Key takeaways:
- An enforced judgment is a powerful tool for asset recovery.
- It is more than likely that a Chinese judgment would be enforced in a UFMJRA state.
- It is advised to conduct full asset searches first, before proceeding to a judgment enforcement action.
- The UFMJRA focuses on finality and procedural soundness.
A judgment enforcement action in the U.S. is more likely than not to succeed if the judgment is final and the procedural steps taken to obtain that judgment were proper and thorough. It is almost certain to succeed if the judgment in the foreign litigation was obtained after the defendant appeared and actively litigated the matter. Once enforced, U.S. judgments can be valid for a decade or more, and can be “renewed” before expiration. A judgment entitles the holder to numerous tools for “discovery” of the judgment debtor’s assets in the U.S., including, for example, the ability to “subpoena” any party that may possess information on the debtor’s assets, including banks and service providers. An enforced judgment is therefore a powerful tool for asset recovery.
Preliminaries:
Before commencing an action, we first consider the “finality” of the judgment, the type of the judgment, and age of the judgment.
For example, an arbitration award is not a judgment and cannot be enforced pursuant to the Uniform Foreign Money Judgments Recognition Act (UFMJRA), but must be enforced under the Federal Arbitration Act, which has a three-year statute of limitations from the date of the award for seeking enforcement in the U.S.
For arbitration awards originating in some countries that are beyond the statute of limitations, we would advise conversion into a judgment, before seeking enforcement in the U.S. But unlike in the U.S., a Chinese arbitration award is not typically convertible into a court judgment. This is one example of a predicate “type” of judgment consideration that would implicate statute of limitations issues. Others include whether the judgment is a “mediation” decision, or a mere assigned judgment.
As to the location of the target, 30 out of 50 states in the U.S. have adopted the 2005 revision of the UFMJRA, including every major jurisdiction like New York, California, and Texas. For other states, several, including Florida, have adopted an older version of the same law. The rest remain common law jurisdictions. But, it is more than likely that a Chinese judgment would be enforced in a UFMJRA state.
Initial security of assets:
The major strategic consideration before commencing the enforcement action is the location and amount of assets. We typically engage investigators to conduct full asset searches first, before proceeding to an enforcement action. The cost for this will not typically be more than $5000.
Having a proper landscape of surely available assets allows us to design pre-litigation asset security strategies before incurring the major costs of litigation. Unlike in China, where obtaining security for judgments is relatively easy, in the U.S., it is typically a heavily litigated petition and the likelihood of success for asset security type of interim measures is usually less than 50%. However, even the threat of such an action will create large costs and risks for the target, and we usually obtain a large amount of information about the target’s intent and financial capabilities by forcing them to respond to petitions for interim measures at the outset.
Additionally, this initial litigated request typically forces the target to make various representations on the record at the outset of the case—before they have had much time to consider the strategic and legal landscape. These representations can lock them into positions that are difficult to defend later in the case. Continued monitoring of a target’s assets throughout the litigation may also allow a second attempt to obtain a freeze order if the first attempt does not succeed. On a second try, the statements the target made while defending against the first request will obviously become useful as well.
Substantive Litigation:
The UFMJRA focuses on finality and procedural soundness. The two most frequently litigated areas in such actions are therefore:
1. Service of process and notice.
2. Finality.
As to service of process and notice, caselaw in essentially all states makes clear that “actual” notice is not required to find sufficient “notice” to the target of the underlying litigation. Of course, actual notice is dispositive, so we typically ask the enforcing party to provide as much evidence of actual notice of the litigation as possible. We also ask the client to provide the entire record in the underlying litigation, and to collate all records of attempts to provide service by the Chinese court to the defendant in China. The better the record of service and attempted notice, the more likely the enforcement action is to succeed.
As to finality, targets almost always argue that a decision is not final because, for example, they did not have “notice” of the final judgment. For Chinese judgments, the Chinese civil code permits defendants to seek “re-trial” within 6 months of entry into force of the judgment or of actual knowledge of the statutory grounds for re-trial. When commencing a judgment enforcement action, we typically serve the final judgment along with our judgment enforcement complaint. This starts the trigger for the 6 months “re-trial” period. If the defendant does not request a stay under the UFMJRA to conduct retrial or appeal in the issuing Chinese jurisdiction within those 6 months, then we will argue at the proper time that they have voluntarily relinquished their right to retrial or any appeal, making the judgment final as a matter of Chinese law.
Enforcement of the judgment:
As stated above, possessing a judgment from a court of any state or federal judicial district opens up numerous tools for asset enforcement throughout the United States. A judgment creditor can “subpoena” any bank, service provider, broker-dealer, real estate broker, or anyone else, who may have information about a target’s assets, and enforce against those assets when discovered.
Note, however, that enforcement is the duty of the creditor, not the court. So enforcement actions will be costly. And bankruptcy is always an option for the defendant. We therefore advise careful consideration of the costs of proceeding to conduct judgment enforcement actions when, for example, a settlement offers from the Defendant could satisfy a good portion of an enforced judgment.
Costs:
Depending on the amount of litigation, a judgment recognition action's fees can range from the tens of thousands to easily the hundreds of thousands. In a contingency setting, the fees will range from approximately 15%-30% (the smaller the case, the higher the percentage, the earlier the resolution, the lower the percentage). Subsequent enforcement actions will be much less costly, but if the defendants enter bankruptcy, that may result in up to another year of delay before obtaining funds.
Contributors: Angus Ni
