De Leon & Washburn, P.C.

Lauren Schoenbaum, Fall 2011

After the long, stressful process of litigating your claim, you have finally received a judgment in your favor allowing you to recover against the opposing party.  Theoretically, this is the last you will see of the courtroom.  In reality, you may have another fight ahead: collecting on your judgment.  Debtors can be deceitful and attempt to hide their assets so they do not have to turn them over to you.  While some of the debtor’s property will be protected, there are tools available to help you collect on your judgment.

Whether you have recently received a default judgment on your claim or you received a judgment several years ago that you have failed to collect, one valuable option for judgment creditors in Texas is to invoke what is commonly known as the “turnover statute.”  The turnover statute provides court assistance to reach property.  The purpose of the turnover statute is to provide judgment creditors a procedural device to reach assets of a debtor that are “otherwise difficult to attach or levy on by ordinary legal process” by allowing a court to “reach assets owned and subject to the control of a judgment debtor.”[1]

The turnover statute, found in Tex. Civ. Prac. & Rem. Code § 31.002, provides:

(a)        A judgment creditor is entitled to aid from a court of appropriate jurisdiction through injunction or other means  in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that:

(1)               cannot readily be attached or levied on by ordinary legal process;  and

(2)               is not exempt from attachment, execution, or seizure for the satisfaction of liabilities.

(b)       The court may:      

(1)              order the judgment debtor to turn over nonexempt property that is in the debtor's possession or is subject to the debtor's control, together with all documents or records related to the property, to a designated sheriff or constable for execution;

(2)              otherwise apply the property to the satisfaction of the judgment;  or 

(3)              appoint a receiver with the authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment.

Three Key Observations on the Turnover Statute

Judgment creditors may use the turnover statute to collect the entirety of the original award—actual damages, prejudgment interest, exemplary damages, interest, court costs, and attorney’s fees. Here are three important things to know about utilizing the turnover statute as a judgment creditor.

1.      Creditor Must Follow Proper Procedure

            The Turnover Statute requires the judgment creditor show the writ of execution was returned nulla bona, and that the debtor’s assets are not subject to ready attachment or levy by the ordinary legal process.[2]  The creditor may then file a turnover application with the court which includes a description and some evidence of the non-exempt property thought to be held by the judgment debtor. When these initial measures are followed, the open-ended nature of the turnover statute allows the court to exercise its own discretion to consider property owned and controlled by a debtor that would not be available to the creditor under any other circumstance. 

Debtors often go to extreme measures to attempt to protect and hide their assets, and Texas law makers have responded accordingly to help creditors collect on their judgments. For example, in World Fuel Services Corp. v. Moorehead, the court permitted turnover relief for the creditor’s $4.4 million debt, finding the debtor had pledged or assigned assets to third parties such that he had “systematically liquidated, transferred and encumbered assets in six months following judgment, including stock and receivables, going from stated net worth of $34 million to point where he maintained he lacked sufficient unencumbered assets to pay judgment.”[3]

2.      The Debtor has the Burden to Show Property is Exempt

While the creditor must initially identify the property at issue, if the judgment debtor asserts the asset is exempt from turnover, it is the judgment debtor’s burden to prove the exemption.[4]  Importantly, multiple courts have found that the “mere fact that assets have been pledged to third parties does not necessarily mean that they are not owned by or subject to control of debtor.”[5]  Property that may be included in turnover relief includes property outside Texas, secreted property and intangible property rights.[6] Negotiable instruments, rental income, interest income, and cash in a judgment debtor’s possession or control are also subject to the turnover statute.[7] While the court will decide what property may be exempt from turnover, the judgment debtor’s personal property under Texas Property Code §§ 42.001 and 42.002 will not be subject to turnover.

3.      Collection Includes Attorney’s Fees

Plaintiffs are entitled to recover all reasonable and necessary attorneys’ fees and court costs in connection with a turnover motion.[8]  In fact, Texas courts have found the award of attorney fees and costs is mandated under the turnover statute where the party has successfully obtained turnover relief.[9]  If the judgment creditor is unsuccessful in seeking recovery via the turnover statute, no attorney’s fees are awarded. 

