Old Judgments Can Come Back to Bite You – Hazards of Defaulting on Promissory Notes

A recent case from the Connecticut Supreme Court serves as a reminder that civil judgments are good for 20 or 25 years in Connecticut depending on how you seek to enforce the judgment.  The decision was in the case of Investment Associates v. Summit Associates, et al.  In this case, a debtor failed to pay on a promissory note and left a balance of about $272,000.00. The note holder sued in state court to collect on the note.  The debtor defended the case but moved to another state.  However, the plaintiff note holder ultimately prevailed obtaining a judgment in the outstanding amount.

The plaintiff brought the lawsuit in 1991 and obtained judgment in 1994.  The defendant left the state in 1992.  15 years after obtaining the judgment, the plaintiff moved to revive the old judgment in Connecticut.  Under Connecticut General Statutes 52-598 (c), the judgment remained valid.  The Court noted that the Connecticut legislature wanted to address situations where a defendant could avoid a Connecticut judgment by moving to a state that had a shorter time period for enforcing judgments.  In this case, the defendant left to South Carolina which had a ten year statute. 

Many business owners believe that if they have no assets and no cash they are "judgment proof." This means that even if they lose a lawsuit, there will be no cash or assets available to pay the judgment.   The old saying goes that you cannot get blood from a stone.  However, this case serves as a reminder that to remain judgment proof in Connecticut, your stone cannot have blood for 20 to 25 years.  

Connecticut State Court Judges Adopt Electronic Discovery Rules

Connecticut state court judges recently adopted new electronic discovery rules.  The rules will become part of the Connecticut Practice Book for civil discovery and take effect on January 2, 2012.  

The judges present at the annual meeting unanimously adopted the new electronic discovery rules. You can read the new e-discovery rules here.  I removed the sections not relevant to civil cases.  The new rules or modifications are indicated by the underlined portions of the rule. 

Here is a quick hit list, and my brief commentary, of the new e-discovery rules in Connecticut state courts:

  • Definitions of electronic and electronically stored information (ESI) added to the list of definitions.  The new definitions are intentionally broad to adapt to new technology changes.
  • Grounds to move for a protective order in discovery include the terms and conditions of discovery of ESI and the allocation of costs between the parties.  This rule permits the court to take into account a series of factors in fashioning a protective order and cost shifting for discovery of ESI.
  • Litigants should be disclosing ESI that is readily accessible and likely to lead to the discovery of admissible evidence.  This basically clarifies that reasonably accessible ESI is no different than other types of discovery. 
  • Whether a litigant needs to disclose ESI that is not reasonably accessible will depend on a variety of factors that the court may consider. 
  • Court can shift the costs of production for ESI.
  • ESI added to the list of information a party can demand to inspect.
  • Safe harbor from sanctions for not only ESI, but all information, that is lost if the information is lost as the result of routine, good faith operation of a system or process in the absence of showing of intentional actions designed to avoid known discovery obligations.  This rule is based on the federal rule 37(f) safe harbor and the commentary indicates that good faith may require a party to stop or intervene a routine destruction policy.
  • Claw back provisions permit a party to notify an opponent of inadvertently disclosed privileged information.  There is a procedure the party must follow upon receipt of the notice.  The rule does not address issues of waiver of privilege by the inadvertent disclosure. 

Until Connecticut courts interpret these provisions, a good resource for attorneys may be found in the commentary to the rules.  Additionally, the new rules are based on  the Uniform Rules Relating to the Discovery of ESI adopted by the National Conference of Commissioners on Uniform State Laws in 2007.  There are various courts in other states that have interpreted these rules. 

Connecticut Civil Procedure – A Law Clerk’s Perspective

Corey Dennis, a former Superior Court clerk in Connecticut, sent me an article he recently published on Connecticut civil procedure.  I am posting the article,  "Roadmap to Connecticut Procedure" (download here), with the permission of the Connecticut Bar Journal and Corey.  The article brings the perspective of a Law Clerk who was involved with the procedural aspects of the Connecticut Superior Court on a regular basis. It is a nice summary of the basics of early motion practice in Connecticut state courts.   The article also has a useful chart on distinctions between state and federal procedure in a few important areas.  Corey practices complex litigation and dispute resolution at Governo Law Firm in Boston, MA.

