Florida’s Second District: Judgment Creditors can Issue Post-Judgment Discovery Concerning the Debtor’s Assets Held Jointly With a Spouse
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On August 14, 2013, Florida’s Second District Court of Appeal issued an opinion in the case of Regions Bank v. MDG Frank Helmerich, LLC, et al.,that is of great benefit to Florida’s judgment creditors. In its opinion, the Second District held that a judgment creditor is entitled to post-judgment discovery on the judgment debtor’s assets held jointly with a spouse. Regions Bank v. MDG Frank Helmerich, LLC, et al., 2013 WL 4081005, 2 (Fla. 2d DCA 2013). That holding provides creditors with a greater net to cast in the hopes of locating assets that are nonexempt and can be used to satisfy the judgment balance.
A judgment creditor had always been able to conduct post-judgment discovery on the debtor’s individual assets and could use the court system to enforce this right if the debtor failed to comply. Conducting post-judgment discovery beyond the debtor’s assets was a different issue altogether. If a creditor ventured into areas that the debtor felt exceeded the boundaries afforded to a creditor under Florida law, such as issuing discovery concerning assets held jointly with a spouse, the debtor could move the court for a protective order, which was granted more often than not. Florida’s Second District, however, has now made the creditor’s search for assets much easier by allowing the creditor to probe into the debtor’s assets held jointly with a spouse.
The facts in this case are as follows: Regions Bank lent money to MGD Frank Helmerich, LLC under a commercial loan agreement. The borrower and the guarantors of the loan defaulted, and the bank obtained a deficiency judgment against each. After obtaining the judgment, the bank, as the judgment creditor, subsequently proceeded with post-judgment discovery against the debtors. Regions Bank, WL 4081005 at 1.
Included in this post-judgment discovery was the bank’s request that the debtors provide all tax returns filed for the prior three calendar years, along with W-2s and 1099s. Two debtors made the same objection, which was (1) they file joint tax returns with their wives; (2) the judgment was not against their wives, and (3) therefore the bank could not request information that involved their wives or that involved the assets of their wives, including joint tax returns. The bank, feeling that such a request was reasonable under Florida law, pressed on and demanded that the debtors provide this information. Id.
At the hearing on the bank’s motion to compel discovery, the lower court ruled that the bank was “not entitled to third party financial information that may appear on tax returns.” Id. As a result of the lower court’s ruling, the debtors were able to redact any information that involved the spouse and/or jointly held assets. On a joint tax return that was quite a bit of redacted information, which made those produced documents nearly worthless. The bank appealed the lower court’s ruling to Florida’s Second District Court of Appeal.
Florida’s Second DCA articulated the clear difference between pre-judgment and post-judgment discovery, stating that post-judgment discovery is concerned with uncovering “information that will enable the judgment creditor to collect the debt.” Id. The Second District continued by expressing that, “the creditor has the right to discover any assets the debtor might have that could be subject to levy or execution to satisfy the judgment, or assets that the debtor might have recently transferred.” Id. That second point is probably the biggest reason why the Second District disagreed with the lower court. To illustrate, if the judgment creditor could not inquire into jointly held assets, then debtors could convert individual assets into jointly held assets with their spouses, and if creditors are prohibited from issuing discovery on those jointly held assets, then the debtor could commit the fraudulent transfer of assets and quite possibly get away with it.
The Second District reversed the lower court, holding that “Broad discovery of a debtor’s assets is permitted post-judgment – the debtor’s assets, whether held individually or jointly, are relevant to collecting the debt owed.” Id. It is important to note that the court’s holding does not allow a creditor to issue discovery concerning the individually-owned assets of a non-debtor-spouse, but only on the jointly-held assets of a non-debtor-spouse.