Not only are judgment creditors entitled to attorney’s fees for the turnover action itself, but when attorney’s fees are awarded in an underlying action, judgment creditors are eligible to collect those fees as well using the turnover statute. In the 2009 case, Haden v. David J. Sacks, P.C., Haden challenged an award of $90,000 for attorney’s fees accrued as part of bankruptcy proceedings incident to the turnover relief obtained by the law firm.[10] The court found it was undisputed that the law firm in the case was a judgment creditor, and a proper party under Tex. Civ. Prac. & Rem. Code § 31.002(e).[11] Looking at the plain language of the turnover statute, the court ruled the trial court did not abuse its discretion by interpreting § 31.002(e) to allow for the full award of attorney’s fees and costs to the law firm.[12]

The turnover statute is by no means a guarantee that a judgment creditor will be able to collect on its judgment from the debtor, but it is a key tool available to all creditors and should certainly be considered when a debtor is trying to hide or manipulate assets to avoid paying a judgment.

Have a question about whether the turnover statute could help you collect on a prior judgment?

Contact lschoenbaum@dwlawtx.com

By George B. Ward, De Leon & Washburn, P.C.

In a perfect world, the relationship between employers and employees would always remain pleasant and free of disputes.  Hiring would occur quickly, on agreeable terms.  Firing would be regrettable and respectful, but necessary for the health of the company.  Professionals could transition from one company to another on smoothly negotiated terms.  And so on…

Of course, experience tells us that the modern business world is not perfect.  As an employment attorney and litigator, I routinely encounter employment disputes at various stages of their development.  Some disputes are driven primarily by business concerns, while others are more personal and emotional.   Some disputes can be resolved with goodwill, while others have already passed the tipping point.  Regardless of the nature of an individual dispute, there is one key document that must be unearthed and addressed: the employment agreement. 

The idea that the employment agreement is important may seem obvious, but in reality employment agreements exist in the background during the majority of an employment relationship.  Often, an employer or employee does not truly analyze the contents of their employment agreement until a dispute arises.  Many employment agreements are based on outdated forms or boilerplate language that has not been tailored to suit the specific situation.  Each employment situation is unique, and each dispute has its own distinct facts and quirks. It is possible, however, to identify some commonly disputed provisions of a typical employment agreement.  With the rest of this article, I will highlight five of the most commonly disputed provisions.  (Of course, some scenarios lack a written agreement.  This scenario, along with the “implied contract exception”, will be discussed in a later post.)

1.         Length or Term of Employment

Many employment agreements are “at will”, meaning an employment contract of indefinite duration that can be terminated by either the employer or the employee at any time for any reason.  Employment agreements can also be a contract for a set period of time or "term" of employment.  An example of a term would be “18 months” or “5 years.”  Agreements for a term can provide comfort for the employer or employee, and are often useful for attracting talented professionals.  Understanding whether an employment agreement is for a term is crucial because the rights of the parties to the agreement can vary greatly as a result of the analysis.  Often it is fairly easy to ascertain from the language of an agreement whether a term of employment was intended, but not in every case.  For example, consider the following: an employment agreement for a 9-year term that can be terminated by either party with 6-months’ notice.  Is this employment at-will or for a term?  If it is a term agreement, what is the length of the term, 9 years or 6 months?   The analysis is not always simple, but it is always important. 

2.         Noncompetition Clause, or the “Noncompete”

Some employment agreements contain a clause prohibiting a contracting party from engaging in similar employment for a specified period of time within a certain geographical area.  In legal terms, this is known as a “restrictive covenant”, or more colloquially as a “noncompete clause.”   Noncompete clauses arise from the notion that an employer who invests significant time and capital in an employee would like the comfort of knowing that the employee will not leave the company and quickly begin using the new-found skill set to benefit a competitor.  Employees are often willing to agree to the noncompete clause because they are landing a desirable job.  An enforceable noncompete clause must be limited to a reasonable geographic area.  When examining the geographic area, the courts often look at where a company is doing business.  With this in mind, I think it is interesting to consider the impact of mobile technology and the virtual office on a court’s geographic analysis.  Consider the example of a Chicago company, with customers in the Midwest, which employs a project manager who works remotely from San Francisco.  Is the Chicago company “doing business” in San Francisco simply because that is where the project manager logs in to his computer?  (This topic will be explored further in a later post).  Noncompete clauses can be heavily contested and controversial.  Regardless of one’s view on noncompete clauses, and regardless of one’s position as employer or employee, every noncompete clause must be carefully structured and analyzed in order to prevent costly disputes. 

3.         Compensation Description

Most employment agreements will indicate the amount of compensation and the manner in which that compensation will be delivered.  In a simple scenario, an employment agreement will provide for an annual salary of “x” dollars to be paid in equal sums at end of each month.  This is clear enough, but the realities of modern business mean that the total amount received by an employee is likely to include some elements from the following list: a bonus, deferred compensation, profit sharing, equity distribution, stock options, merit raises, health and other insurance benefits, and many others.  Due to the increasing number of compensation options, clear and decisive language is crucial when the parties are describing the compensation program.  In a surprising number of cases, the parties to an employment agreement ultimately discover that they do not agree on the total amount the employee was owed under the agreement. 

