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Are Out-of-State Bank Accounts Out of Reach for Florida Judgment Creditors?

Are Out-of-State Bank Accounts Out of Reach for Florida Judgment Creditors?

A creditor has several tools to pursue collection from a judgment debtor. One of the most commonly used tools is garnishment of a judgment debtor’s bank account because it can be done relatively quickly and cheaply. In fact, most courts will routinely grant a motion to issue a writ of garnishment on an ex-parte basis, meaning without notice to the judgment debtor.

However, a trend is developing in federal courts in Florida disfavoring writs of garnishments against out-of-state bank accounts. Specifically, some courts are refusing to grant writs of garnishment, and have even dissolved existing writs of garnishment, against out-of-state bank accounts.

A minority of federal courts in Florida have determined that a judgment creditor cannot garnish an account at a national bank incorporated outside of Florida even if that bank has branch locations in Florida, because the national bank is outside of the Florida court’s jurisdiction.

The implications of these minority decisions are significant in light of the prevalence of mobile and online banking. Under that reasoning, a bank account at a national bank that is accessed and maintained online could essentially be protected from garnishment because no Florida court could obtain jurisdiction over such account. See Fed. Deposit Ins. Corp. for GulfSouth Private Bank v. Amos, 3:12CV548/MCR/EMT, 2017 WL 9439161, at *7 (N.D. Fla. Jan. 10, 2017), report and recommendation adopted in part sub nom. Fed. Deposit Ins. Corp. v. Amos, 3:12CV548/MCR/EMT, 2017 WL 772340 (N.D. Fla. Feb. 28, 2017) (rejecting creditor’s argument that modern bank accounts are not actually located in any state and can be accessed in Florida or anywhere in the world).

What options does a judgment creditor have if it finds itself before a court that disfavors writs of garnishments against out-of-state bank accounts?

One option might be to prove that the judgment debtor accesses and maintains the account at a branch located in Florida; however, at this time, there does not appear to be any clear precedent to indicate how a court would rule on this strategy. Further, obtaining such proof could be difficult, if not impossible, as the banking industry shifts away from in-person banking.

Alternatively, a judgment creditor could obtain the necessary jurisdiction over an out-of-state garnishee bank by domesticating its judgment in a court located in the state where the garnishee bank is incorporated and then requesting that the new court enter a writ of garnishment against the garnishee bank. Clearly, that is a time-consuming endeavor that would be cost prohibitive in most circumstances.

Although only a handful of federal courts in Florida have adopted this reasoning disfavoring writs of garnishment, other courts in Florida could follow suit. Any judgment creditor or litigant seeking a judgment should be aware of this issue and the potential pitfalls in obtaining a writ of garnishment against an out-of-state bank account.

Does Your Limited Liability Company Have a “Prenuptial Agreement”? (If Not, Consider Reading This)

With the emergence of the limited liability company (“LLC” or “company”) entity type, an owner, known as a “member,” can minimize or prevent setbacks that interrupt business operations that in very extreme instances, cause it to dissolve.

With the emergence of the limited liability company (“LLC” or “company”) entity type, an owner, known as a “member,” can minimize or prevent setbacks that interrupt business operations that in very extreme instances, cause it to dissolve.

Similar to a prenuptial agreement in the marriage context, a properly drafted operating agreement can protect members and even the company in the event that a member or members decide to breakup or call it quits.

Below are sections, which at a minimum, should be included in a company’s operating agreement:

  1. Formation. A formation section includes information concerning the company’s name, date created, its members, office location, registered agent and ownership. Ownership may be determined either by the percentage or interest that a person has in a company, or by membership units (“units”), which is equivalent to shares of a corporation. If a company has different classes of units, this section should provide detail whether voting rights differ among each class, and if applicable, any distribution waterfalls and preferences describing the ordering of payments among members.
  2. Management and Voting. A management and voting section provides information on how a company is managed. It is either “manager-managed” by person(s) appointed by members (a manager may, but is not required to be, a member) or “member-managed,” thus managed by its members. This section should also include provisions regarding how the company conducts official business, such as member voting requirements, resolutions for voting deadlocks, protocols for official meetings including proxy voting, and provisions that specify member authority over company affairs.
  3. Capital Contributions. A capital contributions section contains information regarding capital contributions made by members (monetary and non-monetary), the amount, value of contribution (if nonmonetary), and class of units (if applicable) that each member owns, and whether members may be required to make additional capital contributions.
  4. Allocation of Profit and Losses and Distributions of Cash. This section explains how company profits and losses are shared among members and other fiscal matters. It may contain information on special allocations, which are non-pro-rata distributions. This section should also discuss how distributions of cash shall be made and whether distributions may be “in kind,” which are payments in the form of a security or property other than cash.
  5. Membership Changes. A membership change section describes the process how members are added and removed, if and when members can transfer ownership, and other related provisions. This section should also describe how a company handles a member’s death, bankruptcy of a member, and events that disqualify a person from being a member.
  6. Dissolution. A dissolution section provides circumstances when a company may or must be dissolved and steps involved to wind up business affairs.

