Paul Porvaznik - Business Litigator

Case Notes and Summaries of Recent Cases (State and Federal Courts - Illinois Focus)

Post-judgment - Collections

Collateral Estoppel, Law Of the Case and Section 2-1401 Petitions: Illinois Basics

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1600 Museum Park, LLC v. Williams, 2012 WL 6955718, chronicles an aborted condominium purchase and its ensuing litigation.  A condo owner and two purchasers signed a contract (Contract) and an approx. $25K promissory note in connection with a condo sale.  But only one of the buyers signed the contract and note.  The deal fell through and the defendants sent a written termination notice to the plaintiff.

Plaintiff sued to confess judgment against both defendants and the trial court entered judgment against both defendants jointly and severally for over $30K.  Defendants appealed. 

The First District affirmed the money judgment against the defendant that signed the contract and note but reversed as to the buyer that didn’t sign either document. 

Collateral Estoppel and Law of the Case Doctrines

The Appellate Court found that the trial court erred in its application of collateral estoppel. 

Collateral estoppel is designed to prevent the relitigation of issues that have already been resolved in earlier actions and specifically contemplates two separate, and consecutive cases.  ¶¶ 13-14. 

Collateral estoppel applies where (1) there is a final, valid judgment on the merits in a prior suit; (2) the issue in the prior suit is identical to the issue in the current case; and (3) the party against whom estoppel is asserted was a party to, or in privity with a party to the prior lawsuit.  ¶ 15. 

The Court held that since there was no prior lawsuit – there is only one case involved – collateral estoppel didn’t apply.  In addition, the Court found that the  ex parte confession of judgment entered against defendants was, by its nature, not a final judgment on the merits.  Id., ¶ 17. 

The First District also rejected plaintiff’s law-of-the-case (“LOC”) argument. 

LOC “bars relitigation of an issue previously decided in the same case.”  The rule applies where an appellate court decides an issue of law and then remands the case to the trial court and is designed to prevent a second appeals court from contradicting the first appellate court on an issue of law. 

The Court found that since this case did not involve a prior appellate ruling and there was no remand to a trial court, the law-of-the-case rule didn’t apply.  

Section 2-1401 Petitions

Code Section 2-1401 petition (735 ILCS 5/2-1401), which governs motions to vacate a judgment older than 30 days.  ¶ 20.

A Section 2-1401 petition establishes (1) a meritorious defense; (2) due diligence in discovering the defense; and (3) due diligence in bringing the petition. (¶¶ 19-20)

Promissory Note Liability and Contract Cancellation

The purchasers argued that since only one of them signed the Note, it wasn’t enforceable on either of them.  The First District disagreed and held the Note’s text didn’t require both purchasers’ signatures for the Note’s enforceability. ¶¶ 23-24. 

The defendants other argument was that since they cancelled the Contract, the Note was also necessarily cancelled.  The Court dismissed this noting that the Contract gave defendants only seven days to terminate the contract.  Since the defendants’ sent their termination letter more than four months after the Contract was signed, the termination was untimely.  As a result, the Contract was never cancelled and the Note was enforceable (but only as to the signing defendant).  (¶¶ 26-27).   

Take-aways:

– Real estate contract termination deadlines will be enforced as written;

– Collateral estoppel and law-of-the-case are construed narrowly and only apply where there are at least two separate, successive cases (for collateral estoppel) or where there is an appeals court decision on a legal issue and subsequent remand to a trial court (for law-of-the-case);

– A promissory note will be enforced to the letter and the court will not engraft conditions onto a clearly drafted note.  

Collecting Post-Judgment Attorneys’ Fees in Illinois

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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. 

‘Your Check Bounced Like a Superball®!’ – Bad Check Laws in Illinois – Civil Liability

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(photo credit: www.sportsunlimitedinc.com)

The civil provisions of the Illinois Deceptive Practices Act, 720 ILCS 5/17-1 (a criminal statute), govern situations where a defendant issues bad checks with intent to defraud.  Section 5/17-1(B) provides:

(B) Bad checks.

A person commits a deceptive practice when:

(1) With intent to obtain control over property or to pay for property, labor or services of another,….he or she issues or delivers a check or other order upon a real or fictitious depository for the payment of money, knowing that it will not be paid by the depository. The [court] may infer that the defendant knows that the check or other order will not be paid by the depository and that the defendant has acted with intent to defraud when the defendant fails to have sufficient funds or credit with the depository when the check or other order is issued or delivered, or when such check or other order is presented for payment and dishonored on each of 2 occasions at least 7 days apart. In this paragraph (B)(1), “property” includes rental property (real or personal).

(2) He or she issues or delivers a check or other order upon a real or fictitious depository in an amount exceeding $150 in payment of an amount owed on any credit transaction for property, labor or services, or in payment of the entire amount owed on any credit transaction for property, labor or services, knowing that it will not be paid by the depository, and thereafter fails to provide funds or credit with the depository in the face amount of the check or order within 7 days of receiving actual notice from the depository or payee of the dishonor of the check or order.

The caselaw distills a civil bad check claim to the following elements: a plaintiff (the party to whom an NSF check was given) must show: (1) that defendant delivered a check to obtain services, labor and property of another, (2) that defendants knew the checks would not be honored, (3) that defendants acted with intent to defraud and (4) the defendants failed to pay on demand.

The corporate officer who signs a bad checks can also be individually liable under the Act.  This is an offshoot of the active participation rule: a corporate officer is liable for torts in which he actively participates.

Once a bad check claimant shows these elements, the Deceptive Practices Act’s civil liability provisions kick in.  Section 17-1(E) provides:

Civil liability. A person who issues a check or order to a payee in violation of paragraph (B)(1) and who fails to pay the amount of the check or order to the payee within 30 days following either delivery and acceptance by the addressee of a written demand both by certified mail and by first class mail to the person’s last known address or attempted delivery of a written demand sent both by certified mail and by first class mail to the person’s last known address and the demand by certified mail is returned to the sender with a notation that delivery was refused or unclaimed shall be liable to the payee….for, in addition to the amount owing upon such check or order, damages of treble the amount so owing, but in no case less than $100 nor more than $1,500, plus attorney’s fees and court costs.

An action under this subsection (E) may be brought in small claims court or in any other appropriate court. As part of the written demand required by this subsection (E), the plaintiff shall provide written notice to the defendant of the fact that prior to the hearing of any action under this subsection (E), the defendant may tender to the plaintiff and the plaintiff shall accept, as satisfaction of the claim, an amount of money equal to the sum of the amount of the check and the incurred court costs, including the cost of service of process, and attorney’s fees

So, if you are civilly prosecuting an NSF check case for a client, you should (a) be on the lookout for the check being returned twice in a 7-day period; and (b) send the 30-day demand by certified and regular mail.  Once the 30-day period elapses, you can file suit in Law Division ($30K and higher), Muni ($10,000-$30,000) or Muni small claims (under $10,000) and recover the face amount of the check plus up to $1,500 for each returned check and attorneys’ fees and costs.

For the less litigious, there’s Section 3-806 of the Uniform Commercial Code (810 ILCS 5/3-806). This statute governs “non litigated” bad check collections.  Under this section, the aggrieved party can recover the amount of the check, and the greater of $25 or reasonable costs, expenses, and attorneys’ fees incurred in collecting on the bad check.  However, to recover more than $25, the check recipient must  provide 30-days notice by certified mail to the party that delivered the bad check and give that party an opportunity to cure by making good on the check.