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John: Here is a new and very challenging question to which

I doubt there is yet...
John: Here is a new and very challenging question to which I doubt there is yet an established legal answer:
What happens legally if a court of law issues a judgment for damages for such a large amount that the municipality cannot pay it?
So large that even the entity's ability to raise money through bonds, already very limited in the case at bar, is grossly insufficient to cover the new debt?
Is bankruptcy, (like Detroit and Stockton, California) an option?
If not, what can a judgment creditor reasonably seize to satisfy a judgment?
Sewer pipes in the ground? Municipal buildings useless to others?
This is a sort of sui generis issue but the question is not idle. It is very likely to occur in the next few months.
I don't expect anybody can really have a dispositive response.
However, your thoughts would be welcome.
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Answered in 16 minutes by:
9/20/2013
John
John, Attorney
Category: Legal
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Good Morning,

Interesting question, which could result in multiple outcomes. First we need to understand the nature of a judgment and the status of a judgment creditor and the creditor's ability to take from municipal funds. Likewise, most municipalities are insured at least to some extent. So first, the most straight forward and what happens in most cases - the municipality's insurance kicks in at some point (some municipality's are self insured to some amount) after which point their liability policies kick - i.e., the insurance pays the judgment.

Second, municipality's have various funds, most of them cannot be garnished as they are held in trust for various uses (i.e., enterprise funds), but other accounts could be garnished, beyond that however municipalities are like an other debtor, they cannot pay what they do not have. So the judgment creditor would have to continually engage in collection of the debt as the municipality takes in more revenue. The more likely scenario is that some sort of long -term payment plan agreed upon by the parties.

Third, and probably the least likely, the matter is resolved in Ch 9 bankruptcy. I'm doubtful that an otherwise financially solvent municipality would be brought into bankruptcy by a single debtor. The cases you cite resulted from years of financial issues compounding upon each other. In any event, usually on the state's governor can authorize a municipal entity to enter Ch 9, and even then the Bankruptcy judge has a lot of discretion to allow or disallow the bankruptcy. But if this were the case, the debt would be "worked out", meaning it would be paid probably at far less that face value or (less likely) totally extinguished by law.

These are the possible outcomes I could foresee. Hope this helps. Let me know if I can be of further assistance. Thanks.
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Customer reply replied 4 years ago

You have been most helpful.


The case at bar is one in which a developer paid for and installed full services on several thousand lots. The developer then paid taxes based on full value of a developed lot for 7 years. Then when times got better and permits for housing units were sought, the County denied the permits on the grounds that it had let the services deteriorate to the point where major rehabs were needed before permits could be issued.


In a virtually exactly similar case the trial court and the appellate court granted the owners DAMAGES of $13 million, of which $7Million were post facto, which were paid.


The judgment provided both for full damages for the value of the lots and still allowed the Plaintiff full ownership of the lots. A result that staggers the mind in its one-sidedness. Nevertheless that is what happened.


There was no insurance coverage.


In the case at bar the pre-trial numbers are in the order of $40-$50 Million and since the case is in the same appellate jurisdiction, the case law applies.


 


If we exclude bankruptcy and the ability to tap into designated funds, all that is left is going after the County indefinitely. How does that work? If the County can continue to function without a threat of bankruptcy and simply stave off collection efforts over the next 30 years as best it can, it would have little incentive to settle reasonably.


Would it be reasonable for a legal advisor to suggest that as the best available alternative?


 

Ronald, No insurance and no ability to tax or issue bonds, and no bankruptcy ability - essentially leave the county with no money in general fund to pay anything. That would leave nothing for the county to operate on essentially because many of its activities are funded by the general fund. I don't believe the county would want this, and would be incentivized to come to some structured deal...that is what I believe a legal adviser would recommend in this instance...specifically where you've taken all the other options off the table.
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Customer reply replied 4 years ago


Thanks very much

You're welcome. Please leave a positive rating before you exit this chat as it is the only way I get credit for my answers. If you have any questions in the future regarding this matter come back to this thread and I'll be happy to answer. Thanks and good luck with the matter.

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Customer reply replied 4 years ago


I will be delighted to give you a positive rating.

If I am not abusing your time, perhaps you could answer just one more question:

What obligation does a Plaintiff have to a lawyer who represents him on a contingency fee if he terminates representation because he believes his case is not being properly handled?

More specifically:

1. Is he liable for the time spent on an hourly basis? or

2. Is he liable for more if the case is eventually successful and the original lawyer claims that he was responsible for the success?

I believe the right to terminate a lawyer is absolute.

Ronald , I would like to continue to assist you on this matter. However, according to the terms of service of the usage of this website your current question is outside the scope of your original question, so I will need you to positively rate this response before I proceed to provide answers to your additional questions. If this is agreeable to you, please provide a positive rating for this response. Alternatively you can start another question thread, and I or another expert will assist you. Let me know how you wish to proceed.

John
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Satisfied Customers: 5,886
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