Litigation Law Roundup

Sharp Thinking

No. 128    Perspectives on Developments in the Law from Sharp-Hundley Law Firm, P.C.   March 2015

Rule 277(f) Provides Affirmative Defense In Citation Cases

            The Illinois Appellate Court has upheld a trial court’s decision allowing a defendant to use the termination language of Supreme Court Rule 277(f) as an affirmative defense against a judgment creditor in supplementary proceedings. 

            In Shipley v. Hoke, 2014 IL App (4th) 130810, the judgment creditor tried to enforce the restraining provision of its citation, pursuant to 735 ILCS 5/2-1402(f)(1), to thwart a settlement agreement between the judgment debtor and a preexisting creditor made after issuance of its citation. 

            Rule 277(f) provides that supplementary proceedings, outside of a motion, order of the court, or satisfaction of the judgment, “terminates automatically 6 months from the date of (1) the respondent’s first personal appearance pursuant to the citation or (2) the respondent’s first personal appearance pursuant to subsequent process issued to enforce the citation, whichever is sooner.” 

            In Shipley, the judgment creditor brought an enforcement motion after passage of the six-month period seeking to attack transfers that occurred during that period.  However, the court said it would not continue enforcement of the provision after the six months expired.  It held that “[o]nce supplementary proceedings have terminated, a party may assert the termination as an affirmative defense to shield that party from a judgment creditor’s attempt to use section 2-1402 of the Code as a sword.”   

            The court understood the “unique ex parte power” a citation provides, and the ability to preserve creditor’s rights under § 2-1402(f)(1) by requesting extensions.  Because the judgment creditor failed to enforce its judgment with the six-month window, or to obtain an extension, the court enforced the termination provision. 

“Substantial Compliance” With Rules 11-12 Sufficient

            A certificate of service which does not state that the document was placed in an envelope, but which otherwise complies with Illinois Supreme Court Rules 11 and 12, constitutes substantial compliance with those rules and is not grounds for vacating action based on that service, a panel of the Appellate Court in Chicago has ruled.

            In CitiMortgage, Inc. v. Lewis, 2014 IL App (1st) 131272, defendant argued a mortgage foreclosure sale should be set aside because she did not receive notice of that sale.  The court held that proof of receipt of that notice was not required, only proof that it was served in a manner set forth in those rules.  Dealing with an argument that plaintiff’s proof of service did not expressly state that the notice had been placed in an envelope before mailing, the court said “minor defects will be excused where service was made in substantial compliance” with the Supreme Court Rules.

Illinois Court May Seize Foreign Stock Certificates

            Section 8-112(a) of the Uniform Commercial Code (810 ILCS 5) has reversed a putative Illinois rule prohibiting levy on certificated stock in foreign corporations, a panel in the Appellate Court in Chicago has ruled.

            That means a court acting in supplementary proceedings under 735 ILCS 5/2-1402 may order a judgment debtor’s certificated stock in a foreign corporation be delivered up and sold, the panel ruled in Wells Fargo Bank Minn., N.A. v. Envirobusiness, Inc., 2014 IL App (1st) 133575.

            Considering an 1895 case interpreting statutory provisions similar to those now found in Article XII of the Code of Civil Procedure (735 ILCS 5/12-101 et seq.), the court found that that case was not binding authority and that in light of the adoption of U.C.C. § 8-112(a) it was no longer persuasive authority either.  Section 8-112(a) provides that certificated securities may be reached by actual seizure where the certificates are located, and makes no distinction between Illinois and foreign corporations.

            Because the stocks were subject to levy, they also were subject to the turnover and sale provisions of the supplementary proceedings statute, the court said.

Holland Rejected on Judicial Estoppel; Supremes To Review

            As we predicted when Holland v. Schwan’s Home Serv., Inc., 2013 IL App (5th) 110560, was decided (see Sharp Thinking, No. 97 (August 2013)), not all courts are following that case on the issue of judicial estoppel.  In Holland, the Fifth District refused to estop a plaintiff who, as a Chapter 13 bankruptcy debtor, had not filed amendments disclosing the accrual of a post-petition cause of action.  The court believed that for estoppel to apply there had to be a misstatement under oath.  That premise has been roundly rejected in Seymour v. Collins, 2014 IL App (2d) 140100.  According to Seymour, Holland stands merely for the proposition that when a bankruptcy is dismissed before consummation, judicial estoppel does not apply.

            However, the Appellate Court decision in Seymour may not be the last word.  Late last month the Supreme Court granted a petition to review that decision. 

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Posted in 2015, Darren M. Taylor,, John Hundley, Sharp Thinking