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#4938 - 05/25/08 10:17 PM Is Debtor Prison only for rich people?
Dr Mike Offline
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Registered: 11/07/05
Posts: 212
Loc: Florida
If I hire a contractor, or a handyman to do some work, and they do a bad job, and I ask for my money back, and they no, and I sue them, and I win, my understanding is that all I have won is the right to collect from them. I still have to go through the very expensive process of collecting the judgement.
BUT, if provide a medical service for this same contractor or handyman, and I commit medical malpractice, and they want me to pay them money, and I say no, and they sue me, and I lose, the judge is going to order me to pay them. And, if I fail to pay them, I am guilty of contempt and I get to go to jail until I do pay.
Under what circumstances does the judge order the loser to pay? What are the criteria?
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MJS

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#4939 - 05/25/08 11:18 PM Re: Is Debtor Prison only for rich people?
Jay Adkisson Offline
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Registered: 06/05/04
Posts: 1108
Loc: Newport Beach, Orange County, ...
Your premise is faulty: The courts do not cast people into jail for refusing to pay creditors, except in the case of child support, the revenuers in extreme cases, and certain fines.

In fact, as I represent debtors in litigation many of the motions that amateur creditors make is along the lines of, "The debtor won't pay me, waaaaaaaggh, send him to jail," and are routinely denied by the courts.

Where creditors can leverage one into jail is where the creditor does something that causes the court to find a contempt, such as failing to respond to a repatriation order. But a repatration order only tells a debtor that he must return the assets to the U.S. so that the creditor can then execute upon the assets, and not usually to pay the creditor directly (although in egregious cases, the courts have done exactly that).

BTW, in addition to your premise being faulty, so is your conclusion: If one has suffered a judgment in excess of their net wealth, they are no longer "rich" without regard to their occupation, social standing, etc., but as poor as anybody else. It recalls Donald Trumps story about how walking down the street to go to dinner the night before his filing for his first bankruptcy, he and Marla encounter a street bum shambling by. The Don tells Marla, according to the story, "See that bum? He is wealthier than we are."

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#4940 - 05/26/08 02:29 AM Re: Is Debtor Prison only for rich people?
Dr Mike Offline
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Registered: 11/07/05
Posts: 212
Loc: Florida
What is the rationale that a court would be willing to issue a repatriation order, but not be willing to order a debtor to pay the creditor?
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MJS

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#4941 - 05/26/08 02:54 AM Re: Is Debtor Prison only for rich people?
Jay Adkisson Offline
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Posts: 1108
Loc: Newport Beach, Orange County, ...
There is a difference between compelling a creditor to return assets to the jurisdiction so that those assets may be executed on by a creditor (the authority for which is explained in the following opinion), and ordering the debtor to pay the creditor under penalty of contempt.

Historically, the concept of the "debtors' prison" was that a person was thrown into jail until somebody -- relative, friend, whoever -- coughed up the money to the creditor. I have found examples of various such debtors' prisons as late as the 1840s in Virginia, for those who think that such prisons never existed in the U.S. But the laws that allowed for the holding of debtors for such purpose were long ago abolished, and thus there are no debtors' prisons today.

In our system, a debtor is not required to furnish assets to a creditor, but rather the creditor is required to execute upon the debtor's non-exempt assets. What the debtor is disallowed from doing is to secret those assets from creditors by way of bogus transfers domestically or abroad; if such occurs, the powers of the courts to remedy the situation in favor of the creditor are restricted only by the very boundaries of the due process clause itself.

The upshot of all this is, as has been said many times on this board and elsewhere, that planning in advance of problems is critically important. The law favors the prepared debtor, but mercilessly crushes the unprepared debtor.

- - - - - - - - - -

Slip Copy, 2007 WL 724886 (M.D.Fla.)

United States District Court, M.D. Florida,
Orlando Division.
SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
Patrick KIRKLAND, Tropical Village, Inc., Clarity Development Corporation, and Senior Adult Living Corporation, Defendants,
Sunset Bay Club, Inc., Summerhill Ventures, Inc., Pelican Bay Club, Inc., and Isleworth Adult Community, Inc., Relief Defendants.

No. 6:06-cv-183-Orl-28KRS.

Feb. 28, 2007.

Robert K. Levenson, Brian P. Knight, Elizabeth Fatovich, Raynette Nicoleau, Securities and Exchange Commission, Miami, FL, for Plaintiff.

