If someone owes you money and is moving or hiding collectible assets, how can you “freeze” them while you get a money judgment?

Minnesota law has a remedy called “pre-judgment attachment” (also called “writ of attachment” or just “attachment”). A plaintiff can “attach” his or her civil claim for money to a non-exempt asset of the defendant while pursuing a judgment. Attachment can be an important option for a nervous creditor but it is for limited circumstances.

This article looks at pre-judgment attachments, which come up in breach of contract disputes and other civil litigation. This article concludes with some practical tips for creditors and defendants.

How Attachment Relates to Other Remedies

Pre-judgment attachment involves a court order that requires the Sheriff to seize and put an “attachment lien” on the defendant's non-exempt land or personal property. Because attachments take considerable effort to get, Plaintiffs should first see if other remedies might be available.

Here are some similar remedies or options:

• Demand and Voluntary Return: Before starting a lawsuit (or an attachment request within the lawsuit), consider asking the other person for possession of the item or payment of money to compensate you. Or see if they will “pledge” an non-exempt asset to a trusted third party to hold while your dispute is litigated. It may be a long-shot, but it could save a lot of time, money, and headache. If your dispute centers on a contract or loan that requires a written demand before a lawsuit, then you should make a proper demand first (even if it is unlikely to work).

• Self-Help Repossession under the UCC: Attachment is unnecessary when the creditor or plaintiff already has a secured interest in personal property. The creditor can do a self-help repossession under Minn. Stat. § 336.9-609, as long as the repossession does not “breach the peace.” The advantage is that no lawsuit is required. But if you are an unsecured person with no lien or security interest in the other person's property, this will not work and attachment may be a more suitable remedy.

• Replevin (a/k/a “action for claim and delivery”): Replevin applies when the plaintiff or creditor already has a secure interest in personal property. As such, attachment would be unnecessary. Replevin is used when a self-help repossession would “breach the peace” or there are ownership questions. Replevin is a court process for recovering possession of personal property from another person. Replevin requires the plaintiff to have a present right to possess the property (a secured lien or property right). This usually comes up when a bank is trying to recover collateral from a loan, but it can also come up when someone has your property. Replevin procedures are very similar to attachment, but they only apply when the creditor already has an interest in personal property (not when unsecured creditors are pursuing a money judgment).

• Voidable or Fraudulent Transfer Claim: Attachment will not work when a defendant has already transferred assets to another person or entity. A “fraudulent” or “voidable” transfer is when a debtor shifts an asset to a relative or business partner to avoid collection by a creditor. The creditor can undo (or “void”) the transfer, meaning the asset is put back into the debtor's name and the creditor can then take it.

• Injunction or Temporary Restraining Order (TRO): Attachment focuses on seizing or putting a lien on specific assets. If the plaintiff has other problems (i.e., a company wants to stop a former employee from using trade secrets or customer lists), the plaintiff will need a broader remedy. An injunction or TRO is a broader remedy that allows a judge to force the defendant to take action or prohibit him from taking action. While attachment gives judges similar discretion to protect the parties or assets, an injunction or TRO is broader.  Note that an injunction will generally not be issued in a case involving an attachment request. 

• Waiting Out the Lawsuit: If the amount of the plaintiff's claim is small, the cost of attachment might not be justified. Or, perhaps the defendant has enough assets and those assets will be available at the end of the case. In these circumstances, a plaintiff could wait until the end of the case, get a judgment, and try to collect on an asset. Obviously, this would save some money for the plaintiff but there is risk if the defendant loses the assets or has financial issues. Civil lawsuits in Minnesota can take 6-12 months if contested by the defendant, so the plaintiff should understand how long he or she would have to wait to get a collectible judgment.

Note that if the attachment relates to agricultural property, the plaintiff may first have to attend Farmer Lender Mediation under Chapter 583 of Minnesota Statutes before pursuing a pre-judgment attachment.

While this list does not have every potential remedy, it should help you understand how attachment fits into the lawyer's “toolbox.” Attachment simply links a plaintiff's money claim to a specific non-exempt asset of the defendant.

General Grounds for A Pre-Judgment Attachment

Pre-judgment attachment applies to property that is located within Minnesota. It can apply to real estate, personal property, or wages. It can be used by private parties or by the Minnesota Attorney General's Office (often in consumer fraud cases).

