As all good lawyers know, having leverage is everything, whether you are doing a transaction or trying to settle a dispute. And what could be better leverage than a court order directing your adversary’s bank to freeze the funds in an operating account? Obviously, such a potent weapon could, and often does, allow a plaintiff to dictate the terms of settlement to the defendant. While being able to do this might sound like a fantasy, Massachusetts courts routinely order a freeze on bank accounts through a mechanism called a “trustee process attachment.” Further, some judges even issue trustee process attachments ex parte, i.e., without the defendant having an opportunity to oppose the request for such relief.
If in-house counsel understand how trustee process attachments work, they can help position their companies to more easily (i) obtain trustee process attachments against future adversaries and (ii) avoid having their own bank accounts frozen.
The first thing to understand about trustee process attachments is that they simply are not very hard to get. Under Rule 4.2 of the Massachusetts Rules of Civil Procedure, if a plaintiff establishes a likelihood of success on the merits of its claim, a judge almost certainly will issue a trustee process attachment up to the amount of the likely recovery. A plaintiff does not have to show (a) that the money at issue is related in any way to the plaintiff’s claim or damages, or (b) that the plaintiff might suffer irreparable harm if the request for a trustee process attachment is denied. Thus, convincing a judge to issue a trustee process attachment is markedly easier than obtaining any sort of injunctive relief.
Further, Rule 4.2 expressly allows a judge to consider issuing a trustee process attachment ex parte if a showing can be made that advance notice to the defendant likely would lead to the monies at issue being hidden, dissipated or removed from Massachusetts. Unlike an injunction, which usually precludes the defendant from taking certain action, a trustee process attachment actually makes the bank responsible for ensuring that money in the defendant’s account is not withdrawn. In fact, if an improper withdrawal occurs after notice of the trustee process has been served on the bank, the bank could end up being liable to the plaintiff for any shortfall in the account.
While a trustee process attachment is enforceable only in Massachusetts, that does not mean it is of no value if the defendant does its banking out of state. As long as a bank has at least one branch within Massachusetts, a defendant’s funds are attachable even if the branch used by the defendant is in another state. For example, if a defendant uses the Omaha, Nebraska branch of Bank of America, the deposits are attachable; if the defendant uses the Omaha Savings and Loan Bank (which has no branches in Massachusetts), the defendant’s deposits cannot be attached.
In light of the foregoing, it behooves your company’s business people to learn where your business partners bank. Further, if your partners do not use either a Massachusetts bank or a bank that does business in Massachusetts, you might consider requiring them to use a “National Bank.” In this way, you could ensure that the remedy of a trustee process is available without raising any undue suspicion. In any event, while in-house counsel may not want to think about disputes at the time a business relationship is just beginning, doing so can be very important.