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Reaching across state lines in judgment enforcement collection

February 28, 2023

This article originally appeared on ABA.com

Certain states are more creditor-friendly than others. Whether a judgment creditor will be able to reach the property of a judgment debtor that is located out of the state in order to satisfy a judgment will depend upon the jurisdiction in which the judgment is sought to be enforced. The laws of some states, such as New York, allow courts to order judgment debtors to turn over out-of-state property, as long as the court has personal jurisdiction over the judgment debtor (commonly called “turnover orders”). While beneficial to judgment creditors in New York and other states with similar laws, expanding judgment enforcement power to reach across state lines creates the potential for priority disputes to arise between in-state and out-of-state judgment creditors.

To maximize recovery for your client and minimize the risk that out-of-state assets will be lost to a competing judgment creditor, attorneys should keep the following tips in mind:

  1. Familiarize yourself with the law of the states with which your debtor may be subject to jurisdiction to identify where you may have to act and when.
  2. Pursue collection in states where relief is available (not just in the jurisdiction where the property is located) or advise your client of the risk that may attend if that pursuit is not undertaken.
  3. Timeliness and speed are paramount. As collection activity is governed by state law, when there is a conflict between who acted first, some states do not just look at who got relief first, but who got relief in their forum first.

These tips are reflected by a brief review of a case in New York from a few years ago. In Kassover v. Prism Ventures Partners, LLC, 2019 NY Slip Op 01175, the First Department of the New York Appellate Court affirmed a decision of the lower court (2017 NY Slip Op 31933 (U) (Sup. Ct., New York County Sept. 1, 2017), ordering a judgment debtor to turn over limited liability company certificates that had been moved to Florida to a New York judgment creditor, finding that the court had personal jurisdiction over the judgment debtor. A competing judgment creditor had intervened in the New York action based on a judgment it had obtained in a Florida court. The Florida judgment creditor had filed a judgment lien certificate in Florida, granting it a lien on all of the debtor’s personal property in Florida, before the New York judgment creditor had done so.

Despite the fact that the Florida judgment creditor had a first-in-time lien on the limited liability company certificates pursuant to Florida law, because the Florida judgment creditor had never taken steps to domesticate its judgment in New York, the court held that the New York judgment creditor had priority to the certificates.

The case demonstrates the pitfalls and opportunities of which judgment creditors should be aware. It is important to be diligent and not delay in enforcement efforts. It also demonstrates the differences between state procedural laws with respect to obtaining judgment liens on property located in that state. Judgment creditors, or soon-to-be judgment creditors, are well-advised to formulate a comprehensive enforcement strategy that accommodates for the jurisdictional requirements and differences and consider the importance of ensuring priority according to each state’s laws in which a judgment debtor may reside or retain attachable assets.

Brigitte Rose is an associate in the Firm's Business Litigation group.