Imagine spending good money, effort and frustration to obtain a judgment only to realize it will cost even more good money, effort and frustration to collect the judgment.
Sometime back I obtained a judgment on behalf of a client against a “serial” restaurateur. I say “serial” because, although he was good at partnering with the right chef, choosing a key location and creating a terrific vibe, the restaurant business is about as fickle as it gets. Inevitably, the chef quits, the location becomes unfashionable and some other joint creates a better vibe. This was the case with our defendant–let’s call him “Tony.”
As soon as we got our judgment against Tony, I recorded an abstract in every county in California, hired an investigator to profile his assets and set a judgment debtor examination. The investigator identified a couple of bank accounts, nothing else. I had to practically hire Jason Bourne to stake out Tony and serve him with the summons for the judgment debtor examination.* I did the exam (at the end of which I had the judge order Tony to give me the contents of his pockets, $128 in wrinkled bills). The judge also granted my request to levy Tony’s Omega watch and Vespa scooter.
I then started the form-and-delay-laden process of trying to levy his bank accounts. Being in the restaurant business, Tony habitually drained his checking account and had no savings. When I subpoenaed him to bring his bank records to the judgment debtor examination (a practice I HIGHLY recommend), the records revealed that Tony almost constantly maintains a negative balance . We tried a couple of times just the same, and collected less than nothing on each try.
I sat down and had a heart-to-heart with our client. Fortunately, it had not been particularly difficult or expensive to obtain the judgment. Tony had failed to make payments on a promissory note and did not contest the lawsuit, leading to a simple default judgment. The problem was, it looked like it was going to cost our client a lot to collect. Tony was not anyone’s “employee,” so garnishing his wages was not an option. He had “arrangements’ with investors who could loosely be called partners, but no partnership agreements exist, so we could not get a charging order. A till tap was another option but, again, expensive. There are ways to get to Tony** but, again, it wasn’t going to be easy or, more importantly, cheap. So, with the client, we explored a third option: patience.
Time is on our client’s side. Simple interest on a judgment accrues at a rate of 10%. Finding an investment with a constant 10% return is challenging. If Tony was not broke our client might have collected right away. But, assuming he did not immediately spend the money, could our client find an investment with a 10% return? Tony might have a bright future. He does have a knack for creating a hip vibe, which can carry a restaurant pretty far in Los Angeles. Even if he never kicks ass, though, he might in five years or so get a steady job where he collects a regular paycheck that we can garnish his wages. If it takes 10 or more years, the client simply needs to renew the judgment. It’s not immediate and it’s not sexy, but it might just get our client his money back with some decent post-judgment interest.
*Yes, I do occasionally resort to hyperbole.
**Broken kneecaps being one.