Inc. v. Superior Court (1991) 227 Cal.App.3d 705, 714-715.)  Furthermore, such clauses are not enforceable with respect to claims for ordinary negligence where the underlying transaction “affects the public interest” under the criteria specified in Tunkl v. Regents of University of California (1963) 60 Cal.2d 92, 98–100.  (See Food Safety Net Services, supra, 209 Cal.App.4th at p. 1126; McCarn v. Pacific Bell Directory (1992) 3 Cal.App.4th 173, 178–179.)  Additionally, limitation of liability clauses cannot bar claims for fraud and misrepresentation.  (Civ.Code, § 1668; Food Safety Net Services, supra, 209 Cal.App.4th at p. 1126; Blankenheim v. E.F. Hutton & Co. (1990) 217 Cal.App.3d 1463, 1471–1473.)

Sharing economy companies will continue to attempt to safeguard their businesses and reduce potential litigation through the effective use of TOS. Even though the legality of some of these practices is being challenged and efforts are underway to address the lack of regulation in this area, the sharing economy is here to stay and users should carefully review TOS before clicking or touching “agree.”

Thank you for joining us on ClarkTalk .  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.   If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Mhare O. Mouradian by email at mmouradian@clarktrev.com  or telephonically by calling the author at (213) 629-5700.