Lesson. A bank’s records of a non-party to litigation can be subpoenaed in post-judgment collection proceedings if the document request is reasonably calculated to lead to the discovery of concealed or fraudulently transferred assets.
Legal issue. Whether a judgment creditor could obtain the bank records of a non-party in post-judgment collection proceedings.
Vital facts. The Allstate opinion followed the entry of a 460k judgment that Defendant health care providers failed to pay. Plaintiff claimed that Defendants improperly transferred patients to Non-Party provider and that those patients “were then to be billed using the name of a separate entity apparently to avoid detection by [Plaintiff].” Thus, there was a perceived financial relationship between Defendants and Non-Party in which Defendants were transferring assets to avoid collection. In order to investigate the theory further, Plaintiff subpoenaed the bank records of Non-Party.
Procedural history. Non-party moved to quash the subpoena.
Key rules. Allstate was a federal court action, so the federal rules of procedure applied. The Court noted that Rule 69(a)(2) expressly provides that a judgment creditor "may obtain discovery from any person" to aid in execution of a judgment. This applies to discovery to non-parties too. See also, Indiana Trial Rule 69(E).
Indiana federal case law interprets Rule 69 to allow “a judgment creditor to obtain discovery on ‘information relating to past financial transactions which could reasonably lead to the discovery of concealed or fraudulently transferred assets.’”
Discovery to non-parties “may be permitted where [the] relationship between judgment debtor and nonparty is sufficient to raise a reasonable doubt about bona fides or transfer of assets.”
The Court cited the following test for subjecting third parties (aka non-parties) to discovery: “. . . so long as the judgment creditor provides 'some showing of the relationship that exists between the judgment debtor and the third party from which the court . . . can determine whether the examination has a basis.'”
However, a judgment creditor must keep its inquiry “pertinent to the goal of discovering concealed assets of the judgment debtor and not be allowed to become a means of harassment of the debtor or third persons.”
Holding. The trial court denied the motion to quash and ordered Non-Party’s bank to provide the responsive materials.
Policy/rationale. Non-Party contended that the records were irrelevant and beyond the reach of discovery. Non-Party’s main theory was that it had not been sued by Plaintiff and that Plaintiff had not claimed Non-Party was a part of any conspiracy. The Court disagreed and concluded that the subpoena was “an entirely reasonable and appropriate attempt to obtain discovery in support of [Plaintiff’s] efforts to collect on its judgment . . . .” The Court’s rationale was that Plaintiff met the “reasonable doubt” standard by presenting evidence in the form of emails that indicated Defendants may have fraudulently transferred its patients to Non-Party to evade Plaintiff’s collection efforts.
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Part of my practice involves representing parties in post-judgment collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.