In Florida, a court, for the benefit of a judgment creditor, can issue notice or process, adjudicate, levy, and sell assets in the hands of non-parties to satisfy a judgment under what is known as “proceedings supplementary” pursuant to the statutory framework established under Section 56.29, Florida Statutes.
On March 9, 2016, Governor Rick Scott signed a bill into law which substantially revised and clarified proceedings supplementary. SeeCh. 2016-33, Fla. Laws. The new law goes into effect on July 1, 2016. The revamped statute does not make substantive changes to proceedings supplementary, but now provides uniformity and clarity in their use.
Proceedings supplementary did not exist at common law, but are a creature of statute. The common law procedure for discovering and executing on a judgment debtor’s assets was through a creditor’s bill in chancery, in which a creditor suing a debtor at law could institute a parallel equitable proceeding to enjoin the fraudulent disposition of the debtor’s property prior to the debt being reduced to judgment.
The Florida Legislature originally enacted the proceedings supplementary statute to provide “a more expeditious and appropriate remedy to reach the concealed assets of the debtor.” George E. Sebring Co. v. O’Rourke, 134 So. 556, 561 (Fla. 1931). The statutory procedure was designed to avoid a step required by a creditor’s bill, that the judgment creditor initiate an entirely separate action. As explained by the Florida Supreme Court, “[t]hese statutes intended to empower the court to follow through with the enforcement of its judgment, so that there would be no necessity for an independent suit to reach property which legally should be applied to the satisfaction of the judgment.” Virginia-Carolina Chemical Corp. v. Smith, 164 So. 717, 719 (1935) (quoting Fla. Guaranteed Sec. v. McAllister, 47 F. 2d 762, 765 (S.D. Fla. 1931)); see also Regent Bank v. Woodcox, 636 So. 2d 885, 886 (Fla. 4th DCA 1994).
Proceedings supplementary now provide a focused and expedient process to attach a judgment debtor's assets that have been transferred to non-parties with the intent to hinder, delay, or defraud such creditor. Because proceedings supplementary are equitable in nature, "Florida courts have consistently held that [S]ection 56.29[, Fla. Stat.,] must be given a liberal construction in order to afford a judgment creditor the most complete relief possible." Pollizzi v. Paulshock, 52 So. 3d 786, 789 (Fla. 5th DCA 2010). See also Riley v. Fatt, 47 So. 2d 769, 772 (Fla. 1950). Indeed, courts have broad powers in proceedings supplementary over personal property transferred to third parties by a debtor "'whether in the name or possession of [such] third parties or not.'" Schwartz v. Capital City Nat'l Bank, 365 So. 2d 181, 183 (Fla. 1st DCA 1978).
In proceedings supplementary, a judgment creditor may (1) pursue assets held by the debtor; (2) pursue assets held by another, so long as the property is not exempt from execution; or (3) void any transfer to a spouse or third party that was made for purposes of delaying, hindering, or defrauding a creditor. What is required for a judgment creditor to initiate proceedings supplementary to execution is to file a motion and an affidavit averring specific information about the judgment or judgment lien and the existence of an unsatisfied execution. See § 56.29(1), Fla. Stat. Once these prerequisites are met, a judgment creditor "is entitled to the proceedings supplementary." Id. Thus, once the judgment creditor satisfies the statutory prerequisites, a court cannot deny the judgment creditor’s motion. Biloxi Casino Corp. v. Wolf, 900 So. 2d 734 (Fla. 4th DCA 2005).
In 2014, the proceedings supplementary statutory framework was revised last to clarify existing law and provide guidance to the courts, judgment creditors and judgment debtors, as well as third parties who may be subjected to collection actions based on transfers made by judgment debtors. Revisions to § 56.29(1), Florida Statutes, for example, now make clear a court has clear authority to order any property of the judgment debtor, not exempt from execution, in the hands of any person, or any property, debt, or other obligation due to the judgment debtor, to be applied toward the satisfaction of the judgment debt. A court may also enter any order or judgment, including a money judgment against any initial or subsequent transferee, irrespective of whether the transferee has retained the property or not, subject to Sections 56.18 and 56.19, Florida Statutes, applicable equitable principles, and in accordance with Chapters 76 and 77, Florida Statutes and the applicable Florida Rules of Civil Procedure.
The new version of proceedings supplementary now provides more procedural uniformity. Some highlights of the revamped version of law are:
Proceedings supplementary are now initiated by a court issuing a Notice to Appear after the filing of the judgment creditor’s motion and affidavit describing any property of the judgment debtor not exempt from execution in the hands of any person or any property, debt, or other obligation due to the judgment debtor which may be applied toward the satisfaction of the judgment.
The Notice to Appear summons the third party to file a responding affidavit within the time frame set by the court, but no less than 7 business days from the date of service of the Notice to Appear. For good cause shown, the court may shorten the time for serving the responding affidavit.
The Notice to Appear must describe with reasonable particularity the property, debt, or other obligation that may be available to satisfy the judgment, must provide such person with the opportunity to present defenses, and must indicate that discovery is available and that there is a right to a jury trial.
In the responding affidavit, the third party must raise any fact or defense opposing application of the property described in the Notice to Appear to satisfy the judgment, including any legal defenses, such as lack of personal jurisdiction. Legal defenses, however, do not need to be filed under oath, but must then be served contemporaneously with the affidavit.
A party who interposes a claim to retain property solely for the purpose of delaying payment of the judgment may, in addition to turning over the property, be required to pay a penalty not to exceed 20% of the value of the property.
If the wrongfully conveyed property is no longer in the possession of the third party, a money judgment equal to the value of the property can be entered against them.
If a judgment creditor brings a fraudulent conveyance action against the third party under Florida’s Uniform Fraudulent Transfer Act, Chapter 726, Florida Statutes, it can be brought by filing a supplemental complaint within the same case where the judgment issued, but that action is a separate proceeding and cannot be mixed with the ongoing proceedings supplementary.
The new law definitively restores the purpose of the statute to provide effective and prompt process to collect judgments. Used effectively, proceedings supplementary can make the difference between collecting and not collecting on a final judgment. It is important for both attorneys and their clients to understand proceedings supplementary. The new statutory framework impacts creditors, debtors and third parties who are or become involved in a creditor's attempt to collect on a judgment or court order when money or property is transferred to a third party before, during or after a lawsuit.