Collecting on a Commercial Judgment: What Happens When You Win and the Other Party Doesn’t Pay?
You took another company to court, and you won. The judge ruled in your company’s favor, and now your company is entitled to damages. There’s just one problem: The other company won’t pay.
What happens in this scenario?
This scenario isn’t uncommon. The fact that a company is legally required to pay damages doesn’t necessarily mean that it will pay what it owes. As a result, after winning a judgment in court, companies will often find that they need to take additional legal action to enforce the judge’s order.
Enforcing a Judgment After Commercial Litigation
There are a variety of potential options for enforcing a judgment after commercial litigation. We emphasize potential for two reasons: First, different options are available in different scenarios. Certain means of enforcement only work against certain types of business entities, and options can vary between jurisdictions.
Second, efforts to enforce a judgment will only be effective if the judgment debtor can afford to pay—whether from cash on hand, through the sale of assets, over time or otherwise. If a company has no assets and has wound down its operations such that there is no hope of the company generating revenue in the future, it may be effectively “judgment proof.” Ideally, the lawyers representing a company that is seeking to enforce its rights will conduct a collectability analysis before instituting litigation, as litigating may not be worthwhile if there is no hope of collection.
But, let’s say a judgment debtor can pay and is simply choosing not to do so. In this scenario, the options for collecting the judgment may include:
1. Writ of Execution
A writ of execution is a court order that directs law enforcement to seize the judgment debtor’s assets. This can include personal property, real property, and bank accounts—though additional steps may be necessary to seize real estate and bank accounts, as discussed below. Obtaining a writ of execution requires knowledge of the debtor’s assets upon which the writ can be “executed,” and, as a result, investigation is often required as a preliminary step. However, judgment creditors will have knowledge of judgment debtors’ assets as a result of going through the litigation process in some cases.
If a judgment debtor has facilities (or bank accounts) in multiple locations, it may be necessary to obtain multiple writs of execution—one for each relevant jurisdiction. Depending on the jurisdiction and the nature of the property seized, the property may be sold with the proceeds subsequently distributed to the judgment creditor, or the judgment creditor may have the option (or the obligation) to take possession of the property directly.
Sometimes, the risk of facing a writ of execution will be enough to convince judgment debtors to pay. However, it is also possible that a judgment debtor will choose to fight the judgment creditor’s request for a writ of execution. This can precipitate another legal battle, adding to the judgment creditor’s costs and further draining the debtor’s coffers. Thus, here too, a strategic and forward-thinking approach is required.
A levy is an enforcement tool used to collect a judgment from the debtor’s bank account. Levies are also obtained by filing for a writ of execution. Seeking a levy requires knowledge of both the name of the debtor’s bank and the individual branch where the debtor’s accounts are held. When seeking to collect from a judgment debtor’s bank account (or bank accounts), the writ of execution will authorize local law enforcement to issue a “notice of levy” to the judgment debtor’s bank, and then local law enforcement will take control of the assets in the debtor’s account (or accounts).
A judgment lien is another type of enforcement tool. Judgment liens are most commonly used to attach a claim to a judgment debtor’s real estate, though liens can be used to attach claims to equipment and other types of personal property as well. When a piece of property is encumbered with a lien, the lienholder (i.e., a judgment creditor) is entitled to payments from the proceeds of the sale of the encumbered property.
4. Charging Order
A charging order against a business is similar to a wage garnishment against an individual. Charging orders can be used to satisfy judgments against certain types of partnerships and limited liability companies (LLCs). With a charging order in place, the judgment creditor is entitled to payment from the judgment debtor’s income on an ongoing basis until the judgment has been satisfied. Oftentimes, it will make sense for a judgment creditor to seek a writ of execution, levy or lien in addition to seeking a charging order.
5. Settlement After Judgment
Another option that will make sense in some circumstances is to negotiate a settlement after judgment. If the costs of enforcement outweigh the benefits, then it may be in a judgment creditor’s best interest to negotiate a settlement that the judgment debtor is willing to pay voluntarily. Even once a judge has ruled in the judgment creditor’s favor, both parties still have a certain amount of leverage in this scenario, and from the judgment creditor’s perspective, negotiations at this stage should generally focus on maximizing the net benefits of securing a judgment at trial.
Dealing with a company that is unwilling (or unable) to satisfy a judgment after litigation can be a frustrating and potentially costly scenario. As a result, it is a scenario that is generally best avoided if possible. However, when dealing with contract breaches, commercial fraud and other similar types of issues, companies’ options will often be limited, and they will need to work closely with their counsel to make the best of the circumstances at hand.
Speak with a Commercial Litigation Attorney at Edelboim Lieberman Revah
Do you have questions about enforcing your company’s legal rights through litigation? If so, we invite you to contact us for more information. To speak with an experienced commercial litigation attorney at Edelboim Lieberman Revah in confidence, call 305-768-9909 or inquire online today.