Using an outside collection agency (OCA) to execute and enforce debtor judgments is often a better approach than hiring an attorney.
Many credit applications and sales contracts contain a Choice of Venue clause that specifies an agreed upon location for the resolution of disputes. These documents are usually drawn by the creditor/seller, which sets its company’s location as the Choice of Venue. This seems to make sense, since any legal action resulting from the buyer’s default will thus be held in a jurisdiction convenient to the creditor, and where the creditor and his attorney have the most experience with the specific commercial laws involved.
When the buyer and/or his assets are located in a different U.S. state or country, however, there often is less practical value of a judgment made in the creditor’s location than it might appear.
The venue for any lawsuit should typically be the location of the customer. The reason being, if the customer refuses to pay a judgment voluntarily, it will be necessary to execute the judgment in the jurisdiction where the customer’s assets are located. This requires “domesticating” the judgment in the customer’s locale ” whether another country or another U.S. state (referred to as a sister-state) – which is required before execution and enforcement is possible.
Domesticating U.S. Sister-State Judgments
For U.S. sister-state judgments, the United States Constitution, Article IV, Section 1 provides that –
Full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state. And the Congress may by general laws prescribe the manner in which such acts, records, and proceedings shall be proved, and the effect thereof.
This means that a judgment in New York State, for instance, is executable and enforceable in California, but only after it has been “domesticated”. Each state, of course, has its own procedures, requirements and forms for such domestication.
Given the situation regarding venues and the domestication of judgments, here are six reasons it makes more sense to use an agency collecting nationally or internationally – as the case requires – rather than using an attorney directly to execute and enforce judgments.
#1 National OCA firms have affiliate creditor’s rights attorneys in every U.S. jurisdiction.
Domesticating in a “foreign” jurisdiction requires an attorney licensed in and familiar with the requirements of that jurisdiction. Typically, businesses employ corporate attorneys that are neither specialists in creditor’s rights nor are licensed in every jurisdiction. By placing the judgment for execution and enforcement with a national agency, a creditor has available an entire network of attorneys with appropriate expertise and credentials required in the debtor’s locale.
#2 OCAs certified by the CLLA and utilizing CLLA member attorneys follow a strict code of ethics.
The commercial collection industry is not regulated in the United States. The Commercial Law League of America (CLLA), therefore, was formed as the premier body governing the activities of commercial debt collectors and commercial collection attorneys. Membership and certification by the CLLA ensures that the agency and attorney perform to the highest ethical standards. In addition, a CLLA certified agency is required to carry a bond protecting its clients (the creditors) in case of financial failure.
#3 OCAs have access to attorneys that are covered by a bond for the protection for their clients.
Individual businesses do not have access to bonding coverage for the attorneys they hire. Therefore, the attorney’s malpractice insurance provides the only recourse for creditors faced with fraudulent activity by the attorney. Collection agencies, however, can protect clients by accessing attorneys bonded up to $3.5 million against defalcation (not remitting on collected funds). One thing to keep in mind is that lawsuit bonds do cover forwardings to a foreign attorney, even if that attorney is listed with the lawsuit.
#4 The best OCAs actively manage and monitor the efforts of their affiliate attorneys, guaranteeing the creditor gets the best possible service.
Most businesses do not have the resources to effectively manage a network of nationwide (or worldwide) attorneys. An outside collection agency, however, does have these resources. And, because of the volume of accounts it places with its affiliate attorneys, it has the clout to ensure each provides the highest level of service.
#5 Client-attorney privilege remains with the creditor.
When utilizing an attorney affiliated with an OCA, the creditor retains the full protection afforded by client-attorney privilege. The agency acts only as a liaison to ensure the client receives the appropriate level of service.
#6 Utilizing a collection agency to execute a sister-state judgment can cost less.
Finally, and particularly in the case of U.S. attorneys, agencies will handle such cases on a contingent basis and can negotiate contingent fees with their affiliated attorneys; the leverage, again, being the volume of accounts the agency places. Creditors, on their own, usually pay hourly fees for an independently selected attorney.
Conclusion
If you sell to a national or international customer base, using an outside collection agency to execute “foreign” judgments makes sense. A reputable OCA will give you access to a highly qualified network of local attorneys at little to no cost – something few companies have the resources to develop on their own. Selecting the right OCA is key, however. It must be ethical, have a national (or international) network of affiliate attorneys, and manage those affiliates effectively.
Check out these other commercial collections articles for tips and information on our website.