An extract from The Asset Tracing and Recovery Review, 8th Edition

Seizure and evidence

i Securing assets and proceeds

State law governs the procedure for securing assets, either before or after a judgment. Even if the litigation occurs in federal court, the federal rules provide that state law governs enforcement remedies. State laws are not uniform on these remedies. It is useful, however, to consider the example set by New York law because of New York's status as a financial centre and its robust anti-fraud and pro-judgment enforcement regime.

Pre-judgment restraints of assetsPre-judgment attachment of assets

A claimant may seek pre-judgment attachment in state or federal court in aid of an impending litigation or arbitration even before any claims are filed. New York law expressly permits such an action, and in the federal courts, pre-judgment attachment is available to the extent permissible under state law. The substantive requirements for obtaining pre-judgment attachment are:

  1. the existence of a cause of action;
  2. a probability that the plaintiff will succeed on the merits;
  3. that any award will be rendered ineffectual without relief; and
  4. the amount demanded from the defendant exceeds all counterclaims known to the plaintiff.

The additional requirements ordinarily necessary for injunctive relief – irreparable harm and the balance of the equities tipping in the applicant's favour – are not required to obtain an attachment, if the attachment is sought in aid of a foreign arbitration. If successful, a pre-judgment attachment order can be used to freeze assets belonging to or controlled by the defendant, so long as the assets are within the jurisdictional reach of the court.

Restraining notices

A restraining notice, when available, such as under New York law, can be a powerful enforcement tool. In contrast with attachment and garnishment orders – which are directed at specific property – a restraining notice is similar to an injunction and broadly restrains assets or debts belonging to the judgment debtor. Upon service of a restraining notice on a third party, all of a defendant's property in the possession or thereafter coming into possession of the third party, as well as all debts then due or thereafter coming due, are subject to the restraining notice. A claimant can use this remedy in conjunction with either a pre-judgment attachment order or a final judgment for the purpose of restraining any assets held by the defendant or third parties.

Garnishment

Garnishment is a mechanism whereby a claimant can enforce the payment of a debt or claim by pursuing assets of a defendant in the possession of third parties. Garnishment is similar to attachment and is used where the assets to be attached are in the possession of someone other than the defendant. The use of garnishment may be particularly effective where a third party owes a debt to the defendant. The debt can be paid to the claimant, with the amount credited toward the outstanding balance of the unpaid claim or debt.

Replevin

Replevin is an infrequently used remedy that a claimant may invoke to recover specific property that has been wrongfully taken by the defendant. Unlike the more common remedy of money damages, replevin seeks the return of the property itself. This remedy may be appropriate in situations where a defendant has wrongfully taken unique, high-value property. To obtain replevin, a claimant must show that the defendant possesses (either actually or constructively) a specific and identifiable item of personal property in which the claimant has a superior right of possession, that right being both immediate and not contingent on a condition precedent.

Sequestration

Sequestration may be available where a corporation fails to satisfy a judgment against it. A claimant may commence an action and obtain a court order sequestering a corporation's property and providing for distribution thereof. All of the corporation's creditors are entitled to share in the distribution. It should be noted that this remedy is only available to claimants with unsatisfied judgments upon proof that other judgment enforcement remedies have been exhausted.

Preliminary injunctions restraining assets

Injunctive relief in the United States is somewhat limited. Most notably, unlike in the United Kingdom and other jurisdictions, the Mareva injunction – a general worldwide freezing order – has been expressly prohibited by a five-to-four decision of the United States Supreme Court in Grupo Mexicano de Desarrollo SA v. Alliance Bond Fund Inc. The Court held that a US federal court lacks the power to issue pre-judgment injunctions freezing a defendant's assets to ensure their availability for a future judgment of money damages unless the claimant can demonstrate a legal or equitable interest in particular property. Thus, to obtain a pre-judgment restraint of a particular asset, a claimant must demonstrate some nexus between the subject funds or assets to be attached or otherwise restrained and the claim. Federal courts are without authority to issue any sort of worldwide freezing order restraining a defendant's assets pending adjudication of a claim. As discussed immediately below, however, post-judgment remedies are far broader and do not require the same level of specificity; a general injunction against the judgment debtor and its assets will suffice.

Post-judgment enforcementWrit of execution

A money judgment is enforced by a writ of execution unless the court directs otherwise. A writ of execution is the process by which a court aids a judgment-creditor by seizing a judgment debtor's non-exempt property or assets, up to an amount sufficient to satisfy the judgment. The writ of execution orders a duly authorised officer of the state – a US marshal, a sheriff or other agent acting under the colour of law – to seize real or personal property, sell it and transfer the proceeds (fewer costs).

A writ is available against third parties who are in possession of a debtor's assets. In this circumstance, the debtor must be notified of the creditor's intent to proceed against the assets. A third party who violates a writ, or otherwise assists the debtor to avoid execution thereof, may be held liable to the creditor for the value of any assets that were dissipated or otherwise made unavailable for execution of the writ.

Turnover orders

Post-judgment, turnover orders are particularly useful tools because they can require a judgment debtor to transfer and turn over to the judgment-creditor enough assets to satisfy a judgment regardless of where those assets are located, potentially including assets located outside the United States. Turnover orders can also be directed to third parties, such as banks, who possess the defendant's assets, as long as those third parties are subject to the court's jurisdiction. The New York Court of Appeals has held that a turnover order directed at a third party is effective against specific property, even if that property is located outside New York or the United States. The precise reach of these orders remains an unresolved issue.

Receivers

If a judgment is obtained by the claimant and remains unpaid, a receiver may be appointed by the court to take charge of assets in which the defendant has an interest. This remedy may be appropriate in situations where merely seizing and selling the assets is not workable. For example, a receiver may be appointed to manage distressed assets, collect rents due or arrange for liquidation of assets. In certain circumstances, a receiver can also be appointed before trial to preserve the status quo.

Invoking a court's equitable powers for post-judgment enforcement

Even though a writ of execution is the primary means by which money judgments are enforced in the United States, federal courts have equitable powers to enforce judgments under extraordinary circumstances. Such relief is not common, perhaps because, as one court has observed, the ordinary 'difficulties in enforcing the judgment due to the location of the assets and the uncooperativeness of the judgment debtor are not the types of extraordinary circumstances that warrant departure from the general rule that money judgments are enforced by means of writs of execution rather than by resort to the contempt powers of the courts'.

ii Obtaining evidence

US courts allow broad discovery in litigation. Information that is relevant or that may lead to the discovery of admissible evidence is ordinarily discoverable. Moreover, discovery from third parties is available by subpoena, which can be issued by the claimant's attorney, although third parties are not expected to provide the same broad discovery required of the parties themselves.

Assuming the claimant obtains a judgment, additional discovery, including third-party discovery, is permitted in aid of judgment enforcement. A claimant may seek discovery from the defendant or third parties such as banks (where the defendant may keep cash and other assets). If the defendant is an entity, discovery may include its owners and subsidiaries in an effort to locate assets (or information leading to assets) that could be executed against. Notably, the United States' Supreme Court has held that sovereign immunity does not restrict the normal post-judgment discovery available in United States courts, meaning that broad discovery should be available to claimants even if their judgments involve foreign sovereigns.

Objections to discovery include overbreadth, undue burden or expense, and privilege and privacy concerns. Privilege concerns allow the producing party to withhold documents and information entirely, subject to objection by the requesting party, which may be resolved by the court. Other objections can sometimes be resolved through the parties' negotiation. If not, the requesting party may file a motion to compel production of the documents and information at issue.