Post-Judgment Collection: Stepping Into the Shoes of the Judgment Debtor in Claims Against Third Parties
2/24/2017
As seen in The Florida Bar Journal, March 2017, Volume 91, No. 3
The obvious, most efficient ways to collect on a money judgment are to garnish the judgment debtor’s bank account or negotiate a voluntary payment by the judgment debtor. Unfortunately, not all judgment debtors are so collectible or cooperative. When collection will be more of a challenge, the judgment creditor’s attorney must be creative and resourceful. One potential avenue for collection on a judgment may lie in the judgment debtor’s relationships with third parties. If the judgment debtor has a claim or potential claim against a third party, the judgment creditor may acquire the right to assert that claim against the third party, with limited exceptions. If the judgment debtor already settled that claim and is owed any settlement payments, the judgment creditor may have a right to garnish whoever is holding the funds, whether the third party or even the judgment debtor’s attorney. This article outlines caselaw governing the acquisition of a judgment debtor’s interest in claims against third parties as a means of collecting on a money judgment.
Acquiring a Chose in Action
The recent decision in MYD Marine Distributor, Inc. v. International Paint Ltd., 201 So. 3d 843 (Fla. 4th DCA 2016), illustrates how a judgment creditor can acquire a judgment debtor’s claim against a third party. Donovan Marine, Inc., obtained a final judgment against MYD Marine Distributor, Inc., for $550,000.1 MYD Marine was a plaintiff in an unrelated lawsuit for breach of contract and of the implied duty of good faith and fair dealing against a third party, Lauderdale Marine.2 After holding the judgment for 20 months and collecting only $120,000 on it, Donovan moved to institute a proceedings supplementary under F.S. §56.29.3 Donovan sought to acquire MYD Marine’s interest in the pending suit against Lauderdale Marine.4 Donovan asserted that the suit against Lauderdale Marine was MYD Marine’s only remaining asset and that it was subject to dismissal due to MYD Marine’s failure to prosecute it.5 The trial court granted Donovan’s motion for proceedings supplementary and ordered that Donovan would assume all right, title, and interest of the plaintiff in the suit against Lauderdale Marine and could prosecute the claim as if Donovan were the original owner of the claim.6
On appeal, MYD Marine argued that the transfer of the suit against Lauderdale Marine was inequitable because the amount of damages sought from Lauderdale Marine was “substantially greater” than the balance owed to Donovan on the judgment.7 MYD Marine argued that Donovan could “collusively settle” the suit for the amount owed on the judgment, and that such a result would deprive MYD Marine of the right to recover the balance of the claim against Lauderdale Marine.8
The district court affirmed and held that the trial court did not abuse its discretion in transferring the claim.9 The district court reasoned that §56.29 allows the court to order “any property” of the judgment debtor, not exempt from execution, to be applied toward satisfaction of the judgment.10 The district court stated that nothing in the record supported MYD’s argument that transfer of the suit would be inequitable.11
Critically, MYD Marine offered no evidence to the trial court of the actual value of the suit against Lauderdale Marine.12The district court disagreed with the notion that a pending lawsuit is so difficult to value that a court should give great weight to a plaintiff’s often inflated damages claim in a complaint.13 The district court concluded that Donovan could not collect on the judgment unless it succeeds in the suit against Lauderdale Marine and that on this record, the trial court did not abuse its discretion in ordering the transfer of the lawsuit.14
The court in MYD Marine cited to the decision in Puzzo v. Ray, 386 So. 2d 49 (Fla. 4th DCA 1980), in explaining the statutory basis for acquiring a claim from a judgment debtor.15 In a proceedings supplementary under §56.29, the court may order “any property” of the judgment debtor, not exempt from execution, to be applied toward satisfaction of the judgment.16 A “chose in action” is “property” within the meaning of §56.29(6) and is defined as a “personal right not reduced into possession, but recoverable by a suit at law…. A right to receive or recover a debt, demand, or damages on a cause of action ex contractu or for a tort or omission of a duty.”17
In Puzzo, the district court held that a potential claim for conversion of furniture and goods was “property” within the meaning of §56.29.18 The district court affirmed an order that authorized the judgment creditor to assert the judgment debtor’s claim for conversion against the third party.19 Puzzo provides authority for a judgment creditor to take over the right to a potential, as opposed to a pending, claim against a third party.
