1 THE RESOURCE FOR BANkRUPTCY, COLLECTION AND DEBT RECOVERY Vol. 26 Issue No. 2 March/April 2011 Disentitlement of the Debtor from Judicial Proceedings DEFIANT TO THE END IN THIS ISSUE Partnering Effectively With Third-Party Collection Agencies Help decrease collection costs and increase your success rate by working together What You Need To know About Collecting Accounts In Canada
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4 contents Vol. 26 Issue No. 2 March/April 2011 Debt3 (ISSN ) is published bi-monthly by the Commercial Law League of America, 205 N. Michigan Ave., Suite 2212; Chicago, IL 60601; (312) POSTMASTER: Send address changes to Debt3, 205 N. Michigan Ave., Suite 2212, Chicago, IL Periodicals postage paid at Chicago, Illinois and additional mailing office. Copyright 2011 by the Commercial Law League of America. Permission to reprint materials in Debt3 may be granted on written request to the editor at the Commercial Law League offices. The views and conclusions expressed in articles are those of the authors and are not necessarily those of the Editorial Board or of the Commercial Law League of America, nor should any advertisement be considered an endorsement of the product or service involved. The price of an annual subscription to members of the Commercial Law League of America ($18.00) is included in their dues. Annual subscription to others is $65.00 per year in the U.S. and Canada, $70.00 elsewhere. Single copy price is $ Write the Commercial Law League of America, 205 N. Michigan Ave., Suite 2212; Chicago, IL 60601; (312) Features: 8 Disentitlement Of The Debtor From Judicial Proceedings: Defiant To The End Encouraging payment through disentitlement. By David Cook, Cook Collections Attorneys, PLC 1 5 Is Your Collection Agency Collecting Accounts In Canada? Find out if registering in Canada makes sense for your organization. By Richard Payne of Morrison and Payne Barristers and Solicitors 1 8 Do Your Clients Partner Effectively With Third- Party Collection Agencies? Help decrease collection costs by working together. By Robert S. Shultz, partner, Quote to Cash Solutions (Q2C) LLC ABC Specialist 21Appointed Bankruptcy Judge Creditors Rights Specialist Ronald H. Sargis was appointed bankruptcy judge to the United States Bankruptcy Court for the Eastern District of California in Sacramento. By Robert L. Pollak, Esq. of Glassberg, Pollak and Associates Industry information: 6 Legal News Round-Up Find out the latest legislative news from Washington! Tales From 25 The Front This issue, Timothy Wan shares a tale of tuition, repeated requests for adjournment and a case that extended for more than 17 months. LEAGUE NEWS: 5 The President s Page Read CLLA President Gary Weiner s farewell column! 27 Viewpoint Social networking can help you connect with acquaintances you already know but when it comes to making new contacts, there s no replacement for meeting face-to-face. 28 CLLA Flashback Find out the background on the famed CLLA gavel. Member news: 23 Newly Admitted Members Find out who joined the CLLA in January and February! 24 Member News The latest news from CLLA members around the globe
5 Membership Application Applicants Must Complete Areas A-D. Please Type or Print Clearly. Preferred mailing address Office Home A Date of Birth / / Name (This membership is individually based. No firm/corporate memberships.) M D YR Home Address (CLLA will not publish unless indicated) City/State/Zip Code (5 + 4) Firm/Company/School Name Firm/Company/School Address City/State/Zip Code (5 + 4) Work Phone Fax Home/ Mobile Phone Website (URL) Referred By: (CLLA Member) City/State/Zip Code Bar Jurisdiction(s) Bar Number(s) Date(s) Law School Name City/State Graduation Date Please indicate your main practice area (s) here Indicate the size of your firm/company (please check number of employees ): Does majority of your practice focus on commercial litigation? Yes No American Board of Certification Yes I am ABC certified. B Membership (please choose type) C Dues Please indicate your profession: Lawyer $480 Commercial Collection Agency Representative $480 Debt Buyer $480 Law List Publisher $480 Paralegal, Collector, Office Administrator in a firm $480 Turnaround Manager $480 Vendor $480 OTHER $480 If you do not see a category that fits your desired membership profile, please select OTHER and enter category. Subject to approval by CLLA Officers. I. Practice Section Membership (Please indicate) (1 section complimentary, each additional for $50) Bankruptcy Section Creditors Rights Section ***Please include additional section payment into total amount, if selected. SPECIAL STATUS Eligibility & Rate Dues Special Emerging Professional Rate $130 ONLY APPLIES TO U.S., Canadian and International Applicants under 31 years of age or admitted to bar under 6 years (4 year limit) Law Professor/Teacher $50 Editor, Legal Periodical $50 Law Clerk $50 Law Student $25 Judge U.S.Trustee (not private trustee) Waived Waived Additional Contributions (OPTIONAL) Fund for Public Education 501c(3) $30 Items included in membership fee: *National Membership *Regional Membership * One Section Membership *Subscriptions to Debt3 Magazine & *The DePaul Business & Commercial Law Journal *Young Members Section Membership (if eligible) D Enclosed check for $ (Please make all checks/ money orders payable in U.S. dollars and drawn on a U.S. bank to: Commercial Law League of America ) I authorize you to charge $ to my: VISA MasterCard AMEX Signature of Applicant Date Account Number Expiration All applicants must remit one full year s dues with application based on eligibility status. Dues are applied as of and prorated to the date application is received. Your name will be published as an applicant for membership the date it is received and the period for objections to be filed, extends to the end of the calendar month following the date of publication. If no objection is received by that time, you will become a full member of the League and will be sent your New Member Information Packet and online access information. Send first year s dues and completed application to: Commercial Law League of America, 205 N. Michigan Avenue, Suite 2212, Chicago, IL Phone: (312) Fax: (312) Website:
