Sue the Bums

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Provides information for credit managers on dealing with collection litigation.

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Sue the Bums

  1. 1. CMKF Creim Macias Koenig & Frey LLP <ul><li>SUE THE BUMS !! </li></ul><ul><li>*************************************** </li></ul><ul><li>A WORKSHOP FOR CREDIT MANGERS ON DEALING WITH COLLECTION LITIGATION </li></ul><ul><li>*************************************** </li></ul><ul><li>CMA Webinar </li></ul><ul><li>February 2009 </li></ul>
  2. 2. CMKF Creim Macias Koenig & Frey LLP <ul><li>Richard Macias is a partner with the law firm of Creim Macias Koenig & Frey LLP. The firm specializes in creditors’ rights. </li></ul><ul><li>Mr. Macias represents trade suppliers, manufacturers and financial institutions in litigation involving contract enforcement actions, bankruptcy, business transactions, bad faith claims, collections, antitrust, dealer terminations and general counsel services for a variety of business. </li></ul><ul><li>Mr. Macias received his law degree from Harvard Law School in 1975. </li></ul><ul><li>Prior to entering private practice, he served for three years as a criminal prosecutor in the office of the Los Angeles City Attorney and later was appointed to be Special Counsel to the City Attorney. He also was an Associate Professor of Law at Loyola Law School in Los Angeles, where he taught courses in litigation procedure, trial practice and negotiation skills. </li></ul><ul><li>He has written numerous articles on topics of interest to secured and unsecured creditors. He also has served on the Executive Committee of the Intellectual Property, Internet and New Technology Section of the Beverly Hills Bar Association. </li></ul>About the Speaker
  3. 3. CMKF Creim Macias Koenig & Frey LLP <ul><li>HANDLING COLLECTION LITIGATION STARTS WITH UNDERSTANDING WHO MAY BE LIABLE. </li></ul>
  4. 4. CMKF Creim Macias Koenig & Frey LLP <ul><li>SEVEN FORMS OF BUSINESS ENTERPRISES </li></ul><ul><li>Sole Proprietorship </li></ul><ul><li>General Partnership </li></ul><ul><li>Limited Partnership </li></ul><ul><li>Limited Liability Partnership </li></ul><ul><li>Limited Liability Company </li></ul><ul><li>S Corporation </li></ul><ul><li>C Corporation </li></ul>
  5. 5. CMKF Creim Macias Koenig & Frey LLP <ul><li>IDENTIFY POTENTIAL SOURCES OF COLLECTION </li></ul><ul><li>Corporations </li></ul><ul><ul><ul><li>Shareholders - individual or corporate (alter ego) </li></ul></ul></ul><ul><ul><ul><ul><li>Allows creditor to sue where no contractual relationship </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Elements </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Domination or control (unity of interest), or </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Wholly inadequate capitalization, and </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Fraud or injustice unless corporate form disregarded </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Successor Corporations </li></ul></ul></ul><ul><ul><ul><ul><li>Same shareholders and directors </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Transfer of assets </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Nonpayment of prior corporation's debts </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Same business </li></ul></ul></ul></ul>
  6. 6. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>Partnerships </li></ul></ul><ul><ul><ul><li>Must name individual partners to reach all assets </li></ul></ul></ul><ul><ul><ul><li>Partner by estoppel </li></ul></ul></ul><ul><ul><ul><ul><li>Consent to representation as a partner </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Credit given in reliance on representation </li></ul></ul></ul></ul>
  7. 7. CMKF Creim Macias Koenig & Frey LLP What to do with an LLC ???
