DTCI: Catch It While You Can — Pursuing a Prejudgment Attachment

This article is written on behalf of the DTCI Business Litigation Section attorneys, who frequently act as plaintiffs when defending their clients’ interests.

Who among us has not had a client who elected not to bring a lawsuit against another party for fear of never being able to collect a judgment? Perhaps worse, we are sure many of us have pursued a case for a client all the way to trial or judgment, only to have the opposing party seek bankruptcy protection at the 11th hour. Fortunately, Indiana law provides an underused opportunity to earn protection and security for your clients when faced with the uncertainty of whether a case is worth pursuing for fear little or no recovery.

Prejudgment attachment

A prejudgment attachment is available under Indiana law in certain circumstances in order to preserve the status quo pending a decision on the merits of the case. Lakes & Rivers Transfer, a Div. of Jack Gray v. Rudolph Robison Steel Co., 736 N.E.2d 285, 292 (Ind. Ct. App. 2000). Similar in theory — although not in application — to a preliminary injunction or temporary restraining order, prejudgment attachment is a provisional remedy that provides a party with a mechanism through which it can secure another party’s assets during the pendency of the lawsuit if the party shows that the opponent meets certain requirements. In general, attachment may be had in support of a claim for money regardless of whether it is founded on contract, tort, equity, or any other theory. However, unlike a preliminary injunction or temporary restraining order, a party seeking prejudgment attachment does not have to prove that there is a likelihood of success on the merits or that it will suffer irreparable harm if the request is not granted. Further, there is no balancing of harms and no public interest consideration. Instead, the steps to obtain a prejudgment attachment are more straightforward.

Six Preconditions

Indiana Code § 34-25-2-1 identifies as a threshold inquiry the six conditions under which a party may obtain prejudgment attachment:

(1) the defendant is a nonresident of Indiana or a foreign corporation;

(2) the defendant is secretly leaving or has left Indiana with the intent to defraud creditors, the state, a municipal corporation, a political subdivision, or a school corporation;

(3) the defendant is concealed so that a summons cannot be served upon the defendant;

(4) the defendant is removing or about to remove the defendant’s property subject to execution — or a material part of the property — not leaving enough to satisfy party’s claim;

(5) the defendant has sold, conveyed, or otherwise disposed of the defendant’s property subject to execution; or

(6) the defendant is about to sell, convey, or otherwise dispose of the defendant’s property subject to execution with the fraudulent intent to cheat, hinder, or delay creditors, the state, a municipal corporation, a political subdivision, or a school corporation.

If at least one of the grounds for attachment listed in Indiana Code § 34-25-2-1 is proven by a preponderance of the evidence, then the movant must also meet certain other statutory prerequisites, including the submission of an affidavit satisfying the requirements of Indiana Code § 34-25-2-4 and the execution of a written undertaking or bond satisfying the requirements of Indiana Code § 34-25-2-5.

Caselaw

There is a long line of Indiana caselaw acknowledging that prejudgment attachment may be obtained (1) without a hearing, (2) by merely reciting the statutory language in a sworn affidavit, and (3) without being required to submit any evidence of the facts or merits of its claims in the early stages of litigation, that is, prediscovery. See Sweeny v. Cochran, 19 Ind. 206 (1862); Frantz v. Wendel, 28 Ind. 391, 393 (Ind. 1867); Theirman v. Vahle, 32 Ind. 400, 401 (1869); Fremont Cultivator Co. v. Fulton, 3 N.E. 135, 137 (Ind. 1885) (holding “[o]ur statute requires the statement of certain things and facts under oath before the writ of attachment may issue; and if that kind of an affidavit is made in the case, and lodged with the clerk before the writ is issued, it would seem that that should be sufficient, although combined with an affidavit for garnishment. The law regards the substance more than form or name.”); Waring v. Fletcher, 52 N.E. 203, 205 (Ind. 1898) (“to sustain the attachment proceedings, the party must establish one or more of the grounds for attachment set out in the affidavit by a preponderance of the evidence.”).

