First Regular Session Sixty-ninth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 13-0523.01 Jerry Barry x4341 HOUSE BILL 13-1213 HOUSE SPONSORSHIP Levy, SENATE SPONSORSHIP (None), House Committees Senate Committees Judiciary A BILL FOR AN ACT Concerning the uniform asset-freezing orders act. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) Colorado Commission on Uniform State Laws. The bill enacts the "Uniform Asset-freezing Orders Act", drafted by the national conference of commissioners on uniform state laws. The bill creates a uniform process for orders freezing the assets of a defendant and restraining nonparties to preserve assets prior to judgment. Under the bill, a party can obtain an asset-freezing order only if it establishes that there is a substantial likelihood that the assets of a party against which the order is sought will be dissipated so that the party seeking the asset-freezing order will be unable to receive satisfaction of the judgment. The bill also contains a mechanism for recognition and enforcement of asset-freezing orders issued by other states and from foreign courts. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add article 52.8 to title 13 as follows: ARTICLE 52.8 Uniform Asset-freezing Orders Act 13-52.8-101. Short title. This article may be cited as the "Uniform Asset-freezing Orders Act". 13-52.8-102. Definitions. In this article: (1) "Asset" means anything that may be the subject of ownership, whether real or personal, tangible or intangible, or legal or equitable, or any interest therein, which is not exempt from execution under applicable law. (2) "Asset-freezing order" means an in personam order restraining or enjoining a person from dissipating an asset directly or indirectly. (3) "Consumer debt" means a debt incurred primarily for personal, family, or household purposes. The term includes a debt that has been reduced to judgment. (4) "Debtor" means a person that allegedly owes money to a party. (5) "Dissipate" means to take an action with regard to an asset of a debtor to defeat satisfaction of an existing or future judgment, including: (a) Selling, removing, alienating, transferring, assigning, encumbering, or similarly dealing with the asset; (b) Instructing, requesting, counseling, demanding, or encouraging any other person to take an action described in paragraph (a) of this subsection (5); or (c) Facilitating, assisting in, aiding, abetting, or participating in an action described in paragraph (a) or (b) of this subsection (5). (6) "Nonparty" means a person that is not a party and has custody or control of an asset of a party that is subject to an asset-freezing order. The term includes a person that holds a joint ownership interest in an asset with a party against which an asset-freezing order has been entered. (7) "Party" means a person that brings an action or against which an action is brought, whether or not service has been made on or notice given to the person. (8) "Person" means an individual, estate, business or nonprofit entity, public corporation, government or governmental subdivision, agency, or instrumentality, or other legal entity. (9) "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. (10) "State" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States. 13-52.8-103. Scope. (1) This article applies to a right accruing to a nonparty after the entry of an asset-freezing order if: (a) The nonparty has been served with the order pursuant to section 13-52.8-106 (1); or (b) The party obtaining the order has filed, recorded, or docketed the order in the appropriate jurisdiction and office in which the party would be required under applicable law to file, record, or docket the order to give notice of, establish, or perfect a lien, security interest, mortgage, or comparable interest, and the order as filed, recorded, or docketed, if it were a judicial lien in favor of a party, would give priority to the interest of a party over the interest of the nonparty under applicable law. (2) This article does not apply in an action: (a) Against an individual for a consumer debt; or (b) That arises under the family or domestic relations law of this state. (3) This article does not apply to or limit a right or remedy available to a party or nonparty to the extent that a law, regulation, or treaty of the United States preempts this article. (4) This article does not affect a right or remedy including a right or remedy arising from the creation, perfection, priority, or enforcement of a security interest or other interests that existed before an order takes effect. (5) This article does not prevent recognition under principles of comity of an asset-freezing order not within the scope of this article. (6) This article does not prevent the exercise of other remedies not inconsistent with this article. 