As international business becomes more commonplace, the insidious side effect is international collections.
It is a fact that whenever business is conducted, there are unscrupulous and financially unstable businesses that cannot or will not pay their obligations. When this occurs with a domestic entity, it is easy to invoke the US legal process, obtain a judgment and attempt to collect the debt utilizing statutory collection procedures. However, when a foreign company refuses to honor its debt obligations, collection is far more complex and difficult.
Most domestic businesses lack the resources to litigate a case or obtain a judgment in a foreign country. Fortunately, in many circumstances resorting to the judicial process of a foreign country is unnecessary. Most states, Virginia included, can obtain jurisdiction and render judgments against any individual or business that has “purposefully availed” itself of the privilege of doing business within the state. Virginia, for example, is known as a single-transaction state. So long as the dispute involves a relationship where a single business transaction took place in Virginia, Virginia courts can and will exercise jurisdiction over the dispute. However, jurisdiction is only one step in the process of getting the foreign business to appear before a domestic court. The next step is providing notice of the claim, i.e. “Service of Process”. The foreign entity must be provided with legal notice that an action has been commenced against it in a Court in the United States. In most cases the Service of Process must be provided in compliance with the Hague Convention, which has requirements that vary from country to country. The good news is that once you obtain jurisdiction and service of process on the foreign business, you can obtain a judgment just like in a case involving domestic parties.
After judgment is rendered by a court, the collection process can begin. Typically, a judgment creditor has three tools at its disposal: garnishment, debtor interrogatories and actual levy. In most cases involving a foreign debtor, actual levy is not available because none of the debtor’s property is not located in the United States; actual levy requires taking physical possession of a tangible item. Debtor Interrogatories is the process of bringing a debtor or representative of the debtor before a court to answer questions about the debtor’s assets. Debtor Interrogatories may also not be a viable collection tool, because such proceedings require a judgment creditor to obtain personal service on an individual representative of the debtor and, although the Hague Convention allows for Service of Process, it is not considered personal service. Therefore, unless a judgment creditor is aware of an individual representative being physically located in the United States, serving debtor interrogatories may not be possible. Thus, in order to successfully collect, the judgment creditor must rely upon the garnishment process.
For the garnishment process to be effective, a judgment creditor needs to identify potential garnishees (companies who owe debts to the debtor or who hold money of the debtor). Business relationships within the industry and large international banks are the most likely target to be garnishees. In Virginia, a valid garnishment requires not only obtaining jurisdiction and Service of Process on the garnishee, but also on the judgment debtor. Gross, Romanick, Dean & DeSimone, P.C. is at the forefront of these issues, having recently convinced a federal judge that jurisdiction in a garnishment action is an extension of the jurisdiction to render a judgment. Xyrous Communications, LLC v. Bulgarian Telecommunications Company AD, 74 Fed. R. Serv. 3d 629 (E.D.Va. 2009).
Garnishment of an international bank may generate its own set of challenges as many U.S. banks that operate internationally have corporate structures in place designed to insulate the foreign operation from U.S. legal process. In these cases, the bank, not the judgment debtor, may push litigation in order to protect its corporate structure and customers.
In short, while collection of domestic debt is difficult, collection of debt owed by a foreign business presents additional challenges. Foreign entities often will fight with all their resources to avoid having to pay debts owed in the United States in order to shield the company from the United States judicial system. The attorneys at Gross, Romanick, Dean & DeSimone, P.C. are uniquely poised to successfully collect these international debts. Collection of international debt requires an exceptional understanding of the law, as well as tenacity and experience.