Proceedings supplementary are intended to be a speedy and relatively inexpensive means by which a judgment creditor can recover fraudulent transfers from third parties. Unlike conventional suits, proceedings supplementary do not have rigorous procedural rules that must be followed. Instead, proceedings supplementary offer a flexible structure, with the due process requirements of notice and opportunity to be heard supplying the guideposts.
Commencing a proceeding supplementary is easy. The judgment creditor files a motion in the case in which the judgment was entered showing (1) that it holds an unsatisfied judgment and (2) that execution is valid and outstanding. The motion will need to identify the court issuing the judgment, the case number, the amount of the judgment, and that a writ of execution has been issued. The motion should be supported by an affidavit or it can be verified. Once these requirements have been met, the court must grant the motion. The motion to commence proceedings supplementary may be heard ex parte, without notice to the judgment debtor. Often, the court will grant the motion without a hearing.
Impleading third parties in a proceeding supplementary is just as easy. There are technically no additional requirements. The judgment creditor does not have to make any evidentiary showing. In fact, it is reversible error for the court to require a preliminary hearing prior to impleading third parties. Impleading third parties may be done ex parte, because there is no requirement that third parties be given an opportunity to appear and be heard prior to being impleaded. The motion to implead third parties may be combined with the motion to commence proceedings supplementary. However, the motion should include allegations regarding the elements of the fraudulent transfers—as a compliant of sorts. If possible, it is a good idea to use post-judgment discovery of the judgment creditor to find out about potential fraudulent transfers prior to commencing proceedings supplementary. The order commencing proceedings supplementary should require the judgment creditor to serve a copy of the motion and the order on the third parties as it would a summons and a complaint. Alternatively, the judgment creditor can request that the court issue an order to show cause (prepared by the judgment creditor) setting forth the fraudulent transfer allegations and requiring the third parties to appear and defend the allegations. The order to show cause would then be served like a summons and complaint.
The proceedings supplementary statute does not set forth procedures for third parties to present their defenses. Again, due process requires only notice and an opportunity to be heard. The court’s order commencing proceedings supplementary (or directing the third parties to show cause) may set a final evidentiary hearing at which the defenses may be heard and determined. There is no requirement that the third parties be given the opportunity to file an answer or a motion to dismiss. Also, third parties are not entitled to a jury trial in a proceedings supplementary. The third parties are entitled to discovery, however. But the judgment creditor may seek to abbreviate the discovery period and limit its scope.
In addition to fraudulent transfer claims, the proceedings supplementary motion may also include allegations that a corporation is the alter ego or mere continuation of the judgment debtor. Further, the motion to commence proceedings supplementary may be accompanied by a motion for an ex parte injunction to prohibit further transfers of assets by the debtor.
In short, judgment creditors should take advantage of the flexibility provided for by proceedings supplementary by planning how to use the proceedings in the most expeditious manner.