4.         Arbitration Provision

Litigation is usually expensive and time consuming, regardless of the issue that is being disputed.  To hedge against the burdens of litigation, an employer and employee will often agree to resolve any dispute related to the employment agreement through arbitration.  The goal of a typical arbitration provision is simple: get both parties to firmly commit to waive their right to proceed directly to litigation and agree on using arbitration.  Despite this seemingly simple goal, arbitration provisions are often challenged after a dispute has arisen between the parties to an employment agreement.  The challenges typically occur because one of the parties perceives that the arbitration provision will work to the advantage of the other party.  Arbitration provisions are often upheld by the courts, particularly if a provision was clearly identified in the employment agreement.  Occasionally, a court will modify an arbitration provision to include more context or details, which brings me to an observation.  I have noticed that many arbitration provisions are lacking in detail.  The details that are sometimes omitted include: 1) whether the arbitration will be binding, 2) where the arbitration will occur, 3) what rules will apply, 4) who will bear the costs, and 5) how the costs will be allocated.   These details deserve careful consideration, as they can add clarity to an arbitration provision and decrease the likelihood of a costly dispute over the terms of the agreement. 

5.         Termination Provision

An employment agreement is often being analyzed because someone has been, or is about to be, terminated.  As discussed above, many employment agreements are “at will” and can be terminated for any reason or for no reason at all.  These employment agreements will often contain only a brief statement explaining that the employee “may be terminated at any time for any reason, with or without cause.”  In some situations, an employer or employee will want to include additional rules or prerequisites regarding an “at will” termination.  For example, an employer and employee may wish to agree that notice of the termination must be in writing with 20 days’ notice.  In contrast to employment that is purely “at will”, some employment agreements will contain a termination provision that sets forth the grounds that are necessary for termination, commonly referred to as “good cause.”  A full discussion of termination for cause would require many more pages, but one point that should be clear is that adding conditions to the termination provision often adds avenues for disputes.  Whether one is addressing a termination provision or any of the provisions discussed above, it is important to consider whether the language clearly captures the agreement of the parties without creating costly confusion. 

* George B. Ward’s practice areas include employment law, commercial litigation, and insurance law.  

On August 8, 2011, the law firm of De Leon & Washburn, PC secured an early victory for an international corporate client facing multiple claims.  The case was handled by the litigation team of George B. Ward, Lauren Schoenbaum, and Ben De Leon.  The suit presented complicated issues relating to venue, personal jurisdiction, and removal to federal court.  The corporate client, who specializes in providing financial and tax consulting services, was initially sued in a Texas state court. After a thorough jurisdiction analysis, attorneys Ward, Schoenbaum, and De Leon quickly removed the case to federal court, where briefing commenced on the substantive issues.

The Plaintiff challenged the removal to federal court, asserting that the amount in controversy did not meet the criteria for removal. After responding to Plaintiff's argument, the De Leon & Washburn attorneys filed a motion to dismiss.  Following a substantial amount of further briefing, the federal court dismissed the entire action against the client. The court held that Plaintiff's claims were indeed barred by  the contractual venue provision and notions of jurisdiction.  The quick victory, obtained less than six months from the initial filing of the lawsuit, allowed the client to avoid the costly and protracted litigation that so often occurs in complex corporate matters.

* George B. Ward:    employment law  --  commercial litigation  --  insurance and corporate regulatory law

* Ben De Leon:     administrative law  --  arbitration  --  insurance and corporate regulatory law

* Lauren Schoenbaum:    administrative law  --  insurance and corporate regulatory law  --  commercial law

By: Ben De Leon, De Leon & Washburn, P.C.

Many individuals who have matters pending before administrative agencies do not understand the potential ramifications of going to a contested haring at the State Office of Administrative Hearings (“SOAH”), much less the subsequent misnamed standard of review (the “substantial evidence rule”) the district court gives to administrative agencies’ final orders based on the recommendations of SOAH. Under the substantial evidence rule, found at Section 2001.174 of the Texas Government Code, a reviewing court may not substitute its judgment for the judgment of the agency on the weight of the evidence on questions committed to agency discretion.[1] Indeed, the evidence may actually preponderate against the agency’s finding and the court must still uphold it if enough evidence suggests the agency’s determination was within the bounds of reasonableness (i.e., if substantial evidence supports the agency’s determination).[2] For that reason, the substantial evidence rule might be better named the little or no evidence rule.