Civil asset recovery in USA

Civil asset recovery

Is there any restriction on civil proceedings progressing in parallel with, or in advance of, criminal proceedings concerning the same subject matter?

Although there are no categorical restrictions on civil cases proceeding in parallel with criminal cases, civil cases may be postponed should they pose substantial prejudice to the defendant’s right against self-incrimination. The management of parallel civil and criminal proceedings presents challenges. For example, the assertion of Fifth Amendment privileges against self-incrimination can slow down civil proceedings. Additionally, to comply with the requirements of the Speedy Trial Act, the civil proceedings could be delayed to allow the criminal proceeding to proceed first, if the proceedings cannot occur concurrently.

Given these impediments, it is not uncommon for prosecutors to seek a stay of private civil litigation pending the conclusion of criminal proceedings. Nevertheless, normally, civil litigants should neither delay in bringing the civil proceeding in anticipation of such a stay, nor rely on the outcome of the criminal case to bring them relief. Not only could such a delay potentially cause the statute of limitations for any claim to expire, but even if a sentence is imposed on the debtor in the criminal case, the creditor’s recovery in the criminal proceeding may be lower.

In which court should proceedings be brought?

The United States is a common law jurisdiction with a dual court system. Federal courts have a limited jurisdiction authorised by the Constitution and federal statute. Each of the 50 states, plus the District of Columbia, also has its own courts of general jurisdiction. Both state and federal courts offer an independent and skilled judiciary, broad discovery and significant mechanisms for enforcing judgments.

Generally, counsel should consider all relevant state and federal courts in which a particular action may be brought. Often, more than one court may be available and the decision on where to file depends on many factors. Considerations in determining a particular forum include: whether the facts of the case justify a federal action; the states in which the defendant has assets; and where the activity at issue took place. If the defendant is a business entity, counsel should determine the jurisdiction under which the entity was formed and where its principal operations are located. A key consideration is whether filing in a particular court affords advantages not available elsewhere. The available causes of action and related remedies vary by state. Because material differences can exist among jurisdictions, counsel should analyse the pertinent laws of the considered jurisdictions in determining where to pursue asset recovery. The common law governing fraud is generally a matter of state law, although it has been incorporated into many federal fraud statutes. Fraud claims are generally heard in state courts unless a federal law applies or the plaintiff can invoke federal court jurisdiction based on the ‘diverse’ residence of the parties.

What are the time limits for starting civil court proceedings?

Time limitations on initiating civil court proceedings vary widely depending on the type of action sought as well as the jurisdiction in which the action is brought. Counsel should conduct a thorough statutes of limitations analysis on applicable causes of action in the relevant jurisdiction as soon as practicable in anticipation of litigation. As explained above, the law governing fraud is generally a matter of state law, and the statute of limitations can vary. For example, New York state law requires a fraud claim to be brought within six years of the event or within two years of its discovery. Alternatively, a number of states have a three-year statutes of limitations. Claimants may also consider filing a civil action under the federal Racketeering Influenced Corrupt Organization (RICO) Act (18 USC section 1962). The statute of limitations for civil RICO claims is generally four years from the date a claimant knew or should have known of his or her injury.

In what circumstances does the civil court have jurisdiction? How can a defendant challenge jurisdiction?

Jurisdiction questions can be broken down into three elements-whether the court has jurisdiction (i) over the person (or property in certain cases); (ii) over the subject matter; and (iii) to render the decision sought. Jurisdiction in a civil case is determined by considering a series of factors from the main elements above, including the following:

• the location of the at-issue assets, transactions or defendants;
• the citizenship of the defendant(s);
• the defendant’s contacts with the particular jurisdiction;
• contractual agreements regarding venue; and
• the subject matter of the action.

Defendants may challenge jurisdiction by calling into question the factors that were considered in making the jurisdiction determination. Such objections are most typically raised at the outset of an action. Failure to timely object to jurisdiction can result in a waiver of any challenge to jurisdiction.

What is the usual time frame for a claim to reach trial?

The time frame to reach trial on a private civil asset recovery case depends on a variety of factors, including the court in which the case is pending and the complexity of the claims. The overwhelming majority of civil cases never reach trial, and are instead resolved on a motion to dismiss or a motion for summary judgment, or settled. According to the statistics compiled by the federal judiciary, in 2018, federal cases took on average 26 months to proceed through trial.

