Source: Joe Dickerson, CEO, Financial Forensic Services
In the 1960s and ’70s, as a detective sergeant in the Houston Police Department, I had to augment my income by working extra jobs off duty.
Rather than working as a bouncer in a bar or dance hall or getting a construction job, I chose to do security and crime prevention consulting, where I could use my education as a graduate of the National Crime Prevention Institute’s School of Police Administration at the University of Louisville.
My off-duty work was so profitable that I was making three to five times as much as I was working for the city. I had to be very careful, however, not to have a conflict of interest or perceived conflict. After 11 years of juggling the two jobs, I made the decision to leave the police department and run my own business.
Business was wonderful until the mid-’80s, when the oil and gas industries got so bad there was no demand for drilling. With no demand for drilling equipment, there was no demand for stolen equipment; as a result, there was no demand for my services.
I moved to Colorado, and one of my first significant clients was the legal department at the Federal Deposit Insurance Corporation. As part of my agreement with FDIC management, they would assign one of their staff attorneys, a paralegal and a staff investigator to augment my staff. I would manage the combined teams to effectuate the judgment enforcement and hire outside attorneys as needed for the recovery.
We would ensure the attorneys subpoenaed the appropriate information documenting the debtor’s assets, then execute on and recover those various assets. This process was repeated until the judgment was satisfied or there were no further assets to recover at that time.
I suddenly realized this was a business nobody was doing. I immediately revamped my staff to concentrate on prejudgment due diligence to determine if the judgment debtor has sufficient assets to satisfy the judgment.
After the judgment is obtained, post-judgment financial forensic research is conducted to further document the assets to be executed upon to satisfy the judgment. Over the years, we have continued to do deep financial forensic research and have added more skill sets to our staff—such as certified forensic accountants and certified digital forensic experts—to better serve our clients.
One thing I did not understand was why 80% of the U.S. civil money judgments, year after year, continued to be unenforced, leaving the victims of fraud and malfeasance unable to recover/collect the money the courts have ruled is rightfully their money. That percentage, unfortunately, has essentially remained the same.
If we do not understand the problem, we cannot find and implement a meaningful solution. I decided to find out why and interviewed an attorney I had successfully worked with for more than 20 years in judgment enforcement.
I asked him why judgments were not enforced year after year. He said after he finished law school and joined his grandfather’s law firm in 1972, his practice was focused on judgment enforcement, and that was years before it was an acceptable profession for “real lawyers.”
He also said in those days—and for years before that time—judgment enforcement had been considered an avenue for attorneys when they were unable to get any good cases. The attorneys who took those cases were considered to be the “lowlifes of the legal profession.” That, of course, has changed over the years, as attorneys have learned this is really great area of practice for those who are willing to make the effort to master this area of law.
Why people don’t collect on judgments
Upon evaluating cases from various attorneys who had won the judgments but failed to recover assets to enforce them, I looked into the case files. When the judgments were entered, I found a pattern that ran through almost all of the cases.
I saw one of two things or both: incompetence and/or a lack of initiative. In most cases, there were subpoenas duces tecum issued for a deposition; in every case, fewer than 20% of the requested documents were produced—usually those of minor significance—and there were only excuses for failure to produce those which might have been of significance. Excuses such as, “Oh, you meant those tax returns? My CPA has not finished last year’s.” Or, “My wife, who is out of town taking care of her sick mom, has the past years’ tax returns in a file somewhere. I’ll get them for you.” Or, “Sorry, I didn’t understand you meant all of my personal bank records, etc.” There was no follow-up for the subpoenaed documents that were never produced.
Proper follow-up and analysis could have resulted in recovery of significant amounts of money in those cases. We did the follow-up, and it worked more times than not, resulting in significant recoveries.
For a greater understanding of the problem, I obtained a list of the top 50 law schools in the U.S. I had a member of my staff contact the dean or the registrar of these top schools, and we had only one question for the dean or registrar: “What do you have in the law school curriculum that teaches your students how to enforce judgments?”
Three of them said, “We cover judgment enforcement for an hour or so in our creditors’ rights course.” The other 47 said they had nothing in their curriculum addressing judgment enforcement! Could that be a significant part of the problem?
I have owned a CLE company for about 35 years and have trained hundreds, if not thousands, of attorneys and paralegals in our judgment enforcement processes and concepts. I have also lectured at the Sturm College of Law at the University of Denver, where I have also mentored several graduating students; at the Daniels College of Business at the University of Denver (15 years); and at five other universities.
There are some attorneys who are proficient at judgment enforcement, and there are some who do an excellent job of it. Most of these attorneys find someone willing to mentor them, or they learn more about it in CLE classes or by their own processes of trial and error—which becomes an unfair cost to their clients.
The right path to recovery
I have found that depositions done soon after the judgment is entered, regardless of how well intended, are usually not helpful. Based on my more than 50 years of relevant experience, they are counterproductive because of the very nature of the questions asked—which actually tell the debtor what you know and where you are heading with the case.
Remember, debtors who are smart enough to take hundreds of thousands of dollars from your client are also bright enough to learn from your questions and subpoenas, so they can then go hide their assets even deeper, making it more difficult and also more expensive for the client to pursue successful judgment recovery.
This is where the recovery/enforcement efforts often end. This is also where, on some occasions, the attorney’s firm’s professional liability policy has paid our clients significant sums of money.
Neither depositions nor interrogatories should be used until at least 80% of the questions have already been answered and documented; then if needed, use those tools, knowing that often the best use of the sworn answers will be for perjury, which may also lead to all other assets for recovery.
We have found that the best result comes from finding and following the money. Money nearly always leaves a well-documented trail, even when it gets offshore.
It is generally not impossible; it’s just hard work but very rewarding for those who are willing to invest their time and efforts to get the job done.
It’s not what you win. It’s what you recover that matters.
Joe Dickerson is the founder and CEO of Financial Forensic Services and has more than 50 years of experience in financial investigation, forensic research and judgment enforcement. He has helped recover multiple millions of dollars and has served as a consultant to the U.S. Attorney’s Office, the FDIC, various state prosecutors, law enforcement agencies, investors and banks. Dickerson is also an internationally recognized expert and instructor on judgment enforcement, and has trained members of the Texas Rangers, the FBI, the DEA, the Secret Service, the IRS, attorneys general staffs and various bar associations.
About Scale Finance
Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance has multiple offices in the Carolinas including Charlotte, Raleigh/Durham, Greensboro, and Wilmington with a team of more than 45 professionals serving more than 130 companies throughout the region.