  8. 8. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>Related Parties </li></ul></ul><ul><ul><ul><li>Guarantors </li></ul></ul></ul><ul><ul><ul><li>Co-borrowers </li></ul></ul></ul><ul><ul><ul><li>Joint venturers </li></ul></ul></ul><ul><ul><ul><li>Successor business (bulk sales) </li></ul></ul></ul><ul><ul><ul><li>Other creditors who exercise control </li></ul></ul></ul>
  9. 9. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>ANALYZE CHANCES OF SUCCESSFUL COLLECTION </li></ul></ul><ul><ul><li>Collectability </li></ul></ul><ul><ul><ul><li>Availability and sufficiency of security </li></ul></ul></ul><ul><ul><ul><li>Asset and UCC search </li></ul></ul></ul><ul><ul><ul><li>Review of debtor's current status </li></ul></ul></ul><ul><ul><ul><li>Effect of other creditors' actions </li></ul></ul></ul><ul><ul><ul><li>Analyze possible defenses to creditor's claim (credits, guaranty, antitrust, tort claims, harassment, threats of criminal prosecution) </li></ul></ul></ul><ul><ul><li>Likelihood and Effect of Bankruptcy </li></ul></ul><ul><ul><ul><li>Automatic stay </li></ul></ul></ul><ul><ul><ul><li>Preferences </li></ul></ul></ul>
  10. 10. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>REVIEW WORKOUT POSSIBILITY </li></ul></ul><ul><ul><li>Final demand by creditor with attorney </li></ul></ul><ul><ul><li>Workout to improve creditor's legal position </li></ul></ul><ul><ul><ul><li>Secured (cure any defects in documents, UCC filings, or recordation, increase the amount of security, add additional guarantees, self-help) </li></ul></ul></ul><ul><ul><ul><li>Unsecured (obtain security and guarantees, judgment pursuant to stipulation, confession of judgment [beware state law procedures and due process problems], self-help) </li></ul></ul></ul><ul><ul><ul><li>Secured and unsecured debt (reduce indebtedness to written agreement to minimize offsets, defenses, but beware of loss of purchase money priority due to the transformation rule when open account obligations are transferred to a promissory note) </li></ul></ul></ul>
  11. 11. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>BEGINNING LITIGATION </li></ul></ul>
  12. 12. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>Appropriate lawsuit </li></ul></ul><ul><ul><ul><li>Common counts/breach of contract </li></ul></ul></ul><ul><ul><ul><li>Conversion, fraud, fraudulent conveyance </li></ul></ul></ul><ul><ul><li>Name all parties, list all trade names, bank accounts, business license in trade name </li></ul></ul><ul><ul><li>Proper court </li></ul></ul><ul><ul><ul><li>State </li></ul></ul></ul><ul><ul><ul><li>Federal </li></ul></ul></ul><ul><ul><ul><li>Jurisdiction </li></ul></ul></ul><ul><ul><ul><li>Venue </li></ul></ul></ul>
  13. 13. CMKF Creim Macias Koenig & Frey LLP US SUPREME COURT US Supreme Court STATE SUPREME COURTS US Circuit Courts of Appeals US District Courts State Courts of Appeal State Trial Courts [Superior Court} US Bankruptcy Courts Small claims
  14. 14. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>Pre-judgment remedies </li></ul></ul><ul><ul><ul><li>Theory - secure the ultimate Judgment today </li></ul></ul></ul><ul><ul><ul><ul><li>Preserve collateral </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Obtain a lien not voidable after 90 days </li></ul></ul></ul></ul><ul><ul><ul><li>Practical uses </li></ul></ul></ul><ul><ul><ul><ul><li>Settlement </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Prevents protracted </li></ul></ul></ul></ul><ul><ul><ul><ul><li>litigation and additional </li></ul></ul></ul></ul><ul><ul><ul><ul><li>expense </li></ul></ul></ul></ul>
  15. 15. CMKF Creim Macias Koenig & Frey LLP <ul><ul><ul><li>Attachment </li></ul></ul></ul><ul><ul><ul><ul><li>Elements </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Commercial Contract </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Readily ascertainable amount </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Probable validity of claim </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Unsecured </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Elements </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Fraud </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Conversion </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Hiding assets </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Fleeing debtor </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Debtor avoiding service </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Non-Resident debtor </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Location/types of assets </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Deposit accounts </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Inventory </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Equipment and motor vehicles </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Accounts receivable </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Real property </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Other tangible personal property </li></ul></ul></ul></ul></ul>
