Freezing Assets Before Judgment: Attachment, Garnishment and Sequestration in Texas

The rule first: no general asset freeze

The instinct is understandable. A customer owes a large balance, has stopped answering, and a truck is seen loading equipment at its warehouse. Why not ask the court to freeze everything until the case is over? Because Texas law does not allow it. A plaintiff with an ordinary claim for money has no right to tie up the defendant's property before judgment simply to make sure the judgment can be collected. The same is true in federal court, which borrows the state's prejudgment remedies under Fed. R. Civ. P. 64 and otherwise lacks general power to freeze assets in a suit for money damages.

What Texas provides instead is a set of statutory remedies, each aimed at a specific risk: attachment, garnishment, sequestration, receivership, and injunctions over property that is itself the subject of the suit. Every one of them requires sworn facts fitting the statute, a court order, and a bond that protects the defendant if the remedy turns out to have been wrongful. Used correctly they are powerful. Used loosely they expose the plaintiff to damages.

Attachment: Chapter 61

A writ of attachment directs the sheriff or constable to seize the defendant's non-exempt property and hold it pending judgment. Section 61.001 of the Civil Practice and Remedies Code sets the general grounds: the defendant is justly indebted to the plaintiff, the attachment is not sought to injure or harass the defendant, the plaintiff will probably lose the debt unless the writ issues, and one of the specific grounds in Section 61.002 exists. Those specific grounds are:

1. the defendant is not a resident of Texas, or is a foreign corporation or acting as one;
2. the defendant is about to move permanently out of Texas and has refused to pay or secure the debt;
3. the defendant is in hiding so that ordinary process cannot be served;
4. the defendant has hidden property, or is about to, to defraud creditors;
5. the defendant is about to remove property from Texas without leaving enough to pay its debts;
6. the defendant is about to remove some or all of its property from the county where suit is filed with intent to defraud creditors;
7. the defendant has disposed of property, or is about to, with intent to defraud creditors;
8. the defendant is about to convert property into money to place it beyond the reach of creditors; or
9. the debt is for property obtained under false pretenses.

The application must be supported by an affidavit stating specific facts, not conclusions, and Texas Rule of Civil Procedure 592 requires a written court order after a hearing, which may be held without notice to the defendant. Under Section 61.023 the plaintiff must post a bond with sufficient sureties, payable to the defendant, in an amount fixed by the judge, conditioned on prosecuting the suit to effect and paying any damages and costs awarded for wrongful attachment. The defendant can recover the property by posting a replevy bond and can move to dissolve or modify the writ, which the court must hear promptly; at that hearing the plaintiff bears the burden of proving the grounds.

Prejudgment garnishment: Chapter 63

Garnishment reaches property of the defendant held by a third party, most often a bank account. Section 63.001 allows a writ in three situations: when an original attachment has issued; when the plaintiff sues for a debt and files an affidavit stating that the debt is just, due and unpaid, that within the plaintiff's knowledge the defendant does not possess property in Texas subject to execution sufficient to satisfy the debt, and that the garnishment is not sought to injure the defendant or the garnishee; and after judgment, on an affidavit that the defendant lacks sufficient Texas property subject to execution to satisfy it.

The second ground is the prejudgment one, and it is narrower than it looks. The plaintiff must swear to a debt, meaning a liquidated, ascertainable amount, not a claim for unliquidated damages. The plaintiff must also swear that the defendant lacks sufficient property in Texas subject to execution, which is a statement about the defendant's assets that the plaintiff must have a basis to make. Under Rule 658 the writ issues only on a court order after a hearing, with a bond set by the court. Once served, the garnishee (the bank) must hold the funds and answer. The defendant can replevy and can move to dissolve. A garnishment that was wrongful exposes the plaintiff to damages, which is why banks and courts treat the affidavit seriously.

Post-judgment garnishment, the third ground, is far more common and is the ordinary way a judgment creditor reaches a bank account. How a judgment is collected in Texas covers it.

