In California, as well as in many of the other jurisdictions we represent our commercial clients in, the legal path to recovering what you are owed, or moving on to more productive endeavors, is most often simple and direct.
1. Evaluate whether the debtor business has the wherewithal to pay and/or determine if there is a basis for other business entities and individuals to be put on the hook to satisfy the obligation. Making this determination requires a bit of diligence but not necessarily a lot of time. Most law firms that do commercial collection work subscribe to databases which allow an attorney to quickly obtain basic information about a business and its relationships. That being said, in many a seven figure case the basic facts which ultimately led to our success in attaching or executing upon a debtor’s assets (especially accounts receivable) were obtained from the debtor business’ website, LinkedIn or Facebook.
2. Assuming a debtor’s financial wherewithal, file suit and serve along with the Summons and Complaint a Notice of Application for Writ of Attachment to be heard by the Court at the earliest available date. From our experience a hearing date within 24-45 days is usually obtainable. In certain situations a Right to Attach Order may be obtained on an ex-parte (immediate) basis.
3. Being served with an attachment application out of the gate frequently results in a business debtor promptly paying what’s owed and, if not, quite often the debtor will seek resolution after the attachment application is granted, knowing that the business’ bank accounts will be frozen and its receivables levied upon by a county sheriff (or a United States marshal in federal court cases). Levying on a debtor’s receivables necessarily involves a debtor’s clients/customers, a situation which many businesses will want to avoid at all costs.
4. To the extent a debtor seeks to assert a frivolous counterclaim in an attempt to defeat an attachment application, that type of tactic will not work. In order for a counterclaim to defeat an attachment application, the counterclaimant needs to, among other requirements, a) allege damages caused by the creditor that are readily calculable (i.e. not pie in the sky estimates) and b) convince the Court of the probable validity of the allegations made in the counterclaim. In our experience a debtor is almost never successful at beating down an attachment application with a frivolous counterclaim, and when it occurs the reason is that the judge is one of the few that does not believe in granting the harsh pre-judgment remedy of asset attachment. The issuing of a writ of attachment despite the business debtor’s proffering of a sham counterclaim regularly results in a quick resolution of the entire matter, as the debtor would face what could be a terminal interruption of its business if it wanted to continue to litigate its specious counterclaim while its assets were subject to attachment. Additionally, the disposing of a counterclaim at the very start of a case generally saves the creditor tens, if not hundreds, of thousands of dollars in defense fees and costs.
While of course there are matters that will not fit neatly into the above scenarios, we find that approximately 80% of the commercial debt collection cases we handle in which an attachment application is asserted resolve no later than on or shortly after the date a writ of attachment is issued by the Court.
Lastly, in a situation where the business relationship between a creditor and a debtor is salvageable, resolving the collection issue early often allows a restoration of the provider/customer relationship prior to the hostility inherent in litigation rendering such an occurrence unlikely.