Judgment Enforcement

This manual was originally created for the seminar Judgment Enforcement in Atlanta, Georgia, on December 3, 2009.

P.O. Box 509 Eau Claire, WI 54702-0509 Phone: 866-352-9539 Fax: 715-833-3953 Email address: customerservice@lorman.com Website: www.lorman.com Seminar ID: 385111

Judgment Enforcement

Prepared by: Lewis N. Woody Jones Jones, Morrison & Womack, P.C. Paul J. Morochnik Weissmann Zucker Euster P.C. Byron C. Starcher Nelson Mullins Riley & Scarborough, LLP Robert D. Wildstein, Esq. Bodker, Ramsey, Andrews, Winograd & Wildstein, P.C.

2009 Lorman Education Services. All Rights Reserved. All Rights Reserved. Lorman seminars are copyrighted and may not be recorded or transcribed in whole or part without its express prior written permission. Your attendance at a Lorman seminar constitutes your agreement not to record or transcribe all or any part of it. This publication is designed to provide general information on the seminar topic presented. It is sold with the understanding that the publisher is not engaged in rendering any legal or professional services. Although this manual is prepared by professionals, it should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought. This disclosure may be required by the Circular 230 regulations of the United States Treasury and the Internal Revenue Service. We inform you that any federal tax advice contained in this written communication (including any attachments) is not intended to be used, and cannot be used, for the purpose of (i) avoiding federal tax penalties imposed by the federal government or (ii) promoting, marketing or recommending to another party any tax related matters addressed herein. The opinions or viewpoints expressed by the faculty members do not necessarily reflect those of Lorman Education Services. These materials were prepared by the faculty members who are solely responsible for their correctness and appropriateness. Lorman Education Services, P.O. Box 509, Eau Claire, WI 54702-0509 Phone: 866-352-9539 Fax: 715-833-3953 Email address: customerservice@lorman.com Website: www.lorman.com Seminar ID: 385111 Atlanta, GA December 3, 2009

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Table of Contents
Judgment Enforcement
When to File Suit, How to Obtain the Judgment .................................................................... 3 How to Decide Whether to Pursue Collection............................................................................................ 3 Can You Collect Without Filing a Lawsuit? .................................................................................................... 5 Exactly Who Is the Debtor/Defendant?........................................................................................................... 7 Filing the Suit Through Recording the Judgment ................................................................................. 12 Treatment of Foreign Judgment...............................................................................................45 What Materials Do I Need? ................................................................................................................................... 45 Which Act Do I Follow? .......................................................................................................................................... 45 Which Statute of Limitation Applies? ............................................................................................................ 48 Attachment ............................................................................................................................................................. 51 Subjecting Assets to Judgment and Related Issues .............................................................55 Exempt Assets .............................................................................................................................................................. 55 Effects of Judgments and Priorities ................................................................................................................ 60 Levy and Sale ................................................................................................................................................................ 69 Enforcing Judgments Against Interests in Legal Entities .................................................................. 72 Bankruptcy Related Issues .................................................................................................................................... 76 Garnishment Problems ...............................................................................................................85 Introduction .................................................................................................................................................................. 85 Traverses .......................................................................................................................................................................... 85 Garnishees Failure to Answer ............................................................................................................................. 88 Third Party Claims ...................................................................................................................................................... 90 Exemptions .................................................................................................................................................................... 92 Bankruptcy ..................................................................................................................................................................... 94 Safe Deposit Boxes .................................................................................................................................................... 96 Bank Garnishments General Issues ............................................................................................................. 97 Post Judgment Discovery........................................................................................................ 101 Informal Discovery ..................................................................................................................................................101 Formal Discovery ......................................................................................................................................................102 Attachment ...........................................................................................................................................................111 Ethical and Professional Considerations in Judgment Enforcement ............................ 161 Attorneys Fees ...........................................................................................................................................................161 Unauthorized Practice of Law/Use of Paralegals..................................................................................162 Handling Recovery Of Judgments And Trust Funds ..........................................................................165 Conflicts of Interest .................................................................................................................................................166 Solicitation and Advertising Issues................................................................................................................168 Applying the Rules of Ethics to Post-Judgment Collections ........................................................169 Additional Ethical and Professional Considerations ...........................................................................173

When to File Suit, How to Obtain the Judgment

Prepared and Presented by: Lewis N. Jones Jones, Morrison & Womack, P.C. (404) 658-1670 wjones@jonesmorrison.com

How to Decide Whether to Pursue Collection

Almost all of the information you have available to you in making this decision will come to you in a package from your client. It will be most helpful if the client will provide you with the credit application that was taken at the time the credit was extended, or perhaps a financial statement provided by the then customer. These items will give you some idea as to the financial condition of the customer at the time the credit was extended. Most clients will have obtained a recent credit report when they sent you the account or possibly when they tried to make collection on their own. It will be helpful to compare one to the other to see if there has been a change of address, possibly from a house to an apartment. In the event of a loan being made by a husband and wife, does the client now show them to still be at one address, or is it possible that the client shows them at different addresses? Most especially, are those addresses inside the State of Georgia? Furthermore, what if one party has filed bankruptcy and you are to pursue the other? In such an event, check the status of the bankruptcy to see what type case was filed so that there is no co-debtor stay and also to see if the case is still pending. Did the client provide you with a current place of employment on either or both of its customers? In making your comparison, has that employment changed from the time the credit was originally extended? What if the credit was originally extended to a business, such as a corporation? Can you verify with the Secretary of State that the business is still active? Most

importantly, when the credit was extended, did the client obtain a personal guaranty from one or more of the individuals who operate the corporation? If not, was the signed evidence of debt done in a representative capacity, or not? What if the credit was extended only to an LLC? If that entity is no longer in business, do you have any means to pursue collection now?

Can You Collect Without Filing A Lawsuit?

Your opportunity to settle a balance can be concluded upon the receipt of your initial demand or it can be concluded prior to the entry of a final judgment. In either case the first step will usually be taken by the borrower who has received from you either your letter or the service copy from the deputy. When the borrower has called you, they will either try to establish some type of repayment arrangement or advise you that your clients claim for the balance owed has no valid basis whatsoever. Keep in mind that setting up a plan of repayment is one thing; the actual trial of the case by phone is yet another. While I do not suggest that the following items are all-inclusive, they should certainly prove to be helpful in dealing with a borrower who wishes to try the case shortly after hearing from you: 1. 2. 3. Never resort to name-calling or profanity. Return telephone calls from debtors as you would from fellow attorneys. Make a concerted attempt to focus any conversation with debtors on the debt itself. 4. No matter how angry the debtor becomes, you should never lose your temper or composure. 5. Deflect any and all legal questions that a debtor may have to his own counsel. 6. 7. In case of disputed debts, require documentation of the debtors claim. No matter how tempting, never threaten physical harm, criminal prosecution or even civil litigation.

If the purpose of the call is to make payment arrangements, that is your job on behalf of your client. If the purpose of the call is not to make payment arrangements, you should never give the borrower any advice except to say that they should seek their own counsel. Other than that, do not make any suggestions whatsoever as to what avenue they should follow from that point forward. Lets get a firm understanding as to what we mean by settlement. Obviously, this is done to bring the balance to a conclusion. However, will that conclusion be done quickly in the form of a lump sum or will it be extended over a period of time by way of monthly payments? If it is in a lump sum, that is a good way to do it, although you must get the approval of your client to accept a lesser amount in full satisfaction of the debt. It certainly helps things if you established at least some guideline for approval with your client at the time you undertook the case. If it is to be by way of extended payments, it is my suggestion that you already have approval of the client that the decision as to the amount of such payments is left up to the attorney, and with that you must use your own judgment in determining how much will be paid monthly and for how many months, etc. Before the suit is filed is a good time to set up either a lump-sum payment or at least some type of extended plan of repayment. For one thing, the creditor has yet to extend any additional cost for the filing of the lawsuit. Furthermore, this might just benefit the borrower since there will be no court action taken so long as these repayment terms are met. As with almost any agreement, a settlement reached prior to the institution of litigation should be documented. However, I would caution you on getting very detailed

as to the documentation. In other words, I do not want to enter into some agreement which could ultimately be found to be a new agreement and which, by those terms, would negate all of the terms of the prior agreement that was given to you by your client to collect. Therefore, I use a rather simple letter that specifies the time and amount of the repayment agreement and which further provides that litigation will begin if the terms of that repayment agreement are not timely met. Exactly Who is the Debtor/Defendant?

Before you can properly proceed to obtain a judgment that will eventually be collectible, you must decide exactly who or what is responsible for the debt. In the case of your collection of an outstanding balance owed on a promissory note or some type of contract in writing, this determination could be reasonably simple. In such an event, bring your action against the entity that obligated itself on the instrument and be sure to bring it against the name exactly as it appears on the instrument. In the case of the balance being based upon an open account, dont rely exactly on what your client told you but verify by your own means the correct name of the obligor on the account and especially the correct spelling of that name. If the debtor is incorporated, verify that fact and the exact name of the debtor by placing a call to the Secretary of State (404-656-2817) or by visiting their website, www.sos.ga.gov, scrolling down under the Quick Links column on the right, and pressing Corporations Search. In the event that you just have the name of some

business and it is not incorporated, you can obtain the name of the owner of the business

by getting a copy of the business license. Be certain to check your spelling carefully; a minor mistake in spelling could require you to start over from the beginning. When proceeding against individuals, do all in your power to ascertain the correct spelling of the name of each defendant. If the defendants first name is Bill, you should determine if his correct name is William and then bring your action against William a/k/a Bill. In that same regard, when proceeding against a husband and wife where the wife signed as Mrs. John Doe, your ability to collect the judgment will be greatly enhanced by your first determining her correct name and then bringing your suit against John Doe and Mary Doe. If you are representing a bank, you will often be furnished with a note issued by a corporate entity. If the signature is accompanied by a statement in a representative capacity, you cannot proceed against the signer individually. But what if you have a note in the name of ABC, Inc. and signed by John Doe, with nothing after his name? It is provided at O.C.G.A. 11-3-403(2)(a) that an authorized representative is personally obligated if the instrument does not reflect the fact that he signed in a representative capacity. It is the form of the signature on the note, and not other printed information appearing on the page, that governs the capacity in which the signer executed the note. Avery v. Whitworth, 202 Ga. App. 508, 509 (414 SE2nd 715) (1992). As a result, if the loan documents indicate the borrower to be a corporate entity but the person signing does not indicate the representative capacity in which he wishes to sign, that person will be personally obligated except as otherwise established by parol evidence between the immediate parties. Be aware that while the individual party may deny the individual

liability, unless there is presented some real evidence establishing such an agreement between the parties, the individual liability will remain. Talmadge v. Respess, 224 Ga. App. 768, 770 (482 SE2nd 709) (1997). In most cases the lender will require an individual guaranty, usually unlimited in amount, and signed by as many individuals as the lender can get. In such a situation, be certain to carefully examine the guaranty not only for the correct spelling of the name of the person signing, but also to ensure that the guaranty was signed strictly in an individual capacity. I am amazed at the number of instances where I have encountered a corporate loan being guaranteed in a corporate capacity. Be aware that an individual who signs a guaranty and prints an abbreviation following his signature cannot avoid personal liability by so doing. This would render the guaranty meaningless, as the corporation was already obligated on the debt. Upshaw v. Southern Wholesale Flooring, 197 Ga. App. 511(2) (398 SE2nd 749) (1990). It is provided at O.C.G.A. 9-11-15(a) that a party may amend his pleadings without leave of court at any time before the entry of a pre-trial order. This has been applied to a situation where the complaint is brought in a name that imports a corporation or partnership, but was not specifically correct. In that case, the petition is amendable to allege the true nature or name of the plaintiff. Holiday Const. Co. v. Higginbotham, 170 Ga. App. 114 (1984). Be aware that a trade name is merely a name assumed or used by a person recognized as a legal entity. If an individual undertakes an obligation in either a fictitious or trade name, that obligation is the obligation of the individual. Therefore, a corporation conducting business in a trade name may sue or be sued in the trade name.

So if you bring your suit against the trade name, you can amend by stating the real name of the obligor and, by so doing, you do not introduce a new party. ARC Security v. Massey Business College, 221 Ga. App. 489, 491 (471 SE2nd 569 (1996). Your first source of information is your clients business records, especially the original credit application. If the debtor is incorporated, you can get the name and address of the designated agent for service from the Secretary of State. A good point here would be to contact that person before you proceed and confirm that person is still serving as the designated agent for service of process. If you obtain a copy of the business license, that will also have an address on it for the owner. When proceeding against an individual, you normally would attempt to perfect service at the place of residence. If you cannot locate the debtor there, or if service is returned non est, you can try phone calls to the neighbors or a review of the most recent suit index for the state court. If it is a house, I will often look at the deed records to see if the defendant has sold the residence; if so, you might very well find that the defendant has purchased another residence in the same county and thus pick up the new home address from that deed. If you have the ability to access the records of the credit bureaus, this will not only give you a current address, but also the names and phone numbers of parties making recent credit inquiries. You can always call them to determine what information they have for an address. Dont forget the telephone book; it can be an invaluable source of information. Finally, when all else fails, use a notice to produce under Rule 34 and direct that to the local telephone company.

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Quite often, a debtor will call you upon receiving your initial demand for payment or upon being served with process. In such an event, always treat the debtor with respect and do not resort to name-calling (deadbeat, etc.). Keep your conversation focused on the purpose of the conversation, your desire to collect the debt, and the debtors ability and/or desire to pay it. There is no need to discuss anything further such as family, hobbies, and the like. You should always begin the conversation with a verification of the residence address and the employment. Of course, you should also direct the

conversation toward payment or settlement and, in that regard, explain that your job is not to extend credit but to collect the debt. As a result, you should urge the debtor to borrow money in order to fund a settlement of your claim. Such an offer on your behalf will quite often elicit an explanation of the debtors ability to satisfy the debt. Some debtors desire to give you their entire financial picture in an effort to convince you that they dont have the ability to spend any additional funds, especially on your judgment. If that is their desire, take notes! How many mortgages are against the residence and what are the payments? Is the debtor purchasing a car? If so, with whom is it financed? Remember, you can put your judgment on the title as an additional lien. The bottom line is that your client will not be happy with your services and you most likely will not receive any payment for your services unless you elicit some type of collection. If it takes a squeaky wheel, be as straightforward as possible and, without threatening, advise the debtor that your debt must receive some reasonable amount of service or you will have no choice but to take further action such as levy or garnishment. In response, if the debtor points out that bankruptcy is the only alternative, remind the

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debtor that the bankruptcy filing will remain on the credit bureaus records for seven years. Filing the Suit through Recording the Judgment

When you get a collection case, you can be certain that your client has tried most reasonable efforts at collection such as phone calls, demands, and so forth. However, before you proceed with suit, send out a demand for payment which will notify the debtor that not only is your client now serious, but it will verify for you whether or not the anticipated service address is good. In certain cases, especially with larger balances, it would not hurt to give the debtor a call and point out that you have been employed to file suit and inquire as to whether or the debtor wishes to acknowledge service of process. Other than these, you should proceed with suit. Your client has done all of the phone calling necessary and the attorney should not resort to being a telephone collector. The debtor has received your demand letter and has even been served with process, but that has probably happened before so it is no big deal! If you really want to gain the attention of the debtor while your suit is pending, serve him or her with a notice of deposition under O.C.G.A. 9-11-30(a). Remember that you must get leave of court if you wish to take the deposition prior to the expiration of thirty days after service of the summons, so notice it for the thirty-first day. Even if the debtor is not represented by counsel, you can proceed in this regard and can require his attendance while your litigation is pending. In a great majority of the cases, the debtor will contact you

regarding the anticipated deposition. It is most important that you keep your discussion here focused on the collection of the debt and the ability of the debtor to pay it.

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Remember, there will always be the question as to what remedies are available to you if the debtor does not appear or once you have the judgment. Those issues are not a point of discussion prior to judgment. A response to the demand letter has not been received, so suit has been filed, following which the defendant has been served and decides to give you a call. While the defendant is in the process of identifying himself to you, you would be well served to then confirm his home address and the date that he actually received the suit papers. As a part of your inquiry, ask that he give you the case number and then make notation on his file of the case number, the date of service as represented by the defendant, and most especially the fact that the defendant called you in response to receiving the suit papers. This could prove most helpful in the future when facing an attack on the judgment based on the assertion that the defendant never got served. In the course of the conversation you will hear some mention of the fact that the defendant admits the debt and just needs a plan to repay it over time. Be certain to make notation of the statement that the defendant admits the debt. With that being done you can establish whatever plan of repayment that you feel is reasonable and set up the procedure for the defendant to begin making payments directly to your office. One practice note here: you should never undertake any collection client who requires you to obtain its approval on voluntary debtor payments before you can put them into effect. You simply do not have the time to be calling the client for approval of voluntary payments each time a defendant calls you to set up a repayment plan. Remember, the client hired you to collect the money because the client was unable to do so.

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On the other hand, what about an offer of settlement? Many clients will agree to satisfy the debt obligation for a lesser amount if this can be done by payment of one lump sum. Hopefully, that lump sum payment will come prior to the expiration of thirty days from the date of service and as a result you can then just dismiss the case when the lump sum settlement has been completed. Here, the offer is to compromise the amount that you have been hired to collect and as a result, this offer should always be communicated to the client for its approval or rejection. Here is another effective practice note: money in hand is much more conducive to the acceptance of a settlement than is a mere verbal offer. If the defendant makes an offer that you feel may very well be viable, do not just convey the verbal offer. Instead, have the defendant fund that offer by submitting to you a certified or cashier's check in the amount of the offer with the notation that it is being tendered as "settlement in full. When received, send that by fax to your client so as to be able to assure the client that you have the "money in hand". You will find that most clients are unwilling to turn away funds which are actually being held by their attorney and that this method of a settlement often results in a great deal more acceptances than rejections. If the client accepts, write up the money and, about ten days later, file your dismissal with prejudice and thus conclude the case. However, if the client rejects the offer, you should notify the defendant by returning the tendered payment and suggesting that they add an amount to it to make it more acceptable to your client. DO NOT hold the tendered payment while waiting to see if the defendant can come up with some additional funds. If you hold it for an unreasonable length of time, you

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may very well have accepted it as settlement in full, which is exactly contrary to the directions of your client. An additional practice note: on what amount is your fee based? You have been hired to collect a balance of $5,000.00 and you agree to do so on a one-third contingent fee basis. However, the defendant has offered $3,000.00 in a lump-sum as a settlement and your client has agreed to the settlement. Is your contingent fee based on the amount of the satisfied debt or on the amount of money actually collected? I can give you an opinion either way, but would suggest that you first conclude this issue in your preliminary discussions with the client. If you do not do that, you should certainly bring it up when the settlement offer is being conveyed by you. Finally, if neither of these discussions has taken place, it is recommended that you base your fee on the actual amount of money collected as opposed to the amount of the debt for which you filed suit. Handling the settlement in that manner should afford you a better basis for additional business from this client as opposed to handling it in the other manner. In your telephone discussion with the defendant you have reached an agreement for the debt to be repaid on a monthly basis. What, if anything, further should you do to confirm this arrangement? It is suggested that you do the following: (a) Make a notation of the discussion and the agreed method of repayment on

the defendant's file and update it while awaiting the first payment to show up. (b) Send the defendant a confirming letter outlining the agreed plan of

repayment and especially pointing out the beginning date.

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By no means should you dismiss your pending lawsuit based upon the promise of monthly repayment, nor should you do so after the agreed plan of repayment has begun. Let's face it, the defendant has defaulted in payment once before and may very well default again. Therefore, you should allow the case to proceed into default, take a judgment, record it on the general execution docket, and do nothing further with it so long as the agreed plan of repayment is being maintained by the defendant. What if the defendant voices some concern about the case going into default and, most especially, a judgment being entered against him or her? Here you can maintain the benefit derived by the suit being filed and the defendant being served and also comply with the request of the defendant that no judgment be entered so long as the defendant makes payment as agreed. A form of consent order that has proven to be acceptable in such an instance is set out at the end of this material. You can prepare this and sign it and send it to the defendant, who will need to sign it and mail both pages back to you. With that done, you should submit the fully executed consent order to the court for signing and filing, which will conclude all issues in the case, will not result in an immediate judgment against the defendant, and may result in a dismissal with prejudice at some point in the future. However, in the event that the defendant fails to pay you as agreed and fails to cure that default after receiving notice from you, you can then submit an affidavit in evidence of this default and, with one simple request to the court, have judgment entered for the amounts remaining unpaid, get the fi. fa. issued, and proceed accordingly. This serves to keep both sides happy; you will obtain the result desired by the filing of the suit and the defendant will

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suffer no judgment to be entered so long as the agreed plan of repayment is being maintained. What if you don't hear from the defendant, but a pro se answer is filed? Most courts will mail you a copy of what has been filed. When you get it, first and foremost determine if the answer was filed within thirty days following the date of service. If it was filed more than thirty days after service and less than forty-five days, call the clerk and see if any cost was paid at the time of filing. If not, you can move for a default judgment as provided at O.C. G. A. 9-11-55(a), as will be more completely discussed later in this material. Experience has shown that quite a number of unrepresented defendants will file their own answer and in it state that they owe the money or they just can't pay it right now due to economic circumstances or that they would like a plan of repayment set up. As you know, none of these is a viable defense. However, this filing is sufficient to stop the issuance of a default judgment so you must take the next step to proceed to judgment. When you have determined that no issue has been presented by the defendants answer, you should move for judgment on the pleadings pursuant to O. C. G. A. 9-11-12(c). When you have filed suit and the defendant has been served and you do not hear from the defendant, but rather receive defensive pleadings from his attorney, the same rules will apply regarding the timeliness of the filing of the answer. If that has been done correctly, then your next step is to determine just what defense, if any, is being presented in the answer. Quite often we will receive a "general denial" in which jurisdiction is admitted, usually the establishment of the debt (signing of the note) is admitted, and the remainder of your assertions is denied. If no further defense is contained in the answer and suit has been

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filed on some type of loan contract, you should mail the defendant's attorney a copy of whatever loan documents you have in that regard along with some statement as to when the last payment was received, etc. If you hear nothing further from the attorney you can then assume that the purpose of the answer is just to "buy time. In such a case you need to make the decision as to how to get the matter moving along towards payment and/or judgment. Should you employ interrogatories, or just proceed with a deposition? Experience has shown that the best way to get the case moving is to notify the defendant's attorney that you will take his client's deposition on a certain date and time. Be certain that this notification is done by certified mail; on most occasions this will bring about a phone call just prior to the deposition date with an inquiry of "what can we work out"? If it does not, then proceed with the deposition as will be more completely discussed shortly hereafter. Before we get into the actual handling of an asserted defense, first be certain that the defense has been asserted in a timely manner. In other words, has it been filed within thirty days of service and if not, were the costs paid if it was filed within the next fifteen days? O. C. G. A. 9-11-55(a) clearly provides that the default occasioned by the passage of thirty days following service may be opened as a matter of right by the filing of the defensive pleadings within the next fifteen days upon the payment of costs. However, if the defensive pleadings are filed during those fifteen days without the payment of costs, the plaintiff is entitled to judgment by default. Be aware that at any time before such final judgment is entered, the court may in its discretion and upon the payment of costs allow the default to be opened on one of three grounds if four conditions are met.

