By: Charles B. Jimerson, Esq. and Daniel L. Buchholz, JD Candidate
Winning a lawsuit and being rewarded a money judgment does not always lead to the plaintiff’s best day. For example, Plaintiff sues Defendant for breach of contract. During the trial, Defendant realizes she may lose the case and, as a result, be forced to liquidate most of her assets to pay the money judgment. Instead, with her impending defeat in mind, Defendant transfers her assets to family, friends, and colleagues to protect them from satisfaction of the judgment. After Plaintiff wins the case, what is a judgment creditor to do if it can’t stick Defendant with the bill? The answer is Florida’s unique procedural mechanism for judgment creditors: proceedings supplementary. This blog posts provides an introduction to how proceedings supplementary can help Florida judgment creditors get paid.
Overview and Purpose
Proceedings supplementary are governed by section 56.29, Florida Statutes, and are an invaluable procedural device for judgment creditors. Specifically, proceedings supplementary are proceedings that follow a judgment to assist a judgment creditor (i.e., a plaintiff who won his or her case) collect its judgment against a judgment debtor (i.e., a defendant who lost his or her case). Through proceedings supplementary, a trial court may call before it the judgment debtor and third parties to be questioned about property that may be the subject of a writ of execution. Additionally, because proceedings supplementary are continuations of the original lawsuits that resulted in the judgments, judgment creditors are not required to file separate actions.
Proceedings supplementary have a narrow purpose: aid judgment creditors discover and then effectuate judgment debtors’ assets. Mystique, Inc. v. 138 Intern., Inc., 2010 WL 3008809, at *4 (M.D. Fla. July 28, 2010). Indeed, proceedings supplementary allow judgment creditors to recover the assets of judgment debtors in a quick, cost-effective manner. To be specific, by eliminating the need to initiate an entirely separate action, proceedings supplementary allow a judgment creditor to reach the assets of a judgment debtor more readily. Stated differently, proceedings supplementary provide a “useful, efficacious, and salutary remedy at law enabling the judgment creditor not only to discover assets which may be subject to his judgment, but to subject them thereto by a speedy and direct proceeding in the same court in which the judgment was recovered.” Regent Bank v. Woodcox, 636 So. 2d 885, 886 (Fla. 4th DCA 1994) (citation omitted). Indeed, as the Florida Legislature intended, proceedings supplementary save both time and cost for parties and courts because they give judges the ability follow through with the enforcement of their judgments. See Schwartz v. Capital City First Nat’l Bank, 365 So. 2d 181, 183 (Fla. 1st DCA 1978).
Requirements to Initiate Proceedings Supplementary
Generally, there must be an unsatisfied Florida judgment and/or lien for proceedings supplementary to be available. See Fla. Stat. § 56.29(1) (2016). Furthermore, before initiating proceedings supplementary, the judgment creditor must have the clerk of court issue a writ of execution. See id. While section 56.29 does not explicitly state a writ of execution is mandatory, the requirement that the execution on the judgment be “valid and outstanding” makes the writ of execution a precondition for any proceedings supplementary. See Lahav Flooring & Fixtures, Inc. v. Weinstein, 590 So. 2d 1055, 1056 (Fla. 3d DCA 1991).
To initiate proceedings supplementary, the judgment creditor must file a motion and an affidavit in the court that the original action arose. Id. The motion must (1) describe the judgment debtor’s nonexempt property or obligation to be used to satisfy the judgment; and (2) identify the third party in possession of the nonexempt property or who owes the obligation. Id. Additionally, the affidavit must provide general information about the case, the parties, and the outstanding judgment, such as a statement that the execution on the judgment is “valid and outstanding.” Id. After the motion and affidaviti have been filed, the judgment creditor is entitled to proceedings supplementary as a matter of law.
Proceedings supplementary are often used to contest the fraudulent transfer of assets. Therefore, in many cases, the judgment creditor will need to join a third-party transferee in the proceedings supplementary. To join a third-party transferee, the judgment creditor must implead the party referenced in its motion and obtain an order from the court—i.e., a “notice to appear.” See Fla. Stat. § 56.29(2).
Section 56.29 is equitable, which means courts have the discretion to come up with an equitable remedy that affords a judgment creditor complete relief. See Donan v. Dolce Vita Sa, Inc., 992 So. 2d 859, 861 (Fla. 4th DCA 2008). Generally, to carry out the purpose of proceedings supplementary, a court may enter a money judgment against a third-party transferee for the value of the property, regardless of whether the transferee is in possession of the property. Fla. Stat. §§ 56.29(6), 56.19 (2016). Additionally, if the third-party transferee retains the property solely for purposes of delaying satisfaction of the judgment, the court may award an additional 20 percent of the value of the property in damages. Fla. Stat. § 56.18 (2016).
Before a new final judgment can be entered against an impleaded third party, the third party must be given “an opportunity to raise defenses and protect its interests in a manner wholly consonant with genuine due process.” Jackson-Platts v. General Elec. Capital Corp., 727 F.3d 1127, 1137 (11th Cir. 2013). In other words, impleaded third parties must be afforded due process. Indeed, Florida courts have held third parties’ rights may not be adjudicated in proceedings supplementary unless they have been fully impleaded and given an opportunity to defend. See id.; Coloso Boat Corp. v. Souza, 492 So. 2d 1100, 1101 (Fla. 4th DCA 1986). Therefore, judgment creditors must strictly follow Florida Rule of Civil Procedure 1.250(c) when impleading a third party and section 56.29 during proceedings supplementary.
The Diligent Creditor Rule
While proceedings supplementary may be used to adjudicate various claims concerning a judgment debtor’s property, the procedure is most commonly used to challenge a fraudulent transfer of assets that would otherwise be subject to execution. See, e.g., RREF SNV-FL SSL, LLC. v. Shamrock Storage, LLC., 178 So. 3d 90, 91-92 (Fla. 1st DCA 2015). As a result, proceedings supplementary are integral to Florida’s diligent creditor rule.
The diligent creditor rule, under certain circumstances, allows a judgment creditor who brings a judgment debtor to court for engaging in a fraudulent transfer to jump ahead in priority—i.e., the order in which multiple creditors can use the property to satisfy their unpaid debts. Salina Mfg. Co. v. Diner’s Club, Inc., 382 So. 2d 1309, 1311 (Fla. 3d DCA 1980). Indeed, if a judgment creditor is suspicious that a transaction was fraudulent, proceedings supplementary allows the creditor to submit to the court evidence that the debtor engaged in a fraudulent transfer of assets. Fla. Stat. § 56.29(1)-(2). Therefore, proceedings supplementary is a powerful post-judgment tool that is necessity for any judgment creditor that seeks to unwind a judgment debtor’s fraudulent transfer.
Proceedings supplementary are powerful procedural mechanisms for judgment creditors with unsatisfied judgments. However, section 56.29 is a technical statute that requires several steps before a judgment creditor may fully utilize its power. Nonetheless, the benefits of proceedings supplementary outweigh the procedural hurdles required by section 56.29.