Articles Posted in Collections

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Doing business today will often mean interactions with clients, contract partners, and others that may bring you into contact with many different states. This may sometimes bring about a situation in which you need to enforce a judgment from one state in another or defend against such a judgment. When these commercial litigation situations arise, it is important to have knowledgeable Georgia business counsel on your side who understands the law and the role the Georgia courts can play in pursuing the outcome you need. Recently, the Georgia Supreme Court entered an informative decision about using this state’s courts to oppose a judgment entered by another state.

The underlying relationship that eventually led to litigation in that recent case was a commercial contract between a telecom company and an IT services and training company. The contract called for the latter company to provide services for the former. Eventually, the relationship soured, and the services company sued in state court in St. Louis, Mo. That case was resolved when the trial court there entered a default judgment in favor of the plaintiff, awarding it $52,589. A default judgment is a final resolution of a court case in favor of one party due to the other party’s failure to take a required action to participate in the case. Often, these occur in favor of plaintiffs because defendants fail to respond or take other required actions.

Four months after securing the judgment in St. Louis, the plaintiff brought its case to Atlanta, asking a judge in Fulton County to enter an order of enforcement of foreign judgment. A foreign judgment is any judgment entered by any court outside Georgia. In order for your out-of-state judgment to be enforceable and collectible in this state, you have to get an order from a Georgia court declaring it to be recognized in this state. Georgia has something called the Uniform Enforcement of Foreign Judgment Act (UEFJA), which indicates what’s required to make your out-of-state judgment enforceable here.

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As a creditor, you understand that your business involves certain risks that “come with the territory.” Sometimes, a debtor’s business may fail to attract customers or may be destroyed by a catastrophic event. Other times, though, the debtor is not an innocent actor, such as cases where the debtor engages in fraudulent transfers to try to dodge having to pay. When that happens, you may have the opportunity to recover many forms of compensation, including punitive damages, but to do so, you have to know the right way to proceed in court. For that, rely on representation from a knowledgeable Atlanta creditor’s rights attorney.

An Ohio lender found itself in those shoes recently. The lender had lent substantial sums to the owner of a construction business. As the business faltered and the owner fell behind on his loan payments, he transferred numerous assets to a number of Florida LLCs and also to himself and his wife as “tenants by the entirety.” This had the effect of making those assets unreachable by the business owner’s creditors.

The lender was not without any recourse, however. The lender sued in federal court, asserting that the owner had violated Alabama’s Uniform Fraudulent Transfer Act by transferring certain real estate to an LLC. A fraudulent transfer takes place when a borrower transfers interest in an asset or assets “with the actual intent to hinder, delay or defraud” a creditor.

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If you are a creditor, you may not know that assets transferred in divorce settlements can be considered voidable transfers. The court can either reverse the transfer or enter a judgement against the spouse receiving the transferred property.

Under the Uniform Voidable Transactions Act (UVTA), previously known as the Uniform Fraudulent Transfers Act (UFTA), a transfer may be fraudulent or voidable if the debtor made the transfer with intent to hinder, delay, or defraud any creditor of the debtor, or without receiving a reasonably equivalent value for the transferred property.

In a recent case, the Georgia Court of Appeals determined that a divorce settlement transferring assets could be considered a voidable transfer. In Enlow v. Enlow, 352 Ga.App. 865 (2019) https://casetext.com/case/enlow-v-enlow-2 a minor threatened to sue her grandfather for molestation. Twelve days later, the grandfather transferred five parcels of real property in a trust, previously held by him and his wife, solely to his wife. A month later, the couple filed for divorce, and the grandfather deeded all five parcels to the grandmother in the divorce settlement. This settlement was approved by the trial court.

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A “fraudulent conveyance” occurs when a debtor tries to avoid paying an unsecured debt by transferring property to another entity or person if the property is at risk of being seized by a creditor. In a Georgia appellate decision, a defendant LLLP appealed the lower court’s granting of an LLC’s motion asking to be substituted for the plaintiff in the lawsuit, as well as its motion for summary judgment denial. The defendant LLLP argued that the lower court had made a mistake in finding that the LLC had standing to recover under the Uniform Fraudulent Transfer Act (“UFTA”) claim.

The case arose in a trial of a different lawsuit. In that case, the court ordered the estate should specifically perform to buy the LLC’s stock from shareholders. A few months later the shareholders sued the estate, the LLLP and others asserting UFTA claims and asking for damages for fraudulent conveyances.

The plaintiffs claimed that a couple had created the LLLP in 2010 in order to transfer $5 million to the company with the goal of defrauding creditors. The couple asked for damages, including satisfaction of the $1.2 million judgment they’d been awarded. The plaintiffs argued that the UFTA allowed voiding of those transfers since they were made in order to defraud, delay or hinder the estate’s creditors (such as the plaintiff).

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If you should find yourself in the position, as a judgment creditor, of needing to pursue an adversary proceeding against a Chapter 11 debtor, it is important to understand that there are many procedural rules involved in the process. While the courts may allow parties a bit of leeway because the law favors decisions made on the merits as opposed to procedural technicalities, some procedural flaws can have disastrous results. By working with a skilled Georgia creditors’ rights lawyer, you can make sure that you are doing everything possible to avoid falling into procedural pitfalls.