See https://www.uscourts.gov/statistics/table/c-5/statistical-tables-federal-judiciary/2018/12/31.

What rules apply to the admissibility of evidence in civil proceedings?

For actions in federal courts, litigants should consult the Federal Rules of Evidence and the Federal Rules of Civil Procedure. If an action is brought in a state court, litigants should consult the applicable rules of evidence in the particular jurisdiction, although the evidentiary rules of many states closely follow the Federal Rules of Evidence. Relevant case law provides insight into how the applicable evidentiary rules have been interpreted by courts in the relevant jurisdiction.

What powers are available to compel witnesses to give evidence?

The ability of a litigant to compel witnesses to give testimony depends on whether the case is pending in a state or federal court, and whether the testimony would infringe on a witness’s rights under the Fifth Amendment to refrain from self-incrimination. Assuming that Fifth Amendment rights are not implicated, litigants should consult the applicable rules of procedure governing procuring deposition and trial testimony from adversaries and third parties, as well as mechanisms available to enforce court orders compelling testimony.

For matters in federal court, the Federal Rules of Civil Procedure govern whether a witness will be compelled to provide testimony. Subject to certain restrictions, Federal Rule of Civil Procedure 30 allows a party to a civil action to depose any person, including a party to the litigation. Federal Rule of Civil Procedure 45 provides a mechanism by which a party may command attendance at a trial, hearing or deposition. In practice, a party to a litigation may be deposed in the federal district where the case is pending and may be ordered to attend a trial or evidentiary hearing. Unless they consent, third parties may only be deposed or ordered to attend within 100 miles of where the third party resides or is employed or regularly transacts business in person. Any person ordered to appear at a deposition may object on the grounds that his or her deposition testimony would not be relevant to any party’s claim or defence, or proportional to the needs of the case. If the objection cannot be resolved without judicial intervention, the party seeking the deposition may move to compel attendance at the deposition.

What sources of information about assets are publicly available?

Various public offices collect information on assets and, in some cases, that information is available to the public. Depending on the jurisdiction and the type of asset, various public records may be available. For examples, public records include: lien filings; real estate records; property tax records; automobile and aircraft filings; and business entity registration filings. Often, it is helpful to investigate the relevant federal and state agencies charged with regulating certain asset types and enquiring about their records. Many investigative services and databases are available to assist counsel in identifying assets.

Can information and evidence be obtained from law enforcement and regulatory agencies for use in civil proceedings?

US financial reporting requirements may provide valuable information for asset collection. These requirements implement stringent record-keeping from account opening until long after the account is closed, thus, preserving an effective asset tracing tool. Civil litigants can attempt to secure relevant information by US discovery mechanisms. Three major types of required reports from financial institutions that may be of use to asset recovery practitioners are suspicious activity reports, currency transaction reports and ‘know your customer’ requirements.

As for criminal investigative information, such information is confidential, even from the victim of the crime. There are limited exceptions that may permit a crime victim to access certain types of information in the government’s possession. Evidence entered in criminal proceedings may also be useful for civil proceedings, and litigants should utilise discovery mechanisms to gather information.

How can information be obtained from third parties not suspected of wrongdoing?

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.

Rule 45 of the Federal Rules of Civil Procedure governs discovery, including gathering documents or taking testimony from non-parties to a federal action. A plenary or substantive action must already be pending before a district court before employing Rule 45. Additionally, Rule 69 of the Federal Rules of Civil Procedure permit discovery in aide of a judgment or execution, including from third parties.

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.

What interim relief is available pre-judgment to prevent the dissipation of assets by, and to obtain information from, those suspected of involvement in the fraud?

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 (Fed R Civ P 64 and 69). State laws are not uniform on these remedies, and a claimant should consider the remedies available under the laws of the forum state before determining whether to seek interim relief.

As a general rule, prejudgment restraints of assets are available in state or federal court as long as certain conditions are met. Those conditions are typically as follows:

• the existence of a cause of action;
• a probability that the claimant will succeed on the merits;
• that any judgment will be rendered ineffectual without relief;
• that the public interest will be served; and
• the amount demanded from the defendant exceeds all counterclaims known to the claimant.

