North Carolina Judgment Enforcement and Collection Attorney Thomas Kerner

Freezing Assets in North Carolina After a Judgment

Freezing the assets of a defendant after getting a judgment is a critical component of any successful judgment collection.  North Carolina Gen. Stats. 1`-358 permits a judgment creditor (the plaintiff) to obtain a court order to forbid any "transfer or other disposition of, or any interference with, the property of the judgment debtor not exempt from execution." 

The broad language of this section is designed to capture all non-exempt property (that is, property that the Defendant is not able exempt from execution under NC Gen Stat 1C-1601) and preserve it so that the Plaintiff may have the Sheriff seize it to satisfy the judgment.

One word of caution with this is that each county has a different policy on handling these orders.  You will want to know the tendencies of the Clerk of Court and the Senior Resident Superior Court judge in the county where you attempt to seek a 1-358 order.  In addition, in certain instances, you can run into a situation where the properyt you are seeking to freeze is, itself, subject to a bankruptcy proceeding.  For example, you may have a judgment against a corporation or LLC that is 100% owned by an individual person.  If that person is in bankruptcy, they will argue that their shares in that business are part of the bankrtupcy estate.  But what if the company itself owns separate property?

We have run into this situation before, and I can say that while we did prevail, it is not something you would want to try yourself (if you are representing yourself) or as an attorney inexperienced in these types of matters.  You do run the risk of a trustee moving for sanctions for violating an automatic stay (which has happened to us), and must be prepared to navigate a narrow and tricky, trap-laden path to success.  A win is there to be had, but again, I urge caution in these situations.

Post Judgment Veil Piercing in NC

North Carolina corporations cannot be pierced in supplemental proceedings, the NC Court of Appeals recently held. Piercing the corporate veil in post judgment proceedings is prohibited in cases where the shareholder defendants were not named in pleadings or served individually with a Summons.

 In Travelers Indemnity v. Triple S Marketing Group (July, 2011), the Court of Appeals held that when a shareholder is not served with a summons or complaint, North Carolina's supplemental proceedings statutes are not broadly worded enough to confer subject matter jurisdiction over the issue of whether that shareholder can be found personally liable for the debts of the corporation.

 In Travelers, the defendant corporation accepted a consent judgment against it. When the plaintiff sought to execute on the judgment, it filed a motion in the supplemental proceedings phase, seeking to pierce the corporate veil. The plaintiff cited the court's broad equitable powers to enter orders affecting property of the judgment debtor. However, because only the corporation is a judgment debtor within the meaning of those statutes, the court is without authority to issue orders as to the property of others, except of course those specifically identified in various post judgment statutes (e.g. - 3rd parties in possession of debtor's property).   

 

Judgment Enforcement Businesses: Legal in North Carolina?

A lot of people starting judgment enforcement businesses ask me if they are legal in North Carolina.  Unfortunately, I can't necessarily tell them that they are.  On one hand, I have yet to find a statute or case that specifically prohibits it.  But then again, I haven't researched the question in great depth.

What I have found is that other states are quite clear in their opposition to judgment collection businesses.  These businesses are often started as "home-based" businesses, and they sound like a great idea.  The owner starts the business and gets people who hold court judgments to "assign" the judgment to them on a "future pay" basis -- that is, the collector becomes the legal holder of the judgment, then executes a side agreement with the original judgment holder to pay them a percentage of whatever they ultimately collect. 

Courts have found this practice to either be a disguised way of "practicing law without a license" or operating an unregistered debt collection business (typically a debt collection company needs a special license and must be bonded). 

For example, our neighbor to the south -- South Carolina -– expressly forbids these arrangements. See Roberts v Laconey (2007). Iowa holds similarly.  In  Iowa Supreme Court Comm’n on Unauthorized Practice of Law v. A-1 Assocs, Ltd., 623 N.W.2d 803 (2001) the Supreme Court of Iowa concluded that an instrument similar to the “Notice of Assignment and Assignment of Judgment” used by the Respondent (a judgment collection company) was not in fact an assignment of a judgment, but was an agreement for collection services such as a lawyer would perform.  The court noted that if the instrument truly had been an assignment, then the assignee could have attempted to collect the judgment without engaging in the practice of law.  The court went on to state “A-1’s claimed status as a bona fide assignee is defeated under this record, however, because the assignment – though absolute in form – is, in fact, a transfer intended primarily to secure payment for services rendered.  (citation omitted).  This is demonstrated by the fact that A-1 pays nothing for the purported ‘assignment.’ . . .  Courts throughout the country have condemned this practice as an attempt by collection agencies to accomplish indirectly what the law otherwise prohibits.”  (citation omitted).  623 N.W.2d at 808.  The court concluded that A-1 Associated, Ltd. had engaged in the unauthorized practice of law.  “So long as A-1 is not representing its own legal interests . . ., but the legal interests of others, it is engaging – without license or other authorization – in the practice of law.”  623 N.W.2d at 808-09.

In State ex rel. State Bar of Wisconsin v. Bonded Collections, Inc., 36 Wis.2d 643, 154 N.W.2d 250 (1967), the Supreme Court of Wisconsin considered the following issue: “Does a course of conduct whereby a collection agency takes assignments of accounts for collection, . . ., brings suit in its own name, and then pursuant to a prior agreement deducts from the proceeds, costs, and a fixed percentage as its fee and remits the balance to the creditor, constitute the unauthorized practice of law?” 154 N.W.2d at 253-54. In concluding that it does, the court stated “[i]t is sheer hypocrisy to conclude that the percentage retained by the collection agency represents its equity or ownership share of the claim. It is its fee or charge for professional services rendered.” 154 N.W.2d at 256. The Wisconsin court also noted that “[t]he collection agency by going into court representing itself as the client perpetrates a fraud on the court.” Id.