Non-Exempt Property

The property at issue must be “non-exempt property”. Creditors cannot collect “exempt property” from individuals. Exempt property includes homestead property, some retirement accounts, public welfare payments, the family bible, some equity in a car, and other things. See Minn. Stat. § 550.37 for a list of exemptions (there also may be exemptions under federal law). There may also be other protections under federal law. When you hear the term “non-exempt property”, this means that a creditor could collect on it. And it is the only property that can be “attached”.

Underlying Lawsuit

Attachment must be done within a civil lawsuit “for the recovery of money”. Minn. Stat. § 570.01. It can be done at the start of the case or any time during the case.

If granted, the property will be secured so that the plaintiff can satisfy a money judgment using that property at the end of the case.   

Statutory Grounds for Attachment

Minn. Stat. § 570.02, subd. 1 says that a plaintiff can get a pre-judgment attachment:

(1) when the respondent has assigned, secreted, or disposed of, or is about to assign, secrete, or dispose of, any of the respondent's nonexempt property, with intent to delay or defraud the respondent's creditors;
(2) when the respondent has removed, or is about to remove, any of the respondent's nonexempt property from this state, with intent to delay or defraud the respondent's creditors;
(3) when the respondent has converted or is about to convert any of the respondent's nonexempt property into money or credits, for the purpose of placing the property beyond the reach of the respondent's creditors;
(4) when the respondent has committed an intentional fraud giving rise to the claim upon which the civil action is brought;
(5) when the respondent has committed any act or omission, for which the respondent has been convicted of a felony, giving rise to the claim upon which the civil action is brought; or
(6) when the respondent has violated the law of this state respecting unfair, discriminatory, and other unlawful practices in business, commerce, or trade, including but not limited to any of the statutes specifically enumerated in section 8.31, subdivision 1.

As you can see, the plaintiff must have strong evidence of the defendant's actions. In most of these situations, the defendant is being secretive or dishonest. This can be challenging for the plaintiff to monitor.

The plaintiff may have to investigate and gather facts necessary for an attachment motion. Then, the plaintiff will have to persuasively present those facts in an affidavit that lays out the situation for the judge.

If the plaintiff has the necessary facts, the attachment will be granted. If not, the plaintiff will have to wait until the end of the case to collect on any assets.

Procedure for Pre-Hearing Attachment (“Extraordinary Circumstances”)

Usually, a plaintiff (the “claimant”) gets an attachment after giving notice to the defendant (the “respondent”) and after the judge holds a hearing.

But in extraordinary situations, the plaintiff can get the attachment before a hearing. This usually happens when the defendant will imminently destroy, hide, or waste assets. This special procedure secures the property until the judge can hold a hearing.

Requirements

Under Minn. Stat. § 570.025, subd. 1, the plaintiff can make a written application that sets forth:

(1) the basis and the amount of the claim in the civil action;
(2) the facts which constitute the grounds for attachment as specified in subdivision 2; and
(3) a good faith estimate, based on facts known to the claimant, of any harm that would be suffered by the respondent if a preliminary attachment order is entered.

The judge can issue a pre-hearing attachment order when these conditions are met under Minn. Stat. § 570.025, subd. 2:

(1) the claimant has made a good faith effort to inform the respondent of the application for a preliminary attachment order or that informing the respondent would endanger the ability of the claimant to recover upon a judgment subsequently awarded;
(2) the claimant has demonstrated the probability of success on the merits;
(3) the claimant has demonstrated the existence of one or more of the grounds specified in section 570.02, subdivision 1, clause (1), (2), (3), or (6) (i.e., actions to delay or defraud creditors or unlawful business practices); and
(4) due to extraordinary circumstances, the claimant's interests cannot be protected pending a hearing by an appropriate order of the court, other than by directing a prehearing seizure of property.

If the plaintiff meets the requirements, the judge can issue an attachment order. The court will then set a hearing “at the earliest practicable time.”

Attachment Order Language

While judges usually have discretion in writing their orders, the attachment statute requires judges to include certain things in their Attachment Orders.

For example, Minn. Stat. § 570.051 requires Attachment Orders to:

• make specific findings of fact;
• discuss the respondent's attendance and position at any hearing;
• direct the sheriff to seize and safely keep all nonexempt property of the respondent or such specific property as the court may specify, or so much as is necessary to satisfy the amount claimed with expenses and costs using the full force of the county;
• authorize the sheriff to keep the property in a reasonable manner; and
• state the amount of any bond required of the parties.

The judge can also include other things in the order, including:

• places the sheriff can enter using “full force” to get the property;
• a requirement that the defendant give the property to the sheriff or disclose its location;
• a possible contempt of court if the defendant fails to comply with the order;
• permission for the Sheriff to break into a building that conceals the property (but not a home owned by a third person unless backed by probable cause).

