PRESSURE POINTSSteven Feder
April 19, 2012 — 1,382 views
Sometimes we’re faced with collecting from a person or entity who can pay if they want to, but has set up their structure in a way so that they are often successful in not paying when they don’t want to.
Under such circumstances, it can be helpful to concentrate on what I like to call “pressure points”: places of discomfort that can influence the debtor’s willingness to pay. Those pressure points can involve creative use of the legal process. A couple of examples should help illustrate this.
In our first example, our debtor was a tavern, and the creditor had supplied foodstuffs, hard goods (crockery, glassware, silverware), and the bar’s tap system for beer. There was a UCC-1 security interest filed with respect to the tap system. Such a system involves the installation of tubing runs from a cold room (usually a walk-in cooler holding the kegs) to dispensing points (the “taps”) behind the bar.
Now, about the last thing the creditor really wants is a repossessed used tap system pulled out of a debtor’s bar. But perhaps that is exactly the thing that should be pursued with the most vigor…or should I say, apparently pursued with the most vigor. In this type of situation, the debtor’s credit is going to be compromised, particularly in the trades. The likelihood of the debtor obtaining financing for another tap system is nil (they often run more than $20k). While the tap system is worth little to the creditor, it is, from the debtor’s immediate standpoint, virtually irreplaceable. Many taverns cannot realistically survive without such a system.
Accordingly, our inclusion of a cause of action for repossession (in New York, “replevin”) and the resulting concomitant danger of losing that system was a powerful incentive for that debtor to enter into workout arrangements acceptable to the creditor.
In our second example, the creditor was possessed of a substantial judgment against the debtor, and the debtor’s former principal was personally liable. The creditor was fairly certain that debtor had substantial funds in the United Kingdom, unreachable by a New York court. There was nothing of any real substance reachable in New York, and the debtor had most of his expenses paid by an out-of-state trust. He was indeed a ‘professional debtor’…and he was good at it.
The creditor knew a great deal about the individual debtor in question; he was highly visible in his community as a man about town—on charitable organization boards, at political events, in the social pages, at groundbreakings, and so on. He had a favorable public image.
In New York, as in many jurisdictions, there is wide-ranging latitude to conduct post-judgment depositions of not only the debtor, but of anyone else who might shed light on the debtor’s assets—what they are, where they are, and so on. Some of that can be determined from a debtor’s spending patterns. So in this case, as the creditor’s attorney, we prepared a number of deposition notices to people who knew or did business with the debtor who would be aware of at least some aspect of his spending: the president of his country club, the United Way chairman, the debtor’s adult children and wife, the maitre’d at the debtor’s favorite restaurant, the owner of the gym where the debtor worked out, the neighbors on each side of and across the street from the debtor’s home, the owner of the luxury car dealership patronized by the debtor, and so on.
Although we had no obligation to do so, we then sent copies of those subpoenas (there were ten or twelve of them) to the debtor’s attorney, advising him they would be served in ten days. Of course, the pressure point of this approach was not in actually serving the subpoenas, but in being able to do so.
Debtor’s counsel called us, chuckling. And then the matter settled with the magical appearance of a six-figure lump sum from a supposedly ‘assetless’ debtor.
So especially in larger matters, know your debtor to the greatest extent possible, be creative, and think about pressure points!
Pirrello, Personte and Feder
Steven E. Feder is a partner in the law firm of Pirrello, Personte and Feder, which he joined in 1999 after serving as the litigation partner at Relin, Goldstein & Crane. He has conducted hundreds of arbitrations and scores of trials involving collection issues, particularly in the commercial area. Mr Feder has been featured in past seminars in the areas of Collection Law, Advanced Collection Law, Legal Ethics, and the Fair Debt Collection Practices Act. Mr. Feder is admitted to practice in New York, Florida, the United States District Court for the Western District of New York, the United States District Court for the Northern District of New York, and the United States Bankruptcy Court for the Western District of New York. He is a member of the American Bar Association, New York State Bar Association, Monroe County Bar Association, and The Florida Bar. Mr. Feder taught at The National Academy of Paralegal Studies at St. John Fisher College in Rochester, New York. He is listed in the 1991 edition of Who's Who Among Young Americans. Before receiving his Juris Doctor cum laude from Syracuse University College of Law, Mr. Feder won the Lionel O. Grossman trial competition, was a member of the moot court board, served as a Teaching Assistant, and was an editor on the Syracuse Journal of International Law and Commerce. Although his firm maintains a full-service law practice, Mr. Feder concentrates his practice in the civil litigation area, particularly in Debtor/Creditor Law, Commercial Law, Construction Law and Negligence Law.