Patrick Kirkland, Windermere, FL, pro se.

ORDER

JOHN ANTOON II, United States District Judge.

*1 This case is before the Court on the Receiver's Renewed Motion to Compel Patrick Kirkland to Execute a Power of Attorney with Respect to the Coachman's House (Doc. No. 179) filed October 27, 2006. The United States Magistrate Judge has submitted a report recommending that the motion be granted in part and denied in part.

After an independent de novo review of the record in this matter, and noting that no objections were timely filed, the Court agrees entirely with the findings of fact and conclusions of law in the Report and Recommendation. Therefore, it is ORDERED as follows:

1. That the Report and Recommendation filed February 1, 2007 (Doc. No. 221) is ADOPTED and CONFIRMED and made a part of this Order.

2. The Receiver shall submit a revised form of power of attorney that has been reviewed by Jim Cormack, a soliciter and partner at the law firm of McGrigors LLP located in Edinburgh, Scotland to ensure that it conforms to the requirements of Scots Law.

3. The revised power of attorney should not contain a provision allowing Mr. Kirkland to withdraw it, and, it should not authorize the Receiver to sell or otherwise dispose of the Coachman's House except on further order of this Court.

DONE and ORDERED.

Report and Recommendation

KARLA R. SPAULDING, United States Magistrate Judge.

TO THE UNITED STATES DISTRICT COURT

This cause came on for consideration without oral argument on the following motion filed herein:

MOTION: RECEIVER'S RENEWED MOTION TO COMPEL PATRICK KIRKLAND TO EXECUTE A POWER OF ATTORNEY WITH RESPECT TO THE COACHMAN'S HOUSE (Doc. No. 179)

FILED: October 27, 2006

THEREON it is RECOMMENDED that the motion be GRANTED in part and DENIED in part.

I. RELEVANT BACKGROUND.

This Court appointed Judith M. Mercier, Esq., as the Receiver for the corporate and relief defendants in this case. Doc. No. 10. On February 24, 2006, the Court entered a preliminary injunction against Kirkland that, among other things, froze all of his assets and ordered that he “take such steps as are necessary to repatriate to the territory of the United States all funds and assets of investors described in the Commission's Complaint in this action which are held by [him] or under [his] direct or indirect control ... and deposit such funds into the Registry of [this Court].” Doc. No. 30.

The Court subsequently found that real property located in Dollarberg, Dollar, Clackmannashire FK14 7LZ, Scotland, consisting of a house and adjacent grounds, commonly referred to as the “Coachman's House,” along with furnishings and other personal property located at the house was either acquired by or serviced through the use of investor funds. Doc. No. 78 at 2. The Court expanded the receivership estate to include the Coachman's House and ordered that “[t]he receiver shall have the authority to take possession of; sell; collect rents and proceeds; and negotiate, settle, pay and resolve any charges and/or expenses against the property, including any mortgage, taxes and/or debts secured by the Coachman's House.” Id. at 3.

*2 The Receiver has consulted Jim Cormack, a solicitor and partner at the law firm McGrigors LLP, located in Edinburgh, Scotland, about how to exercise her authority over the Coachman's House. Doc. No. 179-5. In a memorandum that the Receiver filed with the Court, Mr. Cormack indicates that Scots law does not provide any statutory methods for enforcing this Court's order. Id. at 3. Additionally, other common law enforcement methods are costly and uncertain. Id. at 3-7. Therefore, Mr. Cormack suggests that “[t]he most straightforward and cost effective approach to this matter would be for Patrick Kirkland to execute a Power of Attorney in a form which complies with the requirements of Scots law appointing the Receiver as his attorney for the purposes” of the Coachman's House. Id. at 8. Accordingly, the Receiver seeks an order compelling Kirkland to sign a power of attorney.

The proposed power of attorney submitted by the Receiver provides in relevant part as follows:

I Patrick Boyd Kirkland ... do hereby nominate, constitute and appoint [the Receiver] ... to be my true and lawful attorney ... with full power and authority to do all acts and things and to sign all documents for me and on my behalf whatsoever which my Attorney may consider necessary or desirable to be done in connection with or incidental to the taking possession of, selling, collecting rents and proceeds, negotiation, settlement, payment and resolution of any charges and/or expenses against [the Coachman's House] ... including any mortgage, taxes and/or any debts secured over the Coachman's House....

....

