The assignment order is one of the most powerful, yet seldom used, collection tools in California. The statutory provision that empowers a judgment creditor to pursue an assignment order is somewhat obscure and certainly underused. This is because most collection agencies cannot afford the expense of an assignment order since the process is labor intensive and requires court appearances.
What is an assignment order?
An assignment order is a means to "intercept" monies that are to be paid to your judgment debtor. That is, if a defendant is expected to enjoy a stream of income or payment from a third party, a judgment creditor can serve the third party with a court order to pay that stream of income to the creditor instead of the defendant. The assignment order is effective to reach rents, commissions, royalties or payments due from a patent or copyright, for instance. The assignment order, in essence, assigns the right to receive payment to the judgment creditor.
When is an assignment order typically used?
An assignment order is an exceptional tool for collecting against businesses. If a creditor can identify an expected stream of income for the business, the assignment order seizes the accounts receivable at its source before payment is ever received by the defendant. The execution of the assignment order disrupts the defendant's business relationships with customers and clients. As you might expect, the assignment order can be an extremely effective tool for eliciting settlement offers from defendants who have ongoing business.
In cases where the defendant is an individual who is an independent contractor, a wage garnishment is ineffective. In order for a wage garnishment to be an appropriate judicial enforcement technique, the defendant must be an "employee." Typical examples in which assignment orders might be used against individuals include cases against real estate agents, outside sales representatives or general contractors.
What procedure is required to obtain an assignment order?
Initially, for an assignment order to be considered, the judgment creditor must discover a stream of income enjoyed by the defendant or learn of an impending payment to the judgment debtor. Once the creditor has completed the necessary investigative work to discover the stream of income, the judgment creditor must pursue the assignment order by way of "noticed motion."
A noticed motion means the creditor must reserve a court date with the clerk of the court, prepare moving papers, including a proposed court order, and serve the defendant with a copy of the moving papers.
At the hearing, the judgment creditor must prove to the court that the debtor stands to be paid by a third party and that the case is appropriate for an assignment order. The creditor's burden of proof is the same as for any civil matter: a preponderance of the evidence. When possible, in preparation for the hearing, the judgment creditor should subpoena from the third party (or from the defendant directly) any documentation that may be necessary to meet the burden of proof. If the creditor can meet its burden, the judge may sign the proposed order in court or require that the judgment creditor prepare and submit a modified order.
How is the order enforced?
Once the order is signed by the judge, it is incumbent upon the judgment creditor to serve the order upon the third party from whom payment is sought. Once the third party is properly served with the court order, the third party is charged with the duty of paying over any monies that may become due to the debtor to the judgment creditor. In the event that the third party fails to comply with the assignment order, the third party can be held in contempt of court.
Kimball, Tirey & St. John LLP is a full-service real estate law firm representing commercial and residential property owners and managers. This article is for general information purposes only. Before acting be sure to receive legal advice from our office. If you have questions about this article, contact Patrick O'Laughlin at (619) 234-1770. For past articles on other related topics, and a list of our offices, consult the resource library section of our Web site at www.kts-law.com.>