We note, however, that injunctive relief in the United States is somewhat limited. The courts are without authority to issue any sort of worldwide freezing order restraining a defendant’s assets pending adjudication of a claim.

Pre-judgment discovery, on the other hand, is broadly available both from the defendants and from non-parties. Defendants may be subject to document requests, depositions, written interrogatories and requests for admission. Non-parties may be subpoenaed for documents and deposition testimony.

How do courts punish failure to comply with court orders?

Failure to comply with court orders can result in the non-compliant party being held in contempt of the court, which may have consequences ranging from monetary fines to imprisonment. If the non-compliant party is one of the fraudsters, the court may use its equitable powers to fashion remedies that make the claimant whole notwithstanding the non-compliance.

How can information be obtained through courts in other jurisdictions to assist in the civil proceedings?

The first consideration is whether the other jurisdictions have procedures designed to permit the discovery of information in aid of civil proceedings in foreign jurisdictions. In the United States, for example, Congress has authorised the federal courts to permit claimants to obtain discovery in aid of legal proceedings outside the United States. See 28 U.S.C. § 1782.

If this avenue is not available, the ordinary means of obtaining discovery in other jurisdictions is through the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters 1970. The United States is a party to the Convention, along with more than 60 other countries. Each member state will have its own procedure for evidence requests, including document requests and requests for witness testimony. For jurisdictions that are not parties to the Convention, the claimant should explore the availability of evidence requests through either diplomatic channels or letters rogatory.

If law enforcement is involved in the matter, it may be possible to obtain evidence in other jurisdictions that have mutual legal assistance treaties with the United States. However, these treaties typically are not available to private litigants.

What assistance will the civil court give in connection with civil asset recovery proceedings in other jurisdictions?

US federal district courts have the power to order discovery for use in a foreign legal proceeding (28 USC section 1782). The district court must find that:

• the party from whom discovery is sought can be found in the district where the application is made;
• the discovery will be used in a proceeding before a foreign or international tribunal;
• the party applying for discovery is an interested person in the foreign proceeding; and
• the balance of public and private interest factor favours granting discovery (see Intel Corp v Advanced Micro Devices, 542 US 241, 248-49 (2003)).

Notably, eligible foreign legal proceedings include proceedings in foreign courts, as well as administrative proceedings and government investigations (Intel Corp v Advanced Micro Devices Inc, 542 US 241, 258 (2004). The proceeding must be within reasonable contemplation but is not required to be ‘pending’ or ‘imminent’ (Intel Corp, 542 US at 259).

Discovery under section 1782 includes both deposition testimony and document production (See Intel Corp, 542 US at 249). It may be obtained by first filing an application and supporting memorandum and affidavit with the federal district court (or courts) where the subjects of the discovery are located. If the application is granted, the applicant may serve requests for documents and depositions. A federal district court may allow broad discovery, and the fact that such discovery may be broader than the discovery authorised by the foreign forum - or may not be admissible evidence in the foreign forum - is typically not relevant. The ultimate decision whether to order discovery is within the discretion of the federal district court.

A claimant that has a foreign judgment may be able to enforce the judgment in state or federal court, particularly if the court has jurisdiction over persons or assets that are subject to the foreign judgment. Most states have adopted some version of the Uniform Foreign-Country Money Judgments Recognition Act, which permits foreign judgments to be enforced in domestic courts, at least to the extent that they involve an award of monetary damages to the claimant. If the foreign judgment is recognised, the claimant will then be entitled to use the same enforcement mechanisms that are available for domestic judgments. However, it is unlikely that a domestic court would enforce the non-monetary aspects of a foreign judgment, such as specific performance, equitable remedies or punitive damages.

What are the main causes of action in civil asset recovery cases, and do they include proprietary claims?

