Turnover Proceedings
In an earlier post, I described the work that lawyers must perform to collect money after winning a judgment. Just because a plaintiff obtains a judgment doesn’t mean they automatically get money. Instead, they may even need to go back to court to sue someone else to collect the money. Those lawsuits are called “turnover proceedings” and they address situations when a judgment debtor transmits assets to a third party.
Why should you read this post about turnover proceedings?
Because you recently lost a lawsuit but somehow still have the disputes property.
You won a lawsuit and you want to roll the dice and go double or nothing in court.
You want to hear about lawsuits that are often more technical than dramatic.
Image credit: https://en.wikipedia.org/wiki/Turnover_(food)#/media/File:Pastry-Turnover-Apple.jpg
Elements of a Turnover Claim
A creditor usually does not need to prove the underlying merits of her claim in a turnover proceeding. Instead, she only needs to establish that she has a judgment for money or for property and that the defendant in the proceeding (who is subject to personal jurisdiction before the court) possesses that money or property. In New York, the creditor must show that her “rights to the property are superior to those of the transferee” defendant. She could do that by arguing that the property really belongs to the judgment debtor, or that the defendant owes money to the judgment debtor.
A defendant may oppose the proceeding by claiming that her rights to the property are not undermined by the creditor’s judgment. She may do this by arguing that she is distinct from the judgment debtor and the property really belongs to her, without any obligation to the debtor. She can also argue that she is not subject to personal jurisdiction in the court.
Turnover Procedure
A lawsuit takes a long time, and so it may be frustrating to a successful plaintiff to start an entirely new lawsuit. But jurisdictions like New York allow for an expedited procedure that may make a turnover proceeding quicker than the underlying lawsuit.
In New York, the law allows a plaintiff to commence a “special proceeding” instead of a normal lawsuit. In a special proceeding, a plaintiff files a “petition” instead of a complaint, and after filing the petition, the case proceeds to an equivalent of the summary judgment phase, skipping the lengthy and costly discovery phase.
But unlike a regular lawsuit, there is usually an additional notice provision. Even though the turnover proceeding is between the judgment creditor and the defendant who possesses the property, and the judgment debtor is technically not a party, the law in New York requires the creditor to mail notice of the proceeding to the judgment debtor so that she can intervene in the proceedings. Other creditors may also have the ability to intervene and claim rights in the property at issue.
The Separate Entity Rule
A classic use of turnover proceedings is for a creditor to bring an action against a bank, seeking the payment of money held by an account holder. But since banks often operate in many jurisdictions, people may seek to sue banks in one jurisdiction’s turnover proceeding to obtain assets that were deposited in another.
As a result, New York has followed the “Separate Entity Rule,” which says that while a bank may be subject to personal jurisdiction in the many places it does business, for the purpose of post-judgment proceedings, it is only subject to personal jurisdiction in the location of the debtor’s bank account. Each branch is therefore a “separate entity.” But if the bank consents to jurisdiction, then it could be compelled to deliver property from outside the jurisdiction to the judgment creditor.