6 about clla Vol. 26 Issue No. 2 March/April 2011 meeting notices Strategic Planning & Leadership Conference Washington D.C. Aug. 5-7, 2011 Western Region Meeting Universal City, Calif. Sept. 16, 2011 CLLA Annual Breakfast & Education Program at the National Conference of Bankruptcy Tampa, Fla. Oct. 13, st Annual New York Meeting New York Nov , nd Annual New York Meeting New York Nov. 8-11, 2012 officers and board of governors President Gary Weiner, Springfield, Mass. President-Elect James Beau Hays, Atlanta, Ga. Treasurer Murray S. Lubitz, White Plains, N.Y. Recording Secretary Mark J. Bressler, Edison, N.J. Immediate Past President Ernest Rick Thomas III, Cincinnati, Ohio Board Members Robert A. Bernstein, Charleston, S.C. Alan I. Nahmias, Woodland Hills, Calif. Ivan Jac Reich, Fort Lauderdale, Fla. Jeffrey Schatzman, Miami, Fla. Joseph Terkell, New City, N.Y. Frederic I. Weinberg, Conshohocken, Penn. Warren Pinchuck, Boca Raton, Fla. Marc Hirschel, Lakeville, Conn. Deborah Kanner Ebner, Chicago, Ill. Mark J. Sheriff, Columbus, Ohio Bruce Godwin, Boca Raton, Fla. David Mendelson, Memphis, Tenn. Executive Vice President Oliver P. Yandle editorial staff Board of Associate Editors David A. Rubin, chair, Toronto, Ontario Nancy B. Hamilton, vice chair, Cleveland, Ohio Lawrence C. Brown, vice chair, Buffalo, N.Y. Neil S. Abbott, Toronto, Ontario Richard G. Baumann, Los Angeles, Calif. John M. Birk, law list publisher representative, Gainesville, Fla. David Cook. San Francisco, Calif. Nicholas Krawec, Pittsburgh, Penn. Brenda A. Majewski, Creditors' Rights Section representative, Milwaukee, Wis. Lee M. Mendelson, Van Nuys, Calif. Louis S. Robin, Longmeadow, Mass. Robert Schatzman, Miami, Fla. Editor Oliver P. Yandle Design/Publication Consultants Newcomb Solutions Publishing/Marketing Coordinator Erin Brereton Editing Director Joshua Greene Contributing Editors David Franklin, Montreal, PQ Steven A. Frieze, London, England Harry Greenfield, Cleveland, Ohio Nicholas Krawec, Pittsburgh, Penn. Joseph A. Marino, Clifton, N.J. Timothy Wan, Commack, N.Y. Young Members Representative CLLA Core Purpose: To be the leader in providing legal, educational and professional services to the business and credit communities. CLLA Core Values: We provide service and value through competence, ethics and professionalism. We foster relationships. We create business and leadership opportunities. We provide high quality education. We are the leader in our industry. League members and other readers are invited to submit previously unpublished articles on commercial practice or topics relating to the general practice of law. Articles should be submitted electronically via . The preferred format is Microsoft Word or plain text. WordPerfect is accepted but not preferred. All articles will be reviewed. Send articles to Manuscripts can be sent to Attn: Editor, Debt3 Magazine c/o Commercial Law League of America; 205 N. Michigan Ave., Suite 2212; Chicago, IL CLLA can be reached at or toll free at
7 president s page President, Commercial Law League of America moving forward with our vision This is my last president s column, and while I can say I find it hard to believe a year has gone by so quickly, in reality, I can say I wish I had accomplished more in my short term. When I started, the League had gone through a consolidation of finances, which was aimed at providing more clarity in how we as an organization operate. We have been able to accomplish that feat and clearly now see how our expenses effect the bottom line throughout our regions and not limit those opportunities to only our organization. We have made progress with our own internal disputes, and while we clearly did not solve all of the issues within our family, I would like to think we are moving in the same direction now. The future for the CLLA, in my opinion, is bright, and as I have said in previous columns, I am much more of a half-full than half-empty type of person. I believe the path that we have begun through the strategic plan in expanding our market place to include practice groups made up of attorneys whose areas of expertise are outside commercial collections and bankruptcy has opened up area of growth which will benefit all of our existing members and our new members, as well. Organizations that fail to grow and adapt to the changes in the marketplace will be left behind. As many of you know, senior to me in terms of length in this organization, we have not adapted well in the past, and as a result, we were left behind on some major changes in our industry as other sister organizations have thrived in membership growth. We are truly unique, which I have seen as I have worked my way through other conferences and organizations, and the strength that we have based on friendship, business and education is something that others may try to follow, but they do not have our foundation. We must make sure that our foundation stays strong as we expand our membership. I am truly excited about the growth in the practice group area, and the efforts of our membership and staff have succeeded in creating new opportunities in the League for complex litigators and construction attorneys. We hope to expand programs for transactional attorneys and landlord/tenant practitioners, as well. Now as we go down this path, we expect this to provide opportunities for our regions to put on half-day or one-day educational programs aimed at a specific practice group. The goal here will be to allow us to bring the CLLA to your neighborhood, and the program will be deemed a success by introducing the CLLA to new members and providing both educational and networking opportunities close to your own home. While these oneday programs will be open to the League membership, we do not envision these to compete with our fall and spring conferences. In my year as president, we will have put on programs in all five regions for the first time in more than five years, and I hope that we will continue with these programs. CLLA means business and this is a way for us to provide education and networking opportunities throughout our regions and not limit those opportunities to only our fall and spring conferences. As part of the strategic plan (Vision for 2015), we have reviewed the fall and spring conferences and recognize that these conferences have to be revamped and analyzed from a membership and cost basis. Are we providing what our members want? Is it time to investigate other locations? Making changes can be hard sometimes, but failing to react to the need to make changes