Legal Note – Race for Judgment

Last month we discussed the “choice of law” issue. An additional issue raised by the choice of law question is: If the applicable law is clear, which state court will interpret the law governing a creditor’s claim? The establishment of a court’s jurisdiction to hear the case is based on the contacts of the parties to a particular state. Jurisdiction therefore often falls clearly in one state because all parties, the debt, etc., are based in that state. If, however, the litigants, contracts, trusts, etc. are in different states, the parties may engage in a “race for judgment” in the most favorable jurisdiction.

If, for example, a creditor has the opportunity (based on the contacts of the parties) to file suit in a creditor friendly state, the creditor would be well advised to do so. Depending on the facts of the case, the debtor would likely suffer a liberal interpretation of the law governing his plan. This can occur even though the law governing the applicable protections originates in a state distinct from the state court interpreting the law. The judgment (likely favoring the creditor) will become enforceable in every state pursuant to the Full Faith and Credit Clause of the U.S. Constitution (discussed last month). The potentially adverse interpretation would therefore govern all state courts, even the courts of the state whose laws govern the plan.
If you would like one or more prior legal notes, please visit our web site at: www.pohlshort.com (click “BLOGS” and “wealthprotectionnews”).

Gary Forster is a Florida native practicing in all areas of business transactions, personal planning and tax matters, both domestic and international. Gary handles a variety of corporate, personal and tax planning matters, ranging from wealth protection and corporate structuring to complex business reorganizations. Mr. Forster has designed and drafted hundreds of asset protection plans involving domestic and foreign corporate and trust structures. Gary is a member of both the Florida Bar (admitted October 8, 1993) and District of Columbia Bars (admitted February 6, 1995), including bar sections for international and tax law. Gary is also a member of the U.S. Tax Court. Gary earned an undergraduate degree from Tufts University in 1990, graduating cum laude, with majors in Spanish Literature and Economics. Gary graduated from law school at the University of Florida in 1993 with honors. Gary earned the Masters in Taxation degree in 1994 from the University of Florida where he was a graduate fellow. Mr. Forster writes and lectures frequently on international tax, corporate law and asset protection issues. Gary speaks Spanish fluently.

Circular 230 Disclosure: PURSUANT TO INTERNAL REVENUE SERVICE CIRCULAR 230, WE ARE NOT PERMITTED TO RENDER CERTAIN TAX OPINIONS UNLESS WE CONDUCT AN INDEPENDENT INVESTIGATION OF THE RELEVANT FACTS OF A TRANSACTION. AS THE ABOVE NOTE WAS PREPARED TO PROVIDE GENERAL INFORMATION TO OUR CLIENTS AND CONTACTS, WE HAVE NOT COMPLETED THIS INDEPENDENT INVESTIGATION. THIS ARTICLE MAY NOT THEREFORE BE RELIED UPON AS LEGAL ADVISE OR FOR THE PURPOSE OF AVOIDING FEDERAL TAX PENALTIES OR PROMOTING, MARKETING, OR RECOMMENDING TO ANOTHER PARTY ANY TAX-RELATED MATTERS ADDRESSED HEREIN. ANY TAX ADVICE CONTAINED HEREIN IS NOT INTENDED OR WRITTEN TO BE USED AND CANNOT BE USED BY A TAXPAYER FOR SUCH PURPOSES.