13-52.8-104. Asset-freezing order issued with notice. (1) In an action in which monetary damages are sought, a court may issue an asset-freezing order on motion with notice to the party against which the order is sought and with an expedited opportunity to be heard if the court finds that: (a) There is a substantial likelihood that the party seeking the order will prevail on the merits of the action; (b) If the order is not granted, there is a substantial likelihood the assets of the party against which the order is sought will be dissipated so that the moving party will be unable to receive satisfaction of a judgment because of the dissipation; (c) Any harm the party against which the order is sought may suffer by complying with the order is clearly outweighed by the risk of harm to the moving party if the order is not issued; and (d) The order, if issued, would not be adverse to the public interest. (2) An asset-freezing order issued with notice must be served in compliance with rule 4 of the Colorado rules of civil procedure. (3) A party against which an asset-freezing order is issued may apply for relief from the order by posting a bond or other security in the amount of the damages sought or in an amount determined by the court. (4) On at least twenty-four hours' notice to the party that obtained an asset-freezing order, a party against which the order is issued may apply for an order permitting it to pay its ordinary living expenses, business expenses, and legal representation. (5) The court may limit an asset-freezing order to a certain amount or type of assets and may order appropriate accounting requirements. (6) An asset-freezing order remains in effect until it is vacated by the court, or the dispute is resolved by agreement of the parties, operation of law, or satisfaction of a judgment entered against the party against which the order was issued. 13-52.8-105. Asset-freezing order issued without notice. (1) The court may issue an asset-freezing order on motion without the notice required by section 13-52.8-104 (1) if the court finds that facts in an affidavit or verified pleading offered in support of the motion establish that the moving party is entitled to the order under section 13-52.8-104 (1). (2) A party moving for an asset-freezing order under subsection (1) of this section shall: (a) Conduct a reasonable inquiry and disclose in the affidavit or verified pleading all material facts that weigh against the issuance of the order; and (b) Disclose in the affidavit or verified pleading all efforts to give notice or the reasons why notice should not be required. (3) An asset-freezing order issued without notice expires on a date set by the court, not later than fourteen days after the court issues the order, unless before that time: (a) The court, for good cause, extends the order and states in the order of extension the reason for the extension; or (b) The nonmoving party consents in a record to an extension. (4) If an asset-freezing order is issued without notice, the party against which the order is issued may move to dissolve or modify the order after notice to the party that obtained the order and may apply for relief under section 13-52.8-104 (3) and (4). The court shall hear and decide the motion or application on an expedited basis. 13-52.8-106. Obligation of nonparty served with asset- freezing order. (1) An asset-freezing order may be served on a nonparty. If the party that obtained the order serves a nonparty with the order, the party shall give notice to all parties in the action of the name and address of the nonparty not later than one day after service. (2) Subject to subsection (5) of this section, a nonparty served with an asset-freezing order shall freeze the assets of the party against which the order is issued until further order of the court. The nonparty shall comply promptly with this subsection (2), taking into account the manner, time, and place of service and other factors that reasonably affect the nonparty's ability to comply. If the nonparty believes, in good faith, that complying with the asset-freezing order would violate foreign law, create liability under a foreign legal system, or violate an order issued by a foreign sovereign or tribunal, the nonparty immediately may move the court that issued the asset-freezing order to dissolve or modify the order. If the court finds that the nonparty acted in good faith, it may not find the nonparty in contempt of court for failing to comply with the order during the pendency of the petition. The court shall hear and decide the motion on an expedited basis. (3) If an asset-freezing order is vacated or modified, a party obtaining the order shall give notice promptly to a nonparty that was served with the order in the same manner as the nonparty was originally given notice. (4) Except as otherwise provided for in subsection (2) of this section, a nonparty served with an asset-freezing order may not knowingly assist in or permit a violation of the order. (5) A nonparty served with an asset-freezing order may move to dissolve or modify the order. The court shall hear and decide the motion on an expedited basis. 13-52.8-107. Security - indemnity. (1) The court may require security from a party on whose behalf an asset-freezing order is issued. If the court determines that security is required, it shall require the party to give security to pay for costs and damages sustained by the party against which the order is issued if the order is later determined to have been improvidently granted. (2) A party on whose behalf an asset-freezing order is issued shall indemnify a nonparty for the reasonable costs of compliance with the order and compensate for any loss caused by the order. 