Should You Sue 'Judgment Proof' Defendants?

As with so many legal questions, the answer to whether to sue a judgment proof defendant is this: it depends.

That's because, in part, there are lawyers on both sides of the issue. So if you are an attorney, you can blame your profession for being part of the problem.

In any case, the question is serious enough to answer before waiting for a judge or jury to decide if it was worth it to sue a judgment proof defendant.

Yes

If a defendant has no money and no insurance, it stands to reason that it's not worth it. Your client should make the ultimate decision, of course, but it's a good idea to do some due diligence as soon as possible.

For example, a good background report will reveal whether the defendant has assets now and  whether they did in the past. If the defendant unloaded property recently, it may have been part of a strategy to become judgment proof.

Courts do not like that. In Pennsylvania, for example, judges will grant injunctive relief against people who engage in the "unfair, wholesale" dissolution of their assets. Attorney Michael Schafle says it is a good remedy against such defendants.

"As soon as it becomes apparent that a defendant is attempting to dissipate his or her assets in anticipation of a civil lawsuit, the plaintiff's attorney should consider obtaining a preliminary injunction to prevent defendant from rendering his or herself judgment proof," he said for the Legal Examiner.

No

Becoming judgment proof is a recognized strategy in asset protection. While plaintiff's lawyers are working to collect, defense attorneys are looking for ways to avoid collection.

Lodmell & Lodmell, in a three part series on lawsuit protection, explains how to protect assets against the "shark-like plaintiff's lawyer." It works especially well against contingency fee attorneys.

"Being judgment proof is an excellent form of lawsuit protection, because attorneys do not want to waste their time and effort pursuing individuals or businesses that will be unable to pay up," they say.

The line between asset protection strategy can be a fine one. In California and most states, for example, the courts will turn back the clock on devices used to move assets under the Uniform Fraudulent Transfer Act. In any case, plaintiffs should recognize that bankruptcy is a clear way for defendants to become judgment proof.

Related Resources:

• Are My Assets 'Judgment Proof'? (FindLaw's Law & Daily Life)
• Are Traditional Law Firms Going Extinct? (FindLaw's Strategist)
• The Rooney Rule: Are Law Firms Punting on Diversity? (FindLaw's Strategist)