Practically speaking, this requires close attention by the court. It also means that the plaintiff's attorney must properly “tee up” the issues for the judge by submitting a proper proposed order.

Other Legal Standards for Pre-Hearing Attachment

Attachment Orders must include findings required by Minn. Stat. § 570.026. These include findings on the plaintiff's probability of success on the merits of his or her underlying claim (breach of contract, loan default, etc.).

The judge also must address whether:

(1) the circumstances constitute a risk to collectibility of any judgment that may be entered; or
(2)     (i) respondent has raised a defense to the merits of the claimant's claim or has raised a counterclaim in an amount equal to or greater than the claim and the defense or counterclaim is not frivolous; and
         (ii) the interests of the respondent cannot be adequately protected by a bond filed by the claimant pursuant to section 570.041 if property is attached; and
         (iii) the harm suffered by the respondent as a result of seizure would be greater than the harm which would be suffered by the claimant if property is not attached.

Minn. Stat. § 570.26, subd. 3.

Protection of Plaintiff

If the plaintiff makes a proper showing for an attachment but the judge denies it for a reason in clause (2), the court must protect the plaintiff. A “further order” might require the defendant to post a bond, allow plaintiff to inspect the property, or prevent the defendant from transferring the property (or face contempt of court).

If the plaintiff is not likely to win a money judgment, then the judge should not grant a pre-judgment attachment. Nor should an attachment be ordered in the other situations above, including when the defendant has a larger counterclaim.

The plaintiff should be mindful that if his or her application is made in bad faith, the court can award the defendant “actual damages, including reasonable attorney's fees, suffered by reason of seizure of the property.” Therefore, the plaintiff must be confident that he or she will get the emergency (pre-hearing) attachment.

Service of Order

If the judge signs a pre-hearing Attachment Order, the Order must be served on the defendant along with certain notices. Among them is a notice that:

IF YOU DO NOT ATTEND THIS HEARING, THE COURT MAY ORDER THE SHERIFF TO KEEP PROPERTY THAT HAS BEEN SEIZED.

Exemption Notice

Attachment only applies to “non-exempt” property, and the defendant must be notified of his or her rights. Minn. Stat. § 550.37 is a list of common exemptions for individuals (not businesses).The pre-hearing Attachment Order must have a notice stating:

EXEMPTION NOTICE

An order of attachment is being served upon you. Some of your property is exempt and cannot be seized. The following is a list of some of the more common exemptions. It is not complete and is subject to section 550.37, and other state and federal laws. If you have questions about an exemption, you should obtain competent legal advice.

1.  A homestead or the proceeds from the sale of a homestead.
2.  Household furniture, appliances, phonographs, radios, and televisions up to a total current value of $4,500 at the time of attachment.
3.  A manufactured (mobile) home used as your home.
4.  One motor vehicle currently worth less than $2,000 after deducting any security interests.
5.  Farm machinery used by someone principally engaged in farming, or tools, machines, or office furniture used in your business or trade. This exemption is limited to $5,000.
6.  Relief based on need. This includes Minnesota Family Investment Program (MFIP), Emergency Assistance (EA), Work First Program, Supplemental Security Income, Minnesota Supplemental Assistance, and General Assistance.
7.  Social Security benefits.
8.  Unemployment benefits, workers' compensation, or veterans' benefits.
9.  An accident disability or retirement pension or annuity.
10.  Life insurance proceeds or the earnings of your minor child and any child support paid to you.
11.  Money from a claim for damage or destruction of exempt property such as household goods, farm tools, business equipment, a manufactured mobile home, or a car.

This allows the defendant to claim land or personal property as exempt. If the defendant can show the judge that the subject assets are exempt, then there can be no attachment.

Attachment After Notice and a Hearing

If the plaintiff lacks evidence to get an immediate attachment, he or she can still try for a post-hearing attachment. The plaintiff has to get a hearing date, serve notice on the defendant, file motion paperwork, and appear at a hearing.

Under Minn. Stat. § 570.026, the plaintiff must include a motion and an affidavit detailing “(1) the basis and amount of the claim in the civil action; and (2) the facts which constitute one or more of the grounds for attachment as specified in section 570.02.” The plaintiff should also serve the Exemption Notice, which enables the defendant to claim any property as exempt (i.e., protected from attachment and collection).

