A levy is a vehicle used by creditors to make a one-time execution against some asset of a debtor, such as upon the debtor’s moneys held in a bank account or a parcel of land. The sheriff will levy on the asset, hold a sheriff’s sale (or give the creditor the money if it is cash), and then turn the proceeds from the judicial sale over to the creditor. Likewise, where the debtor’s wages are involved, a creditor may garnish those wages by having a writ of garnishment served upon the employer and then the non-exempt amount of the debtor’s wages are then ultimately paid over to the creditor. But what if the debtor’s most valuable asset is a revenue stream such as royalties that is not wages? If the creditor performs a one-time levy on the payor of the revenue stream, the creditor might hit a single payment, but that’s little joy. Instead, a creditor may employ a judgment enforcement vehicles known as an assignment order which redirects the revenue stream to the creditor until the judgment is paid in full. This brings us to today’s opinion of interest.
A company called Moonbug Entertainment Ltd. won a big judgment against another company called Babybus (Fujian) Network Technology Co., for copyright infringement. The U.S. District Court for the Northern District of California granted a writ of execution to Moonbug to pursue Babybus’ assets for almost $18 million. Moonbus ended up filing two motions for assignment of Babybus’ assets and a restraining order. The first motion was denied without prejudice for whatever reasons, but the Court granted the second motion and issued the following enlightening opinion in Moonbug Entertainment Ltd. v. Babybus (Fujian) Network Tech. Co., 2024 WL 4353044 (N.D.Cal., Sep. 30, 2024), which you can read for yourself here.
The U.S. District Courts use the state enforcement of judgment laws of the state in which they sit which means California here. California has a specific statute that provides for an assignment order that can be used alongside, or in place of, other creditor remedies. Under the statute, “the court may order the judgment debtor to assign to the judgment creditor … all or part of a right to payment due or to become due, whether or not the right is conditioned on future developments ….” In states that do not have a specific statute that provides for an assigment order, creditors can usually obtain such orders upon some other general authority granted to the courts.
Here, using Babybus’ own financial statements, Moonbug was able to show the court that Babybus uploaded their content to such numerous websites as YouTube, Apple and Amazon, etc., and were being paid by these companies for their content. Moonbug was also able to show that Babybus was being paid by PayPal for some of their content. Thus, the assignment order would reach the income streams being paid to Babybus for all these companies.
The Court refused to grant the assignment order as to Facebook and Instagram, however, because Moonbug had not shown that Babybus had monetized its content through those websites even though it maintained accounts on them. Further, the Court refused to extend the assignment order to a Babybus subsidiary in Sinagapore because there was no showing by Moonbug that Babybus was receiving any income from that entity either.
Once Moonbug had established its right to the assignment order for Babybus’ income streams, it was a very short step for the Court to also enter a restraining order which prevented Babybus from assigning away (selling or diverting) its income streams to somebody else.
ANALYSIS
It is worth noting that an assignment order is binding upon both the debtor and the payor.
If the payor refuses to honor the assignment order and is within the personal jurisdiction of the Court, the payor can be held in contempt. Even if the payor is not within the personal jurisdiction of the Court and cannot be held in contempt, a payor which does not remit funds according to the assignment order might become liable to the creditor on some theory or another.
In practice, this is a non-issue. The payor doesn’t have an iron in the fire going on between the creditor and the debtor. That the payor makes out the check to A or B is almost trivial. The only thing that the payor does care about is not making the debtor’s problem the payor’s problem, so in the vast majority of cases the payor will simply comply with the assignment order. In my practice I have been involved with numerous assignment orders, and getting the payor to pay — even when the payor is outside any court’s ability to do anything about it — has never been a problem.
But let’s take a hypothetical situation where, after the assignment order has been issued, the payor remits money to the debtor anyway. This sometimes occurs when the order has been issued but the payor has not yet received notice of the order, or where there is an administrative lag in the payor getting its accounting department on board with the situation. When that happens, it is important to remember that the assignment order is also binding upon the debtor: If the debtor receives a payment, the debtor must immediately turn the moneys over to the creditor or else the debtor will face contempt for violating the assignment order.
At this point, an assignment order may sound suspiciously like a charging order which similarly reassigns the distributions due to a debtor from a partnership or limited liability company to a creditor. In truth, the differences are largely superficial. For many years, I have urged that the remedy of the charging order was ridiculous since the assignment order can accomplish the exact same thing. What happened is that the drafters of the partnership and LLC acts were not post-judgment enforcement attorneys (they were, of course, partnership and LLC attorneys) and apparently were unaware that the reassignment of distributions could have been done by the existing remedy of the charging order, and so they came up with the concept of the charging order thus stirring up future troubles as the charging order began to accumulate unnecessary legal baggage.
In the end, the usefulness of both an assignment order and a charging order are exactly the same: First, to get money with which to satisfy the judgment; and, second, to deprive the debtor of that income so that the debtor is financially starved in the extreme.
The Court here does not tell us much about Babybus’ business, though we can infer that they were using their copyrighted materials to generate income on social media as content creators. Very likely, these income streams were the most significant income streams which Babybus had, past tense, and so now that company is likely undergoing extreme financial hurt without those moneys. Such situations usually mean that a debtor will either dig deep to settle the judgment or eventually file for bankruptcy. At least that has been my own experience.
Note that a creditor could also attempt to levy upon the debtor’s intellectual property and have that property sold by the sheriff (or U.S. Marshal in this case), with the creditor presumably credit-bidding a party of the judgment to acquire that intellectual property. The same thing could be done by having a receiver appointed for the same purpose. But also note that such might be as good a remedy as the charging order, since a debtor like Babybus has already put the material into social media where it is being monetized and through the assignment order the creditor can benefit from those labors without having to start over and create relationships and social media presence for the materials itself. The revenue streams are already there, so why not just take those instead?
All this illustrates that assignment orders can be very powerful remedies when used by creditors in the right circumstances. Personally, I think that assignment orders are terribly underutilized, often because creditors’ counsel are simply not aware of their availability. But they are available in most jurisdictions, whether by statute as in California and a few other states, or by getting an order in aid of execution which accomplishes the same goal. Unfortunately, too many creditors will simply start jabbing at hard assets and one-time bank account levies without seeing the enormous pot of gold in front of them in the debtor’s revenue streams. That’s their loss.
Read the full article here
