Required Showing 

         To obtain most forms of prejudgment security, a plaintiff must show the judge that they have a likelihood of success on the merits. See, e.g. Mass. R. Civ. P. 4.2(c). In a breach of loan agreement case, for example, the plaintiff will usually submit a copy of the loan agreement or promissory note as an exhibit to a motion to attach real estate or a motion to attach a bank account. The plaintiff will also file an affidavit as an exhibit to their motion indicating what the balance is and any other facts showing that they have a likelihood of success. In order to obtain prejudgment security, the plaintiff does not need to present all the evidence that they would need to present to win a case at trial, but will need to present some preliminary evidence in support of their case. A defendant has the right to submit their own evidence in defense to a motion for prejudgment security.

Ex-Parte Relief  

          If the plaintiff can show that there is a strong likelihood that the defendant, if notified in advance of plaintiff’s motion, will transfer funds in order to circumvent an order of the court attaching those funds, the plaintiff can obtain an order of attachment without advanced notice to the defendant. See, e.g. Mass. R. Civ. P. 4.1(f). If, for example, the defendant has committed fraud against the plaintiff, or there are previous instances where the defendant transferred assets out of their name to avoid an attachment, the court is more likely to grant a motion for prejudgment security on an ex-parte basis. If the plaintiff succeeds in getting an order of attachment ex-parte, the defendant can, upon two days notice, file a motion with the court to dissolve the attachment. The defendant, in seeking to dissolve an attachment, should argue their reasons as to why the plaintiff is not likely to succeed in the case. 

Specific Kinds of Prejudgment Security Remedies 

         The examples here are some, but not all, of the prejudgment security remedies available to a plaintiff. All of the above remedies are also available in federal court in Massachusetts under Fed. R. Civ. P. 64, 65. As discussed above, a plaintiff can file a motion to place an attachment on the defendant’s real estate, or to place an attachment on the defendant's bank or investment accounts (known as a “motion for attachment by trustee process”). See Mass. R. Civ. P. 4.1, 4.2.

           A plaintiff can also seek a preliminary injunction under Mass. R. Civ. P. 65. An example of where a preliminary injunction could become useful is where the plaintiff knows of a client of the defendant or knows of some third party that owes the defendant money (like a distributor, tenant, or insurance company). In this case the plaintiff can seek an order directed at the third party that the third party no pay the defendant pending further order of the court. The court can also order that any funds that would otherwise be paid to the defendant be held by the court or in an escrow account.
Filing a motion for prejudgment security, and letting the defendant know early on about the intent to do so (unless ex-parte relief is warranted) is usually a good idea because it can encourage settlement discussions and lead to a fast case resolution saving the plaintiff time and money.
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Now, a plaintiff can obtain a Massachusetts judgment by obtaining a certified copy of the out of state judgment, and filing it with the appropriate paper work in the Massachusetts court where the defendant lives or has a usual place of business. The defendant will be notified, and, if the defendant does not show the court good reason why the judgment should not enter in Massachusetts, the court will enter the judgment. The plaintiff can then obtain an execution from the Massachusetts court to levy on defendant's real estate in Massachusetts, or to exercise other judgment creditor remedies such as requiring the defendant to appear at a debtor's exam or "supplementary process" hearing. At the debtor's exam, the plaintiff can request the defendant to disclose their assets to the court, and can request that the court enter either a lump sum or monthly payment order to satisfy the judgment. 

The general rule is that the individual owners of a company, which is formed as a corporation or LLC, are not responsible to repay their company’s debts as a result of a breach of contract by the company (note this is not the case if the company is a d/b/a). A corporation or an LLC is said to be a “liability shield” for its individual owners. The individual owner of a company might, though, have sufficient assets in their own name to pay off the debt, and despite the liability shield of a corporation or LLC, that shield very often doesn’t apply. A plaintiff should make demand upon the individual owner and should add them to their complaint in a resulting lawsuit, if there is a legal basis to do so. 

The actor is always liable: The liability shield was designed to protect passive investors of companies and to encourage investment. Individuals are responsible, however, for torts that they personally participated in. One case stating this is Instant Image Print Shop, Inc. v. Lavigne, Keating, Halstead, Inc. 1998 Mass.App.Div. 74 (1998). A tort is harm that one individual or company causes to another which forms the basis of a private lawsuit to the party harmed. Examples include, some of which are further discussed below, fraud, negligence, breach of fiduciary duty, and assault. To give an easy example of when an individual would be liable for a company’s debt, suppose a delivery man is driving drunk to make a delivery for his employer, which is a corporation, and causes bodily injury and property damage to another driver. It would not make sense in these circumstances if the driver could not be held individually responsible for the damage. Here, a law suit against the driver or company or both, for negligence and likely other torts, would be warranted. The liability shield in this situation would only exist for passive investors or other owners of the company who were not directly involved in the accident.