can be far worse. Additionally, it is quite clear that we need to provide a proper mechanism to implement the goals of the strategic plan. I believe that the Board of Governors has to become the driving force in insuring that the plan becomes a reality and to insure accountability for the plan. We are very fortunate in that we have a strong League office, which is supported by TSO. In this past year, I have had the pleasure to work with Oliver Yandle, the League s executive vice president, along with Meghan Flesch, our education director, and Marisa Pochter, our director of membership and administration. We have all had to go through some learning curves, but I cannot emphasize enough their dedication to see the CLLA succeed. They are professionals who know how we can succeed, and they know they need the members support and efforts to see us move forward. I have also worked very closely with Immediate Past President Rick Thomas and President-Elect Beau Hays, and their efforts and dedication to this League are immense. I greatly appreciate their guidance and support over the last year. I know one thing that the League is in great hands moving forward, as I expect great things from Beau over the next year. I thank you all for giving the me privilege of serving as president of this great organization, and I hope that my contribution over the last year continues us on the course to success as we move forward in the vision for Gary Weiner is managing shareholder at Weiner & Lange P.C. in Springfield, Mass. After receiving his B.S. from Syracuse University and his J.D. from Suffolk University Law School, Weiner was admitted to the bar in Massachusetts in He has served as CLLA recording secretary, Board of Governors attorney-atlarge, New England Region chair and Young Members Section board representative and chair. Weiner s affiliations include the American Bankruptcy Institute, American Bar Association and the National Association of Bankruptcy Trustees. He also is a past chair of the Hampden County Bar Association New Members Section and is the former president of the Longmeadow Softball Association. 5
8 legal news round-up Keep Current With Industry-Related News From Around The U.S. COURTESY Of OUR WASHINGTON HOT NEWS CORRESPONDENT DAVID GOCH 6Debt3 March/April 2011 DEBT COLLECTION RANkS 2ND ON FTC COMPLAINT LIST For the 11th consecutive year, the leading consumer complaint category in 2010 was identity theft, garnering 19 percent a total of 250,854 of the complaints received, according to a recently released FTC report. Debt collection was the second consumer complaint category, accounting for 11 percent of complaints. COURT SAYS ABA SUIT QUESTIONINg FTC RED FLAgS RULE ISN T VIABLE In early March, the U.S. Court of Appeals for the District of Columbia Circuit ruled (ABA v. FTC D.C. Cir., No /4/11) that the American Bar Association s challenge to the scope of the FTC s red flags rule had been rendered moot by the recent legislative fix. The ABA and FTC disagreed over whether the FTC s rule, requiring creditors to implement identity theft prevention programs, could be applied to attorneys. Based on the Red Flag Program Clarification Act (Pub. L. No ), the court said that the FTC s previous assertion that the rule s definition of creditor includes all entities including law firms and health care providers that regularly permit deferred payments for goods or services is no longer viable. The ABA complaint was remanded to the U.S. District Court for the District of Columbia with instructions to have it dismissed. SENATE PASSES 1099 REPORTINg OBLIgATIONS REPEAL The Senate passed a repeal of the new IRS Form 1099 information reporting requirements as part of S. 223, legislation reauthorizing federal aviation programs, in late February. Lawmakers had adopted the repeal of the Form 1099 rules, enacted under the health care reform law, as an amendment to the FAA bill. The Senate voted 87-8 to pass the underlying Federal Aviation Administration Reauthorization measure. House Ways and Means Committee Chairman Camp (R-Mich.), following the markup of two standalone 1099 repeal bills (H.R. 4, H.R. 705), said he hopes to proceed via a conference between the two chambers. As of press time, the House planned to begin the debate about repealing the 1099 rules as early in late February/early March. BANkRUPTCY FILINgS FOR 2010 REACH 5-YEAR HIgH Bankruptcy filings for the 2010 calendar year rose 8 percent to a 5-year high, according to recently released Administrative Office of the U.S. Courts statistics. A total of 1,593,081 bankruptcy filings occurred in 2010; in 2009, 1,473,675 bankruptcies were filed. In 2010, business filings totaled 56,282 a 7 percent decrease from 2009 s 60,837 filings. Non-business bankruptcy filings totaled 1,536,799 in 2010, a 9 percent increase from 2009 s 1,412,838 filings. Chapter 7 filings totaled 1,139,601 in 2010, increasing 8 percent from 2009 s 1,050,832. Chapter 11 filings totaled 13,713 in 2010, a 10 percent decrease from 2009 s 15,189 filings, and Chapter 13 filings totaled 438,913 in 2010, an 8 percent increase from 2009 s 406,962. NEW YORk FED: BAPCPA LED TO FORECLOSURE INCREASE The Bankruptcy Abuse Prevention and Consumer Protection Act (Pub. L. No ), enacted in 2005, has contributed to an increase in subprime mortgage foreclosures, according to a recently released Federal Reserve Bank of New York report. The report found that the act helped the number of foreclosures grow because it disallows some borrowers from discharging unsecured debt, thus restricting cash flow that could be used to meet mortgage obligations. The report also concluded that BAPCPA s means test prohibits some relatively better-off households that are facing financial duress from filing for Chapter 7 protection which makes it relatively easier to discharge some unsecured debts, providing homeowners with more cash to pay their mortgage and other secured debts. Many instead file for Chapter 13 relief. REED CASE granted REHEARINg EN BANC The Fifth Circuit agreed to grant an en banc rehearing in Reed v. City of Arlington in late February. On behalf of the CLLA, the law firm of Barron Newburger & Sinsley filed an amicus curiae requesting such a rehearing. This case held that judicial estoppel could be applied against the trustee based on the debtor s failure to disclose an asset. The oral argument will be the week of May 23.