And I declare that this Power of Attorney shall remain in force until recalled by me in writing but until my Attorney shall receive notice of recall or other termination of this Power of Attorney, my Attorney shall be entitled to continue to act hereunder....

Doc. No. 179-4 at 3-4.

Kirkland opposes the requested relief. Doc. No. 180.

Meanwhile, Kirkland filed an appeal of the Court's orders, including the order appointing the Receiver and the order expanding the receivership estate to include the Coachman's House. Doc. No. 137. The appeal is currently pending.

II. ANALYSIS.

A federal court has the power to order a defendant over whom it has personal jurisdiction “ ‘to transfer property whether that property [is] within or without the limits of the court's territorial jurisdiction.’ “ Citronelle-Mobile Gathering, Inc. v. Watkins, 934 F.2d 1180, 1187 (11th Cir.1991)(quoting United States v. Ross, 302 F.2d 831, 834 (2d Cir.1962)). Such an order is effective against the defendant “ ‘provided such act is not contrary to the law of the state in which it is to be performed.’ “ Id. (quoting S.E.C. v. Minas De Artemisa, S.A., 150 F.2d 215, 217 (9th Cir.1945)). Similarly, a receiver may act extraterritorially pursuant to such an order unless the order conflicts with foreign law. Id. at 1188.

*3 This Court has required Kirkland to repatriate to the United States all funds and assets of investors. The Court has found that the Coachman's House was acquired or serviced with investor funds and ordered that it be included in the receivership estate. The question currently before the Court is how to effectuate the repatriation order and order appointing receiver in light of the lack of mechanisms under Scots law to permit the Receiver to exercise her authority with respect to the Coachman's House.

In other cases, courts have required defendants to sign documents giving a receiver signatory authority over foreign accounts and access to foreign account documents. See, e.g., Commodity Futures Trading Comm'n v. Schroeder, No. Civ. A. 1:06CV0705, 2006 WL 3114275 (W.D.Mich. Oct.6, 2006)(consent to release financial records); S.E.C. v. Credit Bancorp, Ltd., No. 99 Civ. 11395(RWS), 2000 WL 968010, at * 1 (S.D.N.Y. July 12, 2000)(signatory authority). The power of attorney requested by the Receiver would achieve the same purpose as the orders required in these cases. It would give the Receiver the authority to manage and maintain the receivership property in the same manner as if the property had been physically repatriated to the United States. Therefore, I recommend that the motion to compel Kirkland to sign a power of attorney be granted in part.

However, the proposed power of attorney is not appropriate. First, as drafted, it would give Kirkland the ability to revoke the power of attorney at any time. Second, there is also no indication that the proposed power of attorney is in a form that complies with the requirements of Scots law.

Third, the proposed power of attorney authorizes the Receiver to sell the Coachman's House. While the appeal of this Court's orders is pending, disposition of the receivership assets is not appropriate because “[a] district court does not have the power to alter the status of the case as it rests before the Court of Appeals .' “ Green Leaf Nursery v. E.I. Du Pont de Nemours, 341 F.3d 1292, 1309 (11th Cir.2003) (quoting Dayton Indep. Sch. Dist. v. U .S. Mineral Prods. Co., 906 F.2d 1059, 1063 (5th Cir.1990)). In contrast, permitting the Receiver to control and maintain the Coachman's House merely maintains the status quo, and insures that the value of the asset is not compromised or diminished due to lack of upkeep or failure to pay debts such as mortgages, taxes and the like.

III. RECOMMENDATION.

Accordingly, I recommend that the Receiver submit a revised form of power of attorney that has been reviewed by Mr. Cormack to ensure that it conforms to the requirements of Scots Law. The revised power of attorney should not contain a provision allowing Kirkland to withdraw it, and it should not authorize the Receiver to sell or otherwise dispose of the Coachman's House except upon further order of this Court.

Failure to file written objections to the proposed findings and recommendations contained in this report within ten (10) days from the date of its filing shall bar an aggrieved party from attacking the factual findings on appeal.

*4 Recommended in Orlando, Florida on February 1, 2007.

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#4942 - 05/27/08 02:35 AM Re: Is Debtor Prison only for rich people?
Dr Mike Offline
Member

Registered: 11/07/05
Posts: 212
Loc: Florida
Based on that rationale, can a debtor place his money out of reach of a creditor by withdrawing his funds, and hiding the cash in box buried in the back yard? Would the judge order the debtor to tell the creditor where he buried the box, or would the judge tell the creditor that the creditor has to find the box on his own?
_________________________
MJS

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#4943 - 05/27/08 04:08 AM Re: Is Debtor Prison only for rich people?
Jay Adkisson Offline
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Registered: 06/05/04
Posts: 1108
Loc: Newport Beach, Orange County, ...
When the creditor takes a deposition known as a "debtor's exam" of the debtor, the debtor must truthfully answer questions under oath.

