by Barbara Klabach
So you just spent a lot of money paying a lawyer to have the
Arizona Superior Court tell your dead-beat next-best friend that he
really does have to pay back the loan you made him. In legal
terms, a court has awarded you (the "judgment creditor") a judgment
against your friend (the "judgment debtor"). Unfortunately,
the judgment debtor still refuses to acknowledge his obligation to
you and isn't paying. Now what do you do to collect?
A broad range of discovery concerning the financial condition of
the judgment debtor that was not permitted at the pre-judgment
stages of the litigation can be taken at any time after entry and
docketing of the judgment. The objective of post-judgment
discovery is to determine whether the judgment debtor has income
and assets (including any that were concealed or fraudulently
transferred) to satisfy the judgment and whether there may be
methods for collecting assets from third parties based on the
judgment debtor's financial relationships with them. The
process for post-judgment discovery [1] may
include interrogatories, requests for production of documents and a
"judgment debtor examination" or "JDE".
The JDE is initiated by issuance of a subpoena duces tecum and
is similar to pre-judgment depositions, except that its specific
purpose is to locate means to satisfy the judgment.
Accordingly, the judgment debtor should be requested to bring with
him a list of documents leading to such information. These
documents will typically include personal financial statements,
credit applications, tax returns, bank and investment statements,
notes receivable, records of all business and personal property,
title documents, insurance policies, credit card statements and the
like. Inquiry should also address information regarding
income sources, including compensation packages, salary, wage and
bonus payments, rents, interest, dividends and distributions,
royalties, partnership income, et cetera. Other litigation
involving the judgment debtor should also be considered. A
form of questionnaire for a judgment debtor examination is included
at the end of this discussion.
The mere fact of having to undertake a JDE may suggest that the
judgment debtor is attempting to hide income or assets.
Comparisons of prior and recent business records may show transfers
of property interests that were fraudulent, i.e., intended to
unjustly place the assets where they could not be identified or
located. Similarly, payments made via credit cards, both
personal and corporate, offer evidence of spending habits that lead
back to income sources. Particularly if the judgment debtor
is a business owner, expenses may be paid by closely-held
entities. If these entities serve as an alter-ego of the
judgment debtor, it may be possible to pierce their organizational
legal protections and make their assets available to the judgment
creditor.
If the JDE fails to expose assets available to the judgment
creditor, post-judgment discovery can be had from third
parties. Despite claims of privilege, even spouses,
accountants and attorneys for the judgment debtor may be subpoenaed
for deposition to locate assets fraudulently hidden away from
judgment creditors. If necessary, you may return to the court
in a supplementary proceeding to assist the execution of your
judgment.
Sometimes, the cost of a frame exceeds the price paid for the
picture. Likewise, litigation doesn't always end with the
court's granting judgment in your favor. You still have
to collect on the judgment, and that may result in additional
costs. Using a JDE may help the judgment creditor
control his costs of collection.
[1] More costly and time-consuming
methods to discover assets include "supplementary proceedings"
involving the direct participation of the court. The court
can require the debtor or third parties to appear before it at a
hearing and to comply with one or more orders that will facilitate
the collection of a judgment. The procedures for
supplementary proceedings are statutory, set forth in A.R.S. ยงยง
12-1631-35.