Obtaining or Avoiding a Freeze on a Bank or Other Financial Account Can Require Swift Action or Reaction

During the dog days of summer, anything with the word “freeze” may sound appealing. But if the freeze is a “trustee process attachment” (tying up a bank or other institutional account), a whole different set of emotions can be evoked. As I discussed in Gain Leverage by Freezing Bank Accounts – Part I and Part II, knowing the law surrounding trustee process attachments can create or defuse significant and sometimes dispositive leverage. Further, and as the Federal District Court reminded us recently in DeBenedictis v. Dougherty, the speed with which a party acts or reacts when a trustee process is sought can be critical.

Danielle DeBenidictis represented William Dougherty in his divorce, and by the time a judgment was entered, Dougherty owed DeBenedictis over $80,000 in legal fees. After efforts to negotiate a resolution of this debt failed, DeBenedictis filed suit against her former client on January 3, 2008. At the same time, DeBenidictis filed a motion, seeking a trustee process attachment on a Moors & Cabot brokerage account in Dougherty’s name that contained more than $145,000. A hearing on that motion was scheduled for January 7 (two business days later), and Dougherty was served with notice of the hearing on the evening of January 3.

Dougherty did not appear at the January 7 hearing, the motion for trustee process was allowed, and the court issued the actual writ of attachment to freeze Dougherty’s account. While that writ was served on Moors & Cabot on Jan. 8, hours earlier Dougherty had withdrawn all but $170 from the account. While DeBenedictis complained to the court that this was a blatant effort to circumvent its ruling, Judge O’Toole responded that:

Under Massachusetts law, property to be attached remains unencumbered until service of the attachment is made. “The issuing of a writ does not create [the attachment]. Something more is necessary; and that . . . is the arresting of the debt in the hands of the trustee, which is effected by a service of the writ on him.” …Until that happened, Dougherty’s property interest in his account was not limited and he was free to withdraw the funds.

This case highlights the importance of being prepared to act fully and swiftly in litigation whether you are the plaintiff or the defendant. On the offensive side, one thing that DeBenedictis might have done, but apparently did not try, was to seek the trustee process ex parte, i.e., without giving the defendant notice of the motion or an opportunity to oppose it. While many judges will not entertain such a request, there is little if any downside in asking and, if granted, there is a much better chance of finding funds in the subject account.

As for defense, it is important that as soon as in-house counsel are aware of a litigation they check the docket to see what may be pending. Likewise, there are various services that notify parties of litigation before service of process is made. Plainly, knowing this information as soon as possible may enable you to employ a defensive strategy like the one Dougherty employed by moving assets before a writ is issued and your account frozen.

The bottom line is that while litigation often moves slowly, it sometimes moves at a lightning pace, and waiting to act, or react, can have a major impact on the outcome.

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