Judgment Enforcement Challenges in Mexico
Unlike many posts on this blog, which are written by Will Newman, this post is by Esteban Maqueo Barnetche of the Mexico City law firm, Olea, Maqueo y Gimenez.
Settlements in Mexican Commercial Disputes Often Come After Trial
Having worked as a paralegal some 25 years ago and as a litigation attorney, I've noticed that in Mexico, the majority of cases settle only after a judgment has been entered. After attending negotiation workshops at Harvard Law School, I remember struggling to apply my newly acquired knowledge to disputes in Mexico. We don't have a strong negotiation culture, and unfortunately, in most cases, parties settle only after incurring significant legal fees and expenses. Many times, the terms of the agreement could have been reached before spending so much on the trial.
The Mexican Code of Commerce regulates trial proceedings, and one of the most important stages of a relatively new type of commercial procedure is a hearing at the beginning of a trial in which the judge attempts to facilitate a settlement between the parties.
Post-judgment settlements may seem unusual. But the risk that a defendant may not only fail to comply with a judgment but also obstruct its enforcement, puts pressure on the successful plaintiff, who often accepts a post-judgment settlement offer.
Post-Trial Settlements Are Common Because Mexican Courts Struggle to Enforce Judgments
In Mexico, commercial procedures have evolved but are still far from perfect. Judges remain very cautious due to their exposure to administrative, civil, and criminal liabilities. In 2017, the Second Federal Collegiate Court for Civil Matters of the Third Circuit in Mexico established that effective judicial oversight has three qualities, one of which is severity in judgment enforcement:
The third quality is severity, linked to the effective execution of the judgment because once the process is exhausted, the right is declared (jurisdiction concluded), and the judgment of condemnation becomes res judicata, an indisputable entity. One must be vigorous, if necessary, in the face of potential contradiction by third parties.
While this precedent is not binding on any judge or magistrate, it serves as a valuable reference point to promote effective justice.
I believe that in addition to attorney's fees and trial costs, Mexico should legislate severe consequences for those who refuse to comply with final and definitive judgments and awards. This would make the entire system of justice administration much more effective and incentivize a culture of settling disputes before judgment.
Image credit: https://es.wikipedia.org/wiki/Suprema_Corte_de_Justicia_de_la_Nación#/media/Archivo:Suprema3.jpg
A Real Example of Difficulty in Mexican Judgment Enforcement
An example of the lack of determination and severity by judges in enforcing rulings is a commercial case I've successfully litigated since 2016. In Mexico, there is usually no discovery process; you start the trial by filing the complaint with the demands. In this case, we obtained a final and definitive judgment in 2020. The case was heard before a Federal Court in Monterrey, Mexico. We placed a lien on the funds from the beginning, and most of it was deposited in the court. However, because the defendant engaged in several fraudulent transfers of funds, created fraudulent trusts, and even simulated other trials, placing liens on the same credits, the judge failed to act with severity, and we've been litigating not only with the defendant but also with third parties.
Even when the judge rules in our favor, if the defendant and third parties appeal, the liens remain ineffective. It's important to understand that appeals in Mexico do not necessarily stop the enforcement of judgments. In our case, because there is a definitive judgment on the merits, if the appellant wants to halt the execution of a ruling issued to enforce or execute the liens, they must post a bond or other collateral to guarantee indemnity for any damages and loss of gain to their counterpart if the appeal is not successful. In our case, even though our counterpart and third parties have not posted any collateral, the judge refuses to execute his orders until they are confirmed by the appellate courts and, in almost every case, a federal two-instance constitutional trial known as "Amparo." These appeals and Amparos have taken years to resolve due to the heavy workload of our Federal Courts.
In cases like this example, where large sums of money are at stake, judges are excessively cautious, which negatively impacts the day-to-day operations of the successful party. Despite having strong legal arguments, the party suffers from a lack of liquid assets due to the court's passivity.
In recent oral trials of commercial matters in Mexico, judges have been attempting to encourage parties to settle at the beginning of the trial. While this practice can sometimes frustrate trial attorneys because the judge addresses the parties directly, bypassing counsel, it has been successful in getting parties to settle and easing the courts' workload.