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The three grounds are: (1) (2) (3) providential cause, excusable neglect, and a proper case.

The four conditions are: (1) (2) (3) (4) a showing made under oath, an offer to plead instanter, announcement of ready to proceed with trial, and setting up a meritorious defense.

The question of whether to open a default on one of the three grounds noted above rests within the discretion of the trial judge.1 On appeal the sole function of an appellate court in reviewing the trial court's denial of a motion to open default is to determine whether all of the conditions have been met and if so, whether the trial court abused its discretion based on the facts peculiar to each case. Even though the defensive pleadings were filed late and without payment of any costs, you cannot get a default judgment until you specifically put that issue before the trial court. You may use this motion, but you should not move too quickly in your application for a default judgment; instead, let the case "cure" for some thirty days before you apply for your default judgment. As a result, it becomes much more difficult for a defendant to show excusable neglect or providential cause.

Follmer v. Perry, 229 Ga. App. 257(1) (493 SE2d 631) (1997)

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When you first begin to handle a defense which you belief to be groundless, you must move rather quickly with a motion to strike pursuant to O. C. G. A. 9-11-12(f). Be aware that this must be filed within thirty days from your receipt of the defensive pleadings. Your proceeding in this regard will not only allow you to get rid of some insufficient defenses, but it will quickly send a message to the defendant and his attorney that you mean business here. Once the time for that has passed, you need to initiate discovery to begin to get to the actual foundation of each asserted defense. If the defensive pleadings contain more than a "general denial," you need to begin to get to the basis of those defenses that may be affirmatively asserted. It is provided at O. C. G. A. 9-11-8(c) that a party responding to a pleading shall set forth certain affirmative defenses. If your defendant fails to do this, don't rest your entire case on his apparent oversight because the affirmative defense can later be asserted in an amended answer.1 By applying O. C. G. A. 9-11-15(a), the Court of Appeals concluded that an amended answer which set out an affirmative defense would properly relate back to the time of filing of the original defensive pleadings and as a result the affirmative defense contained in the amendment to the answer would constitute a "pleading to a preceding pleading" and would thusly be allowed within the confines of O. C. G. A. 9-11-8(c). In addition, the affirmative defense can be properly raised in a request for summary judgment.2 In this decision, suit was filed on June 4, 1984, followed by the plaintiff moving for summary judgment on March 31, 1986. Not until July 11, 1986, did the defendant amend his answer to add an affirmative defense, which was disallowed by the trial court but allowed on appeal because no pre-trial order had yet been entered. It would appear that the intended effectiveness of

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the directive of O. C. G. A. 9-11-8(c) has been somewhat negated by these subsequent decisions. However, the trial court is bound to consider an amendment to the original response of the defendant if that amendment is filed prior to a pre-trial order signed by counsel for both sides and the trial court which has been filed with the clerk. The entry of that pre-trial order cuts off the right to amend without leave of the court, but until that has been filed, amendments must be taken into consideration by the trial court whether or not the amendment contains an affirmative defense not previously set out in the defensive pleadings.3, 4 In that the basis for accord and satisfaction, payment, and release are almost identical, these can be treated under the same heading. Obviously, each of these is a rather easily provable defense that you should be able to determine early on in discovery. In that regard, the defendant either has some proof of the happening of one of these items or he does not. In that same regard, if the claim you are seeking to recover has been discharged in bankruptcy, the proof of such should be easily had. However, before you decide to dismiss, make certain that your client has been included in the bankruptcy filing and also confirm the fact that the case has been completed and a discharge has actually been entered. You will often receive an asserted defense based upon an alleged failure of consideration. While you should be aware that there are two types here - total and partial when a defendant asserts a total failure of consideration he automatically includes therein a plea of partial failure of consideration. In either event, remember that the burden of proof in establishing this is on the defendant.5 As you know, the proof necessary to support a plea of total failure of consideration is a showing that the goods purchased or the actual consideration was totally worthless and had no value at all. Here the testimony was that

21

following the repairs, you just couldn't operate at all. As a result, it was proper to conclude that the repair to the tractor was utterly without value. However, it is somewhat different when partial failure of consideration is asserted and in carrying that rule forward one step, you should be aware that the burden of proof on the defendant is to show "to what extent the consideration has failed.6 Without the defendant carrying its burden, the trier of fact cannot make a determination and as a result this defense must fail. To recap, the defense of failure of consideration is a burden to be carried by the defendant. If he relies upon a total failure, he must show that the goods were wholly without value; if he relies upon a partial failure, he must show the extent of the failure with such particularity and certainty that the trier of fact could, without guesswork or speculation, arrive at the amount.7 Most defendants are not aware of this and it can be very helpful to you to follow these decisions. However, you should be aware of the possibility that an appellate court may give the defendant another chance. Even when it concluded that there was "skimpy" evidence as to the amount of damages, it allowed another trial to provide more detailed evidence in that regard!8 I especially direct your attention to a thorough discussion of this defense.9 When dealing with loan contracts or promissory notes, you should be aware that quite often the instrument you are proceeding on will be a renewal of a prior obligation. It is not uncommon for this to happen, but you should be aware that once the loan has been renewed, any defenses that were previously available to the defendant, most especially failure of consideration, will be waived. In other words, if the defendant had defenses available to him at the time the loan was renewed and failed to assert them, they are now no longer available to him. In that same regard, if someone purchases

22

supplies from another on an open account and then signs a promissory note for the amount owed, his later complaint as to the correctness of the amount is waived.10 This is generally true since the execution of the note in payment of an account will cut off the defenses of failure consideration, mistake of fact, recoupment, and accord and satisfaction. However, it will not cut off the defense of usury since the rule in Georgia is that once there is usury, the usury infects any renewal note for the same debt or any part thereof unless the usury is purged.11 With that said, do remember that the penalty for usury is the forfeiture of all interest so if this is found, at least the creditor will only be required to write off the amount of interest and not the entire debt. Before this penalty can be applied, it must be raised by the defendant as the defense of usury is personal to the Debtor and may be raised only by him and not by the trial court.12 Most of the affirmative defenses that support a plea of fraud are concerned with the inability of the defendant to understand the document that forms the basis for your action. In the great majority of cases, that lack of understanding comes from the defendant's failure to actually read the document he signed. Be aware that a fraud which will relieve a party to a contract, where it is established that the party has the ability to read, must be such as prevents that party from actually reading the contract. Just because someone took it out of the defendant's hands or the defendant was in a hurry or did not have his glasses, is not such a fraud as is sufficient to justify the defendant's failure to read it and the defendant will be bound by it.13 In that same regard, just because the defendant failed to notice "Guaranty of Payment" at the top of the document he signed and therefore thought that he was signing something else, this will not be sufficient to relieve that defendant of the obligation to that

23

contract.14

Here Mr. Bowen testified that he was tricked into signing because the person

handing him the papers was in a hurry. He lost because he had the ability to read and relied upon the representations of the opposite party with whom there existed no fiduciary or confidential relationship and there was no actual fraud. Please remember that while fraud and reasonable diligence are normally questions for the jury, there can be a holding as a matter of law that there is no fraud if it can be shown that the person signing was not prevented from reading the contract by emergency or trick; mere reliance upon misrepresentations as to the contents of the instrument does not constitute a sufficient defense. You may often be confronted with an allegation of fraud to the effect that the party signing the contract relied upon some alleged oral misrepresentation as to the meaning or effect of the contract. Notwithstanding the fact that the person signing is bound by the terms thereof, be aware that parol evidence in the form of an agreement between the parties which is made at the time of signing or prior thereto is incompetent to change the written portion of the contract.15 It has often been held that a promissory note is an unconditional contract to pay and being an unconditional promise, parol evidence may not be used as to impose conditions that are not apparent from the face of the instrument. As a result, an oral agreement between the parties made at the time of signing or prior thereto which relates to a condition not expressed in the instrument is incompetent to change the instrument.16 The usual situation is where the defendants assert fraud by contending that they were told prior to the signing of the loan that if there ever occurred a default, the creditor would not file suit against them. In that fraud cannot be predicated upon statements that are promissory in their

24

nature as to future acts, even if the promise was made at the time of signing, it would not support a defense of fraudulent inducement. In addition, this being a promissory note and as such being unconditional, it cannot be modified by parol evidence to impose conditions not apparent on the face of the instrument.17 Almost every written promise to pay contains some type of "entire agreement" clause which basically follows O. C. G. A. 14-6-1. As a result, a promise made by someone at the time of signing who is now deceased would not be found to alter the terms of the instrument. This rule holds true even in the face of a confidential or fiduciary relationship such as where a bank was managing a trust account on behalf of a customer. This is not such a "confidential or fiduciary" relationship as would allow a party to rely upon an oral communication or understanding which would otherwise negate the obligation of a loan note.18 Although we don't see these much anymore, it is sometimes asserted that the named plaintiff is not registered to do business with the Secretary of State or that the loan contract was made under the provisions of the Georgia Industrial Loan Act and the plaintiff did not have a license to make loans thereunder. Obviously, this is simply a matter of factual proof that should easily be established or negated early on in the action. It is respectfully

submitted that the validity of such a defense asserted in this regard can be easily established or negated early on in the action. One of the affirmative defenses that we don't see much of is that of illegality. If the consideration for the contract is determined to be illegal in whole or in part, then the entire promise of that contract will fail.19 The courts will not assist the parties to the contract in any manner. Even if money has been paid as a part of the contract, the person making the

25

payment cannot get the money back although it is quite clear that the remainder of the contract cannot be enforced.20 It is provided at O. C. G. A. 13-5-6 that the free assent of the parties is essential to a valid contract and therefore, duress, threats or other acts by which the free will of the party is restrained and his consent induced will render the contract voidable at the election of the injured party. It has been frequently held that mere threats of criminal prosecution, when a warrant has not been issued nor a proceeding begun, do not constitute duress. As a result, the threatened prosecution must be either for a criminal act or one which the threatened party thought was criminal. A mere empty threat does not amount to duress.21 You should be aware that even if it can be proven that the borrowers were experiencing economic distress, their financial difficulties do not constitute legal distress.22 A party to a contract may not void the contract on the grounds of duress merely because the contract was entered into with reluctance or the contract is disadvantageous or the bargaining powers of the parties was unequal.23 As a result, if a borrower issues checks which are returned and signs a promissory note to confirm an agreement to repay the checks, the fact that the lender's attorney may have suggested or intimated that the borrower could have criminal responsibility for writing the checks would not present a genuine issue as to any material fact and the lender or holder of the note would thus be entitled to summary judgment as a matter of law.24 You should be aware of the applicable statute of limitations regarding the basis for your suit. If your loan is one under seal wherein it is so recited in the body of the instrument, you can bring suit within twenty years after the right of action has accrued.25 If

26

you don't have such an instrument and you just have a plain note or contract, you must bring suit within six years after it has become due and payable.26 "In order to render a promissory note a sealed instrument, the intention to execute it as such must appear both in the body of instrument and after the signature."27 As a result, the Supreme Court has held that the

combination of the words "Witness my hand and seal" in the body of the note and the letters "L.S." following the maker's signature renders the note a sealed instrument.28 In each of these situations, be aware that your period of limitation does not run while the defendant is outside of the state. On other items such as open accounts, you must bring your action within four years after it has accrued.29 What if the note is silent as to any due date at all? Even if it provides for annual payments of interest and does not provide for any date on which the principal is due? O. C. G. A. 11-3-118(b) now provides "if demand for payment is made to the maker of a note payable on demand, an action to enforce the obligation of a party to pay the note must be commenced within six years after the demand. If no demand for payment is made to the maker, an action to enforce the note is barred if neither principal nor interest on the note has been paid for a continuous period of ten years." Therefore, if no demand was made and no payment was ever made, the applicable statute of limitations is now ten years. Be aware that such a statute is not to be construed retroactively unless the language of the statute imperatively requires it.30 The most frequent defense you will encounter is that asserted pursuant to O.C.G.A. 9-11-12(b)(6) wherein it is generally claimed that you have failed to set forth a claim upon which relief can be granted. As a part thereof, it is often contended that your suit based on a

27

promissory note does not have a copy attached, but in only a very few courts is that actually required. While it was not formerly required for the loan document to be attached to the pleading, the current rulings are that the failure to attach to the original complaint proof of the debt and specification of the balance provides an adequate basis for setting aside a default judgment.31 As a set-off and most often not as a counterclaim, it will be asserted that your loan transaction does not comply with the provisions of the Truth in Lending Act and you will also find asserted often as a counterclaim some reference to your alleged failure to comply with the Fair Debt Collection Practices Act. One of the more interesting defenses is the assertion that your action is barred as a result of the failure of the holder of the loan to pay the intangible tax thereon. Under O.C.G.A. 48-6-32, this constitutes a complete defense, but remember that the tax must be actually due and unpaid at the time of trial.32 _____________/ 1. 2. 3. 4. 5. 6. 7. 8. 9. Security Insurance Co. v. Gill, 141 Ga. App. 324, 325 (233 SE2d 278) (1977) Brown v. Moseley, 175 Ga. App. 282(1) (333 SE2d 162 (1985) Spafford v. Maseroni, 186 Ga. App. 290, 291 (367 SE2d 102) (1988) Gaul v. Kennedy, 246 Ga. 290(1) (271 SE2d 196) (1980) Carlton Co. v. Allen, 135 Ga. App. 658(1) (218 SE2d 666) (1975) Anchor Sign Co. v. PS Heating, 125 Ga. App. 207, 208 (186 SE2d 892) (1971) Pepsico Truck Rental v. Eastern Foods, 145 Ga. App. 410, 411(1) (243 SE2d 662) (1978) Camelot Club Condo Assoc. v. Metro Lawns, 161 Ga. App 574, 576 (288 SE2d 325)(1982) Bollen v. Harkleroad & Hermance, P.C., 217 Ga. App. 4, 6-7 (456 SE2d 73) (1995)

28

10. 11. 12. 13. 14. 15. 16. 17.

Massey v. Electrical Wholesalers, 137 Ga. App. 829(2) (224 SE2d 811) (1976) McNair v. Gold Kist, Inc., 166 Ga. App. 782, 784(2) (305 SE2d 478) (1983) Ideal loan & Finance Corp. v. Little, 217 Ga. App. 385 (457 SE2d 274) (1995) Lewis v. Foy, 189 Ga. 596 (65 SE2d 788) (1940) Citizens Bank v. Bowen, 169 Ga. App. 896, 897 (315 SE2d 437) (1984) Whiteside v. Douglas County Bank, 145 Ga. App. 775(2) (247 SE2d 2) (978) Leventhal v. Seiter, 208 Ga. App. 158(4) (430 SE2d 378) (1993) Devin Lamplighter v. Am. Gen. Finance, 206 Ga. App. 747, 749(2) (426 SE2d 645) (1992) Richards v. First Union National Bank of Ga., 199 Ga. App. 636, 637 (405 SE2d 705) (1991) O. C. G. A. 13-3-45 Jones v. Faulkner, 101 Ga. App. 547 (114 SE2d 542) (1960) Yearwood v. National Bank of Athens, 222 Ga. 709(2) (152 SE2d 360) (1966) Miller v. Calhoun/Johnson Co., 230 Ga. App. 648(4) (497 SE2d 397) (1998) Tidwell v. Critz, 248 Ga. 201(1) (282 SE2d 104) (1981) Gouldstone v. Life Investors, 236 GA. App. 813(1) (514 SE2d 54) (1999) O. C. G. A. 9-3-23; Telfair Finance Co. v. Williams, 172 Ga. App. 489 (323 SE2d 689) (1984) O. C. G. A. 9-3-24 Johnson v. International Agriculture Corp., 41 Ga. App. 740 (154 SE2d 465) (1930) Hixon v. Woodall, 246 Ga. 758 (272 SE2d 727) (1980) O. C. G. A. 9-3-26 Lovelace v. Grooms, 180 Ga. App. 424, 425 (349 SE2d 281) (1986)

18.

19. 20. 21. 22. 23. 24. 25.

26. 27. 28. 29. 30.

29

31.

Morgan v. Wachovia Bank, 237 Ga. App. 257 (514 SE2d 239) (1999); TAI Computer, Inc. v. CLN Enterprises, Inc. 237 GA. App. 649 (1999)

32.

Reeder v. Merrill Lynch, 180 Ga. App. 317 (349 SE2d 31) (1986)

30

IN THE __________ COURT OF _________________ COUNTY STATE OF GEORGIA HELPFUL NATIONAL BANK, Plaintiff, v. JOHN A. DOE, Defendant. : : : : : : :

CIVIL ACTION FILE NUMBER __________________

CONSENT ORDER IT APPEARING to the Court that the parties in the above-referenced action have reached an agreement, the following is hereby made the Order of this Court: 1. Defendant acknowledges his/her liability to the Plaintiff for the amounts set out in the Complaint. 2. The parties have agreed to settle this matter by the Defendant paying to the Plaintiff $________ each month beginning on or before [DATE] and continuing thereafter on or before the ______ day of each and every month until said debt is paid. 3. The above payments shall be made to the law offices of [NAME & ADDRESS] no later than 4:00 p.m. on the dates above indicated. 4. Should Defendant default in making the aforementioned payments in the manner set forth above, then upon written notice of said default to Defendant and Defendants failure to cure said default within ten (10) days from the date of said notice, Plaintiff shall be entitled to a judgment against the Defendant for the amounts set out in the Complaint, less any amounts which have been paid pursuant to this Order. 5. Upon Defendants timely completion of the payments set out in Paragraph No. 2 above, Plaintiff will file with the Court a dismissal of the Complaint with prejudice.

31

LET IT BE SO ORDERED _____ day of ____________________, 20____. ___________________________________ JUDGE _________ COURT OF ____ COUNTY

Consented to by:

_______________________________ JANE DOE Georgia Bar No. _____________ Attorney for Plaintiff 111 Lien Lane Debtsville, GA 00000-0000 (404) 555-2222

_______________________________ SUE ZANNA Georgia Bar No. ______________ Attorney for Defendant 80 Payment Place Judgment, GA 0001-0111 (678) 555-3333

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One of the best tools to be used early on is the propounding of Requests for Admission under O. C. G. A. 9-11-36. Be aware that each matter you submit is deemed as admitted unless a denial is filed within thirty days after service. Since your time is somewhat limited here, you must be certain of the exact date of service, so if you are opposed by an attorney send it out certified mail so that you have absolute proof of the date it was received. If the defendant is pro se, it is recommended that these be delivered to the defendant by a process server, because experience has shown that most defendants will not accept certified mail. If you are concerned with the establishment of purely factual matters, you should propound interrogatories under O. C. G. A. 9-11-33. Again, be certain of your date of service although there is no real penalty imposed here by the lack of filing of a response at the end of thirty-one days. It is suggested that you do not use interrogatories to determine the basis of someone's opinion, but rather use them only to establish purely factual matters such as date of release, amount of settlement payment, etc. You will find that one of the best tools available to quickly get at the basis of any defense is the deposition taken pursuant to O. C. G. A. 9-11-30. The point here is to determine the basis of that which the defendant has raised in an effort to stop you from collecting the amount sought. Again, if the defendant is represented by counsel, send out your notice by certified mail. If the defendant is pro se, have the defendant served by a process server. You must be assured of the fact of service if your subsequent steps will prove later to be fruitful.

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In preparing for the deposition, carefully review your file at least forty-eight hours prior to the deposition date. Continue to ask yourself during your preparation, "What do I want to learn?" Here you can truly lay the groundwork to determine the basis for specified defenses, especially failure of consideration. Once you ask the question and get a response, don't assist the defendant by bringing out the point of what you will later use in your request for summary judgment. In other words, if you ask, "Well, it did have some value, didn't it?" And the response is, "Yes, it was worth something, leave it at that. Remember that the burden is on the defendant to prove the degree to which the consideration failed and without carrying that burden, the defendant loses. Also, if you are talking about the purchase of some items, inquire as to how payment was to be made. If the defendant could not pay for it at once and entered into an agreement to make so many monthly payments, following which he found that he did not get what he bargained for, he may very well find that his subsequent agreement to make payments constitutes a waiver of the defenses which were initially available to him. If you have properly served your discovery and you do not get a response or an appearance, you should move under O. C. G. A. 9-11-37 to compel the response or the appearance. While you will usually emerge with a directive requiring the defendant to respond or to show up at a deposition, if you have properly done your homework before then and you can convince the trial court that the failure to respond or appear is either conscious or intentional, you can obtain a dismissal of the defensive pleadings at that time. This allows you to move on with a judgment without having to wait for the defendant to fail to comply with the directive compelling his or her compliance with your discovery.1 Please

34

remember that the sanction of dismissal for failure to comply with the discovery provisions of the Civil Practice Act requires only conscious or intentional failure to act, as distinguished from an accidental of involuntary non-compliance. A conscious or intentional failure to act is in fact willful.2 This has been taken further to provide that "A failure to

make any timely response to interrogatories authorizes the invocation of sanctions under subsection (d), regardless of the reason for the failure."3 However, these sanctions can only be imposed after motion, notice, and a hearing provided to the party against whom the sanctions are sought thereby providing them with an opportunity to explain the circumstances of the failure to make a timely response. Bear in mind that the filing of late responses after the requisite motion and prior to a hearing thereon does not nullify the motion.4 ________/ 1. 2. 3. 4. Bell's Ferry Landing v. Wirtz, 188 Ga. App. 344, 345 (373 SE2d 50) (1988) Stolle v. State Farm Mut. & Ins. Co., 206 Ga. App. 235, 236(3) (424 SE2d 807) (1992) Kemira, Inc. v. Amory, 210 Ga. App. 48, 51 (435 SE2d 236) (1993) Rucker v. Blakey, 157 Ga. App. 615, 616 (278 SE2d 158) (1981)

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Once you feel that you have the groundwork properly laid to overcome the asserted defenses, you should then move forward with your request for summary judgment pursuant to O.C.G.A. 9-11-56. It has been held by the Supreme Court that the moving party must demonstrate that there is no genuine issue of any material fact and that in order to prevail at summary judgment under O. C. G. A. 9-11-56, the material fact and the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law.1 If you are seeking to recover an amount due on an account or a loan where various payments have been made and you attach a sworn affidavit in support of your balance, that affidavit most likely will make some reference to reliance upon business records. If you fail to attach those records to the affidavit and they are not otherwise included in the record before the trial court, the affidavit submitted is insufficient to support your request for summary judgment, which will accordingly be denied.2 Since you are allowed by O. C. G.