Another state where I found a case on this was New Mexico.  In State ex rel. Norvell v. Credit Bureau of Albuquerque, Inc., 85 N.M. 521, 514 P.2d 40, 49 (1973)  it was held that assignments procured by a credit bureau were not truly taken to acquire title and ownership, but to facilitate delivery of legal services for consideration constitute unauthorized practice of law.  In West Virginia State ex rel. Frieson v. Isner, 168 W.Va.758, 285 S.E.2d 641, 651-52 (1981) cites numerous cases to support the conclusion that an assignment taken solely to maintain suit on a creditor’s claim is a "sham" perpetrated on the court to enable the unauthorized practice of law.

So if you are tempted to start one of these businesses, wherever you are, please take heed of this information and consult with an attorney first to find out whether or not this practice is legal in your state.  For those in North Carolina who contact me on a regular basis, unfortunately I do not have an answer for you.  I suspect that North Carolina would probably go along with the other states, but you never know. Again, as far as I know, the Court of Appeals has not addressed the issue, but I must emphasize that my research on this question is far from complete.

Collecting Judgments in North Carolina -- What Happens When There is An Appeal?

Occasionally I run across a potential client (or even an attorney) who believes that merely filing an appeal will prevent a judgment creditor from being able to collect a judgment.  However, in North Carolina, there is no automatic stay of judgment enforcement proceedings simply because an appeal has been filed.  Rule 62(d) of the North Carolina Rules of Civil Procedure makes this clear:  the appealing party "may" seek a stay of execution on the judgment, but it is not automatically given.

In order to obtain a stay against judgment enforcement, a defendant must file a bond with the court ensuring payment of the judgment, pursuant to NC Gen Stat sec. 1-289. 

If I Try To Enforce A Judgment I Won Against A Consumer, Am I a "Debt Collector"?

One of the most frequent questions I am asked about judgment enforcement is whether or not the federal Fair Debt Collection Practices Act (FDCPA) applies to someone collecting a debt owed to them - without using an attorney or debt collector.  And the answer to that question is "no."

But a question that hardly anybody thinks to ask is:  Does the North Carolina Debt Collection Act (NCDCA) apply to me if I am collecting a debt owed to me?  And the answer to that is:  yes it does.  If the debt is "consumer debt" that is.  

In 2000, the North Carolina Court of Appeals decided Davis Lake Community Ass'n v. Feldmann, 138 N.C. App. 292.  In that case, legal questions arose as to whether a homeowners association, in collecting HOA fees, was acting as a "debt collector" within the meanings of either (1) the FDCPA, or (2) the North Carolina Debt Collection Act.

The Court found that under the FDCPA, the HOA was not a debt collector, as the FDCPA requires that the alleged debt collector be primarily in the business of debt collection.  Naturally, this is not the primary business of an HOA, so the act did not apply. However, the Court found no such limitation under the NCDCA.  The NCDCA provides that "any person" collecting a debt from a consumer in North Carolina is subject to its provisions.  Because of the breadth of that language, the court concluded that the HOA, in its attempts to collect dues from a homeowner, was indeed a "debt collector" within the meaning of the North Carolina Debt Collection Act.

So if you are collecting a consumer debt in North Carolina, you must become familiar with the requirements of the NCDCA. 

Renewing a Judgment in North Carolina

A judgment may be  "renewed" so to speak, by filing a Complaint prior to the expiration of the 10 year effect of the original judgment.  That Complaint must be filed and served on the Defendant(s)/judgment debtor(s) in the same manner as the original Complaint in the case.  Technically, it does not "renew" the old judgment.  Rather, it is a new judgment based upon the existing liability that extends from the original judgment. This procedure can only be done once.  See N.C.G.S. s 1-47(1).

Collecting a Judgment in North Carolina, The Basics: Part I

The primary ways to obtain a judgment in North Carolina are as follows: (1) a jury verdict, (2) a judge's order following a bench trial, (3) a default judgment (which is also entered by a judge's order), (4) a Confession of Judgment, or (5) a Consent Judgment. There are also motions to confirm arbitration awards (giving the same force and effect to an arbitration award as a judgment entered originally in a court).

Once a judgment is entered by the Clerk of Court, the party owing the money is called the "Judgment Debtor." The winning party - the one to whom the money is owed, is called the "Judgment Creditor."  Once entered, a judgment creates a lien on the real property of the debtor in any county in which it is docketed, for a period of ten years.  Also, at any time during that ten year period, an execution may be issued by the clerk of court, ordering the seizure and sale of the judgment debtor's personal property.

Judgment creditors are entitled to initiate a variety of procedures in order to collect on their judgments. The most basic of these is the Writ of Execution. The Writ of Execution is issued by the Clerk of Court.

If the Judgment Debtor is an individual person, that person must first be served with a Notice of Right to Have Exemptions Designated (form AOC-CV-406), and a Motion to Claim Exemptions. There are two AOC forms for these (AOC-CV-407 and AOC-CV-415), and their use is determined by the age of the judgment.

For corporate defendants, no such notice is required.

If the judgment is against an individual, and arises out of a "personal, family or household" debt, then the provisions of the federal Fair Debt Collection Practices will still apply, as well as those of the more restrictive North Carolina Debt Collection Ac.