In a prior Blog Article published here Dec. 8, 2015 (“Filing a Lawsuit to Secure a Prompt & Enforceable Settlement”), we discussed the advantages of filing a lawsuit, even where you know from the outset that the other party will likely agree to settle, so you can use a “Stipulated Judgment”, under CA Code of Civ. Procedure § 664.6 to aid in collection efforts if the settlement is not timely paid. Section 664.6 authorizes a Court to enter Judgment based on the stipulation of the parties, i.e. in accordance with their settlement.
Since most settling parties prefer to avoid having a judgment on record, it is not uncommon for parties to sign, but not file, a Stipulated Judgment, while providing in their settlement agreement that, upon any failure of payment, the Stipulated Judgment can be filed and enforced forthwith. One important note of caution regarding this technique of “securing” a settlement with an unfiled Stipulated Judgment: The Court must agree to retain jurisdiction following the settlement and keep the case open pending payment of the settlement. If the case is dismissed following the settlement, but before the settlement is paid or the Stipulated Judgment is filed, it cannot be enforced unless the Court is persuaded to reopen the case. Viejo Bancorp, Inc. v. Wood, 217 Cal. App. 3d 200, 265 Cal. Rptr. 620, 1989 Cal. App. LEXIS 1360 (Cal. App. 4th Dist. 1989)
Having a Stipulated Judgment won’t solve all the problems of collecting an unsecured debt, but it WILL give you important enforcement powers such as 1) the right to conduct a debtor’s examination under oath to seek information that might help locate the debtor’s assets; 2) place judgment liens on properties of the debtor; 3) garnish debtor’s wages; and, 4) file orders of attachment against debtor’s bank accounts.
Planning to Contest Defendant’s Bankruptcy Filing
One of the most intractable problems in trying to collect money from a financially stressed or insolvent party is the possibility they will file for bankruptcy. Unfortunately, most legal claims for money are presumptively dischargeable in bankruptcy. In addition, settlement agreements where the defendant “waives” the right to seek bankruptcy are often found to be unenforceable in California. If you anticipate a bankruptcy filing, be flexible and negotiate to get paid quickly, or insist on security or guarantors when possible.
In appropriate cases where the factual basis for the claims against defendant would, if proved, bring the matter within an exception to the rule of presumptive dischargeability, you might try to include a detailed stipulation as to the agreed and undisputed FACTS supporting defendant’s liability. In such cases, the Settlement Agreement and/or the Stipulated Judgment should include a detailed recitation of defendant’s wrongdoing, essentially an admission of facts which would support the non-dischargeable liability of defendant.
Most settlement agreements, however, contain language to the effect that “the parties to this settlement deny all wrongdoing and are not hereby admitting any liability.” You can anticipate great resistance in getting a defendant to formally admit wrongdoing, even when Stipulating to Judgment. If you have sufficient leverage and the defendants are appropriately motivated to settle, they may agree to such language.
As the old saying goes, “you can’t get blood from a turnip”. In any settlement try to include solvent parties, with assets to secure the settlement. If you are settling with an entity, try to insist that the settlement be guaranteed by the individuals who control that entity. And again, generally speaking, if you are settling with an insolvent and untrustworthy party, for any significant amount of money, you are better off filing a lawsuit and settling by means of a Stipulated Judgment.