United States – Texas
Below is a brief summary on Texas’ treatment of freezing orders, otherwise known in the United States as prejudgment attachments. Prejudgment attachment is a provisional remedy that allows for seizure of a defendant’s property prior to judgment. This ensures that a plaintiff successful on the merits may recover the amount owed by the defendant.
Note: Federal Courts only allow for prejudgment attachment to the extent that applicable state statutes allow it.
1. Are freezing orders (or their equivalent referred to below) available in civil legal proceedings in this jurisdiction and what is their effect?
Yes. The defendant/respondent is prohibited from dealing with the assets referred to in the attachment/garnishment until final adjudication at trial, arbitration, or further order of the Court. Attachment applies to property in the possession of the defendant. Garnishment applies to property held by third parties. As is true elsewhere in the United States, prejudgment remedies such as attachment and garnishment are dictated by state law, regardless of whether the action is brought in state or federal Court.
2. Are other interim orders commonly made in conjunction with a freezing (or equivalent) order?
No.
3. Briefly what is the relevant legal test?
For an attachment to issue the plaintiff must show that:
(i) the defendant is justly indebted to the plaintiff;
(ii) the attachment is not sought for the purposes of harassing or injuring the defendant;
(iii) the plaintiff would probably be unable to recover on the ultimate judgment unless the attachment issues; and
(iv) at least one of the statutory risk factors is found (for example, the defendant is a non-resident of Texas, is in hiding to avoid service, or is moving or disposing of property to avoid creditors). A statutory exception permits attachment based on tort claims where the defendant is not a Texas resident.
A garnishment requires that an attachment has issued or proof that:
(i) the debt is just, due, and remains unpaid;
(ii) to the plaintiff’s knowledge, the defendant does not possess property in Texas sufficient to pay the debt; and
(iii) the garnishment is not sought to injure the defendant or the garnishee.
4. Briefly what is the process for obtaining a freezing (or equivalent) order?
The applicant makes an application to the Court that includes an affidavit setting out the reasons for the application and the basis on which the relevant test is met. The application can be made at the time the complaint is filed or any time during the pendency of the lawsuit. An application can be made on or without notice to the defendant.
5. Does the applicant have to provide any form of security or commit to compensation if its claim is ultimately unsuccessful and any freezing (or equivalent) order granted causes loss and damage to the respondent?
Yes. The applicant must provide a bond payable to the defendant in an amount fixed by the Court to recompense the defendant for any damages arising from wrongful attachment or garnishment. The bond must name at least two sufficient sureties.
6. Can it be sought against third parties?
Yes. When the defendant’s property is in the possession of a third party, the plaintiff may levy on that property by giving notice to that third party through the garnishment process. The plaintiff cannot disturb the third party’s right to possession. Notice effectively impounds the property so it can be seized when the third party’s possession ends.
7. What assets are covered by a freezing (or equivalent) order?
The defendant’s real and personal property may be attached/garnished to the extent they are located within Texas and are not exempt from attachment (see #11 below).
8. Can a freezing (or equivalent) order be made in support of substantive proceedings abroad?
No.
9. Can a freezing (or equivalent) order be made in support of arbitration proceedings or awards?
Yes.
10. At what stage of proceedings can a freezing (or equivalent) order be sought?
At any stage during the pendency of the underlying action from the filing of the complaint until the rendering of judgment.
11. Are there typically any exceptions to the general prohibition on the respondent’s use of assets subject to a freezing (or equivalent) order?
Yes. Property exempt from attachment/garnishment includes property below a threshold value, current wages, certain retirement income, and insurance benefits.
12. What happens after a freezing (or equivalent) order is granted?
After the application is made, a hearing is conducted, which may occur without the presence of the defendant or garnishee. If the application is granted, the plaintiff must post the necessary bond. Once the bond is posted, the writ issues.
Writs of attachment are served by the levying officer, which levies the property described in the writ, and files a return of writ describing what actions he or she took to secure the property.
Writs of garnishment require the garnishee to respond to the Court within a specific time, confirming the property of the defendant in their possession. Such property is impounded in the garnishee’s custody.
13. Who pays the costs of the application for a freezing (or equivalent) order?
The applicant pays the costs. If the applicant prevails in the underlying suit, those costs may be recovered.
14. What protections are there typically in a freezing (or equivalent) order for third parties to such orders?
A garnishee who is also a creditor of the defendant has a right to set off the amount of such indebtedness. If the garnishee has no knowledge of defendant’s interest, the garnishee is not liable for transferring the property.
15. What are the consequences of breach of a freezing (or equivalent) order?
A defendant who disobeys an attachment may be held in contempt of Court and may be imprisoned, fined or have their assets seized.
A garnishee may be held liable for the amount of any transfer it conducts in violation of the garnishment order.
16. Does a third party notified of (but not a party to) a freezing (or equivalent) order owe a duty of care to the applicant (meaning it can be liable to the applicant for non-compliance)?
Once a garnishee has been served with the writ of garnishment, a garnishee may be held liable to the applicant for any transfer of the defendant’s assets the garnishee conducts in violation of the garnishment order.
17. Can a freezing (or equivalent) order be enforced abroad?
No.
18. Can freezing (or equivalent) orders from overseas jurisdictions be enforced in this jurisdiction?
No.
Contacts
William O’Brien Partner – Head of Cross-Border Litigation & International Commercial Arbitration Eversheds Sutherland Washington, DC, United States williamobrien@eversheds-sutherland.us www.eversheds-sutherland.com Kymberly Kochis Partner – Co-Head of Global Litigation Co-Head of Insurance Litigation and Class Action groups Eversheds Sutherland New York, United States kymberlykochis@eversheds-sutherland.us www.eversheds-sutherland.com Francis X. Nolan IV Partner Eversheds Sutherland New York, United States franknolan@eversheds-sutherland.us www.eversheds-sutherland.com
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