(January 2020) - The legal remedies that enable an aggrieved party to "collect" on an amount undisputedly owed generally arise from the enforcement of judgments and liens. This article does not address collections related to air or maritime transportation of goods, though such collections overlap and share similar concepts. The nuances of each remedy varies by jurisdiction, and are contingent upon the underlying legal right(s) asserted.
While specific jurisdictional requirements may vary, many jurisdictions share similar requirements with respect to the enforcement of judgments and liens. A judgment creditor that pursues recovery of an amount that is and always has been a debt owed only to that specific judgment creditor does not mean that it is a "debt collector" as often defined under consumer protection laws. Thus, such laws may not apply to the judgment creditor under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq. The following is an overview of several collection remedies that the transportation industry commonly encounters, while enforcing rights arising from a judgment or lien.
Collection by Judgment Enforcement (Judicial Remedies)
Judicial remedies involve relief requested of the court to assist an aggrieved party with the enforcement of a judgment. While the underlying claims that give rise to entry of a judgment are numerous, an action involving a breach of contract is commonly encountered by, between, or against members of the transportation industry.
All jurisdictions within the United States provide post-judgment discovery tools to a party in whose favor a judgment was entered (the "judgment creditor") so that it may ascertain financial and asset information about a party against whom the judgment was entered (the "judgment debtor").
Thereafter, based upon the information obtained from post-judgment discovery or otherwise known to it, the judgment creditor can discern what remedies most efficiently allow for the enforcement of its judgment against the judgment debtor. These remedies often include, but are not limited to1: (1) the garnishment of the judgment debtor's non-exempt earnings or non-earnings; (2) obtaining a writ from the court to seize the judgment debtor's non-exempt personal property for sale to apply the proceeds derived therefrom towards satisfying the judgment amount; and (3) recording the judgment in the official records of one or more county recorder's offices as a lien against any current or future real property interest held by the judgment debtor.
Once payment in-full of the judgment amount is received, a judgment creditor should promptly complete all final jurisdictional requirements. Completing such requirements is critical for the judgment creditor because it reduces the likelihood of the judgment debtor pursuing legal action that may subject the judgment creditor to liability. This includes immediately ceasing any ongoing collection efforts, filing and recording a "satisfaction" of the judgment, and ensuring that the garnishee (if applicable) is released from any obligation to withhold monies from the judgment debtor.
Collection by Lien Enforcement (Non-Judicial Remedy)
A non-judicial remedy to collect on a statutory lien generally includes some form of auction sale to enforce the lien. Such remedy is commonly set forth within specific statutes addressing the lien.
Historically, an aggrieved party's path to assert and enforce a common-law lien was through the courts, i.e., a judicial remedy. However, this area of common law has largely been superseded by many jurisdictions' partial or entire codification of Article 7, Sections 307 and 308 of the Uniform Commercial Code (UCC). As such, an aggrieved carrier's options regarding enforcement of a lien are now predominantly non-judicial in nature: the carrier must comply with one or more statutes in order to assert and enforce a lien, and may proceed in doing so without court intervention. A typical scenario in the transportation industry involves a carrier that remains in lawful possession of goods for which transportation and/or storage charges are past due.
Specifically, UCC § 7-307(a) states that a carrier has a lien on goods covered by a bill of lading or on the proceeds thereof for charges after the date of the carrier's receipt of the goods for storage or transportation, including demurrage and terminal charges, and for expenses necessary for preservation of the goods incident to their transportation or reasonably incurred in their sale pursuant to law. However, against a purchaser for value of a negotiable bill of lading, UCC § 7-307(a) provides that a carrier's lien is limited to charges stated in the bill or the applicable tariffs or, if no charges are stated, a reasonable charge.
Further, UCC § 7-308(a) states that a carrier's lien on goods may be enforced by public or private sale of the goods, in bulk or in packages, at any time or place and on any terms that are commercially reasonable, after notifying all persons known to claim an interest in the goods. It also provides that a carrier sells goods in a commercially reasonable manner if it does so in the usual manner in any recognized market, sells at the price current in that market at the time of the sale, or otherwise sells in conformity with commercially reasonable practices among dealers in the type of goods sold.
A majority of jurisdictions have adopted provisions that are mostly or entirely identical to the language contained within the aforementioned UCC provisions, including but not limited to Arizona, California, Florida, Illinois, Louisiana, Massachusetts, Missouri, New York, North Carolina, Ohio, Texas, Washington, and Wyoming. For example, each of these jurisdictions: (1) requires that a carrier's statutory notice to persons known to claim an interest in the goods contains a statement of the amount due, the nature of the proposed sale, and the time and place of any public sale; (2) statutorily describes the commercial reasonableness standard as set forth in UCC § 7-308(a); and (3) allows that the goods to be sold either in bulk or in packages.
While not frequently required by statute to enforce a carrier's lien (but not uncommon for the enforcement of a warehouse lien), publishing a legal advertisement in a newspaper of general circulation where the sale is to be held in the two to three weeks preceding the sale is a wise practice for a carrier, especially to: (1) defend against a potential allegation by a person that may have an interest in the goods claiming that the sale was not commercially reasonable; and (2) as an opportunity to promote interest in the sale, which may increase the likelihood of recovering the amount owed by drawing additional bidders during a sale held by public auction.
Following a sale of the goods, many jurisdictions permit the carrier to satisfy its lien from the yielded proceeds, but the carrier must hold any remaining balance for delivery on demand to any person to whom the carrier would have been bound to deliver the goods.
Additional Best Practices for Transportation Collections
- Consult your legal team and/or outside counsel regarding any collection-related matter. Regardless of the jurisdiction, collection procedures and issues involve complexities and nuances to which your business must strictly adhere in order to reduce the likelihood (to the extent possible) that either a judgment debtor or a party claiming an interest in property subject to a lien will pursue legal recourse against your business.
- Maintain detailed records of documents, communications, and a log of any activity regarding the contract, account, or any other matter relating to the work conducted by your business.
- Perform periodic searches for pending bankruptcy actions wherein the judgment debtor, person, or entity that owes money to your business may have filed a petition seeking bankruptcy relief. If a pending action is found, determine whether the filing party listed your business as a creditor or otherwise in their schedule forms, as well as whether any automatic stay is in place and its impact on your ability to enforce your judgment or lien.
- In the event that an individual person (not an entity) owes money to your business, ensure that your business adheres to any requirements under the laws of the jurisdiction within which you seek to enforce your judgment or lien, including consumer protection laws and any federal law that may apply under the circumstances.
1 If the judgment creditor suspects that a judgment debtor may hold monies, personal property, or real property situated in a state other than the state rendering the judgment (the underlying judgment is sometimes referred to as a "foreign sister state judgment"), the judgment creditor must first "domesticate" the underlying judgment in the other state before it may avail itself of the remedies afforded by that state to judgment creditors. See Constitution of the United States, Art. IV, § 1 (Full Faith and Credit Clause); see also, Underwriters Nat'l Assurance Co. v. N.C. Life & Accident & Health Ins. Guar. Ass'n, 455 U.S. 691, 703-704, 102 S. Ct. 1357, 1365 (1982).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.