The judge applies similar standards as the pre-hearing attachment (i.e., the risk of judgment collectibility, counterclaims, the harms to each party).

The judge also must consider the general grounds for attachment listed in Minn. Stat. § 570.02, subd. 1. Basically, these are the circumstances showing the defendant concealed, moved, or will waste the property.

If the judge denies the attachment, the court will issue a written order and the case will proceed without any attachment. The plaintiff will have to wait until after the case to collect on any judgment.

If the judge grants the attachment, the court issues an order and notices similar to those in a pre-hearing attachment. Basically, this means detailed findings, an application of the legal standards for attachment, detailed instructions for the sheriff, temporary protections for the property, and any bond.

Use of Bonds in Attachment Cases

Attachments generally require one of the parties to post a bond.

Bond Posted by Plaintiff

Under Minn. Stat. § 570.041, a judge must require the plaintiff to post a bond of at least $500 when granting an attachment. The bond provides security for the defendant in case the attachment was in bad faith or the defendant wins the underlying case. In those circumstances, the judge could order all or part of the bond to be paid to the defendant. However, the defendant cannot get damages above the bond amount unless the defendant previously made a record of those likely losses.

In considering the amount of the bond, the court looks at:

• the value and nature of the property attached,
• the method of retention or storage of the property,
• the potential harm to the respondent or any party, and
• other factors that the court deems appropriate.

The court can modify the bond amount at any time. The court can also let the plaintiff deposit cash, a letter of credit, a cashier's check, or a certified check as an alternative to a bond.

Practically speaking, a bond means that the plaintiff will have to contact an insurance or bonding company, show them the Attachment Order, provide some financial information, and then pay for the bond (sometimes 10% of the amount of the bond, but can vary greatly depending on the risk to the bond company).

Bond Posted by Defendant

Sometimes, the defendant has to post a bond. This may come up where the plaintiff shows a basis for an attachment, but the judge lets the defendant keep the property free of an attachment lien.

If the plaintiff has valid concerns about the safety of the property, the judge can order the defendant to post a bond. A judge can stay a seizure of property for up to 3 days to allow the defendant to post a bond. Minn. Stat. § 570.026, subd. 5.

A bond posted by the defendant would provide security to the plaintiff if something happened to the property before the case was done. For instance, if the defendant destroyed or moved the asset outside Minnesota, the judge could order the bond paid out to the plaintiff.

The Sheriff “Executes” the Attachment

When a judge issues an Attachment Order, it instructs the Sheriff to seize the property and hold it. The parties can agree on some other method for securing the property; if not, the Sheriff will take it.

Obviously, there are costs involved for the Sheriff's work, and the plaintiff must pay those costs.

Timing

The Sheriff must execute the Attachment Order “without delay.” The Sheriff must attach property “within 90 days” or a different period set by the court. If not, the Attachment Order will terminate.

Once the Sheriff makes a timely attachment of property, the attachment remains effective until satisfied, discharged, or vacated (basically, until the end of the case). Minn. Stat. § 570.061, subd. 1.

Real Estate

When the property at issue is land, it is attached when the Sheriff records a certified copy of the Order and an Attachment Return with a description of the land. Minn. Stat. § 570.061, subd. 2.

The Sheriff must serve a copy of the Order and Return on the defendant.

Once attached, there is a lien on the defendant's interest in the land. The lien date is the filing date of the sheriff's documents with the county recorder or registrar.

The lien might present a problem if the defendant wants to get a mortgage on the property or transfer it.

Personal Property

When the attachment involves personal property, is it attached in a way that is similar to “execution”. Minn. Stat. § 570.061, subd. 3. This means that the Sheriff seizes the property.

If attached, the Sheriff affixes an inventory to the Order that states whether there is any “perishable” property to sell promptly.

The lien date is the date when the property is subject to the sheriff's control. Attachment serves as a lien on the defendant's interest in the personal property. Practically speaking, this may prevent the defendant from transferring the item.

What Happens to Attached Property at the End of the Lawsuit?

If the plaintiff wins on the civil claims in the case, the court will enter a money judgment. The judgment can then be satisfied through the property held by the Sheriff.

Under Minn. Stat. § 570.08, the Sheriff satisfies the judgment by:

first paying to claimant the proceeds of sales of perishable property and of all credits collected by the sheriff, or so much as may be required. If a balance remains due and an execution on the judgment is issued, the sheriff shall sell as much of the attached property as may be necessary to satisfy the balance. The fees and costs of the sheriff shall be deducted before any payment to the claimant.