A. 9-11-56(e) to support your motion with copies of papers referred to in an affidavit, they should be attached thereto since the knowledge of the affiant is derived from a review of those records. Without such, the moving party has failed to meet its burden as movant.3 Remember that the entire purpose of summary judgment is to eliminate the necessity for a trial by jury and therefore when you move and assert that there is no genuine issue as to any material fact and that you are entitled to judgment as a matter of law, your opponent may not rest upon the allegations contained in the defensive pleadings, but must come forward and set forth specific facts which show a genuine issue for trial.4 Be specifically

aware that it is the duty of each party at the hearing on your motion to present his or her case

36

in full.5

In that regard, if you assert in your motion that the defendant signed a loan

document and this is not denied by the defendant in its response, this failure to come forward will allow you a prima facie right to recover and thus be entitled to a grant of summary judgment.6 In that same regard, when a plaintiff has moved for summary

judgment on a deficiency balance following the repossession and sale of the defendant's automobile and has shown by affidavits that the sale at auction was reasonable, in order for the defendant to prevent the entry of summary judgment, his challenge to that sale must be supported by specific facts showing a genuine issue for trial.7 The burden is on the movant to prove no genuine issue of fact remains, the evidence is construed in favor of the respondent, and his evidence is treated with considerable indulgence. Therefore, when signatures on a note are admitted or established, the

production of the instrument entitles the movant to recover unless the defendant has established a defense. Furthermore, it is the continued burden of the movant to establish the non-existence of a genuine issue of fact such as an amended response by the defendant asserting that his payments and alleged right of set-off are equal to or exceed any claim the plaintiff might have. Even with nothing in the record to support this defense, on motion for summary judgment this apparently weak defense must be controverted and without doing so, the motion must be denied.8 If your request for summary judgment is granted and the defendant appeals that decision, you should keep in mind the following:

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Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. O. C. G. A. 9-11-56(c). A de novo standard of review applies to an appeal from a grant of summary judgment, and we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the non-movant.9 ________/ 1. 2. 3. 4. 5. 6. 7. 8. 9. Lau's Corp. v. Haskins, 261 Ga. 491 (405 SE2d 474) (1991) Pratt v. Tri City Hospital Authority, 193 Ga. App. 473 (388 SE2d 69) (1989) Trico Insur, v. Selective Insur. Co., 213 Ga. App. 138, 139(1) (444 SE2d 119) (1994) Oliver v. Thomas, 158 Ga. App. 388 (280 SE2d 416) (1981) Alterman Foods v. Ligon, 246 Ga. 620, 625 (272 SE2d 327) (1980) Scales v. American Lease Plans, 153 Ga. App. 670 (266 SE2d 323) (1980) Slaughter v. Ford Motor Credit Co., 164 Ga. App. 428, 429 (296 SE2d 428) (1982) Abdallo v. DDCB, Inc., 216 Ga. App. 667 (455 SE 2d 598) (1995) Matjoulis v. Integon Gen. Ins. Corp., 226 Ga. App. 459(1) (486 SE2d 684) (1997)

38

Can you collect the attorney's fees as provided for in the loan document? This is covered at O. C. G. A. 13-1-11 which specifies that you can collect this if the note or other evidence of indebtedness contains such a provision. You can collect up to but not in excess of 15% of the principal and interest if some specific percent is provided. If the note or other evidence of indebtedness provides for "reasonable attorney's fees", then you can only collect 15% of the first $500.00 of principal and interest and 10% of the amount of principal and interest in excess of that $500.00. Remember, in order to collect this amount either the holder of the note or his attorney must notify the obligor that this provision regarding attorney's fees will be enforced and that the obligor has ten days from the receipt of such notice to pay the principal and interest without being required to pay attorney's fees. If they refuse to accept the notice, that is the equivalent of having received it. You are not required to include in your notice the amount of principal and interest sought in order to collect the attorney's fees.1 Furthermore, this ten-day provision has been construed to mean that the obligor must be given at least ten days to pay the debt. Therefore, if you give the obligor more than ten days, such as twenty, this does not make your notice defective and such a notice is considered to be enforceable.2 In conclusion, you will find that the proper way to determine whether or not a defense has any validity to it is for you to be aware of the items that must be proven to support that defense. If you are the most prepared in that regard and you then proceed with your determination as to the basis for that defense, you will quickly eradicate that defense if it has no validity. Bear in mind, if you delay with proceeding with discovery, who benefits from your delay? In that same regard should you just wait for it to come up on the trial

39

calendar and work it out then or show at trial that the defendant really has no defense available to it? Again, where is the benefit of such and most especially, when will you ever come up on a trial calendar? Finally, the "bottom line" to be considered by you at the point of receiving defensive pleadings is whether or not your next step will be of any real benefit to your client. What is the benefit to the client if you delay in your efforts? On the contrary, don't you agree that a real benefit will be realized by your client if you do not delay in your efforts to determine the basis for the asserted defenses? In that regard, you should get moving in that direction just as soon as possible. __________/ 1. 2. Associates Com. Corp. v. Storey, 192 Ga. App. 199 (384 SE 2d 265) (1989) G.E. Credit Corp. v. Brooks, 242 GA 109, 113 (249 SE 2d 596) (1978)

40

It has been previously discussed that a default brought about by the failure to file defensive pleadings within the thirty days following the date of service may be opened as a matter of right by the filing of those defenses within the next fifteen days, upon the payment of cost.1 However, once judgment has been entered and the term of court has expired, the only method available to then set aside the judgment is provided at O. C. G. A. 9-11-60. As specifically provided at subsection (d)(2), a judgment may be set aside where that judgment was procured on the basis of "[f]raud, accident, or mistake or the acts of the adverse party unmixed with the negligence or fault of the movant." You will normally see this where a party has negligently failed to file an answer and make its defense.2 In that same regard be aware that a mistake on the part of the movant (defendant) will not afford a basis for relief to set aside the judgment under O. C. G. A. 9-11-60(d)(2).3 Finally, a very thorough discussion of this procedure and its history will confirm that if you have obtained a judgment at law and you are not chargeable with any conduct which would amount to fraud or imposition upon the defendant such as would prevent the defendant from filing its defense, the judgment will be allowed to stand.4 ________/ 1. 2. O. C. G. A. 9-11-55(a) Richardson v. Industrial Welding & Tool Supplies, 238 Ga. 144, 145 (2) (231 SE2d 760) (1977) Smith v. Manns, 200 Ga. App. 701, 703(1)(b) (409 SE2d 270) (1991) Lee v. Restaurant Mgt. Services, 232 Ga. App. 902, 903(1) (503 SE2d 59) (1998)

3. 4.

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42

Treatment of Foreign Judgment

Prepared and Presented by: Lewis N. Jones Jones, Morrison & Womack, P.C. (404) 658-1670 wjones@jonesmorrison.com

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44

Treatment of Foreign Judgment What Materials Do I Need?

With the movement of people around various parts of the country and most especially with a great number of them moving to the Southeast, attorneys in Georgia are being employed to collect judgments that were obtained elsewhere. If it is the judgment of a federal court in another state, it must be perfected in Georgia to be enforceable as a lien or by way of garnishment. In such a case, the federal judgment may be registered by filing a certified copy of it here, thus obtaining a judgment from the local federal court. You can register this judgment once it has become final by way of appeal or the expiration of the time for an appeal. All that is needed is a certified copy of the judgment from the original court, which you then tender to the clerk of the local federal court along with whatever fee is prescribed by that clerk. Which Act Do I Follow?

In the case of enforcing a judgment from another state, this can be done under the Uniform Enforcement of Foreign Judgments Act found at O. C. G. A. 9-12-130 if the state issuing the judgment has adopted the Act. In such an event, you need to file an exemplified copy of the foreign judgment together with an affidavit showing the name and last known address of the debtor and paying the required fee. While the registration of the foreign judgment makes it enforceable as if it were a judgment of the court in which it is being registered, it does have the same effect and is subject to the same defenses and proceedings for reopening, vacating, etc.2 If the defendant seeks to attack the judgment being so registered, it must adhere to the standard of O. C. G. A. 9-11-60(d).3 Be aware that in

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such an attack, the judgment debtor may not assert a counterclaim when the registration procedure has been employed under the registration act.4 If registration of the judgment is not available under the Act (see attached form at end of this presentation for a listing of the applicable states), then a suit must be filed to domesticate the judgment with proof of the judgment being governed by O. C. G. A. 24-724. In Georgia, any action to enforce the foreign judgment is limited to a period of five (5) years.5 There has been some discussion as to when this time bar begins to run.6 Unless there is shown a lack of jurisdiction over the person or subject matter, it would appear that the full faith and credit clause of the Constitution would require a Georgia court to enforce the foreign judgment.7 When the properly authenticated foreign judgment is filed, there is a presumption of jurisdiction by the foreign court; but if that foreign judgment shows on its face that it was entered against a non-resident, this presumption fails and a collateral attack on jurisdiction is allowed.8 In such an event, it is up to the creditor to prove the law of the original forum and without such proof, it will be presumed that the Georgia law regarding jurisdiction and service applies.9 While it would appear that a showing of good service and good jurisdiction in the foreign state would completely protect your attempt to perfect the judgment here, there is no substitute for the creditor's attorney to carefully review that foreign judgment prior to seeking to perfect it in Georgia. As you might suspect, the defendant can assert here proof of full or partial satisfaction of the foreign judgment as an available defense.10

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1. 2. 3.

28 U.S.C. 1963. O.C.G.A. 9-12-132. Arnold v. Brundidge Banking Co., 209 Ga. App. 278, 279, 433 SE2d 388 (1993), overruled on other grounds; Okekpe v. Commerce Funding Corp., 218 Ga. App. 705, 706, 463 SE2d 23 (1995). Hammette v. Eickemeyer, 203 Ga. App. 243, 416 SE2d 824 (1992). O.C.G.A. 9-3-20. Watkins v. Conway, 221 Ga. 374, 144 SE2d 721 (1965). Melnick v. Bank of Highwood, 151 Ga. App. 261(1), 259 SE2d 667 (1979). Atlantic Natl Bank of Florida v. Chance, 194 Ga. App. 634, 391 SE2d 677 (1990). Abruzzino v. Farmers & Merchants Bank, 168 Ga. App. 639, 309 SE2d 911 (1983). Sun First Natl Bank v. Gainesville 75, 155 Ga. App. 70, 73, 270 SE2d 293 (1980).

4. 5. 6. 7. 8. 9. 10.

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Which Statute of Limitation Applies?

Under the Uniform Enforcement of Foreign Judgment Act,. a filed foreign judgment has the same effect and is subject to the same procedure, defenses and proceedings for reopening, vacating, staying, enforcing or satisfying a judgment of the court in which it is filed and may be enforced or satisfied in like manner. O.C.G.A. 912-132. Therefore, the judgment debtor is entitled to a stay of enforcement of the foreign judgment if the judgment debtor can show to the court any ground on which enforcement of a judgment of this state would be stayed. O.C.G.A. 9-12-60(a) and 9-12-61 operate in tandem as a ten-year statute of limitations for the enforcement of Georgia judgments. O.C.G.A. 9-12-6-(a)(1) provides that a judgment shall become dormant and shall not be enforced when seven years shall elapse after the rendition of the judgment before execution is issued thereon and is entered on the general execution docket of the county in which the judgment was rendered. However, O.C.G.A. 9-12-61 permits a dormant judgment to be revived within three years from the time it becomes dormant. As a result, even when a judgment becomes dormant seven years from the date of the last entry upon the general execution docket, it truly does not expire until ten years after that date. For example, in trying to enforce a judgment from Florida that is good for twenty years, it must be enforced in Georgia within ten years and no later. To assume otherwise would allow a Florida judgment, because of its state of rendition, to have a longer life than a judgment in Georgia. Suffice it to say, the United States Supreme Court has consistently held that the Full Faith and Credit Clause does not compel the forum state to use the period of

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limitations of a foreign state. Wells v. Simonds Abrasive Co., 345 U.S. 514 (73 SC 856, 97 LE2d 1211) (1953). Even if the judgment has been revised in the state of rendition, the forum state is free to refuse enforcement of the revived judgment. The bottom line is this: If you are going to enforce the foreign judgment in Georgia, it had best not be more than ten years from its date of rendition, or your defendant/debtor has an absolute defense to stop your ability to enforce it here.

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Subjecting Assets to Judgment and Related Issues

Prepared and Presented by:

Byron C. Starcher Nelson Mullins Riley & Scarborough, LLP

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Subjecting Assets to Judgment and Related Issues - Byron C. Starcher

Exempt Assets

One objective in obtaining a judgment is to be able to force the sale of property of the judgment defendant, the proceeds of which will be applied to the judgment. When the debtors property is in the possession of a third party, garnishment is a common proceeding to gain control over the property. When the property is in the possession of the debtor, the process is referred to as levy and sale. Certain property is expressly exempt by statute from levy and sale. Many, if not most, of the following exemptions concern money or rights to payments from third parties and are therefore choses in action. As explained below, choses in action cannot normally be levied upon in any event, and the exemptions related to these types of property may be more appropriately considered as being exempt from garnishment. The list of various exemptions below is not intended to be a complete or comprehensive list of exemptions. A. 1. State Statutory Exemptions Garnishments

The amount of a debtor defendants earnings that may be garnished is expressly limited by statute. Georgia Code section 18-4-20(d) limits the garnished amount to the lesser of 25% of the debtor defendants disposable earnings for the week or the amount by which disposable earnings exceed 30 times the federal minimum hourly wage. For purposes of this section, earnings means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program. O.C.G.A. 18-4-20(a)(2). Disposable earnings is defined as being earnings after deduction of amounts required by law to be withheld. O.C.G.A. 18-420(a)(1). Salaries of state employees are subject to garnishment; however, if the underlying judgment arises from liability incurred in the scope of the persons employment with the state, a special procedure must be followed. O.C.G.A. 18-4-21(a). In addition, ERISA-qualified plans (including 401ks), Individual Retirement Accounts (IRAs) and Roth IRAs are not subject to garnishment until paid to the retiree. Payments from these accounts may be garnished as earnings. O.C.G.A. 18-4-22. 2. Statutory Non-Bankruptcy Exemptions

Title 44, Chapter 13, Article 1, provides for statutory exemptions from levy and sale. Under these provisions, a debtor may exempt up to $5,000 in real or personal property from levy and sale. O.C.G.A. 44-13-1. The process, though, is somewhat involved. The person must petition the probate judge in his county to set aside exempt property. O.C.G.A. 44-13-4. The petition must include a schedule containing a minute and accurate description of all real and personal property belonging to the person and a list of all creditors and their addresses.

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O.C.G.A. 44-13-4(b). The debtor must also obtain surveys of any real property to be exempted. O.C.G.A. 44-13-4(d). Notice of the petition and the date of hearing must be provided to all creditors; as to creditors living outside the county, the debtor must deliver the notices and stamped envelopes to the probate judge. O.C.G.A. 44-13-8. Unemployment benefit payments are not subject to garnishment, levy, or other process, except for collection of child support payments, and, provided the benefits are not commingled with other monies, remain free of levy and garnishment except for debts incurred for necessities during the period of unemployment. O.C.G.A. 34-8-252. Medicaid payments provided for in Title 49, Chapter 4, Article 7, of the Georgia Code are not subject to garnishment, levy, or other process. O.C.G.A. 44-9-147. Proceeds of life insurance policies, upon death of the insured, are exempt from claims of the insureds creditors when payable to a third-party beneficiary. O.C.G.A. 33-25-22(a). Cash surrender value of life insurance policies is not subject to garnishment, levy, or other process. O.C.G.A. 33-25-22(c). Certain aid to the disabled under Title 49, Chapter 4, Article 4, is not subject to levy, garnishment, or other legal process. O.C.G.A. 49-4-84. 3. Statutory Bankruptcy Exemptions

The United States Bankruptcy Code provides that certain property of the debtor is exempt from being treated as property of the estate and, thus, not subject to sale in bankruptcy. 11 U.S.C. 522. The purpose of this is to leave the debtor with enough basic property to survive, get a fresh start in life, and not have to live in a cardboard box in the park. Section 522 of the Bankruptcy Code permits the States to adopt their own exemption scheme, 11 U.S.C. 522(b)(1), (b)(3)(A), and Georgia has opted to codify its own exemptions, which are found in O.C.G.A. 44-13-100. For a person to use the exemptions under O.C.G.A. 44-13-100, the person must have been domiciled in Georgia for at least 180 days immediately prior to the bankruptcy or for a longer portion of such 180 day period than in any other place. O.C.G.A. 44-13-100(b). The exemptions are set forth in O.C.G.A. 44-13-100(a), which is set forth below in its entirety: _____________________ (a) In lieu of the exemption provided in Code Section 44-13-1, any debtor who is a natural person may exempt, pursuant to this article, for purposes of bankruptcy, the following property: (1) The debtor's aggregate interest, not to exceed $ 10,000.00 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor. In the event title to property used for the exemption provided under this paragraph is in one of two spouses who is a debtor, the amount of the exemption hereunder shall be $ 20,000.00; (2) The debtor's right to receive:

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(A) (B) (C) (D) (E)

A social security benefit, unemployment compensation, or a local public assistance benefit; A veteran's benefit; A disability, illness, or unemployment benefit; Alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; A payment under a pension, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; and A payment from an individual retirement account within the meaning of Title 26 U.S.C. Section 408 to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(F)

(2.1) The debtor's aggregate interest in any funds or property held on behalf of the debtor, and not yet distributed to the debtor, under any retirement or pension plan or system: (A) Which is: (i) maintained for public officers or employees or both by the State of Georgia or a political subdivision of the State of Georgia or both; and (ii) financially supported in whole or in part by public funds of the State of Georgia or a political subdivision of the State of Georgia or both; Which is: (i) maintained by a nonprofit corporation which is qualified as an exempt organization under Code Section 48-7-25 for its officers or employees or both; and (ii) financially supported in whole or in part by funds of the nonprofit corporation; To the extent permitted by the bankruptcy laws of the United States similar benefits from the private sector of such debtor shall be entitled to the same treatment as those specified in subparagraphs (A) and (B) of this paragraph, provided that the exempt or nonexempt status of periodic payments from such a retirement or pension plan or system shall be as provided under subparagraph (E) of paragraph (2) of this subsection; or (D) An individual retirement account within the meaning of Title 26 U.S.C. Section 408;

(B)

(C)

(3) The debtor's interest, not to exceed the total of $ 3,500.00 in value, in all motor vehicles; (4) The debtor's interest, not to exceed $ 300.00 in value in any particular item, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments that are held primarily for the personal, family, or

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household use of the debtor or a dependent of the debtor. The exemption of the debtor's interest in the items contained in this paragraph shall not exceed $ 5,000.00 in total value; (5) The debtor's aggregate interest, not to exceed $ 500.00 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor; (6) The debtor's aggregate interest, not to exceed $ 600.00 in value plus any unused amount of the exemption, not to exceed $ 5,000.00, provided under paragraph (1) of this subsection, in any property; (7) The debtor's aggregate interest, not to exceed $ 1,500.00 in value, in any implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor; (8) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract; (9) The debtor's aggregate interest, not to exceed $ 2,000.00 in value, less any amount of property of the estate transferred in the manner specified in Section 542(d) of U.S. Code Title 11, in any accrued dividend or interest under, or loan or cash value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent; (10) Professionally prescribed health aids for the debtor or a dependent of the debtor; and (11) The debtor's right to receive, or property that is traceable to: (A) (B) An award under a crime victim's reparation law; A payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; A payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual's death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor; A payment, not to exceed $ 10,000.00, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or A payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

(C)

(D)

(E)

_________________________

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The foregoing exemptions must be filed with the debtors schedules of assets filed with the bankruptcy court within fifteen days of filing the petition. Fed. R. Bankr. P. 1007(b), (c); Rule 4003(a). Whether mistakenly or intentionally, a debtor may list more exemptions than he or she is entitled; failure to timely object resulted in the exemptions being res judicata. Bankruptcy Rule 4003 formerly permitted objections to be filed only within thirty days of the meeting of creditors. The Rule was amended in 2008 to substantially extend the deadline for a bankruptcy trustee to object on the basis of fraud until one year after the case is closed. Fed. R. Bankr. P. 4003(b)(2). Among the highlights is the $10,000 exemption for the debtors interest in his or her residence. If the debtor has no interest in the property, no exemption may be taken; on the other hand, if the debtor is married and the entire interest in the residence is in the debtor spouse, that debtor spouse may exempt $20,000. Code Section 44-13-100(a)(6) is the wild card exemption, which permits the debtor to exempt $600 plus any unused amount of the residence exemption (not to exceed $ 5,000.00) in any property of the debtors choosing. Code Section 44-13100(a)(3) provides for a $3,500 exemption in motor vehicles. Section 541(c)(2) of the Bankruptcy Code provides that a bankruptcy debtors interest in a trust that includes a restriction on the transfer of the beneficial interest of the debtor is enforceable and not property of the estate. ERISA-qualified pension plans fall under this provision and are not property of the bankruptcy estate. Patterson v. Shumate, 504 U.S. 753, 760 (1992). Because the corpus of Individual Retirement Accounts are not subject to garnishment under O.C.G.A. 18-4-22, the Eleventh Circuit Court of Appeals has ruled that these accounts have a restriction on their transfer and are excluded from property of the bankruptcy estate. Meehan v. Wallace, 102 F.3d 1209, 1214 (11th Cir. 1997). At the time, Roth IRAs were not mentioned in the statute; however, Roth IRAs were subsequently to O.C.G.A. 18-4-22, and the same logic should apply. Regardless, and though not specifically listed in O.C.G.A. 44-13100(a)(2.1), the corpus of a Roth IRA has been held to be exempt under 522(d)(10). Bramlette v. Goodman, 333 B.R. 911, 920 (Bankr. N.D. Ga. 2005). Georgia Code section 44-13-101 requires the list of exempted property, as determined in O.C.G.A. 44-13-100, to be filed with the probate judge in the debtors county. While this reamains a requirement of the Georgia Code, it is not a requirement to obtain the benefits of exemption in bankruptcy. Caruthers v. Fleet Finance, Inc. (In re Caruthers), 87 B.R. 723, 729 (Bankr. N.D. Ga. 1988). 4. Choses in Action

