Challenges to worldwide freezing order enforcement in the US

Florida state court deci­sion sig­nals grow­ing sup­port for freez­ing orders in US

In a rul­ing on February 17, the Eleventh Judicial Circuit of Florida in Miami-Dade County direct­ly enforced an ex-parte freez­ing order made in a pend­ing for­eign pro­ceed­ing and issued its own world­wide freez­ing order in sup­port of those pro­ceed­ings — the first world­wide asset-freeze seen in the US. This type of order freezes a respondent’s assets glob­al­ly, pre­vent­ing the dis­per­sal of valu­able assets before a final judg­ment. The order issued in the case of Gorsoan Ltd. V. Bullock 2020 sided with plain­tiff Gorsoan, a Cypriot com­pa­ny, and tar­get­ed a $7 mil­lion con­do­mini­um owned by Janna Bullock, the for­mer wife of a Moscow region­al Minister of Finance. The order is a pos­i­tive devel­op­ment for plain­tiffs seek­ing the assis­tance of Florida courts in pur­su­ing for­eign debtors as it sug­gests a major shift in the state’s stance on asset-freez­ing orders.

Unlike their com­mon-law coun­ter­parts, US courts have gen­er­al­ly dis­ap­proved of enforc­ing pre­judg­ment asset-freeze injunc­tions on the basis that it departs from the prin­ci­ple that cred­i­tors and debtors have equal rights under the Judicial act.

The US Supreme Court first con­sid­ered the action in Grupo Mexicano de Desarollo SA V. Alliance Bond Fund Inc. 1999, in which it over­turned a fed­er­al dis­trict court’s deci­sion to allow the issuance of an asset-freeze order as it would inter­fere with the defendant’s use of its own prop­er­ty and pro­vide “a new and pow­er­ful weapon” to the plain­tiff. Most US court rul­ings since have been con­sis­tent with the Supreme Court’s ruling.

The impact of Gorsoan v. Bullock on US freezing order enforcement

The deci­sion in Gorsoan v. Bullock not only direct­ly enforced a for­eign freez­ing order—it issued its own. Gorsoan first sued Janna Bullock in a Cyprus court for mis­ap­pro­pri­a­tion of funds and suc­cess­ful­ly moved for the order as part of its action. The com­pa­ny then filed a Florida court action in order to direct­ly enforce the order on Bullock’s Florida assets.

Bullock dis­put­ed the action by assert­ing that non­fi­nal for­eign injunc­tions do not mer­it the same lev­el of def­er­ence as final mon­e­tary judg­ments and that rul­ing in favor of the plain­tiffs would offend pub­lic policy.

The Eleventh Judicial Court reject­ed both argu­ments by point­ing to its appel­late court deci­sions, which pre­vi­ous­ly enforced the orders on a comi­ty basis specif­i­cal­ly on Florida assets alone. The court stat­ed that, accord­ing to Florida pub­lic pol­i­cy, it only required the freez­ing order to be issued by an impar­tial for­eign court with appro­pri­ate juris­dic­tion over the defen­dants. The court grant­ed Gorsoan’s motion and issued the first world­wide asset-freeze seen in the US. 

The rul­ing in Gorsoan v. Bullock sug­gests that Florida is will­ing to act in sup­port of for­eign courts and exer­cise its own juris­dic­tion over defen­dants domi­ciled, or hold­ing assets, in the state. While it is unpre­dictable whether oth­er US state courts will fol­low in Florida’s foot­steps, glob­al lit­i­gants should take note of the rul­ing as it offers new pos­si­bil­i­ties for those seek­ing to recov­er assets in the region. 

The challenges of securing world-wide freezing order

Claimants seek­ing freez­ing orders inevitably face a high bur­den of cost and risk when secur­ing the order. They are respon­si­ble for the finan­cial costs asso­ci­at­ed with iden­ti­fy­ing the respondent’s assets and must ful­ly sat­is­fy the court’s “full and frank” dis­clo­sure rule. This rule requires appli­cants to con­duct thor­ough research of the facts, dis­close any and all mate­r­i­al mat­ters to the court includ­ing any poten­tial defens­es and flag impor­tant details.

Given the time and cost required, claimants may find con­tin­gent or ful­ly financed asset recov­ery pro­fes­sion­als use­ful in help­ing to iden­ti­fy a respondent’s assets, eval­u­ate the risk of dis­si­pa­tion and pro­vide valu­able infor­ma­tion to deter­mine the costs and ben­e­fits before apply­ing for an order, all of which are nec­es­sary to sat­is­fy the “full and frank” test. If grant­ed, an asset recov­ery team can then assure the suc­cess­ful exe­cu­tion of effec­tive polic­ing of the order.

As the US becomes increas­ing­ly involved in asset-freez­ing mea­sures pushed by for­eign pro­ceed­ings, the debate on the issuance of its own orders has con­tin­ued. Whether oth­er US courts fol­low in Florida’s foot­steps, the rul­ing sig­ni­fies a pos­i­tive change in the country’s con­sid­er­a­tion of inter­na­tion­al comi­ty when regard­ing world­wide asset-freeze orders. However, it is impor­tant that claimants under­stand the invest­ment required to secure a freez­ing order and know that part­ner­ing with experts can save them time, mon­ey and frustration.

by Michael Redman

Learn more about Burford’s asset recov­ery team.