Below is a list of other common reasons why an individual owner or some other party could become liable for the debts of a corporation or LLC:

Fraud: It’s one thing for a company to borrow money, honestly intending to make repayment, and then fall into hard times a few years down the road and start to miss monthly payments to the creditor. It’s another thing if the owner of the company borrows money that they never intended to repay. In this case, the individual owner who goes into makes the promise to repay the loan, knowing that they will never repay it, will be personally responsible to make repayment if sued by the bank or other creditor. The fact that not even one monthly payment was made towards the loan is circumstantial evidence that there was never an intent to make repayment. Similarly, if the owner misrepresented their company’s assets or the company’s level of experience to make the creditor feel secure in giving the loan, this would also be the basis for a fraud claim by the creditor against the individual. The owner might say, for example, that their company has $1,000,000.00 in accounts receivable when in reality the company is not generating any income. The creditor, as a result, might be deceived into believing that the company wont have trouble repaying the loan. As a side note, creditors and other parties making loans or other contracts with companies will very often have the owner/s sign a personal guarantee for repayment. This way, if the loan goes into default, there is no need to show that some tort was committed in order to seek repayment from the individual.

Negligence: This is when someone causes an unreasonable risk of harm to others, and someone is damaged as a result. Common examples include contractors who cause damage to homes by failing to follow industry standards, and traffic accident situations.

Conversion: This is stealing. If the owner of a company steals money or other property then the victim can bring a claim for conversion (this is usually accompanied by a claim for fraud) against the individual/s who perpetrated it. An example might be someone giving their jewelry to a shop that sells it for them on consignment or charges the customer a fee to showcase the jewelry. If the owner of the jewelry shop steals a client’s jewelry, they of course can’t assert the corporation’s liability shield as a defense in a law suit brought by the client.

Mere continuation or successor liability: Often companies will regularly change their name. If John Smith Plumbing, Inc. becomes John’s Plumbing, Inc., or even some totally different name, and everything else about the two companies except the name are the same (e.g. same owners, same type of work, etc.), then the successor company can be held liable for the debts it incurred under the previous company name. If the name change was done for the purpose of avoiding a debt, then the company can be sued under the new name. A claim for mere continuation or successor liability is a type of fraudulent transfer claim because what the first company really did was transfer its assets (such as customers, good will, etc.) to the second company.

Piercing the corporate veil: The term for this often used in case law is “Corporate Disregard”. This is a claim often raised in complaint to try and hold an individual liable for a company’s debts. Prevailing on this claim requires a court to consider a list of factors to determine if an individual should be held liable for the corporation’s debt. The factors are discussed in the case Attorney General v. MCK, INC., 432 Mass. 546 (2000). While it can be a good claim to bring, usually the torts described above are more clear ways to establish liability against an individual.

In sum, there are many common ways that an individual can be held liable for the debts of their corporation, and it should not be assumed that when someone is acting on behalf of a corporation that none of their actions can lead to individual liability. Often, and individual owner should be named in the complaint either as a sole defendant or as a co-defendant with the corporation.

DISCLAIMER- This article was meant solely to give a general idea about the area of law discussed, and should not be exclusively relied on in making decisions in making decisions. Every situation is different, and this article is not a substitute for personalized legal advice.  

93A Demand Letter- For cases when the Defendant is a business, Mass General Laws Ch. 93A provides that if a business engaged in a deceptive act which cost another to lose money, than that business may be liable for up to three times the money lost plus legal fees incurred in recovering the money. In order to preserve your right to be awarded “93A damages”, you or your attorney must send a letter where you provide a brief description of the events that occurred and when, and how much money you are owed as a result. You also state that failure to respond within 30 days with a reasonable offer of settlement will result in you filing a law suit where you will be seeking triple damages and legal fees. Sending this letter preserves your right to be awarded triple damages later on if you win your case since you gave the defendant fair warning and they didn’t respond with a reasonable offer. Even if they haven’t been responding to your earlier communications, a demand letter warning of your intent to seek damages under 93A may prompt a defendant to settle your claim.

To be eligible for 93A damages, the defendant must have engaged in an act that goes beyond mere non-payment of a debt. For example, if you loaned a business money which was to be repaid in six months, and the business is having a slow season, while you still have a right to your money back, these facts alone don’t justify 93A damages. If the business, on the other hand, sold you fake goods, or lied about their assets to induce you to loan them money, these facts may entitle you to 93A damages.