13-52.8-108. Recognition of asset-freezing order issued by another court. (1) A court of this state shall recognize an asset-freezing order issued by a court in another state unless: (a) Recognition would violate the public policy of this state; or (b) The order was issued without notice and the issuing court did not use procedures substantially similar to those in section 13-52.8-105. (2) Except as otherwise provided in subsection (3) of this section and subject to subsection (4) of this section, a court of this state shall recognize an asset-freezing order issued by a court outside the United States. (3) A court of this state may not recognize an asset-freezing order issued by a court outside the United States if: (a) The order was rendered under a judicial system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law; (b) The issuing court did not have personal jurisdiction over the party against which the order was issued; or (c) The issuing court did not have jurisdiction over the subject matter. (4) A court of this state need not recognize an asset-freezing order issued by a court outside the United States if: (a) The order was issued without notice to the party against which the order was issued and the issuing court did not use procedures substantially similar to those in section 13-52.8-105; (b) The party against which the order was issued did not receive notice of the proceeding in sufficient time to allow the order to be modified or dissolved and the interest of justice requires a hearing to determine the issue; (c) The order was obtained by fraud that deprived the losing party of an opportunity to oppose the order; (d) The order or the underlying claim for relief is repugnant to the public policy of this state or the United States; (e) The order conflicts with another order; (f) The proceeding in the issuing court was contrary to an agreement of the parties under which the dispute in question was to be determined otherwise than by proceedings in the court outside the United States; (g) Jurisdiction was based only on personal service and the court outside the United States was a seriously inconvenient forum for the hearing regarding the order; (h) The order was issued in circumstances that raise substantial doubt about the integrity of the issuing court with respect to the order; or (i) The specific proceedings in the issuing court leading to the issuance of the order were not compatible with the requirements of due process of law. (5) A party resisting recognition of an asset-freezing order issued by a court outside the United States has the burden of proving that a ground for nonrecognition in subsection (3) or (4) of this section applies. 13-52.8-109. Personal jurisdiction. (1) An asset-freezing order issued by a court in a foreign country may not be refused recognition for lack of personal jurisdiction if the party against which the order was entered: (a) Was served with process personally in a foreign country in which the issuing court is located; (b) Voluntarily appeared in the proceeding other than for the purpose of protecting property seized or threatened with seizure in the proceeding or contesting the jurisdiction of the court over the defendant; (c) Before the commencement of the proceeding, had agreed to submit to the jurisdiction of the court with respect to the subject matter involved; (d) Was domiciled in the foreign country when the proceeding was instituted or was a corporation or other form of business organization that had its principal place of business in, or was organized under the laws of, the foreign country; (e) Had a business office in the foreign country and the proceeding involved a cause of action or claim for relief arising out of the business done by the party through that office; or (f) Operated a motor vehicle or airplane in the foreign country and the proceeding involved a cause of action or claim for relief arising out of that operation. (2) The list of bases for personal jurisdiction in subsection (1) of this section is not exclusive. A court of this state may recognize a basis for personal jurisdiction other than those listed in subsection (1) of this section as sufficient to support an asset-freezing order issued by a court outside the United States. 13-52.8-110. Enforcement of asset-freezing order. An asset-freezing order issued or recognized by a court of this state is entitled to full faith and credit in the same manner as a judgment. 13-52.8-111. Uniformity of application and construction. In applying and construing this article, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among the states that enact it. 13-52.8-112. Relation to electronic signatures in global and national commerce act. This article modifies, limits, or supersedes the federal "Electronic Signatures in Global and National Commerce Act", 15 U.S.C. section 7001 et seq., but does not modify, limit, or supersede section 101(c) of that act, 15 U.S.C. section 7001(c), or authorize electronic delivery of any of the notices described in section 103(b) of that act, 15 U.S.C. section 7003(b). SECTION 2. Inclusion of official comments. There shall be included in the publication of the "Uniform Asset-freezing Orders Act", as nonstatutory matter, following each section of the article the full text of the official comments to that section contained in the official volume containing the 2012 official text of the "Uniform Asset-freezing Orders Act" issued by the national conference of commissioners on uniform state laws, with any changes in the official comments or Colorado comments to correspond to Colorado changes in the uniform act. The revisor of statutes shall prepare the comments for approval by the committee on legal services for publication. SECTION 3. Act subject to petition - effective date. This act takes effect September 1, 2013; except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within the ninety-day period after final adjournment of the general assembly, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2014 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.