  16. 16. CMKF Creim Macias Koenig & Frey LLP <ul><ul><ul><ul><li>Proof by affidavits or declarations; </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Mini trial on paper </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Important role of well kept business documents </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Levy </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Possession </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Keeper - expense </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Resulting storage by authorities pending judgment </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Financial institutions </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Third parties </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Timing </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Noticed hearing (5-30 days) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Ex parte application- “Great or irreparable injury” </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Bulk sales notice recorded </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Assets being concealed, impaired in value, or otherwise made unavailable to levy </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Temporary protective order pending noticed hearing issue as an alternative - binds only debtor after personal service </li></ul></ul></ul></ul></ul>
  17. 17. CMKF Creim Macias Koenig & Frey LLP <ul><ul><ul><li>Replevin (Claim and Delivery) </li></ul></ul></ul><ul><ul><ul><ul><li>Elements </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Right to immediate possession- UCC- 1 </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>List of specific personal property </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Need to know specific location of the collateral </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Proof by affidavits or declarations </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Documentary evidence necessary </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Necessity of demand </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Bond requirements </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Turnover Orders (directed to defendant) </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Used for property that cannot be located </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Can reach property in other states </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Avoids expense of levy </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Enforced by contempt </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Timing </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Noticed hearing (5-30 days) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Ex Parte Applications </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Collateral in immediate danger of being transferred, concealed, or impaired in value </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Temporary Restraining Order pending noticed hearing issue as an alternative - binds only debtor after personal service </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>May be issued without notice in extreme circumstances </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><li>Levy (Expense) </li></ul></ul></ul></ul>
  18. 18. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>KEEP LITIGATION COST-EFFECTIVE </li></ul></ul><ul><ul><li>Discovery </li></ul></ul><ul><ul><ul><li>Purpose </li></ul></ul></ul><ul><ul><ul><ul><li>Preparation for trial </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Settlement </li></ul></ul></ul></ul><ul><ul><ul><li>Types and timing </li></ul></ul></ul><ul><ul><ul><ul><li>Depositions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Interrogatories </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Requests for admission </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Production of documents </li></ul></ul></ul></ul><ul><ul><ul><li>Effect of discovery of creditor's files </li></ul></ul></ul>
  19. 19. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>WARNING !!! </li></ul></ul><ul><ul><li>The EMAIL Of The Species </li></ul></ul><ul><ul><li>Is Deadlier Than The MAIL . </li></ul></ul><ul><ul><li>Most experts estimate that more than 90% of all legal evidence now resides in computer systems, rather than on paper. </li></ul></ul><ul><ul><li>14% of workplace e-mail is subpoenaed in lawsuits (according to Nancy Flynn, executive director at the ePolicy Institute in Columbus, Ohio.) </li></ul></ul>
  20. 20. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>SETTLEMENT BEFORE TRIAL </li></ul></ul><ul><ul><ul><li>Settlement agreements </li></ul></ul></ul><ul><ul><ul><ul><li>Make compromise contingent upon settlement being paid in full </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Security, attorney's fees, and interest </li></ul></ul></ul></ul><ul><ul><ul><li>Benefits and dangers of accepting a promissory note or notes </li></ul></ul></ul><ul><ul><ul><ul><li>Requires future litigation to collect on a promissory note or notes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>May reduce defenses to debtor </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Security, attorney's fees, and interest </li></ul></ul></ul></ul><ul><ul><ul><li>Settlement conferences pursuant to court order </li></ul></ul></ul><ul><ul><ul><ul><li>Timing (eve of trial) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Role of creditor </li></ul></ul></ul></ul>