The United States has robust civil remedies available to claimants, and as a result, the causes of action in civil asset recovery cases are varied. As a general rule, there are four primary legal bases for seeking recovery of assets:

• Fraud: there are a variety of state and federal statutes that create civil remedies for fraud, including in the areas of securities, banking, consumer finance, sales of goods and real estate transactions, to name a few. Additionally, fraud claims are recognised under the common law, where a defendant intentionally makes a material and false representation or omission, on which the claimant justifiably relies in choosing to act or refrain from acting. Most jurisdictions also have laws that permit courts to unwind fraudulent transfers of assets.
• Fiduciary duty: certain defendants - such as senior management, trustees and some agents - have fiduciary duties that are violated if they engage in self-dealing or other mismanagement of assets. Violations are typically actionable under either applicable statutes or the common law.
• Contract: when a defendant breaches a contractual obligation, a claimant may need to seek recovery of assets impacted by the breach or may need to seek asset recovery as a means to enforce a judgment obtained against the defendant.
• Common law: state-specific common law claims are often available as a means of recovering assets. Examples include conversion and replevin. Conversion is a more common claim that seeks damages for interference with claimant’s ownership or possession of personal property. Replevin is an infrequently used remedy that a claimant may invoke to recover specific property that has been wrongfully taken and may be appropriate in situations where a defendant has wrongfully taken unique, high-value property.

What remedies are available in a civil recovery action?

The available remedies depends on a variety of factors. As a general rule, a claimant can seek actual, incidental and consequential damages. It may also be possible to recover punitive damages in cases of egregious fraud or wrongdoing that threatens the public interest.

Courts in the United States also have the power to award equitable remedies, including specific performance, rescission and injunctive relief. These remedies are useful when money damages are insufficient to compensate the claimant. Courts may also impose constructive trusts to manage assets for the benefit of the claimant and may order an accounting, which may be useful when assets have been wasted or fraudulently transferred.

Can a victim obtain a judgment without the need for a full trial?

Yes. A victim may seek a default judgment if the defendant does not appear after being served with process in the civil action. A default judgment may be requested by filing a motion with the court, along with any evidence necessary to support the default judgment.

If the defendant appears in the action, the litigation will likely proceed through discovery, after which the victim may file a motion for summary judgment against the defendant. A court may grant summary judgment if there is no genuine dispute of material facts and the victim is entitled to judgment as a matter of law. A summary judgment motion typically requires extensive briefing and evidence submitted by affidavit.

What post-judgment relief is available to successful claimants?

Post-judgment relief in the United States varies according to the subject matter of the case, the language of the relevant statute and the jurisdiction in which the underlying action is brought. Depending on these factors, there may be a wide variety of options available for post-judgment relief.

Successful claimants will frequently request post-judgment asset discovery. Asset discovery is widely available against both the defendant and any non-parties that have information about the defendant’s assets.

US courts are without authority to issue any sort of worldwide freezing order restraining a defendant’s assets pending adjudication of a claim. Post-judgment remedies are far broader and a claimant may seek a general injunction against the judgment debtor and its assets.

What methods of enforcement are available?

The methods of enforcement are varied and depend on state law. A US federal court will look to the enforcement laws of the forum state to determine what methods are available to a claimant.

Garnishment is typically the means by which payments owed to the judgment debtor by non-parties can be re-directed to the claimant. It is accomplished by the court issuing a writ of garnishment, which the claimant then serves on the affected non-parties.

If the judgment debtor’s assets can be found, asset seizure is usually accomplished by obtaining a writ of execution from the court, which can be enforced by local law enforcement authorities that are authorised to seize the assets, sell them and deliver the proceeds (less fees and costs) to the claimant. Notably, a judgment obtained in one federal or state court generally is enforceable in other US jurisdictions where the judgment debtor’s assets may be found.

What funding arrangements are available to parties contemplating or involved in litigation and do the courts have any powers to manage the overall cost of that litigation?

In the US, funding arrangements can be tailored to the needs and preferences of the claimant. In addition to traditional hourly arrangements, alternative fee arrangements are sometimes used. For example, it is common for claimants to enter into contingency fee arrangements with counsel. A hybrid version of the contingency fee is sometimes used to give counsel a fixed fee component and a success fee.

Third-party funding is available, though the terms of such funding vary greatly and in some cases, funders are unwilling to undertake the risk of a particular case. The requirements for third-party funding vary by state, and some states prohibit or restrict the practice owing to concerns with champerty.

US courts have some power to control costs of litigation, though the usual rule is that each side must bear its own attorney’s fees. An exception arises in cases that involve fee-shifting provisions in the applicable statutes or contract terms, in which case the prevailing party may be able to recover its attorney’s fees in addition to costs. Claimants should keep in mind that costs can be higher in the US due to the availability of broad discovery. However, in that respect, courts can and often do impose limits designed to prevent undue burden and expense.