9 INTRODUCING COLLECTMAX VERSION 5 NEW Home Screen Design NEW Debtor and Client Screens NEW Data Tracking and Export Capabilities NEW Enhanced Litigation Management NEW Scanning and Reporting Options NEW Accounting Spreadsheets NEW Quick Links to Account Details CollectMax, the collections software preferred by hundreds of law firms nationwide, is now even better. To learn more, go to collectmax.com or call CLLA : Chicago, IL : April 12 17, 2011 NARCA : Chicago, IL : May 12 14,
10 Disentitlement of the Debtor from Judicial Proceedings DEFIANT TO THE END BY DAVID COOK COOK COLLECTIONS ATTORNEYS, PLC Encouraging Payment through Disentitlement 8Debt3 March/April 2011
11 Ray Charles taught us disentitlement: Hit the road, Jack, and don t you come back no more, no more, no more, no more. 1 Disentitlement offers the nuclear 2 remedy to compel payment, if possible, from the recalcitrant debtor and, like Jack in Ray Charles wonderful song, hits the road. This article is a primer on civil disentitlement. Imagine the following scenario: The plaintiff wins a diffi cult case against the defendant 3 (now the debtor), who refuses to pay the judgment. The debtor fi les an appeal but declines to post a bond. 4 The plaintiff freely enforces the judgment but lacks quality information that identifies worthwhile assets subject to enforcement. State law remedies enable the plaintiff to compel the defendant to make broad asset disclosures. 5 These remedies consist of a faceto-face examination labeled a debtor s examination under oath and transcribed by a court reporter. 6 These courtroom sessions feature the hyper-aggressive enforcement attorney extracting information from the insolent, if not arrogant, debtor. 7 ( What? You do not remember your bank account. You got three seconds before I haul you in front of a judge and cite you for contempt. Five days in the clink 8 for every question that you dodge. Maybe you might cool your heels in the county cooler until you tell me. Shall I hit the reset button and we start again? ) Tragically, amnesia afflicts most judgment debtors. Might this tactic work? Can the plaintiff expect the debtor to disclose the hidden assets or even answer written discovery? A fantasy if the plaintiff believes that the debtor will hand over the keys to the kingdom. This remedy is a dud. Maybe. Whether a face to face chest bumping or through written discovery, the debtor is the sphinx. Hoarding assets that are hidden or fraudulently conveyed, the debtor hides from the process server 11 or sheriff or refuses to answer the answer the written discovery. Expect dead silence. THE END game OF THE DISCOVERY DEFAULT Confronting the debtor s recalcitrance and the anticipated discovery default, the plaintiff moves the court for a bench warrant, an order compelling the debtor to appear in court or face incarceration in the county jail. If discovery consisted of interrogatory and a document request, the creditor moves for an order compelling the written discovery and of course monetary sanctions. As chaotic and fruitless a debtor s examination might be, the debtor appears in court and provides some information, even his or name. 9 At a minimum, the debtor is alive and well, or at least present in the flesh. If the debtor is inaccessible, the creditor has other options. For example, if the debtor is offshore or evasive rending a personal appearance unlikely, the plaintiff can serve postjudgment interrogatories and a document request. 10 Without surprise, the defendant refuses to comply with any order. The defendant dodges the sheriff serving the bench warrant or absconds from the jurisdiction, or ignores the order compelling responses to the written discovery. Discovery is DNR. 12 In the face of this obstruction, the judgment degrades into wallpaper because the plaintiff is bereft of valuable information revealing assets. Worse, the plaintiff is stuck 9
12 The most famous (and recent) case is Polanski v. Superior Court, where, after pleading guilty to sexual assault charges, Roman Polanski fled to france, fearing that he would be given a long prison sentence. Polanski claimed significant errors by the judge. battling an unbonded appeal that is costly and sometimes unpredictable. Sometimes the appellate bench focuses on errors and mishaps commissioned by counsel and even recasts the appellate process as a teachable moment. 13 Call these moments: Tough love, Exemplars of the trial court going off the tracks, Attention to details is a homily easily forgotten, Counsel high-jacking the jury or Due process in the rear view mirror. These risks, although rare, always loom large, but any plaintiff, facing a well-written appeal, should consider that no trial is perfect. Every trial has many many moving parts. 14 Some parts might have been left on the judge s editing floor, such as due process. Summarily dumping the appeal is in today s nomenclature, a good thing. FRAUDULENT CONVEYANCES METASTASIZE With a big dollar judgment in hand, and absent successful prejudgment relief, the plaintiff anticipated 15 that the defendant fraudulently conveyed everything he or she had during the case or near judgment. 16 More elaborate schemes are the transfers of the business to a series of limited liabilities companies that warehouse the inventory, receivables or fixed assets. Try encumbering the business with 20 to 100 (no exaggeration here) financing statements (UCCs) bearing offshore or non-existent entities as secured creditors (controlled by the defendant s principal) encumbering all assets of the defendant. 