Practitioners can draw a few lessons from MYD Marine and Puzzo. The judgment debtor’s pending or potential claim against a third party is “property” that can be recovered in a proceedings supplementary by the judgment creditor in collection of the judgment. If the judgment debtor has not been aggressive in pursuing the claim against the third party, whether due to lack of financial resources or for some other reason, the judgment creditor may be better positioned to persuade the court to allow the assignment of the claim. In MYD Marine, the court allowed the assignment of the claim based in part on evidence that the claim against the third party was subject to dismissal for lack of prosecution, and the judgment creditor determined that claim to be the judgment debtor’s only remaining asset.20
Another lesson to draw from MYD Marine is that the value of the judgment as compared to the value of the claim against the third party can be relevant in whether to permit assignment of the claim. If the value of the claim far exceeds the amount owed on the judgment, the judgment debtor should provide that evidence to the trial court and argue that assignment of the claim to the judgment creditor would be inequitable. In MYD Marine, the judgment debtor failed to provide such a calculation, and the district court rejected the judgment debtor’s argument that the assignment was inequitable.21 The inference for judgment creditors is that if the value of the claim against the third party is less than the amount owed on the judgment, a court may be more inclined to permit assignment of the claim.
Limitations on the Right to Acquire a Chose in Action
Not all claims against a third party are subject to the reach of a judgment creditor in a proceedings supplementary. One category of claims that courts have refused to assign in proceedings supplementary are claims for “personal torts.”22Personal torts are personal to the claimaint and include claims for personal injuries due to assault and battery and slander or claims for legal malpractice.23 Personal torts are distinguished from claims for injuries to property, which are assignable in proceedings supplementary.24
In Craft v. Craft, 757 So. 2d 571 (Fla. 4th DCA 2000), the district court illustrated the distinction between personal torts and claims for injuries to property and declined to broaden the scope of nonassignable personal torts. The former husband asserted claims against his sons, his sons’ law firm, his former wife, and a daughter-in-law for fraudulent mishandling of business and financial interests.25 The former wife sought to acquire those claims from the former husband to satisfy an earlier judgment that she obtained against him.26 Although the former husband’s claims may have been “personal” to the extent he was suing family members, the district court held that the claims more closely related to injuries to property interests and affirmed the assignment of those claims to the former wife in a proceedings supplementary.27 Interestingly, as a result of the assignment, the former wife acquired claims against not only other family members, but also herself.
The court in Craft did not comment on the propriety of allowing the former wife to acquire a claim against herself. But the same court later addressed that issue, as an issue of first impression in Florida at the time. In Donan v. Dolce Vita Sa, Inc., 992 So. 2d 859 (Fla. 4th DCA 2008), the judgment creditor sought to acquire the judgment debtor’s separate arbitration claim that was pending against the judgment creditor. The trial court declined to allow the assignment to the judgment creditor, and the district court affirmed.28 The district court stated that §56.29 says that a judge “may,” not “shall,” order the assignment, and that proceedings supplementary are equitable in nature, thus, giving the trial court discretion.29 The district court agreed that it would be inequitable to allow the judgment creditor to acquire a claim against himself, allowing him to dismiss it without having the claim resolved on its merits.30
The court did not discuss how Donan was distinguishable from Craft. Nor did the court in Donan explain how the acquisition of a claim against oneself in exchange for satisfaction of a judgment would not be an equitable trade off. Perhaps if the value of the claim against the judgment creditor does not exceed the amount owed to the judgment creditor, the judgment creditor can persuade the court to permit the assignment. Nevertheless, Donan provides authority for a court to decline on equitable grounds to assign a “chose in action” to a judgment creditor in satisfaction of a judgment. In this way, Donan created another category of claims that a court may decline to assign in proceedings supplementary. In summary, both “personal torts” and claims against oneself are claims that courts have refused to assign in proceedings supplementary.