A judgment lien attaches only to property that can be seized and sold under execution based upon the judgment. Prodigy Centers/Atlanta v. T-C Assocs., 269 Ga. 522, 523 n.3 (1998). Choses in action are not liable to be seized and sold under execution, unless made so specially by statute. O.C.G.A. 9-13-57. Judgment liens therefore do not attach to choses in action. Fourth Nat'l Bank v. Swift & Co., 160 Ga. 372, 376-78 (1925); Levine v. Weyer (In re DOTMD, LLC), 303 B.R. 519, 525-27 (Bankr. N.D. Ga. 2003). A chose in action is personalty to which the owner has a right of possession in the future or a right of immediate possession which is being wrongfully withheld. O.C.G.A. 44-12-20. Common choses in action are

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contractual rights, promissory notes, patents, copyrights, licenses, franchise rights, corporate stock, and limited partnership interests. While judgment liens may not attach to choses in action, senior holders of judgments are entitled to priority treatment with respect to garnishment proceeds when a junior creditor garnishes choses in action. Citizens & S. Natl Bank v. Wray, 144 Ga. App. 769, 770 (1978). B. Federal Non-Bankruptcy Exemptions

Federal statutes contain a number of entitlements that are exempt from levy and garnishment. Many of these are in the nature of annuities to which the annuitant contributed to a fund either by actual payments of cash or by reducing the pay received during the term of employment with the government. So, for example, while military retirement pay, which represents compensation for continued, though inactive, service would be subject to garnishment in theory as wages, McCarty v. McCarty, 453 U.S. 210 (1981), payments to beneficiaries under the Retired Servicemans Family Protection Plan or Survivor Benefit Plan or not subject to garnishment, levy, or other process. 10 U.S.C. 1440, 1450. A number of similar annuity-type programs are exempt from levy, garnishment, and other process, including Foreign Service Retirement and Disability System, 22 U.S.C. 4060; annuities payable to survivors of various federal judicial officials, 26 U.S.C. 7448(l), 28 U.S.C. 376(n), 38 U.S.C. 7297(j); civil service retirement and survivor benefits, 5 U.S.C. 8470; civil service thrift plans, 5 U.S.C. 8346(a); Railroad Retirement Act annuities, 45 U.S.C. 231m(a); and the Central Intelligence Agency Retirement and Disability System, 50 U.S.C. 2094(a). Other exempt programs are in the nature of compensation for various forms of loss. These include war risk hazard benefits for employees of federal contractors, 42 U.S.C. 1717; civil service disability benefits, 5 U.S.C. 8470; federal crop insurance claims, 7 U.S.C. 1509; longshore and harbor workers compensation for death or disability, 33 U.S.C. 916; lighthouse service employee survivor benefits, 33 U.S.C. 775; Servicemembers Group Life Insurance, 38 U.S.C. 1970(g); and certain veterans benefits overseen by the Secretary of Veterans Affairs, 38 U.S.C. 5301(a)(1). Social security benefits are also not subject to levy, garnishment, or other process. 42 U.S.C. 407(a). There are several other categories of property that are not subject to levy and do not fall under the foregoing two broad categories. When acting as a receiver, no property of the FDIC already encumbered by a lien is subject to levy, attachment, garnishment, foreclosure, or sale without its consent, and no new liens are permitted. 12 U.S.C. 1825(b)(2); In re County of Orange, 262 F.3d 1014 (9th Cir. 2001). Medal of Honor recipients receive a $1,000 per month pension that is exempt from garnishment, levy, or other execution. 38 U.S.C. 1562(c).

II.

Effects of Judgments and Priorities

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To be effective, a judgment must be entered by the clerk of court. O.C.G.A. 9-1158(b). The filing with the clerk of a judgment, signed by the judge, with the fully completed civil case disposition form constitutes the entry of the judgment . . . . The entry of the judgment shall not be made by the clerk of the court until the civil case disposition form is filed. Id. Thus, at least until this is explored further by the courts, it appears a judgment is ineffective and unenforceable until both it and the civil case disposition form are filed with the clerk. Horesh v. DeKinder, 295 Ga. App. 826, 830 (2009) ([U]ntil the judgment is entered in compliance with OCGA 9-11-58(b), it is ineffective and the prevailing party cannot collect on or enforce the judgment.) (dicta). However, other procedural time periods, such as time for appeal, may be triggered upon the filing of the judgment alone and without the case disposition form. Id.; GMC Group, Inc. v. Harsco Corp., 293 Ga. App. 707, 709-10 (2008). By default, [a]ll judgments obtained in the superior courts, magistrate courts, or other courts of this state shall be of equal dignity and shall bind all the property of the defendant in judgment, both real and personal, from the date of such judgments except as otherwise provided in [the Georgia] Code. O.C.G.A. 9-12-80. It bears emphasizing that this is the default rule. All other rules regarding recording, priorities, etc., are exceptions to this general rule. Thus, a judgment binds the property at any time owned by the defendant after its rendition, although in the hands of a bona fide purchaser, except, of course, as otherwise provided by the Code. Bradley v. Booth, 62 Ga. App. 770, 772 (1940) (citations omitted, emphasis in original). If no exceptions apply, a judgment is effective as a lien on all property, real and personal, from the date of rendition. An exception may not apply because a party is determined not be in within the class of persons intended to be protected by the exception. Brandenburg v. Navy Fed. Credit Un., 276 Ga. App. 859, 861 (2005) (summary judgment reversed because, based on facts, court could not conclude as a matter of law that third party was a member of the protected class of persons that acquired a security interest in good faith and without notice of a previous judgment). Georgia judgment liens are floating liens that attach to all future property of the debtor once acquired. Cohutta Mills v. Hawthorne Indus., 179 Ga. App. 815, 818 (1986). The priority of a judgment lien vis--vis other liens and interests will obviously affect the value of the judgment lien and how it may be enforced. A. v. Judgment Liens

By the default rule, priority between judgment liens is established solely by the date of rendition. O.C.G.A. 9-12-87. One exception is that all judgments rendered during the same term of court are deemed to have equal priority. O.C.G.A. 9-12-87(a). This is a narrow exception. Judgments rendered in a prior terms are senior to judgments rendered in subsequent terms. FAS-PAC, Inc. v. Fillingame, 123 Ga. App. 203, 203 (1971). Judgments rendered in different terms of court or by different courts are ranked according to the date of rendition. Johnson v. Mitchell, 17 Ga. 593 (1855); see also, Wellington v. Lenkerd Co., 157 Ga. App. 755, 756 (1981) (citing Johnson v. Mitchell with approval). Superior court terms are set forth in O.C.G.A. 15-6-3. Pursuant to O.C.G.A. 15-7-40, state court trial terms are prescribed by local laws and will generally be found in the countys ordinances. O.C.G.A. 9-12-81 and -82 provide for the recording of executions to provide notice of the judgment lien to third parties who may acquire a transfer or lien in the debtors property,

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thus binding them to the judgment lien. The term lien as used in these statutes refers to liens obtained through contract, e.g., security interests, and not to liens obtained by judgment. Griffith v. Posey, 98 Ga. 475 (1896). Neither statute is an exception to the default rule of priority with respect to other judgment lien holders. Accordingly, while recording the execution may establish a priority date vis--vis security interests or bona fide purchasers, it will have absolutely no effect vis--vis other judgment liens. Corley-Powell Produce Co. v. Allen, 42 Ga. App. 641, 641 (1931). A judgment rendered in a prior term of court and as to which an execution was never recorded will remain senior to a subsequent judgment lien as to which an execution was recorded. Griffith v. Posey, 98 Ga. 475 (1896). With respect to real property, O.C.G.A. 9-12-86 states that no judgment shall affect or become a lien upon the title to real property under recorded in the superior court of the county in which the real property is located. Once recorded and effective, however, the date of priority vis--vis other judgment liens is the date of rendition. National Bank of Ga. v. Morris-Weathers Co., 248 Ga. 798, 800 (1982). B. 1. v. Bona Fide Purchasers and Others Without Notice Real Property

An exception to the default rule exists with respect to real property. Judgment liens do not become a lien against title of real property until the lien is recorded on the execution docket of the superior court in which the property is located O.C.G.A. 9-12-86; Tunnelite, Inc. v. Estate of Sims, 266 Ga. App. 476, 477 (2004). A judgment lien is not perfected as against bona fide purchasers until the judgment lien is created by recordation. Flatau v. Asics Tiger Corp. (In re Wall), 216 B.R. 1016, 1018 (Bankr. M.D. Ga. 1998). A properly filed and recorded judgment lien may still be junior to subsequently-filed purchase money interests in the real property. Hand Trading Co. v. Daniels, 126 Ga. App. 342, 342 (1972). 2. Personal Property

Two important exceptions to the default rule of judgment priority are the general recording statutes for executions found in O.C.G.A 9-12-81(b) and 9-12-82. The two statutes are provided below in their entirety: O.C.G.A 9-12-81(b): As against the interest of third parties acting in good faith and without notice who have acquired a transfer or lien binding the property of the defendant in judgment, no money judgment obtained within the county of the defendant's residence in any court of this state or federal court in this state shall create a lien upon the property of the defendant unless the execution issuing thereon is entered upon the execution docket. When the execution has been entered upon the docket, the lien shall date from such entry. O.C.G.A 9-12-82: As against bona fide purchasers for value without actual notice of a judgment or other third parties acting in good faith and without notice who have acquired a transfer or lien binding the defendant's property, no money judgment obtained in any court of this state or federal court in this state outside

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the county of the defendant's residence shall create a lien upon the property of the defendant located in any county other than that where obtained unless the execution issuing thereon is entered upon the general execution docket of the county of the defendant's residence within 30 days from the date of the judgment. When the execution is entered upon the docket after the 30 days, the lien shall date from such entry. The purpose of the statute is to protect third parties acting in good faith and without notice who may have acquired a contractual lien or transfer binding on the judgment debtor's property. Levine v. Weyer (In re DotMD, LLC), 303 B.R. 519, 523 (Bankr. N.D. Ga. 2003). A person claiming to be a member of one of the protected classes has the burden of proof on the issue. Id. O.C.G.A 9-12-81(b) deals with judgments obtained in the county of defendants residence. In general terms, a judgment obtained in the county of defendants residence will create a lien effective against third parties acting in good faith and without notice when the execution is recorded on the execution docket. The lien priority date vis--vis the protected class is the date the execution is filed. For purposes of determining residency, the date of rendition is the date on which the debtor must be a resident. Bradley v. Booth, 62 Ga. App. 770, 772 (1940). O.C.G.A 9-12-82 deals with judgments obtained in a county other than defendants residence. In general terms, no judgment obtained in a county that is not the debtors county of residence will create a lien effective against bona fide purchasers and third parties acting in good faith and without notice unless the execution issuing thereon is entered upon the general execution docket of the county of the defendants residence within 30 days from the date of the judgment. When the execution is entered upon he docket after the 30 days, the lien shall date from such entry. O.C.G.A 9-12-82. Several subtleties exist in these two statutes. One subtlety is that O.C.G.A 9-12-82 protects bona fide purchasers for value, O.C.G.A 9-12-81(b) does not. A second subtlety is that O.C.G.A 9-12-82 states, as against third parties, no money judgment obtained . . . outside the county of the defendant's residence shall create a lien upon the property of the defendant in any county other than that where obtained unless the execution is filed. This suggests that if the judgment debtor is a resident of Cobb County and a judgment was rendered against her in Fulton County, a third party taking property of the debtor located in Fulton County, in good faith and without notice, would take subject to the judgment lien even if no execution has been filed anywhere in the state. The additional protections given to bona fide purchasers would be unavailing. The Georgia Supreme Court has held that this is, in fact, the case. Reynolds Banking Co. v. Peebles & Co., 142 Ga. 615 (1914). Of course, other statutory exceptions may apply to protect the interests of a third party without notice. A third subtlety is related to the requirement for entering the execution on the execution docket. The default rule under O.C.G.A. 9-12-80 is that the judgment lien dates from the date of rendition. Under O.C.G.A 9-12-81(b), when the execution has been entered upon the docket, the lien shall date from such entry. Under O.C.G.A. 9-12-82, [w]hen the execution is entered upon the docket after [] 30 days, the lien shall date from such entry. This begs the

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question of when the lien, filed under O.C.G.A. 9-12-82, dates if the execution is filed within 30 days. Under the default rule, the lien would date from the date of rendition even if that is prior to the date notice is provided to the world upon filing. Some support for this argument exists. See Citizens Bank v. Jenkins, 156 Ga. 874, 878-79 (1923). C. v. Article 9 Interests

The priority of security interests vis--vis lien interests is primarily covered in O.C.G.A. 11-9-333 and, to some extent, in O.C.G.A. 11-9-317(a), each of which represent an exception to the default judgment priority rule. Section 9-333(a) provides that perfected security interests take priority over all of the statutory liens provided for in O.C.G.A. 44-14-320. Southern Horizons Aviation v. Farmers & Merchs. Bank, 231 Ga. App. 55, 57 (1998) (dicta); Nationsbank of Tenn., N.A. v. Hardwick Carpets Int'l, 233 Ga. App. 894, 895 (1998). With respect to a duly rendered judgment of a court having jurisdiction, Section 9-333(a)(4) establishes priority of such judgments and competing security interests by applying the priority rules of Article 9. For this purpose, the judgment is treated as a hypothetical competing security interest under Section 9-322 or an encumbrance under Section 9-334, which conflicting security interest was perfected by filing or which encumbrance arose at the time the tax lien or judgment was duly recorded in the place designated by statute applicable thereto. O.C.G.A. 11-9-333(a)(4). The reference to a security interest under Section 9-322 would apply to judgment liens intended to encumber personal property. Though there appear to be no cases specifying what the applicable statute is, either under the revised or former version of the Code, the applicable statutes should be O.C.G.A. 9-12-81 and -82, which require a money judgment to be recorded on the execution docket before it can bind third parties without notice. Thus, against a competing security interest, priority of a judgment lien is established by recording the execution on the execution docket in the county of the defendants residence. Per Section 9-333(a)(4), and for purposes of determining priority, perfection occurs at the time the . . . judgment was duly recorded. Since priority under Article 9 is typically determined by the first-to-file rules, priority will commonly be determined by whether or not the judgment was filed before or after the competing financing statement. O.C.G.A. 11-9-308(a); 11-9-322(a)(1). Also, the first-to-file rule will typically permit an Article 9 secured creditor to obtain a priority date that is before the underlying transaction actually takes place; on the other hand, recording of the judgment lien is necessarily the final step at the end of a long journey. Section 9-317(a) also provides some guidance in the way of priority, though how much is not clear. That section states, in relevant part, that: A security interest or agricultural lien is subordinate to the rights of: .... (2) Except as otherwise provided in subsection (e) of this Code section, a person that becomes a lien creditor before the earlier of the time: (A) The security interest or agricultural lien is perfected; or (B) A financing statement covering the collateral is filed. This subsection is very similar to the Model Code adopted in most states. Subsection (e), referenced in the passage, provides an exception for purchase money

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security interests: if the rights of the lien creditor arise between the time the purchase money attaches and the financing statement is filed (so long as the filing is within 20 days after delivery of the collateral), the security interest will prime the lien creditor. In most states, this section determines the priority of most non-statutory liens versus a security interest. Model Code Section 9-333, a very short section, provides that possessory liens have priority over security interests unless the lien is created by statute and the statute provides otherwise. As early as 1964, the Georgia legislature codified a non-uniform Section 9-333 (actually, its predecessor, O.C.G.A. 11-9-310) that expanded the sections treatment of just statutory liens to include state tax liens, years support, and other priority issues including duly rendered judgments. Because Section 9-333s predecessor, O.C.G.A. 11-9-310, appeared to substantially overlap Section 9-317s predecessor, O.C.G.A. 11-9-301, an inevitable conflict arose. The Georgia Supreme Court determined that the two sections did not overlap because 11-9-301 and 11-9-310 dealt with the separate priority schemes for judgment lienholders and for lien creditors. Crossroads Bank of Ga. v. Corim, Inc., 262 Ga. 364, 366 (1992). According to the supreme court, one does not become a lien creditor by merely obtaining a judgment and recording it on the general execution docket, otherwise the two sections would be largely superfluous with respect to that issue. Id. The judgment lienholder must file an attachment or levy upon the afteracquired property (see OCGA 18-3-30, 18-3-31) in order to become a lien creditor, and the supreme court distinguished between the formal process of attachment as opposed to attaching in the security interest sense. Id. at n.5. Accordingly, what constitutes a lien creditor under Georgias Article 9 is somewhat unclear as is the scope of Section 9-317(a). Since Section 9-317(e), dealing with purchase money interests, specifies lien creditors, this subsection may not apply to a perfected judgment lien until property is levied upon or the creditor obtains an attachment. Relying on Article 9 to establish priorities, as set forth in Section 9-333(a)(4) should recapture the priority of a purchase money security interest. However, whereas Section 9-317(e) apparently limits the purchase money priority to circumstances where the lien creditors rights arise between the time of attachment and filing, the general Article 9 priorities would seem to permit a purchase money lender to prime a judgment lien at any time. The reference in Section 9-333(a)(4) to an encumbrance would apply to judgment liens intended to encumber real property, i.e., a real property lien competing with a UCC fixture filing. Though there appear to be no cases specifying what the applicable statute is, either under the revised or former version of the Code, this should refer to O.C.G.A. 9-12-86. D. 1. v. Statutory Liens and Lien Provisions Federal Tax Liens.

Federal tax liens for unpaid taxes arise at the time they are assessed. 26 U.S.C. 6321 & 6322. However, the lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof

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which meets the requirements of subsection (f) has been filed by the Secretary. 26 U.S.C. 6323(a). This provision maintains the common law principal of first in time is the first in right. United States by & ex rel. IRS v. McDermott, 507 U.S. 447, 449 (1993). Subsection (f) of 26 U.S.C. 6323 permits the state to determine where the notice of tax lien is to be filed in order to perfect. In Georgia, notices of federal tax liens are filed pursuant to O.C.G.A. 44-14571, which requires notices of liens against real property to be filed with the clerk of the superior court in which any subject real property is located and, with respect to personal property, with the clerk of the superior court of the county in which a corporations or partnerships principal executive office (as defined by the IRC) is located or, with regard to any other person, the county of residence. Judgment lien creditor is defined in the Code of Federal Regulations as being: The term "judgment lien creditor" means a person who has obtained a valid judgment, in a court of record and of competent jurisdiction, for the recovery of specifically designated property or for a certain sum of money. In the case of a judgment for the recovery of a certain sum of money, a judgment lien creditor is a person who has perfected a lien under the judgment on the property involved. A judgment lien is not perfected until the identity of the lienor, the property subject to the lien, and the amount of the lien are established. Accordingly, a judgment lien does not include an attachment or garnishment lien until the lien has ripened into judgment, even though under local law the lien of the judgment relates back to an earlier date. If recording or docketing is necessary under local law before a judgment becomes effective against third parties acquiring liens on real property, a judgment lien under such local law is not perfected with respect to real property until the time of such recordation or docketing. If under local law levy or seizure is necessary before a judgment lien becomes effective against third parties acquiring liens on personal property, then a judgment lien under such local law is not perfected until levy or seizure of the personal property involved. The term "judgment" does not include the determination of a quasi-judicial body or of an individual acting in a quasi-judicial capacity such as the action of State taxing authorities. 26 CFR 301.6323(h)-1(g). Accordingly, judgment liens recorded on the execution docket of the debtors residence (with respect to personal property) and with the clerk of the superior court in any county in which the debtor owns real property should have priority over a federal tax lien. United States by & ex rel. IRS v. McDermott, 507 U.S. 447 (1993); Prodigy Centers/Atlanta v. T-C Assocs., 269 Ga. 522, 523 n.2, 3 (1998). When property is acquired by the debtor after a judgment lien has been perfected and the IRS has filed a notice of tax lien, such that both liens attach to the property simultaneously upon acquisition, the IRS lien takes priority. United States by & ex rel. IRS v. McDermott, 507 U.S. 447 (1993). The definition of judgment lien creditor states that, if Georgia law requires levy or seizure to obtain rights senior to third parties, then such seizure or levy is required to maintain priority. 2. State Statutory Liens

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Statutory liens are found in Chapter 14 of Title 44 of the Georgia Code. Unless a special priority is provided in that chapter, all liens, including statutory liens, obtain priority by date. O.C.G.A. 44-14-323. Priorities of judgment liens vis--vis state tax liens are set forth in O.C.G.A. 48-2-56. For this purpose, state tax liens means taxes due the state, county, municipality, and school or other special taxing districts. Tax liens are senior to all liens except as otherwise set out in that Code section. O.C.G.A. 48-2-56(b). However, the priority of tax liens related to income taxes and withholding taxes described in Title 48, Chapter 7, Articles 2 and 5, vis--vis judgment liens is governed by first-to-file. O.C.G.A. 48-2-56(e), (f). Also (and a godsend to judgment lien creditors), motor fuel taxes are junior to judgment liens rendered prior to the time the notice of fuel tax lien is filed. O.C.G.A. 48-2-56(c). Other than with respect to crops, landlord liens are commonly prioritized from date of levying a distress warrant. O.C.G.A. 44-14-780, -341, -342. Recorded judgment liens will have priority over mechanics liens if recorded prior to the commencement of work or delivery of goods or services by the mechanic. O.C.G.A. 44-14-361.1(c). Thus, priority may depend on the facts of the particular case. The other statutory liens provided for in Title 44, chapter 14, typically contain very specific, though often archaic, language regarding priority, and each competing statutory lien should be reviewed for its specific provisions. 3. Attorneys Liens

While a statutory lien, attorneys liens will be treated separately. Attorneys liens may also take priority over judgment liens. Code Section 15-19-13 provides that, [i]n claim cases, the attorney causing the levy and prosecuting the rights of the plaintiff in execution shall be entitled to his fees from the proceeds of the property condemned although the holders of older liens may demand and recover the proceeds from the immediate client of the attorney. The reference to claims cases appears to be a reference to Article 5, Chapter 13, of Title 9, which is entitled claims (and which will be covered in Section III.E.). Drillers Serv. v. Moody, 242 Ga. 123, 123 (1978) (This is a claim case. Code 39-801, 39-901.); Cox v. Hargrove, 205 Ga. 12, 12 (1949); Hardy v. George C. Murdock Freight Lines, Inc., 99 Ga. App. 459, 459 (1958). In a claims case, fees may be recovered even though prior liens may exist, and prior lien holders may recover the amount of the fees from the attorneys client. This code section requires a third-party claimant; recovery on the basis of mere levy and judgment without the intervention of a claimant provides no basis for attorneys fees under this statute. Baxter v. Bates, 69 Ga. 587 (1882). Code Section 15-19-14(b) provides: Upon actions, judgments, and decrees for money, attorneys at law shall have a lien superior to all liens except tax liens; and no person shall be at liberty to satisfy such an action, judgment, or decree until the lien or claim of the attorney for his fees is fully satisfied. Attorneys at law shall have the same right and power over the actions, judgments, and decrees to enforce their liens as their clients had or may have for the amount due thereon to them.