18 This list barely gets the plaintiff through the hors d oeuvres of pre- and post-asset protection machinations in the face of a large and inevitable judgment. With some rational information 19, the judgment creditor files a fraudulent conveyance action to recover the property or actually enforces the judgment against the property. In either setting, the fraudulent conveyee and even the debtor appear and defend the fraudulent transfer. The debtor claims that the transfer is bona fide, lacked the requisite intent to hinder, delay or defraud, or that transfer occurred many years ago and therefore outside the statute of limitations. No matter the defense but lacking post-judgment disclosures from the defendant, the plaintiff is severely handicapped in piercing these fatuous claims. Worse, the plaintiff bears the affirmative of proof to prove-up a fraudulent conveyance. 20 DISENTITLEMENT LIFTS THE VEIL OF ASSET PROTECTION Is the plaintiff at the bottom of the well? Has the investment in the case tanked because the defendant defeats enforcement by stonewalling post-judgment discovery? Worse, does the plaintiff forfeit any chances to grab secreted assets because the defendant refuses to provide key information that is paramount to proof at trial? The answer is no, and the remedy to combat risk of reversal or scourge of fraudulent conveyances is disentitlement. 10 These conveyances are the transfers of valuable real property to family members. The debtor creates offshore dummy entities to warehouse bank and securities accounts. How about the new minted LLCs that enable the debtor to open safe deposit boxes that contain (no kidding, folks) gold bullion or coins? Try the simple retitling of property from community property (or jointly held) to separate property of a spouse. 17 THE SWISS guide TO DISENTITLEMENT The starting premise is that civil disentitlement ousts the defaulting defendant from participating in an appeal from the underlying judgment 21 or ensuing post-judgment proceeding. How do we score disentitlement? What is disentitlement? Disentitlement precludes the
13 debtor from participating in judicial process, such as dismissing the appeal. However, disentitlement is more than just bouncing the appeal. The court can disentitle the defendant from participating at the trial court level or filing. The basis is that the defendant has defaulted on a post-judgment discovery order, dodged process servers and marshals, violated an order impounding property or forbidding the transfer of property, or any other conduct that constitutes an affront to the court. 22 Disentitlement is a well-known, well-understood established remedy in the criminal justice system. Typically, disentitlement arises from the criminal defendant who has been convicted but flees the jurisdiction before sentencing but still prosecutes the appeal. 23 The most famous (and recent) case is Roman Polanski vs. Superior Court, 24 in which the movie director, after pleading guilty to sexual assault charges, fled to France, predicated upon his belief that the trial court would hand down a long prison sentence. Polanski asserted significant errors by the judge, but the court upheld, in part, disentitlement predicated upon the adage that the appellate cannot seek the benefits of the judicial system on one hand but defy lawful orders and judgments on the other hand. 25 INCREMENTAL DISENTITLED Disentitlement is more than all or nothing but an incremental remedy available to the courts to protect the adverse party from prejudice arising from the defendant s absence from the jurisdiction. The key case is Degen vs. United States. 26 The defendant was facing both criminal charges (manufacture and distribution of marijuana) and civil forfeiture proceedings (monies and funds from the criminal activity. The defendant fled to a no-extradition county, and the government moved for disentitlement at the trial court level, which the court ordered. The Supreme Court reversed and held that disentitlement under those facts was too blunt an instrument and ordered the district court to consider more incremental remedies. 27 These incremental remedies would include traditional discovery sanctions for the uncooperative party under FRCP 37, trial management orders potentially as an in limine order, or other remedies available to any trial court in the management of a trial. 28 These remedies would be a measured response, or better stated as incremental (i.e., Degen incrementalism ) in minimizing the prejudice suffered by the plaintiff based on uncooperative conduct of the defendant. 29 DISENTITLEMENT IN APPEALS FROM MONEY JUDgMENTS In civil cases, disentitlement authorizes the appellate court to dismiss the appeal by the defendant. Both federal and state case law is replete with the dismissal of appeals precipitated by the defendant (appellant) default in discovery and refusal to comply with the discovery order compelling discovery. In TMS vs. Aihara 30, the California court of appeal dismissed the appeal of the defendant (appellant) who refused to respond to post-judgment interrogatories, seeking the disclosure of In civil cases, disentitlement authorizes the appellate court to dismiss the appeal by the defendant. There are numerous federal and state cases where defendant s (appellant s) discovery defaults preceipitate the dismissal of appeals based on the refusal to comply with court orders.