Here is the basic formula: The Sheriff begins by paying its fees for the attachment. Then, the Sheriff pays the plaintiff any proceeds from the sale of “perishable” property, and any credits the Sheriff collected. Next, the Sheriff sells enough of the attached property to pay off the remaining amount owed to the plaintiff.

The attachment lien is then discharged. For land, there must be a recording to show the final outcome (i.e., an attachment release or discharge or satisfaction). For personal property, the attachment lien can be discharged by an appropriate filing with “any public official” with whom there was an earlier attachment filing. The County Recorder can record an order and release of attachment.

Dealing with Interests of Third Parties

An attachment “lien” raises a question about what “priority” it has over interests of “third parties” (someone other than the plaintiff or defendant).

For example, a bank may have a mortgage on real estate or a secured lien on personal property. This can limit the effectiveness of attachment for a plaintiff. There may be little or no “equity” in the item after considering the creditor's interest. If so, the plaintiff may have wasted time and money to get a small lien. As such, the plaintiff must do his or her homework before targeting a specific asset.

Generally, a recorded mortgage on land will have priority over the attachment lien, as will a perfected interest in personal property. However, if the mortgage or lien is not perfected, the attachment lien could have priority.

The Uniform Commercial Code (UCC) has rules that impact priority of personal property. A buyer of goods may have priority over the attachment lien, as would a seller who is reclaiming goods.

Pre-Judgment Attachment Tips for Creditors

• Before filing a civil lawsuit, do an asset check on the defendant to see if there are any non-exempt assets (and any liens or mortgages on them).

• Monitor the defendant's actions as your dispute escalates. If you see assets being transferred, concealed, or wasted by the defendant, consider a pre-judgment attachment.

• Consider the costs of an attachment. If your claim is small, the cost of an attachment may not be justified.

• Consider the likelihood that you will win on your legal theories in the case. If doubtful, an attachment may not be justified.

• Check whether the defendant will voluntarily agree to protections on the asset, or agree to a third party holding the property pending a final outcome in the case. This could save you money.

• Speak with a Sheriff Deputy in the “Civil Division” in the county where the property is located. A working relationship is necessary. They may have certain policies and expectations that are different than other counties. They will likely rely on you for locating the defendant's assets. So, help the Sheriff out by giving them good information.

• Talk with a lawyer to see if an attachment is attainable in your case and the likely cost. Attachment is a complex legal procedure, so it not recommended for pro se plaintiffs.

Pre-Judgment Attachment Tips for Defendants

• Figure out whether you have any non-exempt assets that the plaintiff could collect. If not, consider making this point to the plaintiff (“there are no assets for you to collect, so don't bother with an attachment or civil lawsuit”).

• Be prepared to defend any allegation that you are trying to delay or defraud a creditor. If you had a reasonable reason for your actions, argue that position.

• Be aware of your timing of any movement of property out of state. While it is possible the creditor will not find or reach that property outside Minnesota (at least, not easily), it could compound the problem and increase the cost of resolving it.

• Appear at any court hearing on an attachment request and voice your concern.

• Require the plaintiff to jump through all procedural “hurdles” to get the attachment. The law has protections for defendants and their property, so take advantage of the procedural protections.

• Do not get aggressive with the Sheriff on any attachment issues. They are simply following the judge's instructions. Generally, your arguments should be directed to the opposing party, opposing attorney, or the judge.

• If a third party has a lien or interest in the property, let the third person know. If they voice their opposition, the plaintiff may focus on another asset or may not pursue an attachment at all.

• Consider whether to post bond and avoid the attachment on the property at issue.

• If an attachment is issued, make sure it is discharged at the end of the case. You wouldn't want an unnecessary lien sticking to your land or personal property.

Conclusion

Pre-judgment attachments allow an unsecured creditor to preserve collectible property while pursuing a judgment. However, the creditor must have enough evidence to support the attachment and be aware of the costs.

Attachments are an obvious risk to defendants that depend on the “attached” asset to generate income or for other purposes. While they can post a bond to have continuing possession of the asset, bonds are not a cheap alternative. Often, the best option is to defend the plaintiff's initial motion for an attachment.

Because attachments are a technical legal remedy that can have high stakes for parties, it is advisable for an attorney to pursue the remedy and appear before a judge.

If you need legal advice or representation for a pre-judgment attachment or related civil lawsuit, Contact Us for a free consultation. With offices in Shakopee (Scott County) and Litchfield (Meeker County), we serve clients throughout the Twin Cities and Greater Minnesota.