Mechanics Of Assignment Orders Illuminated In Optronics Technologies

An assignment order is a post-judgment enforcement remedy that causes some asset (usually a right to an income stream such as royalties) to be assigned from the debtor to the creditor, so that the creditor receives the income stream until the judgment has been paid in full. Think of it as a remedy for future assets: If an asset is to come into existence in the future, then the rights to that asset can be diverted by the Court to the creditor. By contrast, if the asset already exists, then the creditor can simply levy on the asset, and have it seized and liquidated.

Optronics Technologies, Inc. (called "Orion" for whatever reason), held a judgment in California against Ningbo Sunny Electronic Co., Limited. To enforce its judgment, Orion obtained an assignment order in the requiring payments Ningbo to assign to Orion its payment rights, including accounts receivable, etc., from a number of third-parties who were not a party to the Orion-Ningbo lawsuit, including Celestron Acquisition which unsuccessfully objected to the motion.

Shortly thereafter, Celestron Acquisition asked the Court to clarify whether the assignment order applied to Celestron Global, which was a wholly-owned subsidiary of Celestron Acquisition. The Court held that because it did not have personal jurisdiction over Celestron Global, which was not a party to the lawsuit, the Court could not compel Celestron Global to pay Orion instead of Ningbo, but it could (and did) order Ningbo to assign its payment rights from Celestron Global to Orion.

Orion then asked the Court to clarify whether the assignment order meant that Orion now owned the property in the possession of Celestron Global (and, by implication, other third-parties which owned Ningbo as well).

The Court replied to Orion in the negative. The Court stated that because it had no power to force non-parties to the lawsuit to do anything, the Court did not have the power to directly affect the title to the property that was in possession of these third-parties. Because the Court did not have personal jurisdiction over Celestron Global, it could not order Celestron Global to do anything. But assuming arguendo if the Court did have personal jurisdiction of Celestron Global, then the Court could have enforced the assignment order by holding Celestron Global in contempt had it not obeyed the assignment order.

During the course of the briefing of this issue, Celestron Global apparently argued that unless Ningbo itself assigned the property due to Ningbo to Orion, then Celestron Global was not required to honor the assignment order. The Court answered that this result was wrong as well, that the assignment order itself caused Ningbo's assignment of its rights to payment to Orion without Ningbo having to take any further action. However, the Court again reiterated that, lacking personal jurisdiction over Celestron Global, it could not force Celestron Global to do anything.

Finally, the Court also stated that the assignment order certainly applied to Ningbo, and that if Ningbo failed to take whatever action was necessary under the assignment order, including turning over any assets that it received which was covered by the assignment order, then Ningbo would potentially be subject to contempt.

ANALYSIS

While these may seem like esoteric points, they are very important in post-judgment enforcement actions. The most important point is that the Court which issued the judgment always retains personal jurisdiction over the debtor until the case is closed, no matter what else happens later. Thus, if a person appears and defends an action, and then after suffering an adverse judgment takes off for Siberia, the Court continues to maintain personal jurisdiction over that debtor no matter where he, she or it is anywhere in the world.

By contrast, other persons who were not a party to the case but simply hold assets of the debtor or themselves owe a debt to the debtor, are not subject to the Court's personal jurisdiction unless something happens to drag them into that personal jurisdiction. For example, the very purpose of voidable transaction lawsuits is to bring the third-party transferee within the personal jurisdiction of the Court so that a fraudulent transfer of title can be reversed. So-called "creditor's suits" exists so that the possessor of assets titled in the name of the debtor can likewise be brought within the ambit of the Court's personal jurisdiction.

But voidable transactions lawsuits and creditor's suits are extraordinary remedies, because a third-party is now being significantly bothered by the Court, and not the norm in post-judgment enforcement. Most of the time, the Court exercises what amount to jurisdiction only against the debtor's property itself (known by the legalese jurisdiction in rem). Thus, when the local sheriff is trotted out to serve a Writ of Levy or Writ of Garnishment, etc., on the debtor's property, the Court is then exercising a combination of personal jurisdiction over the debtor and jurisdiction in rem over the debtor's property.

An assignment order is an order directed at the debtor and which has the effect of assigning some asset to the debtor. If the debtor violates the assignment order, such as by either thwarting the assignment or taking the asset without promptly turning it over to the creditor, then the debtor can be guilty of contempt and punished accordingly.

However, an assignment order is not a process for bringing the third-party payor within the personal jurisdiction of the Court, and ⸺ as illustrated here ⸺ if the third-party doesn't comply with the assignment order then there is not much that the Court can do about it.

Yet, this does not mean that the third-party can act willy-nilly in simply ignoring the assignment order. If the third-party doesn't pay what is owed to the debtor, then the creditor can sue the third-party for payment just as the debtor could have done ⸺ this is a consequence of the assignment order which effectively lets the creditor "step into the debtor's shoes" for purposes of payment. In the event that the third-party is sued by the creditor, then the creditor is brought within the personal jurisdiction of the Court and the Court can take appropriate action against the third-party. But this assumes that the third-party is within the long-arm personal jurisdiction of the Court.

Consider the situation where a California creditor sues a California debtor and obtains a judgment against a third-party in Singapore which negotiated its contract with the California debtor in Singapore and has utterly no other minimum contacts with California. In that case, the creditor could not bring a lawsuit against the Singapore third-party because the latter is not within California's long-arm personal jurisdiction. Instead, the creditor would literally have to go to Singapore and sue the third-party there.

However, in that same hypothetical, assume that the Singapore company simply ignored the assignment order and paid the California debtor in Singapore: In that instance, the California debtor would have to immediately turn over the payment to the California creditor, or else face contempt for violating the California assignment order before the California Court.

Which is all to say that one of the purposes of an assignment order is to keep the debtor from having access to the future revenue steam, even if that income stream cannot be forced to be paid to the creditor because of personal jurisdiction issues. In business litigation, this can be a very powerful tool because depriving the debtor of income can bring the debtor to its financial knees sooner or later (charging orders for partnership and LLC interests have a very similar effect).

So, the issues discussed in this case may appear at first glance to be somewhat esoteric, but they are actually very fundamental issues that must be deeply understood by those who engage in post-judgment enforcement or who contingency plan for those scenarios.

CITE AS

Optronics Technologies, Inc. v. Ningbo Sunny Electronic Co., 2020 WL 2306531 (N.D.Cal., May 8, 2020). Full Opinion at