First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.
Congratulations—you won your case but now the other side refuses to pay. You come to find out that enforcing a judgment can be difficult. Often, the judgment debtor is one step ahead of you and moves assets accordingly.
Steptoe's judgment enforcement practice is among the best in enforcing and collecting on arbitral awards and judgments. This month, we begin a multi-part series on tools for judgment enforcement and we examine ex parte asset discovery served upon third parties. While ex parte third-party post-judgment discovery is rarely discussed, we have used it with great success. Being able to access third-party discovery without the debtors knowledge is an extremely powerful tool, as it finally allows the creditor to get ahead—and stay ahead—of a judgment debtors' scheme to move assets.
Banks and financial institutions can be attractive targets for third-party post-judgment discovery. The Federal Rules of Civil Procedure permit discovery in aide of the judgment or execution, including from third parties. Fed. R. Civ. P. 69(a)(2). While typically, all discovery has to be served upon the opposing party, the court has the discretion to order otherwise. Federal Rule of Civil Procedure 5(a) provides that "a discovery paper is required to be served on a party, unless the court orders otherwise."
An ex parte motion will typically require the applicant to make a showing of impelling urgency that necessitates action and excuses notice. Ex parte applications are generally appropriate where notice might thwart the purpose sought to be achieved. In the context of discovery, an ex parte applicant must demonstrate irreparable injury. Generally, applicants can demonstrate the threat of irreparable injury by demonstrating that property or evidence is likely to be hidden or destroyed. Upon such a showing, a court may allow a judgment creditor to serve third-party discovery and to not inform the judgment debtor for a number of months. It is also critical that the court's order direct the third party not to inform the judgment debtor of the discovery request for a number of months.
The real advantage of ex parte discovery is that it allows a creditor to gain a leg up on a debtor who is committed to secreting its assets. While a creditor is unlikely to obtain ex parte third-party discovery immediately after obtaining a judgment, it is a valuable tool once you can show the court the debtor intends to deliberately thwart judgment enforcement. Of course, investigative experts often provide a great deal of helpful information. When that information is paired with third-party ex parte discovery from banks and other financial institutions it can be invaluable.
Setting Yourself Up for Success
Once you have "found" the money through discovery, you are one step closer to a pay day. It is time to restrain or "freeze" the assets, which can often occur without notice to the judgment debtor.
Consulting with Steptoe's judgment enforcement team early in this execution process can be immensely helpful. Let us know how we can help you get ahead of the debtor and stay that way.