14 assets, and refused to comply with the ensuing discovery order. The court dismissed the appeal predicated upon the defendant s defiance of the order and held that the defiance was an affront to the court. This case is useful in setting down a clear, well-understood marker that defiance of the post-judgment discovery order disentitles the defendant to appellate relief. In Empire Blue Cross and Blue Shield vs. Finkelstein 31, the Second Circuit upheld the dismissal of the appeal by the defendants who dodged service of the postjudgment examination order, dodged service of the U.S. Marshal serving a bench warrant and absconded from the jurisdiction. 32 This case was handed down post Degen that limited federal disentitlement to the most egregious in which the court affirmed the dismissal based on what amounts to be classic avoidance tactics initiated by many debtors to avoid payment. In Goya Foods Inc. vs. Ulpiano-Unanue Casal etc., 33 the court upheld disentitlement based on defiance of post-judgment discovery, transferring property subject to restraining orders, repetitive and meritless claims and appeals, and other contemptuous conduct. INCREMENTAL DISENTITLEMENT AT THE TRIAL COURT In a fraudulent conveyance action, disentitlement is an incremental and evidentiary remedy. In nearly all fraudulent conveyance actions based hinder, delay and defraud, the judgment creditor must prove the debtor s state of mind. 34 Proof is usually circumstantial. 35 The fact that the defendant (qua debtor) defaulted in failing to respond to post-judgment discovery and defied the order compelling discovery is proof that the defendant is engaging in a campaign to avoid payment by concealing assets. Refusing to reveal property is an act of concealment 36 of the property that is one of the key badges of fraud. This is strong circumstantial proof. The fact that the defendant refuses to make asset disclosures, and refuses to comply with a discovery order, concealing the property itself, is evidence of ill will, malice and hatred and support a the intent to hinder, delay and defraud finding. The order itself and the underlying postjudgment discovery, while hearsay on it s face, is admissible as an evidence of a refusal to pay, and the order is admissible under the request for judicial notice standards. The order itself is even collateral estoppel in the ensuing proceedings The better question is whether the discovery order can disentitle the conveyor (the defendant) and the conveyee from defending the fraudulent conveyance and strike their opposition. Degen incrementalism answers that question. 38 In the fraudulent conveyance action, the defendant claims a bona fides transfer. The
15 defendant denies the intent to hinder, delay and defraud, claims solvency, or asserts pre-suit estate, trust, or tax planning as the justification for the transfer. The defendant and transferee deny knowledge of claims against the defendant. 39 How can the defendant have the intent to hinder, delay and defraud without knowledge of the claim? The discovery order and discovery itself provide information that would undermine these claims. Given that defendant is probable sole repository of these facts, the court can disentitle the defendant from defense to the fraudulent conveyance claims through a discovery sanctions, 40 limine order, or estoppel relief. The court would find that that discovery obstruction constitutes both an admissions of concealment of assets, and impediment to plaintiff s burden to show intent to hinder, delay and defraud. If the defendant will not talk, and the battle focuses on defendant s state of money, the presumption is that he possessed the requisite intent and is barred from claiming to the contrary.while an evidentiary order is not the same as disentitlement from the proceeding per se, nonetheless, the court finding that the defendant transferred the property with the intent to hinder, delay and defraud assures that the plaintiff has proven its own cases. The balance of the case is subject to the affirmative defenses of the conveyee defendants. 41 The transfer of property by a debtor without fair and equivalent consideration rendering the debtor insolvent or insolvent at the time is another form of fraudulent conveyance. 42 Confronted with the defiant conveyor defendant, the court would bar evidence of the defendant s financial condition and find that the willful refusal to respond to discovery is an admission 13
16 that the defendant was insolvent or rendered insolvent as a result of the transfer. This is another form of incremental disentitlement. SUMMARY: DISENTITLEMENT AS THE NUCLEAR OPTION The plaintiff has won, but the defendant announced his or her intention to decline payment but appeal the judgment. The defendant has probably committed multiple fraudulent conveyances. Further litigation is in the offing. The plaintiff bemoans the fact that the cause has assumed a life of its own, without any promise of payment and becomes disenchanted with the never ending process and escalating fees. Disentitlement addresses the client s concerns. Disentitlement at the appellate and trial court level could quash the appeal or expedite the fraudulent conveyance action. Short-cutting the appeal or shorting the fraudulent conveyance action brings justice to the plaintiff a little sooner than later and might rompt payment of the judgment. 1 Performed by Ray Charles, ABC label, Hit the Road, Percy Mayfield, writer. 2 The non-nuclear option is the Daisy Cutter. Non-nuclear device upon detonation clears entire landing zone, hence, cuts the daisies. 3 For purpose of clarity, the debtor is cited as the defendant. 4 The debtor is entitled to an automatic 14 days under FRCP 62(a) and discretionary stay under Rule 62(d). Most states authorize enforcement absent a perfected appeal. (bond and notice of appeal). California Code of Civil Procedure Section 917.1(a). Federal discretionary stays require assurances that the defendant will not evade payment if the appeal is lost. See generally Federal Prescription, Inc. vs. American Pharmaceutical Association etc. 636 F. 2nd. 755 (DC, CA, 1980) 5 FRCP 69(a)(2) permits the judgment creditor to use remedies available under Rules or discovery permitted by the law of the state where the district court sits. 6 C.C.P. Section (a)(a) The judgment creditor may apply to the proper court for an order requiring the judgment debtor to appear before the court, or before a referee appointed by the court, at a time and place specified in the order, to furnish information to aid in enforcement of the money judgment. 