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Subsection (b) provides that, upon actions, judgments, and decrees for money, the attorney has a lien superior to all other liens except those for taxes, and the attorney has the same right and power over the action, judgment, or decree to enforce the lien as the client has. No person may satisfy such action, judgment, or decree until the attorneys lien is satisfied in full; the term person is not limited to parties to the litigation. Georgia Rwy. & Elec. Co. v. Crosby, 12 Ga. App. 750, 753 (1913). The lien attaches upon filing of a lawsuit, and the suit cannot be settled to defeat the attorneys lien on the suit. Id. at 752. While the statute might suggest the lien is upon the cause of action, Georgia courts have explained that the lien actually attaches to the lawsuit which, when filed, essentially merges with the cause of action. Id. The right and power over the action provides an attorney with substantial leverage. In a case where the plaintiffs first attorney was discharged by the client and the case ultimately settled (with no proceeds to the first attorney) and was dismissed, the first attorney was permitted to vacate the dismissal to foreclose his attorneys lien, and the plaintiffs, plaintiffs subsequent attorneys, and defendants were held jointly liable to the petitioning attorney for his fees. Howe & Assocs., P.C. v. Daniels, 274 Ga. App. 312 (2005); affd 280 Ga. 803 (2006). The broadest attorneys lien is provided by O.C.G.A. 15-19-14(c), which states: Upon all actions for the recovery of real or personal property and upon all judgments or decrees for the recovery of the same, attorneys at law shall have a lien for their fees on the property recovered superior to all liens except liens for taxes, which may be enforced by mortgage and foreclosure by the attorneys at law or their lawful representatives as liens on personal property and real estate are enforced. The property recovered shall remain subject to the liens unless transferred to bona fide purchasers without notice. Subsection (c) provides that, in an action for the recovery of real or personal property, and upon all judgments or decrees for the recovery of the same, an attorney has a lien for fees on any such property recovered. The lien is superior to all other liens except liens for taxes, though a bona fide purchaser without notice may take free of the lien. Being in derogation of the common law, the statute is strictly construed, and the lien only attaches to the fruits of the attorneys labor. Thus, the lien attaches to the fruits of the labor and skill of the attorney, whether realized by judgment or decree, or by virtue of an award, or in any other way, so long as they are the result of his exertions. Recoba v. State, 167 Ga. App. 447, 449 (1983). There is authority for the proposition that an attorneys lien is effective against all other creditors of the client at the time the property is recovered even if the attorneys lien is not recorded. Johnson v. Giraud, 191 Ga. 577, 583 (1941); Ramsey v. Sumner, 211 Ga. App. 202, 204 (1993); Metropolitan Life Ins. Co. v. Price, 878 F. Supp. 219, 220 (N.D. Ga. 1993); but see Anderson v. Burnham (In re Burnham), 12 B.R. 286, 291 (Bankr. N.D. Ga. 1981) ( . . . the Court concludes that Georgia law requires the filing of a claim of lien in the county where the property subject to the lien is located for the perfection of an attorney's lien.) 4. Liens on Motor Vehicles

In order to perfect a judgment lien against a motor vehicle titled in Georgia, the lien holder must be listed on the vehicle title. O.C.G.A. 40-3-53. You may request that the

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Division of Motor Vehicles send you the proper forms for initiating the process. The process set forth in this Code section is the exclusive method for the perfection of liens on vehicles, and no lien shall be effective as to a vehicle unless so perfected. O.C.G.A. 40-3-53(f). III. Levy and Sale A. General Considerations

Along with garnishment, levy is the primary means of converting a money judgment into something of tangible value for the judgment creditor. Between to the two options, garnishment is typically an easier method of recovering property especially money; however, garnishment is commonly used when property of the debtor is in the hands of a third party. Levy is the primary means of gaining control and converting into cash property in the possession of the debtor and, in fact, levy may not be used to seize property not in the possession of a judgment debtor. O.C.G.A. 9-13-50(b). In its simplest form, levy is the action undertaken by the sheriff to seize control of the liened property prior to and for the purpose of sale. Levy on personal property may be either actual or constructive, O.C.G.A. 9-13-55, and levy on real property is constructive. O.C.G.A. 9-11-53. Constructive levy is used on real property and on items too large to easily remove, including motor vehicles. O.C.G.A. 9-13161(b); Champion Box Co. v. Manatee Crate Co., 75 F.2d 340, 342 (5th Cir. 1935); United Car & Truck Leasing, Inc. v. Roberts, 150 Ga. App. 369, 369 (1979). Levy is the actual seizure of the property. Corniff v. Cook, 95 Ga. 61, 66 (1894). Actual levy, therefore, is typically the seizure and transporting away of property by the sheriff. Constructive levy on personal property is more problematic, and a pen-and-ink levy may be held insufficient. The sheriff must exercise sufficient control over the property and make an unequivocal statement of dominion over the property that such action would make him liable as a trespasser but for the execution. Id. at 66 67. Thus, levy may fail if the sheriff announces at the front door that he is levying upon everything in the house and the debtor denies or refuses. Jones v. Howard, 99 Ga. 451, 45657 (1896). Of course, the creditor will have little control over how the sheriff performs a constructive levy. Constructive levy on real property is not actual seizure, but entry on the execution of the property seized with notice to the owner. In re Brinn, 262 F. 527, 530 (1919); O.C.G.A. 9-13-12, -13. Regardless of whether levy is on real or personal property, the sheriff must enter on the execution or process the property being levied upon. O.C.G.A. 9-13-12. Sheriffs can only levy upon an order of the court directing that the sheriff do so. In Georgia, this order is called an execution or a writ of fieri facias (or fi. fa.). The execution is issued by the clerk of the court following entry of the judgment and is directed to all sheriffs within the state, directing that they levy upon all personal and real property of the debtor. O.C.G.A. 9-13-10. Except in the case of default judgments, an execution may not issue until ten days after the judgment is entered to permit an appeal. O.C.G.A. 9-11-62(a). Code Section 9-12-11 requires a judgment against sureties on an instrument to specify their relation to the parties. When the judgment fails to make such distinctions, it should be amended. Franklin v. Sea Island Bank, 120 Ga. App. 654, 656 (1969). Code Section 9-13-30 suggests that an execution should not issue if the judgment does not so properly identify the relationship of the surety parties.

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The judgment creditor will need to coordinate with the sheriff in order to conduct the levy. Each office will have different requirements for executing the levy. In placing the execution with the sheriff, it is a good idea to include in a cover letter the amounts to which the creditor is entitled to collect; this amount may increase or decrease depending on costs, interest, or credits against the judgment amount. B. Personal Property

To be levied upon, title must be in the name of the debtor. Manchester Motors, Inc. v. F&M Bank, 91 Ga. App. 811 (1955). It is not uncommon for a debtor to deny that property in his possession is owned by him and claim that it is the neighbors, the spouses, is leased, or subject to security interests. Some debtors may create false bills of sale or others documents or form new legal entities and obtain licenses to support their claim that property is not the judgment debtors. In these situations, the sheriff will almost certainly not touch any of it, and the creditor needs to be sure, itself, when pointing out property at pain of wrongful levy damages. The creditor may review public records such as UCC filings, motor vehicle records, or look for notices of consignment. However, conducting post-judgment discovery and obtaining testimony under oath is the surest method of identifying personal property. The sheriff will then typically go to the location directed by the creditor to levy on property. The sheriff may seek to convince the debtor to pay the judgment amount without levy. Failing that, the sheriff should make some attempt to levy. The Sheriff is required to levy on personal property first, unless the debtor points out real property or there is insufficient personal property to satisfy the judgment. O.C.G.A. 9-13-53. The debtor has the opportunity to point out property for the sheriff to seize, and the sheriff is obligated to seize only that property, provided the sheriff believes it sufficient to satisfy the judgment. O.C.G.A. 9-13-50(b). Because the sheriff is acting as agent for the creditor and subject to damages for wrongful levy, Chambers v. Self, 53 Ga. App. 437 (1936), the sheriff will be reticent to levy if the defendant declines to point out property because he typically has no way of knowing whether property before him is titled to the debtor or not. The sheriff may request that the creditor accompany him and point out property, since such action by the creditor indemnifies the sheriff, but this is not a necessary condition for the levy to be legal. Benson & Coleman v. Dier, 69 Ga. 190, 192 (1882). The bottom line is that, unless the creditor is willing to point out property before the sheriff, the likelihood of the sheriff actually levying on personal property is probably small. However, the sheriffs mere appearance and threat of levy may be enough for the debtor to contact the creditor to make arrangements. The sheriff may accept a bond in lieu of seizure of property at the time of levy. O.C.G.A. 9-13-14. The party giving the bond must still deliver the property at the time of sale, however. Any person other than the judgment creditor may also payoff the execution and have the execution transferred to him or her. O.C.G.A. 9-13-36. Provided the provisions of this Code section are complied with, the transferees rights under the execution will be the same as the original judgment creditors, including the date of priority. Id. C. Real Property

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Levy on real property is a much safer alternative since title is a matter of public record. Due to the unique nature of Georgias deeds to secure debt that conveys legal title to the grantee, a judgment debtor may not levy and sell real property that is encumbered by a senior security deed until title reverts to the judgment debtor. Dean v. Andrews, 236 Ga. 643, 644 (1976). Reversion of title can be accomplished by the judgment creditor satisfying the obligation securing the senior security deed. Id.; O.C.G.A. 9-13-60(a). Since judgment debtors typically have little real property unencumbered by security deeds, and creditors are rarely willing to satisfy prior security deeds in order to levy on the judgment lien, levy on real property is not common. Written notice of the levy must be provided to the party in possession and, if the defendant is not in possession, upon the defendant as well. Written notice may be delivered personally by the sheriff or by certified mail or statutory overnight delivery. O.C.G.A. 9-1313(a). Proceeds from the sheriffs sale of real property are disbursed in accordance with O.C.G.A. 9-13-60(c). Proceeds are first paid to the sheriff for fees and costs. Proceeds are then paid to satisfy liens senior to the plaintiffs in execution. Following this, if the plaintiff in execution paid to have title transferred to the defendant, this amount, including interest thereon to the date of sale, is paid to plaintiff. If any proceeds remain, proceeds are then paid to satisfy the execution itself and any junior liens. D. The Sale

The sale of levied property is conducted pursuant to Title 9, Chapter 13, Article 7. There sheriff will advertise the sale in the countys legal organ once a week for four weeks, immediately preceding the date of sale. O.C.G.A. 9-13-140, -141. The advertisement must give a full and complete description of the property to be sold and providing the name of the defendant, plaintiff, and party in possession. O.C.G.A. 9-13-140. The sheriff will usually require the cost of advertisement to be paid in advance. O.C.G.A. 9-13-145. Sales are normally conducted on the first Tuesday of the month, between 10:00 a.m. and 4:00 p.m., at the courthouse of the county where the levy was made. O.C.G.A. 9-13-161. The purchaser at the sale obtains a title no higher in quality than if the defendant in execution sold the property. O.C.G.A. 9-13-173. The purchaser takes subject to all existing interests in the property and may receive no title at all as to a true owner even if the true owner had notice of levy and sale and took no actions. Commercial Credit Co. v. Britt, 53 Ga. App. 430, 431 (1936). Failure of a third party to exert an interest in the property (see below), even with knowledge of a pending sale under levy, does not prevent the party from subsequently asserting its interest against the purchaser of the property from the sheriff. Am. Finance Co. v. First Natl. Bank in Newnan, 135 Ga. App. 24, 25 (1975). The sheriff is entitled to fees for levy and sale as well as his costs. Fees are set forth in O.C.G.A. 15-16-21. Among these fees is a commission on the sale of property; once the sales price exceeds $550.00, the fee is capped at three percent. O.C.G.A. 15-16-21(b)(7). In addition to those fees and costs specifically set out in the statute, the sheriff is also entitled to recoup his reasonable and necessary expenses related to levy and sale. Hiatt v. Turner, 48 Ga.

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App. 255, 256 (1934); O.C.G.A. 9-13-45 (advertising costs). These costs will typically include costs of hiring a moving company to move the property and the costs to store the property in a bonded facility. The costs incurred can easily render levy and sale an uneconomical alternative. E. Third Party Claims

Third parties claiming an interest in the levied property may assert their claims under Title 9, Chapter 13, Article 5 (O.C.G.A. 9-13-90 et seq.). The process is initiated when the claimant files a claim under oath claiming an interest in the property and posts a bond payable to the plaintiff in execution. O.C.G.A. 9-13-90, -91. The bond is required to be in an amount not larger than twice the amount of the execution and, if the value of the property levied upon is less than the execution, the bond must be twice the value of the property levied upon. O.C.G.A. 9-13-91. The claimant may be excused from posting bond if it files an affidavit of indigence. O.C.G.A. 9-13-92. By separate bond payable to the sheriff, the claimant may also seek possession of personal property at issue until any sale. O.C.G.A. 9-13-94. The action is one between the claimant, as plaintiff, and the plaintiff in execution, as defendant; the defendant in execution need not be a party to the action. First Natl Bank v. Roberson, 53 Ga. App. 142, 14344 (1936). Upon filing the claim and posting the bond, the sheriff will postpone the sale of the property until further order of the court. O.C.G.A. 9-13-93. The sheriff will also return the property to the court as provided in O.C.G.A. 9-13-98. If the claimant is unable to post a forthcoming bond under O.C.G.A. 9-13-94, and the plaintiff in execution fails to post a forthcoming bond under O.C.G.A. 9-13-96, the claimant may request that the property be sold. O.C.G.A. 9-13-97. The matter to be decided is whether the property was subject to levy and sale at the time the claim is filed not at the time of levy. R. L. Deariso & Co. v. Lawrence, 3 Ga. App. 580, 581 (1908). If the property in question was in the possession of the defendant in execution, the property is prima facie subject to execution, and the claimant has the burden of proving that title was not in the defendant and that the claimants interests are superior to those of the plaintiff in execution. Id. at 58182. In all other cases, the plaintiff in execution has the burden of proof. O.C.G.A. 15-19-102. While the plaintiff in execution may end up being junior (or with no interest in the property), the plaintiff in execution is entitled to its attorneys fees from the proceeds of any sale. O.C.G.A. 15-19-13; May & Co. v. Sibley, 69 Ga. 133 (1882). IV. Enforcing Judgments Against Interests in Legal Entities

One type of property that a judgment debtor may own is an interest in a legal entity, such as stock in a corporation, partnership interests in a partnership, or membership or limited liability interests in a limited liability company. This section discusses briefly levy and sale of these interests. A. Corporations

Corporate stock has long been considered a chose in action and, therefore, not subject to levy and sale. See, e.g., Fourth Nat'l Bank v. Swift & Co., 160 Ga. 372, 376-78 (1925). However, [c]hoses in action are not liable to be seized and sold under execution, unless made so

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specially by statute. O.C.G.A. 9-13-57. Georgia Code section 11-8-112(a) (Article 8 of the UCC) provides that certificated securities may be reached by seizure pursuant to levy. The Georgia Supreme Court has determined that this code section evidences the legislatures intent to permit the levy and sale of securities. Grossman v. Glass, 239 Ga. 319, 31921 (1977). Accordingly, certificated stock in the possession of the judgment debtor are subject to levy and sale by the sheriff. Georgia Code section 11-8-112 addresses other securities issues as well. Uncertificated securities may be reached by through legal process upon the issuer. O.C.G.A. 11-8-112(b). Security entitlements may be reached through legal process upon the securities intermediary. Securities entitlements are defined in O.C.G.A. 11-8-501. O.C.G.A. 11-8-112(c). Certificated securities of the debtor in the possession of a secured party, uncertificated securities of the debtor registered in the name of a secured party, or security entitlements of the debtor maintained in the name of a secured party may be reached by through legal process upon the secured party. O.C.G.A. 11-8-112(d). Per O.C.G.A. 11-8-112(e), the judgment creditor is entitled to aid from a court of competent jurisdiction, by injunction or otherwise to reach these securities. The judgment creditor may also have the sheriff make demand upon the president or other officer in possession of the books and records of the corporation for the number of shares issued to the judgment debtor and the par value of such stock. O.C.G.A. 11-13-58. B. Limited Liability Companies

Limited liability companies are governed by Chapter 11 of Title 14 of the Georgia Code. The Code establishes some limitations and default rules, but many of the rights a judgment creditor will have in any interests in which it is able to gain possession will be governed by the LLCs operating agreement. One feature of LLCs is that a member will typically have two different rights with respect to the LLC: a limited liability company interest, which is the right to profits, losses, and distributions (O.C.G.A. 14-11-101(16)), and a membership interest, which permits the member to participate in the governance of the company. A judgment creditor with a judgment against a member or assignee of a member may seek to have a court charge the limited liability company interest of the debtor, O.C.G.A. 1411-504(a), or garnish the debtors interest in the company. O.C.G.A. 14-11-504(b). This Code Section states that, to the extent so charged, the creditor only has the rights of an assignee which, unless stated otherwise in the operating agreement, consists only of the rights to profits, losses, and distributions. O.C.G.A. 14-11-502(2). Unless the operating agreement provides otherwise, possessing a limited liability company interest will not permit the judgment creditor to participate in the governance of the LLC until it is admitted as a member typically by the vote of existing members. O.C.G.A. 14-11-101(16), -502, -503, -504(a), and -505. Thus, a judgment creditor may never be able to participate in the governance of the LLC or force distributions to be made, though it should be able to sell the limited liability company interest subject to the Georgia Code and applicable provisions of the operating agreement. An amendment to O.C.G.A. 14-11-504(b), effective July 1, 2009, makes clear that, unless

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otherwise permitted by the articles of organization or operating agreement, the judgment creditor may not interfere in the management of the company, force the company to dissolve, or even to force a foreclosure sale of the limited liability company interest. If at all possible, a judgment creditor may want to review the operating agreement prior to seeking a charging order to determine what rights it may have. C. General Partnerships

General partnerships are governed by Chapter 8 of Title 14 of the Georgia Code. Code Section 14-8-28 provides specific rights and limitations with respect to judgment creditors and partnership interests. A judgment creditor with a judgment against a partner or assignee of an interest in the partnership may seek to have a court charge the partnership interest of the debtor with payment of the judgment plus interest. O.C.G.A. 14-8-28(a). A partners interest in the partnership is his share of the profits and surplus, O.C.G.A. 14-8-26, and possessing that interest will not make the creditor a partner capable of participating in the decisions of the partnership. The partnership interest so charged may not be seized and sold by a judgment creditor under execution. O.C.G.A. 14-8-28(b). Nor may the debtor partners interest in partnership property be seized or levied upon. O.C.G.A. 14-8-25(b)(3). While the judgment creditors rights with respect to the partnership interest are limited, the court, upon application of the creditor, may make all other orders, directions, accounts, and inquiries which the debtor partner or such assignee might have made, or which the circumstances of the case may require, including appointing a receiver over the debtors share of profits or monies due or to become due. O.C.G.A. 14-8-28(a). A creditor may also seek to garnish the partners interest, provided notice is served on each general partner. O.C.G.A. 14-8-28(e). D. Limited Partnerships

Discussion of limited partnerships created since February 15, 1952, will be governed by one of two statutory systems: (i) Georgias Uniform Limited Partnership Act (ULPA), applicable to limited partnerships formed after February 15, 1952, and before July 1, 1988 (or adopting RULPA (O.C.G.A. 14-9-1201(b)) or (ii) Georgias Revised Uniform Limited Partnership Act (RULPA), applicable to limited partnerships formed on or after July 1, 2008. 1. Limited Partnerships Governed by RULPA

Limited partnerships formed on or after July 1, 1988, are governed by Chapter 9 of Title 14 of the Georgia Code. The Code establishes some limitations and default rules, but many of the rights a judgment creditor will have in any interests in which it is able to gain possession will be governed by the partnership agreement. While the Code defines both general partners and limited partners, it also defines the term partner as being either a general partner or limited partner. O.C.G.A. 14-9-101(9). Because the provisions dealing with creditors speaks in terms of partners, these provisions apply to interests of both general partners and limited partners. Partnership interests are choses in action and therefore are not subject to a lien of judgment until

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some further proceeding is undertaken to have the interest attach. Prodigy Centers/Atlanta v. TC Assocs., 269 Ga. 522, 523 n.2, 526 (1998). A partnership interest is the share of the partners capital, distributions, profits and losses, and other financial rights. O.C.G.A. 14-9-101(11). A judgment creditor with a judgment against a partner or assignee of a partner may seek to have a court charge the limited liability company interest of the debtor. O.C.G.A. 14-9-703(a). This Code Section states that, to the extent so charged, the creditor only has the rights of an assignee which, unless stated otherwise in the partnership agreement, consists only of the financial interests comprising the partnership interest. O.C.G.A. 14-9-702(a)(3). Unless the partnership agreement provides otherwise, possessing a partnership interest will not permit the judgment creditor to participate in the governance of the partnership until it is admitted as a partner. O.C.G.A. 14-9-702(a)(4). However, an assignee may become a limited partner to the extent stated in the partnership agreement or upon consent of all other partners consent. O.C.G.A. 14-9-704(a). The creditor may also seek to garnish the partners interest through garnishment when served on the partnership. O.C.G.A. 14-9-703(b). There are two notable distinctions between the RULPA and the provisions governing general partnership interests. First, RULPA does not provide for the appointment of a receiver or for the court to enter orders and inquiries as provided for under O.C.G.A. 14-8-28(a). Second, RULPA lacks any express prohibition on seizure or sale or, as set forth in the LLC statute, any prohibition against forcing a foreclosure sale of the interest. This may leave open the possibility of seeking an order of the court permitting a foreclosure sale of partnership interests. 2. Limited Partnerships Governed by ULPA

