The Third-Party Citation: How Long Does It Last?

Shipley v. Hoke, 2014 IL App (4th) 130810 provides an exhaustive discussion of Illinois’ post-judgment enforcement rules in the context of a judgment creditor trying to reach debtor assets held by third parties.

It’s key points concerning a citation’s life span include:

– Code Section 2-1402 allows a judgment creditor to prosecute supplementary proceedings for the purposes of examining a judgment debtor and to compel the application of non-exempt assets or income discovered toward the payment of a judgment;

– Section 2-1402(f)(1) contains a “restraining provision” that prohibits any person served with a citation from allowing a transfer of property belonging to a judgment debtor that may be applied to the outstanding judgment amount;

– If someone violates the restraining provision, the Court can punish the violator by holding him in contempt or entering a money judgment against him in the amount of the property he transferred; 

– A third-party citation must be served in the same manner a (“first party”) citation is served (e.g. either by personal service or certified mail);

– Supreme Court Rule 277(f) provides that a citation proceeding automatically terminates six months from the date of the respondent’s first personal appearance unless the court grants an extension of the citation;

– This six-month rule is an affirmative defense that must be raised by a citation respondent or else it’s waived;

-Rule 277(f)’s purpose is to prevent a creditor from harassing a judgment debtor or a third party subject to a citation proceeding and is designed to provide an incentive for creditor’s to diligently work to discover debtor assets;

– While a court can retain jurisdiction over a turnover order entered before but not complied with until after the expiration of the six-months, the court does not maintain jurisdiction to enforce any restraining provision violations past that six-month mark.

– Rule 277 does permit a creditor to request an extension of the six-month limitation period indefinitely to fit the needs of a given case.

(¶¶ 78-81, 92-93).

Take-away: While I often serve bank respondents with third-party citations by certified mail (since banks usually aren’t motivated to evade service),  a judgment creditor should serve any non-bank respondent by personal service; either via county sheriff or a special process server.

In addition, the creditor should keep track of when a judgment debtor first appears in response to a citation.  If it looks like the creditor’s post-judgment case isn’t going to be finished at the six-month mark, he should move to extend the citation for as long as necessary to complete his examination of the debtor and any third-party(ies).

 

Collecting Post-Judgment Attorneys’ Fees in Illinois

Collecting a judgment against sophisticated corporate and individual debtors can be a time-consuming and futile exercise. Post-judgment enforcement proceedings can drag on for months (sometimes years), often generating astronomical attorneys’ fees and expenses.

Tobias v. Lake Forest Partners, LLC, 402 Ill.App.3d 484 (1st Dist. 2010) addresses some tricky questions involving competing money judgment priority and when post-judgment attorneys’ fees can be recovered.  There, two judgment creditors – one in Illinois, the other in Florida – got judgments totalling nearly $5 million against common defendants.  

The Illinois judgment – eight days “older” than the Florida one – stemmed from a loan agreement that provided that the plaintiff could recover “all costs of collection” in the event of a breach. 

The Florida creditor registered its judgment in Illinois and intervened in the Illinois post-judgment proceedings started by the Illinois creditor.  Before the Florida creditor intervened, however, the Illinois judgment creditor served a third party citation on a corporation (the “Respondent”) to discover if the Respondent had any assets of one of the judgment debtors.  

When the Respondent answered that it was holding approximately $340,000 in judgment debtor assets, the Illinois post-judgment judge divvied up the debtor’s assets and ordered Respondent to disburse $87,000 to plaintiff “as full satisfaction” of plaintiff’s judgment, $126,000 to the Florida creditor and $126,000 back to the defendant.  The court denied the Illinois creditor’s request for over two years’ worth of attorneys’ fees incurred in trying to enforce the judgment.

The Illinois creditor appealed, arguing that the trial court should have given its (the Illinois creditor) claim for post-judgment attorneys’ fees priority over the later Florida judgment.  

The Appeals court affirmed the trial court’s disposition of the judgment debtor’s assets.  

The Court first held that under the Illinois wage deduction statute – 735 ILCS 5/12-801 et seq., a judgment creditor can attach only 15% of a debtor’s gross wages.  Once a third-party citation is served, it impresses a lien on the debtor’s nonexempt personal property in the third party’s possession up to the judgment amount 735 ILCS 5/2-1402(a), (m).  And since Respondent was holding the debtor’s wages, the Court found that the Illinois and Florida creditors could collectively attach only 15% of the wages. 

On the subject of post-judgment fees, the court squarely held that unless the creditor’s post-judgment claim for attorneys’ fees is reduced to judgment (that is, assigned a specific dollar value), those fees could not lien the debtor’s property (here, wages) in Respondent’s possession. 

The Court made it clear that no claim can achieve lien status until the claim has been reduced to an enforceable judgment.  Since the plaintiff’s counsel never had his attorneys’ fees converted to a specific dollar amount, the fees could not trump the Florida creditor – even though the Illinois judgment predated the Florida one.

Afterwords:

The lesson for creditor’s counsel is clear: when an underlying contract or judgment provides that post-judgment attorneys’ fees can be added to the judgment amount, creditor’s counsel should document its fees and present a petition so that the fee amount can be liquidated (reduced to a specific sum). 

Once that happens, the fees can be added to the judgment amount and can take priority over a competing creditor’s claim.