Complex Litigation Docket For Business Disputes In Connecticut

The Complex Litigation Docket or “CLD” is a special session of the Connecticut Superior Court  designed to accommodate the needs of complex cases.  The Judicial Branch published a fact sheet about the CLD.   Here is a summary of the CLD facts:

  • Designed for cases with intricate legal issues, multiple parties, or significant damages;
  • A single judge is assigned over all aspects of the case, similar to federal court;
  • Assignment of hearing dates for motions instead of the standard "short calendar" sessions;
  • Judges and court officers fully supported by staff with newer technology; and
  • Enhanced use of court-annexed mediation, include special masters.

Any party, or a judge, may request a transfer of a case from the regular Superior Court docket to the CLD.  A request is made by filling out and submitting an application.  Any objection must be filed within 15 days.  The Chief Administrative Judge of the Civil Division handles the request, and a hearing may be held to determine if referral to the CLD is appropriate.  The determination for placement on the CLD is made by an evaluation of several factors listed on the fact sheet.

For many business dispute or commercial cases, the CLD may be an appropriate venue rather than the regular docket.   The CLD is more akin to the federal court.  The benefits of a single judge assignment can be significant as it reduces delays in discovery and motion practice.  The CLD judges have standing orders designed to streamline the process.  Each case is also assigned a court officer who remains involved in the scheduling and administrative process.  In this way, cases are actively managed. 

The CLD also affords an opportunity to change venue in a case.  If your case is in a venue that you deem unfavorable to your case or client, one of three CLD venues (Hartford, Stamford, Waterbury) may be preferable.  You can request a particular venue when applying for the CLD, but there is no certainty that the request for a specific location will be granted.  Nevertheless, any one of the three venues may be preferable to others venues.

Although there are many upsides to the CLD, there are some reasons to stay on the regular docket.  For example, trial dates on the CLD are currently being scheduled 2 to 3 years out from assignment.  Although CLD trial dates are less likely to be continued than dates on the regular docket, CLD cases can take longer to arrive at resolution, especially if trial is necessary.   Also, there can be some gamesmanship involved with referrals to the CLD.  I have seen litigants applying to the CLD simply to delay the proceedings on the regular docket.  There is also a $325.00 fee for the docket.

In most significant business disputes or commercial litigation cases, the advantages available on the CLD, such as the single judge assignment,  may make the CLD the preferable venue. 

 

Did A Secretary Cause A Billion Dollar Default Judgment Against PepsiCo?

Imagine your company is so busy preparing for a board meeting that a secretary sets aside paperwork from a recently served lawsuit for a billion dollars over trade secrets.  Imagine further that your company bureaucracy fails to put it together that a lawsuit has been filed until such a time that your company becomes defaulted in the case, to the tune of $1.26 billion dollars.  Ouch. 

Well, that is exactly what happened at PepsiCo according to a report by Lynne Marek in the National Law Journal.  According to the story, PepsiCo for various reasons, failed to realize a lawsuit had been filed or a motion for default until it was too late.  The case involved allegations that PepsiCo stole trade secrets and ideas for Aqaufina from two Wisconsin men.  When the suit went unnoticed,  a Wisconsin state court judge granted a motion for default against PepsiCo.

Marek writes that PepsiCo is trying to undo the damage and vacate the default.  Perhaps PepsiCo can vacate the default, but if not, it is a devastating blow in litigation to lose your liability defenses. By all accounts PepsiCo indicates the lawsuit is questionable suggesting numerous defenses exist.  Unfortunately, it appears there is a chance they may never get to assert the defenses.