Garnishment of Settlement Proceeds
Sometimes, a judgment creditor may not learn of a judgment debtor’s claim against a third party until after that claim was resolved. In that case, the judgment creditor still may collect from the claim if it resulted in an obligation to pay a settlement to the judgment debtor. The first option may be to garnish the third party.31 If the third party has not yet paid the full settlement amount, the judgment creditor may garnish the third party to recover the unpaid balance of the settlement.32
If the third party paid the settlement amount, the judgment creditor should trace where those funds reside. Perhaps in a wishful attempt to protect settlement funds from the reach of a judgment creditor, a judgment debtor instructs the third party to pay the settlement funds into the trust account of the judgment debtor’s attorney. Fortunately for the judgment creditor, those funds are still subject to garnishment. In Arnold, Matheny & Eagan, P.A. v. First Am. Holdings, Inc., 982 So. 2d 628 (Fla. 2008), a judgment debtor settled a claim it had against a third party, resulting in the third party paying the settlement funds into the judgment debtor’s attorneys’ trust account. While those funds were in the trust account, the judgment creditor served a writ of garnishment on the attorneys’ law firm.33 The law firm disputed the writ of garnishment on the basis that a check had been issued to the judgment debtor on the trust account funds, thus, rendering the funds beyond the law firm’s control and, therefore, beyond the reach of the writ of garnishment.34 The Florida Supreme Court disagreed, holding that the funds were subject to the writ of garnishment, and that the law firm garnishee had a duty to stop payment of the check, if the writ of garnishment was served before presentment of the check for payment.35
Thus, even if the judgment debtor’s claim against the third party has been resolved, the judgment creditor would be wise to examine the terms of the settlement and whether the judgment debtor is owed any settlement payments. The judgment creditor can collect from the settlement by garnishing either the third party who has yet to make full payment or any other party who is obligated to pay the settlement or is holding the settlement funds on the judgment debtor’s behalf.
Conclusion
The recent decision in MYD Marine should remind practitioners of alternative ways to collect on a judgment when a simple bank garnishment or a voluntary payment will not suffice. The judgment creditor should analyze the judgment debtor’s past, pending, or potential claims against third parties and determine whether a proceedings supplementary or garnishment as to those third parties could be a source of collection.
1 MYD Marine Distributor, Inc. v. International Paint Ltd., 201 So. 3d 843, 843 (Fla. 4th DCA 2016).
2 Id.
3 Id.
4 Id.
5 Id.
6 Id.
7 Id.
8 Id.
9 Id.
10 Id.
11 Id.
12 Id.
13 Id.
14 Id.
15 Id.
16 Fla. Stat. §56.29 (2016).
17 MYD Marine Distributor, Inc, 201 So. 3d at 843, citing Puzzo v. Ray, 386 So. 2d 49, 50 (Fla. 4th DCA 1980). The court in MYD Marine and Puzzo cited to §56.29(5) as the source of the referenced statutory term “property.” Effective July 1, 2016, §56.29 was amended such that the referenced subsection is now §56.29(6). See §18, Ch. 2016-33.
18 Puzzo, 386 So. 2d at 50.
19 Id.
20 MYD Marine Distributor, Inc, 201 So. 3d at 843.
21 Id.
22 See, e.g., Mickler v. Aaron, 490 So. 2d 1343, 1344 (Fla. 4th DCA 1986) (affirming dismissal with prejudice of complaint to implead judgment debtor’s attorney to assert judgment debtor’s legal malpractice claim against the attorney).
23 Puzzo, 386 So. 2d at 50; Mickler, 490 So. 2d at 1344.
24 Puzzo, 386 So. 2d at 50.
25 Craft v. Craft, 757 So. 2d 571, 573 (Fla. 4th DCA 2000).
26 Id. at 572.
27 Id. at 573.
28 Donan v. Dolce Vita Sa, Inc., 992 So. 2d 859, 859 (Fla. 4th DCA 2008).
29 Id. at 861.
30 Id.
31 Fla. Stat. §77.01, et seq. (2016).
32 See Fla. Stat. §77.06(1) (“Service of the writ shall make garnishee liable for all debts due by him or her to defendant and for any tangible or intangible personal property of defendant in garnishee’s possession or control at the time of the service of the writ or at any time between the service and the time of the garnishee’s answer. Service of the writ creates a lien in or upon any such debts or property at the time of service or at the time such debts or property come into the garnishee’s possession or control.”).
33 Arnold, Matheny & Eagan, P.A. v. First Am. Holdings, Inc., 982 So. 2d 628, 631 (Fla. 2008).
34 Id.
35 Id. at 640.