  21. 21. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>Judgments </li></ul></ul><ul><ul><ul><li>Default judgment </li></ul></ul></ul><ul><ul><ul><ul><li>Timing (may apply to court after time to answer has elapsed) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Relief only as prayed in complaint </li></ul></ul></ul></ul><ul><ul><ul><li>Summary judgment </li></ul></ul></ul><ul><ul><ul><ul><li>Timing (hold at beginning and end of case) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Limitations </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Relief only as prayed in complaint (generally) </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>No issue as to a &quot;material&quot; fact </li></ul></ul></ul></ul></ul>
  22. 22. CMKF Creim Macias Koenig & Frey LLP <ul><ul><ul><li>TRIAL </li></ul></ul></ul><ul><ul><ul><ul><li>Preparation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Court calendars </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Witnesses </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Original documents </li></ul></ul></ul></ul>
  23. 23. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>ALL OUT LITIGATION: WHEN TO DO IT ? </li></ul></ul><ul><ul><li>Make a statement to your dealer or customer network </li></ul></ul><ul><ul><li>Large dollars to collect </li></ul></ul><ul><ul><li>Solvent parties </li></ul></ul>
  24. 24. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>CHECKLIST FOR GETTING THE MOST BANG FOR YOUR BUCK-- </li></ul></ul><ul><ul><li>THINGS TO DO BEFORE YOU CALL YOUR ATTORNEY </li></ul></ul>
  25. 25. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>INTERNAL REVIEW </li></ul></ul><ul><ul><ul><li>Review your company's credit files, sales files, correspondence and reports </li></ul></ul></ul><ul><ul><ul><li>Review other facts; if appropriate, interview the sales people responsible for the account </li></ul></ul></ul><ul><ul><ul><li>Identify unusual problems, e.g., disputes, accounting or credit issues, counterclaims </li></ul></ul></ul><ul><ul><ul><li>Make a broad analysis of the likelihood of collection </li></ul></ul></ul>
  26. 26. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>ASSEMBLE THE FACTS AND DOCUMENTS </li></ul></ul><ul><ul><ul><li>Names and addresses of all debtors and guarantors </li></ul></ul></ul><ul><ul><ul><li>Identify any collateral in which your company has a security interest, deed of trust, etc., and possible location </li></ul></ul></ul><ul><ul><ul><li>Identify debtor's and guarantor's other assets. Are any of these assets free and clear of other liens, security interests, etc.? </li></ul></ul></ul><ul><ul><ul><li>Approximate value of collateral and other assets </li></ul></ul></ul><ul><ul><ul><li>How much is owed? </li></ul></ul></ul><ul><ul><ul><li>What is the form of the debt? (Open account, promissory note, etc.) </li></ul></ul></ul><ul><ul><ul><li>Collect all relevant original documents </li></ul></ul></ul><ul><ul><ul><li>Run a statement of account </li></ul></ul></ul><ul><ul><ul><li>Review all payments made by the debtor to your company and to other companies within the preference period if debtor were to file or be placed immediately in a bankruptcy. </li></ul></ul></ul><ul><ul><ul><li>Are any goods in shipment, or were any goods shipped within the last ten days; the last three months? </li></ul></ul></ul><ul><ul><ul><li>Prepare a brief summary of the situation </li></ul></ul></ul>
  27. 27. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>CALL THE ATTORNEY AND SEND HIM/HER THE ABOVE MATERIALS </li></ul></ul><ul><ul><ul><li>Identify your short and long term goals and problems (e.g., is a replevin action appropriate, should a UCC Section 2702 reclamation letter be sent?) </li></ul></ul></ul><ul><ul><ul><li>Be sure to mention any possible counterclaims, setoffs, defenses, etc. </li></ul></ul></ul><ul><ul><ul><li>Your analysis of the account and any suggestions (e.g., prejudgment attachment or replevin) </li></ul></ul></ul><ul><ul><ul><li>Ask for an estimate of time, costs and fees </li></ul></ul></ul><ul><ul><ul><li>Discuss who else should be kept apprised of the status and resolve copies of correspondence, pleadings, etc. </li></ul></ul></ul><ul><ul><ul><li>State whether you require monthly status reports or other progress reports </li></ul></ul></ul>
  28. 28. CMKF Creim Macias Koenig & Frey LLP <ul><ul><li>KEEP YOUR ATTORNEY INFORMED OF ANY BUSINESS CHANGES OR NEW INFORMATION ABOUT THE DEBTOR </li></ul></ul>
  29. 29. CMKF Creim Macias Koenig & Frey LLP <ul><li>Litigation </li></ul>
  30. 30. CMKF Creim Macias Koenig & Frey LLP <ul><li>When you go to court, you are trusting your </li></ul><ul><li>fate to twelve people that weren't </li></ul><ul><li>smart enough </li></ul><ul><li>to get out of jury duty! </li></ul><ul><li>---Bill Handel </li></ul>
  31. 31. CMKF Creim Macias Koenig & Frey LLP <ul><li>Why do the costs get out of control? </li></ul><ul><li>1 . Failure to analyze cost- effectiveness </li></ul><ul><li>2. INADEQUATE RECORDS AND MISSING PERSONNEL </li></ul><ul><li>3 . Poor asset search or analysis </li></ul><ul><li>4 . Ignoring counter-claim problems </li></ul><ul><li>5 . Failure to do preference analysis </li></ul>
  32. 32. <ul><li>RICHARD C. MACIAS </li></ul><ul><ul><li>Creim Macias Koenig & Frey LLP </li></ul></ul><ul><ul><li>633 West Fifth Street, 51st Floor </li></ul></ul><ul><ul><li>Los Angeles, California 90071 </li></ul></ul><ul><ul><li>Tel: 213-614-1944 </li></ul></ul><ul><ul><li>Fax: 213-614-1961 </li></ul></ul><ul><ul><li>Email: [email_address] </li></ul></ul><ul><ul><li>Web: www.cmkllp.com </li></ul></ul><ul><li>© 2009 Richard C. Macias. All rights reserved. </li></ul>

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