In Connecticut, if you are defaulted for failing to respond to a lawsuit and a default judgment enters against you, you also can lose the ability to defend against the allegations in the complaint.  If you further fail to appear in the case before the court determines the amount of damages (usually at a hearing), then you may also lose your ability to defend against damages claims. Of course, there are various ways to avoid a default judgment (such as filing an appearance before judgment enters), but if a lawsuit is ignored too long, you could face a similar fate as PepsiCo.

To avoid the PepsiCo disaster, Connecticut businesses should have a policy in place to handle all matters related to litigation or lawsuits.  A business should designate one person that all staff can refer litigation issues, lawsuit papers or any other documents.  Lawsuits should be given immediate attention so as to not miss any deadlines. 

In state court, deadlines can determined from civil summons or cover page of the lawsuit. 

  • A defendant has to file an appearance within 2 days of the return date listed on the civil summons
  • A defendant also has 30 days from the return date to file a responsive pleading to the complaint . 

These deadlines should not be ignored.  Although there are methods for vacating a default, even a frivolous lawsuit can end in a judgment if ignored for too long.

Withdrawn Negligence Defense In Rape Case Could Still Be A Problem

After making national news, Stamford Marriott Hotel & Spa has requested that its attorneys withdraw a special defense in a case involving a rape in its hotel parking garage. 

In 2006, a 40 year old woman was sexually assaulted in front of her two small children in the hotel’s garage.  The assailant admitted the crime and was sentenced to prison.  As such, the rape was not in dispute.  The woman later sued and brought a complaint against the Marriott alleging various allegations of negligence. 

As detailed by Christian Nolan of The Connecticut Law Tribune, the attorneys representing Marriott raised two special defenses to the woman’s complaint that caused a public backlash against Marriott.  Reportedly, Marriott’s defenses included contributory negligence of the rape victim and failure to mitigate damages for the children. 

Marriott quickly changed its course and withdrew the defenses.   Marriott’s withdrawal of the defenses may spare it further public relations problems, but the potential for an angry jury at trial could remain a problem. 

At least one Connecticut attorney estimated that a jury might very well award a premium for that type of defense if pursued at trial and not proved.  Although Marriott has now withdrawn the defenses, it could still become a problem at trial based on Connecticut law concerning withdrawn pleadings. 

In Connecticut, withdrawn pleadings are no longer judicial admissions by the party, but they can remain available at trial as an evidentiary admission.   If this matter goes to trial, Marriott will have various ways to argue against admissibility of the pleading, but the initial defenses could still wind up in front of a jury as an evidentiary admission.  Once in evidence, Marriott should get the chance to explain the circumstances of raising the defenses, which may help mitigate any damage done.

In high exposure cases, the decision to raise certain special defenses is not always easy or a formality as in some jurisdictions.  In Marriott’s case, although it seems difficult to understand why the defenses were raised, we should not automatically assume there was no basis for it without knowing the full details.    Nevertheless, it appears Marriott did the right thing in withdrawing the defenses.

The rule on withdrawn pleadings serves as a reminder that withdrawing a claim in a pleading will not always prevent your opponent from using it against you in court.  As such, in Connecticut, business owners will want to consider the contents of certain pleadings filed in court because the pleadings could be used against the business as an admission. 

Connecticut State Court To Phase In Mandatory E Filing

The Connecticut Judicial Branch will implement mandatory electronic filing in Connecticut state superior courts in all civil cases by December 5, 2009.  The Judicial Branch is also going paperless for short calendar and notices will no longer be sent by paper in the mail (unless the firm or litigant is exempt) starting September 1, 2009.

The mandatory e-filing will be implemented in phases as follows:

E-filing will be available in all remaining civil cases (with few exceptions) starting August 22, 2009.

E-filing is mandatory in all foreclosure cases starting September 1, 2009.

E-filing is mandatory in all remaining civil cases starting December 5, 2009.

Law firms and attorneys can receive e-filing training in each judicial district.

E-filing will be mandatory starting December in Connecticut in both state superior and federal district courts unless a law firm or litigant qualifies for an exemption.