One example of a case in which a procedural imperfection led to considerable federal litigation was a dispute that arose between two business partners, Gary and David. In the 1990s, Gary and David developed a plan to establish a business that dealt in discount home improvement and building supplies. The plan seemed strong, but the business never took off. By 2007, with business still poor, Gary sued David, and David countersued. Eventually, in 2011, a jury ruled for David and awarded him damages in the amount of $318,025.

The next year, Gary filed for Chapter 11 bankruptcy. David sought to file an action within that bankruptcy, asking the bankruptcy judge to declare the damages award handed down a year earlier to be a non-dischargeable debt in accordance with 11 USC 523. The bankruptcy judge gave David until Oct. 12, 2012 to file a complaint and initiate an adversary proceeding under Section 523. However, David didn’t file a complaint and initiate an adversary proceeding, at least not at first. He filed a “Motion to Dismiss or for Determination of Non-Dischargeability of His Debt” prior to the deadline. Then, on Oct. 17, he filed an adversary complaint.

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Sometimes, achieving a favorable ruling on liability and damages, while an enormously important step, isn’t always the end of the line for getting the compensation you deserve. In certain circumstances, you may need to undertake additional legal actions to collect the money you deserve, including filing garnishment actions against other entities. Sometimes, it also involves seeking default judgments. To make sure you have access to all of the procedural techniques available to get the money owed to you, make sure you have retained a skilled Georgia collections attorney.

One example of a case in which the award of damages was only the beginning was the litigation undertaken by a lien services company. The lien services company sued a health care and logistics services provider. The lien services company achieved success in that case, obtaining a money judgment. To seek out the money it was owed, the lien services company filed a garnishment action against a different corporation.

In this garnishment case, the defendant took no action in response to the lien services company’s initial filing. Due to the defendant’s inaction, the lien services company asked the trial judge to issue a default judgment. A default judgment means that the defaulted party failed to take the required steps within the mandatory time period established by the law. Generally, for a defendant in Georgia, the law allows 30 days to file an answer. After those 30 days, if the defense has submitted no answer, it is in default. After a defendant is in default for 15 days, the trial court can enter a default judgment. Once that happens, the default judgment carries the same impact as a judgment on the merits.

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Sometimes, getting the compensation your business deserves for a breach of a contract simply involves filing legal action and then presenting a persuasive argument and getting a judgment in your favor. In other circumstances, this step is the first in a multi-faceted process. Whether your needs are related to commercial litigation or judgment collection, you need to make sure that you have the sort of experienced Georgia business counsel that your case demands.

A matter recently decided by the Court of Appeals is an example of how elaborate such disputes can be, and how very minute errors can have major consequences. The first legal case was a contractor firm’s commercial litigation action in California. The contractor won that lawsuit and obtained a judgment that included a $1 million damages award. Of course, getting the compensation you’re owed sometimes involves more than winning your case. This is particularly true if you believe that the entity that owes you damages is engaging in improper conduct, such as making fraudulent conveyances, to evade paying the judgment. When that happens, you may need to litigate in multiple different jurisdictions to get the benefit of your damages award.

This contractor firm allegedly found itself in that type of situation. The defendant in the California case had, according to the contractor firm, provided another entity with the funds needed to acquire a piece of real estate in Roswell. Allegedly, this was all a part of a scheme to shelter the California defendant’s assets from the judgment creditor.

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As a creditor, your objective is to pursue any legal means allowable to obtain payment on the debt owed to you. Sometimes, those involved in the entity that owes you a debt may engage in improper activities to try to hide money or avoid paying you. As a judgment creditor, you need skilled and determined Georgia debt collection counsel on your side fighting for what’s duly owed to you.

A recent example of a judgment creditor that had to take multiple steps came from a dispute over an insolvent company’s large transfer of LLC funds. The insolvent LLC was an Atlanta area-based real estate business. The LLC’s managing member was also the individual who handled the LLC’s daily operations. In 2012, the insolvent LLC faced foreclosure on all of its assets. According to the judgment creditor, despite the LLC’s problematic financial condition, the managing member nevertheless authorized the company to make a $239,000 preferential payment…to the managing member. That transfer was a repayment of an unsecured loan that the managing member had previously made to the LLC.

In 2013, the LLC stopped making lease payments to the plaintiff, although the lease was not yet complete. This led the plaintiff to obtain a judgment against the LLC. Unable to collect from the insolvent LLC, the plaintiff took this additional step and went after the managing member for the payment he made to himself in 2012. The plaintiff’s argument was that, by making the preferential payment to himself while the LLC was insolvent, the managing member breached its fiduciary duty to it.

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Recently, a federal court de­clared Georgia’s garnishment stat­ute unconstitutional leaving the short-term future of garnishments uncertain. While the decision tech­nically affects only the Clerk of Gwinnett County, other clerks in Georgia have already taken action to halt garnishments. Likewise, at­torneys and creditors have now lost the defense of complying in good faith with existing law after the publication of this decision. Finally, credit unions could also be liable for complying with garnishments.

THE CASE

The decision in Strickland v. Alexan­der held that Georgia’s garnishment statute is unconstitutional for three reasons: (1) it fails to require no­tice to debtors of certain state and federal exemptions to garnishment (like Social Security exemptions); (2) it fails to provide notice of a proce­dure to claim an exemption; and (3) it fails to require a timely hearing to decide exemption claims. The court enjoined Gwinnett County’s State Court Clerk from issuing summons of garnishment using current forms and procedures that were ruled uncon­stitutional. The facts of the case cre­ate a compelling story for the debtor.

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