A properly drafted operating agreement is a critical step to starting a company. Members should invest time in creating this tool which promotes formality and separates a company’s business matters from its owners’ personal matters. Costly attorney fees and litigation expenses can be avoided upfront if an operating agreement is properly drafted.

Consideration should also be given to tax matters by an attorney experienced in that area. The pitfalls of not drafting a timely operating agreement can be costly. Business owners waiting to draft this document when business activity “picks up” may encounter setbacks when a disagreement among members ensues. Discipline and effort should be used to avoid falling into this trap, so make drafting this document a priority when setting up your company.

Is California Dreaming or Will More Healthcare Workers Become Employees?

Is California Dreaming or Will More Healthcare Workers Become Employees?

There is no bigger industry in the state of Florida than healthcare. Hospitals, physician groups, and surgical centers provide valuable care to the citizens of the Sunshine State. For many of these businesses, the workers are independent contractors, rather than employees. However, a recent decision by the California Supreme Court is causing those in the healthcare industry nationwide to examine that business model.

The California Supreme Court recently issued a landmark decision in the case of Dynamex Operations West, Inc. v. Superior Court, which makes it more difficult for companies in California to classify their workers as independent contractors for purposes of minimum wage requirements, the withholding of taxes, and eligibility for company benefits.

The Dynamex case involved a courier service that classified its drivers as independent contractors, rather than employees. The California Supreme Court determined that the drivers should have been classified as employees. In reaching its conclusion, the California court used the “ABC test”. Under this test, a worker is properly considered an independent contractor if the company establishes:

(a) That the worker is free from the control and direction of the company in connection with the performance of the work;

(b) That the worker performs work that is outside the company’s business; and

(c) That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work that the worker is performing for the company.

Applying this test, the Court determined that the drivers were performing work in the usual course of Dynamex’s business and that they were not engaged in an independently established trade (such as plumbing) outside the core function of the courier company.

The Dynamex decision does not apply to the classification of workers in the state of Florida. The law in Florida focuses on the extent of control the company exerts over the worker. However, historically cases decided by the California Supreme Court have, on occasion, led to sweeping changes in the law nationwide. Whether or not the Dynamex case will generate change in Florida remains to be seen.

The classification of workers as either employees or independent contractors impacts the healthcare industry because of the number of workers required to deliver the services. Healthcare companies engaged in business planning should consult with their legal advisors and examine how they are classifying their workers and whether those classifications will be subject to change in the future.

Changing the Playing Field: Viable Alternatives to Non-Compete Agreements

Viable Alternatives to Non-Compete Agreements

Employers seeking to prevent their employees, contractors, consultants or former partners from competing or soliciting will typically utilize a traditional non-compete agreement, either standing alone or embedded within a broader agreement. The non-compete limits a person from competing and soliciting for a specific period of time, and within a designated geographic area.

However, it can be difficult to predict whether, and to what extent, a non-compete will be enforced. In Florida, although non-compete agreements are permitted by statute (§ 542.335, Fla. Stat.), they are often construed strictly against the employer. Courts are generally skeptical of non-compete agreements which flatly prohibit competition as being «restraints of trade», weighing an employer›s right to protect legitimate business interests against an employee›s ability to earn a living.

Employers seeking a more predictable alternative to a traditional non-compete may want to consider the following alternatives:

 “Forfeiture-For-Competition”. This is a contract provision which states that an employee who competes will forfeit a benefit, such as deferred compensation, future payments or incentives. The appeal of such a provision is that it creates a negative consequence for competing, rather than looking to the court system for a remedy.

“Clawback”. A provision requiring an employee to repay compensation or other benefit following specific events, such as working for a competitor (in which the employer files suit for damages to recover the prior compensation or benefits as damages). A clawback is often combined with a forfeiture-for-compensation.

“Bad-Boy”. A provision which allows forfeitures and/or clawbacks for specific acts objectively considered as bad (e.g. disclosing confidential information, crimes or publicly disparaging an employer).

Considerations. The benefit forfeited or subject to clawback cannot constitute regularly earned income, such as wages, ordinary bonuses and commissions previously earned. Additionally, employers need to confirm that the forfeited benefit is not subject to ERISA vesting protections, such as a vested benefit in a qualified plan or a 401(k) plan (however, certain unfunded, non-qualified ERISA plans, such as “top-hat” plans, are typically not subject to ERISA’s protections). As a result, forfeiture and clawback devices are usually confined to management level employees who receive some sort of discretionary incentive or deferred compensation, or to sellers of a business receiving deferred payments. Finally, the forfeiture cannot amount to a “penalty”.

Because an employer does not seek to enjoin an employee from earning a living, or even competing, courts in Florida and in many other jurisdictions are less inclined to subject these provisions to the higher scrutiny applied in the traditional non-compete analysis, so long as the employer can show that the restriction is intended to protect a legitimate business interest. Such provisions may be an effective alternative to traditional non-compete agreements in their intended effect of deterring employees, contractors and others from competing or taking action adverse to a former employer or business partner.