Attachment: An Essential Creditor Remedy

Attachment is a powerful remedy used by commercial creditors to quickly and inexpensively force commercial debtors to pay their outstanding debts by freezing and seizing their assets. Recently, Scheer Law Group, LLP (“SLG”) successfully attached $2,700,000.00 of a loan guarantor’s assets for the benefit of its client.

Attachment is a pre–judgment remedy under which certain of the debtor’s assets are frozen, pending the outcome of the case at trial. Assets that may be attached include real property, bank accounts, securities accounts, vehicles, business inventories accounts receivable, and notes held by the debtor, among others. Community property assets in the name of the debtor and/or the debtor’s spouse may also be attached. Tangible personal property can be seized by the county sheriff pending trial. Intangible assets such as deposit accounts and securities accounts are frozen.

All commercial creditors should consider the attachment remedy, including lenders, landlords, and vendors. The assets of both individuals and entities may be attached, although an individual’s debt has to have incurred through a trade, business, or profession. The remedy of attachment should be considered along with other pre-judgment remedies such as the appointment of a receiver.

BENEFITS OF ATTACHMENT

A court may order the issuance of a Writ of Attachment at any time after a lawsuit for breach of contract is filed. The attachment order may be obtained on an ex parte basis or through a noticed motion. Accordingly, creditors do not have to wait for months or even years for a trial while the debtor hides or dissipates its assets. They can be frozen early on in the litigation.

Not only does an attachment order allow a creditor to freeze the debtor’s assets, but, under attachment law, the creditor may use discovery devices such as depositions, document demands, and subpoenas to locate the debtor’s assets. Normally, discovery of assets is not allowed until after a judgment has issued. Thus, if the creditor is not already aware of where the debtor’s bank accounts, securities accounts, etc., are located, it may obtain this information through discovery.

Further, this discovery is not limited to the debtor itself. The debtor’s accountants, tax preparers, business partners, employees, and others who may know of the existence and whereabouts of the debtor’s assets may be deposed and documents pertaining to the debtor in their possession may be subpoenaed. This not only assists the creditor by identifying assets to be attached, but often results in a previously resistant debtor seeking a quick settlement of the debt. Indeed, a previously resistant debtor who is concerned that its assets will be discovered and attached may initiate settlement discussions while the creditor’s attachment application is pending before the court.

Attachment has other advantages. For example, if the debtor opposes the creditor’s application for attachment, the debtor will be forced to reveal any defenses it has to the lawsuit. In the $2,700,000 attachment order recently obtained by SLG, the debtor, who guaranteed a note, provided no defenses in its opposition to the creditor’s application for attachment order. Instead, the debtor merely – and unsuccessfully – attempted to attack the creditor’s evidence, a virtual concession by the debtor that it could never win the case.

Attachment also allows the creditor to “call the bluff” of the debtor as to a threatened bankruptcy. If a debtor threatening bankruptcy is serious, it will likely file for bankruptcy upon the filing of the application for attachment or immediately after the attachment is ordered, sparing the creditor from incurring attorney fees in taking the case through trial. Of course, if the debtor does not file for bankruptcy after his assets are attached, it is less likely that he will do so after trial.

The requirements for attachment are found in Code of Civil Procedure § 483.010, et seq. If you think that there are debts owing to you that might qualify for attachment, please call SLG to discuss this possibility in detail.