When a business sells goods or services, that business can expect to be paid. However, payment is not always the reality. If a business is not getting paid, there are options to seeking repayment, either informally or formally. If the informal methods of trying to convince the debtor to pay have been unsuccessful, business owners should consider formally seeking payment by filing a lawsuit. This article focuses on the realities of using the judicial system to collect amounts owed to the business.
Once a lawsuit is filed, the debtor has the opportunity to defend the action. The debtor may assert defenses that it does not owe as much as is stated, that the goods were defective or the services subpar. Fast forward—the judge has decided the debtor’s defenses are without merit and has awarded a monetary judgment for the full amount sought. The lawsuit is won! Congratulations are in order, right?
Wrong, merely winning a lawsuit and obtaining a judgment does not mean an automatic deposit in a business’s bank account. Rather, that judgment only allows the company to use the courts and sheriff’s office to enforce the judgment.
Satisfying A Judgment
In Nevada, those who have monetary judgments against another (“judgment creditors”) have a variety of statutory tools at their disposal to compel those who owe them money (“judgment debtors”) to satisfy the judgment. At its most basic level, Nevada’s debt collection statutes allow judgment creditors to satisfy judgments by having the sheriff’s office seize property belonging to the judgment debtor. The sheriff’s office will then sell that seized property and give the proceeds of the sale to the judgment creditor. The judgment creditor can have this process repeated until the judgment is paid in full. Thus, judgments are only as good as the judgment debtor’s quality and quantity of assets.
Locating the Judgment Debtor’s Assets
The question then becomes, how to know what property the sheriff should seize. Nevada allows a judgment creditor to obtain information directly from the judgment debtor, or any other person, concerning the judgment debtor’s property. For instance, judgment creditors may subpoena the judgment debtor’s accountants, managers or any person when seeking information concerning the judgment debtor’s property. If that person refuses or fails to answer, they may become responsible for paying the amounts owed the business.
Sometimes, by the time the judgment creditor obtains its judgment, the judgment debtor has transferred all of its assets to a separate entity or to the entity’s principals in hopes of avoiding the judgment. Once again, the judicial process has a solution.
Discovery of Nonparties’ Assets
The Nevada Supreme Court recently permitted a judgment creditor to obtain information concerning the assets of a non-debtor. In the case, the Nevada Supreme Court allowed the judgment creditor to ascertain information concerning the assets of an entity that was not a debtor, but who participated in various financial transfers with the judgment debtor after a lawsuit was filed. This third-party was formed by one of the judgment debtors and it appeared to be used as a vehicle to hide money from the judgment creditor.
The Nevada Supreme Court explained that allowing discovery into the assets of non-debtors is permissible if it will lead to the discovery of hidden or concealed assets of the judgment debtor. To convince a court to allow such discovery, the judgment creditor may show that transfers to the third party took place and that the relationship between the judgment debtor and the nonparty is sufficient to raise a reasonable suspicion concerning the propriety and permissibility of the transfers.
When a business is owed money, there are various options available to seek payment. Typically, business owners should start by informally seeking to convince the debtor to pay the bill without having to hire a debt collector and without having to file a lawsuit. However, when that debtor refuses to pay, even though it has the apparent ability or assets to do so, business-owners should consider filing a lawsuit.
John R. Funk is an Associate at Gunderson Law Firm.
