Football season is upon us, and in locker rooms across the country, coaches will be telling their teams, “Winning isn’t everything; it’s the only thing.” Unfortunately for plaintiffs suing debtors in bankruptcy adversary proceedings, winning isn’t the only thing that matters. In fact, winning a judgment can be less than half of the battle. Winning a bankruptcy court adversary proceeding entitles a plaintiff to a paper judgment,[1] but most plaintiffs would rather collect on a judgment than frame it and hang it on the wall. If a plaintiff wants to collect from a debtor in an open bankruptcy case, the plaintiff should be careful not to violate bankruptcy law, such as the automatic stay.[2] After bankruptcy, law is no longer an obstacle to collection,[3] but the plaintiff may find that a debtor’s inability to pay the judgment presents another obstacle. This article addresses an additional obstacle to collecting a bankruptcy court judgment, state law.
Most bankruptcy practitioners understand that state law may impact execution on a judgment because bankruptcy law often looks to state law to determine a debtor’s exemptions.[4] In an exemption case, state law issues may predominate.[5] In March 2014, the U.S. Supreme Court decided Law v. Siegel,[6] in which the Court held that a bankruptcy court may not use 11 U.S.C. § 105(a) or its inherent powers to surcharge a debtor’s exemptions.[7] The Law Court stated that when a bankruptcy court determines a state law exemption in a bankruptcy case, the scope of a state law exemption is determined according to state law.[8] After a debtor’s bankruptcy, state law concerning exemptions may still impede collection, although the appropriate exemptions may be different outside of bankruptcy.[9] For example, Ohio law provides bankruptcy debtors a $1,075 “wild card” exemption that does not apply outside of bankruptcy.[10]
The proposition that bankruptcy court judgments might be subject to state law concerning exemptions is probably common knowledge among practitioners. However, the justification for that proposition presents additional and peculiar state law issues that parties seeking to collect on a judgment should consider.
Federal court judgments are generally subject to state law regarding execution, including exemption law and other laws of the state where the federal court is located, unless a federal statute or rule applies.[11] Fed. R. Civ. P. 69, made applicable to bankruptcy adversary proceedings through Fed. R. Bankr. P. 7069, provides, in pertinent part, that “[t]he procedure on execution — and in proceedings supplementary to and in aid of judgment or execution — must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.”[12] Title 28 of the U.S. Code provides the same for “judgments [that have been] rendered by a district court.”[13] The same provision naturally applies to a “unit of the district court,” such as the bankruptcy court.[14]
One area where state law may impede collection of a federal judgment is judgment dormancy. Bankruptcy court judgments in adversary proceedings are subject to dormancy and revival under relevant state law.[15] For example, under Ohio law, a judgment generally becomes dormant five years after the judgment is issued or after a certificate of judgment, such as a judgment lien, is filed.[16] To prevent the judgment from becoming dormant, the creditor must execute on the judgment (e.g., file a foreclosure action) or renew the judgment lien.[17] Dormancy extinguishes any judgment lien created pursuant to the judgment, which may significantly impair collection efforts because the lienholder loses its place in line to get paid before subsequent lienholders.[18] In addition, a party seeking to enforce the judgment must file a motion for revival within 10 years from the date that the judgment became dormant or the judgment will be extinguished.[19] Under Ohio law, a party may only file a motion to revive the judgment with the court that issued the judgment or the court where a judgment is registered.[20]
Reliance on state law regarding judgments can create some interesting choice-of-law issues.[21] For example, under Ohio law, a judgment rendered in another state may be registered as a “foreign judgment.”[22] Foreign judgments are subject to Ohio law regarding judgment execution, including dormancy.[23] Accordingly, a party seeking to enforce a foreign judgment in Ohio must ensure that the judgment is not dormant pursuant to Ohio law, even if the judgment is not dormant pursuant to law of the state in which the judgment was rendered.[24] A party may attempt to argue that a dormant Ohio judgment may not be executed on outside of Ohio, even if the judgment is not dormant under the law of the state where the party seeks to execute on the judgment. To avoid confusion over conflicting state law to the greatest extent possible, a party may want to register a federal court judgment with the federal district court where a party seeks to execute.[25] A federal district court where a judgment has been registered may aid in execution and procedures supplementary to execution to the same extent as the federal court that originally rendered the judgment.[26] One advantage to registering a federal court judgment in the appropriate federal district court is that the court is well suited to interpret federal law and its local state law.
Conclusion
Winning a judgment in a bankruptcy court adversary proceeding may not mean everything in some cases, and concerns about a debtor’s collectability may be justified. Such concerns are magnified by the potential costs associated with a prolonged fight across multiple jurisdictions, whereby parties must ensure their actions to execute on a judgment conform to applicable federal and state law. Bankruptcy practitioners would serve their clients well to identify potential issues regarding execution on judgments in other states and learn how to follow relevant state law procedures regarding execution on judgments, especially in cases where execution on a judgment may take several years.
[1] Fed. R. Civ. P. 58.
[2] 11 U.S.C. § 362.
[3] See, e.g., 11 U.S.C. § 362(c).
[4] See 11 U.S.C. § 522(b).
[5] See, e.g., In re Frost, 744 F.3d 384 (5th Cir. 2014).
[6] 134 S. Ct. 1188 (2014).
[7] Law, 134 S. Ct. at 1195.
[8] Id. at 1196-97.
[9] See In re Schafer, 689 F.3d 601, 616 (6th Cir. 2013).
[10] Ohio Rev. Code Ann. § 2329.66(A)(18) (2014).
[11] See, e.g., Office Depot Inc. v. Zuccarini, 596 F.3d 696 (9th Cir. 2010).
[12] Fed. R. Civ. P. 69(a)(1); Fed. R. Bankr. P. 7069.
[13] 28 U.S.C. § 1962.
[14] 28 U.S.C. § 151; see In re Romano, 371 F. App’x 729, 730, 2010 WL 926134 (9th Cir. 2010) (citing Fed. R. Civ. P. 69; Fed. R. Bankr. P. 7069).
[15] Romano, 371 F. App’x at 730.
[16] Ohio Rev. Code Ann. § 2329.07(A)(1), (B) (2014).
[17] Id. at § 2329.07(B) (2014).
[18] See Geauga Sav. Bank v. Nall, 1999 WL 960574, at *2 (Ohio Ct. App. 1999).
[19] See Ohio Rev. Code Ann. §§ 2325.15, 2325.18 (2014).
[20] Ohio Rev. Code Ann. § 2325.15 (2014).
[21] 12 Charles Alan Wright and Arthur R. Miller, Federal Practice and Procedure § 3012 (2d ed. 2014).
[22] Ohio Rev. Code Ann. §§ 2329.021, 2329.22 (2014).
[23] Id. at § 2329.021, et seq. (2014).
[24] Id. at § 2329.022 (2014); Tube City Inc. v. Halishak, 2008 WL 5423344, at *2 (Ohio Ct. App. Dec. 31, 2008).
[25] See 28 U.S.C. § 1963; see generally Donellan Jerome Inc. v. Trylon Metals Inc., 270 F. Supp. 996, 997-98 (N.D. Ohio 1967).
[26] 28 U.S.C. § 1963.