A fundamental reason foreigners are motivated to enter the U.S. market, and domestic individuals feel secure when starting a business, is trust in the rule of law of the United States. This trust stems from the perceived notion that a person or company will be held accountable for breaching a contract or violating a law in the U.S. For these reasons, individuals are always shocked and dismayed when they are victims of fraud, subsequently sue, and cannot collect on a money judgment. When a judgment is entered, these victims perennially face defendants that appear uncollectible on paper, but actually control assets held in the name of offshore entities, frustrating collection efforts. In order to avoid this pitfall, the 21st century plaintiff must be prepared to consider a global approach to collection at the outset of litigation.
This article provides an introduction to certain tools, in Florida, as well as, abroad, that can improve a plaintiff's chances to locate, freeze, and collect the assets of a defendant before and/or after a judgment. Collection challenges usually arise because either assets are located abroad, are held under a name different from the defendant, and/or there is a foreign defendant with the ability to liquidate their U.S. assets because they have no permanent ties to Florida, rendering any judgment worthless. Consequently, when deciding whether to pursue litigation, plaintiffs should consider not only litigating in Florida, but also in other foreign jurisdictions.
Setting the Scene
Consider two fairly common scenarios in which a company is defrauded and then faces an obstacle of collecting on a money judgment:
A large Florida company begins to sell wholesale electronic equipment that it purchases in bulk from a company based in Hong Kong. It enters into a new contract for television sets through the Hong Kong subsidiary company in Florida and wires payment to the subsidiary. Unfortunately, when the television sets arrive, they are either broken or missing parts, and the Florida company promptly informs the Chinese company and subsidiary of the nonconforming goods. Despite promises to the contrary, a refund is never given, and the Florida company sues the subsidiary without considering Hong Kong, as a jurisdiction, in its litigation strategy.
A Florida company purchases a movie script from an Argentinian producer living in Miami. Payment is made to the producer's Florida bank account. However, soon after attempting to partner with a California studio, the Florida company learns that the producer had previously sold the rights to the same script five years ago. The producer is sued and claims to be insolvent; however, the Florida company ultimately discovers that the producer transferred the proceeds of the sale to a company incorporated in the Cayman Islands with a Cayman bank account.
The Reach of a Florida Temporary Injunction
A temporary injunction in Florida is dictated by the Fla. R. Civ. P. 1.610, and it permits an injunction to be granted without oral or written notice if certain conditions are met by the movant party. Among those conditions is the requirement that the movant file an affidavit detailing the "immediate and irreparable injury" that will be caused before the adverse party can be heard by opposition. (1) The movant's attorney, as well, must certify in writing why notice should not be required. (2) Finally, a bond must be posted by the moving party to cover the costs and damages sustained by the adverse party if the adverse party is wrongfully enjoined. (3) If the injunction is granted, the adverse party is notified almost immediately and is permitted to contest the injunction within five days. (4)
Despite these explicit rules, Florida courts have long held that the issuance of a preliminary injunction is a matter of discretion, and that such a writ is an extraordinary and drastic remedy that should be granted sparingly and with caution and only after plaintiff has proven sufficient facts entitling him to relief. (5) Under Florida caselaw, an injunction cannot be entered to prevent a party from using or disposing of assets prior to the conclusion of a legal action. (6) Moreover, further caselaw adds that a claim for money damages does not provide a sufficient basis for injunctive relief. (7) Caselaw suggests that, although a preliminary injunction is a powerful weapon, it is not intended to freeze a defendant's bank account and would not likely assist a plaintiff in scenarios A or B.
The Florida Uniform Fraudulent Transfer Act
Depending on the facts, a plaintiff seeking money damages against a defendant in the previously mentioned scenarios should also consider the Florida Uniform Fraudulent Transfer Act (FUFTA). The basic premise behind FUFTA is to provide creditors with the right to set aside any transaction by the debtor that would reduce the creditor's chances of collecting and enforcing a judgment. (8) According to FUFTA, a transaction could be set aside by the court if it is...