Indiana has two “recent” cases that show that the standard for obtaining prejudgment attachment in Indiana has remained the same for over 100 years and that also provide guidance on the steps to obtain prejudgment attachment: Squibb v. State ex. Rel. Davis, 860 N.E.2d 904 (Ind. Ct. App. 2007) and Wee Scots, LLC v. Fleming, 765 N.E.2d 668 (Ind. Ct. App. 2002). Squibb stands for the proposition that a party seeking prejudgment attachment must prove one of the statutory reasons for prejudgment attachment under Indiana Code § 34-25-2-1: the defendant is a nonresident or is secretly trying to leave the state with the intent to defraud creditors. Squibb, 860 N.E.2d at 914. The Wee Scots court provided guidance on the pleading standard for the affidavit required by Indiana Code § 34-25-2-4: a party need only meet the “notice pleading standard” for the affidavit, meaning a party is not required to offer “evidence” of its allegations before a court could issue a prejudgment attachment. Wee Scots, LLC, 765 N.E.2d at 671 n.2. An affidavit alone is sufficient for a party to meet its burden to obtain prejudgment attachment. See generally Sweeny v. Cochran, 19 Ind. 206 (1862) (finding that a verified affidavit, in the form prescribed by statute, was sufficient to justify an attachment order); see also Theirman v. Vahle, 32 Ind. 400, 401 (1869) (finding the affidavit sufficient to show nature of party’s claim where it stated: “that said defendant is justly indebted to said party in the sum of [$803.45], a balance due on account for goods sold and delivered; that the claim is just, and that he believes he ought to recover the amount above stated”); 6 Am. Jur. 2d Attachment and Garnishment § 229 (stating that the party has only to present sufficient evidence to enable the court to determine the probable amount of damages involved; the burden is not on the party to negate all potential defenses). However, both Squibb and Wee Scotts recognize that while a hearing is not necessary to obtain prejudgment attachment, if such a hearing is requested, the party must present evidence. 860 N.E.2d 904 at n.7; 765 N.E.2d 668 at n.2.

Other steps for attachment

In practice, once a party can show it meets one of the criteria under Indiana Code § 34-25-2-1 by a preponderance of the evidence, the remaining steps for obtaining the attachment are essentially guaranteed. A party must also submit an affidavit satisfying the requirements of Indiana Code § 34-25-2-4 and obtain a bond. Ind. Code § 34-25-2-5. The party’s affidavit must show the following: (1) the nature of the party’s claim; (2) that the party’s claim is just; (3) the amount that the party ought to recover; and (4) that one of the grounds for attachment under Indiana Code § 34-25-2-1 is present. The party is not required to include “evidence” or supporting facts for these elements. Wee Scots, LLC, 765 N.E.2d at 671. For example, as long as the party’s affidavit states that its claim “is just” — a mere recitation of the statutory language — then a court could permit prejudgment attachment. Id. (citing Theirman v. Vahle, 32 Ind. 400, 401 (1869), which found that an affidavit stating “that the claim is just,” was sufficient for purposes of prejudgment attachment). Put another way, the affidavit should meet Indiana’s notice pleading requirements for a complaint. In fact, in addition to the party’s affidavit, the court may also consider the complaint to determine if the statutory grounds for prejudgment attachment have been satisfied. U.S. Capsule Co. v. Isaacs, 55 N.E. 832, 834 (Ind. Ct. App. 1899).

Once a court enters some form of prejudgment attachment, the movant is required to post a bond that would protect the adverse party, if the prejudgment attachment is later found to be wrongful and oppressive. Ind. Code § 34-25-2-5(2). See also Ashland Oil, Inc. v. Arnett, 507 N.E.2d 561 (Ind. 1987); Lakes & Rivers Transfer v. Rudolph Robinson Steel Co., 736 N.E.2d 285, 294 (Ind. Ct. App. 2000) (“Lakes I”). The “wrongful and oppressive” analysis occurs at the end of the case. It does not play a role in the court’s decision whether a party has met its burden to obtain prejudgment attachment — there is neither prejudgment “balancing of the equities” nor consideration whether the prejudgment attachment would be prejudicial to the defendant. It should also be noted that the defendant is not automatically entitled to recover on the bond, as a party’s failure to ultimately prevail on the merits of the case is not sufficient to show that a prejudgment attachment was “wrongful and oppressive.” Lakes I at 293.

To prevail in an action on the bond, the affected party must show that the attachment was either improperly obtained or wrongful and oppressive under the facts and circumstances that were known — or should have been known — at the time that attachment was sought. Id. The bar for proving that the attachment was wrongful and oppressive is relatively high. For example, in Lakes & Rivers Transfer, the court found that a prejudgment attachment was wrongful and oppressive because the plaintiff intentionally omitted material facts to the court, including that the debt at issue was owed not by the defendant against whom prejudgment attachment was obtained but by another third party. 795 N.E.2d 1126, 1133 (Ind. Ct. App. 2003) (“Lakes II”). The Lakes II court further found that the wrongfully entered attachment and party’s actions seriously affected the defendant’s goodwill and caused the defendant to suffer considerable direct financial harm. Id. (finding that the party made it difficult for defendant’s customers to obtain previously purchased steel and allowed the attached property to deteriorate and significantly drop in value).

Conclusion

While Indiana courts have recognized that prejudgment attachment is an extraordinary remedy, Lakes I, 795 N.E.2d at 1130, the process is still a straightforward and underused method of obtaining some security at the outset or during litigation that allows a client to rest easier that the time and money devoted to litigation may be worthwhile in the end. Practitioners would be wise to familiarize themselves with the statute and explore the opportunity for prejudgment attachments where warranted in order to protect their clients’ interests.•

B.J. Brinkerhoff is a partner and Alexandra Blackwell is an associate in the Indianapolis office of Katz Korin Cunningham. Mr. Brinkerhoff is a director of the Defense Trial Counsel of Indiana. Opinions expressed are those of the authors.