Sequestration: Chapter 62

Sequestration is for suits about specific property, not for money claims. Section 62.001 allows a writ when the suit is for title to or possession of personal property, fixtures or real property, and there is reason to believe the defendant will conceal, dispose of, waste, remove or injure the property during the suit; when the suit is to foreclose a mortgage or lien on the property; or when the suit seeks to recover the property. The writ places the property in the officer's custody until the court decides who is entitled to it. As with attachment, the application is sworn, the writ issues on a court order after a hearing, and a bond is required. Sequestration fits a dispute over equipment subject to a security interest, a vehicle, inventory delivered on consignment, or property the plaintiff claims was taken from it.

Injunctions over specific property

A temporary restraining order or temporary injunction under Rules 680 through 684 can prevent a defendant from transferring or dissipating specific property or funds that are the subject of the suit. The limit is the word specific. A court can order a partner not to move money out of a disputed partnership account, a defendant not to sell the real estate the plaintiff claims an interest in, or a former employee not to transfer stock that the company says was obtained by fraud. A court will not enjoin a defendant from spending its money generally so that a plaintiff's unliquidated damages claim can be paid later.

Fraud and fiduciary cases often fit this remedy because the plaintiff can trace particular funds and seek a constructive trust over them. Recovering stolen business assets through constructive trusts and tracing explains the tracing requirement, and emergency relief in Texas business cases covers the TRO and temporary injunction procedure, including the bond Rule 684 requires.

Receivership: Section 64.001

A receiver takes control of property or a business under court supervision. Section 64.001 allows appointment, among other situations, in an action by a creditor to subject any property or fund to the creditor's claim, in an action between partners or others jointly owning or interested in property or a fund, and for a corporation that is insolvent, in imminent danger of insolvency, dissolved, or has forfeited its corporate rights. In the creditor and co-owner situations, the applicant must show a probable interest in or right to the property or fund and that it is in danger of being lost, removed or materially injured. Receivership is drastic and expensive, because the receiver is paid from the property, and courts grant it only when lesser remedies will not protect the asset. Asking a court to appoint a receiver or dissolve a company covers its use in owner disputes.

Two related tools

If the defendant has already transferred assets to insiders or for less than fair value, the Texas Uniform Fraudulent Transfer Act, Chapter 24 of the Business and Commerce Code, allows a creditor to seek avoidance of the transfer and, under Section 24.008, an attachment against the transferred asset, an injunction against further disposition, or a receiver. If the dispute concerns real property, a notice of lis pendens recorded in the county clerk's records warns buyers and lenders that title is in litigation, without a bond, though it is available only when the suit itself involves title to or an interest in the property. Lis pendens in Texas explains the limits.

What these remedies cost and risk

• The bond. Every writ requires one, in an amount the court sets to protect the defendant. For a large claim the premium or cash is a real cost that must be weighed against the collection risk.
• Wrongful remedy liability. A plaintiff who obtains a writ on grounds that prove false is liable for the defendant's damages, including lost business from a frozen account, and in some cases attorney's fees.
• Strict compliance. The affidavit must state facts within the affiant's knowledge, the writ must match the statute, and the bond must be in place before the writ issues. Courts dissolve writs for technical defects.
• Speed and secrecy. The hearing can be ex parte, and the writ is often served before the defendant knows of the suit. That advantage disappears if the application is delayed.
• Retaliation. A defendant whose account is frozen fights harder. The remedy should be reserved for cases where the collection risk is real and documented.

Example

Suppose a Dallas equipment lessor is owed a fixed balance under a lease by a company that has listed its building for sale, moved its bank accounts to an out-of-state bank, and told a vendor it is relocating to Oklahoma. The debt is liquidated. The facts fit attachment ground two (about to move permanently out of Texas and refusing to pay or secure the debt) and ground five (about to remove property from the state without leaving enough to pay its debts), and the lessor can swear to them from the listing, the vendor's statement and the lease. With a sworn application, a hearing and a bond, the lessor can attach the equipment and the building's sale proceeds before judgment. Had the company simply disputed the invoice and kept operating in Dallas, none of the grounds would exist and the lessor's remedy would be an ordinary suit followed by post-judgment collection.

Tina Wysk pursues and defends prejudgment remedies in Dallas state and federal courts, including attachment and garnishment applications and injunctions over disputed funds in partnership and fraud cases.