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Sharp  Thinking

No. 175    Perspectives on Developments in the Law from Sharp-Hundley, P.C.   December 2019

Chapter 13 Plan Confirmation Creates Judicial Estoppel

Confirmation of a Chapter 13 plan is a sufficient benefit to estop the bankruptcy debtor from prevailing on an inconsistent position taken in state-court litigation the existence of which was denied in the bankruptcy case, an Appellate Court panel in the Third District has held.

Invoking the doctrine of judicial estoppel, the panel noted that the doctrine is meant “to protect the integrity of the judicial process . . . by prohibiting parties from deliberately changing positions according to the exigencies of the moment.”  Under the doctrine, the party to be estopped must have “(1) taken two positions, (2) that are factually inconsistent, (3) in separate judicial or quasi-judicial administrative proceedings, (4) intending for the trier of fact to accept the truth of the facts alleged, and (5) have succeeded in the first proceeding and received some benefit from it.”  Smith v. Integrated Mgmt. Serv., LLC, 2019 IL App (3d) 180576.

In Smith, the debtor lied about a pending personal-injury action in seeking to have his financial affairs reorganized under Chapter 13 of the Bankruptcy Code (11 U.S.C. §§ 1301 et seq.).  The defendant in the personal injury suit discovered the bankruptcy and used it to invoke judicial estoppel in the injury suit.  The debtor-plaintiff argued estoppel did not apply because he had not received a discharge in the bankruptcy case.

Rejecting that argument, the Third District said that “although a discharge is one way to incur a benefit from nondisclosure, the bankruptcy court’s confirmation of a Chapter 13 plan is another.”  Debtor argued there was no benefit in this case, because his plan required him to pay back all of his creditors.  The panel found that argument “unavailing”.

“Plaintiff received a benefit from the bankruptcy proceeding by repaying his unsecured creditors interest free over the course of five years without the possibility of default penalties,” the court said.  “By failing to disclose this cause of action, plaintiff never placed the potential $1.2 million payout from this action at risk.  Plaintiff kept his creditors in the dark; they did not object to the plan because, based on the available information, plaintiff was paying what he could.”

Because there was “ample evidence that plaintiff’s failure to disclose his personal injury claim was a deliberate attempt to mislead or deceive the bankruptcy court and his creditors,” the court affirmed summary judgment for the defendant under the judicial estoppel doctrine.

Contacts Held Sufficient For Specific Jurisdiction

A defendant’s (1) advertisement and website, sent into Illinois via the Internet, (2) emails sent into Illinois, and (3) phone calls with the plaintiff in Illinois, considered together, “suffice to give Illinois courts specific personal jurisdiction over” that defendant for purposes of the plaintiff’s claim that defendant made fraudulent misrepresentations in the advertisement, on its website, and over the telephone, a panel of the Illinois Appellate Court in Chicago held recently.

Emphasizing that it was dealing with the doctrine of “specific personal jurisdiction“ – in which an out-of-state defendant’s contacts with Illinois, though too few to confer “general personal jurisdiction”, are enough to haul the defendant into Illinois for a cause of action arising out of those specific contacts – the court reversed a trial court which had held that a North Carolina antique vehicle dealer was not subject to the jurisdiction of Illinois courts. Dixon v. GAA Classic Cars, LLC, 2019 IL App (1st) 182416.

Rule 105 Notice Failure Voids Judgment

The requirement of notice under Supreme Court Rule 105 before a court may award relief different from or greater than sought in the complaint is an element of personal jurisdiction over the defendant such that failure of such notice makes the resulting judgment void.

So held a panel of the Appellate Court in Chicago recently.  Lamarca v. Che Ce Ce Corp., 2019 IL App (1st) 182718.

In Lamarca, plaintiff filed an eviction complaint without seeking a money judgment, but the trial court let him correct that omission by oral notice on the trial date.  The Appellate Court vacated the resulting money judgment.  “[A] party’s failure to comply with Rule 105 renders void any relief obtained that exceeds what was requested in the complaint,” the panel said.

Court Improvises On Trustee Service

An Illinois trust can be served with process by serving any adult “found” at the address used by the trust, according to a recent decision in the Appellate Court’s Third District.

Acting in McArdle v. Chistensen, 2019 IL App (3d) 170585, the panel improvised to find a form of substitute service for trusts and trustees where the Illinois Code of Civil Procedure provides none.

In McArdle, defendant trustee agreed to purchase realty and failed to show for the closing.  The property was re-sold at a loss and the seller sued.  Plaintiff had no home address for the buyer-trustee, so it attempted service at the address shown on the trust’s earnest-money checks.  The deputy sheriff attempted substitute service and the buyer-trustee ignored the summons.  After a default judgment was entered, he moved to quash the summons unsuccessfully and then appealed.

Treating the trust as a “legal entity”, the panel said that “service of summons on the trustee as an individual at the address of the entity being served (the trust) is an appropriate method of giving notice to the trust that it is being sued.”  Thus, attempting to find a method of substitute service where there is none, the panel said that “in the absence of a registered agent, officers, or employees who can act as agent, leaving process with an adult over the age of 13 found at the [trust’s] address also seems appropriate.”

We think the panel erred.  The general rule is that substitute service must strictly conform to the statute, and the legislature has provided no substitute processes for trusts.  McArdle thus is an excellent candidate for leave to appeal.

                                                                                                                            –  John T. Hundley

1 Comment

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