7 We call this blood on the walls moment. 8 12th Century English jail. Recently brought back in Shakespeare in Love by actor Geoffrey Rush. We will all be in the clink. 9 What is your name? Bob Jones Were you born with that name? No. What is your birth name? Robert Jones, Jr. Is that the name that appears on your driver s license? Yes. Let me see your driver s license. Do we have a problem, Houston? Yes, we do, because the writs and abstracts must reflect the real, and not the abbreviated name of the debtor. The debtor uses his birth name, as reflected on the driver s license, to open a bank account. The wrong name in the judgment shields the debtor s assets from enforcement. 10 Post-judgment interrogatories and document request, or the order should appear, should be launched as soon as possible after judgment. Service of the Order to appear creates a lien upon the debtor s personal property. C.C.P Section (d). 11 Knock, knock, Is Mr. Jones at home? Who are you? I have legal papers. What legal papers? Legal papers that says he needs to show up in court. Really? Yeah, Really. [Silence.] What case? Well, the case he lost, what do you think? He doesn t live here. Wrong address, buddy. 12 Do not resuscitate. Common for the terminally ill. 13 Seaman s Direct Buying Serv., Inc. v. Standard Oil Co., 36 Cal. 3d 752, infuses tort liability into a breach of contract and upset settled expectation in commercial contracts for years. 14 A throwback to the analog age. 15 This anticipation is rational. The purpose of a fraudulent conveyance is to increase the expense of reaching an asset and dissuading the creditor from taking further action, given the financial barrier. The more elaborate, even though absurd, fraudulent conveyance, the greater expense to unwind. 16 Fraudulent conveyance law starts with Statute of Elizabeth 13 from the reign of Queen Elizabeth the first. The Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act, Bankruptcy Code Section 548, and resulting trust claims embody modern fraudulent conveyance law. 17 A colorful case is In re Marriage of Dick, 15 Cal App. 4th 144, (Cal. App. 2 Dist 1993). It is well settled that a trust created for the purpose of defrauding creditors or other persons is illegal and may be disregarded. [Citation omitted] This rule has been applied to the creation of trust where the grantor s intention was to prevent his wife,..., from reaching the property. [Citation omitted] The rule regarding fraudulent corporations is equally well-settled: When a corporation is used by an individual or individuals, or by another corporation, to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, a court may disregard the corporate entity and treat the acts as if they were done by the individuals themselves... [Citation omitted] Thus, the court below was entitled to look past the apparent form of ownership in which husband s assets were held to determine the extent of husband s true interest in them and the availability of those assets in assessing husband s ability to pay. [Citation omitted] 18 The Internet, and treatises, abound with asset protection schemes. Accountants and attorneys peddle these fee driven schemes (priced in the $10,000 to $50,000 range) 19 Fraudulent conveyance actions are a species of fraud and probably subject to the higher standard of pleading found in FRCP 9(b) In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person s mind may be alleged generally. 20 The plaintiff bears the burden of proof of a fraudulent conveyance. See Whitehouse vs. Six Corporation 40 Cal. App. 4th 527, (Cal App 2 Dist, 1995) 21 Polanski vs. Superior Court 180 Cal. App. 4th 507, (Cal. App 2nd Dist. 2009) ( Polanski ) 22 The most illustrative case is Blue Shield vs. Finkelstein 111 F. 3rd. 278, (2nd Circuit, 1997) 23 Polansk, Id. 24 Polanski, Id. 25 Polanski, Id., p Degen v. United States (1996) 517 U.S. 820, 824 [135 L.Ed.2d 102, 116 S.Ct. 1777] (Degen) [Superseded in the civil forfeiture proceedings by 28 U.S.C. 2466] 27 Degen, Id., p Degen, Ir., p Id. 30 TMS vs. Aihara 71 Cal. App. 4th 377, 379 (Cal. App. 2 Dist, 1999). 31 Empire Blue Cross and Blue Shield vs. Finkelstein 111 F. 3rd. 278, (2nd Circuit, 1997) 32 Empire Blue Cross at p Goya Foods Inc. vs. Ulpiano-Unanue Casal 275 F.3rd. 124 (2nd Circuit, 2001) 34 Civil Code Section (a) 35 Neumeyer vs. Crown Funding etc. 56 Cal. App. 3rd. 178, 183 (Cal. App. 1 Dist, 1977) Because of the difficulty of direct proof of actual intent to defraud creditors, in most cases the evidence must of necessity consist of inferences drawn from the circumstances surrounding the transaction and the relationship and interests of the parties. 36 See Civil Code Section (b)(7) as badge of fraud: Whether the debtor removed or concealed assets. 37 Parklane Hosiery vs. Shore 439 U.S 322 (1979) 38 Degen rejected disentitlement as the blunt instrument but provides alternative means to protect the adverse party from prejudice. Degen at See e.g., safe harbor defenses found in Section (a) safe harbor available to the transfer who receive the property in good faith and pays fair and equivalent consideration. Annod vs. Hamilton & Samuels 100 Cal. App. 4th 1286, (Cal. App. 4 Dist 2002) 40 FRCP 37(b)(2)(A)(i)-(vii) 41 See note This is constructive fraud. See Civil Code Section
17 Is your collection agency collecting accounts In canada? find out if registering in Canada makes sense for your organization. By richard Payne of Morrison and Payne Barristers and Solicitors