Limited partnerships formed on or after February 15, 1952, and prior to July 1, 1988, are governed by Chapter 9A of Title 14 of the Georgia Code. However, a limited partnership can agree to be governed by the more recent RULPA. The provisions in ULPA regarding creditors rights in partnership interests only specifically apply to limited partner interests. O.C.G.A. 14-9A-52. Code Section 14-9A-52(a) provides: On due application to a court of competent jurisdiction by any judgment creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of the judgment debt and may appoint a receiver and make all other orders, directions, and inquiries which the circumstances of the case may require. This statute is substantially similar to the charging order rights provided for creditors of general partners in O.C.G.A. 14-8-28(a). What is noticeably lacking is the prohibition found in O.C.G.A. 14-8-28(b), prohibiting the levy and sale of the interests. Through the combination of the courts right to make all other orders that may be required and the absence of a prohibition on sale, a creditor of a limited partnership interest may seek an order from the court providing for the foreclosure and sale of the limited partnership interest. Nigri v. Lotz, 216 Ga. App. 204, 206

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n.3 (1995). Code Section O.C.G.A. 14-9A-52(c) should also provide the right to garnish the debtors interests. As mentioned already, these provisions apply only to the interests of limited partners. Code Section 14-8-6(b) states that the Uniform Partnership Act (UPA), dealing with general partnerships, applies to limited partnerships except to the extent a statute would be inconsistent with UPA. Thus, it would appear that enforcing an interest in a general partners interest in an ULPA-governed limited partnership would be governed by UPA generally and specifically by O.C.G.A. 14-8-28. E. Limited Liability Partnerships and Limited Liability Limited Partnerships

The Georgia Code recognizes both limited liability partnerships and limited liability limited partnerships. However, the code sections specifically dealing with these two forms of partnership are limited primarily to O.C.G.A. 14-8-62, which concerns election of status and conversion to status issues. Chapter 8 instead defines a limited liability partnership as one formed either under UPA or RULPA. O.C.G.A. 14-8-2(6.1). Rather than setting forth entirely new chapters to govern these entities, they are dealt with within either UPA or RULPA. The primary distinction between limited liability partnerships, on the one hand, and general partnerships and limited partnerships, on the other hand, is the liability of general partners, and this is dealt with in a specific subsection of the UPA regarding liability of general partners. O.C.G.A. 14-8-15. Accordingly, a judgment creditors rights with respect to general partner interests in either form of limited liability partnership will be governed by UPA and, with respect to limited partnership interests, by RULPA. F. Professional Associations

Professional associations are governed by Chapter 10 of Title 14 of the Georgia Code. Professional associations are governed generally by the laws governing and applying to corporations except where in direct conflict with the professional association statutory provisions. O.C.G.A. 14-10-18. Partnership laws specifically do not apply. Id. Whether a stock-type organization or a member-type organization, the members have equity in the association, O.C.G.A. 14-10-15, and the method for enforcing a judgment rights against either form of interest will be the same as against stock of a corporation. In addition, the assts of a professional association are not liable to attachment for the individual debtors of its members or shareholders. O.C.G.A. 14-10-16. V. Bankruptcy Related Issues A. Automatic Stay

The filing of a petition for relief under the Bankruptcy Code, whether voluntary or involuntary, operates automatically, pursuant to 11 U.S.C. 362, as a stay on a wide variety of actions involving the debtor. The filing of the petition itself creates the stay without any order of the bankruptcy court being necessary. Actions taken in violation of the automatic stay are void and without effect. Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308 (11th Cir. 1982). Among other actions stayed are:

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1. the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title (11 U.S.C. 362(a)(1)); 2. the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title (11 U.S.C. 362(a)(2)); 3. any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate (11 U.S.C. 362(a)(3)); 4. any act to create, perfect, or enforce any lien against property of the estate (11 U.S.C. 362(a)(4)); 5. any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title (11 U.S.C. 362(a)(5)); and 6. any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title (11 U.S.C. 362(a)(6)) Thus, just about any conceivable action that can be taken with respect to seeking to obtain a judgment or enforcing a judgment is stayed. Creditors may also have an affirmative action to return property to the debtor or take other action; doing nothing can constitute a violation of the automatic stay. Rutherford v. Auto Cash, Inc. (In re Rutherford), 329 B.R. 886 (Bankr. N.D. Ga. 2005) (affirmative duty to return vehicle); Dennis v. Pentagon Fed. Credit Un. (In re Dennis), 17 B.R. 558, 561 (Bankr. M.D. Ga. 1982) (affirmative duty to release garnishment lien). Violations of the stay can result in sanctions for actual and punitive damages. In re Rutherford, 329 B.R. at 898. Many of the stayed actions relate to property of the estate, which is defined in 11 U.S.C. 541. Among the myriad interests found in 541(a) that constitute property of the estate are all legal or equitable interests of the debtor in property as of the commencement of the case except as set forth in 541(b) and (c)(2). While the question of whether a debtor's interest constitutes property of the estate is a federal question . . . the nature and existence of the [debtor's] right to property is determined by looking at state law. Two Trees v. Builders Transp., Inc. (In re Builders Transp., Inc.), 471 F.3d 1178, 1185 (11th Cir. 2006) (citations omitted). To determine whether property is property of the bankruptcy estate, one must start with state law. Differences in the laws of the various states may have different results. For example, under Georgia law, the debtor maintains a right of redemption in a repossessed motor vehicle until such time it is disposed of under Article 9 of the UCC and is property of the estate until this occurs. Motors Acceptance Corp v. Rozier (In re Rozier), 376 F.3d 1323, 1324 (11th Cir. 2004). Under a different statutory scheme in Florida, the repossessing creditor of a motor vehicle owns the vehicle upon repossession, and the vehicle will not be property of the estate if repossessed prior to filing. Bell-Tel Fed. Credit Un. v. Kalter (In re Kalter), 292 F. 3d 1350, 1360 (11th Cir. 2002). The bottom line is that a creditor must determine what interests the debtor

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has in property under state law before it can be determined whether it is property of the estate and subject to the automatic stay. Section 362(b) lists specific property and actions that are not stayed, and these are worth reviewing. Among these are 362(b)(3), which permits the perfection of, or maintaining perfection of, certain liens if the bankruptcy trustee is subject to such actions under 546(b). Under 546(b)(1), the trustees powers are subject to any generally applicable law that: (A) permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection; or (B) provides for the maintenance or continuation of perfection of an interest in property to be effective against an entity that acquires rights in such property before the date on which action is taken to effect such maintenance or continuation. Thus, these actions if applicable are not stayed and permits perfections postpetition even if it will defeat the interests of the trustee. Since making a mistake can result in an expensive stay violation, it is advised that any particular perfection issue be researched. However, in general terms, for subsection (A) to apply, the generally applicable statute must provide that, upon the act of perfection, the perfected priority would relate back to a prior date. A good example of this is purchase money security interests wherein a financing statement can be filed up to twenty days after the debtor takes possession of the collateral; if filed within that twenty-day period, the filing will defeat an intervening interest arising between attachment and perfection. Another example is the twenty-day period for perfecting liens on motor vehicles under O.C.G.A. 40-3-50. Bankruptcy courts have held that filing a notice of mechanics lien is not a violation of the stay because it is part of the perfection process and not enforcement. Durango Ga. Paper Co. v. Milton J. Wood Fire Protection, Inc. (In re Durango Ga. Paper Co.), 356 B.R. 305 (Bankr. S.D. Ga. 2005). Filing a writ of execution generally does not result in a relation back of the time of perfection, and filing would normally be a violation of the automatic stay. One possible exception might be the filing of an execution to perfect a lien on real property since, upon filing, the lien relates back to the rendition date as opposed to other liens. However, since the trustee can defeat the lien under 544(a)(3) as a bona fide purchaser, this would be highly questionable. Section 362(c) describes the duration of the automatic stay. In general terms, the stay remains in effect with respect to property of the estate until it is no longer property of the estate. 11 U.S.C. 362(c)(1). With respect to acts, the stay remains in effect until the earlier of the entry or denial of discharge, the closing of the case, or the dismissal of the case. 11 U.S.C. 362(c)(2). However, 362(d) permits a party to seek termination or modification the stay with respect to certain property or acts. Of the bases for seeking stay relief, two are the most common. The first is stay relief for cause under 362(d)(1), which includes lack of adequate protection. Cause is not defined in the Bankruptcy Code, so this subsection provides some room for argument. Adequate protection, addressed in 361, is designed to compensate a secured creditor for the inability to foreclose on its collateral. As an example, if the collateral is a motor vehicle that depreciates, the debtor may be required to make payments to the secured

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creditor to offset the loss in collateral value. To the extent a judgment creditor has an interest in the property being used by the debtor, i.e., an enforceable in the money lien, it may seek adequate protection. If the court agrees and the debtor is unable to provide it, the creditor can seek relief from stay. The debtor has the burden of proving it is providing adequate protection. 11 U.S.C. 362(g). The other common basis for seeking stay relief is provided for in 362(d)(2). This subsection states that a party in interest may seek stay relief with respect to an act against property if (i) the debtor has no equity in the property and (ii) the property is not necessary for an effective reorganization. The first element is commonly met when the property collateralizes debt and the property is worth less than the balance of the debt; the burden is on the movant with respect to the debtors equity. 11 U.S.C. 362(g). The second element does not apply in a chapter 7 liquidation, but must be considered in a chapter 11 reorganization or chapter 12 or 13 rehabilitation. The debtor has the burden of proving the property is necessary for an effective reorganization. 11 U.S.C. 362(g); United Sav. Ass'n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 375 (1988). An effective reorganization requires a showing that there is a reasonable possibility of a successful reorganization within a reasonable time. Timbers at 376. Being conjunctive, both elements of 362(d)(2) must be proved before the court will grant stay relief. B. Avoidance Under 11 U.S.C. 544 and 547

Sections 544 and 547 of the Bankruptcy Code provide the bankruptcy trustee or the debtor with certain rights to avoid transfers of interests in property and unperfected interests and liens. Section 544 provides the bankruptcy trustee with strong arm powers, which gives him the rights and powers that certain hypothetical persons would have as of the petition date. To be avoidable, or to have such power, the court must determine that one of the specifically listed hypothetical persons would have the power to do the same. Section 547 is a more mechanical test; if the facts fit the elements of a preference, the transfer is avoidable unless a defense exists. An exception to this is found in 547(e), wherein the date of the preferential transfer may be established with reference to the rights of hypothetical persons. Under 544(a) of the Bankruptcy Code, the bankruptcy trustee has the powers of, and may avoid transfer of the debtor in property or any obligation incurred by the debtor that would be avoidable by, (i) a hypothetical creditor that obtained a judgment lien on the petition date, (ii) a hypothetical lien creditor with an execution that is returned unsatisfied on the petition date, and (iii) a bona fide purchaser of real property on the petition date. The trustee has all three of the powers and may avoid any transfer if any one of the hypothetical scenarios would permit it. The purpose for providing these strong arm powers is to permit the trustee to avoid unperfected security interests and liens and various other secret or undisclosed interests or arrangements. In the example of a prepetition judgment that has not been perfected against real property because an execution has not been filed, the bankruptcy trustee may not be able to avoid the judgment lien as a hypothetical judgment creditor (judgment lien effective against, and may be senior to, subsequent judgment lien holders), but would be able to avoid it as a hypothetical bona fide purchaser of real property without notice of the lien. However, in a case where prior and satisfied mortgages were still of record, the trustee was not permitted to avoid the equitable

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subrogation lien of a subsequent creditor because the trustee, as of the petition date, was on notice that some liens existed on property. Mayer v. United States (In re Reasonover), 236 B.R. 219, 23233 (Bankr. E.D. Va. 1999). Section 547 of the Bankruptcy Code establishes the trustees ability to avoid preferential payments made to creditors prior to the filing of the bankruptcy petition. The theory of preferences is to avoid payments that preferred certain creditors over others, claw the money paid in preference back into a central pot, and redistribute the money to creditors pro rata according to their claims. Per 547(b), a preference is a transfer of an interest of the debtor in property (i) to or for the benefit of a creditor, (ii) on account of an antecedent debt, (iii) made while the debtor was insolvent, (iv) made in the 90 days prepetition (or 1 year for transfer to insiders), (v) and the transfer results in the creditor receiving more than it would have in a hypothetical chapter 7 liquidation. While this is not the place to analyze each of the elements of a preference, the important thing is that a preference is a transfer of an interest in property of the debtor immediately prepetition. Since judgments create liens upon rendition and constitute a transfer of equity and other rights from the debtor to the judgment creditor, judgments rendered in the ninety days prepetition are generally avoidable. Coleman v. J&B Enters. (In re Veterans Choice Mortg.), 291 B.R. 894, 896 n.1 (Bankr. M.D. Ga. 2003). Section 547(e) is an important section with regard to judgment-related preference issues because, in instances where the transfer involves perfecting a lien or security interest, it determines when the transfer occurred. Subsection (e)(1) establishes that perfection is determined by the defendant creditors rights vis--vis a bona fide purchaser of real property and, with respect to personal property, a creditor on a contract that can acquire a judicial lien. Notice that these tests are compared against hypothetical persons and not the creditors rights against the actual bankruptcy judgment debtor or bankruptcy trustee. Subsection (e)(2) establishes when the transfer is deemed to occur, which is: 1. at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after, such time, except as provided in 547(c)(3)(B); 2. days; or at the time such transfer is perfected, if such transfer is perfected after such 30

3. immediately before the date of the filing of the petition if such transfer is not perfected at the later of (i) the commencement of the case or (ii) 30 days after such transfer takes effect between the transferor and the transferee. Accordingly, if the lien or interest is perfected within 30 days of the transfer taking effect, the transfer occurs at the time the transfer takes effect, which in the case of a judgment will be the date of rendition. If not perfected within the 30 days, the transfer occurs upon perfection, which may be deemed to have been immediately before the petition date. Thus, with respect to real property, a judgment lien can be avoided if the judgment is obtained more than 90 days prepetition, but the execution is not filed until more than 30 days later and within 90 days of the petition date. Flatau v. Asics Tiger Corp. (In re Wall), 216 B.R. 1016 (Bankr. M.D. Ga. 1998); Pettigrew v. Hoey Constr. Co. (In re NotJust Another Carwash, Inc.), 2007 Bankr. LEXIS 979

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(Bankr. N.D. Ga. February 16, 2007). Be careful when considering when the transfer takes effect as Article 9 or case law may indicate an earlier date than might be expected. C. Avoidance Under 11 U.S.C. 522(f)

The Bankruptcy Code provides that certain property of the debtor is exempt from being treated as property of the estate and, thus, not subject to sale in bankruptcy. 11 U.S.C. 522. The purpose of this is to leave the debtor with enough basic property to survive, get a fresh start in life, and not have to live in a cardboard box in the park. Section 522 permits the states to adopt their own exemption scheme, 11 U.S.C. 522(b)(1), (b)(3)(A), and Georgia has opted to codify its own exemptions, which are found in O.C.G.A. 44-13-100. In order to ensure that liens do not encumber this property after the bankruptcy, 522(f) of the Bankruptcy Code provides for the avoidance of certain types of liens during the bankruptcy to the extent they impair these exemptions. Section 522(f) permits the avoidance of judicial liens (other than those related to domestic support obligations) and nonpossessory, nonpurchase-money interests in certain household items. Judgment liens are judicial liens for purposes of this section. 11 U.S.C. 101(36) (judicial lien means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding); Thigpen v. Cadle Co. (In re Thigpen), 374 B.R. 374 (Bankr. S.D. Ga. 2007). Statutory liens, such as mechanics liens and tax liens, do not fall within the scope of 522(f). Jacobs v. Vineyards Condo. Ass'n, Inc. (In re Jacobs), 324 B.R. 402, 412 (Bankr. N.D. Ga. 2005); Downey v. Georgia (In re Downey), 2006 Bankr. LEXIS 2737 (Bankr. N.D. Ga. September 27, 2006). The following is just a general overview of 522(f) as it applies to judgments. The language of 522(f) is fairly simple; applying it to myriad fact patterns is the difficulty. In general terms, a judgment lien is avoidable if it impairs the debtors exemption. 11 U.S.C. 522(f)(1). A lien impairs an exemption if the sum of (i) the lien, (ii) all other liens on the property, and (iii) the amount of the exemption exceed the value of the debtors interest in the property had there been no liens. 11 U.S.C. 522(f)(2)(A). The date for determining values is the petition date. A quick rule-of-thumb guide for calculating whether a lien is avoidable is to add all the liens and encumbrances on the property, add the exemption amount, and subtract this number from the value of the debtors interest in the property; to the extent the number is negative, avoidable liens will be avoided, starting with the most junior lien. Assuming a debtor with a 100% ownership interest in a house valued at $100,000 on which he can claim a $10,000 exemption, the quick analysis would be as follows: Value of House (and value of debtors interest in house) Less: Permitted Exemption Judgment Lien (perfected 2006) Security Deed (perfected 2007) Judgment Lien (perfected 2008) $100,000

(10,000.) (30,000.) (50,000.) (15,000.) ($5,000.)

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The result indicates that the exemption is impaired by $5,000, and avoidable liens may be avoided by the debtor to the extent of $5,000, beginning with the most junior lien. In this instance, the 2008 judgment lien would be avoided in the amount of $5,000. Note that if the 2008 lien had been a statutory lien and not avoidable under this statute, the 2006 lien would have been avoided to the extent of $5,000 even though it is the most senior encumbrance on the property. Note also that this example involves a simple example where the debtor owns 100% of the interests in the liened property. If the debtor has less than 100% interest in the property, then the value of the debtors interest in the property should be less than 100% of the property value, and this figure adjusted accordingly. Likewise, the amount of the lien should be prorated as necessary. A not uncommon situation is to have a judgment against an individual that owns property jointly with another. In this example, the value of the debtors interest in the property is prorated due to joint ownership, but the lien amount is not since he is the sole obligor on the judgment. Section 522 does not apply to a judgment arising out of a mortgage foreclosure. 11 U.S.C. 522(f)(2)(C). This was intended to apply in a judicial foreclosure situation in which a final order or judgment is necessary in order to foreclose on the property. The avoidance action is brought to the court via motion. Fed. R. Bankr. P. 4003. Neither the Bankruptcy Code nor the rules set out a time by which the debtor must seek to avoid liens, and courts have re-opened closed cases to permit a debtor to avoid liens.

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GARNISHMENT PROBLEMS

Paul J. Morochnik Weissmann Zucker Euster P.C. One Securities Centre 3490 Piedmont Road Suite 650 Atlanta, Georgia 30305 www.wzlegal.com paul@wzlegal.com (404) 760-7424 direct (404) 364-2320 facsimile (404) 354-0673 mobile

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Garnishment Problems Paul J. Morochnik* Weissmann Zucker Euster P.C. I. INTRODUCTION O.C.G.A. 18-4-1 et seq. govern garnishments in Georgia. There are two basic types of garnishments -- wage, or continuing garnishments (O.C.G.A. 18-4-110 et seq.) and bank, or regular garnishments (O.C.G.A. 18-4-60 et seq.). The purposes of this material are not intended to be instructional on the basics of wage and bank garnishments, but rather, to deal with some of the common problems encountered. While most of the examples and topics will cover bank garnishments, many of these problems cross over to wage garnishments as well. Additionally, while there are statutes dealing with many of these problems, much of what is presented here are practical resolutions to those problems based on the experience of the author and those with whom he has dealt. II. TRAVERSES A traverse is quite simply a challenge to either the garnishment or the answer to the garnishment. Either the plaintiff or the defendant challenges the garnishment or the answer by asserting that the same is untrue or legally insufficient. See O.C.G.A. 184-66. A. Plaintiffs Traverse

A plaintiffs traverse alleges that the answer to a garnishment is untrue or legally insufficient. See O.C.G.A. 18-4-86. The plaintiff must traverse the answer within fifteen (15) days after it is served with the answer. If the garnishee fails to serve the

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plaintiff with its answer, the plaintiff shall have fifteen (15) days from the time the plaintiff receives actual notice of the answer. O.C.G.A. 18-4-83. Failure to timely file a traverse automatically discharges the garnishee from any further liability with respect to the summons answered. O.C.G.A. 18-4-85. B. Defendants Traverse

A defendants traverse challenges the plaintiffs affidavit of garnishment and alleges that the same is untrue or legally insufficient. See O.C.G.A. 18-4-66. While the Georgia statutes set no specific time limit in which to file a defendants traverse, one must be filed before any funds or property paid into the court have been disbursed. A defendant is limited in what he may challenge in a traverse. Generally, he may challenge the existence of the judgment or the amount claimed due. O.C.G.A. 18-4-65. The validity of a judgment or any other challenges to the underlying judgment, may not be raised by a traverse, but must be challenged as otherwise provided by law under the Georgia Civil Practice Act. This is a common mistake made by defendants. Defendants routinely come before the garnishment court and argue about service or the merits of the underlying case. If these type issues come before the garnishment court, the appropriate remedy would be to stay the garnishment while the defendant raises his challenge in the court in which the judgment was rendered. See id. If the defendant cannot demonstrate that he has raised his challenge in the appropriate court, a plaintiff should argue that there is no reason to stay the garnishment proceeding unless and until the defendant actually files an appropriate challenge in the court in which the judgment was rendered.

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C.

Taverse Hearings

Traverse hearings are considered a trial on the merits of the allegations contained in the traverse. O.C.G.A. 18-4-88 provides that a defendants traverse shall be tried first, followed by a plaintiffs traverse. The party filing the traverse carries the burden of proof at trial. For a defendant, it is his burden to prove that the judgment does not exist or that he is not indebted in the amount claimed due by the plaintiff. In a plaintiffs traverse, it is the plaintiffs burden to prove that the answer of garnishee is untrue or legally insufficient. Like any other trial, one must be prepared with witnesses and

documents necessary to prove ones case. Subpoenas may be necessary to accomplish this and should be sought promptly to ensure witnesses and documents will be in court when you need them. A plaintiff should not expect a bank garnishee to come to court prepared to prove the propriety of its answer. Again, that is not the order of burden. The plaintiff is required to prove the impropriety of the answer. Although the burden rests with the defendant to challenge the amount claimed due by the plaintiff, as a practical matter, a plaintiff should be prepared to demonstrate the calculation of the amount owed by competent evidence. Anytime a plaintiff believes a garnishee has not filed a proper answer, a traverse should be promptly filed to protect the plaintiffs interests. Thereafter, much like any other case, it is advisable to attempt to contact the garnishee and resolve any questions or doubts and avoid the necessity of a trial.