If the debtor refuses, the judge can order the debtor to jail until the debtor agrees to answer the questions.

If the debtor has sent assets outside the jurisdiction of the court, the judge can order the return of the assets (this is the "repatriation order").

If the debtor lies, and the creditor can then or later prove it, the debtor risk being convicted of the usually felony offense of perjury and thus time in prison (plus a record as a convict and usually the loss of professional licenses, ability to qualify for loans, etc.).

Some would argue that the very purpose of asset protection planning is to engage in legal planning so that the client's assets are protected so well that the debtor can truthfully answer questions under oath about any and all assets, but the creditor still can't collect against them.

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#4944 - 05/27/08 02:55 PM Re: Is Debtor Prison only for rich people?
sekhar37 Offline
New Member

Registered: 04/26/08
Posts: 13
Loc: florida
As a practising physician I have been following the comments of Mr adkisson carefully. It seems there in no asset protection plan that can be devised which is foolproof. Am I correct in that conclusion?

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#4945 - 05/27/08 03:46 PM Re: Is Debtor Prison only for rich people?
Jay Adkisson Offline
Expert
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Registered: 06/05/04
Posts: 1108
Loc: Newport Beach, Orange County, ...
No, there are a lot of things that work so long as they are done timely and appropriately.

For instance, in some states you can put a great deal of wealth into your home and it will be protected by homestead except for divorce, child support or tax liability. Or, you can give assets to your children in an irrevocable spendthrift trust. So long as you do this well in advance of problems, those assets will not be available to your creditors.

Where things get difficult is where you want to get the title to assets out of your name, but still retain effective control over those assets. Planners differ on how best to do accomplish this.

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#4946 - 05/30/08 01:23 AM Re: Is Debtor Prison only for rich people?
Dr Mike Offline
Member

Registered: 11/07/05
Posts: 212
Loc: Florida
How does one have "effective control" without the ability to fork over the assets to a creditor with a judgment?
_________________________
MJS

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#4947 - 05/30/08 02:53 AM Re: Is Debtor Prison only for rich people?
Ryan Offline
Expert

Registered: 08/19/05
Posts: 970
Loc: SLC, Utah
I'd say you can set up a plan that is 99.9% bulletproof if you do it while the creditor seas are calm. If you do it after creditor threat has arisen, the chance of your plan succeedingly will drop significantly, but you still may be able to set up a plan that will probably work depending on the circumstances.

Sometimes a favorable outcome of asset protection planning is to negotiate a far lower settlement than you'd otherwise pay sans asset protection, or negotiate a settlement within your liability insurance's limits.

The trick is to know which tool to use for which situation. You also need to know which tools should rarely or never be used (such as a DAPT). Furthermore, you need to know when to not do any planning, as doing so in some situations may expose you to the possibility of fines and penalties.

Depending on the circumstances, a good planner will need to know tax law, bankruptcy law, divorce law, fraudulent transfer law, estate planning, and a variety of other laws. You may also need to evaluate how determined an existing creditor might be or even what a particular judge's track record is.

Many planners don't know how to do this and thus they make fatal blunders like placing a personal residence in an FLP or transferring assets to an offshore trust the day before a judgment is obtained by a creditor.

With that said, many of the regular posters on this board know how to plan effectively, which is why this board is, in my opinion, such a great resource.

Regarding Dr. Mike's question on effective control:

If you set up an LLC or limited partnership well in advance of creditor threats, and the LLC/LP engages in a valid business and is operated correctly, then you can manage that entity whilst retaining most of the control you'd normally have over those assets if they'd remained in your direct ownership.

There are a lot of other tools to use as well, such as a variable annuity in a state that protects such from creditors. You get to decide how the annuity funds are invested, but the asset is exempt from creditors. You could also lease a vehicle, and you get to control/use the vehicle while such is generally safe from creditors. So if you think you might get sued, it may be a perfect time to lease that Mercedes S600 you've been eyeing smile Those are just a few of many examples.

Regards,

Ryan Fowler
www.pfshield.com

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