18 as a member of the Commercial Law League of America, I have had a number of opportunities to speak to representatives of collection agencies throughout the United States. ome of these agencies are large and nationally operated, and some of them have taken the time and incurred the costs of ensuring that they are registered and licensed to carry on business in every state of the union. However, in my discussions, it appears that some of those agencies have not taken the time to register in Canada, even though they include collections in Canada as part of their business operation. I was speaking to a representative of one of those agencies at the recent CLLA meeting in New York City and indicated that I would put together a summary of the requirements and costs associated with registering in the province of Ontario where my practice is located. I then thought that this might be a matter of more general interest and as a result, I have put together this article. The requirements and costs set out in this article are essentially limited to the province of Ontario. However, each of the Canadian provinces has its own requirements, and it is recommended to get the particulars of what arrangements might be applicable once a local counsel is contacted. In regard to costs, the only real fixed cost with registering in Ontario is the incorporation of an Ontario company, which should be accomplished for under $2,000. The issue of bonding is likely something that can be set up though the bonding agency used by the main office. Other costs, such as office space and employees, will vary with the circumstances of the agency. The regulation of collection agencies in Ontario is governed by the Ministry of Consumer Services Consumer Protection Branch. Brian Pitkin, the registrar for Collection Agencies in Ontario, agreed to be interviewed for this article. I spoke with him and asked whether there had been any problems with respect to collection agencies based in the states attempting to collect accounts in Ontario. Pitkin responded that his office is essentially complaint driven they do not have the resources to initiate investigations themselves. He stated that when they receive a complaint, they will respond by sending a letter indicating that they are to either register in compliance with Ontario law or to cease and desist operating the collection business in Ontario. Pitkin stated that the primary difficulty for foreign collection agencies to be registered in Ontario is the requirement in the Collection Agencies Act that a collector be ordinarily resident in Canada. 16
19 The basic requirements for registration of a collection agency in Ontario are as follows: 1) A person must be at least 18 years old. 2) The agency must have two years experience or the equivalent in all aspects of collections. 3) The agency must write and pass the Collection Agency s examination. 4) If the agency is a corporation, it must be incorporated in a Canadian jurisdiction. 5) The agency must demonstrate the financial ability to conduct business. 6) The agency must demonstrate by past conduct that the business will be managed in accordance with the law and with integrity and honesty. 7) The agency must not be directly or indirectly involved in the lending of money. 8) The agency must not be bailiff. 9) And the agency must obtain a security bond. Essentially, Pitkin stated that this is not an issue that concerns his office. He said that they very seldom get a complaint. He stated that his office probably receives one or two complaints per year with respect to collection agencies not registered in Ontario. Pitkin said that there are already quite a number of U.S. owned agencies that are operating and are registered in Ontario. He stated that of the dozen largest collection agencies in Ontario, at least half of those are owned by U.S. corporations. The bottom line is if your collection agency is sending demand letters to Ontario, then unless a complaint is received from a consumer, then there is likely to be no consequence. However, if you are doing a substantial amount of business in Ontario, then you probably should make inquiries into being in compliance with Ontario law, as a number of larger American collection agencies have already done. Richard Payne is from Morrison and Payne Barristers and Solicitors (www. morrisonandpayne.com), 45 Sheppard Avenue East, Suite 506, Toronto, Ontario M2N 5W9. He can be reached at (416) , ext. 224 or 17
20 Do Your Clients Partner Effectively With Third-Party Collection Agencies Help Decrease Collection Costs And Collect Past-Due Balances By Successfully Working Together 18 Robert S. Shultz is a partner at Quote to Cash Solutions, and can be reached at In ultimately use third-party collection agencies, they often fail to use them effectively. my travels as a credit professional for more than 30 years and as a quote to cash consultant for the past nine-plus years, I find that although most credit managers Ineffective partnering with agencies increases a creditor s collection costs and decreases the likelihood a past due balance will ever be collected. Many companies refer delinquent customers to collection agencies only after all internal efforts to collect have failed. Oftentimes, accounts are held internally too long. This reduces the agency s chances of success. The following information is intended to offer suggestions on how your clients can improve how they manage their internal collection process. The result will be a more effective use of collection agencies and legal options with improved results. It Is Best To Have An Integrated Collection Process. It is a much better strategy for the credit department to work closely with an agency. An agency should be an integral part of the collection process. It only takes a brief analysis of internal collection costs compared to a blended approach: When an agency is utilized as part of the collection process, costs can actually be lower and yield better results. The key is to develop a strategy to determine which accounts are best handled by limited internal staff and which accounts a collection agency is more suited for. Simply put, there is a point where repetitive and costly internal efforts are not cost effective. A debtor may not be intimidated by repeated calls or correspondence. They often delay payment thinking that a future sale will be more important to the supplier than timely collection of an unpaid balance.