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III.

GARNISHEES FAILURE TO ANSWER A garnishee is generally obligated to file an answer to a summons of garnishment

not sooner than 30 days after service and not later than 45 days after service. O.C.G.A. 18-4-62. After the expiration of the 45 days, a garnishee shall go into default, however, the garnishee shall be entitled to open default as a matter of right, upon the payment of costs and the filing of its answer within 15 days after default. O.C.G.A. 18-4-90. A. Default Judgment

If a garnishee still fails to open default after the expiration of both the 45 days after service and the 15 days after default, judgment by default may be entered for the full amount claimed to be due on the underlying judgment against the defendant. Id. B. Statutory Notice

O.C.G.A. 18-4-91 provides a garnishee with relief from a default judgment. Because relief must be sought within 60 days from the date the garnishee receives actual notice of the entry of the judgment, it is incumbent upon the plaintiff to send notice to the garnishee. Because of the garnishees right to modify the judgment, notice should be sent by the plaintiff as soon as possible after entry of the default judgment. Notice to the garnishee by certified mail or statutory overnight delivery shall be sufficient notice as required in the Code Section. O.C.G.A. 18-4-91. The author has found no case in Georgia interpreting what the notice must contain, but at the very least, it should be a simple letter advising of the entry of a default judgment, including the case style and number. A more prudent course of action is to include a copy of the default judgment with the notice.

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A garnishees failure to accept the certified mail deems the garnishee to have received actual notice. "[W]hen the garnishee fails or refuses to claim a notice by certified mail given under O.C.G.A. 18-4-91, the 60-day period in which the garnishee may move for modification of a default judgment begins to run on the date of the first attempted delivery of such notice, provided the notice is correctly addressed and contains adequate postage." Brassell v. Coventry Holding Group, Inc., 288 Ga. App. 827, 492 S.E.2d 687 (1997), quoting Five Star Steel Contractors v. Colonial Credit Union, 208 Ga. App. 694, 431 S.E.2d 712 (1993). A garnishee should be wary of this decision, as he

may lose three or more weeks by ignoring the first notice. C. Motion to Modify Judgment

The good news for a garnishee is that he may have a default judgment modified without any explanation as to why he failed to answer in the first place. The default judgment may be modified as a matter of right, provided the garnishee complies with the provisions of O.C.G.A. 18-4-91. A garnishee may file a motion to modify a default judgment within 60 days from the date the garnishee receives actual notice of the entry of the judgment. O.C.G.A. 184-91. At the time the motion is filed, the garnishee must paid all accrued costs of court as a prerequisite to filing such a motion. Id; see also Malley v. Van Cronkite, 220 Ga. App. 21, 467 S.E.2d 351 (1996). The garnishee can have the judgment amount reduced to the greater of $50.00 or $50.00 plus 100 percent of the amount by which the garnishee was indebted to the defendant from the time of service of the summons of garnishment through and including the last day on which a timely answer could have been made

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Id. The burden is on the garnishee to show that it owed (or was holding property of) the defendant a lesser sum than the amount of the judgment. Southern Ceramics, Inc. v. Ervin Co., 127 Ga. App. 346, 193 S.E.2d 262 (1972). Plaintiffs should remember that this ability to modify a default judgment is a matter of right for the garnishee. Therefore, if a garnishee files such a motion, efforts to resolve the matter without necessity of a hearing are strongly encouraged. The author has routinely offered to demonstrate to the plaintiff what would have been subject to garnishment and to pay directly to the plaintiff, that amount, plus costs and $50.00 in exchange for a consent order vacating the default judgment. This resolution gets the plaintiff his money quicker and saves attorney time. IV. THIRD PARTY CLAIMS Often times, the funds which might otherwise appear to be subject to garnishment are, in fact, not the funds of the defendant or are subject to someone elses claims. A. Superior Claim

Any person may file a claim, under oath, stating that he has a claim superior to that of the plaintiff to the money or property in the hands of the garnishee. O.C.G.A. 18-4-95. Not only must the claimant assert his claim to become a party to the

garnishment, but he must traverse the garnishees answer. Terrell v. Fuller, 160 Ga. App. 56, 286 S.E.2d 50 (1981). B. Joint Accounts

Joint bank accounts belong to the parties in proportion to their net contributions to that account. O.C.G.A. 7-1-812. Although a garnishee will likely not make a

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determination on behalf of a joint account holder, but rather pay 100% of the amount subject to garnishment into the court, the funds are subject to the claim of the joint account holder who is not a judgment debtor. See Lamb v. Thalimer Enterprises, Inc., 193 Ga. App. 70, 386 S.E.2d 912 (1989). C. Custodial / Fiduciary Accounts

A trust account is one in which one of the parties to the account is holding funds as trustee for the beneficial interest of another. O.C.G.A. 7-1-812. A fiduciary account is one maintained by a party in a fiduciary capacity for any other party other that the defendant in the garnishment. O.C.G.A. 18-4-92.1(c)(1)(B). By their very nature, the funds do not belong to the trustee or custodian. Therefore, regardless of whether a judgment debtors name is on the account, if the account is set up properly as a custodial, fiduciary or trust account, and the judgment debtor is not a beneficiary of that account, the account will not be subject to garnishment. D. Association Accounts

An Association account is one maintained by a corporation, limited liability company, partnership, foundation, trust or any other incorporated or unincorporated association. O.C.G.A. 18-4-92.1(c)(1)(A). Again, by its nature, this type of account does not belong to the individual judgment debtor, even if he is an authorized signer on such an association account.

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V.

EXEMPTIONS The garnishment statutes and other laws provide for various exemptions to

property being subject to garnishment. These materials do not cover all of the statutory exemptions to garnishments. A. Social Security Funds

Pursuant to Subchapter II of the Social Security Act, 42 U.S.C. 407, monies paid or payable under the Act are not subject to execution, levy, attachment or garnishment. Most financial institutions are able to easily determine what funds are received from the Social Security Administration and affirmatively exempt them out from garnishment. B. VA Benefits

The Social Security Act defines certain compensation as exempt from garnishment, while allowing the garnishment of other funds. For a good analysis of the differences, see U.S. v. Murray, 158 Ga. App. 781, 282 S.E.2d 372 (1981). Generally, the intent of the statute defining certain payments by the Veterans Administration as compensation for service-connected disability as being subject to or immune from garnishment is to protect service-connected disability benefits from garnishment and also to subject service retirement pay to garnishment. Disability benefits are subject to

garnishment to the extent they replace waived retirement pay. See id. Unfortunately, most financial institutions will not make this distinction and will likely exempt any funds received from the Veterans Administration.

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C.

Other Exemptions

Other exemptions from garnishment include the limitations placed on garnishing wages. Generally, only 25% of a defendants wages are subject to garnishment, provided he meets certain thresholds for amounts earned. See O.C.G.A. 18-4-20. The garnishment statutes also provide for exemptions of certain types of retirement accounts. See O.C.G.A. 18-4-22. D. Setoffs

A garnishee has a right of common law setoff against any funds or property otherwise subject to garnishment. This right can be waived, however, if the garnishee does not actually take that which is owed. The right of setoff is available whether the defendant is an employee or has some other relationship, such as an account holder with a financial institution. See Florida First Nat. Bank of Jacksonville v. First Nat. Bank of Columbus, 154 Ga. App. 211, 267 S.E.2d 849 (1980). Typically, banks will exercise their right of setoff for service fees, returned checks, NSF fees, etc. They can also setoff for credit card payments due, loan payments due and other obligations. The obligation must, however, be due and owing for the financial institution to exercise its right of setoff. If a plaintiff traverses a garnishees answer and challenges a setoff, the burden is on the garnishee to show his entitlement to said setoff. See Lowery v. Dallis, 237 Ga. App. 309, 513 S.E.2d 740 (1999).

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VI.

BANKRUPTCY 11 U.S.C. 362 provides for an automatic stay against any acts to obtain

possession or control of estate property. Violation of the automatic stay provisions can carry with it stiff penalties, monetary and otherwise. A. Pre-garnishment Petitions

When a bankruptcy petition is filed prior to the filing of a garnishment proceeding, the automatic stay is in effect. Therefore, any filing of a garnishment action would be a violation of the automatic stay. As such, the garnishment action may be considered void and unenforceable. B. Petition Filed After Garnishment, But Before Answer

When a bankruptcy petition is filed after the filing of a garnishment, but before the garnishee answers, the automatic stay provisions stay the garnishment. Although the stay is in effect, it is unclear whether the garnishee is relieved from filing an answer. Several of the authors financial institution clients take the position that they are to continue to hold any funds that were attached in the garnishment and file an answer without submitting those funds to the court. The banks will hold the funds until further order of the court. Although many debtors claim this is a violation of the automatic stay, the banks take the position that they are not taking any act to obtain possession or control of estate property. After all, the property does not belong to the debtor at this time, but rather to the estate. The banks will typically wait for the plaintiff to file a dismissal or for the trustee to make a claim to the funds or for the bankruptcy judge to

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direct the bank by issuing an order. There is another argument that the funds are not property of the estate because of the attachment of a garnishment lien. It is clearly not safe for the financial institutions to release their hold on the funds, because the bankruptcy petition only provides a stay of the garnishment. If the

bankruptcy petition is dismissed, the stay is automatically lifted and the financial institution resumes liability for complying with the garnishment summons. C. Post Bankruptcy Garnishment Proceedings

As discussed above, if a bankruptcy petition is dismissed, the garnishee remains liable for complying with the garnishment summons. What happens, however, if the garnishee continues to keep a hold on funds and the bankruptcy case is closed with a discharge? Upon the service of a garnishment summons, a lien is created in favor of the plaintiff. See Ownby v. Wager, 64 Ga. App. 433, 13 S.E. 2d 686 (1941); In re Antley, 18 B.R. 207 (1984). A debtor in bankruptcy may file a motion to avoid that lien as an encumbrance on his exempt property, but if he does not, the lien survives bankruptcy, even if the underlying debt obligation is discharged. Therefore, if the debtor does not avoid the lien, upon the completion of the bankruptcy case, the garnishee may remain obligated to pay the funds held into the garnishment court. The garnishee may arguably be obligated to determine whether the hold on the funds remains as a valid lien and whether those funds are therefore still subject to garnishment. There is some seemingly contradictory caselaw in the Middle District of Georgia regarding whether the creditor must dismiss the garnishment upon the filing of a

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bankruptcy petition or whether notifying the parties of the stay is enough. See e.g. In the Matter of Lord, 270 B.R. 787 (M.D. Ga. 1998)(A creditor has an affirmative duty to dismiss a garnishment upon notice of a bankruptcy filing and failure to do so is a violation of the automatic stay); In the Matter of Georgia Steel, Inc., 25 B.R. 781 (M.D. Ga. 1982)(A creditor did not violate the automatic stay by its failure to dismiss garnishment proceeding where parties acknowledged that proceeding was stayed); In re Buchanan, 273 B.R. 749 (M.D. Ga. 2002)(Creditor can satisfy its duty by staying garnishment proceeding). Know your judge before you decide to refuse to dismiss a garnishment.

VII.

SAFE DEPOSIT BOXES O.C.G.A. 18-4-84 provides that if a defendant has a safe deposit box, the

garnishee shall identify the existence of that safe box and continue to hold the contents until the earlier of further order of the court or the expiration of 120 days from the date of filing of the answer. Some plaintiffs have sought orders commanding the garnishee to deliver the contents of the safe box to the clerk of court. This presents at least two problems. First, many garnishees incur expenses in opening the box and second, the clerk of court will likely reject the property if it does not have any means to store it. To avoid these problems, the authors clients have devised a procedure where the parties (plaintiff and garnishee) enter into a consent order to provide for the drilling of the box and providing of a written inventory of the contents. The plaintiff will generally be obligated to pay the actual cost for doing so. The garnishee will be obligated to continue

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to hold the contents. The benefit of this procedure is that the plaintiff now has a written list of the contents that he may use to obtain further order or direction from the court or to execute a sheriffs levy. Either way, it accomplishes what the plaintiff wants while practically addressing the garnishees and clerks concerns. VIII. BANK GARNISHMENTS GENERAL ISSUES A. Location of Bank Accounts

In at least one unreported decision of which the author is aware, a judge of the State Court of Fulton County ruled that it does not matter where a bank account may have been opened, but rather whether the defendant could go into a branch in the county in which the garnishment is pending and withdraw funds. Therefore, a defendant cannot claim that an account is a South Carolina account, for example, and not subject to garnishment in Fulton County, if the bank has a branch in Fulton County. Although the author does not agree with the decision, the same judge found that a safe deposit box located in Nevada was subject to the control of a bank in Fulton County and therefore subject to garnishment. B. Information to Provide to Garnishee

Under O.C.G.A. 18-4-20, the summons of garnishment shall state, to the extent reasonably known to the plaintiff the name, including nicknames or aliases, of the defendant, service address and past addresses, social security number and account numbers. Not only does the statute require this information to be provided, if a plaintiff has this information, it is in his best interests to provide it to the financial institution to aide in identifying an account subject to garnishment.

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C.

Garnishees Inability to Answer

If the Garnishee is unable to answer, his answer shall set forth all the facts plainly, fully, and distinctly, so as to enable the court to give judgment thereon. O.C.G.A. 18-482. Where the garnishee is genuinely unable to make a determination whether certain property is subject to garnishment, the statute provides for him to answer in the form of an interpleader, giving the court all necessary information so that it can make a proper determination. D. How to Get at a Debtors Corporations Account

When a plaintiff believes that a debtor is using an association account for an improper purpose, he shall allege so on the summons, thereby placing the burden on the garnishee to hold any funds for the court to make a determination. In such a case, the garnishee should answer in the form of an interpleader and let the court make the final determination. See O.C.G.A. 18-4-82 and 18-4-92.1. If the plaintiff has reason to believe the funds in the association account may be those of the debtor, the plaintiff should allege that the account is being used for an improper or unlawful purpose. See O.C.G.A. 18-4-92.1. If such an allegation is made, the garnishee can be held liable for failure to subject such funds to garnishment. See id. The plaintiff must then be prepared to prove his allegations before the court.
*

Paul J. Morochnik is a partner in the law firm of Weissmann Zucker Euster P.C., located in Atlanta, Georgia. His practice focuses on litigation in banking, secured transactions, employment and business disputes. He routinely advises clients with regard to banking policies and procedures, check law, garnishments and UCC Articles 2, 2A, 3, 4 and 9. He received his law degree from Emory University School of law and his undergraduate degree from Hofstra University.

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POST JUDGMENT DISCOVERY

Robert D. Wildstein Bodker, Ramsey, Andrews, Winograd & Wildstein, P.C. Atlanta, Georgia

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POST JUDGMENT DISCOVERY

1.

INFORMAL DISCOVERY A. B. C. D. Update Previous Pre-Judgment Information Obtained Information Obtained by Client Bank Account Information Courthouse Record Search 1. 2. 3. 4. 5. 6. E. GED Tax liens U.C.C. Call other attorneys Real property index Suits pending index

Directories 1. 2. 3. Criss-Cross Directories Telephone Book Internet www.anywho.com reverse search under cool tools

F.

Department of Motor Vehicles [O.C.G.A. 40-3-23(d)(3) and (d.1)] U.S. Post Office Visit to Debtors Business Secretary of State Web Cite: www.sos.state.ga.us/cooperations Can search by officers name or registered agent Credit Reports from Client Credit Applications Financial Statements Skip Tracing

G. H. I.

J. K. L. M.

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N.

Attorney Services 1. 2. Asset Search Bank Account Information Search

O. P. 2.

Call Debtors Business Lexis/Nexis Access Records

FORMAL DISCOVERY A. Purpose 1. Locate assets Aldridge v. Mercantile National Bank 132 Ga. App. 788, 209 S.E.2d 234 (1974) 2. 3. Get debtors attention Basis for further action (a) Pierce corporate veil (Chapter 13) Fraudulent conveyances (Chapter 12)

(b)

B.

Generally 1. Scope of post judgment discovery (a) Any question which may lead to discovery of any property or sources of income of debtor. Fleming v. Busey 153 Ga. App. 489, 265 S.E.2d 839 (1980) 2. Methods of post judgment discovery (a) State Judgments (O.C.G.A. 9-11-69)

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(b)

Federal Judgments (F.R.C.P. 69)

3.

Timing of post judgment discovery (a) When to commence [O.C.G.A. 9-11-62(a)] Pending appeal

(b) C.

Structure of Discovery - Corporate Debtors vs. Individual Debtors 1. 2. 3. Identification of each Pierce corporate veil Liquidating distributions

D.

Interrogatories (O.C.G.A. 9-11-33) 1. 2. Limitation to 50 in number Form No. 1

E.

Production of Documents and Things 1. Request for Production (O.C.G.A. 9-11-34) - Form No. 2 2. Production of Tangible Items (O.C.G.A. 9-11-34) - Form No. 3 3. Notice for Production and Subpoenas (O.C.G.A. 24-10-23) (a) Notice to Produce- Not proper for obtaining documents at deposition White v. Gulf States Corporation 109 Ga. App. 271, 166 S. E. 2d 910 (1969)

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(b) (c)

Distinction from Request for Production Served as subpoena (personal service or certified mail) Enforcement - Motion for Contempt vs. Motion to Compel Bergen v. Cardiopul Medical, Inc. 175 Ga. App. 700, 334 S.E.2d 28 (1985) Joel v. Duet Holdings, Inc. 181 Ga. App. 705, 353 S.E.2d 548 (1987) Conversion of a Notice to Produce into a Request for Production

(d)

F.

Depositions (O.C.G.A. 9-11-30) 1. 2. Deposition preparation Individual - Form No. 4 3. Corporate representative a) O.C.G.A. 9-11-30(b)(6) b) Form No. 5 4. Questions: See Book Text Sections 7-5 and 7-6

G.

Inspection of Real Property [O.C.G.A. 9-11-34 (b) (2) ] 1. 2. Non-residential Visit to business

H.

Advantages and Disadvantages of Discovery Methods 1. 2. Costs Ability to transfer and dissipate assets

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I.

Failure to Comply with Discovery 1. Post Judgment Motions (a) O.C.G.A. 15-6-77 (e) (1) Any post judgment proceeding filed more than 30 days after judgment considered a new case requiring filing fee. (b) McFarland & Associates, P.C. v. Hewatt 242 Ga. App. 454 (2000) Motion for Contempt for failure to respond to Court Ordered Discovery made more than 30 days after Order constitutes a new proceeding. 2. Motion to Compel Discovery - Form No. 6 (a) Brief Required (Uniform Rule 6.1) Certificate of Good Faith Conference [Uniform Court Rule 6.4 (B)] - Form No. 7 (c) Order Granting Motion - Form No. 8 (d) 3. Award of Attorneys Fees

(b)

Motion for Contempt (a) (b) (c) Prior Warning and Notice Personal Service Cook v. Rowland 221 Ga. App. 835, 472 S.E. 444 (1996)

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(d)

Motion and Brief in Support 1. Uniform Rule 6.1 2. Form No. 9

(e)

Order on Motion for Contempt (i) Include language directing Sheriff or Marshal to apprehend and incarcerate debtor Form No. 10

(ii) 4.

Liability for Attorneys Fees O.C.G.A. 9-15-14 Northern v. Frolick & Associates 236 Ga. App. 7, 510 S.E.2d 857 (1999) Award of attorneys fees for Judgment Creditor against counsel for Judgment Debtor reversed where counsel for Judgment Debtor relied in good faith on clients representations regarding lack of assets.

5.

Loss of Records American Casualty Co. v. Schafer, 204 Ga. App. 906, 420 S.E.2d 820 (1992) -Disposal of corporate records -If a party causes or contributes to loss of records, a presumption may be raised against such party favoring an alter ego theory.

6.

Enforcement measures against Third Parties (a) In Re Calloway, 212 Ga. App. 500, 442 S.E.2d 309 (1994)

Failure of spouse to comply with relevant post judgment discovery may subject spouse to contempt and sanctions.

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(b)

Esasky v. Forrest 231 Ga. App. 488, 499 S.E.2d 413 (1998)

Third party subject to post judgment discovery, including interrogatories and request for production of documents J. Appealability of Post Judgment Discovery Orders 1. 2. Generally not directly appealable Cornelius v. Finley, 204 Ga. App. 299, 418 S.E.2d 815 (1992) Court holds not final order 3. Dial v. Bent Tree National Bank, 215 Ga. App. 620, 451 S.E.2d 533 (1994) Must follow interlocutory appeal procedures of O.C.G.A. 5-6-34(b) regardless of sanctions imposed by trial court. 4. Exception - Order for Contempt Manning v. MNC Consumer Discount Company, 212 Ga. App. 824,442 S.E.2d 919 (1994) A direct appeal may be taken from an Order holding debtor in contempt of Court for failure to comply with post judgment discovery. (a) Judgment Debtor entitled to seek immediate supercedeas of a contempt order O.C.G.A. 5-6-13 (b) Compare supersedeas for other appeals O.C.G.A. 5-6-46 (c) It is not within discretion of trial court to grant or refuse supersedeas in cases of contempt Immediate ruling required no delay allowed Calvert Enterprises, Inc. v. Griffin Spaulding County Hospital Authority 197 Ga. App. 727, 399 S.E.2d 287 (1990)

(d)

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K.

Objections to Discovery 1. Fifth Amendment privileges (a) (b) 2. 3. Burden on defendant Must ask and object to each question

Infamy, Disgrace or Public Contempt Forfeiture of Estate (a) (b) O.C.G.A. 24-9-27 Post judgment discovery specifically excluded

L.

Bankruptcy Stay Stivali v. Aquiport Aylesbury, Inc. 244 Ga. App. 389, 535 S.E.2d 551 (2000) Smith v. Mitchell Construction Company 225 Ga. App. 383, 481 S.E.2d 558 (1997) Violations of bankruptcy stay in connection with post judgment discovery - Federal law controls 11 U.S.C. 362(h)

M.

