You can win, but can you collect?
U.S. consumers face a tidal wave of potentially dangerous products manufactured offshore. Offshore manufacturers peddle defective scooters, asbestos,1 shoddy drywall2, food and candy products that maim and sicken, if not kill, Americans.3 The judgments in these products liability cases can hurdle past the $10 million mark.4 In attempting to domesticate the judgment in the offshore domicile of the defendant, the American creditor often confronts local law that is inhospitable to any enforcement.5
Offshore immunity to enforcement replaces insurance, whose usual purpose is to protect the assets of the insured. If the offshore local law immunizes the assets from enforcement, no purpose is served by spending millions on insurance or quality and safety controls when the assets are truly judgment proof.
American trial counsel is at a quandary. Chasing the offshore debtor is expensive, difficult and complex.6 At worst, enforcement overseas of U.S. judgments can be completely inaccessible.7
Is there a thread to unwind?
Most likely, the defendant manufacturer continues to peddle its product line in the U.S. If so, the judgment creditor can collect the judgment through the continuous stream of accounts receivable accruing to the manufacturer or other potential cash repositories.8 Whether the manufacturer continues to sell, or have some type of business transaction in the U.S., should be a significant consideration for the plaintiff attorney in deciding whether or not to accept the case in the first place. Stated succinctly, if the manufacturer is continuing to sell in the U.S. market, U.S. obligors are obligated to make payment, and therefore subject to garnishment and potential collection.
If the manufacturer is continuing to hire lawyers and pay settlements to resolve other claims, monies held by the lawyers or the revenue stream in favor of the manufacturer is subject to assignment orders or garnishments. If the manufacturer is paid through U.S. financial institutions or foreign institutions with a U.S. presence, the funds might be accessible to enforcement. The funds paid to other attorneys, and the funds in the hand of counsel to finance settlements are potential assets and points of great vulnerability.
Knowledge is power
Post-judgment discovery offers the judgment creditor the power of a subpoena or examination order, among other remedies.9 If however, the judgment debtor defaulted in responding to the lawsuit, the judgment debtor is not going to answer questions revealing assets and local customers.10
Common sense dictates continuous sales by the debtor for the simple reason that the debtor is reaping enormous profits without the burden of liability insurance and other expenses mandated by U.S. and local law.11 These product sales generate accounts receivable subject to enforcement under the money judgment due the judgment creditors, in which the obligors are subject to discovery.
Finding information that discloses the customers is the first step. The judgment debtor ships its product line into the U.S. market via an oceangoing carrier (“shipping lines”), truck, or train.12 The shipping companies issue bills of lading subject to Division 7 of the Uniform Commercial Code.13 The bills of lading evidence the consignor14 who is the person placing products in the possession of the shipper, and the consignee15 who is the person receiving the product. Absent the unusual or transaction through layers of parties, the consignor is the seller, exporter, distributor or manufacturer of the goods, and the consignee is the buyer (or recipient) of the goods and obligated to make payment.16 With the identity of the consignees at hand, the judgment creditor can levy on the consignees, or compel their appearance in court to testify as to any outstanding obligation which might be due. Shippers are subject to subpoena and will produce the bills of lading.
Aside from consumer-direct sales through the manufacturer’s Web site, the manufacturer’s primary customers might be importers, wholesalers or distributors who specialize in the type of products. Trade magazines (both paper and online) might reveal wholesale buyers of the product.
Seizing the accounts receivable or other liquid assets
With the garnishee in its sights, the judgment creditor levies upon the obligation (payment for the product) due the judgment debtor (the consignor), and owed by its customer, now called the garnishee under a garnishment (the consignee). Be aware, however, that the consignor (the manufacturer) and consignee (the buyer) might connive to evade the levy by payment through alternative means, refusing to respond to the levy, or engaging in a complete fraud.17 This is a known risk.18
If the manufacturer defends lawsuits, payments due the attorneys and settlements are subject to enforcement through a series of assignment order, levies and restraints. This is a time-consuming, tedious and detailed process of tying up the manufacturers’ entire cash flow and reaching downstream any funds that flow to the U.S. based attorneys for their fees and funds available to other U.S. claimants for settlements.
Supplemental remedies available
Aside from a garnishment, the creditor can seek an assignment order authorized by the California Code of Civil Procedure section 708.510(a).19 These assignment orders reach the accounts due the judgment debtor and redirect them to the judgment creditor. Assignment orders reach out of state, which was the outcome in UMG Records v. BCD Music Group, Inc., 2009 WL 2213678 (C.D.Cal.). In that case, the court ordered a broad-based assignment against record wholesalers and distributors purchasing product from the judgment debtor. In that case, BCD (the judgment debtor and obligee) was located in Texas and the obligors were nationwide. (See also, Global Money Management v. McDonnold, 2009 WL 3352574 (S.D.Cal.).)
Payment through U.S. financial institutions
Routinely offshore manufacturers accept American Express as payment on the grounds that Amex provides valuable points to the card holder, who is usually the principal of the corporate buyer. Large purchases in the $100,000 range produce a potpourri of points allowing the corporate principal to purchase airline tickets for worldwide travel free of charge and, given the informality of the transaction, free of taxes.20 The manufacturer might accept PayPal, Google Wallet, or other forms of nontraditional payment vehicles. Nearly all of the financial institutions are subject to levy upon their agent for service of process which is usually CT Corporate Systems in Los Angeles or CSC in Sacramento. Of course, the majority of payments are still done by way of letters of credit and wire transfers.
Products liability litigation accrues enormous expense, effort and risk, and cases can span over years. Service through the Hague Convention can cost thousands. The prospect of an actual recovery is paramount in gauging whether that expense and personal investment is a worthwhile investment. Nobody likes to tilt at windmills. In evaluating whether to accept the case, or pass, the criteria is whether the debtor continues to do business, directly or indirectly, in the U.S. If the debtor sells products in the U.S., does business with U.S. lawyers, pays settlements to other U.S. claimants, or in some way has a presence which creates an obligation due the obligor, the underlying claimant has some prospect of recovery and may render the accrual of the expense, effort and time on behalf of the client worthwhile.
David Cook is the founding partner of Cook Collections Attorneys, San Francisco. He wrote the Amicus brief in Singer v. Malin for Survivors Network of those Abused by Priests, Kosnoff Fasy PLLC, Christine Lozier, Peace over Violence, Protect Mass Children, Law Firm, Charlie Stecker, Taylor & Ring, and the Zalkin Law Firm, P.C. Cook is a prolific writer of magazine and journal articles, focusing on solvency, collection and enforcement. The ABA has offered to publish Cook’s The Debt Collector’s CookBook and it is due out the end of this year.
2016 by the author.
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