Small Business’s Assets Are Protected Best By Local Banks

Most small-business owners in Massachusetts understandably maintain accounts at nationally recognized and reputable banks. However, clever business litigation lawyers would suggest small- businesses avoid these types of accounts. During litigation, both parties focus on winning arguments and having courts rule in their favor. Unfortunately, lawyers who have experience winning judgments quickly learn that winning a case means very little if funds cannot be collected from the losing party.

Authority of State Courts

A state court only has the authority to determine matters within its jurisdiction. If your business is found liable and an opposing party is awarded damages, the typical next step would be the filing of a motion to force your business’s bank to seize your account and use the funds towards paying the judgment (known as “trustee process” in Massachusetts). Most businesses have an account at your typical well-known bank with branches in every state. This means that any state court has the authority to subpoena that bank to freeze/seize your business funds.

Savvy Massachusetts business owners who do not have offices or assets located outside of Massachusetts can provide a buffer between themselves and outside state judgments if they have kept their assets in a bank operating exclusively within Massachusetts. A state court outside Massachusetts has no authority over a bank located exclusively in Massachusetts.

The process required for an out-of-state judgment creditor to obtain an executed “foreign judgment” from a Massachusetts court is time-consuming and expensive. Unlike other states, Massachusetts has not yet adopted the Uniform Foreign Judgment Act. Therefore, after obtaining a judgment, a plaintiff would have to hire a Massachusetts attorney to initiate a new case in Massachusetts Court (an ancillary action). The small-business defendant then has a chance to defend itself locally while the out-of-state plaintiff must pay out-of-state court costs.

Obstacles to Collection

However, the existence of the ancillary action process is a deterrent to litigation instead of a true source of protection. There are only a few defenses that a defendant is permitted to use in order avoid the execution (or full faith and credit) of another state’s judgment in Massachusetts. These include whether the foreign state had jurisdiction over the defendant, whether the defendant was properly served, and whether enforcing the judgment would violate Massachusetts public policy. Nevertheless, putting obstacles in the way of a potential plaintiff can make a big difference. Legal bills add up quickly for plaintiffs and the effort and expense of chasing down a judgment often deters litigation.

Small-business owners should do everything in their power to limit liability even if the measures are not iron-clad. One lawsuit can be enough to destroy a small-business. The bank account strategy outlined above is especially useful if your small-business sells products online and does not have any assets outside of Massachusetts. If you are a small to medium-sized business in Massachusetts looking to limit your liability and protect your business, the experienced Business Law and Business Litigation attorneys at The Jacobs Law can help. Contact us at 1-800-652-4783 or email ContactUs@TheJacobsLaw.com.

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