Discovery in Magistrate Courts See Forms No. 11 1. $15,000.00 jurisdictional limit O.C.G.A. 15-10-2(5) Georgia Civil Practice Act normally not applicable O.C.G.A. 15-10-42 (a) Exception - O.C.G.A. 15-10-50(g) Judgments involving dispossessory or distress warrant proceedings in excess of $15,000.00 - judgment creditor may utilize discovery provisions set forth in O.C.G.A 9-11-69.

2.

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(b)

Consider filing Motion requesting discovery under C.P.A. with respect to other judgments. See O.C.G.A. 15-10-50(a)

3.

Post Judgment Interrogatories (a) (b) (c) O.C.G.A. 15-10-50(d) Must be served within 30 days for the same case After 30 days 1. 2. 3. Considered new civil action Served as new action New filing fee

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ETHICAL AND PROFESSIONAL CONSIDERATIONS IN JUDGMENT ENFORCEMENT

Robert D. Wildstein, Esq. Bodker Ramsey Andrews Winograd & Wildstein, P.C. Atlanta, Georgia

Based on materials prepared by Gregory Taube, Esq. and D. Ruth Prim, Esq.

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ETHICAL CONSIDERATIONS Lawyers engaged in post-judgment collections, like all lawyers, face a wide variety of possible ethical issues. The primary source for Georgia lawyers seeking guidance on ethical issues is the Georgia Rules of Professional Conduct (GRPC). adopted the GRPC effective January 1, 2001. The Supreme Court of Georgia The GRPC replaced the former

disciplinary Standards and the aspirational Georgia Code of Professional Responsibility. As the GRPC is based on the American Bar Association Model Rules of Professional Conduct, case law and ethics opinions from other states which have adopted the ABA Model Rules provide guidance to Georgia lawyers researching ethics issues, in addition to Georgia cases. A Brief Introduction to the Georgia Rules of Professional Conduct, Office of the General Counsel, State Bar of Georgia, published by Institute of Continuing Legal Education in Georgia. A. ATTORNEYS FEES

The overriding principle regarding any fee arrangement is that a lawyers fee must be reasonable. GRPC 1.5(a). In determining whether a particular fee arrangement is reasonable, a lawyer should consider the following factors: 1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; 2) the likelihood that the acceptance of the particular employment will preclude other employment by the lawyer; 3) 4) 5) 6) 7) the fee customarily charged in the locality for similar legal services; the amount involved and the results obtained; the time limitations imposed by the client or by the circumstances; the nature and length of the professional relationship with the client; the experience, reputation, and ability of the lawyer or lawyers performing the services; and 8) whether the fee is fixed or contingent.

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GRPC 1.5(a). At the outset of an engagement, the lawyer must communicate the basis or rate of the fee to the client unless the lawyer regularly represents the client such that they have evolved an understanding with respect to the fee. GRPC 1.5(b). Although an hourly fee agreement generally does not have to be in writing, written fee agreements are preferred. Id. The following is a suggested list of subjects to be covered in a fee agreement: 1) 2) 3) 4) 5) 6) scope of the engagement; amount of the fee or method of calculating the fee; payment terms; billing intervals; effect of nonpayment; and replenishable retainer.

See ABA/BNA, Lawyers Manual of Professional Conduct, 41:101 (1997). Contingent fee agreements must be in writing. GRPC 1.5(c). In addition, the written contingent fee arrangement must describe the method for determining the fee, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Id. Public reprimand is the maximum penalty for violation of Rule 1.5. B. UNAUTHORIZED PRACTICE OF LAW/USE OF PARALEGALS

GRPC 5.5(a) provides that a lawyer shall not practice law in a jurisdiction in violation of the regulation of the legal profession in that jurisdiction, or assist another in doing so. The issue as to what constitutes the unauthorized practice of law in the State of Georgia has been debated for decades, particularly in the context of the use of paraprofessionals. In 1977, the State Disciplinary Board issued an Advisory Opinion setting forth useful guidelines as to what duties may be properly delegated to non-lawyer paralegals and those which may not. See Advisory Opinion No. 21

(September 16, 1977). The Disciplinary Board considered that the following duties may

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be appropriately delegated to paralegals, provided that proper and effective supervision and control by the attorney exists: (1) (2) interviewing of clients, witnesses and other persons; legal research and drafting of pleadings, briefs and other legal documents

for the attorneys review, approval and use; (3) drafting and signing of routine correspondence which does not require the

application of legal knowledge or the rendering of legal advice; (4) (5) tribunals; (6) legal staff; (7) routine contacts with opposing counsel, provided they do not effect the billing of clients and general management of law firms office and noninvestigation of facts and records; scheduling attorneys activities and appearances before courts and other

merits of the case or require the use or application of legal knowledge; (8) rendering of specialized non-legal advice to clients on scientific or

technical topics, provided they do not require the application of legal judgment or knowledge. The Board further found that the following could not be delegated to paralegals: (1) type; (2) appearance at depositions, hearings or other judicial proceedings, unless contacts with clients or opposing counsel rendering legal advice of any

otherwise preempted by Federal Law Regulations. (It should be noted that the U.S. Bankruptcy Court recognizes the right of paralegals to conduct an examination of a debtor at the First Meeting of Creditors); (3) employees; (4) drafting without review and approval by an attorney of any pleading or responsibility for making final decisions as to the ethics of activities of

legal document; (5) negotiations with opposing parties or their counsel on substantive issues;

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(6)

contacting an opposite party or their counsel in a situation which affects

the legal rights of the client; (7) signature of pleadings or other legal documents or an explanation of legal

documents to the client. The Disciplinary Board also noted that in order to avoid any appearance of impropriety, any correspondence written by a paralegal should clearly indicate the status of the paralegal. Furthermore, in any oral communication, the paralegal should begin the conversation with a clear statement that they are only a paralegal or non-legal employee of the law firm unless such status has been made clear by prior communications. Subsequently, in 2000, the Supreme Court of Georgia reaffirmed Advisory Opinion No. 21. Specifically, Formal Advisory Opinion No. 00-2 held that it was

improper for a paralegal to prepare and sign correspondence which threatens legal action or provides legal advice or both. This is particularly important with respect to sending demand letters to debtors which threaten legal action. GRPC 5.3 sets forth the responsibilities on a lawyer regarding paraprofessionals and paralegals. A partner in a law firm must make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurances that the persons conduct is compatible with the professional obligations of the lawyer. A supervising attorney who has direct authority over a non-lawyer must make reasonable efforts to also ensure that the persons conduct is compatible with the professional obligations of a lawyer. A supervising attorney is responsible for the conduct of a non-lawyer who violates the Georgia Rules of Professional Conduct if the lawyer orders or ratifies the conduct, or has knowledge of the conduct prior to the time when its consequences can be avoided or mitigated, but fails to take reasonable remedial action. (GRPC 5.3)(c). The maximum penalty for violation of this rule is disbarment. The Supreme Court of Georgia has distinguished those instances when a corporation must be represented by a licensed attorney. In the case of Eckles v. Atlanta Technology Group, Inc., 267 Ga. 801, 45 S.E.2nd 22 (1997), the Supreme Court of Georgia found that only a licensed attorney is authorized to represent a corporation in

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courts of record in this state. This rule, however, does not apply to appearances made in magistrate court. Therefore, a corporate officer who is not a licensed attorney may file pleadings in magistrate court, while a corporate officer who is not a licensed attorney would be prohibited from doing so in state or superior courts. This rule is particularly noteworthy in determining whether to file a case in magistrate court against a corporation, as opposed to filing the case in courts of record. C. HANDLING RECOVERY OF JUDGMENTS AND TRUST FUNDS

An attorney will come into possession of funds recovered in connection with post-judgment collection efforts. In recovery of funds through garnishment, or in

collecting upon or settling a judgment, or otherwise accepting payments on behalf of a client, the attorney is bound by various ethical obligations regarding the safe keeping of those funds. Attorneys are required to comply with the provisions of GRPC 1.15 requiring an attorney to keep property of clients and third parties separate from a lawyers own property. No personal funds, except what is administratively necessary to keep the escrow account open, or unearned attorneys fees, may be deposited into the account. A lawyer is required to promptly notify the client when the lawyer receives funds in which the client has on interest. GRPC 1.15(I)(b). If a dispute arises over the amount of the funds owed to any client, the attorney may not withdraw the funds until the dispute is resolved. GRPC 1.15(I)(c). Attorneys must maintain detailed records of the account and accounts may only be maintained at approved institutions. GRPC 1.15(III). Interest earned on attorneys escrow accounts that is generated from the pooling of various clients deposits must be paid by the financial institution to the Georgia Bar Foundation for eventual use by the Georgia Bar Foundation, the Georgia Civil Justice Foundation and the Georgia Indigent Defense Council. Such an escrow account is known as an (IOLTA) account. If the attorney is given charge of a significant sum of money to be held for an extended period of time, the attorney shall place the funds in a federally insured account which pays

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interest with the interest to be held or paid to the client. GRPC 1.15(II)(c)(1). The attorney may not keep the interest earned on the account. D. CONFLICTS OF INTEREST

A lawyer owes a duty of loyalty to each client. This duty may be breached when one clients interests come into conflict with the interests of other clients or the lawyers own interests. Rules 1.7 through 1.13 of the GRPC provide guidance to lawyers in avoiding conflict problems and dealing with conflicts when they arise. The general rule is found in GRPC 1.7. Rules 1.8 through 1.13 provide specific rules for prohibited transactions (GRPC 1.8), former clients (GRPC 1.9), imputed disqualification (GRPC 1.10), successive government and private employment (GRPC 1.11), former judge or arbitrator (GRPC 1.12), and organizations as clients (GRPC 1.13). The conflict rules most likely to have implications for lawyers engaged in post-judgment collection efforts are GRPC 1.7, 1.9 and 1.10. 1. General Rule.

Rule 1.7 sets forth the general rule governing conflicts of interest. As a general rule, [a] lawyer shall not represent or continue to represent a client if there is a significant risk that the lawyers own interests or the lawyers duties to another client, a former client, or a third person will materially and adversely affect the representation of the client. In order to avoid impermissible conflicts, lawyers should adopt reasonable procedures, appropriate for the size and type of firm and practice, for determining whether an actual or potential conflict exists prior to taking on a new representation. GRPC 1.7, cmt. 1. If an impermissible conflict arises, a lawyer must withdraw from representation. Id. The exception to the general rule is that an otherwise impermissible representation may continue if the lawyer obtains a waiver, preferably in writing. GRPC 1.7(b). In order to obtain an effective waiver, a lawyer must do all of the following with respect to each affected client and/or former client: 1) provide a consultation with the lawyer;

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2) and 3)

provide a written explanation of the material risks of the representation;

suggest a consultation with independent counsel.

Id. However, as discussed further below, some conflicts cannot be waived. Obtaining a waiver may be impossible because one client will not consent to the disclosure of information that the other client needs to make an informed decision. GRPC 1.7, cmt. 4. In addition, GRPC 1.7(c)(1) provides that a conflict cannot be waived if the representation is prohibited by law or the GRPC. A lawyer also cannot represent one client asserting a claim against another client in the same proceeding or in substantially related proceeding. GRPC(c)(2). Finally, even with a waiver, a client

cannot continue a representation when it is reasonably unlikely that the lawyer will be able to provide adequate representation to one or more of the affected clients. GRPC1.7(c)(3). Disbarment is the maximum penalty for a violation of GRPC 1.7. 2. Former Clients.

Rule 1.9 supplements the general rule for conflicts with particular reference to former clients. Subsection (a) of GRPC 1.9 deals with possible conflicts involving a lawyers former clients while subsection (b) deals with possible conflicts involving clients of a lawyers former law firm. Subsection (a) provides that [a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that persons interests are materially adverse to the interests of the former client unless the former client consents after consultation. Subsection (b) provides a more qualified restriction on a lawyers ability to knowingly represent a person whose interests conflict with those of a client of the lawyers former firm. In addition to the same or a substantially related matter and materially adverse qualifications, a lawyers ability to represent such a person is restricted only when the lawyer acquired material confidential information about a client of the lawyers former firm. GRPC 1.9(b). Even then, the representation is permissible if the former client consents after consultation. Id.

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Subsection (c) of GRPC 1.9 limits a lawyers actions with respect to information relating to a representation by either the lawyer or the lawyers former firm. In either case, a lawyer generally may not use information relating to the representation to the disadvantage of the former client, which is not generally known, or reveal information relating to the representation, unless otherwise permitted or required under GRPC 1.6 (Confidential Information) or GRPC 3.3 (Candor Towards the Tribunal). Disbarment is the maximum penalty for a violation of GRPC 1.9. 3. Imputed Disqualification.

Rule 1.10 reflects recognition of the principles that a firm of lawyers is essentially one lawyer for purposes of the rules governing loyalty to the client and each lawyer is vicariously bound by the obligation of loyalty owed by each lawyer with whom the lawyer is associated. GRPC 1.10, cmt. 6. Rule 1.10(a) prohibits a lawyer in a firm from knowingly representing a client if any lawyer in the firm practicing alone would be prohibited from representing that client. With respect to clients of a lawyer who has left a law firm, the remaining lawyers are not generally prohibited from representing a person with materially adverse interests to those of the former lawyers client. GRPC 1.10(b). However, such representation is not permissible in the same or a substantially related matter if any lawyer remaining in the firm has material information protected by GRPC 1.6 (Confidential Information) and 1.9(c) (Conflict of Interest: Former Client), unless the affected client provides a waiver in compliance with GRPC 1.7(b). Disbarment is the maximum penalty for a violation of GRPC 1.10 E. SOLICITATION AND ADVERTISING ISSUES

Part VII of the Georgia Rules of Professional Conduct sets forth various rules relating to information concerning legal services. GRPC 7.1 allows a lawyer to advertise through all forms of public media and through written communication not involving personal contact, so long as the communication is not false, fraudulent, deceptive or misleading. By way of illustration (but not limitation), the Rule sets forth certain types of communications which are deemed misleading. These include communications which contain material misrepresentations of fact or omits material facts; is likely to create an

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unjustified expectation about the results a lawyer can achieve; or compares the lawyers services with other lawyers services, unless the comparison can be factually substantiated. Communications describing contingency fees must contain specific

disclaimers which conspicuously differentiate fees as compared to court costs and other expenses which must usually be paid by the client. [GRPC 7.1(a)(5) and (a)(6)] GRPC 7.2 delineates the types of advertising a lawyer may use, which includes directories, outdoor advertising, radio, television, written, electronic or recorded communications. A lawyer is required to keep copies of advertisements for a period of up to two years after its last dissemination. GRPC 7.3 limits the type of direct contact a lawyer may have with prospective clients. A lawyer is not allowed to send, or permit to be sent, written communication to a prospective client for purposes of obtaining employment under certain circumstances. Furthermore, written communications to a prospective client, other than a close friend, relative or former client, for the purpose of obtaining professional employment shall be plainly marked as advertisement on the face of the envelope and on the top of each page of the written communication in type size no smaller than the largest type size used in the body of the letter. GRPC 7.3(b). GRPC 7.4 allows a lawyer who is a specialist in a particular field of law by experience, specialized training or education, or is certified by a recognized and bona fide professional entity, may communicate such specialty or certification so long as the statement is not false or misleading. As a result, lawyers can communicate to clients that they specialize in the area of collection matters and creditor representation, provided they have experience, specialized training or certification in such areas. F. APPLYING THE RULES OF ETHICS TO POST-JUDGMENT COLLECTIONS 1. General Rules of Conduct and Professionalism

There are numerous rules of professional conduct which generally apply to the practice of law in post-judgment collections. GRPC 1.1 sets forth that a lawyer shall provide competent representation to a client. Competent representation means that a

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lawyer should not handle a matter which the lawyer knows or should know to be beyond the lawyers level of competence without associating another lawyer with the requisite skill level. Comment 1B to the Rule sets forth relevant factors, which include the relative complexity and specialized nature of the matter; the lawyers general experience; and the lawyers training. GRPC Rule 2.1 addresses the role as a lawyer as a counselor and provides that the lawyer should not be deterred from giving candid advice by the prospect that the advice would be unpalatable to the client. Part III of the Georgia Rules of Professional Conduct deal with the lawyers role as an advocate. GRPC 3.1 prohibits a lawyer from filing suit or asserting a position which the lawyer knows would merely serve to harass or maliciously injure another or advance a claim or defense that is unwarranted, except where it can be supported by a good faith argument for an extension, modification or reversal of existing law. Likewise, Georgia statutes impose sanctions, including attorneys fees against lawyers who assert frivolous claims. (See for example O.C.G.A. 9-15-14 and 51-7-80, et. seq.) GRPC 3.2 requires a lawyer to make reasonable efforts to expedite litigation consistent with the interests of the client. The Georgia Rules of Professional Conduct also requires a lawyer to be candid to the tribunal (GRPC 3.3). The Rules also address access to evidence by opposing parties and their counsel, as well as prohibiting the alteration, destruction or concealment of documents or other material having potential evidentiary value (GRPC 3.4). Likewise, in representing a client, a lawyer shall not use means that have no substantial purpose other than to embarrass, delay or burden a third person (GRPC 4.4). Part IX of the Georgia Rules of the Professional Conduct addresses the issue of professionalism. A lawyers duty of professionalism applies to clients, opposing parties and their counsel, to the courts and other tribunals, as well as to the profession. These guidelines also set forth specific aspirational ideals with respect to professionalism. 2. Client Communication

GRPC 1.3 requires a lawyer to act with reasonable diligence and promptness in representing the client. Particularly interesting is Comment 2 to the Rule which notes

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that perhaps no professional shortcoming is more widely resented than procrastination . . Even with the clients interests are not adversely affected substantively, unreasonable delay can cause a client needless anxiety and undermine the confidence in the lawyers trustworthiness. GRPC Rule 1.4 addresses communication issues and requires the

lawyer to explain matters to the extent reasonably necessary to permit the client to make informed decisions and for the lawyer to promptly comply with reasonable requests for information from the client. It is also important that an attorney communicate with the client once collection efforts have ceased in the event there is not a full satisfaction of the judgment. Under Georgia law, a judgment may become dormant after seven years from the date it is rendered if the judgment creditor fails to have an entry of nulla bona entered on the judgment and then have the judgment re-recorded on the General Execution Docket within that seven year period. O.C.G.A. 9-12-60 (a). In the event the judgment is not properly re-recorded within that time period, the judgment creditor still has an additional three years to file a petition for scire facias to revive the dormant judgment. O.C.G.A. 9-12-61. It is, therefore, imperative that the attorney communicate with the client as to who will have the responsibility to re-record the judgment. The failure of an attorney to communicate this issue to the client not only raises ethical considerations, but also could be potential legal malpractice. Although there is no specific case on point, in the case of Barnes v. Turner, 278 Ga. 788, 606 S.E. 2d 49 (2004), the Georgia Supreme Court addressed the issue of the failure of a closing attorney to re-record a UCC Financing Statement, which lapses in five years unless it is re-recorded. The Court found that it was malpractice when the lawyer failed to notify the client of the five year re-recording requirement, and further failed to renew the financing statement himself before it expired. 3. Unrepresented Persons

Lawyers who participate in post-judgment collection matters are likely to encounter parties who are not represented by counsel. In such situations, the lawyers conduct is governed primarily by GRPC 4.3. The object of GRPC 4.3 is to prevent overreaching. ABA/BNA Lawyers Manual on Professional Conduct 71:501 (1999).

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As noted in the comment to GRPC, [a]n unrepresented person, particularly one not experienced in dealing with legal matters, might assume that a lawyer is disinterested in loyalties or is a disinterested authority on the law even when the lawyer represents a client. Rule 4.3 does not prohibit contact between a lawyer and an unrepresented person. However, GRPC 4.3 does impose some significant limitations, two of which may arise in the context of post-judgment collection matters. First, the lawyer must avoid confusion on the part of the unrepresented person regarding the lawyers role in the matter. GRPC 4.3(a). Second, the lawyer must not give advice to the unrepresented person other than the advice to obtain counsel. GRPC 4.3(b). Each of these limitations is discussed further below. Rule 4.3(a) provides that a lawyer shall not state or imply that the lawyer is disinterested. Moreover, when the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyers role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. Id. In order to avoid a violation of GRPC 4.3(a), a lawyer dealing with an unrepresented person should clearly communicate the lawyers representational role. See, e.g., Louisiana State Bar Assn v. Harrington, 585 So.2d 514 (La. 1990) (finding violation of Rule 4.3 by lawyer who did not carefully explain his capacity). For example, a lawyer representing a creditor should inform the debtor in writing that the lawyer represents the creditor and that the lawyer does not represent the debtor. Rule 4.3(b) prohibits giving any advice to an unrepresented person aside from advising them to secure counsel. The term advice is not defined in GRPC 4.3(a). However, a Formal Advisory Opinion from the Supreme Court of Georgia suggests a broad interpretation applies. See Formal Advisory Opinion No. 86-4. In response to an inquiry as to the propriety of writing a letter to an insured defendant regarding the insurers potential liability for failure to settle within policy limits, the Supreme Court limited the permissible scope of such a letter to informing the insured that a demand was made on the insurer, that suit will be filed if the demand is not met, that the insured should seek legal counsel, and no more. Id. In support of its conclusion, the Supreme

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Court quoted from an informal opinion of the American Bar Associations Committee on Professional Ethics. Id. The ABAs Informal Opinion disapproved of a collection letter that went beyond a simple demand for payment with an admonition that all legal remedies will be pursued in the event payment is not received. Professional Ethics, Informal Op. C-734. ABA Comm. On

Thus, it appears that a lawyer writing a

collection letter may do no more than demand payment and state an intention to pursue all available legal remedies to enforce payment if payment is not received. Disbarment is the maximum penalty for violation of GRPC 4.3. G. ADDITIONAL ETHICAL AND PROFESSIONAL CONSIDERATIONS A. B. C. D. E. Communications with Debtor Communication with Opposing Counsel Misrepresentation of Identity and Purpose Unauthorized Recordation of Communications Fair Debt Collection Practices Act 15 USC 1692 et. seq. Application of State Regulations to Attorneys Governors Office of Consumer Affairs Misuse of Criminal Process or Threat of Criminal Prosecution ABA Opinion 93-363 (1992) Abuses of Discovery Methods O.C.G.A. 9-15-14 Discovery Against Third Parties, Spouses or Family Members Conduct in Connection with Post-Judgment Discovery Northern v. Frolich & Associates 236 Ga. App. 7, 520 S.E.2d 857 (1999) Disposal of Documents that Contain Personal Information O.C.G.A. 10-15-1 and 10-15-2

F.

G.

H.

I. J.

K.

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Notes