Even when 93A damages are not warranted, in some cases having an attorney send a letter demanding the base amount (and in many cases interest and attorney’s fees), and outlining the claims, may lead to settlement. In other cases, where sending a warning appears futile and where 93A doesn’t apply, the next step is to file a law suit.

Filing the Law Suit- If you are owed under $7,000.00, filing a claim in small claims court might be your best option as this is the fastest way to have your case decided by a court. It involves you filing out the appropriate forms from your local small claims court. After filing the forms you will get a date to come in and present your case where you can bring any relevant evidence (contacts, emails, text messages, pictures, etc.). This post focuses on cases where more than $7,000.00 are owed.

The Complaint: Your case will begin by your filing a complaint in court. A complaint is a document, typically in numbered paragraphs/allegations, which state the facts that occurred, the nature of your claims, and your demand for payment. E.g. 1) On December 21, the Defendant agreed to purchase 2,000.00 widgets from the plaintiff at a price of $3 per widget. 2) The defendant failed to make payment when due, etc. A complaint can be a page long or it can be 50 pages long depending on how complicated the case is.

Once you file the complaint with the right court, you will need to have a sheriff or constable serve the defendant with a copy of the complaint and a summons. The defendant will have 20 days, unless he/she requests additional time from you or the court, to answer the complaint. The defendant will have to answer the complaint by admitting or denying each numbered allegation, and may also assert affirmative defenses or a counterclaim.

Default- If your Defendant fails to answer the complaint, you will need to request that they be defaulted, and then file a motion for default judgment. If this happens it can significantly reduce the length of legal proceedings.

Summary Judgment- Sometimes you and the Defendant both agree on the facts of what happened, but still disagree on whether or not you are entitled to judgment. For example, if your complaint alleges that the Defendant borrowed $20,000.00 and failed to pay it back, and the Defendant answers by admitting that he borrowed the money, but also says that he shouldn’t have to pay it back because his business partner stole it from him, then you can file a motion for summary judgment. This is a way to win your case without a trial (something similar is a motion to dismiss which is not discussed here). There is no point in having a trial in this situation since a trial is for the purpose of presenting evidence from both sides and having a judge or jury decide whose version of the facts is true. Since here both sides agree on the facts, but disagree on the law, it’s up to the judge to decide what the law is and in whose favor judgment should enter. Sometimes the law in a given situation can be complicated and sometimes it can be simple. Here, the law is simple and the Defendant will lose. He borrowed the money and promised to pay it back. Under the law it is irrelevant about what happened to the money after the Defendant received it. He must repay you, and then can assert his own claims against his partner.

Summary judgment, where appropriate, can be a way to shorten the length of the legal proceedings.

Discovery- In some cases you may have all the evidence you need from the beginning, but in other cases you or the Defendant might need to do discovery to obtain more evidence. If the Defendant doesn’t deny owing you money, but denies the amount of money owed, then you may want to request proof of payments, such as cancelled checks or bank statements, that the defendant claims have been made but not credited. The Massachusetts Rules of Civil Procedure allow for a very broad scope of discovery. Parties are allowed to request documents and information so long as the requested items are relevant to the issues at hand. Discovery can come in the form of written questions to the opponent, document requests, or depositions where the opponent or potential witnesses must answer questions in person under oath while a stenographer types their answers. These answers can be used to prepare for trial or to support a motion for summary judgment.

Trial- Most cases resolve before a trial, but in the event your case can’t be settled, it will need to be decided by a judge or jury. Either party has a right to request a jury trial which will be granted unless in some cases where the parties entered in a contract where one side waived the right to a jury trial. A trial is time for both sides to present evidence which can be through documents, testimony of witnesses, etc. If the judge or jury believes your side of the case, you will be awarded a judgment. Sometimes defendants will voluntarily pay the judgment, and other times they wont which is when you will need to begin the collection process which is discussed on the “debt collection” page of this site.

Mediation- The parties can agree to mediate their case at any point, and this very often a helpful way for the parties to come to a resolution and avoid a potential lengthy litigation process which may involve extensive discovery, motions, and a time consuming trial. Some courts offer free mediation services, and there are also many private mediators available in Massachusetts. The process usually takes a half or full day, with each side typically splitting the mediator’s fee in the case of a private mediation. The mediator is neutral and will listen to both parties version of the facts, and will try and help to the parties come to a practical resolution. There is no obligation to resolve the case during a mediation, if one side feels the other side hasn’t compromised in any way, and the parties are free to continue with the litigation if they wish. Nothing said during a mediation can be used against the other party at trial. Mediation in my experience, where both parties are reasonable, has been a very efficient way to resolve disputes.

Note- In this article when I say that you can file a document or motion, “you” implies you or your attorney handling the case.