In Texas, lawyers can obtain Temporary Restraining Orders to preserve a debtor's collateral.
When the client first walked in the door, I could not believe the story, but it was all true.
The client owned a medium-sized and successful company in Dallas that employed about 50 people. The client also owned the building that the business occupied. A couple of years earlier he had sold the business to a man for about $2 million. He agreed that the buyer could pay $1.5 million in cash and the rest would be financed by a loan my client would make to the buyer for $500,000. However, the client required that someone that had a very impressive financial statement guarantee the loan. Eventually it was agreed that the buyer's mother, who was quite elderly but owned a ranch and some buildings in a small town in west Texas, would guarantee the loan. In addition to the loan, the client rented the building to the buyer so that the business would not have to move. So the client was a lender to the buyer and a landlord to the buyer.
The business operated normally for about a year, but the buyer was clearly not competent and eventually was hopelessly behind in paying the outstanding payments on the note and eventually quit paying rent as well.
When the client came to see us we reviewed the sale documents and noticed that the client had a lien against all the assets of the business. So we prepared an application for temporary restraining order asking a Court to close the business to preserve the collateral that would need to be sold to help pay the client for the unpaid portion of the loan. The Court agreed with us and issued an order closing the business.
We then seized the assets of the business and sold them at auction. The buyer was broke and we decided to pursue the elderly mother that had guaranteed the note.
The buyer and his mother hired a lawyer here in Dallas that made more mistakes than I can possibly list here. His representation of this woman was horrible. The first mistake he made was threatening to put the elderly mother into bankruptcy. Bankruptcy was something that we usually welcome. In bankruptcy, the woman's assets would be turned over to the bankruptcy trustee and sold to pay my client. So why would that scare us? I never understood why he threatened bankruptcy, but he seemed to think that gave him an advantage in negotiating with us. It did not.
I went to lunch with the lawyer for the mother and told him we would be happy for him to file for bankruptcy but we were willing to settle for about half of what was owed on the note just to get it over with. Later that day we filed a motion for summary judgment asking the Court to determine that the woman owed the money as the guarantor for the son. Almost immediately the lawyer representing the elderly woman filed for bankruptcy. The outcome for that old lady was horrible. I felt terrible for her.
Before it was all said and done, the bankruptcy court ordered that everything that old lady owned be sold to pay our client, except for her house, her car and the things in her house. In the bankruptcy process she lost the family ranch, the three buildings downtown and some stock.
Although it took several years, as bankruptcy can be a drawn out process, the client was paid in full, including the vast majority of his attorney's fees. I felt terrible for the old lady as we would have gladly settled for half early in the game. But once we were in bankruptcy, we could no longer justify a settlement of less than the full amount of the debt.
The lesson here: it matters who you hire as your lawyer.